As filed with the Securities and Exchange Commission on February 6, 1998
Registration No._______________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
PEOPLE'S BANK
(Originator of the Trust described herein)
(Exact name as specified in registrant's charter)
PEOPLE'S BANK CREDIT CARD MASTER TRUST
(Issuer of the Offered Certificates)
United States 6025 06-1213065
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
850 Main Street
Bridgeport, Connecticut 06604
(203) 338-7171
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------------
WILLIAM T. KOSTURKO, ESQ.
GENERAL COUNSEL
PEOPLE'S BANK
850 Main Street
Bridgeport, Connecticut 06604
(203) 338-7171
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
Copy to:
LAURA A. DEFELICE, ESQ. ANDREW M. FAULKNER, ESQ.
MAYER, BROWN & PLATT SKADDEN, ARPS, SLATE,
1675 Broadway MEAGHER & FLOM LLP
New York, New York 10019 919 Third Avenue
(212) 506-2500 New York, New York 10022
(212) 735-3000
---------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this registration statement becomes effective.
---------------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. [ ]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
---------------------------
CALCULATION OF REGISTRATION FEE
-------------------------------
<TABLE>
<CAPTION>
Proposed maximum Proposed Maximum
Title of each class of Amount to aggregate offering maximum aggregate Amount of
securities being registered be registered pricer per unit(1) offering price(1) registration fee
- --------------------------- ------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Floating Rate Class A Asset
Backed Securities, Series
1998-1. . . . . . . . . . . . . $ 900,000 100% $ 900,000 $ 265.50
Floating Rate Class B Asset
Backed Certificates, Series
1998-1. . . . . . . . . . . . . $ 100,000 100% $ 100,000 $ 29.50
Total $1,000,000 100% $1,000,000 $ 295.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
Name and Caption in Form S-1 Caption in Prospectus
---------------------------- ---------------------
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus............Front Cover Page of
Registration Statement;
Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................Inside Front Cover Page of
Prospectus Outside Back
Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.........................Prospectus Summary;
Special Considerations;
The Trust; The
Receivables; Receivables
Yield Considerations;
Certain Legal Aspects
of the Receivables
4. Use of Proceeds...................................Use of Proceeds
5. Determination of Offering Price................... *
6. Dilution.......................................... *
7. Selling Security Holders.......................... *
8. Plan of Distribution..............................Underwriting
9. Description of Securities to be
Registered........................................Prospectus Summary; The
Trust; The Receivables;
Maturity Assumptions;
Receivable Yield
Considerations;
Description of the
Certificates; Certain
Federal Income Tax
Consequences
10. Interests of Named Experts and Counsel............ *
11. Information with Respect to the Registrant........The Trust; The Credit
Card Business of
People's Bank; People's
Bank; Description of
the Certificates
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................................... *
- -----------------
* Not applicable.
-ii-
<PAGE>
================================RED HERRING BEGIN===============================
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
================================RED HERRING END=================================
SUBJECT TO COMPLETION, __________, 1998
$----------------
PEOPLE'S BANK CREDIT CARD MASTER TRUST $___________
Floating Rate Class A Asset Backed Certificates, Series 1998-1 $___________
Floating Rate Class B Asset Backed Certificates, Series 1998-1
[LOGO]
Transferor and Servicer
Each of the Floating Rate Class A Asset Backed Certificates, Series 1998-1
(the "Class A Certificates") and each of the Floating Rate Class B Asset Backed
Certificates, Series 1998-1 (the "Class B Certificates" and, together with the
Class A Certificates, the "Offered Certificates") offered hereby will evidence
undivided interests in certain assets of the People's Bank Credit Card Master
Trust (the "Trust") created pursuant to the Amended and Restated Pooling and
Servicing Agreement dated as of March 18, 1997, amending and restating in its
entirety the Pooling and Servicing Agreement, dated as of June 1, 1993, and as
further amended by an Amendment thereto, dated as of September 24, 1997, between
People's Bank, as transferor and servicer (the "Transferor"), and Bankers Trust
Company, as trustee. In addition, the Collateral Interest (as defined herein),
which is not offered hereby, will be issued in the initial amount of
$_______________ (the Collateral Interest together with the Offered
Certificates, the "Certificates"). The property of the Trust includes, among
other things, receivables (the "Receivables") generated from time to time in a
portfolio of VISA(R) and MasterCard(R) credit card accounts, all monies due or
to become due in payment of the Receivables, Recoveries, Interchange, the
benefits of the funds and securities on deposit in certain bank accounts with
respect to the Certificates and certain interest rate cap agreements, each as
defined or described herein. People's Bank services the Receivables, and PSFC, a
wholly-owned subsidiary of People's Bank, owns the undivided interest in the
Trust not represented by the Certificates or the other interests issued by the
Trust. The Trust currently has [five] other series of certificates outstanding,
and PSFC and People's Bank may offer from time to time other series of
certificates which evidence fractional undivided interests in certain assets of
the Trust, which may have terms significantly different from the Certificates,
by exchanging a portion of PSFC's interest in the Trust.
(continued on following page)
There currently is no secondary market for the Certificates, and there is
no assurance that one will develop. Potential investors should consider, among
other things, the information set forth in "Risk Factors" commencing on page [ ]
---------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR RECOURSE OBLIGATIONS OF PEOPLE'S BANK, PEOPLE'S STRUCTURED
FINANCE CORP. ("PSFC") OR ANY OF THEIR AFFILIATES. A CERTIFICATE IS NOT A
DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE
"FDIC"). THE RECEIVABLES ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
<TABLE>
<CAPTION>
Price to Public (1) Underwriting Discount (2) Proceeds to PSFC (1)(3)
----------------- ------------------------- -----------------------
<S> <C> <C> <C>
Per Class A Certificate ______% ____% _____%
Per Class B Certificate ______% ____% _____%
Total $____________ $___________ $______________
- ------------------
</TABLE>
(1) Plus accrued interest, if any, at the applicable Certificate Rate (as
defined herein) from the Closing Date.
(2) People's Bank and PSFC have agreed to indemnify the Underwriters (as
defined herein) against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
(3) Before deduction of expenses of the offering payable by People's Bank
estimated to be $850,000.
The Offered Certificates are offered by the Underwriters as specified herein,
subject to receipt and acceptance by the Underwriters and subject to their right
to reject in whole or in part. It is expected that the Offered Certificates will
be delivered in book-entry form on or about __________, 1998, through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme, and the
Euroclear System.
---------------------------
Underwriters of the Class A Certificates
Underwriters of the Class B Certificates
---------------------------
The date of this Prospectus is ____________, 1998.
<PAGE>
(Continued from previous page)
Interest with respect to the Offered Certificates is scheduled to be
distributed on __________, 1998 and on the 15th day of each month thereafter
(or, if such 15th day is not a business day, on the next succeeding business
day) (each a "Distribution Date"). Interest will accrue on the Class A
Certificates from the Closing Date through and including __________, 1998 at the
rate of ____% per annum and with respect to each Interest Period (as defined
herein) thereafter in the manner and with the exceptions described herein at the
rate of____% per annum above the London interbank offered quotations rate for
one-month United States dollar deposits. Interest will accrue on the Class B
Certificates from the Closing Date through and including __________, 1998 at the
rate of ____% per annum and with respect to each Interest Period thereafter in
the manner and with the exceptions described herein at the rate of ____% per
annum above the London interbank offered quotations rate for one-month United
States dollar deposits. See "Description of the Certificates--Interest
Payments." Principal with respect to the Class A Certificates is scheduled to be
distributed on the ______________ Distribution Date (the "Class A Scheduled
Payment Date"), but may be paid earlier or later under certain limited
circumstances as described herein. Principal with respect to the Class B
Certificates is scheduled to be distributed on the ______________ Distribution
Date (the "Class B Scheduled Payment Date"), but may be paid earlier or later
under certain limited circumstances as described herein. See "Maturity
Considerations." Principal payments will not be made to Class B Certificate
Holders until the final principal payment has been paid in respect of the Class
A Certificates. See "Description of the Certificates--Principal Payments."
The fractional undivided interest in the Trust represented by the Class B
Certificates will be subordinated to the Class A Certificates to the extent
described herein. In addition, the Collateral Interest will be subordinated to
the Offered Certificates to the extent described herein.
REPORTS TO CERTIFICATE HOLDERS
Unless and until Definitive Certificates (as defined herein) are issued,
monthly and annual reports containing unaudited information concerning the Trust
and prepared by the Servicer will be sent on behalf of the Trust to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the Offered Certificates, pursuant to the Agreement. See "Description
of the Certificates--Book-Entry Registration," "--Reports to Certificate
Holders" and "--Evidence as to Compliance." Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. The Transferor does not intend to send any of its financial reports
to Certificate Holders or to the owners of beneficial interests in the Offered
Certificates ("Offered Certificate Owners"). The Servicer will file with the
Securities and Exchange Commission (the "Commission") such periodic reports with
respect to the Trust as are required under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations of the Commission
thereunder.
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission on behalf of the Trust with respect to the Certificates
offered pursuant to this Prospectus. For further information, reference is made
to the Registration Statement and amendments thereof and exhibits thereto, which
are available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the
Registration Statement and amendments thereof and exhibits thereto may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site at "http://www.sec.gov" that contains information regarding
registrants that file electronically with the Commission.
Application will be made to list the Class A Certificates on the
Luxembourg Stock Exchange.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
2
<PAGE>
CERTIFICATES, INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS
AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used herein are defined elsewhere in this Prospectus. A listing of the pages on
which some of such terms are defined is found in the "Index of Key Terms."
Unless the context requires otherwise, certain capitalized terms, when used
herein, relate only to the Certificates.
Title of Securities................ $_________ Floating Rate Class A Asset
Backed Certificates, Series 1998-1 (the
"Class A Certificates") and $__________
Floating Rate Class B Asset Backed
Certificates, Series 1998-1 (the "Class B
Certificates" and, together with the Class A
Certificates, the "Offered Certificates"
and, together with the Collateral Interest
described herein, the "Certificates").
The Trust.......................... The Certificates represent fractional
undivided interests in certain assets of
People's Bank Credit Card Master Trust (the
"Trust"). The Trust's fiscal year ends
December 31. As used herein, the term
"Series 1998-1 Supplement" refers to the
supplement to the Agreement relating to the
Certificates; the term "Agreement" refers to
the Amended and Restated Pooling and
Servicing Agreement dated as of March 18,
1997, amending and restating in its entirety
the Pooling and Servicing Agreement dated as
of June 1, 1993, and as further amended by
an Amendment thereto, dated as of September
24, 1997, and, unless the context requires
otherwise, refers to the Agreement as
supplemented by the Series 1998-1
Supplement; the term "Offered Certificate
Holders" refers to holders of the Offered
Certificates; the term "Certificate Holders"
refers to the Offered Certificate Holders
and the Collateral Interest Holder
collectively; the term "Class A Certificate
Holders" refers to holders of the Class A
Certificates and the term "Class B
Certificate Holders" refers to holders of
the Class B Certificates; the term "Series"
refers to any series of certificates issued
by the Trust, including the Certificates;
and the term "Series 1998-1" refers to the
Series represented by the Certificates.
The Trust currently has five other Series
outstanding. See "Annex I: Prior Series
Issued and Outstanding" for a summary of
these outstanding Series.
Trustee............................ Bankers Trust Company, a New York banking
corporation (the "Trustee"). The Corporate
Trust Office is located at 4 Albany Street,
New York, New York 10006.
Transferor......................... People's Bank, a Connecticut stock savings
bank and a majority- owned subsidiary of
People's Mutual Holdings, is the Transferor
of the Receivables and the originator of the
Trust. The principal executive offices of
People's Bank are located at 850 Main
Street, Bridgeport Center, Bridgeport,
Connecticut 06604, telephone number (203)
338-7171.
4
<PAGE>
Trust Assets....................... The property of the Trust includes
receivables (the "Receivables") arising
under certain VISA(R)* and MasterCard(R)*
credit card accounts, all Receivables
arising in Automatic Additional Accounts and
Additional Accounts designated from time to
time, all monies due or to become due in
payment of the Receivables, all proceeds of
the Receivables, proceeds of insurance
policies relating to the Receivables, and
the right to receive Interchange,
Recoveries, all monies on deposit in certain
bank accounts of the Trust, all monies and
securities on deposit in certain bank
accounts established and maintained for the
benefit of Certificate Holders of any
Series, an interest rate cap agreement for
the exclusive benefit of the Class A
Certificate Holders (the "Class A Interest
Rate Cap") and an interest rate cap
agreement for the exclusive benefit of the
Class B Certificate Holders (the "Class B
Interest Rate Cap" and, together with the
Class A Interest Rate Cap, the "Interest
Rate Caps"), each provided by _____________
(the "Interest Rate Cap Provider"), and any
Enhancement issued with respect to any
Series. The term "Trust Portfolio" means the
pool of Eligible Receivables representing
assets of the Trust as of a specified date.
The Trust does not and will not include the
Receivables of any Accounts designated from
time to time as Removed Accounts, the
Receivables of which have been removed from
the Trust.
The Offered Certificate Holders will not be
entitled to the benefits of any Enhancement
issued with respect to any Series other than
Series 1998-1, and the holders of the
certificates of other Series will not be
entitled to the benefits of, among other
things, the Interest Rate Caps or the
Collateral Interest. The term "Enhancement"
shall mean, with respect to any other
Series, any letter of credit, cash
collateral account, collateral interest,
surety bond, guaranteed rate agreement,
maturity guaranty facility, tax protection
agreement, reserve account or other contract
or agreement principally for the benefit of
Certificate Holders of such Series. The term
"Enhancement" shall mean, with respect to
the Offered Certificates, the subordination
of the Collateral Interest and, in the case
of the Class A Certificates, the funds and
securities on deposit in the Reserve
Account, up to the Available Reserve Account
Amount, and the subordination of the Class B
Investor Interest.
Securities Offered................ The Class A Certificates and the Class B
Certificates will be issued on _________,
1998 (the "Closing Date") in book-entry form
only, in the initial principal amounts of
$___________ and $___________, respectively,
and will each be represented by one or more
Offered Certificates registered in the name
of Cede. All references herein to Offered
Certificate Holders, Class A Certificate
Holders or Class B Certificate Holders shall
refer to Offered Certificate Owners, except
as otherwise specified herein. See
"Description of the Certificates--
Definitive Certificates."
- --------------
* VISA(R) and MasterCard(R) are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
5
<PAGE>
In addition to the Class A Certificates and
the Class B Certificates, the Collateral
Interest will be issued on the Closing Date
in the initial amount of $___________ (which
amount represents ____% of the amount of the
Initial Investor Interest) as Enhancement
for the Offered Certificates. The provider
of such Enhancement is sometimes referred to
herein as the "Collateral Interest Holder."
Each of the Certificates represents a
fractional undivided interest in certain
assets of the Trust. The Trust assets will
be allocated among the Certificate Holders,
the holders of certificates of any other
Series which is outstanding at the time of
such allocation and the holder of the
certificate (the "Exchangeable Transferor
Certificate") that represents the Transferor
Interest (as defined below), which is
currently held by People's Structured
Finance Corp. ("PSFC"), a wholly-owned
special purpose Connecticut subsidiary of
People's Bank, pursuant to an Assignment and
Assumption Agreement, dated as of December
15, 1995, by and between the Transferor and
PSFC. PSFC, in its capacity as holder of the
Exchangeable Transferor Certificate, or any
other permitted assignee of the Exchangeable
Transferor Certificate that is then
currently the registered holder of the
Exchangeable Transferor Certificate, is
sometimes referred to herein as the "Holder
of the Exchangeable Transferor Certificate."
The Certificates represent interests in the
Trust only and do not represent interests in
or recourse obligations of the Transferor,
PSFC or any of their affiliates. A
Certificate is not a deposit and is not
insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Neither the
Receivables nor the underlying Accounts are
insured or guaranteed by the FDIC or any
other governmental agency.
Investor Interest; Transferor
Interest......................... On the Closing Date, the amount of the Class
A Certificate Holders' interest in Principal
Receivables will equal $___________ (the
"Class A Initial Investor Interest"), the
amount of the Class B Certificate Holders'
interest in Principal Receivables will equal
$___________ (the "Class B Initial Investor
Interest"), and the amount of the Collateral
Interest in Principal Receivables will equal
$___________ (the "Initial Collateral
Interest" and, together with the Class A
Initial Investor Interest and the Class B
Initial Investor Interest, the "Initial
Investor Interest"). The Class A Initial
Investor Interest and the Class B Initial
Investor Interest may be reduced to reflect
the tender and cancellation of Offered
Certificates pursuant to an Investor
Exchange. The Class A Certificate Holders'
interest in Principal Receivables on any
date after the Closing Date (the "Class A
Investor Interest") will equal the Class A
Initial Investor Interest, less the sum of
(i) an amount equal to the sum of all
payments in respect of principal made on the
Class A Certificates and (ii) all Class A
Investor Charge-Offs, plus any
reimbursements of such Class A Investor
Charge-Offs. The "Class A Adjusted Investor
Interest" will equal (i) the Class A
Investor Interest less (ii) the Principal
Funding Account Balance on such date. The
Class B Certificate Holders' interest in
Principal Receivables on any date after the
Closing Date (the "Class B Investor
Interest") will equal the Class B Initial
Investor Interest, less all payments in
respect of principal made on the Class B
6
<PAGE>
Certificates, any Class B Investor
Charge-Offs and any other reductions of the
Class B Investor Interest as described
herein, plus any reimbursements of such
Class B Investor Charge-Offs and such other
reductions of the Class B Investor Interest
as described herein. The Collateral Interest
Holder's interest in Principal Receivables
on any date after the Closing Date (the
"Collateral Interest") will equal the
Initial Collateral Interest, less all
payments in respect of principal made on the
Collateral Interest, any Collateral Interest
Charge-Offs and any other reductions of the
Collateral Interest as described herein,
plus any reimbursements of such Collateral
Interest Charge-Offs and such other
reductions of the Collateral Interest as
described herein. The aggregate of the Class
A Investor Interest, the Class B Investor
Interest and the Collateral Interest at any
time is the "Investor Interest." The
aggregate of the Class A Adjusted Investor
Interest, the Class B Investor Interest and
the Collateral Interest at any time is the
"Adjusted Investor Interest."
The Holder of the Exchangeable Transferor
Certificate holds in the Trust the remaining
undivided interest in the Principal
Receivables and amounts on deposit in the
Excess Funding Account not represented by
the Certificates or any other undivided
interests in the Trust that have been issued
and are outstanding at the time of such
determination (the "Transferor Interest").
As new Receivables are added to the Trust
and as payments are made on Receivables, the
principal amount of the Transferor Interest
will fluctuate. The Holder of the
Exchangeable Transferor Certificate may
tender the Exchangeable Transferor
Certificate or, if provided in the relevant
Supplement, the Transferor may tender
certificates representing all or a portion
of any Series of certificates and the Holder
of the Exchangeable Transferor Certificate
may tender the Exchangeable Transferor
Certificate to the Trustee and, upon
satisfying certain conditions, cause the
Trustee to issue one or more new Series, as
described in "Description of the
Certificates--Exchanges," which Exchange may
have the effect of decreasing the Transferor
Interest. As of the date hereof, seven other
Series have been issued by the Trust, two
of which have been paid in full. See "Annex
I: Prior Series Issued and Outstanding."
Allocation Percentages............. The Certificates will include the right to
receive (but only to the extent required to
make payments under the Agreement) a
percentage (the "Investor Percentage") of
the Finance Charge Collections and Principal
Collections received during each calendar
month (a "Monthly Period"). Finance Charge
Collections and Receivables in Defaulted
Accounts, at all times, and Principal
Collections during the Revolving Period,
will be allocated to the Certificate Holders
based on the Floating Investor Percentage as
described under "Description of the
Certificates--Allocation Percentages." Such
amounts so allocated will be further
allocated among the Class A Certificate
Holders, the Class B Certificate Holders and
the Collateral Interest Holder based on the
Class A Floating Allocation, the Class B
Floating Allocation and the Collateral
Floating Allocation, respectively,
applicable during the related Monthly
Period.
7
<PAGE>
Principal Collections during the Controlled
Accumulation Period and the Rapid
Amortization Period will be allocated to the
Certificate Holders based on the Fixed
Investor Percentage, as described under
"Description of the Certificates--Allocation
Percentages." Such amounts so allocated will
be further allocated between the Class A
Certificate Holders, the Class B Certificate
Holders and the Collateral Interest Holder
based on the Class A Fixed Allocation, the
Class B Fixed Allocation and the Collateral
Fixed Allocation, respectively. See
"Description of the Certificates--Allocation
Percentages."
Interest........................... Interest is required to be distributed on
_________, 1998 and on the 15th day of each
month thereafter, or, if such 15th day is
not a business day, on the next succeeding
business day (each, a "Distribution Date"),
in an amount equal to, in the case of the
Class A Certificates, the sum of (v) the
product of (a) the London interbank offered
quotations rate for one-month United States
dollar deposits ("LIBOR"), determined as
described herein, plus ____% (the "Class A
Certificate Rate") (or _______% for the
Initial Interest Period), (b) the lesser of
the Class A Adjusted Investor Interest as of
the preceding Distribution Date after giving
effect to all payments, deposits and
withdrawals on such Distribution Date (or,
in the case of the first Distribution Date,
the Class A Initial Investor Interest) and
the Expected Class A Principal as of the
preceding Distribution Date, and (c) the
actual number of days in the related
Interest Period divided by 360, plus (w) the
Class A Covered Amounts for such Interest
Period, plus (x) the product of (a) the
Class A Excess Principal, (b) the lesser of
the Class A Certificate Rate and _____%, and
(c) the actual number of days in the related
Interest Period divided by 360 (clauses (v),
(w) and (x) collectively, the "Class A
Monthly Interest"), plus (y) to the extent
permitted by applicable law, any interest
accrued on the Class A Certificates
(including interest on any overdue Class A
Monthly Interest) during any prior accrual
period which has not been distributed to the
Class A Certificate Holders, plus, to the
extent that there is available Excess
Spread, (z) an amount equal to the product
of (a) the amount by which the Class A
Certificate Rate exceeds _____%, (b) the
Class A Excess Principal and (c) the actual
number of days in the related Interest
Period divided by 360 (the "Class A Excess
Interest"). In the case of the Class B
Certificates, interest will be distributed
in an amount equal to the sum of (w) the
product of (a) LIBOR, determined as
described herein, plus ____% (the "Class B
Certificate Rate"; the Class A Certificate
Rate and the Class B Certificate Rate are
each sometimes referred to as an "Offered
Certificate Rate" and collectively, the
"Offered Certificate Rates") (or _______%
for the Initial Interest Period), (b) the
lesser of the Class B Investor Interest as
of the preceding Distribution Date (or, in
the case of the first Distribution Date, the
Class B Initial Investor Interest) after
giving effect to all payments, deposits and
withdrawals on such Distribution Date and
the Expected Class B Principal as of the
preceding Distribution Date, and (c) the
actual number of days in the related
Interest Period divided by 360, plus (x) the
product of (a) the Class B Excess Principal,
(b) the lesser of the Class B Certificate
Rate and _____%, and (c) the actual number
of days in the related Interest Period
divided by 360 (collectively, the "Class
8
<PAGE>
B Monthly Interest"), plus (y) to the extent
permitted by applicable law, any interest
accrued on the Class B Certificates
(including interest on any overdue Class B
Monthly Interest) during any prior accrual
period which has not been distributed to the
Class B Certificate Holders, plus, to the
extent that there is available Excess
Spread, (z) an amount equal to the product
of (a) the amount by which the Class B
Certificate Rate exceeds _____%, (b) the
Class B Excess Principal and (c) the actual
number of days in the related Interest
Period divided by 360 (the "Class B Excess
Interest"). For any Interest Period in which
the Class A Certificate Rate or the Class B
Certificate Rate, as the case may be,
exceeds the Class A Cap Rate or the Class B
Cap Rate, respectively, the portion of the
Class A Monthly Interest or the Class B
Monthly Interest attributable to the amount
by which the Class A Certificate Rate or the
Class B Certificate Rate, as the case may
be, exceeds the Class A Cap Rate or the
Class B Cap Rate, respectively, will be
funded from payments made pursuant to the
Class A Interest Rate Cap or the Class B
Interest Rate Cap, respectively, and from
Excess Spread. Interest distributable on
____________, 1998 will accrue from and
including the Closing Date to and including
____________, 1998 (the "Initial Interest
Period").
Revolving Period................... No principal will be payable to Offered
Certificate Holders until the _____________
Distribution Date or, upon the occurrence of
a Pay Out Event as described herein, the
first Distribution Date with respect to the
Rapid Amortization Period. For each Monthly
Period during the period from and including
the Closing Date, up to and including the
day prior to the day on which the Controlled
Accumulation Period or the Rapid
Amortization Period commences (the
"Revolving Period"), Available Investor
Principal Collections otherwise allocable to
the Certificate Holders will, unless a
reduction in the Required Collateral
Interest has occurred and subject to certain
other limitations, be applied as Shared
Principal Collections, as described below,
and thereafter (to the extent that the
Transferor Interest exceeds the Minimum
Transferor Interest) be paid to the Holder
of the Exchangeable Transferor Certificate
to maintain the Investor Interest at the
Initial Investor Interest. See "Description
of the Certificates--Pay Out Events" for a
discussion of the events which might lead to
the early termination of the Revolving
Period.
Principal Payments; Controlled
Accumulation Period............. Unless a Pay Out Event has occurred or is
deemed to have occurred or the Controlled
Accumulation Period is postponed as a result
of the conditions set forth under
"Description of the Certificates--
Postponement of Controlled Accumulation
Period," the controlled accumulation period
for the Certificates (the "Controlled
Accumulation Period") will commence on
____________ (the "Controlled Accumulation
Date"), and will end on the earliest of (a)
the commencement of the Rapid Amortization
Period, (b) the payment of the Investor
Interest in full and (c) the termination of
the Trust pursuant to the Agreement. On the
Business Day immediately preceding each
Distribution Date (each such date, a
"Transfer Date"), beginning with the
Transfer Date following the Monthly Period
in which the Controlled Accumulation Period
commences, an amount equal to the least of
(a) the Available
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<PAGE>
Investor Principal Collections with respect
to the related Monthly Period, (b) the sum
of the Controlled Accumulation Amount for
the related Monthly Period and the
Accumulation Shortfall, if any (such sum,
the "Controlled Deposit Amount") and (c) the
Class A Adjusted Investor Interest on such
Transfer Date (prior to any deposits on such
date) will be deposited in a trust account
established by the Trustee (the "Principal
Funding Account"). The amount on deposit in
the Principal Funding Account (the
"Principal Funding Account Balance") will be
deposited in the Distribution Account for
distribution to the Class A Certificate
Holders on the Class A Scheduled Payment
Date. If, for any Monthly Period prior to
the Class A Scheduled Payment Date, the
Available Investor Principal Collections for
such Monthly Period are less than the
applicable Controlled Deposit Amount, the
amount of such deficiency will be the
applicable "Accumulation Shortfall" for the
succeeding Monthly Period. See "Description
of the Certificates--Application of
Collections."
On the Transfer Date immediately following
the Distribution Date on which the Class A
Investor Interest has been paid in full, an
amount equal to the lesser of (a) the
Available Investor Principal Collections for
the related Monthly Period and (b) the Class
B Investor Interest will be deposited into
the Distribution Account for distribution to
the Class B Certificate Holders on the Class
B Scheduled Payment Date. If, for any
Monthly Period, the Available Investor
Principal Collections for such Monthly
Period exceed the applicable Controlled
Deposit Amount, such excess will be first
paid to the Collateral Interest Holder to
the extent that the Collateral Interest
exceeds the Required Collateral Interest
(such excess, the "Collateral Interest
Surplus") and then treated as Shared
Principal Collections and allocated to the
holders of other Series of certificates
issued and outstanding or, subject to
certain limitations described herein (to the
extent that the Transferor Interest exceeds
the Minimum Transferor Interest), paid to
the holder of the Exchangeable Transferor
Certificate.
Unless a Pay Out Event has occurred or is
deemed to have occurred, prior to the
payment of the Class A Investor Interest in
full, all funds on deposit in the Principal
Funding Account will be invested at the
direction of the Servicer by the Trustee in
certain Permitted Investments. Investment
earnings (net of investment losses and
expenses) on funds on deposit in the
Principal Funding Account (the "Principal
Funding Investment Proceeds") during the
Controlled Accumulation Period will be used
to pay interest on the Class A Certificates
up to an amount (the "Class A Covered
Amount") equal to, for each Transfer Date,
the product of (a) a fraction, the numerator
of which is the actual number of days in the
related Interest Period and the denominator
of which is 360, (b) the Class A Certificate
Rate in effect with respect to the related
Interest Period and (c) the Principal
Funding Account Balance as of the preceding
Distribution Date after giving effect to all
payments, deposits and withdrawals on such
Distribution Date. If, for any Transfer
Date, the Principal Funding Investment
Proceeds are less than the Class A Covered
Amount, the amount of such deficiency (the
"Class A Principal Funding Investment
Shortfall") will be paid, to the extent
available, from the Reserve Account
10
<PAGE>
and, if necessary, from Excess Spread and
Reallocated Principal Collections.
Funds on deposit in the Principal Funding
Account will be available to pay the Class A
Certificate Holders in respect of the Class
A Investor Interest on the Class A Scheduled
Payment Date. If the aggregate principal
amount of deposits made to the Principal
Funding Account is insufficient to pay the
Class A Investor Interest in full on the
Class A Scheduled Payment Date, the Rapid
Amortization Period will commence as
described below. Although it is anticipated
that during the Controlled Accumulation
Period prior to the payment of the Class A
Investor Interest in full, funds will be
deposited in the Principal Funding Account
in an amount equal to the applicable
Controlled Deposit Amount on each Transfer
Date and that scheduled principal will be
available for distribution to the Class A
Certificate Holders on the Class A Scheduled
Payment Date, no assurance can be given in
that regard. See "Maturity Considerations."
On the Class B Scheduled Payment Date,
provided that the Class A Investor Interest
is paid in full on the Class A Scheduled
Payment Date and a Rapid Amortization Period
has not commenced, Available Investor
Principal Collections will be used to pay
the Class B Certificate Holders in respect
of the Class B Investor Interest as
described herein. If Available Investor
Principal Collections are insufficient to
pay the Class B Investor Interest in full on
the Class B Scheduled Payment Date, the
Rapid Amortization Period will commence as
described below. Although it is anticipated
that scheduled principal will be available
for distribution to the Class B Certificate
Holders on the Class B Scheduled Payment
Date, no assurance can be given in that
regard. See "Maturity Considerations."
If a Pay Out Event occurs during the
Controlled Accumulation Period, the Rapid
Amortization Period will commence and any
amounts on deposit in the Principal Funding
Account will be deposited in the
Distribution Account for distribution to the
Class A Certificate Holders on the
Distribution Date following the Monthly
Period in which the Rapid Amortization
Period commences. See "Maturity
Considerations," "Description of the
Certificates Application of Collections" and
"--Subordination of the Class B
Certificates."
Principal Payments; Rapid
Amortization Period.............. During the period beginning on the day on
which a Pay Out Event occurs or is deemed to
occur and continuing to and including the
earlier of (a) the date on which the
Investor Interest has been paid in full and
(b) the Scheduled Series 1998-1 Termination
Date (the "Rapid Amortization Period"), the
Principal Allocation along with Shared
Principal Collections from other Series, if
any, will be distributed monthly to the
Class A Certificate Holders until the Class
A Investor Interest is paid in full and,
following the final principal payment to the
Class A Certificate Holders, to the Class B
Certificate Holders until the Class B
Investor Interest is paid in full and,
following the final principal payment to the
Class B Certificate Holders, to the
Collateral Interest Holder until the
Collateral Interest is paid in full, on each
Distribution Date
11
<PAGE>
beginning with the Distribution Date in the
month following the Monthly Period in which
the Rapid Amortization Period commences. See
"Description of the Certificates--Pay Out
Events" for a discussion of the events which
might lead to the commencement of a Rapid
Amortization Period.
Scheduled Payment of Principal and
Interest........................ The final distributions of interest and the
scheduled payment of principal on the Class
A Certificates and the Class B Certificates,
respectively, are scheduled to be made on
the ___________ Distribution Date (the
"Class A Scheduled Payment Date") and the
____________ Distribution Date (the "Class B
Scheduled Payment Date"; "Scheduled Payment
Date" shall refer to the Class B Scheduled
Payment Date and/or the Class A Scheduled
Payment Date, as applicable) and will be
made no later than the ________ Distribution
Date (the "Scheduled Series 1998-1
Termination Date"). After the Scheduled
Series 1998-1 Termination Date, neither the
Trust nor the Transferor will have any
further obligation to pay principal or
interest on the Certificates.
Exchanges.......................... The Agreement authorizes the Trustee to
issue two types of certificates: (i) one or
more Series of certificates transferable and
having the characteristics described below
and (ii) the Exchangeable Transferor
Certificate, a certificate evidencing the
Transferor Interest, currently held by PSFC
and transferable only as provided in the
Agreement. The Agreement also provides that,
pursuant to any one or more supplements to
the Agreement (each, a "Supplement"), the
Holder of the Exchangeable Transferor
Certificate may tender the Exchangeable
Transferor Certificate (a "Transferor
Exchange") or, if provided in the relevant
Supplement, the Transferor may transfer
certificates representing any Series of
certificates and the Holder of the
Exchangeable Transferor Certificate may
transfer the Exchangeable Transferor
Certificate (an "Investor Exchange"), to the
Trustee in exchange for one or more new
Series and a reissued Exchangeable
Transferor Certificate (any tender pursuant
to a Transferor Exchange or an Investor
Exchange being referred to as an
"Exchange"). The Series 1998-1 Supplement
permits an Investor Exchange with respect to
the Certificates. See "Description of the
Certificates--Exchanges." At all times,
however, the interest in the Principal
Receivables in the Trust represented by the
Transferor Interest must equal or exceed the
Minimum Transferor Interest (as defined
below). Under the Agreement, the Supplement
executed by the Transferor and the Trust in
conjunction with an Exchange will define,
with respect to any Series, the Principal
Terms of the Series. The Transferor and the
Holder of the Exchangeable Transferor
Certificate may offer any Series to the
public or other investors under a prospectus
or other disclosure document (a "Disclosure
Document") in transactions either registered
under the Securities Act or exempt from
registration thereunder, directly or through
the Underwriters or one or more other
underwriters or placement agents, in
fixed-price offerings or in negotiated
12
<PAGE>
transactions or otherwise. The Transferor
and the Holder of the Exchangeable
Transferor Certificate may offer, from time
to time, additional Series issued by the
Trust. See "Description of the
Certificates--Exchanges."
Under the Agreement and pursuant to a
Supplement, an Exchange may occur only upon
delivery to the Trustee of the following:
(i) a Supplement specifying the Principal
Terms of such Series, (ii) an opinion of
counsel to the effect that the certificates
of such Series under existing law will be
characterized as indebtedness for Federal
income tax purposes and that the issuance of
such Series will not materially adversely
affect the Federal income tax
characterization of any outstanding Series,
(iii) if required by the related Supplement,
the form of Enhancement, (iv) if Enhancement
is required by the Supplement, an
appropriate Enhancement instrument or
agreement, (v) written confirmation from the
Rating Agency that the Exchange will not
result in such Rating Agency reducing or
withdrawing its rating on any then
outstanding Series rated by it, and (vi) the
existing Exchangeable Transferor Certificate
and, if applicable, the certificates
representing the Series to be exchanged.
The Holder of the Exchangeable Transferor
Certificate also has the right, upon
Transferor consent, to transfer the
Exchangeable Transferor Certificate, and the
Transferor also has the right to sell,
transfer or pledge the Accounts, provided
that certain requirements contained in the
Agreement are satisfied and that the Rating
Agency has confirmed that such sale,
transfer or pledge will not result in the
reduction or withdrawal of its then existing
rating of the Certificates. See "Description
of the Certificates--Sale of Accounts" and
"--Certain Matters Regarding the Transferor
and the Servicer."
Receivables........................ The Receivables arise in Accounts that have
been selected from the VISA and MasterCard
credit card accounts owned by the Transferor
based on criteria provided in the Agreement
as applied with respect to each Account upon
its inclusion in the portfolio and on the
date of the inclusion of the related
Receivables in the Trust. The Receivables
consist of amounts charged by cardholders
for goods and services and cash advances
(the "Principal Receivables") plus the
related periodic finance charges billed to
the Accounts, amounts billed to the Accounts
in respect of annual membership fees, cash
advance fees, late fees, returned check
fees, overlimit fees, certain premiums in
respect of credit insurance relating to
cardholders' balances, Recoveries,
Interchange and investment earnings on the
Excess Funding Account (collectively, the
"Finance Charge Receivables"). In addition,
if the Transferor exercises the Discount
Option in accordance with the terms and
conditions of the Agreement, an amount equal
to the product of the Discount Percentage
and the amount of Receivables arising in
designated Accounts on and after the date
such option is exercised that otherwise
would be Principal Receivables will be
treated as Finance Charge Receivables. See
"Description of the Certificates--Discount
Option." "Accounts" means VISA and
MasterCard
13
<PAGE>
credit card accounts identified as part of
the accounts underlying the Receivables in
the Trust Portfolio as of ____________ (the
"Series Cut-Off Date"), together with
Additional Accounts conveyed on [February 2,
1998]. "Recoveries" means amounts received
with respect to charged-off credit card
receivables which, prior to being
charged-off, were included in the Trust
Portfolio. The aggregate amount of
Receivables in the Accounts as of the Series
Cut-Off Date was approximately
$_______________. The Finance Charge
Receivables will not affect the amount of
the Investor Interest represented by the
Certificates or the amount of the Transferor
Interest, which are determined on the basis
of the amount of the Principal Receivables
in the Trust.
During the term of the Trust, all new
Receivables arising in the Accounts will be
automatically transferred (without further
action by the Transferor) to the Trust by
the Transferor. The total amount of
Receivables in the Trust will fluctuate from
day to day, because the amount of new
Receivables arising in the Accounts and the
amount of payments collected on existing
Receivables usually differ each day. Because
the Transferor Interest represents the
interest in the Principal Receivables in the
Trust not represented by the Certificates,
the certificates of other Series or any
other undivided interests in the Trust, the
amount of the Transferor Interest will
fluctuate from day to day as Receivables are
collected and new Receivables are
transferred to the Trust. See "The
Receivables."
Addition and Removal of
Accounts......................... Pursuant to the Agreement, the Transferor
has (subject to certain limitations and
conditions) designated and may in the future
designate additional eligible consumer
revolving credit accounts or categories of
eligible consumer revolving credit accounts
satisfying certain criteria specified in the
Agreement (the "Automatic Additional
Accounts") and has conveyed or will convey
(as applicable) to the Trust all of the
Receivables in such Automatic Additional
Accounts whether such Receivables are then
existing or thereafter created. See
"Description of the Certificates--Addition
of Accounts." Additionally, pursuant to the
Agreement, the Transferor has the right
(subject to certain limitations and
conditions) and, in some circumstances, is
obligated, to designate additional eligible
consumer revolving credit accounts to be
included as Accounts (the "Additional
Accounts") and to convey to the Trust all of
the Receivables in the Additional Accounts
whether such Receivables are then existing
or thereafter created. The Transferor
previously designated Additional Accounts to
be included as Accounts on July 9, 1993,
October 4, 1994, July 14, 1995, May 1, 1996,
October 1, 1996, May 1, 1997, August 1,
1997, November 1, 1997, and February 2,
1998.
Automatic Additional Accounts and Additional
Accounts will consist of certain of the
Transferor's VISA credit card accounts and
MasterCard credit card accounts
constituting, respectively, Eligible
Automatic Additional Accounts and Eligible
Additional Accounts and satisfying certain
other criteria, and arising in Accounts
designated by the Transferor from time to
time. Automatic
14
<PAGE>
Additional Accounts and Additional Accounts
may, subject to certain conditions, also
include certain other consumer revolving
credit accounts. See "Description of the
Certificates--Addition of Accounts."
Further, pursuant to the Agreement, the
Transferor has the right (subject to certain
limitations and conditions) to remove the
Receivables related to certain Accounts
designated by the Transferor from the Trust
(the "Removed Accounts") and accept the
conveyance of all the Receivables in the
Removed Accounts, whether such Receivables
are then existing or thereafter created.
Removed Accounts are not included as
Accounts of the Trust Portfolio. See
"Description of the Certificates--Removal of
Accounts."
Denomination....................... The Offered Certificates will be offered for
purchase in minimum denominations of $1,000
and integral multiples thereof.
Registration of Offered
Certificates..................... The Offered Certificates will initially be
represented by certificates registered in
the name of Cede, as the nominee of DTC. No
Offered Certificate Owner will be entitled
to receive a definitive certificate
representing such person's interest, except
in the event that Definitive Certificates
(as defined herein) are issued under the
limited circumstances described herein. See
"Description of the Certificates--Definitive
Certificates."
Clearance and Settlement........... Offered Certificate Owners may elect to hold
their certificates through DTC (in the
United States) or Cedel or Euroclear (in
Europe), each of which in turn hold through
their respective depositaries, which will
hold positions through DTC. Transfers within
DTC or Cedel or Euroclear, as the case may
be, will be made in accordance with the
usual rules and operating procedures of the
relevant system. Cross-market transfers
between persons holding directly or
indirectly through DTC in the United States,
on the one hand, and counterparties holding
directly or indirectly through Cedel or
Euroclear, on the other, will be effected in
DTC through the relevant Depositaries of
Cedel or Euroclear. See "Description of the
Certificates--Book-Entry Registration" and
Annex II.
Servicer........................... The Servicer is People's Bank, a Connecticut
chartered stock savings bank. In certain
limited circumstances, People's Bank may
resign or be removed as Servicer, in which
event the Trustee or a third party servicer
may be appointed as successor servicer
(People's Bank, and any such successor
servicer acting in such capacity, are
referred to herein as the "Servicer"). The
Servicer is permitted to delegate certain of
its duties as servicer under the Agreement
to any of its affiliates, but any such
delegation will not relieve the Servicer of
its obligations thereunder.
Collections........................ The Servicer will deposit all Collections in
an account established for such purpose (the
"Collection Account"). All amounts deposited
in the Collection Account will be allocated
in the manner provided in the Agreement, as
supplemented by the Series 1998-1
Supplement, and the Supplements relating to
any past or future Series, by the Servicer
between Principal Collections and Finance
15
<PAGE>
Charge Collections. If the Discount Option
is exercised by the Transferor, certain
Collections that would otherwise be
characterized as Principal Collections will
instead be treated as Finance Charge
Collections. See "Description of the
Certificates--Discount Option." All such
amounts will then be allocated in accordance
with the respective interests of the
Certificate Holders, the certificate holders
of any other Series and the Holder of the
Exchangeable Transferor Certificate in the
Principal Receivables and in the Finance
Charge Receivables in the Trust. See
"Description of the Certificates--Allocation
Percentages."
Subordination of the Class B
Certificates and the Collateral
Interest......................... The Class B Investor Interest and the
Collateral Interest will be subordinated as
described herein to the extent necessary to
fund certain payments with respect to the
Class A Certificates and the Class A Monthly
Servicing Fee as described herein. In
addition, the Collateral Interest will be
subordinated as described herein to the
extent necessary to fund certain payments
with respect to the Class B Certificates and
the Class B Monthly Servicing Fee. If the
Collateral Interest is reduced to zero, the
Class B Certificate Holders will bear
directly the credit and other risks
associated with their interest in the Trust.
If the Class B Investor Interest and the
Collateral Interest are reduced to zero, the
Class A Certificate Holders will bear
directly the credit and other risks
associated with their interest in the Trust.
To the extent the Class B Investor Interest
is thereby reduced, the percentage of
Finance Charge Collections allocated to the
Class B Certificate Holders in subsequent
Monthly Periods will be reduced. Such
reductions of the Class B Investor Interest
will thereafter be reimbursed and the Class
B Investor Interest increased on each
Distribution Date by the amount, if any, of
Excess Spread and any Shared Finance Charge
Collections from other Series available for
that purpose for such Distribution Date.
Moreover, to the extent the amount of such
reduction in the Class B Investor Interest
is not reimbursed, the amount of principal
distributable to the Class B Certificate
Holders will be reduced. See "Description of
Certificates--Subordination of the Class B
Certificates" and "--Application of
Collections."
Application of Excess Spread and
Reallocated Cashflow............ If Finance Charge Collections allocable to
the Class A Investor Interest for any
Monthly Period plus, during the Controlled
Accumulation Period, Principal Funding
Investment Proceeds and amounts, if any,
withdrawn from the Reserve Account with
respect to such Monthly Period, are
insufficient (such insufficiency being the
"Class A Required Amount") to pay (i)
interest accrued on the Class A Certificates
with respect to the related Distribution
Date in an amount equal to the sum of (a)
the Class A Monthly Cap Rate Interest due on
the related Distribution Date and any
overdue Class A Monthly Cap Rate Interest,
and (b) the Class A Covered Amount for the
related Interest Period, (ii) the Class A
Monthly Servicing Fee for the related
Interest Period and any overdue Class A
Monthly Servicing Fees, (iii) the Class A
Investor Default Amount for such Monthly
Period, and (iv) unreimbursed Class A
Investor Charge-Offs (the aggregate of
clauses (i) through (iv), the
16
<PAGE>
"Class A Payment Amount"), then first,
Excess Spread, if any, from Finance Charge
Collections allocable to the Class B
Certificates and the Collateral Interest
will be allocated to the Class A
Certificates up to the Class A Required
Amount, and second, Shared Finance Charge
Collections, if any, allocable to the
Certificates will be allocated to the Class
A Certificates up to the remaining Class A
Required Amount. If the sum of such Excess
Spread and Shared Finance Charge Collections
is less than the Class A Required Amount for
such Monthly Period, Reallocated Collateral
Principal Collections and, if the foregoing
is insufficient, Reallocated Class B
Principal Collections with respect to the
related Monthly Period, will be used to fund
the remaining Class A Required Amount. The
Collateral Interest will be reduced by the
amount of Reallocated Collateral Principal
Collections and Reallocated Class B
Principal Collections used to fund the Class
A Required Amount, and the Class B Investor
Interest will be reduced by the amount of
Reallocated Class B Principal Collections in
excess of the Collateral Interest (after
giving effect to reductions for any
Collateral Interest Charge-Offs and any
Reallocated Collateral Principal Collections
as of the related Distribution Date) used to
fund the Class A Required Amount.
If, on the related Distribution Date,
Reallocated Principal Collections are
insufficient to fund the remaining Class A
Required Amount for such Monthly Period,
then the Collateral Interest (after giving
effect to reductions for any Collateral
Interest Charge-Offs and Reallocated
Principal Collections as of such
Distribution Date) will be reduced by the
amount of such deficiency (but not by more
than the Class A Investor Default Amount for
the related Monthly Period). In the event
that such reduction would cause the
Collateral Interest to be a negative number,
the Collateral Interest will be reduced to
zero, and the Class B Investor Interest
(after giving effect to reductions for any
Class B Investor Charge-Offs and any
Reallocated Class B Principal Collections as
of such Distribution Date) will be reduced
by the amount by which the Collateral
Interest would have been reduced below zero.
In the event that such reduction would cause
the Class B Investor Interest to be a
negative number, the Class B Investor
Interest will be reduced to zero and the
Class A Investor Interest will be reduced by
the amount by which the Class B Investor
Interest would have been reduced below zero
(such reduction, a "Class A Investor
Charge-Off").
If Finance Charge Collections allocable to
the Class B Investor Interest for any
Monthly Period are insufficient (such
insufficiency being the "Class B Required
Amount") to pay (i) interest accrued on the
Class B Certificates with respect to the
related Distribution Date in an amount equal
to the Class B Monthly Cap Rate Interest due
on the related Distribution Date and any
overdue Class B Monthly Cap Rate Interest,
(ii) the Class B Monthly Servicing Fee for
the related Interest Period and any overdue
Class B Monthly Servicing Fees, (iii) the
Class B Investor Default Amount for such
Monthly Period, and (iv) unreimbursed Class
B Investor ChargeOffs (the aggregate of
clauses (i) through (iv), the "Class B
Payment Amount"), then first, Excess Spread,
if any, from Finance
17
<PAGE>
Charge Collections allocable to the Class A
Certificates and the Collateral Interest, to
the extent not required to pay the Class A
Required Amount for such Monthly Period,
will be allocated to the Class B
Certificates up to the Class B Required
Amount, and second, Shared Finance Charge
Collections, if any, allocable to the
Certificates and not required to pay the
Class A Required Amount for such Monthly
Period will be allocated to the Class B
Certificates up to the remaining Class B
Required Amount. If the sum of such Excess
Spread and such Shared Finance Charge
Collections is insufficient to fund the
Class B Required Amount for such Monthly
Period, Reallocated Collateral Principal
Collections for the related Monthly Period
and not required to fund the Class A
Required Amount will be used to fund the
remaining Class B Required Amount.
If, on the related Distribution Date,
Reallocated Collateral Principal Collections
not required to fund the Class A Required
Amount are insufficient to fund the
remaining Class B Required Amount for such
Monthly Period, then the Collateral Interest
(after giving effect to reductions for any
Collateral Interest Charge-Offs, Reallocated
Principal Collections and any adjustments
made thereto for the benefit of the Class A
Certificate Holders) will be reduced by the
amount of such deficiency (but not by more
than the Class B Investor Default Amount for
such Monthly Period). In the event that such
reduction would cause the Collateral
Interest to be a negative number, the
Collateral Interest will be reduced to zero,
and the Class B Investor Interest will be
reduced by the amount by which the
Collateral Interest would have been reduced
below zero (such reduction, a "Class B
Investor Charge-Off"). In the event of a
reduction of the Class A Investor Interest,
the Class B Investor Interest or the
Collateral Interest, the amount of principal
and interest available to fund payments with
respect to the Class A Certificates, the
Class B Certificates and the Collateral
Interest will be decreased. See "Description
of the Certificates--Reallocation of Cash
Flows" and "--Defaulted Receivables;
Adjustments and Fraudulent Charges."
Finance Charge Collections allocable to the
Collateral Interest for any Monthly Period
will be applied to pay the Collateral
Interest Monthly Servicing Fee with respect
to such Monthly Period and any accrued and
unpaid Collateral Interest Monthly Servicing
Fee with respect to prior Monthly Periods,
and any such remaining Finance Charge
Collections will be applied as Excess
Spread.
With respect to the related Transfer Date,
Excess Spread not required to fund the Class
A Required Amount and the Class B Required
Amount, if any, will be applied as specified
in "Description of the Certificates--
Allocation of Funds--Payment of Fees,
Interest and Other Items."
Required Collateral Interest....... The "Required Collateral Interest" with
respect to any Transfer Date means (a)
initially, the Initial Collateral Interest
and (b) on any Transfer Date thereafter, an
amount equal to ____% of the
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Adjusted Investor Interest on such Transfer
Date, after taking into account deposits
into the Principal Funding Account on such
Transfer Date and all payments to be made on
the related Distribution Date and all
adjustments made on such Transfer Date, but
not less than $____________; provided,
however, that (1) if certain reductions in
the Collateral Interest occur or if a Pay
Out Event occurs, the Required Collateral
Interest for such Transfer Date shall equal
the Required Collateral Interest for the
Transfer Date immediately preceding the
occurrence of such reduction or Pay Out
Event; (2) in no event shall the Required
Collateral Interest exceed the unpaid
principal amount of the Offered Certificates
as of the last day of the Monthly Period
preceding such Transfer Date, less cash held
in the Principal Funding Account as of such
Transfer Date, after taking into account
payments to be made on the related
Distribution Date; and (3) the Required
Collateral Interest may be reduced at any
time to a lesser amount upon written
confirmation from the Rating Agency that
such reduction will not result in the Rating
Agency reducing or withdrawing its rating on
any then outstanding Series rated by it. See
"Description of the Certificates--Required
Collateral Interest."
If on any Transfer Date, the Collateral
Interest has been reduced to an amount less
than the Required Collateral Interest,
Excess Spread, to the extent available, will
be used to increase the Collateral Interest
to the extent of such shortfall. See
"Description of the Certificates--Allocation
of Funds--Excess Spread."
Interest Rate Cap.................. On the Closing Date, the Trustee will enter
into the Class A Interest Rate Cap and the
Class B Interest Rate Cap with the Interest
Rate Cap Provider for the exclusive benefit
of the Class A Certificate Holders and the
Class B Certificate Holders, respectively.
On each Transfer Date that the Class A
Certificate Rate or the Class B Certificate
Rate for the related Interest Period exceeds
the Class A Cap Rate or the Class B Cap
Rate, respectively, the Interest Rate Cap
Provider will make a payment to the Trustee,
on behalf of the Trust, based on the amount
of such excess and the notional amount of
the applicable Interest Rate Cap. The Class
A Notional Amount will at all times be equal
to or greater than the amount of the
Expected Class A Principal, and the Class B
Notional Amount will at all times equal the
amount of the Expected Class B Principal, in
each case less the aggregate notional amount
of any portion of the related Interest Rate
Cap sold on or prior to the date of
determination. The Class A Interest Rate Cap
and the Class B Interest Rate Cap will
terminate on the day immediately following
the Class A Scheduled Payment Date and the
Class B Scheduled Payment Date,
respectively; provided, however, that the
Class A Interest Rate Cap and the Class B
Interest Rate Cap may each be terminated at
an earlier date if the Trustee has obtained
a Replacement Interest Rate Cap or entered
into a Qualified Substitute Arrangement with
respect thereto.
Shared Collections................ In any Monthly Period during the Revolving
Period, Principal Collections otherwise
allocable to the Certificates, to the extent
not required to be paid to the Collateral
Interest Holder in respect of
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the excess, if any, of the Collateral
Interest over the Required Collateral
Interest, will be available to cover
principal payments due to or for the benefit
of the Certificate Holders of other Series.
In addition, if in any Monthly Period during
the Controlled Accumulation Period the
Principal Allocation is greater than the sum
of (i) the Controlled Deposit Amount and
(ii) the Collateral Monthly Principal, such
excess will also be available to cover
principal payments due to or for the benefit
of Certificate Holders of other Series and
holders of other undivided interests in the
Trust issued pursuant to the Agreement and
the applicable Supplements.
Such Principal Collections applied to the
payment of certificates of other Series and
to such other interests in the Trust are
herein referred to as "Shared Principal
Collections." Any such application of Shared
Principal Collections to other Series will
not result in a reduction in the Investor
Interest of this Series. In addition,
amounts designated as Shared Principal
Collections pursuant to the Supplement for
any other Series may be applied to cover
principal payments due to or for the benefit
of the Certificate Holders. See "Description
of the Certificates--Allocation of Funds."
In any Monthly Period, the amount of Excess
Spread available after application of those
items listed under "Description of the
Certificates--Allocation of Funds--Payment
of Fees, Interest and Other Items" (such
amount constituting "Shared Finance Charge
Collections") will be applied to cover any
shortfalls with respect to certain amounts
payable from Finance Charge Collections
allocable to any other Series or other
undivided interests in the Trust then
outstanding. In addition, amounts designated
as Shared Finance Charge Collections
pursuant to the Supplement for any other
Series may be applied to cover certain
payments due to be made out of Finance
Charge Collections to the Certificate
Holders, including the reimbursement of
reductions in the Class B Investor Interest
arising in connection with the payment of
the Class A Required Amount and the
reimbursement of reductions in the
Collateral Interest arising in connection
with the payment of the Class A Required
Amount and the Class B Required Amount. See
"Description of the Certificates--Allocation
of Funds."
Shared Finance Charge Collections and Shared
Principal Collections will be applied to any
Series (and any related undivided interests
in the Trust) then outstanding pro rata,
based upon the amount of shortfall, if any,
with respect to such Series (and such
interests).
Repurchase......................... The Investor Interest will be subject to
optional purchase by the Transferor on any
Distribution Date on which the Investor
Interest is an amount less than or equal to
5% of the Initial Investor Interest (after
giving effect to all payments to be made on
such date), if certain conditions set forth
in the Agreement are met. The Investor
Interest will be subject to mandatory
purchase by the Transferor on the
Distribution Date immediately preceding the
Scheduled Series 1998-1 Termination Date if
the Investor Interest is reduced to an
amount less than or equal to 5% of the
Initial Investor Interest, if certain
conditions set forth in the Agreement are
met. The
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mandatory purchase requirement is in
addition to any other provisions and
remedies provided by the Agreement and will
not serve to relieve any party of
obligations it may otherwise have or waive
any remedy that is otherwise provided. The
purchase price will equal the Investor
Interest, accrued and unpaid interest on the
Certificates and all other amounts owing
under the Loan Agreement among the Trustee,
the Transferor, the Servicer, the Collateral
Interest Holder and the other financial
institutions party thereto (the "Loan
Agreement") through the last day preceding
the Distribution Date on which the purchase
occurs. See "Description of the
Certificates--Final Payment of Principal;
Termination of the Trust."
Tax Status......................... Special tax counsel to the Transferor,
Mayer, Brown & Platt, is of the opinion that
under existing law the Offered Certificates
will be characterized as indebtedness for
federal income tax purposes. Under the
Agreement, the Transferor, the Trustee, the
Holder of the Exchangeable Transferor
Certificate and the Certificate Owners will
agree to treat the Certificates as debt for
tax purposes. See "Certain Federal Income
Tax Consequences" for additional information
concerning the application of federal income
tax laws.
ERISA Considerations............... Under regulations issued by the Department
of Labor, the Trust's assets would not be
deemed "plan assets" of an employee benefit
plan holding the Offered Certificates of any
class if certain conditions are met,
including that the Offered Certificates of
such class be held by at least 100 persons
independent of the Transferor and each other
upon completion of the public offering being
made hereby. The Class A Underwriters will
not sell the Class A Certificates to
employee benefit plans unless they believe
that the Class A Certificates will be held
by at least 100 persons upon the completion
of this offering. The Transferor anticipates
that the other conditions of the regulations
will be met with respect to the Class A
Certificates. The Class B Underwriters do
not anticipate that the Class B Certificates
will be held by at least 100 persons upon
the completion of this offering.
Accordingly, the Class B Certificates may
not be acquired with the assets of any
employee benefit plan, including without
limitation any insurance company general
account deemed to include the assets of an
employee benefit plan. If the Trust's assets
were deemed to be "plan assets" of such a
plan, there is uncertainty as to whether
existing exemptions from the "prohibited
transaction" rules of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), would apply to all
transactions involving the Trust's assets.
Regardless of whether the Trust's assets are
deemed to constitute "plan assets," an
employee benefit plan's purchase of Offered
Certificates may, in the absence of an
exemption, constitute a prohibited
transaction if any of the Transferor, the
Servicer, the Holder of the Exchangeable
Transferor Certificate, the Trustee or the
Underwriters is a party in interest with
respect to that plan. Accordingly, employee
benefit plans contemplating purchasing the
Offered Certificates should consult their
counsel before making a purchase. See
"Certain Employee Benefit Plan
Considerations."
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Class A Certificate Rating......... It is a condition to the issuance of the
Class A Certificates that the Class A
Certificates be rated in the highest generic
rating category by at least one nationally
recognized rating agency.
Class B Certificate Rating......... It is a condition to the issuance of the
Class B Certificates that the Class B
Certificates be rated in one of the three
highest generic rating categories by at
least one nationally recognized rating
agency.
Listing............................ Application will be made to list the Class A
Certificates on the Luxembourg Stock
Exchange.
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<PAGE>
RISK FACTORS
Limited Liquidity. There is currently no market for the Offered
Certificates. The Underwriters intend to make a market in the Offered
Certificates but are not obligated to do so. There is no assurance that a
secondary market will develop or, if it does develop, that it will provide
Offered Certificate Holders with liquidity of investment or that it will
continue until the Offered Certificates are paid in full.
Certain Legal Aspects. While the Transferor transferred interests in the
Receivables to the Trust, a court could treat such transaction as an assignment
of collateral as security for the benefit of holders of certificates issued by
the Trust. The Transferor represents and warrants in the Agreement that the
transfer of the Receivables to the Trust is either a valid transfer and
assignment of the Receivables to the Trust or the grant to the Trust of a
security interest in the Receivables. The Transferor has taken certain actions
as are required to perfect the Trust's security interest in the Receivables and
warrants that if the transfer to the Trust is deemed to be a grant to the Trust
of a security interest in the Receivables, the Trustee will have a first
priority perfected security interest therein. Nevertheless, a tax or government
lien on property of the Transferor where notice of such lien has been filed
before Receivables are transferred to the Trust may have priority over the
Trust's interest in such Receivables, and if the FDIC were appointed conservator
or receiver of the Transferor, certain administrative expenses of the
conservator, receiver or the State of Connecticut Department of Banking may have
priority over the Trust's interest in such Receivables. See "Certain Legal
Aspects of the Receivables--Transfer of Receivables."
To the extent that the Transferor has granted a security interest in the
Receivables to the Trust and that security interest was validly perfected before
the appointment of the FDIC as conservator or receiver and before the
Transferor's insolvency, and certain other conditions are satisfied including
that such security interest was not taken in contemplation of the insolvency of
the Transferor, and was not taken with the intent to hinder, delay or defraud
the Transferor or the creditors of the Transferor, such security interest should
be enforceable (to the extent of the Trust's "actual direct compensatory
damages") and should not be subject to avoidance by the FDIC, as receiver or
conservator for the Transferor, and, therefore, in such circumstances, payments
to the Trust with respect to the Receivables (up to the amount of such damages)
should not be subject to recovery by a conservator or receiver for the
Transferor. The foregoing conclusions are based on FDIC general counsel opinions
and policy statements regarding the application of certain provisions of the
Federal Deposit Insurance Act (as amended, the "FDIA"). While a Policy Statement
of the Resolution Trust Company (the "RTC") indicates that "actual direct
compensatory damages" would include outstanding principal plus interest accrued
to the date of payment, in one case a federal district court held that such
damages constituted the fair market value of the repudiated bonds as of the date
of repudiation, which, with respect to the Certificates, depending upon
circumstances existing on the date of repudiation, could be an amount less than
the outstanding principal plus interest accrued to the date of repudiation. The
FDIC has not adopted a policy statement on payment of interest on collateralized
borrowings of banks. If the conservator or receiver for the Transferor were to
assert that such security interest should not be enforceable or should be
subject to avoidance or were to require the Trustee to establish its right to
those payments by submitting to and completing the administrative claims
procedure under the FDIA, or the conservator or receiver were to request a stay
of proceedings with respect to the Transferor as provided under the FDIA, delays
in payments on the Certificates and possible reductions in the amount of those
payments could occur. In addition, the appointment of a receiver or conservator
could result in administrative expenses of the receiver or conservator having
priority over the interest of the Trust in the Receivables. The FDIC, as
conservator or receiver, would also have the rights and powers conferred under
Connecticut law. See "Certain Legal Aspects of the Receivables--Certain Matters
Relating to Conservatorship and Receivership."
If a conservator or receiver were appointed for the Transferor, then a Pay
Out Event could occur with respect to all Series then outstanding and, pursuant
to the Agreement, new Principal Receivables would not be transferred to the
Trust. In that event, unless holders of more than 50% of the investor interest
of each Series of certificates issued and outstanding (or with respect to any
Series with two or more classes, more than 50% of each class) instruct
otherwise, the Trustee would sell the portion of the Receivables allocable to
each Series that did not vote to disapprove of the sale of the Receivables in
accordance with the Agreement in a commercially reasonable manner and on
commercially reasonable terms, which may cause early termination of the Trust
and a loss to Certificate Holders of each such Series (including the Certificate
Holders) if the proceeds from such early sale allocable to such Series, if any,
and the amounts available under any Enhancement applicable to such Series were
insufficient to pay Certificate Holders of such Series in full. If the only Pay
Out Event to occur is either the insolvency of the Transferor or the appointment
of a conservator or receiver for the Transferor, the conservator or receiver
would have the power to prevent the early sale, liquidation or
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<PAGE>
disposition of the Receivables and the commencement of the Rapid Amortization
Period. A conservator or receiver may also have the power to cause the early
sale of the Receivables and the early retirement of the Certificates, to
prohibit the continued transfer of Principal Receivables to the Trust, and to
repudiate the servicing obligations of the Transferor. In addition, in the event
of a Servicer Default relating to the insolvency of the Servicer, if no Servicer
Default other than such conservatorship or receivership or insolvency exists,
the conservator or receiver for the Servicer may have the power to prevent
either the Trustee or the Certificate Holders from appointing a successor
Servicer. See "Certain Legal Aspects of the Receivables--Certain Matters
Relating to Conservatorship and Receivership."
Consumer Protection Laws. The Accounts and Receivables are subject to
numerous federal and state consumer protection laws imposing requirements on the
making, enforcement and collection of consumer loans. The United States Congress
("Congress") and the states may enact laws and amendments to existing laws to
regulate further the credit card industry or to reduce finance charges or other
fees or charges applicable to credit card accounts. Such laws, as well as any
new laws or rulings which may be adopted, may adversely affect the Servicer's
ability to collect on the Receivables or maintain the required level of periodic
finance charges, annual membership fees and other fees. In addition, failure by
the Servicer to comply with such requirements could adversely affect the
Servicer's ability to enforce the Receivables. During recent years, federal
legislative proposals have attempted unsuccessfully to limit the maximum annual
percentage rate that issuers may assess on credit card accounts. If such
legislation were enacted and imposed an interest rate cap substantially lower
than the annual percentage rates currently assessed on the Accounts, it is
likely that the Portfolio Yield (averaged over a period of three consecutive
Monthly Periods) would be reduced to a rate below the average of the Base Rates
for such Monthly Periods and therefore a Pay Out Event would occur with respect
to the Certificates. See "Description of the Certificates--Pay Out Events." In
addition, during recent years, there has been increased consumer awareness with
respect to the level of finance charges and fees and other practices of credit
card issuers. As a result of these developments and other factors, there can be
no assurance as to whether any federal or state legislation will be promulgated
imposing additional limitations on the monthly periodic finance charges or fees
relating to the Accounts.
Pursuant to the Agreement, the Transferor covenants to accept reassignment
of each Receivable not complying in all material respects with all requirements
of applicable law as of the time of its creation if, as a result of such
noncompliance, the related Account becomes a Defaulted Account or the Trust's
rights in, to or under the Receivable or its proceeds are impaired or
unavailable. The Transferor makes certain other representations and warranties
relating to the validity and enforceability of the Receivables. The Trustee has
not made, however, and it is not anticipated that it will make, any examination
of the Receivables or the records relating thereto for the purpose of
establishing the presence or absence of defects, compliance with such
representations and warranties, or for any other purpose. The sole remedy if any
such representation or warranty is breached and such breach continues beyond the
applicable cure period is that the Transferor will be obligated to accept
reassignment of the Investor Interest in the Receivables affected thereby. See
"Description of the Certificate--Representations and Warranties" and "Certain
Legal Aspects of the Receivables--Consumer Protection Laws."
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificate Holders in the Receivables if such laws
result in any Receivables being written off as uncollectible when there are
insufficient funds available to reimburse such losses. See "Description of the
Certificates--Defaulted Receivables; Adjustments and Fraudulent Charges."
Competition in the Credit Card Industry. The credit card industry is highly
competitive and operates in an environment increasingly focused on the interest
and fees charged to consumers for credit card services. As new card issuers
enter the market and issuers seek to expand their shares of the market, there is
increased use of advertising, target marketing, pricing competition and
incentive programs, all of which may adversely impact issuer profit margins. The
MasterCard and Visa organizations do not require adherence to specific
underwriting standards, and therefore credit card issuers may compete on the
basis of individual account solicitation and underwriting criteria. The
Transferor has traditionally competed as a low fixed-rate provider of credit
card services targeting highly creditworthy customers who carry balances on
their credit cards. The growth of the Transferor's credit card portfolio is
largely due to customers who, attracted by its low rates, have transferred
balances from competing credit card issuers, as well as due to higher balances
from purchases and cash advances. The Transferor is participating in such
competition through direct marketing programs, average annual percentage rates
and monthly minimum payment rates the Transferor believes compare favorably to
rates and fees charged by certain of the Transferor's competitors and operating
efficiencies which permit it to maintain a favorable cost structure. If
cardholders choose to utilize competing sources of credit, the amount and
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rate of new Receivables generated in the Accounts may be reduced and certain
purchase and payment patterns with respect to Receivables may be affected. The
size of the Trust will be dependent upon the Transferor's continued ability to
generate new Receivables. If the amount of new Receivables generated declines
significantly, Receivables from Additional Accounts (to the extent available)
may be added to the Trust, as described below, or a Pay Out Event could occur,
in which event the Rapid Amortization Period would commence. See "Description of
the Certificates--Pay Out Events."
Payments and Maturity. The Receivables may be paid at any time, and there
is no assurance that there will be additional Receivables created in the
Accounts or that any particular pattern of cardholder repayments will occur. The
commencement and continuation of the Controlled Accumulation Period will be
dependent upon the continued generation of new Receivables to be conveyed to the
Trust. A significant decline in the amount of Receivables generated could result
in the occurrence of a Pay Out Event for the Certificate Holders and the
commencement of the Rapid Amortization Period. Certificate Holders should be
aware that the Transferor's ability to continue to compete in the current
industry environment will affect the Transferor's ability to generate new
Receivables to be conveyed to the Trust and may also affect payment patterns.
The minimum monthly payment currently required on the Accounts generally
approximates 3% of the statement balances (as of specific dates), plus past due
amounts. A portion of the Receivables volume is a result of convenience use by
obligors who pay their entire monthly statement balance on or prior to its due
date and do not incur finance charges thereon. A significant decrease in the
cardholder monthly payment rate or minimum required payment could slow the
accumulation of principal during the Controlled Accumulation Period or delay the
payment of principal on the Class A Scheduled Payment Date or the Class B
Scheduled Payment Date or during the Rapid Amortization Period, and such delay
of the accumulation of principal or payment of principal, as the case may be,
could adversely affect the ability of investors to reinvest profitably. See
"--Ability to Change Terms of the Receivables," "Maturity Considerations" and
"The Credit Card Business of People's Bank--Underwriting Procedures."
Social, Technological and Economic Factors. Changes in card usage and
payment pattern by cardholders may result from a variety of social,
technological and economic factors. Social factors include potential changes in
consumers' attitudes to financing purchases with debt. Technological factors
include new methods of payment, such as debit cards. Economic factors include
the rate of inflation, unemployment levels, personal bankruptcy levels and
relative interest rates. As a consequence of some of these factors, the credit
card industry has experienced generally increased levels of losses and
delinquencies. The loss and delinquency experience of the Trust Portfolio has
reflected that trend.
While the Trust Portfolio is a geographically diverse portfolio, the
largest concentration of accounts giving rise to the Receivables included in the
Trust Portfolio are in Connecticut. The concentration of such accounts is
currently approximately 10%. See "The Receivables." The loss and delinquency
experience in Connecticut is currently more favorable than the experience of the
Bank Portfolio. Connecticut's economy has historically been highly dependent on
the insurance, aerospace and defense industries. As a result of consolidation
and structural changes in the financial services sector and defense budget
cutbacks, Connecticut's overall job growth has lagged behind the United States
as a whole. However, total job growth has been positive in the state since 1993
and Connecticut residents continue to have the highest per capita income of any
state in the country. The Transferor is unable to determine and has no basis to
predict whether, or to what extent, social, technological or economic factors
will affect future credit card usage or payment patterns.
Effect of Subordination of the Class B Certificates. The Class B
Certificates are subordinated in right of payment of principal to payments of
principal and interest on the Class A Certificates. Payments of principal in
respect of the Class B Certificates will not commence until after the Class A
Investor Interest has been paid in full as described herein. In addition, the
Class B Investor Interest is subject to reduction if the Class A Required Amount
for any Monthly Period is not funded from Collections allocable to the Class A
Investor Interest, from payments under the Class A Interest Rate Cap, from
Excess Spread, from Shared Finance Charge Collections from other Series
allocable to the Certificates or from Reallocated Collateral Principal
Collections and if the Collateral Interest has been reduced to zero. If the
Class B Investor Interest suffers such a reduction, the portion of Finance
Charge Collections allocable to the Class B Certificate Holders in future
Monthly Periods will be reduced and principal and interest payments on the Class
B Certificates may be delayed or reduced. See "Description of the
Certificates--Subordination of the Class B Certificates." Such reductions of the
Class B Investor Interest will thereafter be reimbursed and the Class B Investor
Interest increased on
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each Distribution Date by the amount, if any, of Excess Spread and Shared
Finance Charge Collections from other Series available for that purpose for such
Distribution Date.
Further, in the event of a sale of the Receivables due to an Insolvency
Event, the portion of the net proceeds of such sale allocable to pay principal
with respect to the Certificate Holders' interest in such Receivables will first
be used to pay principal amounts due to the Class A Certificate Holders and will
then be used to pay amounts due to the Class B Certificate Holders, thereby
causing a loss to Class B Certificate Holders if such remaining portion is
insufficient to pay the Class B Certificate Holders in full. See "Description of
the Certificates--Principal Payments" and "--Pay Out Events." If the Class B
Investor Interest is reduced to zero, the Class A Certificate Holders will bear
directly the credit and other risks associated with their undivided interest in
the Trust.
Ability to Change Terms of the Receivables. Pursuant to the Agreement, the
Transferor has not transferred, and will not transfer, the Accounts to the
Trust. Only the Receivables arising in the Accounts have been and will be so
transferred. As owner of the Accounts, the Transferor has the right (to the
extent provided in the applicable credit card agreements and the Agreement) to
determine the monthly periodic finance charge and other fees which will be
applicable from time to time to the Accounts, to alter the minimum monthly
payment required on the Accounts and to change various other terms with respect
to the Accounts. A decrease in the monthly periodic finance charges, annual
membership fees, cash advance fees or Interchange could decrease the effective
yield on the Accounts and could result in the occurrence of a Pay Out Event for
the Certificate Holders and the commencement of the Rapid Amortization Period.
Under the Agreement, the Transferor has agreed that, except as otherwise
required by law or as is deemed by the Transferor to be necessary in order to
maintain its credit card business, based upon a good faith assessment by it, in
its sole discretion, of the nature of the competition in that business, the
Transferor will not (i) reduce the annual percentage rate which determines the
monthly periodic finance charges assessed on the Receivables or other fees on
the accounts, if as a result of such reduction, its reasonable expectation of
the Portfolio Yield as of such date would be less than the weighted average base
rates of all Series or (ii) unless required by law, reduce such periodic finance
charge if its reasonable expectation is that the Portfolio Yield would be less
than the highest certificate rate for any Series then issued and outstanding.
Such changes may include the reduction or waiver of annual membership fees in
connection with the Transferor's marketing efforts. The term "Base Rate" with
respect to the Certificates generally means, with respect to any Monthly Period,
the weighted average of (x) the lesser of the Class A Certificate Rate and Class
A Cap Rate, (y) the lesser of the Class B Certificate Rate and the Class B Cap
Rate, and (z) the Collateral Rate (weighted based on the Class A Investor
Interest, the Class B Investor Interest and the Collateral Interest,
respectively, as of the last day of the preceding Monthly Period) plus the
Servicing Fee Rate. The term "Portfolio Yield" means generally, with respect to
the Certificates and any Monthly Period, the annualized percentage equivalent of
a fraction, the numerator of which is equal to the sum of the Finance Charge
Receivables allocable to the Investor Interest billed during such Monthly Period
after subtracting the Investor Default Amounts for such Monthly Period (but in
no event greater than the aggregate amount of Collections for such Monthly
Period), Principal Funding Investment Proceeds and amounts withdrawn from the
Reserve Account and deposited into the Finance Charge Account and allocable to
the Certificates for such Monthly Period, and the denominator of which is the
Investor Interest as of the last day of the preceding Monthly Period. In
addition, the Transferor has agreed that, upon the occurrence of the Pay Out
Event described in clause (iv) of "Description of the Certificates--Pay Out
Events" (relating to the average of the Portfolio Yields for any three
consecutive Monthly Periods being less than the average of the Base Rates for
such Monthly Periods), the Transferor will not, unless required by law, reduce
the annual percentage rate determining the monthly periodic finance charges on
the Accounts to a rate resulting in the weighted average of the base rates for
all Series. The Transferor has also agreed not to change the terms of the
Accounts, unless (i) if the Transferor has a comparable segment of credit card
accounts, the change is also made applicable to the comparable segment of the
portfolio of accounts with similar characteristics owned by it and (ii) if the
Transferor does not own such a comparable segment, any such change is not made
with the intent to benefit the Transferor materially over the Certificate
Holders. In servicing the Accounts, the Servicer is also required to exercise
the same care and apply the same policies that it exercises in handling similar
matters for its own comparable accounts. Except as specified above, there are no
restrictions on the Transferor's ability to change the terms of the Accounts.
While the Transferor has no current intention of decreasing the monthly periodic
finance charges on the overall Trust Portfolio, there can be no assurance that
changes in applicable law, changes in the marketplace or prudent business
practice might not result in a determination by the Transferor to take actions
changing this or other Account terms. In addition, an increase in the monthly
periodic finance charges and other fees applicable to the Accounts might have
the result of decreasing the volume of Receivables generated on those Accounts.
A significant decrease in Receivables could cause the Transferor Interest to
decline below the Minimum Transferor Interest. The Transferor would be obligated
in such event to add Receivables from Additional Accounts (to the extent
available)
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to the Trust. If the Transferor were unable to convey Receivables in Additional
Accounts to the Trust when required by the Agreement, a Pay Out Event would
occur.
Master Trust Considerations. The Trust, as a master trust, will issue the
Certificates, has issued seven prior Series of certificates, two of which have
been paid in full, and may issue additional Series of certificates in the
future. See "Annex I: Prior Series Issued and Outstanding." While the Principal
Terms of any Series will be specified in a Supplement, the provisions of a
Supplement and, therefore, the terms of any additional Series, will not be
subject to the prior review or consent of Holders of the certificates of any
previously issued Series. Such Principal Terms may include methods for
determining applicable investor percentages and allocating Collections,
provisions creating different or additional security or other Enhancement,
provisions subordinating such Series to another Series (if the Supplement
relating to such Series so permits; the Series 1998-1 Supplement will not permit
the subordination of Series 1998-1 to any other Series) or other Series to such
Series, and any other amendment or supplement to the Agreement which is made
applicable only to such Series. It is a condition precedent to the issuance of
any additional Series that either (x) the Rating Agency delivers written
confirmation to the Trustee that such issuance or Exchange will not result in
the Rating Agency reducing or withdrawing its rating on any outstanding Series
or (y) if at the time of the issuance or Exchange there is no outstanding Series
currently rated by a Rating Agency, a nationally recognized investment banking
firm or commercial bank deliver a certificate to the Trustee to the effect that
the issuance or Exchange will not have an adverse effect on the timing or
distribution of payments to such other Series. There can be no assurance,
however, that the Principal Terms of any other Series, including any Series
issued from time to time hereafter, or that a change in the character of the
Trust Portfolio, through, for instance, the addition of Receivables arising from
Accounts and Receivables arising from Additional Accounts or Automatic
Additional Accounts, might not have an impact on the timing and amount of
payments received by a Certificate Holder, including as a result of the refixing
of the Investor Percentage with respect to the allocation of the Principal
Receivables. See "Description of the Certificates--Exchanges" and "--Allocation
Percentages."
Addition of Accounts. The Transferor expects, and in some cases will be
obligated, to designate Additional Accounts from time to time, the Receivables
in which will be conveyed to the Trust. Such Additional Accounts will likely
include accounts originated using criteria different from those which were
applied to previously-designated Accounts, because such Accounts were originated
at a different date, under different underwriting criteria or by different
institutions, or represent a separate segment of the Transferor's credit card
business. Consequently, there can be no assurance that Additional Accounts
designated in the future will be originated, priced or underwritten in the same
manner as previously-designated Accounts. The designation of Additional Accounts
will be subject to the satisfaction of certain conditions described herein under
"Description of the Certificates--Addition of Accounts."
Control. Subject to certain exceptions, the Certificate Holders of each
Series may take certain actions, or direct certain actions to be taken, under
the Agreement or the related Supplement. Under certain circumstances, however,
the consent or approval of a specified percentage of the aggregate investor
interest of all Series or of the investor interest of each Series will be
required to take or direct certain actions, including requiring the appointment
of a successor Servicer following a Servicer Default, amending the Agreement in
certain circumstances and directing a repurchase of all outstanding Series upon
the breach of certain representations and warranties by the Transferor. In such
instances, the interests of the Holders of the Certificates may not be aligned
with the interests of the holders of certificates of such other Series. Thus,
even if the requisite majority of Certificate Holders votes to take or direct
such action, the Certificate Holders of such other Series may control whether or
not such action occurs.
Certificate Ratings. It is a condition to issuance of the Class A
Certificates that the Class A Certificates be rated in the highest generic
rating category by at least one nationally recognized rating agency. It is a
condition to the issuance of the Class B Certificates that the Class B
Certificates be rated in one of the three highest generic rating categories by
at least one nationally recognized rating agency. As used herein, the term
"Rating Agency" with respect to the Certificates, and with respect to any other
Series, means the rating agency or agencies from whom ratings have been
solicited as specified in the Supplement with respect to such Series. The
ratings address the likelihood of full payment of principal and interest of the
Certificates by the Scheduled Series 1998-1 Termination Date. The ratings are
based primarily on the quality of the Receivables, the credit support provided
by the Collateral Interest, the Interest Rate Caps and, with respect to the
rating of the Class A Certificates, the terms of the Class B Certificates. The
ratings are not a recommendation to purchase, hold or sell Certificates,
inasmuch as such ratings do not comment as to the market price or suitability
for a particular investor. There is no assurance that the ratings will remain
for any given period of time or that the ratings will not be lowered or
withdrawn by the Rating Agency if in its judgment circumstances so warrant. The
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ratings do not address the possibility of the occurrence of a Pay Out Event, and
they do not address the likelihood of any payment in respect of either Class A
Excess Interest or Class B Excess Interest.
Limited Credit Enhancement. Although credit enhancement with respect to the
Offered Certificates will be provided by (i) the Collateral Interest and (ii)
with respect to the Class A Certificates, the subordination of the Class B
Certificates, the Collateral Interest and the Class B Investor Interest are
limited and will be reduced by certain claims made that are not paid from
Finance Charge Collections allocated to the Certificates and are not reimbursed
from Excess Spread or Shared Finance Charge Collections. If Finance Charge
Collections allocated to the Investor Interest, Excess Spread, Shared Finance
Charge Collections allocated to the Certificates, and Reallocated Principal
Collections are not sufficient to cover the Class A Investor Default Amount and
the Class B Investor Default Amount in any Monthly Period and if the Collateral
Interest has been reduced to zero, the Investor Interest will be reduced (unless
it is otherwise reimbursed) resulting in a reduction of the amount of
Collections allocable to Certificate Holders in future Monthly Periods and in a
reduction of the aggregate principal amount returned to the Certificate Holders.
If the Collateral Interest and, with respect to the Class A Certificates, the
Class B Investor Interest are reduced to zero, Class A Certificate Holders and
Class B Certificate Holders will bear directly the credit and other risks
associated with their undivided interest in the Trust. See "Description of the
Certificates--Reallocation of Cash Flows" and "--Defaulted Receivables;
Adjustments and Fraudulent Charges."
Reductions of the Collateral Interest and the Class B Investor Interest,
other than reductions resulting from principal payments, will be reimbursed by
Excess Spread and Shared Finance Charge Collections which are allocated and
available to fund such amounts. Certain factors, such as lowering the finance
charges (including late fees and membership charges) on outstanding Receivables
balances and increased convenience use by obligors who pay their entire monthly
statement balance on or prior to its due date and do not incur finance charges
thereon, may lower the amount of Finance Charge Receivables generated as well as
Collections in respect thereof, and may thereby reduce the Excess Spread and
Shared Finance Charge Collections available to replenish the credit enhancement.
See "Description of the Certificates--Allocation of Funds." Finally, a slowing
in payment rates on the Receivables could extend the final Distribution Date for
the Class A Certificates and Class B Certificates beyond the Scheduled Payment
Date for each such class. See "--Payments and Maturity." The Reallocated
Collateral Principal Collections and the Reallocated Class B Principal
Collections may only be utilized to cover Required Amounts on and prior to the
Scheduled Series 1998-1 Termination Date and will not be available otherwise to
pay the remaining principal on the Certificates at any time.
Book-Entry Registration. The Offered Certificates will be initially
represented by one or more certificates registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the Offered
Certificate Owners or their nominees. Unless and until Definitive Certificates
are issued, Offered Certificate Owners will not be recognized by the Trustee as
Offered Certificate Holders, as that term is used in the Agreement. Hence, until
such time, Offered Certificate Owners will only be able to exercise the rights
of Offered Certificate Holders indirectly through DTC and its participating
organizations. See "Description of the Certificates--Book-Entry Registration"
and "--Definitive Certificates."
Reports to Certificate Holders. Unless and until Definitive Certificates
are issued, monthly and annual reports, containing information concerning the
Trust and prepared by the Servicer, will be sent on behalf of the Trust to Cede,
as nominee for DTC and the registered holder of the Offered Certificates. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles and will not be sent by the Servicer or
the Trustee to the Offered Certificate Owners. See "Description of the
Certificates--Book-Entry Registration," "--Definitive Certificates" and
"--Reports to Certificate Holders."
Limitations on Interest Rate Cap Coverage. The Class A Notional Amount of
the Class A Interest Rate Cap will be reduced during the Controlled Accumulation
Period to an amount not less than the Expected Class A Principal. Any Class A
Excess Principal will not have the benefit of the Class A Interest Rate Cap. The
Class B Notional Amount of the Class B Interest Rate Cap will be reduced to zero
on the Class B Scheduled Payment Date. To the extent the Class B Investor
Interest is greater than zero on the Class B Scheduled Payment Date, the Class B
Certificate Holders will not have the benefit of the Class B Interest Rate Cap.
In addition, the Certificates will not include the right to receive any interest
on Excess Principal in excess of the Class A Cap Rate or the Class B Cap Rate,
as applicable. While distributions may be made in respect of the Class A Excess
Interest or the Class B Excess Interest, such distributions are not addressed in
the ratings assigned by the Rating Agencies.
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THE TRUST
The Trust has been formed in accordance with the laws of the State of New
York pursuant to the Agreement. Prior to its formation, the Trust did not have
any assets or obligations. The Trust has not and will not engage in any
activity, other than as described herein. The Trust will exist only for the
transactions described herein, including the receipt of the Receivables and
holding such Receivables, the issuance of the Exchangeable Transferor
Certificate, the issuance of certificates of other, previously-issued Series,
the issuance of the Certificates and other undivided interests representing
additional Series and related activities (including, with respect to any Series,
receiving any Enhancement and entering into the Enhancement agreement relating
thereto) and making payments thereon. As a consequence, the Trust is not
expected to have any need for additional capital resources.
THE CREDIT CARD BUSINESS OF PEOPLE'S BANK
General
People's Bank began its credit card program in 1985 by marketing a low
interest rate credit card to highly creditworthy individuals in its market area.
As a result of the initial program's success, People's Bank expanded the program
nationally. [The June 1997 Nilson Report ranked People's Bank the 26th largest
VISA USA, Inc. ("VISA") and MasterCard International Incorporated ("MasterCard")
credit card issuer in the United States as of March 1997 on the basis of
outstanding balances.] People's Bank further expanded its credit card operations
in 1996 by establishing a limited branch in the United Kingdom, which had
generated credit card receivables of approximately $___ million at [December
31], 1997. No receivable generated by the United Kingdom branch will be included
in the Trust Portfolio. All of the eligible receivables in the Trust Portfolio
are payable in United States dollars.
The Receivables conveyed or to be conveyed to the Trust by People's Bank
pursuant to the Agreement have been or will be generated from transactions made
by holders of certain VISA and certain MasterCard credit card accounts, a subset
of People's Bank's entire portfolio of credit card accounts, and include finance
charges and fees billed to the Accounts. The Accounts were generated under the
VISA or MasterCard associations of which People's Bank is a member.
People's Bank services all of its accounts and receivables at its
facilities in Bridgeport, Connecticut. Certain operations are performed on
behalf of People's Bank by Total System Services, Inc., of Columbus, Georgia
("Total System"), including statement processing, printing and mailing. People's
Bank has used Total System for such services since it launched its credit card
program in 1985. If Total System were to fail or become insolvent, delays in
processing and recovery of information with respect to charges incurred by
cardholders could occur, and the replacement of such services could be
time-consuming. As a result, delays in payments to Certificate Holders could
occur.
The entire portfolio of People's Bank VISA and MasterCard credit card
accounts (the "Bank Portfolio"), of which the Accounts giving rise to the Trust
Portfolio are a part, includes premium accounts (i.e., VISA Gold, Gold
MasterCard and business accounts) and standard accounts (i.e., VISA Classic and
standard MasterCard). The Accounts from which Receivables arose in the initial
Trust Portfolio included only the standard accounts and not premium accounts.
Since the [May 1, 1996] addition of Additional Accounts, the Trust Portfolio has
included both standard and premium accounts. As of [December 31], 1997,___% of
the accounts in the Bank Portfolio were premium accounts and ____% were standard
accounts, and the receivables balance of premium accounts and standard accounts,
as a percentage of the total balance of the receivables in the Bank Portfolio,
was ____% and____%, respectively. Both premium and standard accounts undergo the
same credit analysis, but premium accounts generally carry higher annual
membership fees and have higher credit limits.
The VISA and MasterCard credit card accounts may be used for three types of
transactions: credit card purchases, cash advances and convenience checks.
Purchases occur when cardholders use credit cards to buy goods and/or services.
A cash advance is made when a credit card is used to obtain cash from a
financial institution or an automated teller machine. Cardholders may also use
convenience checks to (i) transfer balances from other credit card accounts to
their People's Bank accounts and (ii) draw against their VISA and MasterCard
credit card accounts at any time. Amounts due with respect to purchases, cash
advances and convenience checks are included in the Receivables.
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In addition, cardholders have been able to purchase insurance covering
their account balances since March 1985. Premiums for this insurance are charged
to the account for each monthly Billing Cycle. Such insurance premiums are
included in the Receivables transferred to the Trust and are treated as Finance
Charge Receivables.
Each cardholder is subject to an agreement with People's Bank governing the
terms and conditions of the VISA or MasterCard credit card account. Pursuant to
each such agreement, except as described herein, People's Bank reserves the
right, subject to fifteen days' prior notice to the cardholder or as may be
required by law, to add to, change or terminate any terms, conditions, services
or features of its VISA or MasterCard credit card accounts at any time,
including increasing or decreasing the periodic finance charges, other charges
or the minimum monthly payment requirements.
The credit evaluation, collection and charge-off policies and servicing
practices of People's Bank, as well as the terms and conditions governing
cardholder agreements in effect as of the date hereof, are under continuous
review and may change at any time in accordance with its business judgment,
applicable law and guidelines established by regulatory authorities.
Transactions creating the Receivables through the use of credit cards are
processed through the VISA and MasterCard systems. Should either system
materially curtail its activities, or should People's Bank cease to be a member
of VISA or MasterCard, for any reason, a Pay Out Event could occur, and delays
in payments on the Receivables and possible reductions in the amounts thereof
could also occur.
Account Origination
The VISA and MasterCard credit card accounts owned by People's Bank were
principally generated through: (i) direct mail solicitations of individuals who
have been prescreened at credit bureaus on the basis of criteria furnished by
People's Bank; (ii) applicant-initiated requests; (iii) applications mailed to
customers of People's Bank and customers of certain agent banks for which
People's Bank acts as a sponsor with VISA and/or MasterCard pursuant to People's
Bank's Agent Bank Account program (the "Agent Bank Accounts"); and (iv) affinity
marketing programs which are originated by People's Bank by soliciting
prospective cardholders from identifiable groups with a common interest or a
common cause, and with the assistance of an organization of the members of such
group ("Affinity Program Accounts"). In addition to these account origination
methods, People's Bank originates certain co-brand accounts and solicits
accounts from students and alumni of local Connecticut universities. People's
Bank applies the same credit criteria without distinction among the foregoing
sources of applications, as described below in "Underwriting Procedures," and
the performance by the cardholders of such accounts is generally comparable to
the remaining Bank Portfolio of accounts.
The largest percentage of all national accounts are originated through
targeted, prescreened direct-mail requests and a significant number of accounts
are originated through applicant-initiated requests. People's Bank's strategy of
offering a low interest rate credit card to highly creditworthy customers has
received significant attention by national consumer groups, consumer focused
publications and financial journals. These sources frequently publish
information regarding People's Bank's credit card products, including People's
Bank's toll free customer service telephone number. Prospective applicants
contact People's Bank using the toll free telephone number and request an
application, which they then complete and return to People's Bank, or complete
an application over the telephone.
Underwriting Procedures
All applications for accounts originated by People's Bank are reviewed for
completeness and creditworthiness based on the credit underwriting criteria
established by People's Bank. People's Bank uses credit reports issued by
independent credit reporting agencies with respect to the applicant. In the
event there are discrepancies between the application and the credit report, and
in certain other circumstances, People's Bank may verify certain information
regarding the applicant.
All applications, including prescreened and direct mail candidates, are
evaluated by utilizing a credit scoring system. The credit scoring model used by
People's Bank was developed with Fair, Isaac Companies, which has
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extensive experience in developing credit scoring models. Credit scoring is
intended to provide a general indication, based on the information available, of
the applicant's willingness and ability to repay his or her obligations. Credit
scoring evaluates a potential cardholder's credit profile and certain
application information in order to statistically quantify credit risk. Models
for credit scoring are developed by using statistics to evaluate common
characteristics and their correlation with credit risk. From time to time, the
credit scoring models used by People's Bank are reviewed and are periodically
updated to reflect more current statistical data. Based on statistical analysis,
People's Bank has established a policy that certain accounts receiving high
credit scores may be automatically approved without judgmental review.
Judgmental underwriting of People's Bank's credit card accounts is used to
evaluate those who score below the preset level for automatic approval and above
the preset level for automatic rejection.
In the case of prescreened direct mail solicitations, selection criteria
established by People's Bank are used by credit bureaus to generate or screen
lists of qualifying individuals. Members of People's Bank's Credit Card Services
then mail solicitations to those qualifying individuals on the list. Additional
credit criteria are applied on a case-by-case basis to those qualifying
individuals accepting such solicitation to determine the appropriate line of
credit for such individuals. The information requested in the response forms
mailed to prescreened prospects is less extensive than the information requested
in the applications mailed to individuals who have not been prescreened. Credit
limits are assigned to prescreened prospective cardholders based on a credit
profile that includes existing indebtedness, past payment patterns on other
consumer loans and certain other criteria. The response forms of individuals
responding to prescreened direct mail solicitations are reviewed by People's
Bank and are checked again through credit reporting bureaus. If no change in
credit performance has occurred, an offer of credit is made. Generally, each new
cardholder is issued a credit card that expires two years after issuance.
People's Bank generally reissues credit cards with two-year expiration dates, so
long as the payment history of the cardholder satisfies certain criteria.
Billing and Payments
The Bank Portfolio has different billing and payment structures, including
minimum payment levels, annual membership fees and monthly periodic charges.
For purposes of administrative convenience, the VISA and MasterCard credit
card accounts of People's Bank are currently grouped into twenty-two billing
cycles ending on the 5th through 27th day of each month (other than the 24th
day) (each, a "Billing Cycle"). Each Billing Cycle has its own monthly billing
date, at which time the activity in the related accounts during the month ending
on such billing date is processed and billed to accountholders. See "The
Receivables." The Accounts include VISA and MasterCard credit card accounts in
Billing Cycles ending at the close of business on each of the days referred to
above. See "The Receivables."
Monthly billing statements are sent to accountholders with either debit or
credit activity during the Billing Cycle. Generally, each month, accountholders
must make at least a minimum payment equal to the greater of (i) 3% of the
account balance and (ii) $10, plus any past due amount; provided, however, that
if the remaining balance is less than $10, the minimum payment will be equal to
the amount of such remaining balance.
The monthly periodic finance charges assessed on cash advances and
convenience checks are calculated by multiplying the average daily cash advance
balance by the applicable monthly periodic rate. Monthly periodic finance
charges are calculated on cash advances (including unpaid finance charges) from
the date of the transaction or, if a convenience check is used, the day the
convenience check is posted to the cardholder's account. The monthly periodic
finance charges assessed on purchases are calculated by multiplying the average
daily purchase balance by the applicable monthly periodic rate. Monthly periodic
finance charges are calculated on purchases (including certain fees and unpaid
finance charges) from the date of the purchase or the first day of the Billing
Cycle in which the purchase is posted to the account (whichever is later). The
credit card agreement provides that monthly periodic finance charges are not
assessed in most circumstances on purchases if the purchaser's new balance shown
in the billing statement is paid within 25 days after the last day of the
Billing Cycle, or if the purchaser's previous balance is zero. The current fixed
annual percentage rate for purchases generally ranges from 11.90% to 13.99%;
however, People's Bank offers introductory rates below the standard rate. An
increase in the fixed annual percentage rate for purchases might have the result
of decreasing the volume of Receivables generated. The current fixed annual
percentage rate for cash advances is generally 19.80%. For a break-down of the
yield from finance charges and fees billed, see the table titled "Revenue
Experience Representative Portfolio" included under "Receivable Yield
Considerations."
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Under the terms of People's Bank's agreement with each of its cardholders,
People's Bank may change the annual percentage rates applicable to Accounts. In
July 1997, People's Bank notified certain cardholders of its decision to
increase the annual percentage rates applicable to their Accounts for existing
balances and for future purchases and convenience checks. These increases are
generally not reflected in the current fixed annual percentage rates specified
above. On an average basis, the annual percentage rate increases on these
Accounts (which, as of June 30, 1997, had outstanding balances of approximately
$600 million) ranged between 2.0% and 2.5%. An increase in the annual percentage
rates applicable to these Accounts could, however, have the result of reducing
the volume of Receivables generated on such Accounts, thereby limiting the
favorable impact on yield of such increase. See "Risk Factors--Ability to Change
Terms of the Receivables." The annual percentage rates and other terms of the
cardholder agreements are continually reviewed by People's Bank, and further
changes to annual percentage rates and such terms may occur based on changes in
the law, changes in the marketplace or prudent business practices. People's Bank
expects to implement further selected changes to annual percentage rates.
In addition, People's Bank may, at its option, increase the annual
percentage rates for purchases, balance transfer checks and cash advances for
the accounts of cardholders who fail to make payments by the due date or who
exceed the total credit limit set by People's Bank; however, People's Bank's
current practice is to lower such rates back to the corresponding standard rates
that were in effect upon compliance by such cardholders with the terms of the
accounts (e.g., making timely payments and staying within the credit limit) for
5 consecutive Billing Cycles.
People's Bank may, at its option, reduce the minimum payment requirements
and monthly periodic finance charges described above for the accounts of
cardholders who are members of Consumer Credit Counseling Services, an
organization which assists financially troubled cardholders with outstanding
credit card balances to devise repayment programs. Such repayment programs
generally involves reducing the minimum monthly payment and/or reducing the
finance charges assessed. People's Bank may, but is not obligated to, accept
such repayment programs.
People's Bank generally assesses a non-refundable annual membership fee of
$25 for standard accounts, $30 for business accounts and $40 for premium
accounts. In response to market trends commencing in 1995, People's Bank
originated a proportionately larger amount of credit card accounts that did not
require payment of an annual membership fee. In addition, People's Bank may
waive the annual membership fee, or a portion thereof, in connection with
certain solicitations, affinity programs and in certain other cases. Some of the
accounts may be subject to certain additional fees, including: (i) a late fee,
generally in the amount of $20, with respect to any monthly payment if the
required minimum monthly payment is not received by the payment due date shown
on the monthly billing statement; (ii) a cash advance fee equal to 2% of the
amount of each cash advance (minimum $3; maximum $25) applied per transaction at
ATMs, People's Bank or any other bank; (iii) an overlimit fee, generally in the
amount of $20; and (iv) a returned check fee, generally in the amount of $20.
Subject to the requirements of applicable laws, People's Bank may change certain
of these fees and rates at any time by written notice to cardholders. Pursuant
to the terms of the cardholder agreement, People's Bank may change the terms of
such agreement and must give cardholders 15 days' prior notice of any change
which would result in an increase in the rate of finance charges on existing
balances or new activity, or other fees, or impose a fee not set forth in such
agreement. People's Bank may, pursuant to its agreements with cardholders, apply
payments received on the Accounts to finance charges, principal balances and
other amounts due in the order that it may elect from time to time.
Collection of Delinquent Accounts. An account is initially considered
delinquent if the minimum monthly payment indicated on the accountholder's
statement is not received within one calendar month from the statement date.
Efforts to collect delinquent credit card receivables are made by People's
Bank's personnel and collection agencies and attorneys retained by People's
Bank. Under current practice, accountholders that become one to ten days
delinquent may be sent a notice and telephone calls to the accountholder may
begin once an account becomes delinquent. People's Bank uses an automated dialer
to telephone delinquent accountholders. People's Bank also uses the on-line
collections system of Total System and a Fair, Isaac Companies scoring system to
analyze the collection risk on such accounts.
Generally, within 31 days of contractual delinquency, no additional
extensions of credit through such account are authorized and, between 61 and 91
days of contractual delinquency, the account is closed. Consistent with the
credit and collection policies of People's Bank, in certain infrequent
circumstances, People's Bank may enter into arrangements with cardholders to
extend or otherwise change payment schedules, which can include the suspension
of finance charge accruals or bringing current (or "reaging") accounts where
cardholders make three consecutive minimum monthly
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payments. People's Bank will enter into such arrangements only in circumstances
where it believes its ability to collect on the account will be enhanced by such
arrangements.
The current policy of People's Bank is to charge-off, as a loan loss, the
principal portion of the receivables balance for both purchases and cash
advances at any time after the 210th through the 240th day of delinquency.
Charge-offs may occur earlier in some circumstances, as in the case of bankrupt
cardholders. At the time an account is charged off, an evaluation of its
collectibility is made on a case by case basis to determine whether further
remedies should be pursued by collection personnel at People's Bank, outside
collection agencies or, in some cases, outside attorneys. Delinquency levels are
monitored by collection managers and information is reported regularly to senior
management. Under the terms of the Agreement, any Recoveries will be included in
the assets of the Trust and considered Finance Charge Receivables.
Loss and Delinquency Experience
The following tables set forth the delinquency and loss experience for each
of the periods shown for receivables in accounts which would have substantially
satisfied the criteria for inclusion of its related receivables in the Trust
Portfolio (the "Representative Portfolio"). These Representative Portfolio
tables illustrate the historical performance of the Receivables as if all
Accounts in the Trust as of the Series Cut-Off Date were included in the Trust
since their origination. In fact, the Transferor has in the past added pools of
Additional Accounts that are about to reprice from an introductory pricing
period. During the introductory pricing period, Accounts generally exhibit lower
levels of yield and loss than do more seasoned Accounts with standard pricing.
As a consequence, the Representative Portfolio tables below show revenue and
loss experience that incorporates the impact of introductory pricing and newer
account loss experience which are not representative of the Trust Portfolio.
The Servicer will file with the Commission monthly reports with respect to
the Trust, including information with respect to revenues, losses and Portfolio
Yield with respect to the Accounts. There can be no assurance that the
delinquency and loss experience for the Receivables in the future will be
similar to the historical experience of the Representative Portfolio included in
the tables set forth below because, among other things, economic and financial
conditions affecting the ability of cardholders to pay may be different from
those which prevailed during the periods reflected below.
Loss Experience
Representative Portfolio
(Dollars in Thousands)
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
Average Receivables Outstanding(1)....... $ $ $
Gross Charge-Offs(2)(3)..................
Recoveries(4)............................
Net Charge-Offs(3).......................
Net Charge-Offs as Percentage of Average
Receivables Outstanding(3)............. % % %
- ------------------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Gross Charge-Offs are calculated before Recoveries and do not include
the amount of any reductions in Average Receivables Outstanding due to
fraud.
(3) The amounts of charge-offs include the principal and interest portion
of charged off receivables.
(4) Recoveries have historically been allocated to the Trust on a pro rata
basis. Peoples's Bank expects to adopt a methodology following the
closing date pursuant to which those Recoveries relating to previously
charged-off Trust Receivables will be treated as Finance Charge
Receivables.
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Delinquency Experience
Representative Portfolio
(Dollars in Thousands)
As of December 31,
----------------------------------------------------
1997 1996 1995
Number of Days -----------------------------------------------------
Delinquent(1) Amount Percentage Amount Percentage Amount Percentage
- --------------- -----------------------------------------------------
31 to 60 days.......... $ % $ % $ %
61 to 90 days..........
91 to 120 days.........
121 to 150 days........
151 to 180 days........
181 days or greater....
Total(2)........... $ % $ % $ %
- ------------------
(1) Number of days delinquent means the number of days after the billing date
next following the original billing date. For example, 31 days delinquent
means that no payment is received within 61 days after the original
billing date.
(2) Delinquencies are calculated as a percentage of outstanding receivables as
of the end of each calendar month. Delinquencies include bankruptcies.
Delinquencies and charge-offs as a percentage of the Representative
Portfolio are affected by a variety of factors. Among them are: (i) the rate of
growth of receivables in the Representative Portfolio; (ii) general economic
conditions in the United States and particularly the nationwide rise in consumer
loan delinquencies and the rise in personal bankruptcy filings; (iii) the
seasoning of the accounts in the Representative Portfolio; and (iv) the creation
and inclusion in the Representative Portfolio of a new product group that
generated higher revenues and higher losses. [This new product group represented
approximately $85 million of receivables as of July 31, 1997.] People's Bank
will not add additional receivables of this type to the Trust without rating
agency approval.
The decline in delinquencies in 1997 compared to prior years can be
attributed to the increased rate of growth of Receivables and the increased
percentage of unseasoned accounts in the Representative Portfolio, as well as
tightened credit underwriting criteria. Conversely, the rise in delinquencies in
1995 and 1996 resulted from lower growth rates and therefore a lower level of
unseasoned accounts in the Representative Portfolio.
The rise in charge-offs since 1994 as a percentage of the Representative
Portfolio is primarily the result of the increased level of consumer loan
delinquencies, the rise of personal bankruptcies nationwide and the overall
seasoning of the Receivables in the Representative Portfolio.
People's Bank believes that conformity with its underwriting procedures
(see "--Underwriting Procedures") will keep the loss and delinquency experience
within historical norms, although there can be no assurance that the loss and
delinquency amounts as a percentage of the Representative Portfolio will remain
at current levels.
Recoveries
Recoveries have historically been allocated to the Trust on a pro rata
basis. People's Bank expects to adopt a methodology pursuant to which the
Transferor will be required, following the Closing Date, to transfer to the
Trust on each Transfer Date the amount of Recoveries received by the Servicer
during the preceding Monthly Period with respect to the Receivables in the Trust
Portfolio. Recoveries allocated to the Trust are treated as collections of
Finance Charge Receivables. See "--Loss and Delinquency Experience."
34
<PAGE>
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard systems, a portion of these fees collected in
connection with cardholder charges for merchandise and services is passed from
the banks clearing the transactions for merchants to credit card issuing banks.
These fees currently range from approximately 0.90% to 2.17% of the transaction
amount. People's Bank is required, pursuant to the terms of the Agreement, to
transfer to the Trust those fees attributed to cardholder charges for
merchandise and services in the Accounts ("Interchange"). Such percentages are
set by the VISA and MasterCard associations and may be changed by either of them
respectively from time to time. Interchange is treated as Finance Charge
Receivables for the purposes of determining the amount of Finance Charge
Receivables, allocating collections and payments to Certificate Holders and
calculating the Portfolio Yield.
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts from the Bank
Portfolio of VISA and MasterCard credit card accounts satisfying eligibility
criteria set forth in the Agreement (the "Trust Portfolio"). Such criteria do
not create a selection adverse to the Certificate Holders. Pursuant to the
Agreement, the Transferor has the right (and, under certain circumstances, the
obligation), subject to certain limitations and conditions set forth therein, to
designate from time to time Additional Accounts and to transfer to the Trust all
Receivables of such Additional Accounts, whether such Receivables are then
existing or thereafter created. Any Additional Accounts designated pursuant to
the Agreement must be Eligible Additional Accounts as of the date the Transferor
designates such accounts as Additional Accounts. The Agreement also provides
that the Transferor will add as Automatic Additional Accounts certain new
accounts opened in the ordinary course of its business. Automatic Additional
Accounts will be added to the Trust on the business day that they are originated
if certain requirements are satisfied. See "Description of the
Certificates--Addition of Accounts." Automatic Additional Accounts will consist
of certain of the Transferor's VISA and MasterCard credit card accounts,
constituting Eligible Automatic Additional Accounts and satisfying certain other
criteria, and arising in Accounts designated by the Transferor from time to
time. The Transferor may designate additional categories of Automatic Additional
Accounts; provided, however, that the Transferor shall have received notice from
each Rating Agency that such designation will not result in a downgrading or
withdrawal of its rating of any certificates of any Series outstanding. In
addition, the Transferor is required to designate Eligible Additional Accounts
as Additional Accounts (x) to maintain the Transferor Interest such that on any
Record Date the Transferor Interest for the related Monthly Period equals or
exceeds 7% or such higher percentage as may be stated in any Supplement (such
percentage, the "Minimum Transferor Interest") of the average Aggregate
Principal Receivables and (y) to maintain, for so long as certificates of any
Series, including the Certificates, remain outstanding, Aggregate Principal
Receivables in an amount equal to or greater than the Minimum Aggregate
Principal Receivables. The term "Aggregate Principal Receivables" means in the
case of any date of determination, the sum of (i) the aggregate amount of
Principal Receivables and (ii) the amount on deposit in the Excess Funding
Account (exclusive of the amount of any investment earnings thereon), in each
case, as of the end of the last day of the Monthly Period immediately preceding
such date of determination. The "Minimum Aggregate Principal Receivables"
required to be maintained through the designation by the Transferor of
Additional Accounts shall generally be an amount equal to the sum of the
numerators used to calculate the Investor Percentage with respect to Principal
Receivables for each Series. Such amount may be increased by a Supplement
pursuant to which additional Series may be issued. The Transferor will convey
the Receivables then existing or thereafter created under such Additional
Accounts to the Trust. See "Description of the Certificates--Addition of
Accounts." Further, pursuant to the Agreement, the Transferor has the right
(subject to certain limitations and conditions discussed herein) to remove
certain Accounts designated by the Transferor whether such Receivables are then
existing or thereafter created. See "Description of Certificates--Removal of
Accounts." Throughout the term of the Trust, the Accounts from which the
Receivables arise will be the same credit card accounts designated as Accounts
by the Transferor plus any Additional Accounts and Automatic Additional Accounts
and minus any Removed Accounts. As of each date an Account is added, and on any
date Additional Accounts or Automatic Additional Accounts are added, to the
Trust, and on the date any new Receivables are created or are added to the
Trust, as applicable, the Transferor will (or will be deemed to) represent and
warrant to the Trust that the Receivables meet the eligibility requirements
specified in the Agreement. See "Description of the
Certificates--Representations and Warranties."
35
<PAGE>
Some of the Accounts are recently solicited, unseasoned accounts and the
Receivables include Receivables that may be up to 240 days contractually
delinquent. Because the Accounts were selected as of the Series Cut-Off Date,
there can be no assurance that all of the accounts will continue to meet the
eligibility requirements during the life of the Trust. The Receivables in the
Accounts are the unsecured obligations of the cardholders.
The Receivables in the Trust Portfolio as of the Series Cut-Off Date, after
giving effect to Additional Accounts conveyed on [February 2, 1998], totaled
$______. The Accounts had, as of the _______ 1998 Monthly Period, an average
outstanding balance of $_____ and an average credit limit of $_____. The
percentage of the aggregate total Receivables balance to the aggregate total
credit limit was _____%, and the weighted average age of the Accounts was
approximately __ months. As of the _______ 1998 Monthly Period, cardholders
whose Accounts giving rise to the Receivables are included in the Trust
Portfolio have billing addresses in all 50 States and the District of Columbia.
The following tables summarize the Trust Portfolio's balance and account
characteristics of the accounts giving rise to the Receivables as of the close
of the _______ 1998 Monthly Period for each of the Accounts (including the
Additional Accounts added [February 2, 1998]). Because the future composition of
the Trust Portfolio may change over time, these tables may not necessarily be
indicative of the composition of the Trust Portfolio after the _____ 1998
Monthly Period.
36
<PAGE>
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number Receivables
Account Balance Range Accounts of Accounts Receivables Balance Balance
- --------------------- --------------- ---------------- --------------------- -------------
<S> <C> <C> <C> <C>
Credit Balance...................... % $ %
Zero Balance........................
$0.01-$1,000.00.....................
$1,000.01-$3,000.00.................
$3,000.01-$5,000.00.................
$5,000.01-$10,000.00................
Over $10,000.00.....................
Total......................... % $ %
Composition by Credit Limit
Trust Portfolio
Percentage
Percentage of of Total
Number of Total Number Receivables
Credit Limit Range Accounts of Accounts Receivables Balance Balance
- ------------------ --------------- ----------------- -------------------- -------------
$0.01-$1,000.00..................... % $ %
$1,000.01-$2,000.00.................
$2,000.01-$3,000.00.................
$3,000.01-$4,000.00.................
$4,000.01-$5,000.00.................
$5,000.01-$10,000.00................
Over $10,000.00.....................
Total......................... % $ %
Composition by Period of Delinquency
Trust Portfolio
Percentage
Percentage of of Total
Period of Delinquency Number of Total Number Receivables
(Days Contractually Delinquent) Accounts of Accounts Receivables Balance Balance
- ------------------------------- ------------------ ---------------- -------------------- -------------
Current............................. % $ %
1-30 Days...........................
31-60 Days..........................
61 or More Days.....................
Total......................... % $ %
37
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Composition by Account Age
Trust Portfolio
Percentage
Percentage of of Total
Number of Total Number Receivables
Account Age Accounts of Accounts Receivables Balance Balance
- ----------- ------------------ -------------- -------------------- --------------
<S> <C> <C> <C> <C>
0 to 6 Months....................... % $ %
Over 6 to 12 Months.................
Over 12 to 24 Months................
Over 24 to 48 Months................
Over 48 Months......................
Total......................... % $ %
Geographic Distribution by Receivables Balance
Trust Portfolio
Percentage
Percentage of of Total
Number of Total Number Receivables
Accounts of Accounts Receivables Balance Balance
-------------- --------------- --------------------- -------------
Connecticut......................... % $ %
California..........................
Texas...............................
Florida.............................
Illinois............................
Pennsylvania........................
Ohio................................
Michigan............................
New Jersey..........................
Other(1)............................
Total......................... % $ %
- ------------------
(1) States with less than [3.13%] of the Total Receivables Balance.
</TABLE>
MATURITY CONSIDERATIONS
The Agreement provides that the Class A Certificate Holders and the Class B
Certificate Holders will not receive principal payments until the Class A
Scheduled Payment Date and the Class B Scheduled Payment Date, respectively,
except in the event of a Pay Out Event, which will result in the commencement of
the Rapid Amortization Period. A "Pay Out Event" occurs, either automatically or
after specified notice, upon (a) the failure of the Transferor to make certain
payments or transfers of funds for the benefit of the Certificate Holders within
the time periods stated in the Agreement, (b) material breaches of certain
representations, warranties or covenants of the Transferor, (c) certain
insolvency events involving the Transferor, (d) the occurrence of a Servicer
Default which would have a material adverse effect on the Certificate Holders,
(e) the failure of the Transferor to convey Receivables arising under Additional
Accounts when required by the Agreement, (f) the Trust becoming subject to
regulation as an "investment company" by the Commission within the meaning of
the Investment Company Act of 1940, as amended, (g) a reduction in the average
of the Portfolio Yields for any three consecutive Monthly Periods to a rate
which is less than the average of the Base Rates for such period, (h) the
failure to pay each class of Offered Certificates in full on or prior to its
applicable Scheduled Payment Date or (i) the failure of the Interest Rate Cap
Provider to make any payment under the Interest Rate Caps within five days of
the date such payment was due. See "Description of the Certificates--Pay Out
Events."
38
<PAGE>
Controlled Accumulation Period. On each Transfer Date beginning with the
Transfer Date following the Monthly Period in which the Controlled Accumulation
Period commences, an amount equal to the least of (a) the Available Investor
Principal Collections with respect to the related Monthly Period, (b) the
"Controlled Deposit Amount," which is equal to the sum of the Controlled
Accumulation Amount for the related Monthly Period and the Accumulation
Shortfall, if any, for such Monthly Period, and (c) the Class A Adjusted
Investor Interest on such Transfer Date will be deposited in the Principal
Funding Account until the amount on deposit in the Principal Funding Account
(the "Principal Funding Account Balance") equals the Class A Investor Interest.
Amounts deposited in the Principal Funding Account will be deposited in the
Distribution Account for distribution to the Class A Certificate Holders on the
Class A Scheduled Payment Date. On the Transfer Date during the Controlled
Accumulation Period immediately following the Distribution Date on which the
Class A Investor Interest has been paid in full, an amount equal to the lesser
of (a) the Available Investor Principal Collections for the related Monthly
Period and (b) the Class B Investor Interest will be deposited into the
Distribution Account for distribution to the Class B Certificate Holders on the
Class B Scheduled Payment Date. If, for any Monthly Period prior to the payment
in full of the Class A Investor Interest and the Class B Investor Interest, the
Available Investor Principal Collections for such Monthly Period exceed the
applicable Controlled Deposit Amount, any such excess will be first paid to the
Collateral Interest Holder to the extent that the Collateral Interest exceeds
the Required Collateral Interest and then treated as Shared Principal
Collections and allocated to the holders of other Series of certificates issued
and outstanding or, subject to certain limitations described herein (to the
extent that the Transferor Interest exceeds the Minimum Transferor Interest),
paid t the Holder of the Exchangeable Transferor Certificate. After the Class A
Investor Interest and the Class B Investor Interest have each been paid in full,
the remaining Available Investor Principal Collections, to the extent required,
will be distributed to the Collateral Interest Holder on each related Transfer
Date until the earliest of the date the Collateral Interest has been paid in
full, the Scheduled Series 1998-1 Termination Date and the termination of the
Trust.
Amounts in the Principal Funding Account are expected to be available to
pay the Class A Investor Interest in full on the Class A Scheduled Payment Date.
Available Investor Principal Collections are expected to be available to pay the
Class B Investor Interest in full on the Class B Scheduled Payment Date.
Although it is anticipated that Available Investor Principal Collections with
respect to each Monthly Period during the Controlled Accumulation Period will be
available on the related Transfer Date to make a deposit of the Controlled
Deposit Amount to the Principal Funding Account and that the Class A Investor
Interest will be paid to the Class A Certificate Holders on the Class A
Scheduled Payment Date and the Class B Investor Interest will be paid to the
Class B Certificate Holders on the Class B Scheduled Payment Date, respectively,
no assurance can be given in this regard. If the amount required to pay the
Class A Investor Interest or the Class B Investor Interest in full is not
available on the Class A Scheduled Payment Date or the Class B Scheduled Payment
Date, respectively, a Pay Out Event will occur and the Rapid Amortization Period
will commence.
"Controlled Accumulation Amount" means (a) for any Transfer Date with
respect to the Controlled Accumulation Period, prior to the payment in full of
the Class A Investor Interest, $_____; provided, however, that if the
commencement of the Controlled Accumulation Period is delayed as described below
under "Description of the Certificates--Postponement of Controlled Accumulation
Period," the Controlled Accumulation Amount may be higher than the amount stated
above for each Transfer Date with respect to the Controlled Accumulation Period
and will be determined by the Servicer in accordance with the Series 1998-1
Supplement based on the principal payment rates for the Accounts and on the
investor interests of other Series (other than certain excluded Series) which
are scheduled to be in their revolving periods and scheduled to create Shared
Principal Collections during the Controlled Accumulation Period and (b) for any
Transfer Date with respect to the Controlled Accumulation Period after the
payment in full of the Class A Investor Interest, an amount equal to the Class B
Investor Interest on such Transfer Date.
"Accumulation Shortfall" means on each Transfer Date with respect to the
Controlled Accumulation Period prior to the Class A Scheduled Payment Date, the
excess, if any, of the applicable Controlled Deposit Amount for the immediately
preceding Transfer Date over the amount deposited in the Principal Funding
Account as Class A Monthly Principal for such preceding Transfer Date.
Should the Rapid Amortization Period commence, the Certificate Holders will
be entitled to receive monthly payments as provided herein of principal on each
Distribution Date (beginning with the Distribution Date in the month following
the month in which the Rapid Amortization Period commences) equal to the product
of the applicable Investor Percentage and Principal Collections received during
the related Monthly Period (less the amount of Reallocated Principal Collections
with respect to such Monthly Period used to fund the Required Amounts), plus
certain amounts treated as Principal Collections with respect to such Monthly
Period (including amounts applied with respect to Investor
39
<PAGE>
Default Amounts and Investor Charge-Offs), plus the amount of Shared Principal
Collections, if any, allocable to the Certificates with respect to such Monthly
Period (collectively, the "Available Investor Principal Collections").
Allocations based upon the applicable Fixed Investor Percentage may result in
deposits to the Principal Funding Account during the Controlled Accumulation
Period or distributions of principal to Certificate Holders during the Rapid
Amortization Period greater, relative to the declining balance of the Investor
Interest, than would be the case if a percentage based on such declining balance
were used to determine the percentage of Collections to be deposited or
distributed, as the case may be, in respect of the Investor Interest. See
"Description of the Certificates--Allocation Percentages."
A significant decline in the amount of Receivables generated during the
Revolving Period could result in the occurrence of a Pay Out Event for the
Certificate Holders and the commencement of the Rapid Amortization Period, thus
shortening the maturity of the Certificates. Conversely, a significant decline
in the amount of Receivables generated during the Controlled Accumulation Period
or the Rapid Amortization Period could result in an extension of the final
payment of the Certificates. If the maturity of the Certificates has been
shortened at a time when interest rates generally available are lower than the
Certificate Rates, the yield to maturity realized by the Certificate Holders
upon reinvestment at the lower prevailing interest rates may be lower than if
the Certificates remained outstanding until the expected maturity. Conversely,
if the maturity of the Certificates is extended at a time when interest rates
generally available are higher than the Certificate Rates, the yield to maturity
realized by the Certificate Holders may be lower than if the Certificates had
matured when expected and the Certificate Holders had reinvested at the higher
prevailing interest rates.
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Representative Portfolio during any month in the period
shown and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of the prior month's
ending outstanding receivables balance during the periods shown. Payment rates
shown in the table are based on amounts which would be deemed payments of
Principal Receivables and Finance Charge Receivables with respect to the
Accounts.
Cardholder Monthly Payment Rates(1)
Representative Portfolio
Year Ended December 31,
------------------------------------------------------
1996 1995 1994
----------- ------------ -----------------
Lowest................... % % %
Highest..................
Average(2)...............
- ------------------
(1) Monthly payment rates represent total payments collected during a given
month expressed as a percentage of the prior month's ending outstanding
receivables.
(2) The average monthly payment rates shown are expressed as an arithmetic
average of the payment rate during each month of the period indicated.
The amount of Collections may vary from month to month due to seasonal
variations, general economic conditions and payment habits of individual
cardholders. There can be no assurance that Principal Collections with respect
to the Trust Portfolio, and thus the rate at which Certificate Holders could
expect to receive payments of principal on the Certificates during either the
Controlled Accumulation Period or the Rapid Amortization Period, will be similar
to the historical experience set forth above. In addition, if a Pay Out Event
occurs, the average life and maturity of the Certificates could be significantly
reduced.
Because there may be a slowdown in the payment rate below the payment rate
used to determine the Controlled Accumulation Amounts, or because a Pay Out
Event may occur which would initiate the Rapid Amortization Period, there can be
no assurance that the Class A Investor Interest will be paid to the Class A
Certificate Holders on the Class A Scheduled Payment Date and the Class B
Investor Interest will be paid to the Class B Certificate Holders on the Class B
Scheduled Payment Date. As described under "Description of the
Certificates--Postponement of Controlled Accumulation Period," the Servicer may
shorten the Controlled Accumulation Period and, in such event, there can be no
assurance that there will be sufficient time to accumulate all amounts necessary
to pay the Class A Investor Interest
40
<PAGE>
and the Class B Investor Interest on the Class A Scheduled Payment Date and the
Class B Scheduled Payment Date, respectively.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in the
Representative Portfolio for each of the three years ended December 31, 1997,
1996 and 1995 are set forth in the following table. The historical yield figures
in the table are calculated on a billed basis, net of rebated fees and other
charges. Collections of Receivables included in the Trust are on a cash basis
and may not reflect the historical yield experience in the table. During periods
of increasing delinquencies or periodic payment deferral programs, yields on a
billed basis may exceed cash yields as amounts collected on credit card
receivables lag behind amounts billed to cardholders. Conversely, as
delinquencies decrease, cash yields may exceed yields on a billed basis as
amounts collected in a current period may include amounts billed during prior
periods. The yield on both a billed basis and a cash basis will be affected by
numerous factors, including the monthly periodic finance charges on the
Receivables, the amount of the annual membership fees and cash advance fees,
Interchange, changes in the delinquency rate on the Receivables and the
percentage of cardholders who pay their balances in full each month and do not
incur monthly periodic finance charges.
Revenue Experience
Representative Portfolio
(Dollars in Thousands)
Year Ended December 31,
------------------------------------
1997 1996 1995
--------- --------- ----------
Finance Charges and Fees Billed(1)..... $ $ $
Average Receivables Outstanding(2).......$ $ $
Yield from Finance Charges and Fees
Billed(3)(4)....................... % % %
- ------------------
(1) Finance Charges and Fees Billed include periodic finance charges,
annual membership fees, late fees, returned check fees, overlimit fees,
the premium of any insurance covering a cardholder's account balances,
cash advance transaction fees, interchange and recoveries allocable to
the related receivables. The annual membership fees, as presented,
reflect full recognition upon billing. The new methodology for payment
of Recoveries relating to charged off Receivables in the Trust may
favorably impact future yield levels for the Representative Portfolio
by paying more Recoveries to the Trust than under the previous pro rata
payment methodology.
(2) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(3) Yield from Finance Charges and Fees Billed is calculated as a
percentage of the Average Receivables Outstanding.
(4) Finance Charges and Fees Billed in 1994 do not include interchange
fees collected on certain accounts that are included in this
Representative Portfolio. The Transferor does not believe that the
effect on Yield from Finance Charges and Fees Billed resulting from
such exclusion is material.
As payment rates decline, the balances subject to monthly periodic finance
charges tend to grow, assuming no change in the level of purchasing activity.
Accordingly, under these circumstances, the yield related to periodic finance
charges normally increases. As account balances increase, annual membership
fees, which remain constant, represent a smaller percentage of the aggregate
account balance. See "The Credit Card Business of People's Bank."
USE OF PROCEEDS
The net proceeds from the sale of the Offered Certificates, approximately
$__________, before deduction of expenses, will be paid to PSFC, other than
$_________ thereof, which will be deposited in the Finance Charge Account for
the payment of interest on the Certificates with respect to the first
Distribution Date. PSFC intends to distribute substantially all of the remaining
proceeds to the Transferor through the declaration and payment of a dividend
and/or a distribution of capital to the Transferor, and the Transferor will use
such proceeds for its general corporate purposes.
41
<PAGE>
PEOPLE'S BANK
People's Bank was formed in 1842 and is headquartered in Bridgeport,
Connecticut. People's Bank is a majority-owned subsidiary of People's Mutual
Holdings, which as of June 30, 1997 owned 59.7% of the issued and outstanding
common stock of People's Bank. People's Bank is chartered as a Connecticut stock
savings bank, and, as a state chartered non-member bank, is regulated by the
State of Connecticut Department of Banking and by the FDIC. People's Bank is the
largest independent bank in Connecticut, with total assets of approximately $7.9
billion, total liabilities of approximately $7.2 billion, and total
stockholders' equity of approximately $667 million as of June 30, 1997. At June
30, 1997, People's Bank's Tier 1 leverage capital ratio was 8.5%, satisfying the
minimum ratio of 4.0% generally required by the FDIC. People's Bank is also
subject to the FDIC's risk-based capital regulations, which require minimum
ratios of Tier 1 capital and total capital to risk-weighted assets of 4.0% and
8.0%, respectively. People's Bank satisfied these requirements at June 30, 1997
with ratios of 10.2% and 13.8%, respectively. People's Bank's regulatory capital
ratios at June 30, 1997 exceeded the FDIC's numeric criteria for classification
as a "well capitalized" institution. On September 3, 1997, People's Bank entered
into a definitive agreement to acquire Norwich Financial Corp. ("Norwich") and
its wholly-owned subsidiary, The Norwich Savings Society. Norwich has assets of
approximately $713 million and is located in eastern Connecticut.
People's Structured Finance Corp. ("PSFC"), which is currently the Holder
of the Exchangeable Transferor Certificate, is a wholly-owned special purpose
Connecticut subsidiary of People's Bank. In establishing PSFC, People's Bank has
taken steps to ensure that PSFC is a bankruptcy remote corporation, which steps
include (but are not limited to) (a) the appointment of two independent
directors to PSFC's board of directors, (b) the creation of PSFC as a special
purpose subsidiary of People's Bank pursuant to a certificate of incorporation
containing certain limitations (including restrictions on the nature of PSFC's
business and restrictions on PSFC's ability to commence a voluntary case or
proceeding under the United States Bankruptcy Code or similar state laws without
the prior unanimous affirmative vote of all of its directors, including the
prior unanimous affirmative vote of both of its independent directors), and (c)
the maintenance by PSFC of separate bank accounts, corporate records and books
of account. The Exchangeable Transferor Certificate, representing the Transferor
Interest in the Trust, was transferred to PSFC pursuant to an Assignment and
Assumption Agreement, dated as of December 15, 1995, by and between People's
Bank and PSFC.
DESCRIPTION OF THE CERTIFICATES
The Offered Certificates will be issued pursuant to the Agreement,
including the Series 1998-1 Supplement, entered into between People's Bank, as
Transferor of the Certificates and as Servicer of the Accounts and the
Receivables, and Bankers Trust Company, as Trustee for the Certificate Holders
and the holders of other undivided interests in the Trust, substantially in the
form filed as exhibits to the Registration Statement of which this Prospectus is
a part. Pursuant to the Agreement, the Transferor has executed six Supplements
in connection with the issuance of other Series of certificates, four of which
are currently outstanding, and may execute further Supplements thereto between
the Transferor and the Trustee in order to issue additional Series. See
"--Exchanges." The Trustee will provide a copy of the Agreement (without
exhibits or schedules), including each Supplement, to Certificate Holders
without charge upon written request. The following summary describes certain
terms of the Agreement (including the Series 1998-1 Supplement) and is qualified
in its entirety by reference to the Agreement (including the Series 1998-1
Supplement).
General
The Certificates will represent a fractional undivided interest in certain
assets of the Trust, including the right to receive the Collections received
with respect to the Receivables in the Trust allocable to the Certificates and,
with respect to the Offered Certificates, the benefit of the Interest Rate Caps.
The property of the Trust consists of the Receivables, all monies due or to
become due thereunder, all proceeds of the Receivables, Interchange, Recoveries,
all monies on deposit in the Collection Account and the Excess Funding Account,
funds on deposit in accounts established pursuant to the Series 1998-1
Supplement, funds on deposit in any Series accounts established for the benefit
of Certificate Holders other than the Certificate Holders pursuant to the
related Supplement, funds on deposit and securities held in the Reserve Account
for the benefit of the Class A Certificate Holders, the benefit of the Interest
Rate Caps, the Collateral Interest and any other Enhancement issued with respect
to any additional Series (the drawing on, withdrawal
42
<PAGE>
from or payment on such Enhancement, and the funds on deposit in any Series
account with respect to any additional Series, will not be available to
Certificate Holders). The Trust will include the Receivables from Additional
Accounts and Automatic Additional Accounts which may be added from time to time
pursuant to the terms of the Agreement and will not include the Receivables from
any Removed Accounts which may be removed from the Trust from time to time
pursuant to the terms of the Agreement.
Payments of interest and principal will be made on each related
Distribution Date to Offered Certificate Holders in whose names the Offered
Certificates were registered as of (i) the business day preceding the
Distribution Date with respect to book-entry Offered Certificates and (ii) the
last day of the calendar month preceding such Distribution Date with respect to
Definitive Certificates (each, a "Record Date"), and to the Collateral Interest
Holder. Class A Monthly Interest and Class B Monthly Interest will accrue from
and including the Distribution Date occurring in the preceding month (in the
case of the first Distribution Date, from and including the Closing Date) to and
including the day preceding the current Distribution Date. Interest payments on
the Offered Certificates will be derived from Finance Charge Collections,
amounts paid under the Interest Rate Caps, Principal Collections otherwise
allocable to the Collateral Interest and, for the Class A Certificate Holders,
withdrawals from the Reserve Account, Principal Funding Investment Proceeds and
Principal Collections otherwise allocable to the Class B Certificates.
Allocations of Finance Charge Collections with respect to any Distribution Date
will not exceed the product of the Investor Percentage with respect to Finance
Charge Receivables and such Collections.
Each of the Class A Certificates and the Class B Certificates will
initially be represented by Offered Certificates registered in the name of the
nominee of DTC (together with any successor depository selected by the
Transferor, the "Depository") except as set forth below. The Offered
Certificates will be available for purchase in minimum denominations of $1,000
and integral multiples thereof in book-entry form. The Transferor has been
informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is expected
to be the holder of record of the Offered Certificates. No Offered Certificate
Owner acquiring an interest in the Offered Certificates will be entitled to
receive a certificate representing such person's interest in the Offered
Certificates. Unless and until Definitive Certificates are issued under the
limited circumstances described herein, all references herein to actions by
Offered Certificate Holders shall refer to actions taken by DTC upon
instructions from its Participants (as defined below), and all references herein
to distributions, notices, reports and statements to Offered Certificate Holders
shall refer to distributions, notices, reports and statements to DTC or Cede, as
the registered holder of the Offered Certificates, as the case may be, for
distribution to Offered Certificate Owners in accordance with DTC procedures.
See "--Book Entry Registration" and "--Definitive Certificates."
Application will be made to list the Class A Certificates on the Luxembourg
Stock Exchange.
In the event that Definitive Certificates are issued, a Certificate that is
mutilated, destroyed, lost or stolen may be exchanged or replaced, as the case
may be, at the offices of the Transfer Agent and Registrar or, in the case of
the Class A Certificates, the co-transfer agent and co-registrar in Luxembourg
upon presentation of the Certificate or satisfactory evidence of the
destruction, loss or theft thereof the Transfer Agent and Registrar or to the
co-transfer agent and co-registrar, as applicable. An indemnity satisfactory to
the Transfer Agent and Registrar or the co-transfer agent and co-registrar, as
the case may be, and the Trustee may be required at the expense of the Offered
Certificate Holder before a replacement Offered Certificate will be issued. The
Certificate Holder will be required to pay any tax or other governmental charge
imposed in connection with such exchange or replacement and any other expenses
(including the fees and expenses of the Trustee and either the Transfer Agent
and Registrar or the co-transfer agent and co-registrar, as applicable)
connected therewith.
Determination of LIBOR
The Trustee will determine LIBOR for each Interest Period (as defined
below) following the Initial Interest Period. For purposes of calculating LIBOR,
"London Banking Day" is any day on which commercial banks are open for business
(including dealings in foreign exchange and deposits in U.S. dollars) in London.
"LIBOR" means, for a specific Interest Period (other than the Initial
Interest Period), the rate for deposits in U.S. dollars for a period equal to
one month (commencing on the first day of an Interest Period) which appears on
Telerate Page 3750 (as defined below) as of 11:00 a.m., London time, on the
LIBOR Determination Date (as defined below) for
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such Interest Period. If such rate does not appear on Telerate Page 3750, the
rate for such Interest Period will be determined on the basis of the rates at
which deposits in U.S. dollars are offered by the Reference Banks (as defined
below) at approximately 11:00 a.m., London time, on such LIBOR Determination
Date to prime banks in the London interbank market for a period equal to one
month (commencing on the first day of such Interest Period). The Trustee will
request the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for such Interest Period will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for such Interest Period
will be the arithmetic mean of the rates quoted by major banks in New York City,
selected by the Trustee, at approximately 11:00 a.m., New York City time, on the
first day of such Interest Period for loans in U.S. dollars to leading European
banks for a period equal to one month (commencing on the first day of such
Interest Period).
"Interest Period" means, with respect to any Distribution Date, a period
from and including the preceding Distribution Date to and including the day
immediately preceding such Distribution Date; provided, however, that the
Initial Interest Period will commence on the Closing Date.
"LIBOR Determination Date" means with respect to any Interest Period, the
second London Banking Day preceding the first day of each Interest Period.
"Reference Banks" means four major banks in the London interbank market
selected by the Trustee.
"Telerate Page 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
The Interest Rate Caps
On the Closing Date, the Trustee will enter into the Interest Rate Caps
with the Interest Rate Cap Provider. The Class A Interest Rate Cap and the Class
B Interest Rate Cap will be for the exclusive benefit of the Class A Certificate
Holders and the Class B Certificate Holders, respectively.
The notional amount of the Class A Interest Rate Cap (the "Class A Notional
Amount") will at all times be equal to or greater than the amount of the
Expected Class A Principal less the aggregate notional amount of any portions of
the Class A Interest Rate Cap sold on or prior to the date of determination.
Pursuant to the Class A Interest Rate Cap, on each Transfer Date on which the
Class A Certificate Rate for the related Interest Period exceeds _____% (the
"Class A Cap Rate"), the Interest Rate Cap Provider will make a payment to the
Trustee, on behalf of the Trust, in an amount equal to the product of (i) such
excess, (ii) the Class A Notional Amount as of such Transfer Date and (iii) the
actual number of days in the related Monthly Period divided by 360. The Class A
Interest Rate Cap will terminate on the day following the Class A Scheduled
Payment Date; provided, however, that the Class A Interest Rate Cap may be
terminated at an earlier date if the Trustee has obtained a substitute interest
rate cap or entered into an alternative arrangement satisfactory to the Rating
Agency, which in each case will not result in the reduction or withdrawal of the
rating of the Offered Certificates (such substitute interest rate cap, a
"Replacement Interest Rate Cap"; such alternative arrangement, a "Qualified
Substitute Arrangement").
The notional amount of the Class B Interest Rate Cap (the "Class B Notional
Amount") will at all times be equal to the amount of the Expected Class B
Principal less the aggregate notional amount of any portions of the Class B
Interest Rate Cap sold on or prior to the date of determination. Pursuant to the
Class B Interest Rate Cap, on each Transfer Date on which the Class B
Certificate Rate for the related Interest Period exceeds ______% (the "Class B
Cap Rate"), the Interest Rate Cap Provider will make a payment to the Trustee,
on behalf of the Trust, in an amount equal to the product of (i) such excess,
(ii) the Class B Notional Amount as of such Transfer Date and (iii) the actual
number of days in the related Monthly Period divided by 360. The Class B
Interest Rate Cap will terminate on the day following the Class B Scheduled
Payment Date; provided, however, that the Class B Interest Rate Cap may be
terminated at an earlier date if the Trustee has obtained a Replacement Interest
Rate Cap or entered into a Qualified Substitute Arrangement.
In the event that the rating of the Interest Rate Cap Provider is reduced
or withdrawn, as specified in the Interest Rate Caps, the Trustee, at the
direction of the Servicer, shall use its best efforts either to obtain for each
such Interest
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Rate Cap a Replacement Interest Rate Cap, at the expense of the Interest Rate
Cap Provider, or to enter into a Qualified Substitute Arrangement.
The Trustee, on behalf of the Trust, may sell all or a portion of an
Interest Rate Cap in an amount equal to the excess on such date of the Class A
Notional Amount or the Class B Notional Amount, as applicable, over the Class A
Adjusted Investor Interest or the Class B Investor Interest, respectively,
subject to (among other things) Rating Agency confirmation of the rating of the
related class of Offered Certificates. Funds from any such sale will be applied
as Class A Available Funds or Class B Available Funds, respectively, in
accordance with the allocations described below in "--Allocation of Funds."
The Interest Rate Cap Provider
The following information has been obtained from the Interest Rate Cap
Provider and has not been verified by People's Bank or the Underwriters. No
representation or warranty is made by People's Bank or the Underwriters with
respect thereto.
[To follow]
Book Entry Registration
Offered Certificate Holders may hold their Offered Certificates through DTC
(in the United States) or Cedel or Euroclear (in Europe), which in turn hold
through DTC, if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the physical Offered Certificate or
Offered Certificates. Cedel and Euroclear will hold omnibus positions on behalf
of the Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositaries (collectively, the "Depositaries") which in turn
will hold such positions in customers' securities accounts in the Depositaries'
names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations ("Participants" or "DTC Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (who may include the underwriters of any Series),
banks, trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly (the "Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions directly to
the Depositaries.
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Because of time zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC. See Annex II.
Offered Certificate Owners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interest in, Offered Certificates may do so only through Participants and
Indirect Participants. In addition, Offered Certificate Owners will receive all
distributions of principal and interest on the Offered Certificates from the
Trustee through the Participants who in turn will receive them from DTC. Under a
book entry format, Offered Certificate Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
Cede, as nominee for DTC. DTC will forward such payments to its Participants
which thereafter will forward them to Indirect Participants or Offered
Certificate Owners. It is anticipated that the only "Offered Certificate Holder"
(as such term is used in the Agreement) of Offered Certificates in book entry
form will be Cede, as nominee of DTC. Offered Certificate Owners will not be
recognized by the Trustee as Offered Certificate Holders, as such term is used
in the Agreement, and Offered Certificate Owners will only be permitted to
exercise the rights of Offered Certificate Holders indirectly through the
Participants who in turn will exercise the rights of Offered Certificate Holders
through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book entry transfers among Participants
on whose behalf it acts with respect to the Offered Certificates and is required
to receive and transmit distributions of principal and interest on the Offered
Certificates. Participants and Indirect Participants with which Offered
Certificate Owners have accounts with respect to the Offered Certificates
similarly are required to make book entry transfers and receive and transmit
such payments on behalf of their respective Offered Certificate Owners.
Accordingly, although Offered Certificate Owners will not possess Offered
Certificates, Offered Certificate Owners will receive payments and will be able
to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of an Offered
Certificate Owner to pledge Offered Certificates to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
Offered Certificates, may be limited due to the lack of a physical certificate
for such Offered Certificates.
DTC has advised the Transferor that it will take any action permitted to be
taken by an Offered Certificate Holder under the Agreement only at the direction
of one or more Participants to whose account with DTC the Offered Certificates
are credited. Additionally, DTC has advised the Transferor that it will take
such actions with respect to specified percentages of the Investor Interest only
at the direction of and on behalf of Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent that
such actions are taken on behalf of Participants whose holdings include such
undivided interests.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled by Cedel in any of 36 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulations by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of any Series
of certificates. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
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The Euroclear System (the "Euroclear System") was created in 1968 to hold
securities for participants of the Euroclear System ("Euroclear Participants")
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 34 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any Series of certificates. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Offered Certificates held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See Annex II. Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by an Offered Certificate
Holder under the Agreement on behalf of a Cedel Participant or a Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to its Depositary's ability to effect such actions on its behalf through
DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Offered Certificates among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Definitive Certificates
The Offered Certificates will be issued in fully registered, certificated
form to Offered Certificate Owners or their nominees ("Definitive
Certificates"), rather than to DTC or its nominee, only if (i) the Transferor
advises the Trustee in writing that DTC is no longer willing or able to properly
discharge its responsibilities as Depository with respect to the Offered
Certificates, and the Trustee or the Transferor is unable to locate a qualified
successor, (ii) the Transferor, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of a Servicer
Default, Offered Certificate Owners representing not less than 50% of each of
the Class A Investor Interest and the Class B Investor Interest advise the
Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of the Offered Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all the Offered Certificate
Owners through Participants of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the definitive certificate representing
the Offered Certificates and instructions for re-
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registration, the Trustee will issue the Offered Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as holders of the Offered Certificates under the
Agreement ("Holders").
Distribution of principal and interest on the Offered Certificates will be
made by the "Paying Agent" (as defined in the Agreement) directly to Holders of
Definitive Certificates in accordance with the procedures set forth herein and
in the Agreement. During the Revolving Period, interest payments, and during
either the Controlled Accumulation Period or the Rapid Amortization Period,
interest and principal payments in respect of the Offered Certificates, will be
made to Offered Certificate Holders as provided herein on each Distribution Date
to the Holders in whose names the Definitive Certificates were registered at the
close of business on the related Record Date. Distributions will be made by
check mailed to the address of such Holder as it appears on the certificate
register. The final payment on any Offered Certificate (whether Definitive
Certificates or the Offered Certificates registered in the name of Cede
representing the Offered Certificates), however, will be made only upon
presentation and surrender of such Offered Certificate at the office or agency
specified in the notice of final distribution to Offered Certificate Holders.
The Trustee will provide such notice to registered Offered Certificate Holders
not later than the fifth day of the month of such final distributions.
Definitive Certificates will be transferable and exchangeable at the
offices of the "Transfer Agent and Registrar" (as defined in the Agreement),
which shall initially be Bankers Trust Company. No service charge will be
imposed for any registration of transfer or exchange, but the Transfer Agent and
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith. The Transfer Agent and
Registrar, as the case may be, shall not be required to register the transfer or
exchange of Definitive Certificates for a period of 15 days preceding the due
date for any payment with respect to such Definitive Certificates.
Interest Payments
Interest will accrue on the Class A Investor Interest at the Class A
Certificate Rate and on the Class B Investor Interest at the Class B Certificate
Rate during each Interest Period following the Initial Interest Period and will
accrue on the Class A Investor Interest at a rate of _____% per annum and on the
Class B Investor Interest at a rate of ______% per annum during the Initial
Interest Period. Interest will be distributed on ____________, 1998, and on each
Distribution Date thereafter to Certificate Holders. Interest on the Class A
Certificates will be distributed in the amount of the sum of (v) the product of
(a) the Class A Certificate Rate, (b) the lesser of the Class A Adjusted
Investor Interest as of the preceding Distribution Date (or, in the case of the
first Distribution Date, the Class A Initial Investor Interest) after giving
effect to all payments, deposits and withdrawals on such Distribution Date and
the Expected Class A Principal as of the preceding Distribution Date, and (c)
the actual number of days in the related Interest Period divided by 360, plus
(w) the Class A Covered Amount for the related Interest Period, plus (x) an
amount equal to the product of (a) the Class A Excess Principal, (b) the lesser
of the Class A Certificate Rate and _____% per annum, and (c) the actual number
of days in the related Interest Period divided by 360 (clauses (v), (w) and (x)
collectively, the "Class A Monthly Interest"), plus (y) to the extent permitted
by applicable law, any interest accrued on such Certificates (including interest
on any overdue Class A Monthly Interest calculated at a default rate of
interest) during any prior accrual period which has not been distributed to the
Certificate Holders, plus (z) to the extent that there is available Excess
Spread, an amount equal to the product of (a) the amount by which the Class A
Certificate Rate exceeds _____% per annum, (b) the Class A Excess Principal, if
any, and (c) the actual number of days in the related Interest Period divided by
360 (the "Class A Excess Interest").
In the case of the Class B Certificates, interest will be distributed in
the amount of the sum of (w) the product of (a) the Class B Certificate Rate,
(b) the lesser of the Class B Investor Interest as of the preceding Distribution
Date (or, in the case of the first Distribution Date, the Class B Initial
Investor Interest) after giving effect to all payments, deposits and withdrawals
on such Distribution Date and the Expected Class B Principal as of the preceding
Distribution Date, and (c) the actual number of days in the related Interest
Period divided by 360, plus (x) an amount equal to the product of (a) the Class
B Excess Principal, (b) the lesser of the Class B Certificate Rate and _____%
per annum, and (c) the actual number of days in the related Interest Period
divided by 360 (collectively, the "Class B Monthly Interest"), plus (y) to the
extent permitted by applicable law, any interest accrued on such Certificates
(including interest on any overdue Class B Monthly Interest calculated at a
default rate of interest) during any prior accrual period not distributed to the
Certificate Holders, plus (z) to the extent that there is available Excess
Spread, an amount equal to the product of (a) the
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amount by which the Class B Certificate Rate exceeds _____% per annum, (b) the
Class B Excess Principal, if any, and (c) the actual number of days in the
related Interest Period divided by 360 (the "Class B Excess Interest").
Any amounts in respect of distributable interest specified in clause (z)
above in each of the two preceding paragraphs with respect to the Class A
Certificates and the Class B Certificates that are unpaid on the Distribution
Date following the Interest Period in which they accrued will not be carried
over to future Distribution Dates.
"Expected Class A Principal" means (a) on each date to and excluding the
first Distribution Date occurring after the Monthly Period in which the
Controlled Accumulation Period commences (the "Initial Class A Accumulation
Date"), the Class A Initial Investor Interest, and (b) on each date thereafter
through but not including the Class A Scheduled Payment Date, the Class A
Initial Investor Interest less the product of (i) the Controlled Accumulation
Amount and the number of Distribution Dates which have occurred from and
including the Initial Class A Accumulation Date, and (c) on each date
thereafter, zero. "Expected Class B Principal" means the amount of the Class B
Investor Interest that is equal to (a) the Class B Initial Investor Interest on
each date to but excluding the Class B Scheduled Payment Date, and (b) on each
date thereafter, zero. "Class A Excess Principal" and "Class B Excess Principal"
(collectively, the "Excess Principal") mean on any date of determination the
amount by which the Class A Adjusted Investor Interest or the Class B Investor
Interest exceeds the Expected Class A Principal or the Expected Class B
Principal, respectively, after giving effect to all payments, deposits and
withdrawals on such date.
Interest payments up to the Class A Monthly Cap Rate Interest and Class B
Monthly Cap Rate Interest on any Distribution Date will be funded from Finance
Charge Collections allocated to the Class A Certificates and the Class B
Certificates, respectively, with respect to the preceding Monthly Period, and
interest payments up to the Class A Covered Amount will be funded from Principal
Funding Investment Proceeds and amounts withdrawn from the Reserve Account.
Payments of any Class A Monthly Cap Rate Interest, Class B Monthly Cap Rate
Interest and the Class A Covered Amount remaining unpaid after application of
such available funds will be paid from Excess Spread and Shared Finance Charge
Collections allocated to the Certificates. The Class A Monthly Interest in
excess of the sum of the Class A Monthly Cap Rate Interest and the Class A
Covered Amount and Class B Monthly Interest in excess of the Class B Monthly Cap
Rate Interest will be funded from payments made pursuant to, respectively, the
Class A Interest Rate Cap and the Class B Interest Rate Cap and, if necessary,
Excess Spread and Shared Finance Charge Collections. To the extent the sum of
(w) the applicable Floating Investor Percentage of Finance Charge Collections
during the preceding Monthly Period, (x) with respect to the Class A Covered
Amount, Principal Funding Investment Proceeds and amounts withdrawn from the
Reserve Account, and (y) Shared Finance Charge Collections allocated and
available to the Certificates is insufficient to pay such Class A Monthly Cap
Rate Interest and Class B Monthly Cap Rate Interest and such Class A Covered
Amount, then (i) Reallocated Principal Collections (to the extent available)
will be used to make such payments to the Class A Certificates, and (ii)
Reallocated Collateral Principal Collections (to the extent available) remaining
after such payments to the Class A Certificates will be used to make such
payments to the Class B Certificates.
Principal Payments
During the Revolving Period (which begins on the Closing Date and ends on
the day before the Controlled Accumulation Period or the Rapid Amortization
Period begins), unless a reduction in the Required Collateral Interest has
occurred, no principal payments will be made to Certificate Holders and
Principal Collections allocable to the Investor Interest will, subject to
certain limitations, including the allocation of any Reallocated Principal
Collections to pay the Class A Required Amount and the Class B Required Amount,
be treated as Shared Principal Collections. On each Transfer Date relating to
the Controlled Accumulation Period, the Trustee at the direction of the Servicer
will deposit in the Principal Funding Account an amount equal to the least of
(a) the Available Investor Principal Collections with respect to the preceding
Monthly Period, (b) the applicable Controlled Deposit Amount and (c) the Class A
Adjusted Investor Interest prior to any deposits on such date. Amounts in the
Principal Funding Account will be deposited in the Distribution Account for
payment to the Class A Certificate Holders on the Class A Scheduled Payment
Date. If the Class A Investor Interest has been paid in full on the Class A
Scheduled Payment Date, on the Transfer Date immediately following the Class A
Scheduled Payment Date, amounts equal to the lesser of (a) the Available
Investor Principal Collections with respect to the preceding Monthly Period and
(b) the Class B Investor Interest will be deposited in the Distribution Account
for distribution to the Class B Certificate Holders. Such amounts in the
Distribution Account will be paid to the Class B Certificate Holders on the
Class B Scheduled Payment Date. On each Transfer Date, if a reduction in the
Required Collateral Interest has occurred, any Available Investor Principal
Collections remaining after
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application to the Offered Certificates as described herein will be applied in
accordance with the Loan Agreement to reduce the Collateral Interest to the
Required Collateral Interest. During the Controlled Accumulation Period until
the final principal payment is made to the Collateral Interest Holder, the
portion of Available Investor Principal Collections not applied to Class A
Monthly Principal, Class B Monthly Principal or Collateral Monthly Principal on
a Transfer Date will generally be treated as Shared Principal Collections.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a)(i) Principal Collections
received during such Monthly Period and certain other amounts allocable to the
Investor Interest, minus (ii) the amount of Reallocated Principal Collections
with respect to such Monthly Period used to fund the Required Amounts, plus (b)
any Shared Principal Collections from other Series that are allocated to Series
1998-1 with respect to such Monthly Period.
During the Controlled Accumulation Period, the Trustee at the direction of
the Servicer will transfer Principal Collections (other than Reallocated
Principal Collections) and Shared Principal Collections from other Series, if
any, allocated to the Certificates from the Principal Account to the Principal
Funding Account as described under "--Application of Collections."
On each Distribution Date with respect to the Rapid Amortization Period,
the Class A Certificate Holders will be entitled to receive the sum of the
Available Investor Principal Collections for the related Monthly Period plus, if
the Rapid Amortization Period commences after the commencement of the
Accumulation Period, the Principal Funding Account Balance, in an amount up to
the Class A Investor Interest until the earliest of the date the Class A
Certificates are paid in full, the Scheduled Series 1998-1 Termination Date and
the termination of the Trust. After payment in full of the Class A Investor
Interest, the Class B Certificate Holders will be entitled to receive on each
Distribution Date with respect to the Rapid Amortization Period the Available
Investor Principal Collections until the earliest of the date the Class B
Certificates are paid in full, the Scheduled Series 1998-1 Termination Date and
the termination of the Trust. After payment in full of the Class B Investor
Interest, the Collateral Interest Holder will be entitled to receive on each
Transfer Date (other than the Transfer Date prior to the Scheduled Series 1998-1
Termination Date) and on the Scheduled Series 1998-1 Termination Date, the
Available Investor Principal Collections until the earliest of the date the
Collateral Interest is paid in full, the Scheduled Series 1998-1 Termination
Date and the termination of the Trust. See "--Pay Out Events" below for a
discussion of events which might lead to the commencement of the Rapid
Amortization Period. See "-- Application of Collections" and "--Allocation of
Funds" below for a discussion of the method by which Principal Collections and
Shared Principal Collections available to the Certificates are allocated during
either the Controlled Accumulation Period or the Rapid Amortization Period.
Postponement of Controlled Accumulation Period
Upon written notice to the Trustee, the Servicer may elect to postpone the
commencement of the Controlled Accumulation Period, and extend the length of the
Revolving Period, subject to certain conditions including those set forth below.
The Servicer may make such election only if the Accumulation Period Length
(determined as described below) is less than fourteen months. On each
Determination Date until the Controlled Accumulation Period begins, the Servicer
will determine the "Accumulation Period Length," which is the number of whole
months expected to be required to fully fund the Principal Funding Account no
later than the Transfer Date preceding the Class A Scheduled Payment Date, based
on (a) the monthly Principal Collections expected to be distributable to
Certificate Holders of all Series, assuming a principal payment rate no greater
than the lowest monthly principal payment rate on the Receivables for the
preceding twelve months and (b) the amount of principal expected to be
distributable to Certificate Holders of all Series (excluding certain other
Series) which are not expected to be in their revolving periods during the
Controlled Accumulation Period. If the Accumulation Period Length is less than
fourteen months, the Servicer may, at its option, postpone the commencement of
the Controlled Accumulation Period such that the number of months included in
the Controlled Accumulation Period will be equal to or exceed the Accumulation
Period Length. The effect of the foregoing calculation is to permit the
reduction of the length of the Controlled Accumulation Period based on the
investor interest of certain other Series which are scheduled to be in their
revolving periods during the Controlled Accumulation Period and on increases in
the principal payment rate occurring after the Closing Date. The Accumulation
Period Length will not be determined to be less than four months.
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Subordination
The Class B Investor Interest and the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class A Certificates. In addition, the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. No payment of principal will be made to the Class B
Certificate Holders until the Class A Investor Interest is paid in full. No
payment of principal will be made to the Collateral Interest Holder on any date
until all payments of principal to the Class A Certificate Holders and the Class
B Certificate Holders to be made on such date have been paid or provided for in
full; provided, however, that on each Transfer Date, if a reduction of the
Required Collateral Interest has occurred, payments of principal may be made to
the Collateral Interest Holder prior to or concurrently with payments of
principal to Class A Certificate Holders and Class B Certificate Holders. In
addition, payment of the Required Amounts, which includes payments to cover
shortfalls in respect of (among other things) interest and Monthly Servicing
Fees, will be made on each Distribution Date first to the Class A Certificate
Holders and then to the Class B Certificate Holders. No payment of interest will
be made to the Collateral Interest Holder on any date until the Class A Required
Amount and the Class B Required Amount, if any, on such date have been paid in
full. Certain principal payments otherwise allocable to the Collateral Interest
Holder and, if the foregoing are insufficient, allocable to the Class B
Certificate Holders may be reallocated to the Class A Certificate Holders, and
certain principal payments otherwise allocable to the Collateral Interest Holder
may be reallocated to the Class B Certificate Holders; and, as a result of such
reallocations, the Collateral Interest and, if the Collateral Interest has been
reduced to zero, the Class B Investor Interest may thereby decrease. To the
extent one or both of the Collateral Interest and the Class B Investor Interest
are so reduced, the percentage of Finance Charge Collections allocated to the
Collateral Interest Holder and, as applicable, the Class B Certificate Holders
in subsequent Monthly Periods will be reduced. Moreover, to the extent the
amount of such decrease in the Collateral Interest Holder and/or the Class B
Investor Interest is not reimbursed, the amount of principal distributable to
the Collateral Interest and/or the Class B Certificate Holders will be reduced.
See "--Allocation of Funds," "--Reallocation of Cash Flows."
Conveyance of Receivables
On July 9, 1993 the Transferor transferred and assigned to the Trust all of
its right, title and interest in and to the Receivables in the Accounts then
outstanding and all Receivables thereafter created in the Accounts and all
monies due or to become due with respect thereto (including Principal
Receivables, Finance Charge Receivables and all proceeds of such Receivables).
On October 4, 1994, July 14, 1995, May 1, 1996, October 1, 1996, May 1, 1997,
August 1, 1997, November 1, 1997, and February 2, 1998, the Transferor
transferred and assigned to the Trust Receivables arising from certain
Additional Accounts designated pursuant to the Agreement. On each day that an
Eligible Automatic Additional Account has been originated or shall be originated
or designated as an Automatic Additional Account by the Transferor (and on any
day such Account exists but has not been previously added to the Trust as a
result of the limitations expressed in "Addition of Accounts"), the Transferor
has added or will add the Receivables in each such account to the Trust and such
accounts are treated as Automatic Additional Accounts in an amount not in excess
of the Maximum Addition Amount.
In connection with the transfer of the Receivables to the Trust, the
Transferor indicated in its computer files the conveyance of the Receivables to
the Trust. In addition, the Transferor provided the Trustee a computer file or a
microfiche list containing a true and complete list showing each Account,
identified by account number and indicating the total outstanding Receivable
balance transferred. The Transferor has provided the Trustee an updated list of
each Account, identified by account number and indicating the total outstanding
Receivable balance as of [August 31, 1997], which list has been and will be
further updated periodically to reflect new Automatic Additional Accounts and
Additional Accounts and the removal of Removed Accounts. The Transferor will not
deliver to the Trustee any other records or agreements relating to the Accounts
or Receivables. Except as stated above, the records and agreements relating to
the Accounts and the Receivables maintained by the Transferor or the Servicer
will not be segregated by the Transferor or the Servicer from other documents
and agreements relating to other credit card accounts and receivables and will
not be stamped or marked to reflect the transfer of the Receivables to the
Trust, but the computer records of the Transferor are required to be marked to
evidence such transfer. The Transferor has filed UCC financing statements with
respect to the Receivables meeting the requirements of Connecticut state law.
See "Risk Factors--Certain Legal Aspects" and "Certain Legal Aspects of the
Receivables."
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Exchanges
The Agreement provides for the Trustee to issue two types of certificates:
(i) one or more Series of certificates transferable and having the
characteristics described below and (ii) the Exchangeable Transferor
Certificate, a certificate evidencing the Transferor Interest, currently held by
PSFC and transferable only as provided in the Agreement. The Agreement also
provides that, pursuant to any one or more Supplements, the Holder of the
Exchangeable Transferor Certificate may tender such certificate, or the Holder
of the Exchangeable Transferor Certificate may tender the Exchangeable
Transferor Certificate and the Transferor may tender the certificates evidencing
all or a portion of any Series of certificates, to the Trustee in exchange for
one or more new Series and a reissued Exchangeable Transferor Certificate. Under
the Agreement, the Transferor and the Trustee will execute a Supplement in
conjunction with such an Exchange that will specify, with respect to any newly
issued Series, certain terms which may include: (i) its name or designation;
(ii) its initial principal amount (or method for calculating such amount); (iii)
its coupon rate (or formula for the determination thereof); (iv) the closing
date; (v) the rating agency or agencies, if any, rating the Series; (vi) the
interest payment date or dates and the date or dates from which interest shall
accrue including the interest accrual period with respect to such Series; (vii)
the name of the clearing agency, if any; (viii) the method for allocating
Collections to Certificate Holders of such Series; (ix) the names of any
accounts to be used by such Series and the terms governing the operations of any
such accounts; (x) the percentage used to calculate monthly servicing fees; (xi)
the Minimum Transferor Interest; (xii) the minimum amount of Aggregate Principal
Receivables required to be maintained by the Transferor through the designation
of Additional Accounts; (xiii) the enhancer and terms of the Enhancement with
respect thereto; (xiv) the base rate applicable to such Series; (xv) the terms
on which the certificates of such Series may be repurchased by the Transferor or
remarketed to other investors; (xvi) the series termination date; (xvii) any
deposit into any account maintained for the benefit of Certificate Holders of
such Series; (xviii) the number of classes of such Series, and if more than one
class, the rights and priorities of each such class; (xix) the extent to which
the certificates of such Series will be issuable in temporary or permanent
global form (and, in such case, the depositary for such global certificate or
certificates, the terms and conditions, if any, upon which such global
certificate may be exchanged, in whole or in part, for definitive certificates,
and the manner in which any interest payable on a temporary or permanent global
certificate will be paid); (xx) whether the certificates of such Series may be
issued in bearer form and any limitations imposed thereon; (xxi) whether
Interchange or other fees will be included in funds available to Certificate
Holders of such Series; (xxii) the priority of any Series with respect to any
other Series; (xxiii) the rights of the Holder of the Exchangeable Transferor
Certificate that have been transferred to the holders of such Series; and (xxiv)
any other relevant terms (all such terms, the "Principal Terms" of such Series).
None of the Transferor, the Servicer, the Holder of the Exchangeable Transferor
Certificate, the Trustee or the Trust is required or intends to obtain the
consent of any Certificate Holder to issue any additional Series. As a condition
of an Exchange, however, the Trustee must receive written confirmation that the
Exchange will not result in the Rating Agency reducing or withdrawing its rating
of any outstanding Series, including the Certificates. The Transferor and the
Holder of the Exchangeable Transferor Certificate may offer any Series to the
public under a Disclosure Document in transactions either registered under the
Securities Act or exempt from registration thereunder directly, through the
Underwriters or one or more other underwriters or placement agents, in
fixed-price offerings or in negotiated transactions or otherwise. Any such
Series may be issued in fully registered or book-entry form in minimum
denominations determined by the Transferor. The Transferor and the Holder of the
Exchangeable Transferor Certificate may offer, from time to time, additional
Series.
The Agreement provides that the Holder of the Exchangeable Transferor
Certificate may perform Exchanges and the related Supplements may define
Principal Terms such that each Series has a period during which amortization or
accumulation of the principal amount thereof is intended to occur which may have
a different length and begin on a different date than such period for any other
Series. Further, one or more Series may be in their amortization periods or
accumulation periods, as the case may be, while other Series are not. Thus,
certain Series may not be amortizing or accumulating, as the case may be, while
other Series are amortizing or accumulating. Moreover, each Series may have the
benefits of the Enhancement available only to such Series. Under the Agreement,
the Trustee shall hold any such form of Enhancement only on behalf of the Series
to which the Enhancement relates. Likewise, with respect to each such form of
Enhancement, a different form of Enhancement agreement may be delivered to the
Trustee. The Agreement also provides that the related Supplements may specify
different coupon rates and monthly servicing fees with respect to each Series
(or a particular class within such Series) and may vary between Series the terms
upon which a Series (or a particular class within such Series) may be
repurchased by the Transferor or remarketed to other investors. In addition, a
Series Supplement may permit (as does the Series 1998-1 Supplement) an Investor
Exchange by which the Certificate Holders of such Series may elect to exchange
their certificates for one or more newly issued Series of certificates upon the
satisfaction of certain conditions specified in the Agreement and the related
Supplement. Additionally, certain Series
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may be subordinated to other Series, or classes within a Series may have
different priorities. The Series 1998-1 Supplement will not permit the
subordination of such Series to any other Series issued or which may hereafter
be issued by the Trust. There is no limit to the number of Exchanges that may be
performed under the Agreement. The Trust will terminate only as provided in the
Agreement.
Under the Agreement and pursuant to a Supplement, an Exchange may only
occur upon the satisfaction of certain conditions provided in the Agreement.
Under the Agreement, the Holder of the Exchangeable Transferor Certificate may
perform an Exchange by notifying the Trustee at least three days in advance of
the date upon which the Exchange is to occur. Under the Agreement, the notice
will state the designation of any Series to be issued on the date of the
Exchange and, with respect to each such Series: (i) its initial principal amount
(or method for calculating such amount) which amount may not be greater than the
current principal amount of the Exchangeable Transferor Certificate plus, in the
case of an Investor Exchange, the current principal amount of the investor
certificates to be exchanged, (ii) its certificate rate (or method for
calculating such rate) and (iii) the provider of the Enhancement, if any, which
is expected to provide credit support with respect to it. On the date of the
Exchange, the Agreement provides that the Trustee will authenticate any such
Series only upon delivery to it of the following, among others: (i) a Supplement
in form satisfactory to the Trustee signed by the Transferor and specifying the
Principal Terms of such Series, (ii) an opinion of counsel to the effect that
the certificates of such Series, unless otherwise stated, will be characterized
as indebtedness of the Transferor under existing law for Federal, Connecticut
and New York state income tax purposes, (iii) an opinion of counsel to the
effect that the issuance of such Series will not materially adversely impact the
Federal, Connecticut or New York state income tax characterization of any
outstanding Series or result in the Trust being subject to Federal, New York or
Connecticut tax at the entity level, (iv) the Enhancement, if any, and an
appropriate form of Enhancement agreement or instrument with respect thereto
executed by the Transferor and the issuer of the Enhancement, (v) written
confirmation from the Rating Agency that the Exchange will not result in such
Rating Agency reducing or withdrawing its rating on any outstanding Series, (vi)
the existing Exchangeable Transferor Certificate and, if applicable,
certificates of the Series to be exchanged, and (vii) a certificate of an
officer of the Transferor that on the date such Exchange occurs, after giving
effect to such Exchange, the Transferor Interest will be at least equal to the
Minimum Transferor Interest. Upon satisfaction of such conditions, the Trustee
will cancel the existing Exchangeable Transferor Certificate and the
certificates of the exchanged Series, if applicable, and authenticate the new
Series and a new Exchangeable Transferor Certificate.
Representations and Warranties
The Transferor has made and will make upon execution of each Supplement
certain representations and warranties to the Trust to the effect that, among
other things, (a) as of the Closing Date and the closing date of the issuance by
the Trust of the initial Series of certificates, the Transferor was duly
incorporated and in good standing and that it has the authority to consummate
the transactions contemplated by the Agreement and (b) as of the Series Cut Off
Date, or, with respect to any Additional Account or Automatic Additional
Account, the date on which such Additional Account or Automatic Additional
Account was transferred to the Trust, each Account was an Eligible Account (as
defined below). If (i) any of these representations and warranties proves to
have been incorrect in any material respect when made, and continues to be
incorrect for 60 days after notice to the Transferor by the Trustee or to the
Transferor and the Trustee by Certificate Holders holding not less than 50% of
each of the Class A Investor Interest, the Class B Investor Interest and the
Collateral Interest and (ii) as a result the interests of the Certificate
Holders are materially adversely affected, and continue to be materially
adversely affected during such period, then the Trustee or Certificate Holders
holding not less than 50% of each of the Class A Investor Interest, the Class B
Investor Interest and the Collateral Interest may give notice to the Transferor
(and to the Trustee in the latter instance) declaring that a Pay Out Event has
occurred, thereby commencing the Rapid Amortization Period. See "--Pay Out
Events."
The Transferor has made and will make upon the execution of each Supplement
representations and warranties to the Trust relating to the Receivables to the
effect, among other things, that (a) as of the closing date of the issuance by
the Trust of the related Series of certificates, each of the Receivables then
existing is an Eligible Receivable (as defined below) and (b) as of the date of
creation of any new Receivable, such Receivable is an Eligible Receivable and
the representation and warranty set forth in clause (b) in the immediately
following paragraph is true and correct with respect to such Receivable. In the
event (i) of a breach of any representation and warranty set forth in this
paragraph, within 60 days, or such longer period as may be agreed to by the
Trustee (but no longer than 120 days), of the earlier to occur of the discovery
of such breach by the Transferor or Servicer or receipt by the Transferor of
written notice of such breach
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given by the Trustee or any "Enhancement Provider" (as defined in the
Agreement), or, with respect to certain breaches relating to prior liens,
immediately upon the earlier to occur of such discovery or notice and (ii) that,
except with respect to certain breaches relating to prior liens, as a result of
such breach, the Receivables in the related Accounts are charged off as
uncollectible, the Trust's rights in, to or under such Receivables or their
proceeds are impaired or the proceeds of such Receivables are not available for
any reason to the Trust free and clear of any lien, the Transferor shall accept
reassignment of each Principal Receivable as to which such breach relates (an
"Ineligible Receivable") on the terms and conditions set forth below; provided,
however, that no such reassignment shall be required to be made with respect to
such Ineligible Receivable if, on any day within the applicable period (or such
longer period as may be agreed to by the Trustee), the representations and
warranties with respect to such Ineligible Receivable shall then be true and
correct in all material respects. The Transferor shall accept reassignment of
each such Ineligible Receivable by (i) depositing into the Collection Account an
amount equal to the Finance Charge Receivables collected with respect to such
Ineligible Receivable and (ii) directing the Servicer to deduct the amount of
each such Ineligible Receivable from the aggregate amount of Principal
Receivables used to calculate the Transferor Interest; provided, however, that
if the exclusion of an Ineligible Receivable from the calculation of the
Transferor Interest would cause the Transferor Interest to be less than the
Minimum Transferor Interest or would otherwise not be permitted by law, then
such Ineligible Receivable shall be removed upon the Transferor depositing in
the Excess Funding Account (for allocation as a Principal Receivable) in
immediately available funds an amount equal to the amount by which the
Transferor Interest would be reduced below the Minimum Transferor Interest. Any
such deduction or deposit shall be considered a repayment in full of the
Ineligible Receivable. The obligation of the Transferor to accept reassignment
of any Ineligible Receivable is the sole remedy respecting any breach of the
representations and warranties set forth in this paragraph with respect to such
Receivable available to Certificate Holders or the Trustee on behalf of
Certificate Holders.
The Transferor has made and will make upon the execution of each Supplement
representations and warranties to the Trust to the effect, among other things,
that as of the Closing Date and the closing date of the issuance by the Trust of
the related Series of certificates (a) the Agreement, including the Supplement,
constitutes a legal, valid and binding obligation of the Transferor and (b) the
transfer of Receivables by it to the Trust under the Agreement constitutes
either a valid transfer and assignment to the Trust of all right, title and
interest of the Transferor in and to the Receivables (other than Receivables in
Additional Accounts), whether then existing or thereafter created and the
proceeds thereof (including amounts in any of the accounts established for the
benefit of the Certificate Holders), Recoveries allocable to the Trust and
Interchange with respect to the Trust or the grant of a first priority security
interest in such Receivables (except for certain tax liens) and the proceeds
thereof (including amounts in any of the accounts established for the benefit of
the Certificate Holders), which is effective as to each such Receivable upon the
creation thereof and which has been perfected. The Transferor has made, and will
make (or has been or will be deemed to make), similar representations and
warranties to the Trust in connection with each assignment of Receivables in
Additional Accounts or Automatic Additional Accounts. In the event of a breach
of any of the representations and warranties described in the first sentence of
this paragraph, either the Trustee or the holders of certificates evidencing
undivided interests in the Trust aggregating more than 50% of the sum of the
investor interests of all Series issued and outstanding, by written notice to
the Transferor (and to the Trustee and the Servicer if given by the Certificate
Holders), may direct the Transferor to accept reassignment of the Trust
Portfolio within 60 days of such notice, or within such longer period specified
in such notice (but no longer than 120 days). The Transferor will be obligated
to accept reassignment of such Receivables on a Distribution Date occurring
within such applicable period. Such reassignment will not be required to be
made, however, if at any time during such applicable period, or such longer
period, the representations and warranties shall then be true and correct in all
material respects. The deposit amount for such reassignment with respect to each
Series of certificates required to be repurchased following such notice,
including the Certificates, will generally be equal to the investor interest of
each such Series on the last day of the Monthly Period preceding the
Distribution Date on which the reassignment is scheduled to be made plus an
amount equal to all interest accrued but unpaid on such certificates at the
applicable certificate rate (less the amounts previously allocated for payment
of interest and principal with respect to each such Series of certificates)
through the end of the interest accrual periods of each such Series. The
reassignment deposit amount shall equal the sum of the reassignment deposits
with respect to each Series then issued and outstanding which is required to be
repurchased following such notice. The payment of such reassignment deposit
amount into the Distribution Account will be considered a prepayment in full of
all Receivables and will be paid in full to the Certificate Holders of such
Series upon presentation and surrender of their certificates. In the Series
1998-1 Supplement, the Transferor represents and warrants that, as of the
Closing Date, the Agreement, as supplemented by such Supplement, constitutes a
legal, valid and binding obligation of the Transferor. Upon a breach of this
representation, either the Trustee or the holders of Certificates evidencing
aggregate undivided interests in the Trust aggregating more than 50% of each of
the Class A Investor Interest, the Class B Investor Interest and the Collateral
Interest by written notice to the
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Transferor (and to the Trustee and the Servicer if given by the Certificate
Holders) may direct the Transferor to purchase the Certificates (but not the
certificates of any other Series) on terms and conditions substantially similar
to those set forth above. If the Trustee or the Certificate Holders (including
the Certificate Holders) give a notice as provided above, the obligation of the
Transferor to make any such deposit or repurchase will constitute the sole
remedy respecting a breach of the representations and warranties (set forth in
this paragraph) available to the Trustee or the Certificate Holders.
An "Eligible Account" is defined to mean a VISA or MasterCard credit card
account owned by the Transferor which, as of the Series Cut Off Date, (a) is
payable in United States dollars, (b) has not been identified on the computer
files of the Transferor as relating to a cardholder who has died or commenced
action relating to bankruptcy or who is the subject of an involuntary
bankruptcy, insolvency or similar action, (c) has not been classified by the
Transferor as counterfeit, fraudulent, stolen or lost, or as a corporate
business card, (d) has not been charged off by the Transferor in its customary
and usual manner for charging off such Account as of the Series Cut Off Date,
(e) has not been (and no Receivables in such Account have been) sold or pledged
to any other person, (f) is not an account on which People's Bank or an
affiliate of People's Bank is the obligor and (g) as of the date of origination
of such account, the obligor of which had a billing address in the United
States, its territories or possessions.
An "Eligible Receivable" is defined to mean each Receivable (a) arising
under an Eligible Account, an Eligible Additional Account (in the case of
Additional Accounts) or an Eligible Automatic Additional Account (in the case of
Automatic Additional Accounts), as the case may be, (b) created in compliance,
in all material respects, with all requirements of law applicable to the
Transferor, and pursuant to a credit card agreement complying in all material
respects with all requirements of law applicable to the Transferor, (c) with
respect to which all consents or authorizations of, or registrations with, any
governmental authority required to be obtained or given by the Transferor in
connection with the creation of such Receivable or the execution, delivery,
creation and performance by the Transferor of the related credit card agreement
have been duly obtained or given and are in full force and effect as of the date
of the creation of such Receivable, (d) as to which, at the time of its creation
and at all times thereafter, the Transferor or the Trust had good and marketable
title free and clear of all liens and security interests (other than certain tax
liens for taxes not then due or which the Transferor is contesting), (e) which
is the legal, valid and binding payment obligation of the cardholder thereof,
legally enforceable against such cardholder in accordance with its terms (with
certain bankruptcy related exceptions), (f) which constitutes an "account" or
"general intangible" under and as defined in Article 9 of the UCC as then in
effect in the State of New York, (g) as to which as of the time of its transfer
to the Trust, the Transferor has satisfied all material obligations on its part
with respect to such Receivable required to be satisfied, (h) which is not, at
the time of its transfer to the Trust, subject to any right of rescission,
setoff, counterclaim or defense (including the defense of usury), other than
certain bankruptcy related defenses and (i) as to which the Transferor has done
nothing to impair, or omitted to take any action the omission of which would
impair, the rights of the Trust or the Certificate Holders.
The Trustee has not made, and it is not required or anticipated that the
Trustee will make, any general examination of the Receivables or any records
relating to the Receivables for the purpose of establishing the presence or
absence of defects, compliance with the Transferor's representations and
warranties or for any other purpose. The Servicer, however, has delivered and
will deliver to the Trustee on or before March 31 of each year, beginning in
1994, an opinion of counsel with respect to the validity of the security
interest of the Trust in and to the Receivables and certain other components of
the Trust. The Transferor has undertaken to file any such opinion of counsel
delivered to the Trustee with the Commission as an exhibit to a report on Form
8-K filed under the provisions of the Exchange Act.
Sale of Accounts
The Transferor has the right to sell, transfer or pledge the Accounts;
provided, however, that (i) the Rating Agency has advised the Transferor and the
Trustee that such sale, transfer or pledge will not result in the reduction or
withdrawal of the then existing rating of the certificates, (ii) the Transferor
and the Servicer determine such sale, transfer or pledge will not be materially
adverse to the interests of the Certificate Holders, (iii) such purchaser,
transferee or pledgee shall expressly assume in a supplemental agreement the
applicable obligations and covenants of the Transferor and (iv) certain other
conditions specified in the Agreement are satisfied.
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Addition of Accounts
On each day an Eligible Automatic Additional Account is originated (and on
any day such Account exists but has not been previously added to the Trust as a
result of the limitations expressed in the next succeeding sentence), the
Transferor will add the Receivables in each such account to the Trust and such
accounts shall be treated as Automatic Additional Accounts in an amount not in
excess of the Maximum Addition Amount. An "Eligible Automatic Additional
Account" is, as of the relevant date of addition, an Automatic Additional
Account that is (i) a VISA Account or MasterCard credit card account, satisfying
the criteria set forth in the definition of Eligible Account, or (ii) any other
consumer revolving credit account (x) satisfying the criteria set forth in the
definition of Eligible Account without regard to the requirement that such
account be a VISA or MasterCard credit card account, (y) which would not cause
the Rating Agency to indicate in writing that such addition would result in the
reduction or withdrawal of its then existing rating of any Series of
certificates and (z) to which, to the extent provided in any Supplement, the
provider of any Enhancement for the related Series of certificates consents,
which consent shall not be unreasonably withheld. The Agreement provides that
Automatic Additional Accounts will be transferred to the Trust only if the
following conditions are met: the number of Automatic Additional Accounts the
Receivables of which are designated to be added to the Trust since (i) the first
day of the eleventh preceding Monthly Period minus the number of Automatic
Additional Accounts whose inclusion has been approved by the Rating Agencies,
that satisfy certain other conditions and that were added on the initial day of
the addition of such type of Account since the first day of such eleventh
preceding Monthly Period plus the number of Additional Accounts, if any, the
Receivables of which were required to be and have been designated to be added to
the Trust since the first day of such eleventh preceding Monthly Period pursuant
to the next paragraph minus any Removed Accounts removed since the first day of
such eleventh preceding Monthly Period shall not exceed 15% of the number of
Accounts on the first day of such eleventh preceding Monthly Period, and (ii)
the first day of the second preceding Monthly Period minus the number of
Automatic Additional Accounts whose inclusion has been approved by the Rating
Agencies, that satisfy certain other conditions and that were added on the
initial day of the addition of such type of Account since the first day of such
second preceding Monthly Period plus the number of Additional Accounts, if any,
the Receivables of which were required to be and have been designated to be
added to the Trust since the first day of such second preceding Monthly Period
pursuant to the next paragraph minus any Removed Accounts removed since the
first day of such second preceding Monthly Period shall not exceed 10% of the
number of Accounts on the first day of such second preceding Monthly Period (the
lesser of the amounts described in clauses (i) and (ii) of this sentence, the
"Maximum Addition Amount"). The Transferor, at its option, may terminate or
suspend the inclusion of Automatic Additional Accounts at any time.
As described above in "The Receivables," the Transferor has the right and,
in some circumstances, is obligated to designate from time to time Additional
Accounts to be included as Accounts. The Transferor will be required to add
Additional Accounts (i) if on any Record Date the Transferor Interest for the
related Monthly Period is less than the Minimum Transferor Interest of the
Aggregate Principal Receivables (or such higher amount established pursuant to a
Supplement) or (ii) if, on any date of determination, the Aggregate Principal
Receivables is less than the Minimum Aggregate Principal Receivables. Each such
Additional Account must be an "Eligible Additional Account." An "Eligible
Additional Account" is, as of the date such account is added to the Trust,
either (i) a VISA or MasterCard credit card account satisfying the criteria set
forth in the definition of Eligible Account or (ii) any other consumer revolving
credit account, (a) satisfying the criteria set forth in the definition of
Eligible Account (without regard to the requirement that such account be a VISA
or MasterCard credit card account), (b) the addition of the receivables of which
would not cause the Rating Agency to indicate in writing that such addition
would result in the reduction or withdrawal of its then existing rating of any
Series of certificates and (c) to which, to the extent provided in any
Supplement, the provider of any Enhancement for the related Series of
certificates consents, which consent shall not be unreasonably withheld. The
Transferor will convey to the Trust its interest in all Receivables of such
Additional Accounts, whether such Receivables are then-existing or thereafter
created subject to the following conditions, among others: (i) the Transferor
shall have given prior written notice of such additions to the Rating Agency,
(ii) the Transferor shall have received notice from the Rating Agency that the
inclusion of such accounts as Additional Accounts will not result in the
reduction or withdrawal of its then existing rating of any Series of
certificates, (iii) no selection procedure believed by the Transferor to be
materially adverse to the interests of the holders of any Series of
certificates, including the Certificate Holders, was used in selecting the
Additional Accounts and (iv) each Account was an Eligible Additional Account.
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Removal of Accounts
Subject to the conditions set forth in the next succeeding sentence, on
each Determination Date on which the Transferor Interest for the related Monthly
Period exceeds 10% of Aggregate Principal Receivables on such Determination
Date, the Transferor may, but shall not be obligated to, designate Receivables
from Accounts for deletion and removal from the Trust without notice to the
Certificate Holders (the "Removed Accounts"). The Transferor is permitted to
designate and require reassignment of Receivables from Removed Accounts only
upon satisfaction of the following conditions, among others: (i) the Transferor
shall have delivered to the Trustee for execution a written reassignment and a
computer file or microfiche list containing a true and complete list of all
Removed Accounts, the Accounts to be identified by, among other things, account
number and their aggregate amount of Principal Receivables as of the "Removal
Date" (as defined in the Agreement); (ii) the Transferor shall represent and
warrant that no selection procedure used by the Transferor which is materially
adverse to the interests of the Certificate Holders was utilized in selecting
the Removed Accounts; (iii) the removal of any Receivables of any Removed
Accounts shall not, in the reasonable belief of the Transferor, (a) cause a Pay
Out Event to occur or (b) cause the Transferor Interest as a percentage of
Aggregate Principal Receivables to be less than 10% on such Removal Date; (iv)
the Transferor shall have delivered prior written notice of the removal to the
Rating Agency and prior to the date on which such Receivables are to be removed,
the Transferor shall have received notice from the Rating Agency that such
removal will not result in the reduction or withdrawal of the then-existing
rating of any Series of certificates; (v) the Transferor shall have delivered to
the Trustee an officer's certificate confirming the items set forth in clauses
(i) through (iv) above; and (vi) the Transferor, the Trustee and the Rating
Agency will have received an opinion of counsel that the proposed removal will
not adversely affect the federal income tax characterization of the Trust.
Collection and Other Servicing Procedures
Pursuant to the Agreement, the Servicer will be responsible for servicing
and administering the Receivables in accordance with the Servicer's policies and
procedures for servicing credit card receivables comparable to the Receivables.
The Servicer maintains a blanket bond coverage insuring against losses through
wrongdoing of its officers and employees who are involved in the servicing of
credit card receivables covering such actions and in such amounts as the
Servicer believes to be reasonable from time to time.
Discount Option
The Transferor may at its option at any time designate a specified fixed or
variable percentage (the "Discount Percentage") of the amount of Receivables
arising in designated Accounts on and after the date such option (the "Discount
Option") is exercised that otherwise would have been treated as Principal
Receivables to be treated as Finance Charge Receivables. Such designation of the
Discount Percentage will become effective only upon satisfaction of the
requirements set forth in the Agreement, including confirmation by each Rating
Agency that such designation will not result in a withdrawal or reduction of its
rating of any outstanding Series of certificates. On the date of processing of
any Collections, the product of the Discount Percentage and Collections of
Receivables that arise in the designated Accounts on such day on or after the
date such option is exercised that otherwise would be Principal Receivables will
be deemed Finance Charge Collections and will be applied accordingly. The
Transferor may at its option, at any time, temporarily or permanently suspend
the Discount Option. Each Certificate Holder by its acceptance of a beneficial
interest in a Certificate shall be deemed to have consented to the exercise by
the Transferor of the Discount Option at such time as the Transferor determines
to exercise such option.
The Collection Account
The Servicer has established and will maintain, or cause to be maintained,
in the name of the Trust, for the benefit of Certificate Holders, a "Collection
Account," which is a non interest bearing segregated trust account established
with a "Qualified Institution," defined either as the corporate trust department
of a Qualified Trust Institution or as a depository institution (which may
include the Servicer, the Trustee or an affiliate of the Servicer), organized
under the laws of the United States or any one of the states thereof, which at
all times has a certificate of deposit rating of P-1 by Moody's Investors
Service, Inc. ("Moody's") and of A-1+ by Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies, Inc. ("Standard & Poor's"), or a long
term rating of at least Aa3 by Moody's and AAA by Standard & Poor's and deposit
insurance as required by law and by the FDIC. In addition, the Supplement with
respect
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to any Series may require the Trustee to establish and maintain a subaccount of
the Collection Account for such Series (such subaccount, a "Collection
Subaccount"). Funds in the Collection Account or, as provided in the related
Supplement, any Collection Subaccount, may be invested to the extent provided in
such Supplement, at the direction of the Servicer, in specified investments
including (i) obligations of or fully guaranteed by the United States of
America, (ii) demand deposits, time deposits or certificates of deposit of
depository institutions or trust companies, the certificates of deposit of which
have a rating from Standard & Poor's of A-1+ and either the certificates of
deposit of which have a rating from Moody's of P-1 or the long term unsecured
debt obligations of which have a rating from Moody's of Aa3, and which demand
deposits, time deposits and certificates of deposit are fully insured to the
limits as required by law and by the FDIC, (iii) commercial paper having, at the
time of the Trust's investment, a rating of P-1 and A-1+, respectively, from
Moody's and Standard & Poor's, (iv) bankers acceptances issued by any depository
institution or trust company described in clause (ii) above, (v) money market
funds rated AAA-m or AAAm-G by Standard & Poor's or P-1 by Moody's or which have
otherwise been approved in writing by the Rating Agency and (vi) certain
open-end diversified investment companies which have been approved in writing by
the Rating Agency ("Permitted Investments"). Any earnings (net of losses and
investment expenses) on funds in the Collection Account or any Collection
Subaccount will be paid monthly to the Transferor or as otherwise specified in
the related Supplement. The Servicer has the revocable power to withdraw funds
from the Collection Account or any Collection Subaccount for the sole purpose of
carrying out the Servicer's duties under the Agreement. The Servicer will
initially make daily deposits of Collections allocable to the Investor Interest
into the Collection Account and will not be entitled to use any such deposited
funds for its own purposes. The Paying Agent shall have the revocable power to
withdraw funds from the Collection Account or any Collection Subaccount for the
purpose of making distributions to the Certificate Holders in the manner
provided in the related Supplement. The Paying Agent shall initially be the
Trustee. The Series 1998-1 Supplement provides for the establishment of a Series
1998-1 Collection Subaccount and the investment of certain funds therein in
Permitted Investments. In addition, the Servicer has established and will
maintain or cause to be maintained with a Qualified Institution (other than the
Transferor) in the name of the Trustee, on behalf of the Trust, a segregated
trust account, the "Excess Funding Account" for the benefit of the Certificate
Holders of each Series and the Holder of the Exchangeable Transferor
Certificate. Amounts on deposit in such Excess Funding Account will be invested
in the manner directed by the Transferor in Permitted Investments.
Series 1998-1 Accounts
The Servicer will establish and maintain with a Qualified Trust Institution
in the name of the Trustee for the benefit of the Certificate Holders, two
separate accounts in a segregated trust account maintained in the corporate
trust department of such Qualified Trust Institution (which accounts need not be
deposit accounts), and which will be designated the "Finance Charge Account" and
the "Principal Account." The Servicer will also establish a "Distribution
Account" (a non-interest bearing segregated demand deposit account established
with a Qualified Trust Institution). In addition, the Trustee will establish the
Principal Funding Account and the Reserve Account. See "--Principal Funding
Account" and "--Reserve Account" for discussions of the Principal Funding
Account and the Reserve Account, respectively.
A "Qualified Trust Institution" is a depository institution (which may
include the Trustee) having corporate trust powers, organized under the laws of
the United States or any one of the states thereof, which at all times has a
long term rating of at least Baa3 by Moody's and of at least BBB- by Standard &
Poor's and deposit insurance as required by law and by the FDIC. Funds in the
Principal Account and the Finance Charge Account will be invested, at the
direction of the Servicer, in Permitted Investments. Any earnings (net of losses
and investment expenses) on funds in the Finance Charge Account or the Principal
Account will be paid to the Transferor. The Servicer will have the revocable
power to withdraw funds from the Collection Account, the Finance Charge Account,
the Principal Account and the Excess Funding Account for the purpose of carrying
out the Servicer's duties under the Agreement. The Paying Agent shall have the
revocable power to withdraw funds from the Distribution Account for the purpose
of making distributions to the Certificate Holders. The Distribution Account
shall not contain any funds of the Transferor or amounts allocable to the
Transferor Interest, and no amounts on deposit therein shall be made available
to the Transferor.
The Finance Charge Account, the Principal Account, the Principal
Funding Account and the Distribution Account are collectively referred to as the
"Series 1998-1 Accounts."
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Allocation Percentages
Pursuant to the Agreement, the Servicer will allocate between the Investor
Interest, the investor interest of all other Series of certificates issued and
outstanding and the Transferor Interest all amounts collected on Finance Charge
Receivables, all amounts collected on Principal Receivables and all Receivables
in Defaulted Accounts. The Servicer will make each allocation by reference to
the applicable Investor Percentage (or the applicable percentage for each other
Series) and the Transferor Percentage in each case. "Collections" (as defined in
the Agreement) will be applied first, as Collections in respect of Finance
Charge Receivables ("Finance Charge Collections") and, second, as Collections in
respect of Principal Receivables ("Principal Collections").
The Investor Percentage will be calculated as follows:
Finance Charge Collections and Receivables in Defaulted Accounts; Principal
Collections during Revolving Period. When used with respect to Finance Charge
Collections, or with respect to Receivables in Accounts written off as
uncollectible ("Defaulted Accounts") at any time, or when used with respect to
Principal Collections during the Revolving Period, "Investor Percentage" means
for any Monthly Period, the "Floating Investor Percentage," which shall be, on
any date of determination (except, in the case of Finance Charge Receivables and
Defaulted Receivables, with respect to the first Monthly Period), the percentage
equivalent of a fraction, the numerator of which is the Adjusted Investor
Interest, determined as of the last day of the Monthly Period immediately
preceding such date of determination, and the denominator of which is the
greater of (i) the Aggregate Principal Receivables, determined as of the last
day of the Monthly Period immediately preceding such date of determination, and
(ii) the sum of the numerators used to calculate the applicable investor
percentages for all outstanding Series on such date of determination. With
respect to the first Monthly Period, allocations of Finance Charge Receivables
and Defaulted Accounts described in the preceding sentence will be calculated as
the product of (i) such allocation for the full calendar month of _____ 1998 and
(ii) a fraction, the numerator of which is the actual number of days from and
including the Closing Date through and including ________, 1998, and the
denominator of which is 30. Such amounts so allocated will be further allocated
between the Class A Certificate Holders, the Class B Certificate Holders and the
Collateral Interest Holder based on the Class A Floating Allocation, the Class B
Floating Allocation and the Collateral Floating Allocation, respectively. The
"Class A Floating Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which percentage may never exceed 100%) of a fraction,
the numerator of which is equal to the Class A Adjusted Investor Interest as of
the close of business on the last day of the preceding Monthly Period (or with
respect to the first Monthly Period, as of the Closing Date) and the denominator
of which is equal to the Adjusted Investor Interest as of the close of business
on such day. The "Class B Floating Allocation" means, with respect to any
Monthly Period, the percentage equivalent (which percentage may never exceed
100%) of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the preceding Monthly
Period (or with respect to the first Monthly Period, as of the Closing Date) and
the denominator of which is equal to the Adjusted Investor Interest as of the
close of business on such day. The "Collateral Floating Allocation" means, with
respect to any Monthly Period, the percentage equivalent (which percentage may
never exceed 100%) of a fraction, the numerator of which is equal to the
Collateral Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, as of the Closing
Date) and the denominator of which is equal to the Adjusted Investor Interest as
of the close of business on such day.
Principal Collections during the Controlled Accumulation Period or the
Rapid Amortization Period. When used with respect to Principal Collections for
any Monthly Period during the Controlled Accumulation Period or the Rapid
Amortization Period, "Investor Percentage" means the "Fixed Investor
Percentage," which shall be, on any date of determination, the percentage
equivalent of a fraction, the numerator of which is the Investor Interest as of
the close of business on the last day of the Revolving Period (or, if there has
been an Investor Exchange with respect to the Certificates after the end of the
Revolving Period, the Investor Interest as of the end of the Revolving Period
will be reduced ratably to reflect the amount of Certificates tendered and
canceled pursuant to any Investor Exchange), and the denominator of which is the
greater of (a) the Aggregate Principal Receivables determined as of the last day
of the Monthly Period immediately preceding such date of determination and (b)
the sum of the numerators used to calculate the applicable investor percentages
for all outstanding Series on such date of determination with respect to
Principal Receivables. Such amounts so allocated will be further allocated
between the Class A Certificate Holders, the Class B Certificate Holders and the
Collateral Interest Holder based on the Class A Fixed Allocation, the Class B
Fixed Allocation and the Collateral Fixed Allocation, respectively. The "Class A
Fixed Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage may never exceed 100%) of a fraction, the numerator
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of which is equal to the Class A Investor Interest as of the close of business
on the last day of the Revolving Period and the denominator of which is equal to
the Investor Interest as of the close of business on such day. The "Class B
Fixed Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage may never exceed 100%) of a fraction, the numerator
of which is equal to the Class B Investor Interest as of the close of business
on the last day of the Revolving Period and the denominator of which is equal to
the Investor Interest as of the close of business on such day. The "Collateral
Fixed Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage may never exceed 100%) of a fraction, the numerator
of which is equal to the Collateral Interest as of the close of business on the
last day of the Revolving Period and the denominator of which is equal to the
Investor Interest as of the close of business on such day.
The "Transferor Percentage" will, in all cases, be equal to 100% minus the
sum of the applicable Investor Percentage and the applicable investor
percentages with respect to all Series of investor certificates issued and
outstanding.
"Class A Investor Interest" for any date means an amount equal to (a) the
Class A Initial Investor Interest, minus (b) the aggregate amount of principal
payments made to the Class A Certificate Holders prior to such date, minus (c)
the excess, if any, of the aggregate amount of Class A Investor Charge-Offs for
all Transfer Dates prior to such date over the aggregate amount of any
reimbursements of Class A Investor Charge-Offs for all Transfer Dates prior to
such date; provided, however, that the Class A Investor Interest may not be
reduced below zero.
"Class B Investor Interest" for any date means an amount equal to (a) the
Class B Initial Investor Interest, minus (b) the aggregate amount of principal
payments made to the Class B Certificate Holders prior to such date, minus (c)
the aggregate amount, if any, of Class B Investor Charge-Offs for all Transfer
Dates prior to such date, minus (d) the aggregate amount, if any, of Reallocated
Class B Principal Collections for all prior Transfer Dates with respect to which
the Collateral Interest has not been reduced, minus (e) the aggregate amount, if
any, by which the Class B Investor Interest has been reduced to fund the Class A
Investor Default Amount on all prior Transfer Dates, plus (f) the aggregate
amount of Excess Spread and Shared Finance Charge Collections allocated and
available on all prior Transfer Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c), (d) and (e); provided, however,
that the Class B Investor Interest may not be reduced below zero.
"Collateral Interest" for any date means an amount equal to (a) the Initial
Collateral Interest, minus (b) the aggregate amount of principal payments made
to the Collateral Interest Holder prior to such date, minus (c) the aggregate
amount, if any, of Collateral Interest Charge-Offs for all Transfer Dates prior
to such date, minus (d) the aggregate amount, if any, of Reallocated Principal
Collections for all prior Transfer Dates, minus (e) the aggregate amount, if
any, by which the Collateral Interest has been reduced to fund the Class A
Investor Default Amount and the Class B Investor Default Amount on all prior
Transfer Dates, plus (f) the aggregate amount of Excess Spread and Shared
Finance Charge Collections allocated and available on all prior Transfer Dates
for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (c), (d) and (e); provided, however, that the Collateral Interest may
not be reduced below zero.
"Class A Adjusted Investor Interest," for any date of determination, means
an amount equal to the then current Class A Investor Interest minus the
Principal Funding Account Balance, if any, on such date.
"Adjusted Investor Interest," for any date of determination, means an
amount equal to the sum of the Class A Adjusted Investor Interest, the Class B
Investor Interest and the Collateral Interest, in each case as of such date.
As a result of the calculations described above, Finance Charge Collections
received during any Monthly Period will generally be allocated to the
Certificate Holders based on the relationship of the amount of the Investor
Interest to the Aggregate Principal Receivables in the Trust (which may
fluctuate from month to month). As described above, during the Revolving Period
the Investor Percentage applied when allocating Principal Collections is
expected to vary from month to month because the Investor Interest as a
percentage of the Aggregate Principal Receivables in the Trust will fluctuate
from day to day. During the Controlled Accumulation Period and the Rapid
Amortization Period, however, the amount of Principal Collections allocated to
the Investor Interest each day will generally be equal to the Investor
Percentage with respect to Aggregate Principal Receivables on the last day of
the Revolving Period or as of the effective date of the most recent tender and
cancellation of Certificates pursuant to an Investor Exchange, if any, after the
commencement of the Controlled Accumulation Period or the Rapid Amortization
Period.
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Excess Funding Account
At any time during which no Series is in an accumulation period or
amortization period (including any early amortization period), or for a Series
in an accumulation period or an amortization period, during which the principal
funding account, if any, is fully funded or amounts have otherwise been
deposited in an account established for the benefit of such Series sufficient to
pay the principal amount of such Series in full, and the Transferor Interest
does not exceed the Minimum Transferor Interest, funds (to the extent available
therefor as described herein) otherwise payable to the Holder of the
Exchangeable Transferor Certificate will be deposited in the Excess Funding
Account on any business day in an amount equal to the difference on such
business day between the Transferor Interest and the Minimum Transferor
Interest; provided, however, that to the extent the Transferor Interest has been
reduced below the Minimum Transferor Interest as a result of Receivables in
Defaulted Accounts (which are not Ineligible Receivables) allocated to the
Transferor Interest, no funds will be deposited in the Excess Funding Account in
respect of such reduction attributable to such Receivables in Defaulted
Accounts, as determined below. Funds on deposit in the Excess Funding Account
will be withdrawn and either (i) paid to the Holder of the Exchangeable
Transferor Certificate to the extent that on any day the Transferor Interest
exceeds the Minimum Transferor Interest as a result of the addition of new
Receivables to the Trust or (ii) allocated to one or more Series when they are
in accumulation or amortization periods (including any early amortization
period). Such deposits in and withdrawals from the Excess Funding Account may be
made on a daily basis. With respect to any date, to the extent that the Minimum
Transferor Interest exceeds the Transferor Interest due to the allocation of
Principal Receivables in any Defaulted Accounts to the Transferor Interest on
such date, the Transferor will not be required to make a deposit to the Excess
Funding Account with respect to the portion of such excess equal to the lesser
of (i) the product of the Principal Receivables in such Defaulted Accounts and
the Transferor Percentage on such date and (ii) the product of (a) the amount by
which the Minimum Transferor Interest exceeds the Transferor Interest and (b) a
percentage, the numerator of which is the Transferor Percentage of the Principal
Receivables in such Defaulted Accounts on such day and the denominator of which
is the Aggregate Principal Receivables at the end of the preceding date of
processing minus the Aggregate Principal Receivables on the current date prior
to the deposit of any amount in the Excess Funding Account.
Any funds on deposit in the Excess Funding Account at the beginning of the
Rapid Amortization Period for the Series will be paid to the Certificate Holders
as a payment in respect of principal, and during the Controlled Accumulation
Period will be deposited in the Principal Funding Account to the extent that the
Available Investor Principal Collections allocable to the Investor Interest are
insufficient to deposit in to the Principal Funding Account the applicable
Controlled Deposit Amount.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee at the direction of the Transferor in Permitted Investments. On each
Distribution Date, all net investment income earned on amounts in the Excess
Funding Account since the preceding Distribution Date will be withdrawn from the
Excess Funding Account and applied as Collections in respect of Finance Charge
Receivables as described herein.
Application of Collections
The Servicer will deposit into the Collection Account, no later than the
second business day following the date of processing, any payment collected by
the Servicer on the Receivables. Notwithstanding the foregoing, for as long as
(a) (i) the Servicer provides to the Trustee a letter of credit or other
arrangement covering risk of collection of the Servicer acceptable to the Rating
Agency and (ii) the Transferor and the Trustee shall have received a notice from
the Rating Agency that such letter of credit or other arrangement would not
result in the lowering or withdrawal of such Rating Agency's then-existing
rating of any Series of certificates or (b) People's Bank remains the Servicer
under the Agreement, if People's Bank or any of its affiliates in which the
Collection Account is maintained has and maintains a certificate of deposit
rating of P-1 by Moody's and of A-1 by Standard & Poor's and deposit insurance
as required by law and the FDIC, then the Servicer need not deposit collections
on the day indicated in the preceding sentence but may use for its own benefit
all such collections until the related Transfer Date at which time the Servicer
will make such deposits in an amount equal to the net amount of such deposits
and payments which would have been made had the conditions of this proviso not
applied.
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Throughout the existence of the Trust, on each business day the Servicer
shall allocate and pay to the Holder of the Exchangeable Transferor Certificate,
an amount equal to the Transferor Percentage of the aggregate amount of
Principal Collections and Finance Charge Collections in respect of such business
day.
On each business day, the Servicer will withdraw the following amounts from
the Collection Account for application as indicated:
(a) an amount equal to the applicable Floating Investor
Percentage of the aggregate amount of such deposits in respect of
Finance Charge Collections will be deposited into the Finance Charge
Account;
(b) during the Revolving Period, an amount equal to the
applicable Floating Investor Percentage of the aggregate amount of such
deposits in respect of Principal Collections, up to an amount by which
the Collateral Interest exceeds the Required Collateral Interest as of
such day (such excess, the "Collateral Interest Surplus"), will be
deposited in the Principal Account. On any business day when the amount
on deposit in the Principal Account exceeds the applicable Collateral
Interest Surplus, such excess will be treated as Shared Principal
Collections and applied as such;
(c) during the Controlled Accumulation Period, an amount equal
to the sum of (i) the applicable Fixed Investor Percentage of the
aggregate amount of such deposits in respect of Principal Collections,
together with certain amounts treated as Principal Collections,
including amounts applied with respect to Investor Default Amounts and
Investor Charge Offs (collectively, the "Principal Allocation"), (ii)
any amount of Shared Principal Collections and (iii) amounts withdrawn
from the Excess Funding Account allocated to the Certificates will be
deposited in the Principal Account, up to, during any Monthly Period,
an amount equal to the sum of the applicable Controlled Deposit Amount
and the applicable Collateral Interest Surplus. On any business day
when the amount on deposit in the Principal Account exceeds the sum of
the applicable Controlled Deposit Amount for the Certificates and the
applicable Collateral Interest Surplus, such excess will be treated as
Shared Principal Collections and applied as such; and
(d) during the Rapid Amortization Period, if any, an amount
equal to the applicable Fixed Investor Percentage of the aggregate
amount of such deposits in respect of Principal Collections, any amount
of Shared Principal Collections and any amounts withdrawn from the
Excess Funding Account allocated to the Certificates, up to the amount
of the Investor Interest, will be deposited into the Principal Account.
During any Monthly Period, Shared Principal Collections will be allocated
to each outstanding Series pro rata based on the amount of the shortfall in
deposits in respect of Principal Collections to cover amounts payable to the
Certificate Holders of any Series and, as applicable, to holders of other
related undivided interests in the Trust out of Collections in respect of
Principal Receivables. The Servicer will pay any remaining Shared Principal
Collections on such business day to the Holder of the Exchangeable Transferor
Certificate (so long as the Transferor Interest exceeds the Minimum Transferor
Interest).
Any Shared Principal Collections and other amounts not paid to the
Transferor because the Transferor Interest on any date, after giving effect to
the inclusion in the Trust of all Receivables on or prior to such date and the
application of all prior payments to the Transferor, does not exceed the Minimum
Transferor Interest, together with any adjustment payments (as described in the
third paragraph of "--Defaulted Receivables; Adjustments and Fraudulent Charges"
below), will be deposited into and held in the Excess Funding Account, and on
the commencement of the Amortization Period with respect to any Series, such
amounts will be deposited in the Principal Account of such Series to the extent
specified in the related Supplement until the holders of certificates of such
Series have been paid in full. "Amortization Period," with respect to any
Series, refers to the period following the related revolving period, which will
be the early amortization period, the rapid amortization period, the controlled
accumulation period, the controlled amortization period, or such other
amortization or accumulation period, in each case as defined, as applicable,
with respect to such Series in the related Series Supplement. Any proceeds from
any repurchase of the certificates occurring in connection with a Service
Transfer and the proceeds of any sale, disposition or liquidation of Receivables
following the occurrence of a Pay Out Event caused by the appointment of a
receiver or conservator for the Transferor or in connection with the termination
of the Trust will be deposited into the Collection Account immediately upon
receipt and will be allocated as Principal Collections or Finance Charge
Collections, as applicable.
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Allocation of Funds
Payment of Fees, Interest and Other Items. On each Transfer Date (except as
noted below), the Servicer or the Trustee, acting pursuant to the Servicer's
instructions, will withdraw all amounts on deposit in the Finance Charge Account
in respect of allocations of Finance Charge Receivables during the immediately
preceding Monthly Period and make the following payments and deposits in the
following order:
(i) An amount equal to the Class A Available Funds with
respect to such Transfer Date will be distributed in the following
priority:
(a) the sum of (x) the product of (i) the lesser of
the Class A Certificate Rate and the Class A Cap Rate (or
_____% for the Initial Interest Period), (ii) the Class A
Adjusted Investor Interest determined as of the preceding
Distribution Date (after giving effect to all payments,
deposits and withdrawals made on such Distribution Date) or,
for the Initial Interest Period, the Class A Initial Investor
Interest, and (iii) the actual number of days in the related
Interest Period or the Initial Interest Period divided by 360
(the "Class A Monthly Cap Rate Interest") and (y) the Class A
Covered Amount for the related Interest Period plus any
overdue Class A Monthly Cap Rate Interest and Class A Covered
Amount in respect of which a distribution to Class A
Certificate Holders has not been made, will be deposited in
the Distribution Account for distribution to Class A
Certificate Holders on the next succeeding Distribution Date;
(b) an amount equal to the Class A Monthly Servicing
Fee for the preceding Monthly Period and any accrued and
unpaid Class A Monthly Servicing Fees will be paid to the
Servicer;
(c) an amount equal to the Class A Investor Default
Amount for the preceding Monthly Period will be treated as
Principal Collections and will be applied on such Transfer
Date in accordance with "Payments of Principal" below;
(d) an amount equal to the unreimbursed Class A
Investor Charge-Offs will be treated as Principal Collections
and will be applied on such Transfer Date in accordance with
"--Payments of Principal" below; and
(e) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as
described below.
The excess of the Class A Monthly Interest over the sum of the Class A
Monthly Cap Rate Interest and the Class A Covered Amount will be funded from and
to the extent of payments made pursuant to the Class A Interest Rate Cap and
from Excess Spread.
(ii) An amount equal to the Class B Available Funds with
respect to such Transfer Date will be distributed in the following
priority:
(a) an amount equal to the product of (i) the lesser
of the Class B Certificate Rate and the Class B Cap Rate (or
___% for the Initial Interest Period) (ii) the Class B
Investor Interest determined as of the preceding Distribution
Date (after giving effect to all payments, deposits and
withdrawals made on such Distribution Date) or, for the
Initial Interest Period, the Class B Initial Investor
Interest, and (iii) the actual number of days in the related
Interest Period or the Initial Interest Period divided by 360
("Class B Monthly Cap Rate Interest"), plus any overdue Class
B Monthly Cap Rate Interest in respect of which a distribution
to Class B Certificate Holders has not been made, will be
deposited in the Distribution Account for distribution to
Class B Certificate Holders on the next succeeding
Distribution Date;
(b) an amount equal to the Class B Monthly Servicing
Fee for the preceding Monthly Period and any accrued and
unpaid Class B Monthly Servicing Fees will be paid to the
Servicer;
(c) an amount equal to the Class B Investor Default
Amount for the preceding Monthly Period will be treated as
Principal Collections and will be applied on such Transfer
Date in accordance with "--Payments of Principal" below;
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(d) an amount equal to the unreimbursed Class B
Investor Charge-Offs will be treated as Principal Collections
and (other than those amounts treated as Reallocated Principal
Collections) will be applied on such Transfer Date in
accordance with "--Payments of Principal" below; and
(e) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as
described below.
The excess of the Class B Monthly Interest over the Class B Monthly Cap
Rate Interest will be funded from and to the extent of payments made pursuant to
the Class B Interest Rate Cap and from and to the extent of Excess Spread.
(iii) An amount equal to the Collateral Available Funds with
respect to such Transfer Date will be distributed in the following
priority:
(a) an amount equal to the Collateral Interest
Monthly Servicing Fee for the preceding Monthly Period and any
accrued and unpaid Collateral Interest Servicing Fees will be
paid to the Servicer; and
(b) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as
described below.
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class A Floating Allocation of Finance Charge
Collections allocated to the Investor Interest and deposited in the Finance
Charge Account with respect to such Monthly Period, (b) Principal Funding
Investment Proceeds, if any, with respect to the related Transfer Date, (c)
amounts, if any, to be withdrawn from the Reserve Account which are required to
be included in Class A Available Funds pursuant to the Series 1998-1 Supplement
with respect to such Transfer Date and (d) the proceeds from the sale of all or
any portion of the Class A Interest Rate Cap deposited into the Collection
Account during such Monthly Period. "Class B Available Funds" means, with
respect to any Monthly Period, an amount equal to the sum of (a) the Class B
Floating Allocation of Finance Charge Collections allocated to the Investor
Interest and deposited in the Finance Charge Account with respect to such
Monthly Period and (b) the proceeds from the sale of all or any portion of the
Class B Interest Rate Cap deposited into the Collection Account during such
Monthly Period. "Collateral Available Funds" means, with respect to any Monthly
Period, an amount equal to the Collateral Floating Allocation of Finance Charge
Collections allocated to the Investor Interest with respect to such Monthly
Period.
"Excess Spread" on each Transfer Date will equal the sum of (a) the excess
of the Class A Available Funds over the Class A Payment Amount, (b) the excess
of the Class B Available Funds over the Class B Payment Amount and (c) the
excess of the Collateral Available Funds over the Collateral Interest Monthly
Servicing Fee payable on such Transfer Date.
Excess Spread. On each Transfer Date, the Servicer or the Trustee, acting
pursuant to the Servicer's instructions, will apply Excess Spread with respect
to the preceding Monthly Period and make the following payments and deposits in
the following priority:
(a) an amount equal to the Class A Required Amount will be
used to pay such Class A Required Amount and will be applied and
distributed in accordance with the priorities described in clauses
(i)(a) through (i)(d) above under "--Payment of Interest, Fees and
Other Items";
(b) an amount equal to the Class B Required Amount will be
used to pay such Class B Required Amount and will be applied and
distributed in accordance with the priorities described in clauses
(ii)(a) through (ii)(d) above under "--Payment of Interest, Fees and
Other Items";
(c) an amount equal to the amount of any accrued and unpaid
interest on any overdue Class A Monthly Interest, calculated on the
basis of (x) a default rate of interest equal to the Class A
Certificate Rate plus ___% and (y) the actual number of days such Class
A Monthly Interest is or was at any time overdue, divided by 360, will
be deposited in the Distribution Account for distribution to Class A
Certificate Holders on the next succeeding Distribution Date;
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(d) an amount equal to the amount of any accrued and unpaid
interest on any overdue Class B Monthly Interest, calculated on the
basis of (x) a default rate of interest equal to the Class B
Certificate Rate plus ___% and (y) the actual number of days such Class
B Monthly Interest is or was at any time overdue, divided by 360, will
be deposited in the Distribution Account for distribution to Class B
Certificate Holders on the next succeeding Distribution Date;
(e) an amount equal to any unreimbursed reductions in the
Class B Investor Interest in connection with the payment of the Class A
Required Amount will be applied to reinstate the Class B Investor
Interest and will be treated as Principal Collections and applied on
such Transfer Date in accordance with "--Payments of Principal" below;
(f) an amount equal to the product of (i) an amount equal to
LIBOR plus ___% per annum, or such lesser amount as may be designated
in the Loan Agreement (the "Collateral Rate"), (ii) the Collateral
Interest as of the preceding Distribution Date (after giving effect to
all payments, deposits and withdrawals made on such date) or, for the
first Transfer Date, the Initial Collateral Interest, and (iii) the
actual number of days in the related Interest Period or the Initial
Interest Period divided by 360 (the "Collateral Monthly Interest"),
plus any overdue Collateral Monthly Interest in respect of which a
distribution to the Collateral Interest Holder has not been made, will
be distributed to the Collateral Interest Holder in accordance with the
Loan Agreement;
(g) an amount equal to the amount by which the Class A Monthly
Interest for the preceding Interest Period exceeds the Class A Monthly
Cap Rate Interest (other than Class A Excess Interest), to the extent
such amount is not paid by the Interest Rate Cap Provider pursuant to
the Class A Interest Rate Cap, and any such accrued and unpaid amounts
for prior Interest Periods, will be deposited in the Distribution
Account for distribution to Class A Certificate Holders on the next
succeeding Distribution Date;
(h) an amount equal to the amount by which the Class B Monthly
Interest for the preceding Interest Period exceeds the Class B Monthly
Cap Rate Interest (other than Class B Excess Interest), to the extent
such amount is not paid by the Interest Rate Cap Provider pursuant to
the Class B Interest Rate Cap, and any such accrued and unpaid amounts
for prior Interest Periods, will be deposited in the Distribution
Account for distribution to Class B Certificate Holders on the next
succeeding Distribution Date;
(i) an amount equal to the aggregate Collateral Default Amount
for the preceding Monthly Period will be treated as Principal
Collections and will be applied on such Transfer Date in accordance
with "--Payments of Principal" below;
(j) an amount equal to any unreimbursed reductions in the
Collateral Interest for reasons other than payment of principal to the
Collateral Interest Holder will be applied to reinstate the Collateral
Interest and will be treated as Principal Collections and applied on
such Transfer Date in accordance with "--Payments of Principal" below;
(k) on each Transfer Date from and after the Reserve Account
Funding Date, but prior to the date on which the Reserve Account
terminates as described under "--Reserve Account," an amount up to the
excess, if any, of the Required Reserve Account Amount over the
Available Reserve Account Amount will be deposited into the Reserve
Account;
(l) any other amounts due and payable under the Loan Agreement
will be applied and distributed in accordance with and to the extent
specified in the Loan Agreement;
(m) an amount equal to the amount of any Class A Excess
Interest accruing during the related Interest Period;
(n) an amount equal to the amount of any Class B Excess
Interest accruing during the related Interest Period;
(o) the balance, if any, will constitute Shared Finance Charge
Collections, to be applied and distributed as described below in
"--Shared Finance Charge Collections";
(p) any amounts remaining after application as Shared Finance
Charge Collections will be applied to the payment of other accrued and
unpaid expenses of the Trust, if any; and
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(q) any amounts remaining after application as Shared Finance
Charge Collections and to expenses of the Trust, if any, will be paid
to the Holder of the Exchangeable Transferor Certificate.
Shared Finance Charge Collections. Shared Finance Charge Collections will
be applied to cover any shortfalls with respect to amounts payable from Finance
Charge Collections allocable to any other Series then outstanding. Any such
Shared Finance Charge Collections remaining after covering shortfalls with
respect to all outstanding Series will be distributed to the Holder of the
Exchangeable Transferor Certificate. Any amounts designated as Shared Finance
Charge Collections pursuant to Supplements for any other Series and allocable to
the Certificates will be applied first, to the extent of any shortfalls in the
amount available from the Finance Charge Account, to make the payments and
deposits described in clauses (i)(a) through (i)(d) above under "--Payments of
Fees, Interest and Other Items," second, to make the payments and deposits
described in clauses (ii)(a) through (ii)(d) above under "--Payments of Fees,
Interest and Other Items," third, to make the payment described in clause
(iii)(a) above under "--Payments of Fees, Interest and Other Items," fourth, to
reimburse any reductions in the Class B Investor Interest arising in connection
with the payment of the Class A Required Amount, fifth, to pay the Collateral
Monthly Interest and sixth, to make the payments described above in clauses (g),
(h), (i), (j), (k) and (l) of "--Excess Spread" and thereafter paid to the
Holder of the Exchangeable Transferor Certificate. If the amount on deposit in
the Finance Charge Account with respect to the allocations of Finance Charge
Receivables during the preceding Monthly Period and any amounts designated as
Shared Finance Charge Collections pursuant to the Supplements for any other
Series and allocable to the Certificates are insufficient to make any of the
payments or deposits specified in clauses (i)(a) through (i)(d) and (ii)(a)
through (ii)(d) above under "--Payments of Fees, Interest and Other Items," the
Trustee, acting pursuant to the Servicer's instructions, will apply Principal
Collections allocated to the Collateral Interest as Reallocated Collateral
Principal Collections on the Transfer Date, first to cover any remaining Class A
Required Amount and second to cover any Class B Required Amount, and if the
Reallocated Collateral Principal Collections on such Transfer Date are less than
the remaining Class A Required Amount, to apply Principal Collections allocated
to the Class B Certificates as Reallocated Class B Principal Collections on the
Transfer Date to cover any remaining Class A Required Amount. See
"--Reallocation of Cash Flows."
Payments of Principal. On each Transfer Date, the Servicer or the Trustee,
acting pursuant to the Servicer's instructions, will distribute Available
Investor Principal Collections on deposit in the Principal Account in the
following priority:
(i) On each Transfer Date with respect to the Revolving Period:
(a) an amount equal to the Collateral Monthly Principal will be
paid to the Collateral Interest Holder in accordance with the Loan
Agreement; and
(b) the balance, if any, will constitute Shared Principal
Collections and will be allocated and distributed as described below
under "--Shared Principal Collections";
(ii) On each Transfer Date with respect to the Controlled Accumulation
Period (beginning on the first Transfer Date following the Monthly Period
in which the Controlled Accumulation Period commences):
(a) prior to the Class A Scheduled Payment Date, an amount equal to
the Class A Monthly Principal will be deposited in the Principal
Funding Account, and on the Transfer Date immediately preceding the
Class A Scheduled Payment Date the aggregate amount on deposit in the
Principal Funding Account will be deposited in the Distribution Account
for distribution to the Class A Certificate Holders on the Class A
Scheduled Payment Date;
(b) for each Transfer Date after the Class A Investor Interest has
been paid in full, an amount equal to the Class B Monthly Principal for
such Transfer Date will be distributed to the Class B Certificate
Holders;
(c) on each Transfer Date with respect to the Controlled
Accumulation Period in which a reduction in the Required Collateral
Interest has occurred, an amount equal to the Collateral Monthly
Principal will be paid to the Collateral Interest Holder in accordance
with the Loan Agreement; and
(d) the balance, if any, will constitute Shared Principal
Collections and will be allocated and distributed as described below
under "--Shared Principal Collections";
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(iii) On each Transfer Date with respect to the Rapid Amortization
Period (beginning on the first Transfer Date following the Monthly Period
in which the Rapid Amortization Period commences):
(a) an amount equal to the Class A Monthly Principal will be
deposited in the Distribution Account for distribution to the Class A
Certificate Holders on the next succeeding Distribution Date;
(b) after the Class A Investor Interest has been paid in full, an
amount equal to the Class B Monthly Principal will be deposited in the
Distribution Account for distribution to the Class B Certificate
Holders on the next succeeding Distribution Date;
(c) after the Class B Investor Interest has been paid in full, an
amount equal to the Collateral Monthly Principal will be paid to the
Collateral Interest Holder in accordance with the Loan Agreement; and
(d) the balance, if any, will constitute Shared Principal
Collections and will be allocated and distributed as described below
under "--Shared Principal Collections."
"Class A Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period or the Rapid Amortization Period, prior to
the payment in full of the Class A Investor Interest, will equal the least of
(i) Available Investor Principal Collections on deposit in the Principal Account
with respect to such Transfer Date, (ii) for each Transfer Date with respect to
the Controlled Accumulation Period, prior to the Class A Scheduled Payment Date,
the applicable Controlled Deposit Amount for such Transfer Date and (iii) the
Class A Adjusted Investor Interest prior to any deposits on such Transfer Date.
"Class B Monthly Principal" with respect to the Transfer Date relating to
the Controlled Accumulation Period immediately following the Class A Scheduled
Payment Date, or with respect to any Transfer Date relating to the Rapid
Amortization Period, beginning with the Transfer Date on which the Class A
Investor Interest has been paid in full (after taking into account payments to
be made on the related Distribution Date), will equal the lesser of (i)
Available Investor Principal Collections on deposit in the Principal Account
(minus the portion of such Available Investor Principal Collections applied to
Class A Monthly Principal on such Transfer Date) and (ii) the Class B Investor
Interest for such Transfer Date.
"Collateral Monthly Principal" means (a) with respect to any Transfer Date
relating to the Revolving Period following any reduction of the Required
Collateral Interest effected as described in clause (3) of the proviso in the
definition of "Required Collateral Interest," an amount equal to the lesser of
(i) the excess, if any, of the Collateral Interest (after giving effect to
reductions for any Collateral Interest Charge-Offs and Reallocated Principal
Collections on such Transfer Date and after giving effect to any further
adjustments thereto for the benefit of the Class A Certificate Holders and the
Class B Certificate Holders on such Transfer Date) over the Required Collateral
Interest on such Transfer Date, and (ii) the Available Investor Principal
Collections on such Transfer Date or (b) with respect to any Transfer Date
relating to the Controlled Accumulation Period prior to repayment in full of the
Class B Investor Interest an amount equal to the lesser of (i) the excess, if
any, of the Collateral Interest (after giving effect to reductions for any
Collateral Interest Charge-Offs and Reallocated Principal Collections on such
Transfer Date and after giving effect to any further adjustments thereto for the
benefit of the Class A Certificate Holders and the Class B Certificate Holders
on such Transfer Date) over the Required Collateral Interest on such Transfer
Date, and (ii) the Available Investor Principal Collections remaining after
allocations to the Offered Certificates on such Transfer Date or (c) with
respect to any Transfer Date relating to the Controlled Accumulation Period or
the Rapid Amortization Period, beginning with the Transfer Date on which the
Class B Investor Interest has been paid in full (after taking into account
payments to be made on the related Distribution Date), an amount equal the least
of (i) Available Investor Principal Collections on deposit in the Principal
Account (minus the portion of such Available Investor Principal Collections
applied to Class A Monthly Principal and Class B Monthly Principal on such
Transfer Date) and (ii) the Collateral Interest for such Transfer Date.
Shared Principal Collections. Principal Collections for any Monthly Period
allocated to the Investor Interest will first be used to cover, with respect to
any Monthly Period during the Controlled Accumulation Period, deposits of the
Controlled Deposit Amount to the Principal Funding Account with respect to the
Class A Certificates or of the Class B Investor Interest to the Distribution
Account with respect to the Class B Certificates, and during the Rapid
Amortization Period, the deposit of the Class A Investor Interest and the Class
B Investor Interest to the Distribution Account, and then under certain
circumstances payments to the Collateral Interest Holder, in each case as
described above. The Servicer
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will determine the amount of Principal Collections for any Monthly Period
allocated to the Investor Interest remaining after covering required payments to
the Certificate Holders and any similar amount remaining for any other Series.
The Servicer will allocate Shared Principal Collections derived from Principal
Collections allocated to the Investor Interest to cover any scheduled or
permitted principal distributions to Certificate Holders of other Series, and
deposits to principal funding accounts, if any, for any other Series entitled
thereto which have not been covered out of the Principal Collections allocable
to such Series and out of certain other amounts for such Series ("Principal
Shortfalls"). If Principal Shortfalls exceed Shared Principal Collections for
any Monthly Period, Shared Principal Collections will be allocated pro rata
among the applicable Series based on the relative amounts of Principal
Shortfalls. To the extent that Shared Principal Collections exceed Principal
Shortfalls, the balance will be paid to the holder of the Exchangeable
Transferor Certificate or, under certain circumstances, deposited into the
Excess Funding Account. Any amounts designated as Shared Principal Collections
pursuant to Supplements for any other Series and allocable to the Certificates
will be applied as described in "--Payments of Principal" above.
Reallocation of Cash Flows
On each Distribution Date during the Revolving Period, the Controlled
Accumulation Period and the Rapid Amortization Period, if any, the Servicer will
determine the Class A Required Amount and the Class B Required Amount. If either
or both of the Required Amounts are greater than zero after application of
available Finance Charge Collections, Excess Spread, and Shared Finance Charge
Collections, then Principal Collections allocable to the Collateral Interest
will be reallocated and applied first to fund the remaining Class A Required
Amount, if any, and second to fund to the remaining Class B Required Amount, if
any, and to the extent that Reallocated Collateral Principal Collections are
less than such remaining Class A Required Amount, Principal Collections
allocable to the Class B Certificates will then be reallocated and applied to
fund the remaining Class A Required Amount. The Collateral Interest will be
reduced by the amount of Reallocated Collateral Principal Collections and
Reallocated Class B Principal Collections applied to fund the Required Amounts.
The Class B Investor Interest will be reduced by the amount of Reallocated Class
B Principal Collections in excess of the Collateral Interest (after giving
effect to reductions for any Collateral Interest Charge-Offs and any Reallocated
Collateral Principal Collections as of the related Distribution Date) applied to
fund the Class A Required Amount.
"Class A Required Amount" for any date means the amount, if any, by which
the Class A Available Funds with respect to the related Monthly Period are
insufficient to pay the Class A Payment Amount for the related date.
"Class A Payment Amount" for any date means the aggregate of (i) the Class
A Monthly Cap Rate Interest with respect to the related Distribution Date and
any Class A Monthly Cap Rate Interest accrued during any prior period and not
distributed to the Class A Certificate Holders, (ii) the Class A Covered Amount
and any Class A Covered Amount accrued during any prior period and not
distributed to the Class A Certificate Holders, (iii) the Class A Monthly
Servicing Fee with respect to the related Distribution Date and any accrued and
unpaid Class A Monthly Servicing Fees from prior Monthly Periods, (iv) the Class
A Investor Default Amount for the related Monthly Period, and (v) unreimbursed
Class A Investor Charge-Offs.
"Class B Required Amount" for any date means the amount, if any, by which
the Class B Available Funds for any Monthly Period are insufficient to pay the
Class B Payment Amount.
"Class B Payment Amount" for any date means the aggregate of (i) the Class
B Monthly Cap Rate Interest with respect to the related Distribution Date and
any Class B Monthly Cap Rate Interest accrued during any prior period and not
distributed to the Class B Certificate Holders, (ii) the Class B Monthly
Servicing Fee with respect to the related Distribution Date and any accrued and
unpaid Class B Monthly Servicing Fees from prior Monthly Periods, (iii) the
Class B Investor Default Amount for the related Monthly Period, and (iv)
unreimbursed Class B Investor Charge-Offs.
"Required Amounts" for any date means the Class A Required Amount and the
Class B Required Amount, collectively.
Principal Collections allocable to the Collateral Interest and the Class B
Certificates for the purpose of determining Collections available to be applied
as Reallocated Principal Collections will be determined (i) for any Monthly
Period during the Revolving Period by multiplying the Collateral Floating
Allocation or the Class B Floating Allocation, as the
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case may be, by the applicable Floating Investor Percentage of Principal
Collections for such Monthly Period, and (ii) for any Monthly Period during the
Controlled Accumulation Period or the Rapid Amortization Period, if any, by
multiplying the Collateral Fixed Allocation or the Class B Fixed Allocation, as
the case may be, by the applicable Fixed Investor Percentage of Principal
Collections for such Monthly Period, and in each case adding certain other
amounts treated as Principal Collections (including amounts applied with respect
to Investor Default Amounts and Investor Charge-Offs).
Any reductions of the Class B Investor Interest or of the Collateral
Interest, if reduced to an amount less than the Required Collateral Interest,
due to payment of the Class A Required Amount or, with respect to the Collateral
Interest, payment of the Class B Required Amount, will thereafter be reimbursed
and the Class B Investor Interest and the Collateral Interest, as the case may
be, increased on each Distribution Date by the amount, if any, of Excess Spread
and any Shared Finance Charge Collections from other Series available for that
purpose (in the case of the Collateral Interest, up to the Required Collateral
Interest).
"Reallocated Class B Principal Collections" for any Monthly Period means
Principal Collections allocable to the Class B Investor Interest for the related
Monthly Period in an amount not to exceed the amount applied to fund the Class A
Required Amount, if any; provided, however, that such amount will not exceed the
Class B Investor Interest after giving effect to any Class B Investor
Charge-Offs for the related Transfer Date.
"Reallocated Collateral Principal Collections" for any Monthly Period means
Principal Collections allocable to the Collateral Interest for the related
Monthly Period in an amount not to exceed the amount applied to fund the Class A
Required Amount and the Class B Required Amount, if any; provided, however, that
such amount will not exceed the Collateral Interest after giving effect to any
Collateral Investor Charge-Offs for the related Transfer Date.
"Reallocated Principal Collections" for any date means Reallocated Class B
Principal Collections and Reallocated Collateral Principal Collections, for such
date, collectively.
Defaulted Receivables; Adjustments and Fraudulent Charges
On the eighth business day of each month but not later than the tenth
calendar day (and if such day is not a business day, the preceding business day)
(such date, a "Determination Date"), the Servicer will calculate the Class A
Investor Default Amount, the Class B Investor Default Amount and the Collateral
Default Amount for the preceding Monthly Period. The terms "Class A Investor
Default Amount," "Class B Investor Default Amount" and "Collateral Default
Amount" mean, respectively, for any Monthly Period, the product of (a) the Class
A Floating Allocation, the Class B Floating Allocation or the Collateral
Floating Allocation, as the case may be, determined as of the end of the Monthly
Period, (b) the Floating Investor Percentage for Receivables in Defaulted
Accounts and (c) the amount of Defaulted Receivables for such Monthly Period
(the sum of the Class A Investor Default Amount, the Class B Investor Default
Amount and the Collateral Default Amount being sometimes referred to as the
"Investor Default Amount"). The term "Defaulted Receivables" means, for any
Monthly Period, Receivables which in such Monthly Period were written off as
uncollectible in accordance with the Servicer's policies and procedures for
servicing credit card receivables comparable to the Receivables.
On each Determination Date, if the Class A Investor Default Amount exceeds
the amount of Excess Spread, Shared Finance Charge Collections and Reallocated
Principal Collections which are allocated and available to fund such amount with
respect to the Monthly Period immediately preceding such Determination Date, the
Collateral Interest (after giving effect to reductions for any Collateral
Interest Charge-Offs and any Reallocated Principal Collections as of the related
Distribution Date) will be reduced by the amount of such excess (but not by more
than the Class A Investor Default Amount for such Monthly Period). In the event
that such reduction would cause the Collateral Interest to be a negative number,
the Collateral Interest will be reduced to zero, and the Class B Investor
Interest (after giving effect to reductions for any Class B Investor Charge-Offs
and any Reallocated Class B Principal Collections in excess of the Collateral
Interest as of such Distribution Date) will be reduced by the amount by which
the Collateral Interest would have been reduced below zero. In the event that
such reduction would cause the Class B Investor Interest to be a negative
number, the Class B Investor Interest will be reduced to zero, and the Class A
Investor Interest will be reduced by the amount by which the Class B Investor
Interest would have been reduced below zero (a "Class A Investor Charge-Off"),
which will have the effect of slowing or reducing the return of principal and
interest to the Class A Certificate Holders. If the
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Class A Investor Interest has been reduced by the amount of any Class A Investor
Charge-Offs, it will be reimbursed on any Transfer Date (but not by an amount in
excess of the aggregate Class A Investor Charge-Offs) by the amount of
collections of Finance Charge Receivables, Excess Spread and Shared Finance
Charge Collections allocated and available for such purpose as described under
"--Allocation of Funds."
On each Determination Date, if the Class B Investor Default Amount exceeds
the amount of Excess Spread, Shared Finance Charge Collections and Reallocated
Collateral Principal Collections which are allocated and available to fund such
amount with respect to the Monthly Period preceding such Determination Date, the
Collateral Interest (after giving effect to reductions for any Collateral
Interest Charge-Offs and any Reallocated Principal Collections as of the related
Distribution Date and after giving effect to any adjustments with respect
thereto as described in the preceding paragraph) will be reduced by the amount
of such excess (but not by more than the Class B Investor Default Amount for
such Monthly Period). In the event that such reduction would cause the
Collateral Interest to be a negative number, the Collateral Interest will be
reduced to zero and the Class B Investor Interest will be reduced by the amount
by which the Collateral Interest would have been reduced below zero (a "Class B
Investor Charge-Off"). The Class B Investor Interest will also be reduced by the
amount of Reallocated Class B Principal Collections in excess of the Collateral
Interest (after giving effect to reductions for any Collateral Interest
Charge-Offs and any Reallocated Collateral Principal Collections as of the
related Distribution Date) and the amount of any portion of the Class B Investor
Interest allocated to the Class A Certificates to avoid a reduction in the Class
A Investor Interest. The Class B Investor Interest will thereafter be reimbursed
(but not in excess of the unpaid principal balance of the Class B Certificates)
on any Transfer Date by the amount of Excess Spread and Shared Finance Charge
Collections allocated and available for that purpose as described under
"--Allocation of Funds."
On each Determination Date, if the Collateral Default Amount exceeds the
amount of Excess Spread and Shared Finance Charge Collections which are
allocated and available to fund such amount with respect to the Monthly Period
preceding such Determination Date, the Collateral Interest will be reduced by
the amount of such excess but not more than the lesser of the Collateral Default
Amount and the Collateral Interest for such Transfer Date (a "Collateral
Interest Charge-Off"). The Collateral Interest will also be reduced by the
amount of Reallocated Collateral Principal Collections and the amount of any
portion of the Collateral Interest allocated to the Class A Certificates to
avoid a reduction in the Class A Investor Interest or to the Class B
Certificates to avoid a reduction in the Class B Investor Interest. The
Collateral Interest will thereafter be reimbursed on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "--Allocation of Funds." An "Investor Charge-Off" means a Class A Investor
Charge-Off, a Class B Investor Charge-Off or a Collateral Interest Charge-Off,
as the context requires.
The Servicer shall be obligated to reduce on a net basis at the end of each
Monthly Period the aggregate amount of Principal Receivables (i) created in
respect of merchandise refused or returned by the obligor thereunder or as to
which the obligor thereunder has asserted a counterclaim or defense, (ii)
reduced by the Servicer by any charge-back or other principal adjustment, (iii)
created as a result of a fraudulent or counterfeit charge, (iv) resulting from
adjustments relating to returned or dishonored checks, or (v) resulting from
Servicer error. The Interest will be reduced by the amount of any such
adjustment; provided, however, that if the Transferor Interest would be reduced
below the Minimum Transferor Interest by virtue of any such adjustment, the
Holder of the Exchangeable Transferor Certificate will be required to make an
adjustment payment to be deposited to the Excess Funding Account in an amount
equal to the amount by which the Transferor Interest would have been reduced
below the Minimum Transferor Interest.
Required Collateral Interest
The "Required Collateral Interest" with respect to any Transfer Date means
(i) initially, the Initial Collateral Interest and (ii) thereafter on each
Transfer Date an amount equal to ____% of the sum of the Class A Adjusted
Investor Interest, the Class B Investor Interest and the Collateral Interest on
such Transfer Date, after taking into account all deposits into the Principal
Funding Account on such Transfer Date and all payments to be made on the related
Distribution Date after all adjustments made on such Transfer Date, but not less
than $____________; provided, however, that (1) if certain reductions in the
Collateral Interest are made or if a Pay Out Event occurs, the Required
Collateral Interest for such Transfer Date shall equal the Required Collateral
Interest for the Transfer Date immediately preceding the occurrence of such
reduction or Pay Out Event, (2) in no event shall the Required Collateral
Interest exceed the unpaid principal amount of the Offered Certificates as of
the last day of the Monthly Period preceding such Transfer Date, less cash held
in the Principal Funding Account as of such Transfer Date, after taking into
account deposits and payments to be made
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on the related Distribution Date and (3) the Required Collateral Interest may be
reduced to a lesser amount at any time upon written confirmation from the Rating
Agency that such reduction will not result in the Rating Agency reducing or
withdrawing its rating on the Class A Certificates or the Class B Certificates.
Principal Funding Account
Pursuant to the Series 1998-1 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Class A Certificate Holders (the "Principal Funding Account").
During the Controlled Accumulation Period, the Trustee at the direction of the
Servicer will transfer Principal Collections (other than Reallocated Principal
Collections) and Shared Principal Collections from other Series, if any,
allocated to the Certificates from the Principal Account to the Principal
Funding Account as described under "--Application of Collections."
Funds on deposit in the Principal Funding Account will be invested to the
following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment losses and
expenses) on funds on deposit in the Principal Funding Account (the "Principal
Funding Investment Proceeds") will be used to pay interest on the Class A
Certificates up to an amount (the "Class A Covered Amount") equal to, for each
Transfer Date, the product of (a) a fraction, the numerator of which is the
actual number of days in the related Interest Period and the denominator of
which is 360, (b) the Class A Certificate Rate in effect with respect to the
related Interest Period and (c) the Principal Funding Account Balance as of the
preceding Distribution Date after giving effect to all payments, deposits and
withdrawals on such Distribution Date. If, for any Transfer Date, the Principal
Funding Investment Proceeds are less than the Class A Covered Amount, the amount
of such deficiency (the "Class A Principal Funding Investment Shortfall") will
be withdrawn, to the extent available, from the Reserve Account and deposited in
the Finance Charge Account and included as Class A Available Funds for such
Transfer Date.
Reserve Account
Pursuant to the Series 1998-1 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Class A Certificate Holders (the "Reserve Account"). The Reserve
Account is established to assist with the subsequent distribution of interest on
the Class A Certificates during the Controlled Accumulation Period. On each
Transfer Date from and after the Reserve Account Funding Date, but prior to the
termination of the Reserve Account, the Trustee, acting pursuant to the
Servicer's instructions, will apply Excess Spread allocated to the Offered
Certificates (to the extent described below under "--Allocation of Funds--Excess
Spread") to increase the amount on deposit in the Reserve Account (to the extent
such amount is less than the Required Reserve Account Amount). The "Reserve
Account Funding Date" will be the Transfer Date with respect to the Monthly
Period which commences no later than three months prior to the commencement of
the Controlled Accumulation Period, or such earlier date as the Servicer may
determine. The "Required Reserve Account Amount" for any Transfer Date on or
after the Reserve Account Funding Date will be equal to (a) .50% of the Class A
Investor Interest or (b) any other amount designated by the Transferor; provided
that if such designation is of a lesser amount, the Transferor shall have
provided the Servicer, the Collateral Interest Holder and the Trustee with
written confirmation from the Rating Agency that such designation will not
result in a reduction or withdrawal of the Rating Agency's rating on the Class A
Certificates or the Class B Certificates and the Transferor shall have delivered
to the Trustee a certificate of an authorized officer to the effect that, based
on the facts known to such officer at such time, in the reasonable belief of the
Transferor, such designation will not cause a Pay Out Event to occur and will
not cause an event that, after the giving of notice or the lapse of time, would
cause a Pay Out Event to occur with respect to Series 1998-1. On each Transfer
Date, after giving effect to any deposit to be made to, and any withdrawal to be
made from, the Reserve Account on such Transfer Date, the Trustee will withdraw
from the Reserve Account an amount equal to the excess, if any, of the amount on
deposit in the Reserve Account over the Required Reserve Account Amount and
distribute such excess to the Collateral Interest Holder for application in
accordance with the terms of the Loan Agreement.
Provided that the Reserve Account has not terminated as described below,
all amounts on deposit in the Reserve Account on any Transfer Date (after giving
effect to any deposits to, or withdrawals from, the Reserve Account to be made
on such Transfer Date) will be invested to the following Transfer Date by the
Trustee at the direction of the Servicer in Permitted Investments. The interest
and other investment income (net of investment expenses and losses)
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earned on such investments will be retained in the Reserve Account (to the
extent the amount on deposit is less than the Required Reserve Account Amount)
or deposited in the Finance Charge Account and treated as Class A Available
Funds.
On or before each Transfer Date with respect to the Controlled Accumulation
Period and on the first Transfer Date with respect to the Rapid Amortization
Period, a withdrawal will be made from the Reserve Account, and the amount of
such withdrawal will be deposited in the Finance Charge Account and treated as
Class A Available Funds for such Transfer Date in an amount equal to the lesser
of (a) the Available Reserve Account Amount with respect to such Transfer Date
and (b) the Class A Principal Funding Investment Shortfall with respect to such
Transfer Date; provided that the amount of such withdrawal will be reduced to
the extent that interest and other investment income on Reserve Account funds
are deposited in the Finance Charge Account and treated as Finance Charge
Collections as described in the last sentence of the immediately preceding
paragraph. On each Transfer Date, the amount available to be withdrawn from the
Reserve Account (the "Available Reserve Account Amount") will be equal to the
lesser of the amount on deposit in the Reserve Account (before giving effect to
any deposit to be made to the Reserve Account on such Transfer Date) and the
Required Reserve Account Amount for such Transfer Date.
The Reserve Account will be terminated upon the earlier to occur of (a) the
termination of the Trust pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (i) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled Payment Date. Upon the termination of the Reserve Account,
all amounts on deposit therein (after giving effect to any withdrawal from the
Reserve Account on such date as described above) will be distributed to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement.
Final Payment of Principal; Termination of Trust
The Investor Interest will be subject to optional purchase by the
Transferor on any Distribution Date on or after which the Investor Interest is
reduced to an amount less than or equal to 5% of the Initial Investor Interest
if certain conditions set forth in the Agreement are met. The Investor Interest
will be subject to mandatory purchase by the Transferor on the Distribution Date
immediately preceding the Scheduled Series 1998-1 Termination Date if the
Investor Interest is reduced to an amount less than or equal to 5% of the
Initial Investor Interest, if certain conditions set forth in the Agreement are
met. The mandatory purchase requirement is in addition to any other provisions
and remedies provided by the Agreement and will not serve to relieve any party
of obligations it may otherwise have or waive any remedy that is otherwise
provided. The purchase price will be equal to the Investor Interest, plus
accrued and unpaid interest (other than Class A Excess Interest or Class B
Excess Interest, as the case may be) on the Certificates at the applicable
Offered Certificate Rate or Collateral Rate, as applicable, and any other
amounts owing under the Loan Agreement through the date preceding the date on
which the purchase occurs, less the amounts, if any, previously accumulated for
the payment of principal and interest. The net proceeds of such purchase and any
Collections on the Receivables will be distributed pro rata to Certificate
Holders and holders of other undivided interests in the Trust, including the
Certificate Holders, on the Distribution Date following the Monthly Period in
which such purchase occurs as final payment of the Certificates. Subject to
prior termination as provided above, the Agreement provides that the final
distribution of principal and interest on the Offered Certificates will be made
no later than the _________________ Distribution Date (the "Scheduled Series
1998-1 Termination Date").
Unless the Servicer and the Holder of the Exchangeable Transferor
Certificate instruct the Trustee otherwise, the Trust will terminate on the
earlier of: (a) the day after the Distribution Date with respect to any Series
following the day on which funds shall have been deposited in the Collection
Account or the applicable Series account sufficient to pay in full (i) the
aggregate investor interest of all Series outstanding plus accrued interest
thereon (other than Class A Excess Interest or Class B Excess Interest, as the
case may be) at the applicable certificate rates through the applicable interest
accrual period prior to the Distribution Date with respect to each such Series
and (ii) all amounts owed to each Enhancement Provider and (b) if a trust
extension has occurred, the extended trust termination date, which shall be no
later than the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the father of the late President of the United
States, living on the date of the Agreement. Upon the termination of the Trust
and the surrender of the Exchangeable Transferor Certificate, the Trustee shall
convey to the Holder of the Exchangeable Transferor Certificate all right, title
and interest of the Trust in and to the Receivables and other funds of the Trust
(other
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than funds on deposit in the Collection Account and other similar bank accounts
of the Trust with respect to other Series).
In the event that the Investor Interest is greater than zero on the
Scheduled Series 1998-1 Termination Date, the Trustee will sell or cause to be
sold interests in the Receivables or certain Receivables as specified in the
Agreement, in an amount up to 110% of the Investor Interest of the Certificates
at the close of business on such date (but not more than the total amount of
Receivables allocable to the Certificates). The net proceeds of such sale and
any Collections on the Receivables will be distributed on the Scheduled Series
1998-1 Termination Date, as the final payment of the Certificates, first, pro
rata to the Class A Certificate Holders in an amount sufficient to pay the Class
A Investor Interest in full, second, pro rata to the Class B Certificate Holders
in an amount sufficient to pay to Class B Investor Interest in full, and the
balance to the Collateral Interest Holder.
Pay Out Events
The Revolving Period will continue through the end of the _____________
Monthly Period and the Controlled Accumulation Period will begin at such time,
unless such date is postponed as described under "--Postponement of Controlled
Accumulation Period" or a Pay Out Event occurs prior to such date. The Rapid
Amortization Period will commence when a Pay Out Event occurs or is deemed to
occur. A Pay Out Event with respect to the Certificates refers to any of the
following events:
(i) failure on the part of the Transferor or the Holder of the
Exchangeable Transferor Certificate (a) to make any payment or deposit
on the date required under the Agreement (or within the applicable
grace period which will not exceed five business days), unless such
failure is due to certain force majeure events, or (b) duly to observe
or perform in any material respect any covenants or agreements of the
Transferor, which in the case of subclause (b) hereof has a material
adverse effect on the Certificate Holders (which determination shall be
made without regard to whether amounts are available under the Interest
Rate Caps), continues unremedied for a period of 60 days after written
notice and continues to affect materially and adversely the interests
of the Certificate Holders for such period;
(ii) any representation or warranty made by the Transferor in
the Agreement, including the Series 1998-1 Supplement, or any
information required to be given by the Transferor to the Trustee to
identify the Accounts proves to have been incorrect in any material
respect when made and continues to be incorrect in any material respect
for a period of 60 days after written notice and as a result of which
the interests of the Certificate Holders are materially and adversely
affected (which determination shall be made without regard to whether
amounts are available under the Interest Rate Caps); provided, however,
that a Pay Out Event described in this clause (ii) shall not be deemed
to occur if the Transferor has accepted the transfer of the related
Receivable or all such Receivables, if applicable, during such period
(or such longer period as the Trustee may specify) in accordance with
the provisions thereof;
(iii) certain events of insolvency, conservatorship or
receivership relating to the Transferor;
(iv) with respect to any Determination Date, the average of
the Portfolio Yields for the three consecutive Monthly Periods
preceding such Determination Date is a rate which is less than the
average of the Base Rates for such Monthly Periods;
(v) the Trust becomes subject to regulation as an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended;
(vi) after any applicable grace period, a failure by the
Transferor to convey Receivables in Additional Accounts to the Trust
when required by the Agreement;
(vii) any Servicer Default occurs which would have a material
adverse effect on the Certificate Holders (which determination shall be
made without regard to whether amounts are available under the Interest
Rate Caps);
(viii) failure to have paid the Class A Investor Interest in
full on the Class A Scheduled Payment Date or to have paid the Class B
Investor Interest in full on the Class B Scheduled Payment Date; or
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(ix) failure of the Interest Rate Cap Provider to make any
payment under the Class A Interest Rate Cap or the Class B Interest
Rate Cap within five days of the date such payment was due.
In the case of any event described in clause (i), (ii) or (vii), a Pay Out
Event will be deemed to have occurred with respect to the Certificates only if,
after any applicable grace period described in such clauses, either the Trustee
or Certificate Holders evidencing undivided interests aggregating more than 50%
of each of the Class A Investor Interest, the Class B Investor Interest and the
Collateral Interest, by written notice to the Transferor and the Servicer (and
to the Trustee, if given by the Certificate Holders) declare that, as of the
date of such notice, a Pay Out Event has occurred. In the case of either event
described in clause (iii) or (v), a Pay Out Event with respect to all Series,
and in the case of any event described in clause (iv), (vi), (viii), or (ix), a
Pay Out Event with respect to only the Certificates, will be deemed to have
occurred, without any notice or other action on the part of the Trustee, the
Certificate Holders or all Certificate Holders, as appropriate, immediately upon
the occurrence of such event. The Rapid Amortization Period will commence on the
date a Pay Out Event occurs or is deemed to have occurred. Monthly distributions
of principal to the Certificate Holders will begin (if they have not already) on
the first Distribution Date in the Monthly Period following the Monthly Period
in which such Pay Out Event occurs. Thus, Certificate Holders may begin
receiving distributions of principal earlier than they otherwise would have,
which may shorten the final maturity of the Certificates.
In addition to the consequences of a Pay Out Event discussed above, if
pursuant to certain provisions of federal or state law, the Transferor
voluntarily enters liquidation or a receiver is appointed for the Transferor (an
"Insolvency Event"), on the day of such event the Transferor will immediately
cease to transfer Principal Receivables to the Trust and promptly give notice to
the Trustee of such event. Under the terms of the Agreement, within 15 days, the
Trustee will publish a notice of the occurrence of the Insolvency Event stating
that the Trustee intends to sell, dispose of, or otherwise liquidate the
Receivables in a commercially reasonable manner, unless otherwise instructed
within a specified period by the Certificate Holders and other holders of
undivided interests in the Trust representing undivided interests aggregating
more than 50% of the investor interest of each Series (or, with respect to any
Series with two or more classes, 50% of each class) to the effect that such
Certificate Holders and interest holders disapprove of the liquidation of
Receivables and wish to continue having Principal Receivables transferred to the
Trust as before such Insolvency Event, and if not so instructed the Trustee will
sell, dispose of, or otherwise liquidate the portion of the Receivables
allocable to each Series that did not vote to disapprove of the liquidation of
the Receivables in accordance with the Agreement in a commercially reasonable
manner and on commercially reasonable terms. The proceeds from the sale,
disposition or liquidation of the Receivables will be treated as Collections of
the Receivables and applied as provided above in "--Application of Collections."
If the only Pay Out Event to occur is either the insolvency of a Transferor
or the appointment of a conservator or receiver for a Transferor, the
conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Rapid
Amortization Period. In addition, a conservator or receiver may have the power
to cause the early sale of the Receivables and the early retirement of the
Certificates.
Collection and Other Servicing Procedures
Pursuant to the Agreement, the Servicer is responsible for servicing,
collecting, enforcing and administering the Receivables in accordance with the
policies and procedures for servicing credit card receivables and exercising a
degree of skill and care consistent with those of a reasonable and prudent
servicer of credit card receivables, but in any event at least comparable with
the policies and procedures and the degree of skill and care applied or
exercised with respect to its own credit card receivables. The Servicer
maintains blanket bond coverage insuring against losses through wrongdoing of
its officers and employees who are involved in the servicing of credit card
receivables covering such actions and in such amounts as the Servicer believes
to be reasonable from time to time.
Servicing activities performed by the Servicer include collecting and
recording payments, communicating with cardholders, investigating payment
delinquencies, evaluations in relation to increasing credit limits and in
issuing credit cards, providing billing records to cardholders and maintaining
internal records with respect to each Account. Managerial and custodial services
performed by the Servicer on behalf of the Trust include providing assistance in
any inspections of the documents and records relating to the Accounts and
Receivables by the Trustee pursuant to the Agreement, maintaining the
agreements, documents and files relating to the Accounts and Receivables as
custodian for
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the Trust and providing related data processing and reporting services for
Certificate Holders and on behalf of the Trustee.
Servicer Covenants
In the Agreement, the Servicer covenants with the Certificate Holders
(including the Certificate Holders) and the Trustee, as to each Receivable and
related Account, that: (a) it will duly fulfill all obligations on its part to
be fulfilled under or in connection with the Receivables and the related
Accounts, and will maintain in effect all qualifications required in order to
service the Receivables and the related Accounts, the failure to comply with
which would have a material adverse effect on the Certificate Holders (including
the Certificate Holders); (b) it will not permit any rescission or cancellation
of the Receivables, except in accordance with the credit and collection policies
of the Transferor or as ordered by a court of competent jurisdiction or other
governmental authority; (c) it will do nothing to impair the rights of the
Certificate Holders (including the Certificate Holders) in the Receivables or
the related Accounts; and (d) it will not reschedule, revise or defer payments
due on the Receivables except in accordance with the credit and collection
policies of the Transferor for servicing receivables.
Under the terms of the Agreement, all Receivables in an Account will be
assigned and transferred or reassigned and transferred to the Servicer and such
account shall no longer be included as an Account if the Servicer discovers, or
receives written notice from the Trustee, that any covenant of the Servicer set
forth above has not been complied with and such noncompliance has not been cured
within 60 days thereafter and has a material adverse effect on the Certificate
Holders' interest in such Receivable. If the Transferor is the Servicer, such
reassignment and retransfer shall be made on or before the end of the Monthly
Period in which such reassignment obligation arises, by the Servicer deducting
the portion of any such Receivable which is a Principal Receivable from the
aggregate amount of Principal Receivables used to calculate the Transferor
Interest. In addition, if the Transferor Interest would be reduced below the
Minimum Transferor Interest, People's Bank as Servicer will deposit into the
Collection Account an amount equal to the amount by which the Transferor
Interest will be reduced below the Minimum Transferor Interest (such
reassignment and retransfer to the Servicer to be effected only upon such
deposit by the Servicer in the Excess Funding Account). If the Transferor is not
the Servicer, such assignment and transfer will be made when the Servicer
deposits an amount equal to the amount of such Receivable in the Collection
Account no later than the Transfer Date following the Monthly Period during
which such obligation arises. The amount of such deposit shall be allocated as
Collections pursuant to the Agreement. In either case, this retransfer and
reassignment or transfer and assignment to the Servicer constitutes the sole
remedy available to the Certificate Holders if such covenant or warranty of the
Servicer is not satisfied. In either case, the Trust's interest in any such
assigned Receivables shall be automatically assigned to the Servicer.
Servicing Compensation and Payment of Expenses
The Servicer's compensation for its servicing activities and reimbursement
for its expenses is a monthly servicing fee (the "Servicing Fee"). The Servicing
Fee will be allocated among the Transferor Interest (the "Transferor Servicing
Fee"), the Certificate Holders, Certificate Holders of all of the other Series
and other holders of undivided interests in the Trust. The portion of the
Servicing Fee allocable to each Series of certificates, including the
Certificates, on any Distribution Date will generally be equal to one-twelfth of
the product of (a) the applicable servicing fee percentage with respect to such
Series and (b) the investor interest of such Series with respect to the last day
of the related Monthly Period. The portion of the Servicing Fee allocable to
each of the Class A Certificate Holders, the Class B Certificate Holders and the
Collateral Interest Holder on each Distribution Date (respectively, the "Class A
Monthly Servicing Fee," the "Class B Monthly Servicing Fee" and the "Collateral
Interest Monthly Servicing Fee"; together, the "Monthly Servicing Fees") will be
equal to one-twelfth of the product of 2% per annum (the "Servicing Fee Rate")
and the Class A Adjusted Investor Interest, the Class B Investor Interest or the
Collateral Interest, as the case may be, as of the last day of the related
Monthly Period. The Monthly Servicing Fees will be paid each month from the
Finance Charge Account; however, payment thereof will be made after payment to
Certificate Holders of certain distributions of interest therefrom. On any
Distribution Date with respect to any Monthly Period, the Transferor Servicing
Fee will equal one-twelfth of the product of (a) the Transferor Interest and (b)
the weighted average servicing fee percentage with respect to all Series of
certificates.
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The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee, Paying Agent,
Transfer Agent and Registrar and independent accountants and other fees which
are not expressly stated in the Agreement to be payable by the Trust or the
Certificate Holders other than federal, state and local income and franchise
taxes, if any, of the Trust.
Certain Matters Regarding the Transferor and the Servicer
The Servicer may not resign from its obligations and duties under the
Agreement, except upon determination that performance of its duties is no longer
permissible under applicable law and except as described below. No such
resignation will become effective until the Trustee or a successor to the
Servicer has assumed the Servicer's responsibilities and obligations under the
Agreement. Notwithstanding the foregoing, People's Bank may transfer its
servicing obligations to any of its affiliates (which meets certain eligibility
standards set forth in the Agreement) or, subject to certain conditions set
forth in the Agreement, to any other entity which the Rating Agency has advised
in writing will not result in the reduction or withdrawal of its then existing
rating of the Certificates and be relieved of its obligations and duties under
the Agreement.
The Agreement provides that the Servicer will indemnify the Trust, for the
benefit of the Certificate Holders (including the Certificate Holders), and the
Trustee from and against any reasonable loss, liability, expense, damage or
injury suffered or sustained by reason of any acts or omissions or alleged acts
or omissions of the Servicer with respect to the activities of the Trust or the
Trustee pursuant to the Agreement; provided, however, that the Servicer shall
not indemnify (a) the Trustee for liabilities imposed by reason of or resulting
from fraud, negligence, breach of fiduciary duty or willful misconduct by the
Trustee in the performance of its duties under the Agreement, (b) the Trust, the
Certificate Holders or the Offered Certificate Owners for liabilities arising
from actions taken by the Trustee at the request of Certificate Holders, (c) the
Trust, the Certificate Holders or the Offered Certificate Owners for any losses,
claims, damages or liabilities incurred by any Certificate Holder in its
capacity as an investor, including without limitation, losses incurred as a
result of defaulted Receivables or Receivables which are written off as
uncollectible or (d) the Trust, the Certificate Holders or the Offered
Certificate Owners for any liabilities, costs or expenses of the Trust, the
Certificate Holders or the Offered Certificate Owners arising under any tax law,
including without limitation any federal, state or local income or franchise tax
or any other tax imposed on or measured by income (or any interest or penalties
with respect thereto or arising from a failure to comply therewith) required to
be paid by the Trust, the Certificate Holders or the Offered Certificate Owners
in connection therewith to any taxing authority.
The Agreement provides that neither the Transferor nor the Servicer nor any
of their respective directors, officers, employees or agents will be under any
other liability to the Trust, the Certificate Holders or any other person for
any action taken, or for refraining from taking any action, in good faith
pursuant to the Agreement. Neither the Transferor, the Servicer nor any of their
respective directors, officers, employees or agents will be protected against
any liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence of the Transferor, the Servicer or any such person
in the performance of its duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Agreement provides that the
Servicer is not under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its servicing responsibilities under the
Agreement and which in its opinion may expose it to any expense or liability.
The Agreement provides that, in addition to Exchanges, the Holder of the
Exchangeable Transferor Certificate may transfer all or a portion of the
Exchangeable Transferor Certificate to any other party upon written consent of
the Transferor; provided, however, that, in each case, prior to any such
transfer (i) (a) the Trustee receives written notification from the Rating
Agency then rating each Series that such transfer will not result in a lowering
of its then-existing rating of the certificates rated by it and (b) the Trustee
receives (among other things) a written opinion of counsel confirming that such
transfer would not adversely affect the treatment of the Certificates of each
series as debt for Federal, New York or Connecticut state income tax purposes or
result in the trust being treated as a taxable entity and will not be treated as
a taxable exchange to Certificate Holders or (ii) such transfer complies with
the provisions of the next succeeding paragraph. The Transferor, in its capacity
as the original holder of the Exchangeable Transferor Certificate, transferred
its interest in the Exchangeable Transferor Certificate to PSFC in accordance
with the requirements described in clause (i) of the preceding sentence,
pursuant to an Assignment and Assumption Agreement dated as of December 15, 1995
by and between the Transferor and PSFC.
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Any person into which, in accordance with the Agreement, the Transferor or
the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Transferor or the Servicer is a party, or
any person succeeding to the business of the Transferor or the Servicer, upon
execution of a supplemental agreement for the assumption of the Transferor's or
Servicer's obligations and delivery of an officer's certificate with respect to
the compliance of the transaction with the applicable provisions of the
Agreement and an opinion of counsel to the effect that such supplemental
agreement is legal, valid and binding, will be the successor to the Transferor
or the Servicer, as the case may be, under the Agreement. The Transferor may
effect any sale, transfer or pledge of the Accounts or any of its obligations
under the Agreement or effect any merger, consolidation or assumption which is
not in accordance with the provisions of the preceding sentence so long as,
among other conditions set forth in the Agreement: (a) the Transferor and
Servicer determine that such event will not be adverse to the interests of the
Certificate Holders of any Series; (b) the Rating Agency indicates that such
event will not adversely affect the then-existing rating of certificates of any
Series outstanding, including the Certificates; and (c) the purchaser,
transferee, pledgee or successor entity executes a supplemental agreement
whereby such entity agrees to assume the obligations of the Transferor.
Servicer Default
In the event of any Servicer Default (as defined below), either the Trustee
or Certificate Holders and other interest holders representing undivided
interests aggregating more than 50% of the sum of the investor interests of all
certificates and other undivided interests in the Trust outstanding, by written
notice to the Servicer (and to the Trustee if given by the Certificate Holders
and interest holders), may terminate all of the rights and obligations of the
Servicer as servicer under the Agreement and in and to the Receivables and the
proceeds thereof and the Trustee may appoint a new Servicer (a "Service
Transfer"). The rights and interest of the Transferor and the Holder of the
Exchangeable Transferor Agreement under the Agreement and, as applicable, in the
Transferor Interest will not be affected by such termination. The Trustee shall
as promptly as possible appoint a successor Servicer, which successor Servicer
must satisfy certain eligibility criteria contained in the Agreement. If no such
Servicer has been appointed and has accepted such appointment by the time the
Servicer ceases to act as Servicer, all authority, power and obligations of the
Servicer under the Agreement shall pass to and be vested in the Trustee. If the
Trustee is unable to obtain any bids from eligible servicers and the Servicer
delivers an officer's certificate to the effect that it cannot in good faith
cure the Servicer Default which gave rise to a transfer of servicing, and if the
Trustee is legally unable to act as successor Servicer, then the Trustee shall
give the Transferor the right to accept reassignment of the Receivables at a
price generally equal to the higher of the outstanding principal balance of the
certificates plus accrued interest through the date of reassignment and the
average bid quoted by two recognized dealers for a similar security rated in the
highest rating category by the Rating Agency and having a remaining maturity
approximately equal to the remaining maturity of such Series.
A "Servicer Default" refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or
deposit or to give instructions to the Trustee to make any withdrawal,
on the date the Servicer is required to do so under the Agreement (or
within the applicable grace period, which shall not exceed five
business days);
(b) failure on the part of the Servicer duly to observe or
perform in any respect any other covenants or agreements of the
Servicer which has a material adverse effect on the holders of
outstanding Series, including the Certificate Holders (which
determination shall be made without regard to whether funds are
available in any Enhancement) and which continues unremedied for a
period of 60 days after written notice and continues to have a material
adverse effect on the Certificate Holders for such period; or the
delegation by the Servicer of its duties under the Agreement, except as
specifically permitted thereunder;
(c) any representation, warranty or certification made by the
Servicer in the Agreement or any Supplement, or in any certificate
delivered pursuant to the Agreement or any Supplement, proves to have
been incorrect when made which has a material adverse effect on the
rights of Certificate Holders (which determination shall be made
without regard to whether funds are available in any Enhancement) and
which continues to be incorrect in any material respect for a period of
60 days after written notice; or
(d) the occurrence of certain events of bankruptcy, insolvency
or receivership of the Servicer.
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In the event of a Servicer Default, if a conservator or receiver is
appointed for the Servicer and no Servicer Default other than such
conservatorship or receivership or the insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or the
majority of the Certificate Holders from effecting a Service Transfer.
Reports to Certificate Holders
On each Distribution Date, the Paying Agent will forward to each
Certificate Holder of record a statement (the "Monthly Servicer Report")
prepared by the Servicer setting forth among other things: (a) the total amount
distributed to Class A Certificate Holders, the Class B Certificate Holders and
the Collateral Interest Holder, respectively, (b) the amount of the distribution
made on such Distribution Date allocable to Class A Monthly Principal, Class B
Monthly Principal and Collateral Monthly Principal, respectively, (c) the amount
of the distribution made on such Distribution Date allocable to Class A Monthly
Interest, Class B Monthly Interest and Collateral Monthly Interest,
respectively, (d) the amount of Principal Collections processed during the
preceding Monthly Period and allocated in respect of the Class A Certificates,
the Class B Certificates and the Collateral Interest, respectively, (e) the
aggregate amount of Principal Receivables, the Investor Interest, the Adjusted
Investor Interest, the Class A Investor Interest, the Class A Adjusted Investor
Interest, the Class B Investor Interest and the Collateral Interest, and the
Floating Investor Percentage, Class A Floating Allocation, the Class B Floating
Allocation and the Collateral Floating Allocation, the Fixed Investor
Percentage, the Class A Fixed Allocation, the Class B Fixed Allocation and the
Collateral Fixed Allocation, in each case as of the end of the last day of the
preceding Monthly Period, (f) the aggregate outstanding balance of Accounts
which are up to 30 days delinquent, 31 to 60 days delinquent, and 61 or more
days delinquent in accordance with the Servicer's then-existing credit card
guidelines by class of delinquency as of the end of the preceding Monthly
Period, (g) the Class A Investor Default Amount, the Class B Investor Default
Amount and the Collateral Default Amount for the preceding Monthly Period, (h)
the aggregate amount of Class A Investor Charge-Offs, Class B Investor
Charge-Offs and Collateral Interest Charge-Offs for the preceding Monthly Period
and the aggregate amount of Investor Charge-Offs reimbursed to each class on the
Transfer Date immediately preceding such Distribution Date, (i) the amount of
the Class A Monthly Servicing Fee, the Class B Monthly Servicing Fee and the
Collateral Interest Monthly Servicing Fee for the preceding Monthly Period, (j)
the "Pool Factor" as of the end of the last day of the preceding Monthly Period
(consisting of a seven-digit decimal expressing the ratio of Investor Interest
to Initial Investor Interest), (k) the Principal Funding Account Balance as of
the related Transfer Date, (l) the Accumulation Shortfall for the preceding
Monthly Period, (m) the Principal Funding Investment Proceeds transferred to the
Finance Charge Account on the related Transfer Date, (n) the Class A Principal
Funding Investment Shortfall on the related Transfer Date, (o) the amount of
Class A Available Funds and Class B Available Funds on deposit in the Finance
Charge Account on the related Transfer Date, (p) the aggregate amount of Finance
Charge Collections allocable to the Investor Interest for the preceding Monthly
Period, (q) the Required Amounts, if any, and, if the amount payable under the
Interest Rate Caps and Shared Finance Charge Collections available to the
Certificates are insufficient to satisfy the Required Amounts, the amount of
Reallocated Collateral Principal Allocations and Reallocated Class B Principal
Allocations to be applied thereto, and any reductions in the Collateral Interest
and the Class B Investor Interest to satisfy the Class A Required Amount and the
Class B Required Amount, as the case may be, (r) the Available Reserve Account
Amount and the Reserve Account Draw, and (s) the ratio of the Collateral
Interest to the Investor Interest of the Certificates as of the last day of the
preceding Monthly Period.
On or before January 31 of each calendar year, beginning with 1999, the
Paying Agent will furnish to each person who at any time during the preceding
calendar year was an Offered Certificate Holder of record a statement prepared
by the Servicer containing the information required to be contained in the
Monthly Servicer Report, as set forth in clauses (a), (b) and (c) above
aggregated for such calendar year or the applicable portion thereof during which
such person was an Offered Certificate Holder, together with such other
customary information (consistent with the treatment of the Offered Certificates
as debt) as the Trustee or the Servicer deems necessary or desirable to enable
the Offered Certificate Holders to prepare their tax returns.
The Trustee will publish or will cause to be published following each
Distribution Date (including the Scheduled Series 1998-1 Termination Date) in a
daily newspaper in Luxembourg (expected to be the Luxemburger Wort) a notice to
the effect that the information described in "Description of the
Certificates--Reports to Certificate Holders" in the prospectus will be
available for review at the main office of the listing agent of the Trust in
Luxembourg.
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Notices to Certificate Holders will be given by publication in a daily
newspaper in Luxembourg, which is expected to be the Luxemburger Wort. In the
event that Definitive Certificates are issued, notices to Certificate Holders
will also be given by mail to the addresses of such holders as they appear in
the certificate register.
Evidence as to Compliance
The Agreement provides that on or before March 31 of each calendar year,
the Servicer will cause a firm of independent accountants to furnish a report to
the effect that such firm has made a study and evaluation of the Servicer's
internal accounting controls relative to the servicing of Accounts under the
Agreement, and that, on the basis of such study and evaluation, such firm is of
the opinion that the system of internal accounting controls in effect on the
date set forth in such report relating to certain servicing procedures performed
by the Servicer under the Agreement, taken as a whole, was sufficient for the
prevention and detection of errors and irregularities in amounts that would be
material to the financial statements of the Servicer and that such servicing was
conducted in compliance with the applicable sections of the Agreement, except
for such exceptions, errors or irregularities as such firm shall believe to be
immaterial to the financial statements of the Servicer and such other
exceptions, errors or irregularities as shall be set forth in such report. In
addition, on or before March 31 of each calendar year, such firm has compared or
will compare the amounts contained in the Servicer's statements and certificates
delivered during such year with the computer reports of the Servicer and
statements of any agents engaged by the Servicer to perform servicing activities
which were the source of such amounts and deliver a report confirming that such
amounts are in agreement except for such exceptions as it believes to be
immaterial to the financial statements of the Servicer and such other exceptions
as shall be set forth in such report.
The Agreement provides for delivery to the Trustee, on or before March 31
of each calendar year, of an annual statement signed by an officer of the
Servicer to the effect that the Servicer has fully performed, or has caused to
be performed, its obligations in all material respects under the Agreement
throughout the preceding year, or, if there has been a default in the
performance of any such obligation in any material respect, specifying the
nature and status of the default.
Amendments
The Agreement and any Supplement may be amended by the Transferor, the
Servicer and the Trustee, without certificate holder consent, to cure any
ambiguity, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, and to add any other provisions
with respect to matters or questions arising under the Agreement and any
Supplement which are not inconsistent with the provisions of the Agreement and
any Supplement. See "The Receivables." The Agreement may be amended from time to
time without the consent of the Certificate Holders by the Trustee, and by the
Transferor or the Servicer with the consent of the Trustee, to (a) provide for
the transfer by the Transferor of its interest in and to all or part of the
Accounts in accordance with the provisions of the Agreement and (b) provide for
the purchase of Principal Receivables by the Trust at a price which is less than
100% of the outstanding balance thereof, and to provide for the treatment of
Principal Collections, in an amount up to the aggregate amount by which the
purchase price of Principal Receivables as sold thereafter is less than 100%, as
Finance Charge Collections; provided, however, that any such action shall not
adversely affect in any material respect the interests of the Certificate
Holders (each Certificate Holder will be deemed to have agreed that the exercise
of such option by the Transferor, at such time the Transferor determines to
exercise such options, will not adversely affect in any material respects the
interests of Certificate Holders); provided, further, however, that the Servicer
and the Trustee shall have received notice from the Rating Agency that any such
amendment will not result in the reduction or withdrawal of its then-existing
rating of the certificates of any Series. Moreover, any Supplement and any
amendments regarding the addition or removal of Receivables to or from the Trust
will not be considered amendments requiring certificate holder consent under the
provisions of the Agreement or any Supplement.
The Agreement may be amended by the Transferor, the Servicer and the
Trustee with the consent of the holders of certificates evidencing undivided
interests aggregating not less than 662/3% of the principal amount of all Series
adversely affected, for the purpose of adding any provisions to, changing in any
manner or eliminating any of the provisions of the Agreement or any Supplement
or of modifying in any manner the rights of Certificate Holders of any Series.
No such amendment, however, may (a) reduce in any manner the amount of, or delay
the timing of, distributions
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required to be made on such Series, (b) change the definition of or the manner
of calculating the interest of any certificate holder of such Series or (c)
reduce the aforesaid percentage of undivided interests, the holders of which are
required to consent to any such amendment, in each case without the consent of
all Certificate Holders of all Series adversely affected. Promptly following the
execution of any amendment to the Agreement or any Supplement, the Trustee will
furnish written notice of the substance of such amendment to each certificate
holder of all Series (or with respect to an amendment of a Supplement, to the
applicable Series).
List of Certificate Holders
Upon written request of Certificate Holders of record representing
undivided interests in the Trust aggregating not less than 10% of the Investor
Interest, the Trustee after having been adequately indemnified by such
Certificate Holders for its costs and expenses, and having given the Servicer
notice that such request has been made, will afford such Certificate Holders
access during business hours to the current list of Certificate Holders of the
Trust for purposes of communicating with other Certificate Holders with respect
to their rights under the Agreement. The Agreement generally does not provide
for any annual or other meetings of Certificate Holders. See "--Book Entry
Registration" and "--Definitive Certificates" above.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Transfer of Receivables
The Transferor independently represents and warrants in the Agreement that
the transfer of Receivables, Interchange and Recoveries constitutes either a
valid transfer and assignment to the Trust of all right, title and interest of
the Transferor in and to the Receivables, Interchange and Recoveries, except for
the interest of the Transferor as the then current holder of the Exchangeable
Transferor Certificate, or the grant to the Trust of a security interest in such
property. The Transferor also independently represents and warrants in the
Agreement that, in the event the transfer of Receivables, Interchange and
Recoveries by the Transferor to the Trust is deemed to create a security
interest under the Uniform Commercial Code (the "UCC"), as in effect in the
State of New York, there will exist a valid, subsisting and enforceable first
priority perfected security interest in such property in existence at the time
of the formation of the Trust in favor of the Trust and a valid, subsisting and
enforceable first priority perfected security interest in such property created
thereafter in favor of the Trust on and after their creation, except for certain
tax and other customary liens. For a discussion of the Trust's rights arising
from a breach of these warranties, see "Description of the
Certificates-Representations and Warranties."
The Transferor independently represents that the Receivables are "accounts"
or "general intangibles" for purposes of the UCC as in effect in the States of
New York and Connecticut. The transfer and assignment of accounts and the
transfer of accounts and general intangibles as security for an obligation are
covered by Article 9 of the UCC, with the transfer and assignments of accounts
treated in the same fashion as the creation and perfection of a security
interest therein. The filing of an appropriate financing statement is required
to perfect the interest of the Trust therein. Financing statements covering the
Receivables have been filed with the appropriate governmental authority to
protect the interests of the Trust in the Receivables.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after the closing
date of the issuance by the Trust of the initial Series of certificates could
have an interest in such Receivables with priority over the Trust's interest.
Under the Agreement, however, the Transferor represents and warrants that it has
transferred the Receivables to the Trust free and clear of the lien of any third
party. In addition, the Transferor covenants that it will not sell, pledge,
assign, transfer or grant any lien on any Receivable (or any interest therein)
other than to the Trust. A tax or other government lien on property of the
Transferor arising prior to the time a Receivable comes into existence may also
have priority over the interest of the Trust in such Receivable. In addition, if
the FDIC were appointed as receiver of the Transferor, certain administrative
expenses of the receiver or the State of Connecticut Department of Banking may
have priority over the interest of the Trust in such Receivable.
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Certain Matters Relating to Conservatorship and Receivership
The Transferor is chartered as a Connecticut stock savings bank and is
subject to regulation and supervision by the State of Connecticut Department of
Banking. If the Transferor becomes insolvent or is in an unsound condition or if
certain other circumstances occur, the State of Connecticut Department of
Banking may request the Attorney General of Connecticut to apply to the
Connecticut Court for an order appointing a conservator or receiver for the
Transferor. Since the Transferor is a FDIC-insured bank, Connecticut law
requires the conservator or receiver to be the Connecticut Banking Commissioner
and permits the Commissioner to request that the FDIC be appointed conservator
or receiver. In addition, the FDIC may appoint itself as conservator or receiver
for the Transferor if the FDIC determines that one or more of certain conditions
exist (such as, but not limited to, the Transferor's assets being insufficient
for obligations, substantial dissipation of assets or earnings, the existence of
unsafe or unsound conditions, the willful violation of a cease and desist order,
concealment of records or assets, inability to meet obligations, the incurrence
(or likelihood) of losses resulting in depletion of substantially all of its
capital, violations of law likely to cause financial deterioration, cessation of
insured status or undercapitalization of the Transferor).
The FDIA sets forth certain powers that the FDIC in its capacity as
conservator or receiver for the Transferor could exercise. To the extent that
the Transferor has granted a security interest in the Receivables to the Trust,
and that interest was validly perfected before the appointment of the FDIC as
conservator or receiver and before the Transferor's insolvency, was not taken in
contemplation of the insolvency of the Transferor, and was not taken with the
intent to hinder, delay or defraud the Transferor or the creditors of the
Transferor, such security interest should not be subject to avoidance if the
Pooling and Servicing Agreement and Supplements thereto and related documents
are approved by the Transferor and are continuously maintained as records of the
Transferor (as required by the FDIA) and the transactions represent bona fide
and arm's length transactions undertaken for adequate consideration in the
ordinary course of business and the secured party is neither an insider nor an
affiliate of the Transferor. As a result, payments to the Trust with respect to
the Receivables (up to the amount of actual, direct compensatory damages, as
described below) should not be subject to recovery by the FDIC as conservator or
receiver of the Transferor. The foregoing conclusions regarding avoidance or
recovery are based on FDIC general counsel opinions and policy statements
regarding the application of certain provisions of the FDIA. If, however, the
FDIC, as conservator or receiver for the Transferor were to assert a contrary
position, or were to require the Trustee to establish its right to those
payments by submitting to and completing the administrative claims procedure
established under the FDIA, or the conservator or receiver were to request a
stay of proceedings with respect to the Transferor as provided under the FDIA,
delays in payments on the Certificates and possible reductions in the amount of
those payments could occur. The FDIA provides that the FDIC may repudiate
contracts determined by it to be burdensome and that claims for repudiated
obligations are limited to actual, direct compensatory damages determined as of
the date of the appointment of the conservator or receiver. The FDIA does not
define the term "actual direct compensatory damages." On April 10, 1990, the
RTC, formerly a sister agency of the FDIC, adopted a statement of policy (the
"RTC Policy Statement") with respect to the payment of interest on direct
collateralized borrowings of savings associations. The RTC Policy Statement
states that interest on such borrowings will be payable at the contract rate up
to the date of the redemption or payment by the conservator, receiver, or the
trustee of an amount equal to the principal owed plus the contract rate of
interest up to the date of such payment or redemption, plus any expenses of
liquidation if provided for in the contract to the extent secured by the
collateral. However, in a case involving zero-coupon bonds issued by a savings
association which were repudiated by the RTC, a federal district court in the
Southern District of New York held, in 1993, that the RTC was obligated to pay
holders the fair market value of repudiated bonds as of the date of repudiation.
The FDIC itself has not adopted a policy statement on payment of interest on
collateralized borrowings of banks. The FDIC, as conservator or receiver, would
also have the rights and powers conferred under Connecticut law.
The Agreement provides that, upon the appointment of a conservator or
receiver or upon a voluntary liquidation with respect to the Transferor, the
Transferor will promptly give notice thereof to the Trustee and a Pay Out Event
will occur with respect to all Series then outstanding. Pursuant to the
Agreement, newly created Principal Receivables will not be transferred to the
Trust on and after any such appointment or voluntary liquidation (although
Finance Charge Receivables on existing balances will continue to be
transferred), and unless otherwise instructed within a specified period by
holders of more than 50% of the investor interest of each Series outstanding
(or, with respect to any Series with two or more classes, 50% of each class) to
the effect that such Certificate Holders disapprove of the liquidation of the
Receivables and wish to continue having Principal Receivables transferred to the
Trust as before such appointment or voluntary liquidation, the Trustee will
proceed to sell, dispose of or otherwise liquidate the portion of the
Receivables allocable to each Series that did not vote to disapprove of the
liquidation of the Receivables in accordance with the
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Agreement in a commercially reasonable manner and on commercially reasonable
terms. There can be no assurance, however, that a receiver or conservator will
allow and not seek avoidance of continued transfer of Receivables to the Trust
after receivership or conservatorship of the Transferor. Under the Agreement,
the proceeds from the sale of the Receivables would be treated as Collections of
the Receivables and the Investor Percentage of such proceeds would be
distributed to the Certificate Holders. This procedure could be delayed, as
described above. If the only Pay Out Event to occur is either the insolvency of
the Transferor or the appointment of a conservator or receiver for the
Transferor, the conservator or receiver may have the power to prevent the early
sale, liquidation or disposition of the Receivables, the commencement of the
Rapid Amortization Period and the transfer of servicing obligations from the
Transferor. A conservator or receiver would have the power to cause the early
sale of the Receivables and the early retirement of the Certificates, to
prohibit the continued transfer of Principal Receivables to the Trust, and to
repudiate the servicing obligations of the Transferor. See "Description of the
Certificates--Pay Out Events." In addition, the appointment of a receiver or
conservator could adversely affect the Transferor's ability to repurchase
ineligible Receivables from the Trust or make cash deposits in respect of
credits, adjustments or fraudulent charges and could result in administrative
expenses of the receiver or conservator having priority over the interest of the
Trust in the Receivables.
Consumer Protection Laws
The relationship of the cardholder and credit card issuer is extensively
regulated by federal and state consumer protection laws. With respect to credit
cards issued by the Transferor, the most significant laws include the federal
Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt
Collection Practice and Electronic Funds Transfer Acts and applicable state law.
These statutes impose disclosure requirements when a credit card account is
advertised, when it is opened, at the end of monthly Billing Cycles, and at year
end. In addition, these statutes limit cardholder liability for unauthorized
use, prohibit certain discriminatory practices in extending credit, and impose
certain limitations on the type of account-related charges that may be assessed.
Cardholders are entitled under these laws to have payments and credits applied
to the credit card accounts promptly, to receive prescribed notices and to
require billing errors to be resolved promptly. The Trust may be liable for
certain violations of consumer protection laws that apply to the Receivables,
either as assignee from the Transferor with respect to obligations arising
before transfer of the Receivables to the Trust or as a party directly
responsible for obligations arising after the transfer. In addition, a
cardholder may be entitled to assert such violations by way of set-off against
his obligation to pay the amount of Receivables owing. The Transferor warrants
to the Trust in the Agreement that all Receivables have been and will be created
in compliance with the requirements of such laws. The Servicer has also agreed
in the Agreement to indemnify the Trust, among other things, for any liability
arising from such violations caused by the Servicer. For a discussion of the
Trust's rights arising from the breach of these warranties, see "Description of
the Certificates--Representations and Warranties."
Certain jurisdictions may attempt to require out-of-state credit card
issuers to comply with such jurisdiction's consumer protection laws (including
laws limiting the charges imposed by such credit card issuers) in connection
with their operations in such jurisdictions. A successful challenge by such a
jurisdiction could have an adverse impact on the Transferor's credit card
operations or the yield on the Receivables in the Trust.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion represents the opinion of Mayer, Brown & Platt,
special tax counsel to the Transferor ("Tax Counsel"), subject to the exceptions
and qualifications described herein, as to the material Federal income tax
consequences of the purchase, ownership and disposition of the Offered
Certificates. This discussion, however, does not address every aspect of the
Federal income tax laws that may be relevant to holders of Offered Certificates
in light of their personal investment circumstances or to certain types of
Offered Certificate Holders subject to special treatment under the Federal
income tax laws (for example, banks and life insurance companies). Accordingly,
investors should consult their own tax advisors regarding Federal, state, local,
foreign and any other tax consequences to them of the purchase, ownership and
disposition of the Offered Certificates in their own particular circumstances.
The discussion is generally limited to those persons who are the initial holders
of the Offered Certificates and to investors who will hold Offered Certificates
as capital assets. This discussion is based upon the provisions of the Internal
Revenue Code of 1986,
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as amended (the "Code"), its legislative history, the Treasury regulations
thereunder, and published rulings and court decisions in effect (or, in the case
of certain Treasury regulations, that are proposed) as of the date hereof, all
of which are subject to change, possibly retroactively. No ruling on any of the
issues discussed below has been or will be sought from the Internal Revenue
Service (the "IRS") and no assurance can be given that the IRS will not take
contrary positions. It is anticipated that the Trust will not be indemnified for
any Federal income tax that may be imposed upon it, and the imposition of any
such taxes on the Trust could result in a reduction in the amounts available for
distribution to the Offered Certificate Holders.
Treatment of the Offered Certificates as Indebtedness
Tax Counsel is of the opinion that, although no transaction closely
comparable to that contemplated herein has been the subject of any Treasury
regulation, revenue ruling or judicial decision, based upon its analysis of the
factors discussed below, the Offered Certificates, when issued, will be
characterized for Federal income tax purposes as indebtedness that is secured by
the Receivables.
The Transferor and Offered Certificate Holders will express in the
Agreement the intent that, for Federal, state and local income and franchise tax
purposes, and for the purposes of any other tax imposed on or measured by
income, the Offered Certificates will be indebtedness secured by the
Receivables. The Transferor, by entering into the Agreement, PSFC, by its
beneficial ownership of the Transferor Interest, and each Offered Certificate
Holder, by virtue of accepting a beneficial interest in an Offered Certificate,
will agree to treat the Offered Certificates (or the beneficial interests
therein) as indebtedness secured by the Receivables for Federal, state and local
income and franchise tax purposes and for the purposes of any other tax imposed
on or measured by income. Because, however, different criteria are used in
determining the nontax accounting treatment of a transaction, the Transferor and
PSFC will treat the Agreement for financial accounting purposes as a transfer of
an ownership interest in the Receivables and not as creating a debt obligation.
The economic substance of a transaction generally determines its Federal
income tax consequences and the form of a transaction, while a relevant factor,
is generally not conclusive evidence of its economic substance. In appropriate
circumstances the courts have allowed taxpayers, as well as the IRS, to treat a
transaction in accordance with its economic substance, notwithstanding that
participants characterized the transaction differently for nontax purposes. In
some instances, however, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel believes that the
rationale of those cases will not apply to this transaction.
The determination of whether the economic substance of a transfer of an
interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether the
transferee has obtained the opportunity for gain if the property increases in
value, has assumed the risk of loss if the property decreases in value and
whether the transferee, at the time of transfer, has a fixed interest in the
proceeds of the receivable when collected. Based upon its analysis of such
factors, Tax Counsel is of the opinion that the Offered Certificates will be
characterized for Federal income tax purposes as indebtedness secured by the
Receivables. Contrary characterizations that could be asserted by the IRS are
described under " --Possible Characterization of Offered Certificates as
Interests in an Association Taxable as a Corporation or a Partnership" below.
Except as otherwise expressly indicated, the following discussion assumes that
the Offered Certificates will be treated as debt obligations for Federal income
tax purposes.
Interest Income to Offered Certificate Holders
It is anticipated that the Offered Certificates will be issued at par value
(or at an insubstantial discount from par value). To the extent that stated
interest on the Offered Certificates constitutes "qualified stated interest," it
will be taxable as ordinary income for Federal income tax purposes when received
or accrued by Offered Certificate Holders in accordance with their respective
methods of tax accounting. The Treasury regulations provide that qualified
stated interest generally includes stated interest that is "unconditionally
payable" at least annually at a single fixed rate or at a qualified floating or
objective variable rate that appropriately takes into account the length of the
interval between
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payments. Interest is considered "unconditionally payable" if reasonable legal
remedies exist to compel timely payment or terms and conditions of the debt
instrument make the likelihood of late payment (other than a late payment that
occurs within a reasonable grace period) or nonpayment (ignoring the possibility
of nonpayment due to default, insolvency or similar circumstances) a remote
contingency. The Transferor and PSFC intend to take the position that late
payment or nonpayment of stated interest on the Offered Certificates is a remote
contingency, and therefore that such stated interest constitutes qualified
stated interest and (assuming the Offered Certificates are not issued with a
greater than de minimis discount from par value) the Offered Certificates are
not treated as being issued with OID. It is possible, however, that the Internal
Revenue Service would take the position that none of the stated interest payable
on the Offered Certificates is "unconditionally payable" and hence that all of
such interest should be included in the Offered Certificates' stated redemption
price at maturity. Consequently, the Offered Certificates would be treated as
being issued with original issue discount ("OID") (generally, the excess of the
"stated redemption price at maturity" of an Offered Certificate, or all payments
on the Offered Certificate other than payments of qualified stated interest,
over the issue price of the Offered Certificate). To the extent the Offered
Certificates were treated as being issued with OID, an Offered Certificate
Holder would be required, subject to a de minimis exception, to include OID in
income as interest over the term of the Offered Certificate under a constant
yield method, and, in general, OID must be included in income in advance of the
receipt of cash representing that income. Because of the uncertainty of
treatment, holders are urged to consult their own tax advisors regarding the
treatment of stated interest on the Offered Certificates.
An Offered Certificate Holder who purchases an Offered Certificate at a
market discount may be subject to the "market discount" rules of the Code. These
rules provide, in part, for the treatment of gain attributable to accrued market
discount as ordinary income upon the receipt of partial principal payments or on
the sale or other disposition of the Offered Certificate, and for the deferral
of interest deductions with respect to debt incurred to acquire or carry the
market discount Offered Certificate.
If an Offered Certificate is purchased by an Offered Certificate Holder at
a premium, such premium will be amortized as an offset to interest income (with
a corresponding reduction in the Offered Certificate Holder's basis) under a
constant yield method over the term of the Offered Certificate if an election
under Section 171 of the Code is made or is previously in effect.
Disposition of Offered Certificates
If an Offered Certificate is sold, exchanged or otherwise disposed of, an
Offered Certificate Holder generally will recognize gain or loss in an amount
equal to the difference between the amount realized on the sale, exchange or
disposition and the Offered Certificate Holder's adjusted basis in the Offered
Certificate. The adjusted basis of an Offered Certificate generally will equal
the cost of the Offered Certificate to the Offered Certificate Holder, increased
by any OID or market discount previously includible in the Offered Certificate
Holder's gross income, and reduced by the portion of the basis of the Offered
Certificate allocable to payments on the Offered Certificate previously received
by the Offered Certificate Holder and any amortized premium. Subject to the
market discount rules, gain or loss on the sale or other disposition of an
Offered Certificate will be capital gain or loss if the Offered Certificate is
held by the Offered Certificate Holder as a capital asset, except to the extent
a holder realizes ordinary income attributable to accrued interest. Capital gain
or loss will be long-term if the Offered Certificate is held by the Offered
Certificate Holder for more than one year and otherwise will be short-term.
Possible Characterization of Offered Certificates as Interests
in an Association Taxable as a Corporation or a Partnership
Although, as described above, it is the opinion of Tax Counsel that the
Offered Certificates are properly characterized as debt for Federal income tax
purposes, such opinion is not binding on the IRS or the courts and no assurance
can be given that this characterization would prevail. If the IRS were to
contend successfully that the Offered Certificates were not debt obligations for
Federal income tax purposes, Offered Certificates might be classified for
Federal income tax purposes as interests in an association taxable as a
corporation that owns the Receivables or as a partnership, including a "publicly
traded partnership."
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If the arrangement created by the Agreement were treated as either an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, the resulting entity may be subject to Federal income taxes at
corporate tax rates on its taxable income from the Receivables. Such a tax might
result in reduced distributions to Offered Certificate Holders and Offered
Certificate Holders might be liable for a share of such a tax. Moreover, it is
unlikely that distributions by the entity would be deductible in computing the
entity's taxable income (assuming that the Offered Certificates were treated as
ownership interests rather than as debt) with the result that the entity would
have significant taxable income and tax liability. In addition, all or part of
the distributions to Offered Certificate Holders would generally be treated as
dividend income to the Offered Certificate Holders.
If, alternatively, the Offered Certificates were treated as interests in a
partnership, the income reportable by the Offered Certificate Holders as
partners could differ from the income reportable by the Offered Certificate
Holders as holders of debt obligations. For example, a cash basis Offered
Certificate Holder might be required to report income when it accrued to the
partnership rather than when it is received by the Offered Certificate Holder.
Moreover, an individual's share of expenses of the partnership would be
miscellaneous itemized deductions that, in the aggregate, are allowed as
deductions only to the extent they exceed two percent of the individual's
adjusted gross income, and would be subject to reduction under Section 68 of the
Code if the individual's adjusted gross income exceeded certain limits. As a
result, the individual might be taxed on a greater amount of income than the
stated rate on the Offered Certificates. Finally, if a class of Offered
Certificates were treated as interests in a partnership and another class of
Offered Certificates were treated as debt, a portion of the taxable income
allocated to an Offered Certificate Holder of the class of Offered Certificates
treated as interests in a partnership that is a pension, profit sharing or
employee benefit plan or other tax-exempt entity (including an individual
retirement account) would constitute "unrelated business taxable income"
generally taxable to the holder under the Code.
Since the Transferor and PSFC will treat the Offered Certificates as
indebtedness for Federal income tax purposes, neither the Transferor nor PSFC
will comply with the tax reporting requirements that would apply under these
alternative characterizations of the Offered Certificates.
Foreign Investors
Assuming the Offered Certificates represent debt obligations for Federal
income tax purposes, if interest (including OID) on the Offered Certificates
paid to a nonresident alien individual, foreign corporation, foreign partnership
or foreign estate or trust is not effectively connected with the conduct of a
United States trade or business of the recipient, it will be considered
"portfolio interest" and will (subject to the discussion of backup withholding
below) be generally exempt from United States withholding tax; provided,
however, that the Offered Certificate Holder complies with applicable
certification requirements (and does not actually or constructively own ten
percent or more of the voting stock of the Transferor or PSFC and is not a
controlled foreign corporation related to the Transferor or its affiliates).
If the Offered Certificates were recharacterized as interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, to the extent distributions under the Agreement were treated
as dividends, a nonresident alien individual or foreign corporation would
generally be subject to withholding tax on the gross amount of such dividends at
the rate of 30% (or lower rate as provided by an applicable treaty). If the IRS
were to contend successfully that the Offered Certificates represent interests
in a partnership (not taxable as a corporation), an Offered Certificate Holder
that is a nonresident alien, foreign corporation or foreign estate or trust
might be required to file a United States individual or corporate income tax
return and pay tax on its share of partnership income at regular U.S. rates,
including the branch profits tax in the case of an Offered Certificate Holder
that is a corporation, and would be subject to withholding tax on its share of
partnership income.
Information Reporting and Backup Withholding
The Servicer will be required to report annually to the IRS, and to each
Offered Certificate Holder of record, the amount of interest paid (and OID
accrued, if any) on the Offered Certificates (and the amount of interest
withheld for Federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). Each non-exempt Offered Certificate Holder will be required to
provide, under penalty of perjury, a
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certificate on IRS Form W-9 containing his or her name, address, correct Federal
taxpayer identification number and a statement that he or she is not subject to
backup withholding. Should a nonexempt Offered Certificate Holder fail to
provide the required certification, the Offered Certificate Holder will be
subject to backup withholding of U.S. Federal income tax at a rate of 31% of the
amounts otherwise payable to the holder. Such amount would be remitted to the
IRS as a credit against the holder's Federal income tax liability.
STATE AND LOCAL TAX CONSEQUENCES
General
State tax consequences to each Offered Certificate Holder will depend upon
the provisions of the state tax laws to which the Offered Certificate Holder is
subject. Most states modify or adjust the taxpayer's Federal taxable income to
arrive at the amount of income potentially subject to state tax. Resident
individuals generally pay state tax on 100% of such state modified income, while
corporations and other taxpayers generally pay state tax only on that portion of
state modified income assigned to the taxing state under the state's own
apportionment and allocation rules. Because each state's tax law varies, it is
impossible to predict the tax consequences to the Offered Certificate Holders in
all of the state taxing jurisdictions in which they are already subject to tax.
Connecticut
The activities to be undertaken by the Servicer in servicing and collecting
the Receivables will take place in Connecticut. Connecticut imposes an income
tax on corporations doing business in Connecticut measured by their net income
apportioned to Connecticut. This discussion is based upon present provisions of
Connecticut law and regulations, and applicable judicial or ruling authority,
all of which are subject to change, which change may be retroactive. No ruling
on any of the issues discussed below will be sought from the Connecticut
Department of Revenue.
Assuming the Offered Certificates are treated as indebtedness for Federal
income tax purposes, Pullman & Comley, LLC, special Connecticut counsel to the
Transferor, is of the opinion that this treatment will also apply for
Connecticut tax purposes. Pursuant to this treatment, Offered Certificate
Holders not otherwise subject to Connecticut tax would not become subject to
such tax solely because of their ownership of the Offered Certificates. Offered
Certificate Holders already subject to taxation in Connecticut as corporations,
however, could be required to pay tax on the income generated from ownership of
these Offered Certificates.
In the alternative, if the Offered Certificates are treated as interests in
a partnership (not taxable as a corporation) for Federal income tax purposes,
the same treatment should also apply for Connecticut tax purposes. In such case,
Connecticut could view the partnership as doing business in Connecticut.
Connecticut would not impose any tax on the Trust, but an Offered Certificate
Holder not otherwise subject to taxation in Connecticut could become subject to
Connecticut income taxes as a result of its mere ownership of Offered
Certificates.
If the Offered Certificates are instead treated as ownership interests in
an association taxable as a corporation or a "publicly traded partnership"
taxable as a corporation, then the entity could be subject to Connecticut income
tax. Such taxes could result in reduced distributions to Offered Certificate
Holders. An Offered Certificate Holder not otherwise subject to tax in
Connecticut would not become subject to Connecticut taxes as a result of its
mere ownership of such an interest.
Because each state's income tax laws vary, it is impossible to predict the
income tax consequences to the Offered Certificate Holders in all of the state
taxing jurisdictions in which they are already subject to tax. There can be no
assurance that other states will not claim that the Servicer has undertaken
activities in such states. If such a claim were made, no assurances can be given
as to whether the Offered Certificates would be treated as indebtedness by any
particular state. Offered Certificate Holders are urged to consult their own tax
advisors with respect to state taxes.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL,
STATE, LOCAL OR FOREIGN INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE OFFERED CERTIFICATES.
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CERTAIN EMPLOYEE BENEFIT PLAN CONSIDERATIONS
Section 406 of ERISA and section 4975 of the Code prohibit certain pension,
profit sharing or other employee benefit plans, Keogh plans, individual
retirement accounts or annuities and employee annuity plans (collectively,
including entities whose underlying assets are deemed to include the assets of
one or more employee benefit plans (including without limitation insurance
company general accounts), "Benefit Plans") from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the Benefit
Plan. A violation of these "prohibited transaction" rules may generate excise
tax and other liabilities under ERISA and the Code for such persons.
A possible violation of the prohibited transaction rules could occur if the
Offered Certificates were to be purchased with assets of any Benefit Plan if the
Transferor, the Servicer, the Trustee or the Underwriters were a "party in
interest" or a "disqualified person," with respect to such Benefit Plan. The
Transferor, the Servicer, the Trustee and the Underwriters are "parties in
interest" or "disqualified persons" with respect to many Benefit Plans. Prior to
the purchase of an Offered Certificate, the fiduciary of any Benefit Plan should
consider whether a prohibited transaction might arise by virtue of the
relationship between the Benefit Plan and the Transferor, the Servicer, the
Trustee, the Underwriters or any affiliate of any thereof and, if so, should
consult counsel regarding the purchase. The Department of Labor (the "DOL") has
issued five class exemptions that may apply to otherwise prohibited transactions
arising from the purchase or holding of the Offered Certificates: DOL Prohibited
Transaction Exemption 84-14 (Class Exemption for Plan Asset Transactions
Determined by Independent Qualified Professional Asset Managers), 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled Separate
Accounts), 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts) and 96-23 (Class Exemption for
Plan Asset Transactions Determined by In House Asset Managers).
Other prohibited transactions may arise through the operation of a
regulation (the "Plan Asset Regulation") issued by the DOL. Under certain
circumstances, the Plan Asset Regulation treats the assets of an entity in which
a Benefit Plan has an equity interest as assets of such Benefit Plan. Although
the Transferor and the Offered Certificate Owners have agreed to treat the
Offered Certificates as debt instruments for tax purposes, the Offered
Certificates may be considered equity interests in the Trust for purposes of the
Plan Asset Regulation. In such a case, if investment in the Offered Certificates
by Benefit Plans is substantial, the Plan Asset Regulation may apply to treat
assets of the Trust as assets of an investing Benefit Plan unless the exception
described below applies.
The assets of the Trust would not be treated as plan assets if the Offered
Certificates constitute "publicly offered securities." A publicly offered
security is a security that is (a) freely transferable, (b) part of a class of
securities that is owned by 100 or more investors independent of the issuer and
of one another and (c) either is (i) part of a class of securities registered
under section 12(b) or 12(g) of the Exchange Act or (ii) sold to the plan as
part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred. A class of securities will not fail to be widely held
solely because subsequent to the initial offering the number of independent
investors falls below 100 as a result of events beyond the control of the
issuer. For the purpose of this exception, the Class A Certificates should be
deemed a "class" of securities that would be tested separately from any other
securities that may be issued by the Trust. It is anticipated that the Class A
Certificates will meet the criteria of publicly offered securities as set forth
above. The Class A Underwriters will not sell the Class A Certificates to
Benefit Plans unless they believe that the Class A Certificates will be held by
at least 100 persons independent of the Transferor and each other at the
conclusion of the offering. In addition, there are no restrictions imposed on
the transfer of the Class A Certificates; and the Class A Certificates will be
sold as part of an offering pursuant to an effective registration statement
under the Securities Act and then will be timely registered under the Exchange
Act. It is not expected that the Class B Certificates will meet the criteria of
publicly offered securities, and accordingly the Class B Certificates may not be
acquired with the assets of any Benefit Plan (including without limitation any
insurance company general account deemed to include the assets of any Benefit
Plan).
If the Plan Asset Regulation were to apply so that the Trust is considered
to hold "plan assets," transactions involving the Trust and "parties in
interest" or "disqualified persons" with respect to a Benefit Plan that is an
Offered
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Certificate Owner might be prohibited under Section 406 of ERISA and section
4975 of the Code unless an exemption is applicable. The five DOL class
exemptions mentioned above may not provide relief for all transactions involving
the Trust's assets even if they would otherwise be applicable to the purchase of
an Offered Certificate by a Benefit Plan.
It should also be noted that the Small Business Job Protection Act of 1996
added new Section 401(c) of ERISA relating to the status of the assets of
insurance company general accounts under ERISA and Section 4975 of the Code.
Pursuant to Section 401(c), the Department of Labor is required to issue final
regulations (the "General Account Regulations") not later than December 31, 1997
with respect to insurance policies issued on or before December 31, 1998 that
are supported by an insurer's general account. The General Account Regulations
are to provide guidance on which assets held by the insurer constitute "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the Code. Section 401(c) also provides that, except in the case
of avoidance of the General Account Regulation and actions brought by the
Secretary of Labor relating to certain breaches of fiduciary duties that also
constitute breaches of state or federal criminal law, until the date that is 18
months after the General Account Regulations become final, no liability under
the fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code may result on the basis of a claim that the assets of
the general account of an insurance company constitute the assets of any Benefit
Plan. The plan asset status of insurance company separate accounts is unaffected
by new Section 401(c) of ERISA, and separate account assets continue to be
treated as the plan assets of any Benefit Plan invested in a separate account.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of Offered Certificates should consult their own counsel regarding
whether the assets of the Trust would be considered plan assets, the
consequences that would apply if the Trust's assets were considered plan assets
and the possibility of exemptive relief from the prohibited transaction rules.
Finally, fiduciaries of a Benefit Plan should consider the fiduciary
standards under ERISA or other applicable law in the context of the Benefit
Plan's particular circumstances before authorizing an investment of a portion of
a Benefit Plan's assets in the Offered Certificates. Accordingly, among other
factors, such fiduciaries should consider whether the investment (i) satisfies
the diversification requirement of ERISA or other applicable law, (ii) is in
accordance with the Benefit Plan's governing instruments and (iii) is prudent
considering the "Risk Factors" and other factors discussed in this Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
with respect to the Offered Certificates (the "Underwriting Agreement"), PSFC
and the Transferor have agreed with respect to the Class A Certificates to sell
to each of the Underwriters named below (the "Class A Underwriters"), and each
of the Class A Underwriters, for whom _________________ is acting as
representative, has severally agreed to purchase, the principal amount of Class
A Certificates set forth opposite its name below:
Principal Amount of
Underwriters Class A Certificates
---------------------
- -------------------------------........................ $
- -------------------------------........................
- -------------------------------........................
- -------------------------------........................
$
Under the terms and conditions of the Underwriting Agreement, the several
Class A Underwriters are committed to take and pay for all of the Class A
Certificates, if any are taken.
Subject to the terms and conditions set forth in the Underwriting
Agreement, PSFC and the Transferor have agreed with respect to the Class B
Certificates to sell to _______________________ (the "Class B Underwriter" and
together with the Class A Underwriters, the "Underwriters"), and the Class B
Underwriter has agreed to purchase, the Class B Certificates.
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Under the terms and conditions of the Underwriting Agreement, the Class B
Underwriter is committed to take and pay for all of the Class B Certificates, if
any are taken.
PSFC and the Transferor have been advised by the Class A Underwriters that
they propose initially to offer the Class A Certificates to the public at the
price set forth on the cover page hereof and to certain dealers at such price
less concessions not in excess of % of the principal amount of the Class A
Certificates. The Class A Underwriters may allow, and such dealers may reallow,
concessions not in excess of % of the principal amount of the Class A
Certificates to certain brokers and dealers. After the initial public offering
of the Class A Certificates, the public offering price and such concessions may
be changed.
PSFC and the Transferor have been advised by the Class B Underwriter that
it proposes initially to offer the Class B Certificates to the public at the
price set forth on the cover page hereof and to certain dealers at such price
less concessions not in excess of _____% of the principal amount of the Class B
Certificates. The Class B Underwriter may allow, and such dealers may reallow,
concessions not in excess of _____% of the principal amount of the Class B
Certificates to certain brokers and dealers. After the initial public offering
of the Class B Certificates, the public offering price and such concessions may
be changed.
Application will be made to list the Class A Certificates on the
Luxembourg Stock Exchange.
Until the distribution of the Offered Certificates is completed, rules
of the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Offered Certificates. As an exception
to these rules, ____________________, on behalf of the Underwriters, is
permitted to engage in over-allotment transactions, stabilizing transactions,
syndicate covering transactions and penalty bids with respect to the Offered
Certificates in accordance with Regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the Offered Certificates so long as the stabilizing bids
do not exceed a specified maximum. Syndicate covering transactions involve
purchases of the Offered Certificates in the open market after the distribution
has been completed in order to cover syndicate short positions. Penalty bids
permit ____________ to reclaim a selling concession from a syndicate member when
the Offered Certificates originally sold by such syndicate member are purchased
in a syndicate covering transaction.
Such over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the Offered
Certificates to be higher than they would otherwise be in the absence of such
transactions. Neither PSFC, the Transferor, nor any of the Underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Class A
Certificates or the Class B Certificates. In addition, neither the PSFC, the
Transferor nor any of the Underwriters represent that the Underwriters will
engage in any such transactions or that such transactions, once commenced, will
not be discontinued without notice.
Each Underwriter has represented and agreed that (a) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Offered Certificates to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or who is
a person to whom the document may otherwise lawfully be issued or passed on, (b)
it has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and other applicable laws and regulations with respect to
anything done by it in relation to the Offered Certificates in, from and
otherwise involving the United Kingdom and (c) if that Underwriter is an
authorized person under the Financial Services Act 1986, it has only promoted
and will only promote (as that term is defined in Regulation 1.02 of the
Financial Services (Promotion of Unregulated Schemes) Regulations 1991) to any
person in the United Kingdom the scheme described herein if that person is of a
kind described either in Section 76(2) of the Financial Services Act of 1986 or
in Regulation 1.04 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991.
PSFC and the Transferor will indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Offered Certificates
will be passed upon for the Transferor by William T. Kosturko, General Counsel
to People's Bank. Certain legal matters relating to the Offered Certificates
will be passed upon for the Transferor by Mayer, Brown & Platt, New York, New
York. Certain legal matters relating to the federal tax consequences of the
issuance of the Offered Certificates and certain other matters relating thereto
will be passed upon for the Transferor by Mayer, Brown & Platt, New York, New
York and certain legal matters relating to Connecticut state income tax
consequences will be passed upon for the Transferor by Pullman & Comley, LLC,
Bridgeport, Connecticut, special Connecticut counsel to People's Bank. Certain
legal matters relating to the issuance of the Offered Certificates will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
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INDEX OF KEY TERMS
"Accounts"................................................................13, 80
"Accumulation Shortfall"..................................................10, 39
"Additional Accounts".........................................................14
"Affinity Program Accounts"...................................................30
"Agent Bank Accounts".........................................................30
"Aggregate Principal Receivables".............................................35
"Agreement"....................................................................4
"Automatic Additional Accounts"...............................................14
"Available Investor Principal Collections"................................40, 50
"Available Reserve Account Amount"............................................72
"Bank Portfolio"..............................................................29
"Base Rate"...................................................................26
"Benefit Plans"...............................................................87
"Billing Cycle"...............................................................31
"Cedel Participants"..........................................................46
"Cedel".......................................................................46
"Cede".........................................................................2
"Certificate Holders"..........................................................4
"Certificates"..............................................................1, 4
"Class A Adjusted Investor Interest"...........................................6
"Class A Available Funds".....................................................64
"Class A Cap Rate"............................................................44
"Class A Certificate Holders"..................................................4
"Class A Certificate Rate".....................................................8
"Class A Certificates"......................................................1, 4
"Class A Covered Amount"..................................................10, 71
"Class A Excess Interest"......................................................8
"Class A Excess Principal"....................................................49
"Class A Fixed Allocation"....................................................59
"Class A Floating Allocation".................................................59
"Class A Initial Investor Interest"............................................6
"Class A Interest Rate Cap"....................................................5
"Class A Investor Charge-Off".............................................17, 69
"Class A Investor Interest"................................................6, 60
"Class A Monthly Cap Rate Interest"...........................................63
"Class A Monthly Interest".................................................8, 48
"Class A Monthly Principal"...................................................67
"Class A Notional Amount".....................................................44
"Class A Payment Amount"..................................................17, 68
"Class A Principal Funding Investment Shortfall"..........................10, 71
"Class A Required Amount".................................................16, 68
"Class A Scheduled Payment Date"...........................................2, 12
"Class A Underwriters"........................................................88
"Class B Available Funds".....................................................64
"Class B Cap Rate"............................................................44
"Class B Certificate Holders"..................................................4
"Class B Certificate Rate".....................................................8
"Class B Certificates"......................................................1, 4
"Class B Excess Interest"..................................................9, 49
"Class B Excess Principal"....................................................49
"Class B Fixed Allocation"....................................................60
"Class B Floating Allocation".................................................59
"Class B Initial Investor Interest"............................................6
"Class B Interest Rate Cap"....................................................5
"Class B Investor Charge-Off".............................................18, 70
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"Class B Investor Default Amount".............................................69
"Class B Investor Interest"................................................6, 60
"Class B Monthly Cap Rate Interest"...........................................63
"Class B Monthly Interest".................................................9, 48
"Class B Monthly Principal"...................................................67
"Class B Monthly Servicing Fee"...............................................75
"Class B Notional Amount".....................................................44
"Class B Payment Amount"..................................................17, 68
"Class B Required Amount".................................................17, 68
"Class B Scheduled Payment Date"...........................................2, 12
"Class B Underwriter".........................................................88
"Closing Date".................................................................5
"Code"........................................................................83
"Collateral Available Funds"..................................................64
"Collateral Default Amount"...................................................69
"Collateral Fixed Allocation".................................................60
"Collateral Floating Allocation"..............................................59
"Collateral Interest Charge-Off"..............................................70
"Collateral Interest Monthly Servicing Fee"...................................75
"Collateral Interest Surplus".............................................10, 62
"Collateral Interest"......................................................7, 60
"Collateral Monthly Interest".................................................65
"Collateral Monthly Principal"................................................67
"Collateral Rate".............................................................65
"Collection Account"..........................................................15
"Collection Subaccount".......................................................58
"Collections".................................................................59
"Commission"...................................................................2
"Congress"....................................................................24
"Controlled Accumulation Amount"..............................................39
"Controlled Accumulation Date".................................................9
"Controlled Accumulation Period"...............................................9
"Controlled Deposit Amount"...................................................10
"Cooperative".................................................................47
"Defaulted Accounts"..........................................................59
"Defaulted Receivables".......................................................69
"Definitive Certificates".....................................................47
"Depositaries"................................................................45
"Depository"..................................................................43
"Determination Date"..........................................................69
"Disclosure Document".........................................................12
"Discount Option".............................................................57
"Discount Percentage".........................................................57
"Distribution Account"........................................................58
"Distribution Date".........................................................2, 8
"DOL".........................................................................87
"DTC Participants"............................................................45
"DTC"...................................................................2, AI-1
"Eligible Account"...........................................................55
"Eligible Additional Account"................................................56
"Eligible Automatic Additional Account"......................................56
"Eligible Receivable"........................................................55
"Enhancement Provider".......................................................54
"Enhancement".................................................................5
"ERISA"......................................................................21
"Euroclear Operator".........................................................47
ii
<PAGE>
"Euroclear Participants".....................................................47
"Euroclear System"...........................................................47
"Euroclear"..................................................................47
"Excess Funding Account".....................................................58
"Excess Principal"...........................................................49
"Excess Spread"..............................................................64
"Exchange Act"................................................................2
"Exchangeable Transferor Certificate".........................................6
"Exchange"...................................................................12
"Expected Class A Principal".................................................49
"Expected Class B Principal".................................................49
"FDIA".......................................................................23
"FDIC".....................................................................1, 6
"Finance Charge Account".....................................................58
"Finance Charge Collections".................................................59
"Finance Charge Receivables".................................................13
"Global Securities"........................................................AI-1
"Holders"....................................................................48
"Indirect Participants"......................................................45
"Ineligible Receivable"......................................................54
"Initial Class A Accumulation Date"..........................................49
"Initial Collateral Interest".................................................6
"Initial Interest Period".....................................................9
"Initial Investor Interest"...................................................6
"Insolvency Event"...........................................................74
"Interchange"................................................................35
"Interest Period"............................................................44
"Interest Rate Cap Provider"..................................................5
"Interest Rate Caps"..........................................................5
"Investor Charge-Off"........................................................70
"Investor Default Amount"....................................................69
"Investor Exchange"..........................................................12
"Investor Percentage".....................................................7, 59
"IRS"........................................................................83
"LIBOR Determination Date"...................................................44
"LIBOR"...................................................................8, 43
"Loan Agreement".............................................................21
"London Banking Day".........................................................43
"MasterCard".................................................................29
"Maximum Addition Amount"....................................................56
"Minimum Aggregate Principal Receivables"....................................35
"Minimum Transferor Interest"................................................35
"Monthly Period"..............................................................7
"Monthly Servicer Report"....................................................78
"Monthly Servicing Fees".....................................................75
"Moody's"....................................................................57
"Norwich"....................................................................42
"Offered Certificate Holders".................................................4
"Offered Certificate Holder".................................................46
"Offered Certificate Owners"..................................................2
"Offered Certificate Rates"...................................................8
"Offered Certificate Rate"....................................................8
"Offered Certificates".....................................................1, 4
"OID"........................................................................84
"Participants"...............................................................45
"Pay Out Event"..............................................................38
iii
<PAGE>
"Paying Agent"...............................................................48
"Permitted Investments"......................................................58
"Plan Asset Regulation"......................................................87
"Pool Factor"................................................................78
"Portfolio Yield"............................................................26
"Principal Allocation".......................................................62
"Principal Collections"......................................................59
"Principal Funding Account Balance"......................................10, 39
"Principal Funding Account"..............................................10, 71
"Principal Funding Investment Proceeds"..................................10, 71
"Principal Receivables"......................................................13
"Principal Shortfalls".......................................................68
"Principal Terms"............................................................52
"PSFC".................................................................1, 6, 42
"Qualified Substitute Arrangement"...........................................44
"Qualified Trust Institution"................................................58
"Rapid Amortization Period"..................................................11
"Rating Agency"..............................................................27
"Reallocated Class B Principal Collections"..................................69
"Reallocated Collateral Principal Collections"...............................69
"Reallocated Principal Collections"..........................................69
"Receivables"..............................................................1, 5
"Record Date"................................................................43
"Recoveries".................................................................14
"Reference Banks"............................................................44
"Removal Date"...............................................................57
"Removed Accounts".......................................................15, 57
"Replacement Interest Rate Cap"..............................................44
"Representative Portfolio"...................................................33
"Required Amounts"...........................................................68
"Required Collateral Interest"...........................................18, 70
"Required Reserve Account Amount"............................................71
"Reserve Account Funding Date"...............................................71
"Reserve Account"............................................................71
"Revolving Period"............................................................9
"RTC Policy Statement".......................................................81
"RTC"........................................................................23
"Scheduled Payment Date".....................................................12
"Scheduled Series 1998-1 Termination Date"...............................12, 72
"Securities Act"........................................................2, AI-3
"Series 1998-1 Supplement"....................................................4
"Series 1998-1"...............................................................4
"Series Cut-Off Date"........................................................14
"Series"......................................................................4
"Service Transfer"...........................................................77
"Servicer Default"...........................................................77
"Servicer"...................................................................15
"Servicing Fee Rate".........................................................75
"Servicing Fee"..............................................................75
"Shared Finance Charge Collections"..........................................20
"Standard & Poor's"..........................................................57
"Supplement".................................................................12
"Tax Counsel"................................................................82
"Terms and Conditions".......................................................47
"Total System"...............................................................29
"Transfer Agent and Registrar"...............................................48
iv
<PAGE>
"Transfer Date"................................................................9
"Transferor Exchange".........................................................12
"Transferor Interest"..........................................................7
"Transferor Percentage".......................................................60
"Transferor Servicing Fee"....................................................75
"Transferor"...................................................................1
"Trust Portfolio"..........................................................5, 35
"Trustee"......................................................................4
"Trust".....................................................................1, 4
"U.S. Person"...............................................................AI-3
"UCC".........................................................................80
"Underwriters"................................................................88
"Underwriting Agreement"......................................................88
"VISA"........................................................................29
v
<PAGE>
ANNEX I
PRIOR SERIES ISSUED AND OUTSTANDING
The Trust has previously issued seven Series of certificates, [two] of which
have been repaid in full. The table below sets forth the principal
characteristics of the [five] Series previously issued by the Trust that are
currently outstanding: the Series 1994-2 Certificates, the Series 1995-1
Certificates, the Series 1996-1 Certificates, the Series 1997-1 Certificates and
the Series 1997-2 Certificates. For more specific information with respect to a
Series, any prospective investor should contact People's Bank at (203) 338-7171.
People's Bank will provide, without charge, to any prospective purchaser of the
Offered Certificates, a copy of the Disclosure Documents for any previously
publicly-issued and outstanding Series.
Series 1994-2
Initial Investor Interest............................... $400,000,000
Class A Certificate Rate through November 14, 1994...... 5.0875% per annum
after November 14, 1994................................. LIBOR plus 0.15%
Class B Certificate Rate................................ LIBOR plus 0.40%
Current Investor Interest............................... $400,000,000
Class A Controlled Amortization Amount.................. $27,142,857.14
Class B Controlled Amortization Amount.................. $20,000,000
Controlled Amortization Date............................ March 1, 1997
Monthly Servicing Fee................................... 2.00% per annum
Initial Cash Collateral Amount.......................... $36,000,000
Class A Expected Final Distribution Date................ May 1998
Class B Expected Final Distribution Date................ June 1998
Scheduled Series 1994-2 Termination Date................ March 2001
Series Issuance Date.................................... October 27, 1994
Series 1995-1
Initial Investor Interest............................... $400,000,000
Class A Certificate Rate................................ LIBOR plus 0.20%
Class B Certificate Rate................................ LIBOR plus 0.35%
Current Investor Interest............................... $400,000,000
Class A Controlled Amortization Amount.................. $27,142,857.14
Class B Controlled Amortization Amount.................. $20,000,000
Controlled Amortization Date............................ August 1, 1999
Monthly Servicing Fee................................... 2.00% per annum
Initial Cash Collateral Amount.......................... $36,000,000
Class A Expected Final Distribution Date................ October 2000
Class B Expected Final Distribution Date................ November 2000
Scheduled Series 1995-1 Termination Date................ August 2003
Series Issuance Date.................................... March 28, 1995
AI-1
<PAGE>
Series 1996-1
Initial Investor Interest...................... $400,000,000
Class A Certificate Rate....................... LIBOR plus 0.15%
Class B Certificate Rate....................... LIBOR plus 0.30%
Current Investor Interest...................... $400,000,000
Class A Controlled Amortization Amount......... $27,071,428.57
Class B Controlled Amortization Amount......... $21,000,000
Controlled Amortization Date................... November 1, 2000
Monthly Servicing Fee.......................... 2.0% per annum
Initial Cash Collateral Amount................. $36,000,000
Class A Expected Final Distribution Date....... January 2002
Class B Expected Final Distribution Date....... February 2002
Scheduled Series 1996-1 Termination Date....... November 2004
Series Issuance Date........................... July 2, 1996
Series 1997-1
Initial Investor Interest...................... $500,000,000
Class A Initial Investor Interest.............. $425,000,000
Class B Initial Investor Interest.............. $33,750,000
Initial Collateral Interest.................... $41,250,000
Current Investor Interest...................... $500,000,000
Class A Certificate Rate....................... LIBOR plus 0.12%
Class B Certificate Rate....................... LIBOR plus 0.32%
Controlled Accumulation Amount................. $30,357,142.86
Controlled Accumulation Date................... December 1, 2000
Servicing Fee Rate............................. 2.0% per annum
Class A Scheduled Payment Date................. February 2002
Class B Scheduled Payment Date................. March 2002
Scheduled Series 1997-1 Termination Date....... October 2004
Series Issuance Date........................... March 27, 1997
Series 1997-2
Initial Investor Interest...................... $500,000,000
Class A Initial Investor Interest.............. $425,000,000
Class B Initial Investor Interest.............. $33,750,000
Initial Collateral Interest.................... $41,250,000
Current Investor Interest...................... $500,000,000
Class A Certificate Rate....................... LIBOR plus 0.13%
Class B Certificate Rate....................... LIBOR plus 0.33%
Controlled Accumulation Amount................. $30,357,142.86
Controlled Accumulation Date................... June 1, 2001
Servicing Fee Rate............................. 2.0% per annum
Class A Scheduled Payment Date................. August 2002
Class B Scheduled Payment Date................. September 2002
Scheduled Series 1997-2 Termination Date....... April 2005
Series Issuance Date........................... September 24, 1997
AI-2
<PAGE>
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered People's
Bank Credit Card Master Trust Floating Rate Class A Asset Backed Certificates,
Series 1998-1 and Floating Rate Class B Asset Backed Certificates, Series 1998-1
(collectively, the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
The Depository Trust Company ("DTC"), Cedel or Euroclear. The Global Securities
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior People's Bank Credit Card Master
Trust issues.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Offered Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as Participants and Indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior People's Bank Credit Master
Trust issues. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in the
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior People's
Bank Credit Card Master Trust issues in same-day funds.
AII-1
<PAGE>
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the accounts of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued to the Global Securities from and including the last coupon payment date
to and excluding the settlement date, on the basis of actual days elapsed and a
360 day year. Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The Global Securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the Cedel or Euroclear cash debit will be
valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the settlement.
Under this procedure, Cedel Participants or Euroclear Participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases, Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the bonds to the DTC Participant's account against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date on the basis of actual days
elapsed and a 360 day year. The payment will then be reflected in the account of
the Cedel Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Cedel Participant or Euroclear
Participant have a line of credit with its respective clearing system and elect
to be in a debit position in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel Participant's
or Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
AII-2
<PAGE>
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) taggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale to
the Cedel Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Offered
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Offered Certificate Owners
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Offered
Certificate Owner or its agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Offered Certificate
Owner of a Global Security or, in the case of a Form 1001 or a Form 4224 filer,
its agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source or, for trusts whose taxable years begin after December
31, 1996, a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States fiduciaries who
have the authority to control all substantial decisions of the trust. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
AII-3
<PAGE>
No dealer, salesperson or other
person has been authorized to give any
information or to make any representation
not contained in this Prospectus and,
if given or made , such information or
representation must not be relied upon as
having been authorized by People's
Bank or the Underwriters. Neither the
delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication that
the information contained herein or
therein is correct as of any time
subsequent to the date of such information.
This Prospectus does not constitute
an offer to sell or a solicitation of an
offer to buy any of the securities offered
hereby in any jurisdiction to any person
to whom it is unlawful to make such offer
in such jurisdiction.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
-----
<S> <C> <C>
Reports to Certificate $1,000,000
Holders.............................2
Available Information...............2 People's Bank Credit Card
Prospectus Summary..................4 Master Trust
Risk Factors........................23
The Trust...........................29 $900,000 Floating Rate
The Credit Card Business Class A Asset Backed
of People's Bank....................29 Certificates, Series 1998-1
The Receivables ....................35
Maturity Considerations.............38 $100,000 Floating Rate
Receivable Yield Considerations.....41 Class B Asset Backed
Use of Proceeds.....................41 Certificates, Series 1998-1
People's Bank.......................42
Description of the
Certificates........................42 LOGO
Certain Legal Aspects of
the Receivables.....................80
Certain Federal Income Transferor and Servicer
Tax Consequences....................82
State and Local
Tax Consequences....................86 ------------------
Certain Employee Benefit
Plan Considerations.................87
Underwriting........................88
Legal Matters.......................89 PROSPECTUS
Index of Key Terms..................I
Annex I Prior Series Issued
and Outstanding ....................AI-1 ------------------
Annex II Global Clearance,
Settlement and
Tax Documentation Procedures........Ai-1
Until June __, 1998 (90 days
after the date of this Prospectus), all Underwriters of the Class A Certificates
dealers effecting transactions in the
Offered Certificates, whether or not
participating in this distribution,
may be required to deliver a Prospectus.
This is in addition to the obligation of
dealers to deliver a Prospectus when
acting as underwriters and with Underwriters of the Class B Certificates
respect to their unsold allotments or
subscriptions.
</TABLE>
AII-4
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution
Registration Fee.................................................. $ 295.00
Printing and Engraving............................................ *
Legal Fees and Expenses........................................... *
Blue Sky Fees and Expenses........................................ *
Accountants' Fees and Expenses.................................... *
Rating Agency Fees................................................ *
Miscellaneous Fees................................................ *
Total............................................................. $ 295.00
- --------------------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers
Article X of the Articles of Incorporation of People's Bank provides
that the Bank shall indemnify its directors, officers, employees, agents, and
all other persons eligible for indemnification by People's Bank, to the fullest
extent permitted or required by Section 33-320a of the Connecticut General
Statutes and as provided by the Bylaws of the Bank. Furthermore, no director of
People's Bank shall be personally liable to People's Bank or its stockholders
for monetary damages for breach of duty as a director in any amount in excess of
the compensation received by the director for serving People's Bank in that
capacity during the year such violation occurred, unless such breach (1)
involves a knowing and culpable violation of law by the director, (2) enables
the director or an associate of such director (as defined in subdivision (3) of
Section 33-374d of the Connecticut General Statutes), to receive an improper
personal economic gain, (3) shows a lack of good faith and a conscious disregard
for the duty of the director to People's Bank under circumstances in which the
director was aware that his conduct or omission created an unjustifiable risk of
serious injury to People's Bank, (4) constitutes a sustained and unexcused
pattern of inattention that amounted to an abdication of the director's duty to
People's Bank, or (5) creates liability under Section 36-9 of the Connecticut
General Statutes. Furthermore, Article X of the Articles of Incorporation
provides that any repeal or modification of Article X by the stockholders of
People's Bank shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of People's Bank existing at
the time of such repeal or modification.
Article VI of the By-laws of People's Bank provides that the Bank shall
indemnify (a) its currently acting and its former directors, officers, employees
or agents to the fullest extent that indemnification of directors is permitted
by the Connecticut Stock Corporation Act and (b) its officers to the same extent
as its directors (and to such further extent as is consistent with law). In
addition, Article VI of such By-Laws provides that People's Bank shall indemnify
its directors and officers who, while serving as directors or officers of
People's Bank, also serve at the request of People's Bank as a director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent permitted by the Connecticut Stock Corporation Act.
Article VI of People's Bank's By-laws also provides that any director
or officer seeking indemnification within the foregoing rights of
indemnification shall be entitled to advances from People's Bank for payment of
the reasonable expenses incurred by him in connection with the matter as to
which he is seeking indemnification as authorized by the Board of Directors in
accordance with the provisions of and in the manner and to the fullest extent
permissible under the Connecticut Stock Corporation Act. Further, such Section
provides that the foregoing rights of indemnification shall not be deemed
exclusive of any other right, with respect to indemnification or otherwise, to
which those seeking indemnification may be entitled and shall inure to the
benefit of the heirs, executors and administrators of such director or officer.
Furthermore, any such right of indemnification shall be consistent with the laws
of the State of Connecticut.
The Connecticut Stock Corporation Act provides that a corporation may
indemnify any person made a party to any proceeding, other than an action by or
in the right of the corporation, by reason of the fact that he, or the person
whose legal representative he is, is or was a shareholder, director, officer,
employee or agent of the corporation, or an eligible outside party, against
judgments, fines, penalties, amounts paid in settlement and reasonable expenses
actually incurred by him, and the person whose legal representative he is, in
connection with such proceeding such person shall not be entitled to
indemnification if (1) it is established that such person, and the person whose
legal representative he is, was successful on the merits in the defense of any
proceeding referred to in this subsection, or (2) it shall be concluded that
such person, and the person whose legal representative he is, acted in good
faith and in a manner he reasonably believed to be in the best interests of the
corporation or, in the case of a person serving as a fiduciary of an employee
benefit plan or trust, either in the best interests of the corporation or in the
best interests of the participants and beneficiaries of such employee benefit
plan or trust and consistent with the provisions of such employee benefit plan
or trust and, with respect
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to any criminal action or proceeding, that he had no reasonable cause to believe
his conduct was unlawful, or (3) the court shall have determined that in view of
all the circumstances such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine; except that,
in connection with an alleged claim based upon his purchase or sale of
securities of the corporation or of another enterprise, which he serves or
served at the request of the corporation, the corporation shall only indemnify
such person after the court shall have determined that in view of all the
circumstances such person is fairly and reasonably entitled to be indemnified,
and then for such amount as the court shall determine.
Item 15. Recent Sales of Unregistered Securities
The Trust has not previously issued any unregistered securities.
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 -- Form of Underwriting Agreement.*
3.2 -- Articles of Incorporation, as amended.*
3.2 -- By-laws, as amended.*
4.1 -- Amended and Restated Pooling and Servicing Agreement, and
certain other related agreements as Exhibits thereto.*
4.2 -- Form of Series 1998-1 Supplement, including forms of the
Certificates, and certain other related agreements as Exhibits
thereto.*
4.3 -- Form of Interest Rate Caps.*
5.1 -- Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 -- Opinion of Mayer, Brown & Platt with respect to tax matters.*
8.2 -- Opinion of Pullman & Comley with respect to tax matters.*
23.1 -- Consent of Mayer, Brown & Platt (included in its opinions
filed as Exhibit 5.1 and Exhibit 8.1).
23.2 -- Consent of Pullman & Comley (included in its opinion filed
as an Exhibit to Exhibit 8.2).
24.1 -- Powers of Attorney.
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* To be filed by amendment.
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
Item 17. Undertakings
The undersigned registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement Certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
provisions described under Item 14 above, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by
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<PAGE>
controlling precedent, submit to a court of appropriate jurisdiction the
questions whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final adjudication of such
issue.
(c) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bridgeport,
State of Connecticut, on February 5, 1998.
People's Bank
as originator of the Trust (Registrant)
By /s/ George W. Morriss
George W. Morriss
Executive Vice President and
Chief Financial Officer
Each director and officer of the registrant whose signature appears
below hereby appoints David E.A. Carson, George W. Morriss and William T.
Kosturko, and each of them severally, as his or her attorney-in-fact to sign in
his or her name and behalf, in any and all capacities stated below and to file
with the Commission any and all amendments, including post-effective amendments
to this registration statement, and the registrant hereby also appoints each
such person as its attorney-in-fact with the authority to sign and file any such
amendments in its name and behalf. Pursuant to the requirements of the
Securities Act of 1933, as amended, this Registration Statement has been signed
on February 5, 1998 by the following persons in the capacities indicated
/s/
Signatures Title
---------- -----
/s/ David E.A. Carson Chief Executive Officer, Director
David E.A. Carson
/s/ James P. Biggs President, Director
James P. Biggs
/s/ Vincent J. Calabrese Vice President and Chief Accounting
Vincent J. Calabrese Officer
/s/ George P. Carter Director
George P. Carter
Director
Joseph E. Clancy
/s/ George R. Dunbar Director
George R. Dunbar
Director
Jerry Franklin
/s/ Samuel W. Hawley Director
Samuel W. Hawley
Director
Betty Ruth Hollander
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<PAGE>
Signatures Title
---------- -----
Director
Eunice S. Groark
Director
Saul Kwartin
/s/ Jack E. McGregor Director
Jack E. McGregor
Director
James A. Thomas
/s/ Wilmot F. Wheeler, Jr. Director
Wilmot F. Wheeler, Jr.
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<PAGE>
EXHIBIT INDEX
1.1 -- Form of Underwriting Agreement.*
3.2 -- Articles of Incorporation, as amended.*
3.2 -- By-laws, as amended.*
4.1 -- Amended and Restated Pooling and Servicing Agreement, and certain
other related agreements as Exhibits thereto.*
4.2 -- Form of Series 1998-1 Supplement, including forms of the
Certificates, and certain other related agreements as Exhibits
thereto.*
4.3 -- Form of Interest Rate Caps.*
5.1 -- Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 -- Opinion of Mayer, Brown & Platt with respect to tax matters.*
8.2 -- Opinion of Pullman & Comley with respect to tax matters.*
23.1 -- Consent of Mayer, Brown & Platt (included in its opinions filed
as Exhibit 5.1 and Exhibit 8.1).
23.2 -- Consent of Pullman & Comley (included in its opinion filed as
an Exhibit to Exhibit 8.2).
24.1 -- Powers of Attorney.
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* To be filed by amendment.
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