Rule No. 424(b)(4)
Registration NO. 33-99506-01
$400,000,000
PEOPLE'S BANK CREDIT CARD MASTER TRUST
$379,000,000 FLOATING RATE CLASS A ASSET BACKED CERTIFICATES, SERIES 1996-1
$21,000,000 FLOATING RATE CLASS B ASSET BACKED CERTIFICATES, SERIES 1996-1
[PEOPLE'S BANK LOGO]
TRANSFEROR AND SERVICER
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Each of the Floating Rate Class A Asset Backed Certificates, Series 1996-1
(the "Class A Certificates") and each of the Floating Rate Class B Asset
Backed Certificates, Series 1996-1 (the "Class B Certificates" and, together
with the Class A Certificates, the "Certificates") offered hereby will
evidence undivided interests in certain assets of the People's Bank Credit
Card Master Trust (the "Trust") created pursuant to a pooling and servicing
agreement dated as of June 1, 1993, as amended, between People's Bank, as
transferor and servicer (the "Transferor"), and Bankers Trust Company, as
trustee. 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 a Cash Collateral Account with respect to the
Certificates and certain interest rate cap agreements, each as defined or
described herein. People's Bank services the Receivables, and People's
Structured Finance Corp. ("PSFC"), a wholly-owned subsidiary of People's Bank,
owns the undivided interest in the Trust not represented by the Certificates
or other series of investor certificates issued by the Trust. People's Bank
has previously offered four series of certificates, 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.
Interest with respect to the Certificates is scheduled to be distributed on
July 15, 1996 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
(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
25.
---------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR RECOURSE OBLIGATIONS OF PEOPLE'S BANK, 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.
---------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) PSFC(1)(3)
------------ ------------ ------------
Per Class A Certificate................. 100.000% 0.290% 99.710%
Per Class B Certificate................. 100.000% 0.325% 99.675%
Total................................... $400,000,000 $1,167,350 $398,832,650
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(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 $635,431.04.
---------------
The 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 Certificates will
be delivered in book-entry form on or about July 2, 1996, through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme, and
the Euroclear System.
UNDERWRITERS OF THE CLASS A CERTIFICATES
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
SALOMON BROTHERS INC
---------------
UNDERWRITERS OF THE CLASS B CERTIFICATES
GOLDMAN, SACHS & CO.
---------------
The date of this Prospectus is June 25, 1996.
(Continued from previous page)
July 14, 1996 at the rate of 5.63047% 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 0.15% 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 July 14, 1996 at the rate of 5.78047% per annum and with respect
to each Interest Period thereafter in the manner and with the exceptions
described herein at the rate of 0.30% 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 each
Distribution Date commencing with the December 2000 Distribution Date, but may
be paid earlier under certain limited circumstances as described herein.
Principal with respect to the Class B Certificates is scheduled to be
distributed on the February 2002 Distribution Date, but may be paid earlier or
later under certain limited circumstances as described herein. See "Maturity
Assumptions". Principal payments will not be made to Class B
Certificateholders 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.
REPORTS TO CERTIFICATEHOLDERS
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 Certificates, pursuant to the Agreement. See
"Description of the Certificates--Book-Entry Registration", "--Reports to
Certificateholders" 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 Certificateholders or to the owners of beneficial
interests in the Certificates ("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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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......... $379,000,000 Floating Rate Class A Asset Backed
Certificates, Series 1996-1 (the "Class A
Certificates") and $21,000,000 Floating Rate
Class B Asset Backed Certificates, Series 1996-1
(the "Class B Certificates" and, together with
the Class A Certificates, 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 1996-1 Supplement"
refers to the supplement relating to the
Certificates; the term "Agreement" refers to the
Pooling and Servicing Agreement dated as of June
1, 1993, as amended, and, unless the context
requires otherwise, refers to the Agreement as
supplemented by the Series 1996-1 Supplement; the
term "Certificateholders" refers to holders of
the Certificates; the term "Class A
Certificateholders" refers to holders of the
Class A Certificates and the term "Class B
Certificateholders" refers to holders of the
Class B Certificates; and the term "Series"
refers to any series of certificates issued by
the Trust, including the Certificates.
The Trust has previously issued four other
Series. See "Annex I: Prior Series Issued" for a
summary of these previously issued 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.
Trust Assets................ The property of the Trust includes receivables
(the "Receivables") arising under certain
VISA(R)* and MasterCard(R)* credit card accounts,
all Receivables in Automatic Additional Accounts
and Additional Accounts added
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* VISA(R) and MasterCard(R) are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
3
to the Trust 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 on deposit in certain bank
accounts established and maintained for the
benefit of certificateholders of any Series,
funds and securities on deposit in a collateral
account in the name of the Trustee (the "Cash
Collateral Account") for the benefit of the
Certificateholders, an interest rate cap
agreement for the exclusive benefit of the Class
A Certificateholders (the "Class A Interest Rate
Cap") and an interest rate cap agreement for the
exclusive benefit of the Class B
Certificateholders (the "Class B Interest Rate
Cap" and, together with the Class A Interest Rate
Cap, the "Interest Rate Caps"), each provided by
Swiss Bank Corporation, acting through its London
branch (the "Interest Rate Cap Provider"), and
any Enhancement issued with respect to any other
Series (the benefits of such Enhancement with
respect to other Series will not be available for
the benefit of the Certificateholders). The
holders of the certificates of other Series will
not be entitled to the benefits of the Interest
Rate Caps or funds deposited in the Cash
Collateral Account. The term "Enhancement" shall
mean, with respect to any other Series, any
letter of credit, cash collateral account, surety
bond, guaranteed rate agreement, maturity
guaranty facility, tax protection agreement,
interest rate cap or swap or other contract or
agreement principally for the benefit of
certificateholders of such Series. The term
"Enhancement" shall mean, with respect to the
Certificates, the Available Cash Collateral
Amount, the Interest Rate Caps and, in the case
of the Class A Certificates, the Class B Investor
Interest.
The Transferor conveyed to the Trust on July 9,
1993, on October 4, 1994, on July 14, 1995 and on
May 1, 1996, and the assets of the Trust include,
Receivables from the portfolio of VISA credit
card accounts and MasterCard credit card accounts
owned by the Transferor which met the criteria
set forth in the Agreement. The Transferor has
conveyed, and will continue to convey, to the
Trustee all Receivables arising under the
Accounts from time to time thereafter until
termination of the Trust. The Trust does not and
will not include the Receivables of any Removed
Accounts which may be removed from the Trust from
time to time. Automatic Additional Accounts will
consist of certain of the Transferor's VISA
credit card accounts and MasterCard credit card
accounts (including certain Affinity Program
Accounts and Agent Bank Accounts) constituting
Eligible Automatic Additional Accounts and
satisfying certain other criteria, and arising in
Accounts designated by the Transferor from
4
time to time. Additional Accounts may, subject to
certain conditions, also include certain other
consumer revolving credit accounts. See
"Description of the Certificates--Addition of
Accounts". The term "Trust Portfolio" means the
pool of Eligible Receivables representing assets
of the Trust as of a specified date.
Securities Offered.......... The Class A Certificates and the Class B
Certificates will be issued on July 2, 1996 (the
"Closing Date") in book-entry form only, in the
initial principal amounts of $379,000,000 and
$21,000,000, respectively, and will be
represented by one or more Certificates
registered in the name of Cede. A Certificate
Owner will not be entitled to receive a
definitive certificate representing such person's
interest, except in the event that Definitive
Certificates are issued under the limited
circumstances described herein. In such event,
interests in the Certificates will be available
in minimum denominations of $1,000 and integral
multiples thereof. All references herein to
Certificateholders, Class A Certificateholders or
Class B Certificateholders shall refer to
Certificate Owners, except as otherwise specified
herein. See "Description of the Certificates--
Definitive Certificates".
Each of the Certificates offered hereby and
issued pursuant to the Agreement represents a
fractional undivided interest in certain assets
of the Trust. The Trust assets will be allocated
among the Certificateholders, the holders of
certificates of any other Series which is
outstanding at the time of such allocation and
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"). The
Receivables are not 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
Certificateholders' interest in Principal
Receivables will equal
5
$379,000,000 (the "Class A Initial Investor
Interest") and the amount of the Class B
Certificateholders' interest in Principal
Receivables will equal $21,000,000 (the "Class B
Initial Investor Interest" and, together with the
Class A Initial Investor Interest, the "Initial
Investor Interest"). Such amounts may be reduced
to reflect the tender and cancellation of
Certificates pursuant to an Investor Exchange.
The Class A Certificateholders' 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 all payments in respect of principal made on
the Class A Certificates, less any charge offs of
the Class A Investor Interest, plus any
reimbursements of the charge offs of the Class A
Investor Interest, in each case as of such date.
The Class B Certificateholders' 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 Certificates, less any Reallocated
Principal Collections and charge offs of the
Class B Investor Interest, plus any
reimbursements of Reallocated Principal
Collections and charge offs of the Class B
Investor Interest, in each case as of such date.
The aggregate of the Class A Investor Interest
and the Class B Investor Interest at any time is
the "Investor Interest". During an Amortization
Period, the Investor Interest will decline as
principal is paid to the Certificateholders. The
Holder of the Exchangeable Transferor Certificate
holds in the Trust the remaining undivided
interest in the Principal Receivables (as defined
below) and amounts not represented by the
Certificates or any other Series of certificates
that have been issued at the time of such
determination (the "Transferor Interest"). As new
Receivables are added to the Trust and as
payments are made on the Transferor Interest, 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,
four other Series have been issued by the Trust.
See "Annex I: Prior Series Issued".
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 collections of
6
Finance Charge Receivables and Principal
Receivables received during each calendar month
(a "Monthly Period"). The Investor Percentage (x)
with respect to the allocation of Finance Charge
Receivables and Receivables in Defaulted
Accounts, at all times, and (y) with respect to
Collections (as defined in the Agreement) of
Principal Receivables during the Revolving Period
will be, on any date of determination (other than
a date of determination occurring during the
Paired Amortization Period), the percentage
equivalent of a fraction, the numerator of which
is the 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
investor percentages with respect to Principal
Receivables for all Series of certificates
outstanding. The Investor Percentage with respect
to the allocation of Principal Receivables during
the Controlled Amortization Period and the Rapid
Amortization Period (each, an "Amortization
Period") will be, on any date of determination
(other than a date of determination occurring
during the Paired Amortization Period), 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 reduced ratably to reflect
the amount of Certificates tendered and cancelled
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
investor percentages for such date of
determination with respect to Principal
Receivables for all Series of certificates
outstanding. The period from the Closing Date to
and including the date on which the investor
interest of the Trust's Series 1993-1 4.80% Asset
Backed Certificates (the "Paired Certificates")
has been paid in full is referred to herein as
the "Paired Amortization Period". The Investor
Percentage of Collections of Principal
Receivables for the Certificates, for any date of
determination in the Revolving Period or the
Rapid Amortization Period occurring during the
Paired Amortization Period, will be the
percentage equivalent of the same fraction as is
described above for the applicable period, except
that the numerator thereof will be reduced by the
numerator used to calculate the investor
percentage for such date of determination with
respect to Collections of Principal Receivables
for the Paired Certificates pursuant to
7
the related Supplement. The expected final
distribution date for the Paired Certificates is
December 16, 1996. See "Annex I: Prior Series
Issued". The foregoing notwithstanding, during
the Controlled Amortization Period, the Investor
Percentage of Collections of Principal
Receivables may be reset at the option of the
Servicer (and any such reset Investor Percentage
will apply in any Rapid Amortization Period
following the Controlled Amortization Period) on
the date of issuance of any new Series of
certificates to a fixed percentage equivalent of
a fraction which shall not be greater than the
fraction described in the fifth preceding
sentence and shall not be less than the greater
of (i) a fraction, the numerator of which is the
Investor Interest, determined as of the close of
business on the last day of the Monthly Period
immediately preceding the date of determination,
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 investor percentages for
such date of determination with respect to
Principal Receivables for all Series of
certificates outstanding and (ii) a fraction that
when multiplied by the amount of collections of
Principal Receivables for the preceding Monthly
Period will equal the greater of the Class A
Controlled Distribution Amount and the Class B
Controlled Distribution Amount for such Monthly
Period, plus 10% of the Class A Controlled
Amortization Amount, minus any Available Shared
Principal Collections with respect to such
Monthly Period. The Investor Percentage with
respect to the allocation of Principal
Receivables during the Rapid Amortization Period
will remain fixed at the Investor Percentage in
effect at the commencement of the Rapid
Amortization Period and may not be reset except
as described above in connection with the Paired
Amortization Period. See "Description of the
Certificates--Allocation Percentages" and "--Pay
Out Events".
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 term "Available Shared
Principal Collections" means, on any date, Shared
Principal Collections allocable to the
Certificates from each other Series that has a
controlled or scheduled amortization or
accumulation period beginning after the Class B
Expected Final Distribution Date.
The Investor Percentage of Collections so
allocated during the Revolving Period and the
Amortization Periods to the
8
Certificateholders will be further allocated
between the Class A Certificateholders and the
Class B Certificateholders in accordance with the
Class A Investor Percentage and the Class B
Investor Percentage, respectively. The "Class A
Investor Percentage" and the "Class B Investor
Percentage" mean, respectively, the percentage
equivalent of a fraction, the numerator of which
is the Class A Investor Interest or the Class B
Investor Interest, as the case may be, determined
as of the last day of the Monthly Period
immediately preceding such date of determination,
and the denominator of which is the sum of the
Class A Investor Interest and the Class B
Investor Interest, determined as of the last day
of the Monthly Period immediately preceding such
date of determination.
Interest.................... Interest is required to be distributed on July
15, 1996 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 (w) the product of (a) the London
interbank offered quotations rate for one-month
United States dollar deposits ("LIBOR"),
determined as described herein, plus 0.15% (the
"Class A Certificate Rate") (or 5.63047% for the
Initial Interest Period), (b) the lesser of the
Class A 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 (x) the product of (a) the
Class A Excess Principal, (b) the lesser of the
Class A Certificate Rate and 9.15%, and (c) the
actual number of days in the related Interest
Period divided by 360 (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 Certificateholders,
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 9.15%, (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 0.30% (the "Class B Certificate
Rate"; the Class A Certificate Rate and the Class
B Certificate Rate are each sometimes referred to
as a "Certificate Rate" and collectively, the
"Certificate Rates") (or 5.78047% for the Initial
Interest
9
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) an amount equal to the product of
(a) the Class B Excess Principal, (b) the lesser
of the Class B Certificate Rate and 9.30%, 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 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
Certificateholders, 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 9.30%, (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
July 15, 1996 will accrue from and including the
Closing Date to and including July 14, 1996 (the
"Initial Interest Period").
Revolving Period............ No principal will be payable to
Certificateholders until the December 2000
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 Amortization Period
or the Rapid Amortization Period commences (the
"Revolving Period"), collections of Principal
Receivables otherwise allocable to the
Certificateholders will, subject to certain
limitations, be applied as Shared Principal
Collections, as described below, and thereafter
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
termination of the Revolving Period prior to the
end of the October 2000 Monthly Period.
10
Principal Payments;
Controlled Amortization
Period..................... Unless a Pay Out Event has occurred or is deemed
to occur, commencing on the first day of the
Monthly Period relating to the December 2000
Distribution Date (the "Controlled Amortization
Date") and ending on the earlier of the date when
the Certificates have been paid in full, or the
occurrence of a Pay Out Event (the "Controlled
Amortization Period"), collections of Principal
Receivables allocable to the Certificates, along
with Shared Principal Collections from other
Series, if any, will be distributed monthly on
each Distribution Date related to the Controlled
Amortization Period to the Class A
Certificateholders, in an amount up to the
Class A Controlled Distribution Amount, until the
Class A Investor Interest is paid in full.
Principal payments on the Class B Certificates
will commence on the Class B Payment Commencement
Date. During either Amortization Period, the
aggregate amount of collections of Principal
Receivables allocable to the Class A Certificates
and the Class B Certificates (together with
certain amounts treated as Collections of
Principal Receivables, including amounts applied
with respect to Investor Default Amounts and
Investor Charge Offs, the "Principal Allocation")
will equal the product of (a) the applicable
Investor Percentage and (b) the amount of
collections of Principal Receivables.
If the Principal Allocation for any Monthly
Period during the Controlled Amortization Period
is equal to or greater than the sum of the Class
A Controlled Amortization Amount or the Class B
Controlled Amortization Amount, as applicable,
and the existing Deficit Controlled Amortization
Amount (such sum, either the "Class A Controlled
Distribution Amount" or the "Class B Controlled
Distribution Amount", respectively; each, a
"Controlled Distribution Amount"), the amount of
the applicable Controlled Distribution Amount
will be paid as provided herein from the Trust to
the Certificateholders in respect of the Investor
Interest, and any excess of such Principal
Allocation over the applicable Controlled
Distribution Amount will be applied as Shared
Principal Collections, as described below, and if
not so used, paid from the Trust to the Holder of
the Exchangeable Transferor Certificate. If the
Principal Allocation for any Monthly Period
during the Controlled Amortization Period is less
than the applicable Controlled Distribution
Amount, the sum of such Principal Allocation and
the amount of any Shared Principal Collections
available from other Series to the Certificates
of this Series, in an aggregate amount not to
exceed the applicable Controlled Distribution
Amount, will be paid from the Trust to the
applicable Certificateholders in respect of the
Class A Investor Interest or the Class B Investor
Interest. The amount of the accrued and unpaid
monthly excesses of the applicable Controlled
Amortization Amount for the Class A Certificates
or
11
the Class B Certificates, as the case may be, for
each preceding Monthly Period over the sum of the
Principal Allocation and the amount of any Shared
Principal Collections available to the
Certificates for each such Monthly Period will be
the "Deficit Controlled Amortization Amount" for
any Transfer Date or Distribution Date. See
"Maturity Assumptions", "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 1996-1
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 Certificateholders until the Class A Investor
Interest is paid in full and, following the final
principal payment to the Class A
Certificateholders, to the Class B
Certificateholders until the Class B Investor
Interest is paid in full, on each Distribution
Date beginning with 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.
Final Payment of Principal
and Interest............... The final distributions of principal and interest
on the Class A Certificates and the Class B
Certificates, respectively, are scheduled to be
made on the January 2002 Distribution Date (the
"Class A Expected Final Distribution Date") and
the February 2002 Distribution Date (the "Class B
Expected Final Distribution Date"; the Class A
Expected Final Distribution Date and the Class B
Expected Final Distribution Date are each
sometimes referred to as an "Expected Final
Distribution Date" and collectively, the
"Expected Final Distribution Dates") and will be
made no later than the November 2004 Distribution
Date (the "Scheduled Series 1996-1 Termination
Date"). After the Scheduled Series 1996-1
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
12
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 1996-1 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 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 an 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.
13
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, the premiums of any insurance covering a
cardholder's account balances, Recoveries,
Interchange and investment earnings on the Excess
Funding Account (collectively, the "Finance
Charge Receivables"). Proceeds from the sale of
all or a portion of an Interest Rate Cap will
also be treated under the Supplement as Finance
Charge Collections, allocable to the related
class of Certificates. 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 credit card accounts
identified as part of the accounts underlying the
Receivables in the Trust Portfolio as of March
31, 1996 (the "Series Cut-Off Date"), together
with Automatic Additional Accounts arising on or
prior to the Series Cut-Off Date and Additional
Accounts conveyed on or prior to May 1, 1996, but
does not include any Removed Accounts.
"Recoveries" means amounts received with respect
to charged-off credit card receivables of the
Bank Portfolio allocable to the Trust. The
aggregate amount of Receivables in the Accounts
as of the Series Cut-Off Date was approximately
$1,798,186,706. The Finance Charge Receivables
will not generally 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.
14
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 or any other
Series of certificates, 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".
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 originated in the ordinary course of the
Transferor's business (the "Automatic Additional
Accounts") and convey to the Trust all of the
Receivables in the Automatic Additional Accounts
whether such Receivables are then existing or
thereafter created. See "Description of the
Certificates-- Addition of Accounts". The
Transferor has conveyed and will continue to
convey Automatic Additional Accounts consisting
of VISA and MasterCard credit card accounts that
are Eligible Automatic Additional Accounts and
that satisfy certain other criteria.
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.
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.
The aggregate undivided interest in the Principal
Receivables in the Trust evidenced by the
Certificates will never exceed the amount of the
Investor Interest regardless of the total amount
of Principal Receivables in the Trust at any
time.
Denomination................ The Certificates will be offered for purchase in
minimum denominations of $1,000 and integral
multiples thereof.
15
The Certificates will initially be represented by
Registration of Certificates registered in the name of Cede, as
Certificates............... the nominee of DTC. No 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.... 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 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, or any such
successor servicer, is 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 of
Receivables 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 1996-1
Supplement, and the Supplements relating to any
past or future Series, by the Servicer between
amounts collected on Principal Receivables and
amounts collected on Finance Charge Receivables.
If the Discount Option is exercised by the
Transferor, certain collections that would
otherwise be characterized as Collections of
Principal Receivables may instead be treated as
Collections of Finance Charge Receivables. See
"Description of the Certificates--Discount
Option". In addition, pursuant to the Series
1996-1 Supplement, proceeds from any sale of the
Class A Interest Rate Cap or the Class B Interest
Rate Cap will be allocated as Finance Charge
Receivables to the related class of Certificates.
All such
16
amounts will then be allocated in accordance with
the respective interests of the
Certificateholders, the certificateholders 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............. The Class B Investor Interest will be
subordinated as described herein to the extent
necessary to fund payments with respect to the
Class A Certificates and the Class A Monthly
Servicing Fee as described herein. To the extent
the Class B Investor Interest is thereby reduced,
the percentage of collections of Finance Charge
Receivables allocated to the Class B
Certificateholders in subsequent Monthly Periods
will be reduced. 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
Certificateholders 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. See "Description of
Certificates--Subordination of the Class B
Certificates" and " --Application of
Collections".
Cash Collateral Account..... The Trust will have the benefit of an account
(the "Cash Collateral Account"), which will be
held in the name of the Trustee for the benefit
of the Certificateholders. See "Description of
the Certificates--The Cash Collateral Account".
The Cash Collateral Account will be funded from
the proceeds of a loan made pursuant to a loan
agreement (the "Loan Agreement") by a certain
financial institution as lender (the "Cash
Collateral Lender") and from a deposit by the
Transferor on the Closing Date in the aggregate
amount of $36,000,000 (the "Initial Cash
Collateral Amount"). On the Business Day
preceding each Distribution Date (each a
"Transfer Date"), the amount available in the
Cash Collateral Account (the "Available Cash
Collateral Amount") will equal the lesser of the
amount on deposit in the Cash Collateral Account
and the Required Cash Collateral Amount. The
"Required Cash Collateral Amount" with respect to
any Transfer Date means, generally, the product
of (i) the Investor Interest as of the last day
of the Monthly Period preceding such date and
(ii) 9%, but in no event less than the lesser of
(x) $12,000,000 and (y) the Investor Interest as
of the last day of the related Monthly Period;
provided, however, that if certain withdrawals
are made from the Cash Collateral
17
Account during the Controlled Amortization Period
or if a Pay Out Event occurs, the Required Cash
Collateral Amount for such Transfer Date shall be
the lesser of the Required Cash Collateral Amount
for the Transfer Date immediately preceding the
occurrence of such withdrawal or such Pay Out
Event and the unpaid principal amount of the
Certificates.
Application of Funds........ If, in any Monthly Period, collections of Finance
Charge Receivables allocable to the Class A
Investor Interest for such Monthly Period are
insufficient (such insufficiency being the "Class
A Required Amount") to pay (i) the interest
accrued on the Class A Certificates with respect
to the related Distribution Date, in an amount
equal to the product of (a) the lesser of the
Class A Certificate Rate and the Class A Cap
Rate, (b) the Class A Investor Interest as
determined as of the preceding Distribution Date
(or, for the Initial Interest Period, the Closing
Date) after giving effect to all payments,
deposits and withdrawals on such Distribution
Date or Closing Date, and (c) the actual number
of days in the related Interest Period divided by
360 (the "Class A Monthly Cap Rate Interest"),
and any Class A Monthly Cap Rate Interest accrued
during any prior period not distributed to the
Class A Certificateholders, (ii) the Class A
Monthly Servicing Fee and any accrued and unpaid
Class A Monthly Servicing Fees from prior Monthly
Periods, (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 "Class
A Payment Amount"), then first, Excess Spread, if
any, from collections of Finance Charge
Receivables allocable to the Class B Certificates
will be allocated to the Class A Certificates up
to the Class A Required Amount, 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 and third, a withdrawal will be made from
the Cash Collateral Account on the Distribution
Date immediately following such Monthly Period,
to the extent of any remaining Class A Required
Amount (but not more than the applicable
Available Cash Collateral Amount). If such
applicable Available Cash Collateral Amount is
less than the remaining Class A Required Amount
for such Distribution Date, the applicable Class
B Investor Percentage of collections in respect
of Principal Receivables will then be used to
fund the remaining Class A Required Amount (such
collections, "Reallocated Principal
Collections"). The Class B Investor Interest will
be reduced by the amount of Reallocated Principal
Collections.
If, on such Distribution Date, the Available Cash
Collateral Amount and Reallocated Principal
Collections are insufficient to fund the
remaining Class A Required Amount for such
18
Monthly Period, the remaining Class B Investor
Interest will be reduced (but not in excess of
the Class A Investor Default Amount for such
Distribution Date) by the amount of such
remaining insufficiency, until such time as the
Class B Investor Interest has been reduced to
zero. Thereafter, the Class A Investor Interest
will be reduced by the amount of any remaining
Class A Required Amount (a "Class A Investor
Charge Off"), but not in excess of the Class A
Investor Default Amount for such Distribution
Date, and the Class A Certificateholders will
bear directly the credit and other risks
associated with their undivided interest in the
Trust.
If, in any Monthly Period, collections of Finance
Charge Receivables allocable to the Class B
Investor Interest for such Monthly Period are
insufficient (such insufficiency being the "Class
B Required Amount" and, together with the Class A
Required Amount, the "Required Amounts") to pay
(i) the interest which accrued on the Class B
Certificates with respect to the related
Distribution Date, in an amount equal to the
product of (a) the lesser of the Class B
Certificate Rate and the Class B Cap Rate, (b)
the Class B Investor Interest as determined as of
the preceding Distribution Date (or, for the
Initial Interest Period, the Closing Date), after
giving effect to all payments, deposits and
withdrawals on such Distribution Date or Closing
Date, and (c) the actual number of days in the
related Interest Period divided by 360 (the
"Class B Monthly Cap Rate Interest"), and any
Class B Monthly Cap Rate Interest accrued during
any prior period which has not been distributed
to the Class B Certificateholders, (ii) the Class
B Monthly Servicing Fee and any accrued and
unpaid Class B Monthly Servicing Fees from prior
Monthly Periods, (iii) the Class B Investor
Default Amount for such Monthly Period, and (iv)
unreimbursed Class B Investor Charge Offs (the
aggregate of clauses (i) through (iv), the "Class
B Payment Amount"), then first, Excess Spread, if
any, from collections of Finance Charge
Receivables allocable to the Class A Certificates
will be allocated to the Class B Certificates up
to the Class B Required Amount, second, Shared
Finance Charge Collections, if any, allocable to
the Certificates and not required to pay the
Class A Required Amount for such Distribution
Date will be allocated to the Class B
Certificates up to the remaining Class B Required
Amount and third, a withdrawal will be made from
the Cash Collateral Account on the Distribution
Date immediately following such Monthly Period,
to the extent of any remaining Class B Required
Amount (but not more than the portion of the
applicable Available Cash Collateral Amount, if
any, not required to pay the Class A Required
Amount for such Distribution Date).
If, on such Distribution Date, such portion of
the Available Cash Collateral Amount is
insufficient to fund the remaining
19
Class B Required Amount for such Monthly Period,
the Class B Investor Interest will be reduced
(but not in excess of the Class B Investor
Default Amount for such Distribution Date) by the
amount of such remaining insufficiency (a
"Class B Investor Charge Off"). See "Description
of the Certificates--The Cash Collateral
Account", "--Reallocation of Cash Flows".
"Excess Spread" on any Transfer Date will equal
the sum of (a) the excess of any collections of
Finance Charge Receivables allocated to the Class
A Investor Interest over the Class A Payment
Amount and (b) the excess of any collections of
Finance Charge Receivables allocated to the Class
B Investor Interest over the Class B Payment
Amount. Any Excess Spread will be applied first,
to cover the Required Amounts, second, to cover
any accrued and unpaid interest on any overdue
Class A Monthly Interest, calculated at a default
rate of interest, third, to cover any accrued and
unpaid interest on any overdue Class B Monthly
Interest, calculated at a default rate of
interest, fourth, to reimburse any reductions in
the Class B Investor Interest in connection with
the payment of the Class A Required Amount,
fifth, to replenish the Cash Collateral Account
to the Required Cash Collateral Amount, sixth, to
cover any Class A Monthly Interest in excess of
the Class A Monthly Cap Rate Interest (other than
Class A Excess Interest), to the extent not paid
by the Interest Rate Cap Provider pursuant to the
Class A Interest Rate Cap, seventh, to cover any
Class B Monthly Interest in excess of the Class B
Monthly Cap Rate Interest (other than Class B
Excess Interest), to the extent not paid by the
Interest Rate Cap Provider pursuant to the Class
B Interest Rate Cap, eighth, to amounts due and
payable under the Loan Agreement, ninth, to cover
any Class A Excess Interest, tenth, to cover any
Class B Excess Interest, eleventh, as Shared
Finance Charge Collections, as specified below,
twelfth, to cover other accrued and unpaid
expenses of the Trust, if any, and thereafter
paid to the Holder of the Exchangeable Transferor
Certificate. See "Description of the
Certificates--Allocation of Funds--Payment of
Fees, Interest and Other Items".
In addition, if on any Transfer Date, the amount
on deposit in the Cash Collateral Account exceeds
the Required Cash Collateral Amount, such excess
will be withdrawn from the Cash Collateral
Account and applied as Excess Spread to items
sixth through twelfth above, and thereafter paid
to the Holder of the Exchangeable Transferor
Certificate. See "Description of the
Certificates--The Cash Collateral Account".
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
20
Interest Rate Cap Provider for the exclusive
benefit of the Class A Certificateholders and the
Class B Certificateholders, 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 equal 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. The
Class A Interest Rate Cap and the Class B
Interest Rate Cap will terminate on the day
immediately following the Class A Expected Final
Distribution Date and the Class B Expected Final
Distribution 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, collections of Principal Receivables
otherwise allocable to the Certificates will be
available to cover principal payments due to or
for the benefit of the certificateholders of
other Series. In addition, if, in any Monthly
Period during the Controlled Amortization Period,
the Principal Allocation is greater than the
Controlled Distribution Amount for the class of
Certificates entitled to receive principal
payments during such Monthly Period, such excess
will also be available to cover principal
payments due to or for the benefit of
certificateholders of other Series. Such
principal collections applied to the payment of
certificates of other Series are herein referred
to as "Shared Principal Collections". Any such
application of Shared Principal Collections 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 Certificateholders. See
"Description of the Certificates--Allocation of
Funds".
In any Monthly Period, the amount of Excess
Spread available after application to the first
ten items listed in the fifth paragraph under
"Application of Funds" above (such amount
constituting "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. In addition, amounts designated as
Shared Finance Charge Collections pursuant to the
Supplement for any other Series may be applied to
cover
21
certain payments due to be made out of Finance
Charge Collections to the Certificateholders,
including the reimbursement of reductions in the
Class B Investor Interest arising in connection
with the payment of the Class A Required Amount.
See "Description of the Certificates-- Allocation
of Funds".
Shared Finance Charge Collections and Shared
Principal Collections shall be applied to any
Series then outstanding, pro rata based upon the
amount of shortfall, if any, with respect to such
Series.
Excess Funding Account...... At any time during which no Series is in an
accumulation period or amortization period, or
the principal funding account for a Series in
amortization is fully funded, and the Transferor
Interest equals or is less than 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 each business day;
provided, however, that to the extent the
reduction of the Transferor Interest below the
Minimum Transferor Interest is a result of
Receivables in Defaulted Accounts, no funds will
be deposited in the Excess Funding Account in
respect of such reduction attributable to
Receivables in Defaulted Accounts (which are not
Ineligible Receivables). Funds on deposit in the
Excess Funding Account will be withdrawn and 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 allocated to
one or more Series when they are in accumulation
or amortization periods.
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 Certificateholders as provided herein as a
payment in respect of principal. Any funds on
deposit in the Excess Funding Account during the
Controlled Amortization Period will be paid to
the Certificateholders as a payment in respect of
principal to the extent that monthly collections
in respect of Principal Receivables and Shared
Principal Collections allocable to the Investor
Interest are insufficient to pay the applicable
Controlled Distribution Amount.
Repurchase.................. The Investor Interest will be subject to optional
purchase by the Transferor on any Distribution
Date after 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
22
Date immediately preceding the Scheduled Series
1996-1 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 equal the Investor Interest
plus accrued and unpaid interest on the
Certificates and amounts owing to the Cash
Collateral Lender 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 Certificates will be
characterized as indebtedness for federal income
tax purposes. Under the Agreement, the
Transferor, 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 Certificates of any class if certain
conditions are met, including that the
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. The Class B
Certificates may not be acquired with the assets
of any 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 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
23
benefit plans contemplating purchasing the
Certificates should consult their counsel before
making a purchase. See "Certain Employee Benefit
Plan Considerations".
Class A Certificate
Rating..................... It is a condition to the issuance of the Class A
Certificates that they 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 they 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.
24
RISK FACTORS
Limited Liquidity. There is currently no market for the Certificates. The
Underwriters intend to make a market in the 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 Certificateholders with liquidity of
investment or that it will continue until the 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 and, 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
25
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 certificateholders of each such Series (including the
Certificateholders) 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 certificateholders 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 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
certificateholders 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. In October
1987, November 1991, and March 1994, certain members of Congress attempted
unsuccessfully to limit legislatively the maximum annual percentage rate that
may be assessed on credit card accounts. In addition, another unsuccessful
attempt was made in 1994 to impose additional disclosure obligations on credit
card issuers. The General Accounting Office (the "GAO") issued a report in
April 1994 suggesting that an interest rate cap on credit card accounts could
increase investor risk and have an adverse effect on the market for credit
card-backed securities. In its report, the GAO did not recommend any specific
legislative action, but did recommend that the Federal Reserve Board monitor
and report on credit card interest rates, profitability, and competitiveness.
The Transferor cannot predict what action, if any, will be taken by Congress
in connection with the GAO report. If federal legislation were enacted
containing 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 Base Rate for the last of 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.
Since October 1991, a number of lawsuits and administrative actions have
been filed in several states against out-of-state banks (both federally-
insured state chartered banks and federally-insured national banks) issuing
credit cards. These actions challenge a portion of all of various fees and
charges (such as late fees, overlimit fees, returned check fees and annual
membership fees) assessed against residents of the states in which such suits
were filed, based on restrictions or prohibitions under such states' laws
alleged to be applicable to the out-of-state credit card issuers. However, on
June 3, 1996, the United States Supreme Court unanimously upheld the right of
national banks to charge, in any state, late payment fees on credit card
accounts permitted by the law of the state in which the credit card issuing
national bank has its principal place of business. The United States Supreme
Court held that these charges fall within the definition of "interest" as such
term is used in
26
the National Bank Act, as interpreted by a regulation of the Comptroller of
the Currency, and that such fees and charges charged by national banks are
consequently governed by federal law. In a related decision, on June 7, 1996,
the United States Supreme Court vacated and remanded decisions of the New
Jersey Supreme Court which had held that New Jersey laws prohibiting late fees
on credit cards were enforceable in New Jersey against state-chartered credit
card issuing banks chartered in other states permitting such late charges. In
the future, any decisions that limit a credit card issuer's right to impose
credit card charges outside the state of its residence could, to the extent
applicable to the Accounts reduce the Portfolio Yield and, if such reduction
were significant, result in a Pay Out Event, in which case the Rapid
Amortization Period would commence. Certificateholders of an affected Series
might then receive principal payments earlier than expected. If the resulting
reduction in the Portfolio Yield were significant enough, reductions in
payments to certificateholders of an affected Series would occur.
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, 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 Certificateholders in the Receivables if such laws
result in any Receivables being written off as uncollectible when there are
insufficient funds available in the Cash Collateral Account to reimburse such
losses. See "Description of the Certificates--Defaulted Receivables;
Adjustments and Fraudulent Charges".
Competition in the Bank Credit Card Industry. The bank credit card industry
is highly competitive and operates in a regulatory environment increasingly
focused on the cost of services charged for credit cards. As new card issuers
enter the market and existing issuers seek to expand their shares of the
market, there is increased use of advertising, target marketing and pricing
competition. 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.
People's Bank has traditionally competed as a low rate provider of credit card
services and the growth of People's Bank's credit card portfolio is largely
due to the low rates charged. The Transferor is participating in such
competition through marketing programs, average annual percentage rates,
annual membership fees 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 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".
27
Effect of Paired Series on Allocations. In the event that a Pay Out Event
occurs during the Paired Amortization Period, such that both the Certificates
and the Paired Certificates are in rapid amortization simultaneously, the
Investor Percentage used to determine the share of Collections of Principal
Receivables allocable to the Certificates, on any date of determination after
the Pay Out Event until the date on which the investor interest of the Paired
Certificates is paid in full, will be determined by using a numerator that, as
compared to the numerator normally used for such determination during an
Amortization Period, is reduced by an amount equal to the numerator used to
calculate the investor percentage for the Paired Certificates with respect to
Principal Receivables for such date of determination. This change to the
Investor Percentage calculation will result in an allocation of Collections of
Principal Receivables that is lower than would be the case if the Certificates
were not "paired" with the Paired Certificates. Such allocation may lengthen
the Rapid Amortization Period and delay the final payment of principal to the
Certificateholders. See "Description of the Certificates--Allocation
Percentages".
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 Amortization 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 Certificateholders and the
commencement of the Rapid Amortization Period. Certificateholders 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 return of principal during either Amortization Period, and such delay of
the return of principal could adversely affect the ability of investors to
reinvest profitably. See "--Ability to Change Terms of the Receivables",
"Maturity Assumptions" and "The Credit Card Business of People's Bank--
Underwriting Procedures".
Social, Legal and Economic Factors. Changes in card usage and payment
pattern by cardholders may result from a variety of social, legal and economic
factors. Economic factors include the rate of inflation, unemployment levels,
personal bankruptcy levels and relative interest rates. 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. See "The Receivables". The loss and delinquency experience in
Connecticut is currently more favorable than the experience of the
Transferor's overall portfolio of accounts as a whole. Connecticut's economy
has historically been highly dependent on the defense industry, which recently
has been adversely affected by cutbacks in federal spending. During the past
several years, Connecticut has been adversely impacted by employment losses
more severe than those of the United States as a whole. Connecticut residents
continue, however, to have among the highest per capita income in the United
States. The Transferor is unable to determine and has no basis to predict
whether, or to what extent, social, legal or economic factors will affect
future credit card usage or payment patterns.
Effect of Subordination. 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 final principal payment with respect to the
Class A Certificates has been made 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 allocable to the
Certificates from other Series or from a withdrawal from the Cash Collateral
Account. If the Class B Investor Interest suffers such a reduction, the
portion of collections of Finance Charge Receivables allocable to
28
the Class B Certificateholders 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 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
of the Certificateholders' Interest will first be used to pay principal
amounts due to the Class A Certificateholders and any remainder will be used
to pay amounts due to the Class B Certificateholders, thereby causing a loss
to Class B Certificateholders if such portion plus any amount available to be
withdrawn from the Cash Collateral Account are insufficient to pay the Class B
Certificateholders 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 Certificateholders 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 Certificateholders 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 effort. 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
and (y) the lesser of the Class B Certificate Rate and the Class B Cap Rate
(weighted based on the Class A Investor Interest and the Class B Investor
Interest, respectively, as of the last day of the preceding Monthly Period)
plus 2% per annum. 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 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), 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 Yield for any three consecutive Monthly Periods being less than
the Base Rate), 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
29
annual percentage rate on the Accounts being less than the weighted average
certificate rate then in effect of all classes of investor certificates of
each Series plus 2% per annum. 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 Certificateholders. 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.
Master Trust Considerations. The Trust, as a master trust, will issue the
Certificates, has issued four prior Series of certificates in July 1993, in
February 1994, in October 1994 and in March 1995, and may issue additional
Series of certificates in the future. See "Annex I: Prior Series Issued".
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 1996-1 Supplement
will not permit the subordination of such 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) each Rating Agency deliver written
confirmation to the Trustee that such issuance or Exchange will not result in
such 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, might not have an impact on the timing and amount of payments
received by a Certificateholder, 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".
Control. Subject to certain exceptions, the certificateholders 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
Certificateholders votes to take or direct such action, the certificateholders
of such other Series may control whether or not such action occurs.
30
Certificate Ratings. It is a condition to issuance of the Class A
Certificates that they 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 they 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
1996-1 Termination Date. The ratings are based primarily on the quality of the
Receivables, the credit support provided by the Cash Collateral Account, 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 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
Certificates will be provided by (i) the funds and securities held in the Cash
Collateral Account, up to the Available Cash Collateral Amount and (ii) with
respect to the Class A Certificates, the subordination of the Class B
Certificates, the amounts available in the Cash Collateral Account and the
Class B Investor Interest are limited and will be reduced by withdrawals and
claims made that are not reimbursed from either Excess Spread or, with respect
to the Class B Investor Interest, Shared Finance Charge Collections. If
Collections of Finance Charge Receivables allocated to the Investor Interest,
funds available in the Cash Collateral Account and Reallocated Principal
Collections are not sufficient to cover the Investor Default Amount in any
Monthly Period, the Investor Interest will be reduced (unless it is otherwise
reimbursed) resulting in a reduction of the amount of collections allocable to
Certificateholders in future Monthly Periods and in a reduction of the
aggregate principal amount returned to the Certificateholders. If the
Available Cash Collateral Amount and, with respect to the Class A
Certificates, the Class B Investor Interest are reduced to zero,
Certificateholders will bear directly the credit and other risks associated
with their undivided interest in the Trust. See "Description of the
Certificates--The Cash Collateral Account".
The Cash Collateral Account, after the initial deposit, will be replenished
and reductions of the Class B Investor Interest will be reimbursed by Excess
Spread. Certain factors, such as lowering the finance charges (including late
fees and membership charges) on outstanding Receivables balances and increased
convenience use by obligors, may lower the amount of Finance Charge
Receivables generated as well as collections in respect thereof, and may
thereby reduce the Excess Spread available to replenish the credit
enhancement. See "Description of the Certificates--The Cash Collateral
Account" and "--Subordination of the Class B Certificates". Finally, a slowing
in payment rates on the Receivables could extend the expected final
Distribution Date for the Class A Certificates and Class B Certificates
beyond, respectively, the applicable Expected Final Distribution Date. See "--
Payment and Maturity". The Cash Collateral Account and the Class B Investor
Interest may only be utilized to cover Required Amounts on and prior to the
Scheduled Series 1996-1 Termination Date and will not be available otherwise
to pay the remaining principal on the Certificates at any time.
Book-Entry Registration. The 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 Certificate Owners or their
nominees. Because of this, unless and until Definitive Certificates are
issued, Certificate Owners will not be recognized by the Trustee as
Certificateholders, as that term is used in the Agreement. Hence, until such
time, Certificate Owners will only be able to exercise the rights of
Certificateholders indirectly through DTC and its participating organizations.
See "Description of the Certificates--Book-Entry Registration" and "--
Definitive Certificates".
31
Reports to Certificateholders. 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 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 Certificate Owners. See "Description of the
Certificates--Book-Entry Registration", "--Definitive Certificates", and "--
Reports to Certificateholders".
Effect of Reduced Rate of Principal Payments on Interest Rate Cap
Coverage. The Class A Notional Amount and the Class B Notional Amount will
amortize according to the expected amortization schedule of the Class A
Certificates and Class B Certificates, respectively, based upon equal payments
of the Class A Controlled Amortization Amount being paid monthly for fourteen
months and the Class B Controlled Amortization Amount being paid in the
fifteenth month following the Controlled Amortization Date. If the rate of
amortization of the Class A Certificates or the Class B Certificates occurs at
a rate that is slower than such expected amortization, the amount of any Class
A Excess Principal or Class B Excess Principal will not have the benefit of
the Interest Rate Caps. 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.
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 certificates 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.
32
THE CREDIT CARD BUSINESS OF PEOPLE'S BANK
GENERAL
People's Bank began its credit card program in 1985. It launched this
program 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,
beginning in January 1987, People's Bank gradually expanded the program
nationally. The March 1996 issue of the Nilson Report ranked People's Bank the
25th largest VISA USA, Inc. ("VISA") and MasterCard International Incorporated
("MasterCard") credit card issuer in the United States on the basis of active
accounts.
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
located in Bridgeport, Connecticut. Certain operations are performed on behalf
of People's Bank by Total System Services, Inc., of Columbus, Georgia ("Total
System"), which operations include 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
provided to People's Bank could be time-consuming. As a result, delays in
payments to Certificateholders 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. Effective with the May 1, 1996 addition of Additional Accounts, the
Trust Portfolio includes both standard and premium accounts. As of March 31,
1996, 4.83% of the accounts in the Bank Portfolio were premium accounts and
95.17% 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 5.63% and 94.37%, 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 allowing cardholders 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.
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 related VISA or MasterCard credit card account.
Pursuant to each such agreement,
33
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 the 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
34
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.
Applications and prescreened direct mail candidates are evaluated by
utilizing a credit scoring system, which was installed in July 1992. Prior to
such installation, People's Bank's credit card accounts were underwritten
completely judgmentally. Since July 1992, the judgmental underwriting has been
used to evaluate only those who score above a preset level. The credit scoring
model used by People's Bank was developed with Fair, Isaac Companies, which
has 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 established a policy, as of August 1,
1994, that certain accounts receiving high credit scores may be automatically
approved without judgmental review.
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 Consumer Credit
Department 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.
35
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. With certain exceptions, the current
fixed annual percentage rate for purchases is 13.9%; however, periodically
People's Bank will offer 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 18%. 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".
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 a repayment program. Such repayment program
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 program.
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 of $3 per
transaction at ATMs, People's Bank or any bank; (iii) an overlimit fee,
generally in the amount of $15; and (iv) a returned check fee, generally in
the amount of $15. 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.
Payments on People's Bank accounts are generally applied, in the following
order, to: finance charges, principal balances for accounts charging
introductory rates of interest, the balance of purchases prior to March 1992
and balance transfers prior to May 5, 1993, the balance of cash advances and
convenience checks (other than convenience checks used to pay balance
transfers) previously billed, the balance of new cash advances, balance
transfers on or after May 5, 1993, the balance of purchases previously billed
after March 1992 and the balance of new purchases.
There can be no assurance that periodic finance charges, fees, and other
charges imposed by People's Bank will remain at current levels in the future,
or that the order of application of payments made on People's Bank's accounts
will remain as described above. See "Risk Factors--Consumer Protection Laws".
36
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 are sent a notice on the billing statement and telephone calls to
the accountholder 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, at 61 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 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") set forth in the
Agreement as applied on each date listed in the tables below (adjusted for the
three months ending March 31, 1996 to reflect the May 1, 1996 addition of
Additional Accounts). 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.
37
LOSS EXPERIENCE
REPRESENTATIVE PORTFOLIO
(DOLLARS IN THOUSANDS)
THREE MONTH YEAR ENDED DECEMBER 31,
PERIOD ENDED --------------------------------
MARCH 31, 1996 1995 1994 1993
-------------- ---------- ---------- --------
Average Receivables
Outstanding(1)............ $1,824,704 $1,649,780 $1,182,028 $794,728
Gross Charge Offs(2)(3).... 21,557 56,101 27,858 20,014
Recoveries................. 1,644 5,175 3,876 3,372
Net Charge Offs(3)......... 19,913 50,926 23,982 16,642
Net Charge Offs as
Percentage of Average
Receivables
Outstanding(3)............ 4.37%(4) 3.09% 2.03% 2.09%
- --------
(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) Calculated on an annualized basis.
DELINQUENCY EXPERIENCE
REPRESENTATIVE PORTFOLIO
(DOLLARS IN THOUSANDS)
AS OF MARCH 31, AS OF DECEMBER 31,
------------------ --------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------
NUMBER OF DAYS
DELINQUENT(1) AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- ------------------------ ------- ---------- ------- ---------- ------- ---------- ------- ----------
31 to 60 days........... $24,087 1.34% $23,227 1.27% $13,888 0.92% $ 7,199 0.71%
61 to 90 days........... 16,165 0.90 13,292 0.73 7,476 0.50 4,094 0.40
91 to 120 days.......... 12,052 0.67 11,397 0.62 5,178 0.34 3,256 0.32
121 to 150 days......... 9,288 0.52 9,032 0.49 4,069 0.27 2,368 0.23
151 to 180 days......... 7,460 0.41 7,384 0.40 3,124 0.21 2,030 0.20
181 days or greater..... 12,576 0.70 10,613 0.58 4,498 0.30 3,101 0.31
------- ---- ------- ---- ------- ---- ------- ----
Total (2)............... $81,628 4.54% $74,945 4.09% $38,233 2.54% $22,048 2.17%
======= ==== ======= ==== ======= ==== ======= ====
- --------
(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.
The rise in delinquencies and charge-offs as a percentage of the
Representative Portfolio in 1995 and in year-to-date 1996 are the result of a
variety of factors. Among them are: (i) the reduction in the rate of growth in
the Receivables in the Representative Portfolio in calendar year 1995 as
compared to the rate of growth in the Receivables in the Representative
Portfolio that occurred in 1993 and 1994 (the rate of delinquency on new
accounts typically being below the rate of delinquency on seasoned accounts);
(ii) general economic conditions in the United States and particularly the
nationwide rise in consumer loan delinquencies and the rise in personal
bankruptcy filings; and (iii) the creation and inclusion in the Representative
Portfolio of a new product group that generated higher revenues and
38
higher losses. This new product group represented approximately $119 million
of receivables as of March 31, 1996. People's Bank will not add additional
receivables of this type to the Trust without rating agency approval.
To the extent that average receivables outstanding do not continue to rise
at the same rate as they did from 1993 to 1994, and to the extent that the
rate of account seasoning does not remain the same, there can be no assurance
that the loss and delinquency amounts as a percentage of the Representative
Portfolio will remain at current levels.
People's Bank believes that conformity with its underwriting procedures (see
"--Underwriting Procedures") will keep the loss and delinquency experience
within historical norms.
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 2.18% 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
Certificateholders 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 on the basis of
eligibility criteria set forth in the Agreement (the "Trust Portfolio"). Such
criteria do not create a selection adverse to the Certificateholders. 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 (including certain Affinity Program
Accounts and Agent Bank 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
39
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 "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 Accounts designated and conveyed
by the Transferor to the Trust 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".
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
(including Receivables in Additional Accounts added on May 1, 1996) totalled
approximately $1,798,186,706. The Accounts had, as of the March 1996 Monthly
Period, an average outstanding balance of $1,456 and an average credit limit
of $5,024. The percentage of the aggregate total Receivables balance to the
aggregate total credit limit was 28.98%, and the weighted average age of the
Accounts was approximately 37.13 months. As of the March 1996 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 March 1996 Monthly Period for each of the Accounts (including the
Additional Accounts added on May 1, 1996). 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 March 1996
Monthly Period.
40
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
ACCOUNT NUMBER OF PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
BALANCE RANGE ACCOUNTS NUMBER OF ACCOUNTS RECEIVABLES BALANCE RECEIVABLES BALANCE
------------- --------- ------------------- ------------------- -------------------
Credit
Balance..... 17,296 1.40% $ (1,631,542.44) (0.09)%
Zero
Balance..... 481,755 39.01 0.00 0.00
$0.01-
$500.00..... 163,395 13.23 27,811,210.60 1.55
$500.01-
$1,000.00... 74,080 6.00 55,562,476.00 3.09
$1,000.01-
$3,000.00... 234,237 18.97 470,208,030.74 26.15
$3,000.01-
$5,000.00... 178,273 14.44 698,082,901.72 38.82
$5,000.01-
$10,000.00.. 83,654 6.77 521,932,638.06 29.02
Over
$10,000.00.. 2,199 0.18 26,220,990.94 1.46
--------- ------ ----------------- ------
Total........ 1,234,889 100.00% $1,798,186,705.62 100.00%
========= ====== ================= ======
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
CREDIT NUMBER OF PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
LIMIT RANGE ACCOUNTS NUMBER OF ACCOUNTS RECEIVABLES BALANCE RECEIVABLES BALANCE
----------- --------- ------------------- ------------------- -------------------
$0.01-
$1,000.00... 68,217 5.52% $ 14,368,020.04 0.80%
$1,000.01-
$2,000.00... 83,548 6.77 46,468,412.19 2.58
$2,000.01-
$3,000.00... 130,389 10.56 115,430,065.05 6.42
$3,000.01-
$4,000.00... 147,827 11.97 178,808,113.25 9.94
$4,000.01-
$5,000.00... 231,206 18.72 357,223,082.79 19.87
$5,000.01-
$10,000.00.. 533,984 43.24 997,226,917.60 55.46
Over
$10,000.00.. 39,718 3.22 88,662,094.70 4.93
--------- ------ ----------------- ------
Total........ 1,234,889 100.00% $1,798,186,705.62 100.00%
========= ====== ================= ======
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
PERIOD OF DELINQUENCY
(DAYS CONTRACTUALLY NUMBER OF PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
DELINQUENT) ACCOUNTS NUMBER OF ACCOUNTS RECEIVABLES BALANCE RECEIVABLES BALANCE
- --------------------- --------- ------------------- ------------------- -------------------
Current...... 1,170,376 94.78% $1,612,691,526.89 89.68%
1-30 Days.... 38,355 3.11 103,867,308.92 5.78
31-60 Days... 8,295 0.67 24,087,356.59 1.34
61 or More
Days........ 17,863 1.44 57,540,513.22 3.20
--------- ------ ----------------- ------
Total........ 1,234,889 100.00% $1,798,186,705.62 100.00%
========= ====== ================= ======
41
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
NUMBER OF PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
ACCOUNT AGE ACCOUNTS NUMBER OF ACCOUNTS RECEIVABLES BALANCE RECEIVABLES BALANCE
----------- --------- ------------------- ------------------- -------------------
0 to 6 Months.. 97,036 7.86% $ 168,486,432.56 9.37%
Over 6 to 12
Months........ 103,872 8.41 190,186,653.21 10.58
Over 12 to 24
Months........ 303,480 24.58 533,082,749.02 29.64
Over 24 to 48
Months........ 475,358 38.49 573,225,958.08 31.88
Over 48
Months........ 255,143 20.66 333,204,912.75 18.53
--------- ------ ----------------- ------
Total.......... 1,234,889 100.00% $1,798,186,705.62 100.00%
========= ====== ================= ======
GEOGRAPHIC DISTRIBUTION BY RECEIVABLES BALANCE
TRUST PORTFOLIO
NUMBER OF PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
ACCOUNTS NUMBER OF ACCOUNTS RECEIVABLES BALANCE RECEIVABLES BALANCE
--------- ------------------- ------------------- -------------------
Connecticut.... 224,465 18.18% $ 293,322,142.22 16.31%
California..... 86,733 7.02 148,641,390.45 8.27
Texas.......... 71,792 5.81 115,103,953.39 6.40
New York....... 72,604 5.88 101,049,110.36 5.62
Florida........ 60,329 4.89 85,041,468.76 4.73
Ohio........... 50,419 4.08 72,185,549.22 4.01
Illinois....... 45,040 3.65 67,819,468.55 3.77
Pennsylvania... 45,240 3.66 61,130,336.60 3.40
Michigan....... 37,377 3.03 57,575,473.71 3.20
Massachusetts.. 38,539 3.12 56,406,275.03 3.14
Other(1)....... 502,351 40.68 739,911,537.33 41.15
--------- ------ ----------------- ------
Total.......... 1,234,889 100.00% $1,798,186,705.62 100.00%
========= ====== ================= ======
- --------
(1) States with less than 3.14% of the Percentage of Total Receivables
Balance.
The largest concentration of Accounts giving rise to Receivables in the
Trust Portfolio is in Connecticut. Connecticut's economy has historically been
highly dependent on the defense industry, which recently has been adversely
affected by cutbacks in federal spending. During the past several years,
Connecticut has been adversely impacted by employment losses more severe in
Connecticut than in the United States as a whole. See "Risk Factors-Social,
Legal and Economic Factors".
42
MATURITY ASSUMPTIONS
The Agreement provides that Certificateholders will not receive principal
payments until the Distribution Date following the commencement of the
Controlled Amortization Period, which will commence with the November 2000
Monthly Period, 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 Certificateholders 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 Certificateholders, (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 Portfolio Yield averaged for any three
consecutive Monthly Periods to a rate which is less than the Base Rate, (h)
reduction of the Available Cash Collateral Amount to less than the lesser of
the Investor Interest as of the last day of the related Monthly Period and 3%
of the Initial Investor Interest, (i) the failure to pay each class of
Certificates in full on or prior to its applicable Expected Final Distribution
Date or (j) 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".
During the Controlled Amortization Period, distributions of monthly
principal will be made on each Distribution Date (beginning with the December
2000 Distribution Date) to the Class A Certificateholders until the earlier of
(x) the termination of the Trust and (y) the date on which the Class A
Investor Interest is paid in full and, beginning with the Class B Payment
Commencement Date, to the Class B Certificateholders until the earlier of (x)
the termination of the Trust and (y) the date on which the Class B Investor
Interest is paid in full, in an amount on any such Distribution Date equal to
the lesser of (a) the sum of (i) the Principal Allocation and (ii) the amount
of Shared Principal Collections, if any, allocable to the Certificates with
respect to such Monthly Period and (b) the applicable Controlled Distribution
Amount for the class receiving such distributions, which is equal to the sum
of the applicable Controlled Amortization Amount and any existing Deficit
Controlled Amortization Amount (both as defined below). The "Class A
Controlled Amortization Amount" means $27,071,428.57 and the "Class B
Controlled Amortization Amount" means $21,000,000 and "Controlled Amortization
Amount" means either the Class A Controlled Amortization Amount or the Class B
Controlled Amortization Amount, as context requires. Such amounts may be
reduced to reflect the tender and cancellation of Certificates pursuant to an
Investor Exchange. The "Class A Controlled Distribution Amount" means, on any
Distribution Date, the Class A Controlled Amortization Amount plus the related
Deficit Controlled Amortization Amount as of such Distribution Date, and the
"Class B Controlled Distribution Amount" means, on any Distribution Date, the
Class B Controlled Amortization Amount plus the related Deficit Controlled
Amortization Amount as of such Distribution Date, and the "Controlled
Distribution Amount" means either the Class A Controlled Distribution Amount
or the Class B Controlled Distribution Amount, as context requires. The term
"Deficit Controlled Amortization Amount" means, on the Closing Date, zero and,
on any Transfer Date or Distribution Date, the amount of the accrued and
unpaid monthly excesses of the Controlled Amortization Amount for the
applicable class of Certificates and for each preceding Monthly Period over
the sum of the Principal Allocation and the amount of any Shared Principal
Collections available to the Certificates for each such Monthly Period. Should
the Rapid Amortization Period commence, the Certificateholders 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 collections in respect of
Principal Receivables received during the related Monthly Period, certain
amounts treated as Collections of Principal Receivables with respect to such
Monthly Period (including amounts applied with respect to
43
Investor Default Amounts and Investor Charge Offs) and the amount of Shared
Principal Collections, if any, allocable to the Certificates with respect to
such Monthly Period. Allocations based upon the applicable Investor Percentage
during either the Controlled Amortization Period or the Rapid Amortization
Period may result in distributions of principal to Certificateholders 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 distributed 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
Certificateholders 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 an 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 Certificateholders 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
Certificateholders may be lower than if the Certificates had matured when
expected and the Certificateholders 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
THREE MONTH
PERIOD ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------
1996 1995 1994 1993
------------ ------- ------- -------
Lowest.................................. 9.68% 9.12% 9.82% 11.44%
Highest................................. 10.54 11.19 13.02 13.75
Average(2).............................. 10.18 10.03 11.08 12.27
- --------
(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 of Receivables 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 collections of
Principal Receivables with respect to the Trust Portfolio, and thus the rate
at which Certificateholders could expect to receive payments of principal on
the Certificates during either the Controlled Amortization 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 Amortization Amount, or because a Pay Out
Event may occur which would initiate the Rapid Amortization Period, there can
be no assurance that the actual number of months elapsed from
44
the beginning of the Controlled Amortization Period to the final Distribution
Date with respect to the Class A Certificates or the Class B Certificates will
equal the expected number of months (respectively, 14 months and 15 months).
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, 1995,
1994 and 1993 and the three month period ended March 31, 1996 (adjusted to
include the May 1, 1996 addition of Additional Accounts) 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, accrual yields may exceed
cash yields as amounts collected on credit card receivables lag behind amounts
accrued and billed to cardholders. Conversely, as delinquencies decrease, cash
yields may exceed accrual yields as amounts collected in a current period may
include amounts accrued during prior periods. The Transferor believes,
however, that during the periods shown, the yields presented on an accrual
basis closely approximated the yields on a cash basis. The yield on both an
accrual 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)
THREE MONTH
PERIOD ENDED YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------------
1996 1995 1994 1993
------------ ---------- ---------- --------
Finance Charges and Fees
Billed(1).................. $ 73,727 $ 263,583 $ 182,657 $134,354
Average Receivables Out-
standing(2)................ $1,824,704 $1,649,780 $1,182,028 $794,728
Yield from Finance Charges
and Fees Billed(3)(4)...... 16.16%(5) 15.98% 15.45% 16.91%
- --------
(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.
(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 1993 and 1994 does 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.
(5) Calculated on an annualized basis.
The decline in yield from finance charges and fees billed during the years
ended December 31, 1993 through 1994, as reflected in the foregoing table,
resulted in part both from the decision by the
45
Transferor in 1992 to lower the fixed annual percentage rate to 11.5% and from
the offers of lower introductory rates from time to time. The Transferor's
subsequent increase in 1995 in the fixed annual percentage rate to 13.9%
contributed to an increase in the yield from finance charges and fees billed
over time. There can be no assurance that the yield will remain at levels
comparable to historical experience.
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 Certificates, approximately
$398,832,650, before deduction of expenses, will be paid to PSFC. PSFC intends
to distribute substantially all of such 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.
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 March 31, 1996 owns 62.5% of the issued and outstanding
common stock of People's Bank. In May 1993, People's Bank issued $69,000,000
of convertible preferred stock. In May 1996, People's Bank notified its
preferred shareholders of its intent to redeem all shares of preferred stock,
as soon as practicable, subject to regulatory approval. After such stock is
fully converted, People's Mutual Holdings will own 60.1% of the 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. As of March 31, 1996,
People's Bank's total assets were approximately $6.9 billion, total
liabilities were approximately $6.3 billion, and total stockholders' equity
was approximately $565 million. At March 31, 1996, People's Bank Tier 1
leverage capital ratio was 7.7%, satisfying the minimum ratio of 4.0% to 5.0%
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 March 31, 1996 with ratios of
10.7% and 12.0%, respectively. People's Bank regulatory capital ratios at
March 31, 1996, exceed the FDIC's numeric criteria for classification as a
"well-capitalized" institution. People's Bank's lending activities consist of
originating loans secured by residential and commercial properties, and
extending secured and unsecured loans to consumers and businesses.
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.
46
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement, including the
Series 1996-1 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 certificateholders, 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
four Supplements in connection with the issuance of other Series of
certificates 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 certificateholders without charge
upon written request. The following summary describes certain terms of the
Agreement (including the Series 1996-1 Supplement) and is qualified in its
entirety by reference to the Agreement (including the Series 1996-1
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,
funds on deposit and securities held in the Cash Collateral Account, and 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 1996-1 Supplement, funds on deposit in any
Series accounts established for the benefit of certificateholders other than
the Certificateholders pursuant to the related Supplement, funds on deposit
and securities held in the Cash Collateral Account for the benefit of the
Certificateholders, the benefit of the Interest Rate Caps and any other
Enhancement issued with respect to any additional Series (the drawing on,
withdrawal 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 Certificateholders). 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 Certificateholders in whose names the Certificates were registered as
of (i) the business day preceding the Distribution Date with respect to book-
entry Certificates and (ii) the last day of the calendar month preceding such
Distribution Date with respect to Definitive Certificates (each, a "Record
Date"). Interest will be distributed to Certificateholders on the fifteenth
day of each month (or, if such day is not a business day, on the next
succeeding business day) (each, a "Distribution Date"), commencing July 15,
1996. Monthly Interest on the Class A Certificates and the Class B
Certificates will be distributed to each Certificateholder in an amount equal
to the sum of (w) the product of (a) the applicable Certificate Rate, (b) the
actual number of days in the related Interest Period or Initial Interest
Period divided by 360 and (c) the lesser of the Class A Investor Interest or
the Class B Investor Interest, as the case may be, as of the preceding
Distribution Date (or, in the case of the first Distribution Date, the Class A
Initial Investor Interest or the Class B Initial Investor Interest, as the
case may be), after giving effect to all payments, deposits and withdrawals on
such Distribution Date, and the Expected Class A Principal or the Expected
Class B Principal, as the case may be, as of the preceding Distribution Date,
plus (x) the product of (a) the Class A Excess Principal or the Class B Excess
Principal, as the case may be, (b) the lesser of the applicable Certificate
Rate and either 9.15% for the Class A Certificates or 9.30% for the Class B
Certificates, and (c) the actual number of days in the related Interest Period
divided by 360, plus (y) to the extent permitted by applicable law, any
interest accrued on such Certificates (including interest on any overdue Class
A Monthly Interest or
47
Class B Monthly Interest, as the case may be) during any prior accrual period
which has not been distributed to Certificateholders, plus (z) to the extent
that there is available Excess Spread, any Class A Excess Interest or any
Class B Excess Interest, as the case may be. 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 will be derived from collections
allocated to Finance Charge Receivables and, if necessary, withdrawals from
the Cash Collateral Account, amounts paid under the Interest Rate Caps and,
for the Class A Certificateholders, certain principal collections otherwise
allocable to the Class B Certificates. Allocations of collections of Finance
Charge Receivables 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 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 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
Certificates. No Certificate Owner acquiring an interest in the Certificates
will be entitled to receive a certificate representing such person's interest
in the Certificates. Unless and until Definitive Certificates are issued under
the limited circumstances described herein, all references herein to actions
by Certificateholders 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 Certificateholders shall
refer to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Certificates, as the case may be, for distribution to
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 Class A Certificate
that is mutilated, destroyed, lost or stolen may be exchanged or replaced, as
the case may be, at the offices of the co-transfer agent and co-registrar in
Luxembourg upon presentation of the Class A Certificate or satisfactory
evidence of the destruction, loss or theft thereof to the co-transfer agent
and co-registrar. An indemnity satisfactory to the co-transfer agent and co-
registrar and the Trustee may be required at the expense of the
Certificateholder before a replacement Certificate will be issued. The
Certificateholder 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 the co-transfer agent and
co-registrar) 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 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
48
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
Certificateholders and the Class B Certificateholders, respectively.
The notional amount of the Class A Interest Rate Cap (the "Class A Notional
Amount") will at all times be equal to the amount of the Expected Class A
Principal. 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
9.15% (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 Expected Final Distribution 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 Agencies, which in each
case will not result in the reduction or withdrawal of the rating of the
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. 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
9.30% (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 Expected Final Distribution 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.
49
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 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 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 Certificates. Funds from any such sale will be applied as Finance
Charge Collections allocable to the related class of Certificates 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.
The interest rate cap provider is Swiss Bank Corporation (the "Bank"),
acting through its London Branch.
The Bank is a full service universal bank, with core businesses of
international investment banking and corporate finance; private banking and
asset management; and retail and corporate banking in Switzerland. The Bank is
the third largest bank in Switzerland and ranks among the 50 largest banks
worldwide based on total assets. It is publicly owned, and its shares are
listed on each of the Zurich, Basel and Geneva stock exchanges in Switzerland,
as well as on the stock exchanges in Frankfurt and Tokyo. American depositary
receipts representing the Bank's shares are also traded in the United States.
As reflected in the Bank's 1995 Annual Report, as of December 31, 1995, the
Bank had total unconsolidated assets of Sfr. 242.2 billion ($209.8 billion)
and total unconsolidated capital and reserves of Sfr. 14.0 billion ($12.2
billion).
The foregoing figures in Swiss francs were determined in accordance with
generally accepted accounting principles in Switzerland, which differ in
certain respects from generally accepted accounting principles in the United
States. On December 29, 1995, the exchange rate for Swiss francs and U.S.
dollars, based on the noon buying rates in New York City for cable transfers
payable in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York was 1.1540 Swiss francs per U.S. dollar, and
conversion from Swiss francs to U.S. dollars has been made at that rate.
Upon written request, the Bank will provide without charge to any person to
whom this Prospectus is delivered a copy of the most recent Annual Report of
the Bank. Written requests should be directed to Swiss Bank Corporation, New
York Branch, Box 395, Church Street Station, New York, New York 10008,
Attention: Director of Public Relations.
BOOK-ENTRY REGISTRATION
Certificateholders may hold their 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.
50
Cede, as nominee for DTC, will hold the physical Certificate or
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.
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.
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interest
in, Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions
of principal and interest on the Certificates from the Trustee through the
Participants who in turn will receive them from DTC. Under a book-entry
format, 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 Certificate Owners.
It is anticipated that the only "Certificateholder" (as such term is used in
the
51
Agreement) of Certificates in book-entry form will be Cede, as nominee of DTC.
Certificate Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Agreement, and Certificate
Owners will only be permitted to exercise the rights of Certificateholders
indirectly through the Participants who in turn will exercise the rights of
Certificateholders 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 Certificates and is
required to receive and transmit distributions of principal and interest on
the Certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess Certificates, 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 a
Certificate Owner to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
DTC has advised the Transferor that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one
or more Participants to whose account with DTC the 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 28 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.
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 33 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,
52
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 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 a Certificateholder
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 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 Certificates will be issued in fully registered, certificated form to
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 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, 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 Certificate
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all the Certificate Owners
through Participants of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the definitive certificate representing
the Certificates
53
and instructions for re-registration, the Trustee will issue the Certificates
as Definitive Certificates, and thereafter the Trustee will recognize the
holders of such Definitive Certificates as holders of the Certificates under
the Agreement ("Holders").
Distribution of principal and interest on the 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 Amortization Period, interest and principal payments in respect of the
Certificates, will be made to Certificateholders 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 Certificate
(whether Definitive Certificates or the Certificates registered in the name of
Cede representing the Certificates), however, will be made only upon
presentation and surrender of such Certificate at the office or agency
specified in the notice of final distribution to Certificateholders. The
Trustee will provide such notice to registered Certificateholders 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 5.63047%
per annum and on the Class B Investor Interest at a rate of 5.78047% per annum
during the Initial Interest Period. Interest will be distributed on July 15,
1996, and on each Distribution Date thereafter to Certificateholders. Interest
on the Class A Certificates will be distributed in the amount of the sum of
(w) the product of (a) the Class A Certificate Rate, (b) the lesser of the
Class A 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 (x) an amount equal to the product of (a) the
Class A Excess Principal, (b) the lesser of the Class A Certificate Rate and
9.15% per annum, and (c) the actual number of days in the related Interest
Period divided by 360 (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 Certificateholders, 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 9.15% 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
54
B Excess Principal, (b) the lesser of the Class B Certificate Rate and 9.30%
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 Certificateholders, 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 B
Certificate Rate exceeds 9.30% 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").
"Expected Class A Principal" means the amount of the Class A Investor
Interest equal to (a) on each date to but excluding the first Distribution
Date in the Controlled Amortization Period on which a principal payment is
scheduled to be made to the Class A Certificateholders (the "Initial Class A
Scheduled Principal Payment Date"), the Class A Initial Investor Interest, (b)
on each date thereafter through but not including the Class A Expected Final
Distribution Date, the Class A Initial Investor Interest less the product of
(i) the Class A Controlled Amortization Amount and (ii) the number of
Distribution Dates occurring from and including the Initial Class A Scheduled
Principal Payment 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 Expected Final Distribution 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 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.
Any amounts in respect of distributable interest specified in clauses (z)
above 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.
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
collections of Finance Charge Receivables allocated to the Investor Interest
during the preceding Monthly Period and Shared Finance Charge Collections
available to the Certificates. The Class A Monthly Interest in excess of the
Class A Monthly Cap Rate Interest 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. To the extent the sum of
the applicable Investor Percentage of collections on Finance Charge
Receivables (including Excess Spread) during the preceding Monthly Period and
Shared Finance Charge Collections available to the Certificates is
insufficient to pay such Class A Monthly Cap Rate Interest and Class B Monthly
Cap Rate Interest, first, withdrawals from the Cash Collateral Account, up to
the Available Cash Collateral Amount, will be used to make such payments and,
second, if the Available Cash Collateral Amount is insufficient to pay any
remaining interest due with respect to the Class A Certificates, Reallocated
Principal Collections (to the extent available) will be used to make such
payments to the Class A Certificates.
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Closing Date and ends on
the day before the Controlled Amortization Period or the Rapid Amortization
Period begins), no principal payments will be made to Certificateholders.
During the Controlled Amortization Period, scheduled to begin with the
November 2000 Monthly Period, and during the Rapid Amortization Period, which
will begin upon the occurrence of a Pay Out Event, and ending no later than
the Scheduled Series 1996-1 Termination Date, principal will be paid to the
Class A Certificateholders until the Class A Investor Interest is paid in full
and, following the final principal payment to the Class A Certificateholders,
to the Class B Certificateholders until the Class B Investor Interest is paid
in full. The first principal payment will be
55
made to Class A Certificateholders beginning on the Distribution Date
following the Monthly Period in which either the Controlled Amortization
Period or the Rapid Amortization Period commences. Principal payments on the
Class B Certificates will commence on the Class B Payment Commencement Date.
The "Class B Payment Commencement Date" means either (i) the Distribution Date
on which the Class A Investor Interest is reduced to zero or, (ii) if the
Class A Investor Interest is paid in full on the Class A Expected Final
Distribution Date, and the Rapid Amortization Period has not commenced, the
Distribution Date following the Class A Expected Final Distribution Date.
Principal payments will be funded from (among other things) the collections of
Principal Receivables allocated to the Investor Interest during or with
respect to the preceding Monthly Period and Shared Principal Collections
available to the Certificates. 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 collections of Principal Receivables
and Shared Principal Collections available to the Certificates are allocated
during either the Controlled Amortization Period or the Rapid Amortization
Period.
SUBORDINATION OF THE CLASS B CERTIFICATES
The Class B Investor Interest will be subordinated to the extent necessary
to fund certain payments with respect to the Class A Certificates. No payment
of principal will be made to the Class B Certificateholders until the Class A
Investor Interest is paid in full. 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 Certificateholders and then to the
Class B Certificateholders. Certain principal payments otherwise allocable to
the Class B Certificateholders may be reallocated to the Class A
Certificateholders, and the Class B Investor Interest may thereby decrease. To
the extent the Class B Investor Interest is so reduced, the percentage of
collections of Finance Charge Receivables allocated to the Class B
Certificateholders in subsequent Monthly Periods will be reduced. Moreover, to
the extent the amount of such decrease in the Class B Investor Interest is not
reimbursed, the amount of principal distributable to the Class B
Certificateholders 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, on July 14, 1995 and on May 1, 1996, the Transferor
transferred and assigned to the Trust Receivables arising from certain
Additional Accounts designated pursuant to the Agreement.
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 April 30, 1996, which list has been and
will be further updated periodically to reflect Automatic Additional Accounts
and Additional 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
56
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".
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
certificateholders 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 certificateholders 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 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 certificateholders 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 Certificateholder 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 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 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
57
period during which amortization 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 while other Series are not. Thus, certain Series may not
be amortizing, while other Series are amortizing. 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
1996-1 Supplement) an Investor Exchange by which the certificateholders 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 may be subordinated to other Series, or classes within a Series may
have different priorities. The Series 1996-1 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
58
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 Certificateholders holding not less than 50% of each of the Class A
Investor Interest and the Class B Investor Interest and (ii) as a result the
interests of the Certificateholders are materially adversely affected, and
continue to be materially adversely affected during such period, then the
Trustee or Certificateholders holding not less than 50% of each of the Class A
Investor Interest and the Class B Investor 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 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
Certificateholders or the Trustee on behalf of Certificateholders.
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
59
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 certificateholders), 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
certificateholders), 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
certificateholders), 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 Collection Account will be considered a
prepayment in full of all Receivables and will be paid in full to the
certificateholders of such Series upon presentation and surrender of their
certificates. In the Series 1996-1 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 and the
Class B Investor Interest by written notice to the Transferor (and to the
Trustee and the Servicer if given by the Certificateholders) 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 certificateholders (including the
Certificateholders) 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 certificateholders.
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
60
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 certificateholders.
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 certificateholders, (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.
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
61
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 Accounts of the type described in clause (ii) in the preceding
sentence 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 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 Accounts of the type described in clause
(ii) in the preceding sentence 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 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
62
Series of certificates, including the Certificateholders, was used in
selecting the Additional Accounts and (iv) each Account was an Eligible
Additional Account.
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
certificateholders (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
certificateholders 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 collections of
Finance Charge Receivables and will be applied accordingly. The Transferor may
at its option, at any time, temporarily or permanently suspend the Discount
Option. Each Certificateholder 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.
63
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 certificateholders, 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 Services, Inc. ("Moody's") and of A-1+ by Standard & Poor's
Corporation ("Standard & Poor's") or a long term rating of at least Aa3 by
Moody's and of at least AAA by Standard & Poor's and deposit insurance as
required by law and by the FDIC. In addition, the Supplement with respect 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 AAA-mG 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 certificateholders in the manner provided in the related
Supplement. The Paying Agent shall initially be the Trustee. The Series 1996-1
Supplement provides for the establishment of a Series 1996-1 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
certificateholders 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 1996-1 ACCOUNTS
The Servicer will establish and maintain with a Qualified Trust Institution
in the name of the Trustee, 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), a "Finance Charge
Account" and a "Principal Account" for the benefit of the Certificateholders.
The Servicer will also establish a "Distribution Account" (a non-interest
bearing segregated demand deposit account established with a Qualified Trust
Institution).
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,
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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 Certificateholders. 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 and the Distribution
Account are collectively referred to as the "Series 1996-1 Accounts".
THE CASH COLLATERAL ACCOUNT
The Trust will have the benefit of the Cash Collateral Account, which will
be held with a Qualified Trust Institution in the name of the Trustee for the
benefit of the Certificateholders. Funds on deposit in the Cash Collateral
Account will be invested in Permitted Investments.
The Cash Collateral Account will have an initial Available Cash Collateral
Amount of $36,000,000 to be funded from the proceeds of a loan to be made
pursuant to the Loan Agreement by the Cash Collateral Lender and from a
deposit by the Transferor.
On each Determination Date, the Servicer will determine the Required Amounts
to be withdrawn from the Cash Collateral Account on the related Distribution
Date, up to the Available Cash Collateral Amount, as described below in "--
Allocation of Funds-Payment of Fees, Interest and Other Items". Amounts
withdrawn from the Cash Collateral Account will be reimbursed up to the
Required Cash Collateral Amount from Excess Spread as described below in "--
Allocation of Funds-Excess Spread". On each Transfer Date, the Trustee, acting
pursuant to the Servicer's instructions, will withdraw from the Cash
Collateral Account an amount equal to the amount by which the amount on
deposit in the Cash Collateral Account exceeds the Required Cash Collateral
Amount and apply such amounts as Excess Spread to items (g) through (n) of "--
Allocation of Funds-Excess Spread" below.
The "Required Cash Collateral Amount" with respect to any Transfer Date
means, generally, the product of (i) the Investor Interest as of the last day
of the Monthly Period preceding such date and (ii) 9.0%, but in no event less
than the lesser of $12,000,000 and the Investor Interest as of the last day of
the related Monthly Period; provided, however, that if certain withdrawals are
made from the Cash Collateral Account during the Controlled Amortization
Period or if a Pay Out Event occurs, the Required Cash Collateral Amount for
such Transfer Date shall be the lesser of the Required Cash Collateral Amount
for the Transfer Date immediately preceding the occurrence of such withdrawal
or such Pay Out Event and the unpaid principal amount of the Certificates.
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 billed ("Finance Charge
Collections") and, second, as Collections in respect of Principal Receivables
billed.
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The Investor Percentage will be calculated as follows:
Finance Charge Receivables and Receivables in Defaulted Accounts. When used
with respect to Finance Charge Receivables, or when used with respect to
Receivables in Accounts written off as uncollectible at any time ("Defaulted
Accounts"), "Investor Percentage" means for any Monthly Period, the percentage
equivalent of a fraction, the numerator of which is the 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 Aggregate Principal
Receivables, determined as of the last day of the Monthly Period immediately
preceding such date of determination.
Principal Receivables during Revolving Period. When used with respect to
Principal Receivables during the Revolving Period, "Investor Percentage" means
for any Monthly Period, the percentage equivalent of a fraction, the numerator
of which is the Investor Interest (determined as of the end of the last day of
the Monthly Period immediately preceding such date of determination) less, for
any date of determination in the Revolving Period occurring during the Paired
Amortization Period, the numerator used to calculate the investor percentage
for such date of determination with respect to Principal Receivables for the
Paired Certificates pursuant to the related Supplement, and the denominator of
which is the greater of (a) the Aggregate Principal Receivables (determined as
of the end 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 investor percentages with
respect to Principal Receivables for all Series of certificates outstanding.
Principal Receivables during the Controlled Amortization Period or the Rapid
Amortization Period. When used with respect to Principal Receivables for any
Monthly Period during the Controlled Amortization Period or the Rapid
Amortization Period, "Investor Percentage" means 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
cancelled pursuant to any Investor Exchange) less, for any date of
determination in the Rapid Amortization Period occurring during the Paired
Amortization Period, the numerator used to calculate the investor percentage
for such date of determination with respect to Principal Receivables for the
Paired Certificates pursuant to the related Supplement, 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 investor
percentages for such date of determination with respect to Principal
Receivables for all Series of certificates outstanding; provided, however,
that during the Controlled Amortization Period, the Investor Percentage of
Principal Receivables may be reset at the option of the Servicer (and any such
reset Investor Percentage will apply in any Rapid Amortization Period
following the Controlled Amortization Period) on the date of issuance of any
new Series of certificates to a fixed percentage equivalent of a fraction not
to be greater than the fraction described above in this sentence and not to be
less than the greater of (i) a fraction, the numerator of which is the
Investor Interest, determined as of the close of business on the last day of
the Monthly Period immediately preceding the date of determination, 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 investor percentages for such date of determination with
respect to Principal Receivables for all Series of certificates outstanding
and (ii) a fraction, that when multiplied by the amount of collections of
Principal Receivables for the preceding Monthly Period will equal the greater
of the Class A Controlled Distribution Amount or the Class B Controlled
Distribution Amount for such Monthly Period plus 10% of the greater of the
Class A Controlled Amortization Amount or the Class B Controlled Amortization
Amount minus any Available Shared Principal Collections with respect to such
Monthly Period. The Investor Percentage with respect to the allocation of
Principal Receivables during the Rapid Amortization Period will (except in
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connection with the Paired Amortization Period) remain fixed at the then
existing Investor Percentage and may not be reset.
The Investor Percentage of collections so allocated during the Revolving
Period and the Amortization Periods to the Certificateholders will be further
allocated between the Class A Certificateholders and the Class B
Certificateholders in accordance with the Class A Investor Percentage and the
Class B Investor Percentage, respectively. The "Class A Investor Percentage"
and the "Class B Investor Percentage" mean, respectively, the percentage
equivalent of a fraction, the numerator of which is the Class A Investor
Interest or the Class B Investor Interest, as the case may be, determined as
of the last day of the Monthly Period immediately preceding such date of
determination, and the denominator of which is the sum of the Class A Investor
Interest and the Class B Investor Interest, determined as of the last day of
the Monthly Period immediately preceding such date of determination.
The term "Available Shared Principal Collections" means, on any date, Shared
Principal Collections allocable to the Certificates from each other Series
that has a controlled or scheduled amortization or accumulation period
beginning after the Class B Expected Final Distribution Date.
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.
As a result of the calculations described above, collections of Finance
Charge Receivables received during any Monthly Period will generally be
allocated to the Certificateholders 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 collections
of Principal Receivables 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 Amortization
Period and the Rapid Amortization Period, however, the amount of collections
of Principal Receivables 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 Amortization Period or the Rapid Amortization Period, assuming the
Servicer has not elected to reset the Investor Percentage and assuming the
Paired Amortization Period is not continuing during such Amortization Period.
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 amortization, 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 allocated to the
Transferor Interest, no funds will be deposited in the Excess Funding Account
in respect of such reduction attributable to Receivables in Defaulted
Accounts, as determined below. Funds on deposit in the Excess Funding Account
will be withdrawn and 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
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Receivables to the Trust or 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 will be paid to the Certificateholders as a payment
in respect of principal, and during the Controlled Amortization Period will be
paid to the Certificateholders as a payment in respect of principal to the
extent that monthly Collections received in respect of Principal Receivables
and Shared Principal Collections allocable to the Investor Interest are
insufficient to pay the applicable Controlled Amortization 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.
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 Collections allocable to Principal Receivables and Finance Charge
Receivables 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 Investor Percentage of the aggregate amount of
such deposits in respect of Finance Charge Receivables will be deposited
into the Finance Charge Account;
68
(b) during the Revolving Period, an amount equal to the applicable
Investor Percentage of the aggregate amount of such deposits in respect of
Principal Receivables will be applied as Shared Principal Collections;
(c) during the Controlled Amortization Period, an amount equal to the sum
of (i) the applicable Investor Percentage of the aggregate amount of such
deposits in respect of Principal Receivables, together with certain amounts
treated as Collections of Principal Receivables, 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
applicable Controlled Distribution Amount. On any business day when the
amount on deposit in the Principal Account exceeds the applicable
Controlled Distribution Amount for the Certificates, 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
Principal Allocation, 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 Receivables to cover amounts payable to the
certificateholders of any Series 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.
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. 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 collections of
Principal Receivables or Finance Charge Receivables, as applicable.
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 product of (x) the Class A Investor Percentage
and (y) the Investor Percentage of Finance Charge Collections deposited
into the Collection Account with respect to such preceding Monthly Period
will be distributed in the following priority:
(a) an amount equal to the product of (i) the lesser of the Class A
Certificate Rate and the Class A Cap Rate (or 5.63047% for the Initial
Interest Period), (ii) the Class A Investor
69
Interest determined as of the preceding Distribution Date or, for the
Initial Interest Period, the Closing Date (after giving effect to all
payments, deposits and withdrawals made on such Distribution Date or
Closing Date) and (iii) the actual number of days in the related
Interest Period or the Initial Interest Period divided by 360 ("Class A
Monthly Cap Rate Interest") plus any overdue Class A Monthly Cap Rate
Interest in respect of which a distribution to Class A
Certificateholders has not been made, will be deposited in the
Distribution Account for distribution to Class A Certificateholders 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 Collections of Principal
Receivables and will be (i) treated as Shared Principal Collections
during the Revolving Period and (ii) deposited in the Distribution
Account for distribution to Class A Certificateholders on the next
succeeding Distribution Date, during either the Controlled Amortization
Period (in which case such deposit, together with any other funds in
the Distribution Account, will not exceed the Class A Controlled
Distribution Amount) or the Rapid Amortization Period (in which case
such deposit, together with any other funds in the Distribution
Account, will not exceed the Class A Investor Interest);
(d) an amount equal to the unreimbursed Class A Investor Charge Offs
will be treated as Collections of Principal Receivables and will be
applied in accordance with subclauses (i) and (ii) of clause (c) above;
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 Class A Monthly Cap Rate
Interest 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 product of (x) the Class B Investor
Percentage and (y) the Investor Percentage of Finance Charge Collections
deposited into the Collection Account with respect to such preceding
Monthly Period 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 5.78047% for the Initial
Interest Period), (ii) the Class B Investor Interest determined as of
the preceding Distribution Date or, for the Initial Interest Period,
the Closing Date (after giving effect to all payments, deposits and
withdrawals made on such Distribution Date or Closing Date) 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 Certificateholders has not been made, will be
deposited in the Distribution Account for distribution to Class B
Certificateholders 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 Collections of Principal
Receivables and will be (i) treated as Shared Principal Collections
during the Revolving Period and (ii) deposited in the Distribution
Account for distribution to the Class A Certificateholders on the next
succeeding Distribution Date until paid in full and then to the Class B
Certificateholders on the Class B Payment Commencement Date and on each
succeeding Distribution Date, during either the Controlled Amortization
Period (in which case such deposit, together with any other funds in
the
70
Distribution Account, will not exceed the Class B Controlled
Distribution Amount) or the Rapid Amortization Period (in which case
such deposit, together with any other funds in the Distribution
Account, will not exceed the Class B Investor Interest);
(d) an amount equal to the unreimbursed Class B Investor Charge Offs
will be treated as Collections of Principal Receivables and (other than
those amounts treated as Reallocated Principal Collections) will be
applied in accordance with subclauses (i) and (ii) of clause (c) above;
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 Excess Spread.
Excess Spread. Excess Spread will be allocated and distributed in the
following priority:
(a) an amount equal to the Class A Required Amount will be applied to pay
such Class A Required Amount;
(b) an amount equal to the Class B Required Amount will be applied to pay
such Class B Required Amount;
(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 0.5%
and (y) the actual number of days such Class A Monthly Interest is or was
at any time overdue, divided by 360;
(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 0.5%
and (y) the actual number of days such Class B Monthly Interest is or was
at any time overdue, divided by 360;
(e) an amount equal to any 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;
(f) an amount equal to the amount by which the Required Cash Collateral
Amount exceeds the amount on deposit in the Cash Collateral Account will be
deposited in the Cash Collateral Account;
(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;
(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;
(i) any amounts due and payable under the Loan Agreement will be applied
in accordance with and to the extent specified in the Loan Agreement;
(j) an amount equal to the amount of any Class A Excess Interest accruing
during the related Interest Period;
(k) an amount equal to the amount of any Class B Excess Interest accruing
during the related Interest Period;
71
(l) the balance will constitute Shared Finance Charge Collections, to be
applied and distributed as described below in "--Shared Finance Charge
Collections";
(m) 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
(n) 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 derived
from Excess Spread 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
(d) above, second, to make the payments and deposits described in clauses
(ii)(a) through (d) above, third, to reimburse any reductions in the Class B
Investor Interest arising in connection with the payment of the Class A
Required Amount and fourth, to make the payments described above in clauses
(g) and (h) 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 (d) and (ii)(a) through (d)
above, the Trustee, acting pursuant to the Servicer's instructions, will make
a withdrawal from the Cash Collateral Account of the remaining Required
Amounts, up to the Available Cash Collateral Amount, to be applied first to
the remaining Class A Required Amount and then to the remaining Class B
Required Amount, and if the Available Cash Collateral Amount is less than the
remaining Required Amounts, apply collections of Principal Receivables
allocated to the Class B Certificate as Reallocated Principal Collections on
the Transfer Date to cover any remaining Class A Required Amount. See "--The
Cash Collateral Account" and "--Reallocation of Cash Flows".
Payments of Principal. On the Transfer Date in the Monthly Period for each
Series following the Monthly Period in which either Amortization Period begins
and on each Transfer Date thereafter, the Trustee, acting in accordance with
instructions from the Servicer, will withdraw all amounts on deposit in the
Principal Account in respect of allocations of Principal Receivables during or
in respect of the immediately preceding Monthly Period plus the amount of any
Shared Principal Collections allocable to the Certificates, and deposit such
amounts in the Distribution Account for distribution to the Certificateholders
on the next succeeding Distribution Date. The first principal payment will be
made to Class A Certificateholders beginning on the Distribution Date
following the Monthly Period in which either the Controlled Amortization
Period or the Rapid Amortization Period commences.
REALLOCATION OF CASH FLOWS
On each Distribution Date during the Revolving Period, the Controlled
Amortization Period and the Rapid Amortization Period, if any, the Servicer
will determine the Class A Required Amount and the Class B Required Amount. If
the Class A Required Amount is greater than zero after application of
available Finance Charge Collections, Excess Spread, and Shared Finance Charge
Collections, in each case allocable to the Class A Certificates, a withdrawal
will be made from the Cash Collateral Account, to the extent of the Class A
Required Amount remaining after such application (but not more than the
Available Cash Collateral Amount). If the Available Cash Collateral Amount is
less than such remaining Class A Required Amount, collections of Principal
Receivables allocable to the Class B
72
Certificates will then be reallocated and applied to fund the remaining Class
A Required Amount (such reallocated collections, "Reallocated Principal
Collections"). The Class B Investor Interest will be reduced by the amount of
Reallocated Principal Collections.
If, as of such Distribution Date, the Available Cash Collateral Amount and
Reallocated Principal Collections are insufficient to fund the remaining Class
A Required Amount for such Distribution Date, the Class B Investor Interest
will be further reduced (but not, in the aggregate, in excess of the Class A
Investor Default Amount for such Distribution Date) by the amount of such
remaining insufficiency. If the Class B Investor Interest is reduced to zero,
the Class A Investor Interest will be reduced by the amount of any unpaid
Class A Required Amount for such Distribution Date, but not in excess of the
Class A Investor Default Amount for such Distribution Date, and the Class A
Certificateholders will bear directly the credit and other risks associated
with their undivided interest in the Trust.
If, on any such Distribution Date, the Class B Required Amount is greater
than zero, after application of available Finance Charge Collections, Excess
Spread, and Shared Finance Charge Collections, in each case allocable to the
Class B Certificates, a withdrawal will be made from the Cash Collateral
Account, to the extent of the Class B Required Amount remaining after such
application (but not more than the portion of the Available Cash Collateral
Amount, if any, not required to pay the Class A Required Amount).
If, as of such Distribution Date, such portion of the Available Cash
Collateral Amount is not sufficient to fund the remaining Class B Required
Amount, the Class B Investor Interest will be reduced (but not in excess of
the Class B Investor Default Amount for such Distribution Date) by the amount
of any unpaid Class B Required Amount for such Distribution Date.
Collections of Principal Receivables allocable to the Class B Certificates
for the purpose of determining Collections available to be applied as
Reallocated Principal Collections will be determined for any Monthly Period
during the Revolving Period and Amortization Periods by multiplying the
Class B Investor Percentage by the applicable Investor Percentage of
Collections of Principal Receivables for such Monthly Period, and adding
certain other amounts treated as collections of Principal Receivables
(including amounts applied with respect to Investor Default Amounts and
Investor Charge Offs).
Any reductions of the Class B Investor Interest due to payment of the Class
A Required Amount 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.
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 and the Class B Investor Default Amount for
the preceding Monthly Period. The terms "Class A Investor Default Amount" and
"Class B Investor Default Amount" mean, respectively, for any Monthly Period,
the product of (a) the Class A Investor Percentage or the Class B Investor
Percentage, as the case may be, determined as of the end of the Monthly
Period, (b) the Investor Percentage for Defaulted Accounts and (c) the amount
of Defaulted Receivables (the sum of the Class A Investor Default Amount and
the Class B Investor Default Amount is 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.
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If the amount payable on a Distribution Date in respect of interest on the
Certificates and the Class A Investor Default Amount or the Class B Investor
Default Amount, as the case may be, as described in "--Allocation of Funds--
Payment of Fees, Interest and Other Items", exceeds the amount on deposit in
the Finance Charge Account with respect to allocations of collections of
Finance Charge Receivables during the preceding Monthly Period, Shared Finance
Charge Collections allocable to the Certificates, the Available Cash
Collateral Amount and available Reallocated Principal Collections, then the
Class A Investor Interest or the Class B Investor Interest, as the case may
be, will be reduced by the amount of such excess, but not by more than such
Class A Investor Default Amount or such Class B Investor Default Amount
(respectively, a "Class A Investor Charge Off" and a "Class B Investor Charge
Off" and together, "Investor Charge Offs"). Such reduction will have the
effect of reducing, pro rata, the principal balance of each Class A
Certificate or Class B Certificate, as the case may be. Investor Charge Offs
will be reimbursed on any Distribution Date to the extent amounts on deposit
in the Finance Charge Account with respect to allocations of collections of
Finance Charge Receivables during the preceding Monthly Period, Shared Finance
Charge Collections allocable to the Certificates and the Available Cash
Collateral Amount exceed the interest on the Certificates and any Investor
Default Amount payable on such date, as described above in "--Allocation of
Funds--Payment of Fees, Interest and Other Items". Such reimbursements of
Investor Charge Offs will result in an increase in the Investor Interest,
which will have the effect of increasing, pro rata, the principal balance of
each Certificate.
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 Transferor 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 Transferor 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.
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF TRUST
The Certificates 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 1996-1 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 Certificate Rate 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
certificateholders including the Certificateholders 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 Certificates will be made no later than the November 2004 Distribution
Date (the "Scheduled Series 1996-1 Termination Date").
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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 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 1996-1 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 1996-1 Termination Date, as the final payment of the
Certificates, first, pro rata to the Class A Certificateholders in an amount
sufficient to pay the Class A Investor Interest in full, and the balance pro
rata to the Class B Certificateholders.
PAY OUT EVENTS
The Revolving Period will continue through the end of the October 2000
Monthly Period and the Controlled Amortization Period will begin at such time,
unless a Pay Out Event occurs. 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
Certificateholders (which determination shall be made without regard to
whether funds are on deposit in the Cash Collateral Account or 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 Certificateholders for such period;
(ii) any representation or warranty made by the Transferor in the
Agreement, including the Series 1996-1 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
Certificateholders are materially and adversely affected; 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;
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(iv) the average of the Portfolio Yield for any three consecutive Monthly
Periods is a rate which is less than the Base Rate;
(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 certificateholders (which determination shall be made without
regard to whether funds are on deposit in the Cash Collateral Account or
amounts are available under the Interest Rate Caps);
(viii) on any Transfer Date the Available Cash Collateral Amount is less
than the lesser of the Investor Interest as of the last day of the related
Monthly Period and 3% of the Initial Investor Interest;
(ix) failure to have paid each Certificate in full on the applicable
Expected Final Distribution Date; or
(x) 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 Certificateholders evidencing undivided interests aggregating more
than 50% of each of the Class A Investor Interest and the Class B Investor
Interest, by written notice to the Transferor and the Servicer (and to the
Trustee, if given by the Certificateholders) 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), (ix), or
(x), 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 or
the Certificateholders or all certificateholders, 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 Certificateholders 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,
Certificateholders 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
certificateholders 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
certificateholders 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".
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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 the Trust and providing related data processing and reporting
services for Certificateholders and on behalf of the Trustee.
SERVICER COVENANTS
In the Agreement, the Servicer covenants with the certificateholders
(including the Certificateholders) 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 certificateholders
(including the Certificateholders); (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 certificateholders (including the Certificateholders) 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 certificateholders' 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
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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 certificateholders 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 Certificateholders and certificateholders of all of the
other Series. 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 related Monthly Period. The
portion of the Servicing Fee allocable to each of the Class A
Certificateholders and the Class B Certificateholders on each Distribution
Date (respectively, the "Class A Monthly Servicing Fee" and the "Class B
Monthly Servicing Fee"; together, the "Monthly Servicing Fees") will be equal
to one-twelfth of the product of 2% per annum and the Class A Investor
Interest or the Class B Investor 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 Certificateholders of the distributions of interest. 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.
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 certificateholders 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 certificateholders (including the Certificateholders), 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
78
misconduct by the Trustee in the performance of its duties under the
Agreement, (b) the Trust, the Certificateholders or the Certificate Owners for
liabilities arising from actions taken by the Trustee at the request of
Certificateholders, (c) the Trust, the Certificateholders or the Certificate
Owners for any losses, claims, damages or liabilities incurred by any
Certificateholder 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
Certificateholders or the Certificate Owners for any liabilities, costs or
expenses of the Trust, the Certificateholders or the 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
Certificateholders or the 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 Certificateholders 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 Certificateholders 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.
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 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 certificateholders 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.
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SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the Trustee
or holders representing undivided interests aggregating more than 50% of the
sum of the investor interests of all certificates outstanding, by written
notice to the Servicer (and to the Trustee if given by the
certificateholders), 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
Certificateholders (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 certificateholders 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 certificateholders
(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.
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 certificateholders from effecting a Service Transfer.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Paying Agent will forward to each
Certificateholder 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 Certificateholders and the Class B
Certificateholders, respectively, (b) the amount of the distribution made on
such Distribution Date allocable to principal on
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the Class A Certificates and the Class B Certificates, respectively, (c) the
amount of the distribution made on such Distribution Date allocable to
interest on the Class A Certificates and the Class B Certificates,
respectively, (d) the amount of collections of Principal Receivables processed
during the preceding Monthly Period and allocated in respect of the Class A
Certificates and the Class B Certificates, (e) the aggregate amount of
Principal Receivables, the Class A Investor Interest and the Class B Investor
Interest and the Class A Investor Percentage and the Class B Investor
Percentage 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 and the Class B Investor Default Amount for the
preceding Monthly Period, (h) the aggregate amount of Class A Investor Charge
Offs and Class B Investor 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 and the Class B Monthly Servicing Fee for
the preceding Monthly Period, (j) the Available Cash Collateral Amount as of
the close of business on such Distribution Date, (k) 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), (l) the Deficit Controlled Amortization Amount for each
class of the Series, (m) the aggregate amount of collections of Finance Charge
Receivables allocable to the Investor Interest for the preceding Monthly
Period, (n) the Required Amounts, if any, to be withdrawn from the Cash
Collateral Account and, if the Available Cash Collateral Amount, the amount
payable under the Interest Rate Caps and Shared Finance Charge Collections
available to the Certificates are insufficient to satisfy the Required Amount,
the amount of Reallocated Principal Allocations to be applied thereto, and any
reductions in the Class B Investor Interest to satisfy the Class A Required
Amount and (o) the ratio of the Available Cash Collateral Amount 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 1997, the
Paying Agent will furnish to each person who at any time during the preceding
calendar year was a Certificateholder 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 a Certificateholder, together with such other customary information
(consistent with the treatment of the Certificates as debt) as the Trustee or
the Servicer deems necessary or desirable to enable the Certificateholders to
prepare their tax returns.
The Trustee will publish or will cause to be published following each
Distribution Date (including the Scheduled Series 1996-1 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 Certificateholders" in the prospectus will be
available for review at the main office of the listing agent of the Trust in
Luxembourg.
Notices to Certificateholders 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 Certificateholders
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,
beginning in 1994, 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
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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, beginning in 1994, 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, beginning in 1994, 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 certificateholder 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 Certificateholders 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 Collections of Principal Receivables, in an amount up to the
aggregate amount by which the purchase price of Principal Receivables as sold
thereafter is less than 100%, as Collections of Finance Charge Receivables;
provided, however, that any such action shall not adversely affect in any
material respect the interests of the certificateholders (each
Certificateholder 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 Certificateholders); 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 certificateholder 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 66 2/3% 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 certificateholders of
any Series. No such amendment, however, may (a) reduce in any manner the
amount of, or delay the timing of, distributions required to be made on such
Series, (b) change the definition of or the manner of calculating the interest
of any certificateholder of
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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 certificateholders 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 certificateholder of all Series (or with respect to an
amendment of a Supplement, to the applicable Series).
LIST OF CERTIFICATEHOLDERS
Upon written request of Certificateholders 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
Certificateholders for its costs and expenses, and having given the Servicer
notice that such request has been made, will afford such Certificateholders
access during business hours to the current list of certificateholders of the
Trust for purposes of communicating with other Certificateholders with respect
to their rights under the Agreement. The Agreement generally does not provide
for any annual or other meetings of certificateholders. See "--Book-Entry
Registration" and "--Definitive Certificates" above.
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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.
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
84
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 certificateholders 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
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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. 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
Certificateholders. 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 and
Fair Debt Collection Practice 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.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders if such laws result in any
Receivables being written off as uncollectible when there are insufficient
funds available in the Cash Collateral Account. See "Description of the
Certificates-- Defaulted Receivables; Adjustments and Fraudulent Charges".
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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
Certificates. This discussion, however, does not address every aspect of the
Federal income tax laws that may be relevant to holders of Certificates in
light of their personal investment circumstances or to certain types of
Certificateholders 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 Certificates in their own particular circumstances. The
discussion is generally limited to those persons who are the initial holders
of the Certificates and to investors who will hold Certificates as capital
assets. This discussion is based upon the provisions of the Internal Revenue
Code of 1986, 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 Certificateholders.
TREATMENT OF THE 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 Certificates, when issued, will be
characterized for Federal income tax purposes as indebtedness that is secured
by the Receivables and the Trust will be disregarded.
The Transferor and Certificateholders 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
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 Certificateholder, by virtue of accepting a
beneficial interest in a Certificate, will agree to treat the 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.
87
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 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 the Arrangement as an
Association Taxable as a Corporation or a Partnership" below. Except as
otherwise expressly indicated, the following discussion assumes that the
Certificates will be treated as debt obligations for Federal income tax
purposes.
INTEREST INCOME TO CERTIFICATEHOLDERS
It is anticipated that the Certificates will be issued at par value (or at
an insubstantial discount from par value). To the extent that stated interest
on the Certificates constitutes "qualified stated interest", it will be
taxable as ordinary income for Federal income tax purposes when received or
accrued by Certificateholders in accordance with their respective methods of
tax accounting. 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 payments. To the extent the
Certificates were treated as being issued with original issue discount
(generally, the excess of the "stated redemption price at maturity" of a
Certificate, or all payments other than qualified stated interest, over the
Certificate issue price) a Certificateholder would be required, subject to a
de minimis exception, to include original issue discount ("OID") in income as
interest over the term of the 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 payment of a portion of the interest at the Certificate Rates may be
subordinated during an Amortization Period to payments of other amounts, it is
possible that all or a significant portion of the stated interest on the
Certificates may not be treated as contingent interest. If any portion of the
interest on the Certificates is treated as contingent interest, the manner in
which such contingent interest would accrue is unclear. No currently effective
Treasury regulations would govern the accrual of such contingent interest on a
Certificate and it is not expected that regulations will be promulgated that
would apply to the Certificates. Although Treasury regulations governing the
treatment of debt instruments that provide for contingent payments were
published on June 11, 1996, those regulations are only effective for debt
instruments issued on or after August 13, 1996 and therefore are not expected
to apply to the Certificates. The Treasury Department background statement
accompanying those regulations provides that for debt instruments providing
for contingent payments that are issued before August 13, 1996, a taxpayer may
use any reasonable method to account for the debt instrument. In the absence
of governing regulations one reasonable method of treating contingent interest
(if any) payable in respect of the Certificates would permit a holder to
include such contingent interest in income when received. If instead stated
interest is treated neither as qualified stated interest nor as contingent
interest, the amount of such stated interest would be included in the stated
redemption price at maturity of a Certificate, and, as a result, the
Certificates may be treated as having been issued with OID and taxed as above.
Because of the uncertainty of treatment, Tax Counsel is unable to opine as to
the appropriate treatment of stated interest on the Certificates. Holders are
urged to consult their own tax advisors regarding the treatment of stated
interest on the Certificates.
A Certificateholder who purchases a 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 Certificate, and for the deferral of interest
deductions with respect to debt incurred to acquire or carry the market
discount Certificate.
88
If a Certificate is purchased by a Certificateholder at a premium, such
premium will be amortized as an offset to interest income (with a
corresponding reduction in the Certificateholder's basis) under a constant
yield method over the term of the Certificate if an election under Section 171
of the Code is made or is previously in effect.
DISPOSITION OF CERTIFICATES
If a Certificate is sold, exchanged or otherwise disposed of, a
Certificateholder 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 Certificateholder's adjusted basis in the Certificate. The
adjusted basis of a Certificate generally will equal the cost of the
Certificate to the Certificateholder, increased by any OID or market discount
previously includible in the Certificateholder's gross income, and reduced by
the portion of the basis of the Certificate allocable to payments on the
Certificate previously received by the Certificateholder and any amortized
premium. Subject to the market discount rules, gain or loss on the sale or
other disposition of a Certificate will be capital gain or loss if the
Certificate is held by the Certificateholder 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 Certificate is held by the
Certificateholder for more than one year and otherwise will be short-term.
POSSIBLE CHARACTERIZATION OF THE ARRANGEMENT AS AN ASSOCIATION TAXABLE AS A
CORPORATION OR A PARTNERSHIP
Although, as described above, it is the opinion of Tax Counsel that the
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 Certificates were not debt obligations
for Federal income tax purposes, the arrangement created by the Agreement
might be classified for Federal income tax purposes as an association taxable
as a corporation that owns the Receivables or, possibly, as a partnership,
including a "publicly traded partnership".
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
Certificateholders and Certificateholders 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
Certificates were treated as ownership interests in the Receivables 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
Certificateholders would generally be treated as dividend income to the
Certificateholders.
If, alternatively, the Certificates were treated as interests in a
partnership, the income reportable by the Certificateholders as partners could
differ from the income reportable by the Certificateholders as holders of debt
obligations. For example, a cash basis Certificateholder might be required to
report income when it accrued to the partnership rather than when it is
received by the Certificateholder. 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 Certificates. Finally,
if a class of Certificates were treated as interests in a partnership and
another class of Certificates were treated as debt, a portion of the taxable
income allocated to a Certificateholder of the class of 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.
89
Since the Transferor and PSFC will treat the 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 Certificates.
FOREIGN INVESTORS
Assuming the Certificates represent debt obligations for Federal income tax
purposes, if interest (including OID) 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 Certificateholder 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 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 Certificates represent interests in
a partnership (not taxable as a corporation), a Certificateholder 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 a Certificateholder 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
Certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the 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 Certificateholder will be required to provide,
under penalty of perjury, a 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
Certificateholder fail to provide the required certification, the
Certificateholder 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 Certificateholder will depend upon the
provisions of the state tax laws to which the Certificateholder 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 Certificateholders in all of
the state taxing jurisdictions in which they are already subject to tax.
90
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 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, Certificateholders not
otherwise subject to Connecticut tax would not become subject to such tax
solely because of their ownership of the Certificates. Certificateholders
already subject to taxation in Connecticut as corporations, however, could be
required to pay tax on the income generated from ownership of these
Certificates.
In the alternative, if the 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 a Certificateholder not
otherwise subject to taxation in Connecticut could become subject to
Connecticut income taxes as a result of its mere ownership of Certificates.
If the 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
Certificateholders. A Certificateholder 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 Certificateholders 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 Certificates would be treated as indebtedness by any
particular state. Certificateholders 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 CERTIFICATES.
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,
"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
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 a Certificate, the fiduciary of any
91
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
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 Certificate Owners have agreed to treat the
Certificates as debt instruments for tax purposes, the Certificates may be
considered equity interests in the Trust for purposes of the Plan Asset
Regulation. In such a case, if investment in the 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
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, immediately subsequent to the initial offering, 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.
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 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. The Class B Certificates may not be
acquired with 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 a
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 a Certificate by a Benefit Plan.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of 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.
92
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 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 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 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
------------ --------------------
Goldman, Sachs & Co..................................... $106,334,000
J.P. Morgan Securities Inc.............................. 106,333,000
Salomon Brothers Inc.................................... 106,333,000
Lehman Brothers Inc..................................... 20,000,000
Morgan Stanley & Co. Incorporated....................... 20,000,000
SBC Warburg............................................. 20,000,000
------------
$379,000,000
============
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 Goldman, Sachs & Co. (the "Class B Underwriters" and together with
the Class A Underwriters, the "Underwriters"), and the Class B Underwriters
have agreed to purchase, the Class B Certificates.
Under the terms and conditions of the Underwriting Agreement, the Class B
Underwriters are 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 0.200% 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 0.150% of the principal amount of the
Class A Certificates to certain brokers and dealers. After the Class A
Certificates are released for sale to the public, the public offering price
and other selling terms may from time to time be varied by the Class A
Underwriters.
PSFC and the Transferor have been advised by the Class B Underwriters that
they propose 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 0.225% of the principal amount of the Class
B Certificates. The Class B Underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.175% of the principal amount of the
Class B Certificates to certain brokers and dealers. After the Class B
Certificates are released for sale to the public, the public offering price
and other selling terms may from time to time be varied by the Class B
Underwriters.
Application will be made to list the Class A Certificates on the Luxembourg
Stock Exchange.
Each Underwriter has represented and agreed that (a) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the Certificates in, from
or otherwise involving the United Kingdom; (b) it has only issued or passed
93
on and will only issue or pass on in the United Kingdom any document received
by it in connection with the issue of the Certificates to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or who is a person to whom the
document may otherwise lawfully be issued or passed on; 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 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 Certificates will be
passed upon for the Transferor by William T. Kosturko, General Counsel to
People's Bank. Certain legal matters relating to the 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 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 Certificates will be passed upon for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
94
INDEX OF KEY TERMS
Accounts.................................................................... 14
Additional Accounts......................................................... 15
Affinity Program Accounts................................................... 34
Agent Bank Accounts......................................................... 34
Aggregate Principal Receivables............................................. 8
Agreement................................................................... 3
Amortization Period......................................................... 7
Automatic Additional Accounts............................................... 15
Available Cash Collateral Amount............................................ 17
Available Shared Principal Collections...................................... 8
Bank Portfolio.............................................................. 33
Base Rate................................................................... 29
Benefit Plans............................................................... 91
Billing Cycle............................................................... 35
Cash Collateral Account..................................................... 4
Cash Collateral Lender...................................................... 17
Cede........................................................................ 2
Cedel Participants.......................................................... 52
Cedel....................................................................... 52
Certificate Owners.......................................................... 2
Certificate Rate............................................................ 9
Certificate Rates........................................................... 9
Certificateholder........................................................... 51
Certificateholders.......................................................... 3
Certificates................................................................ 1
Class A Cap Rate............................................................ 49
Class A Certificate Rate.................................................... 9
Class A Certificateholders.................................................. 3
Class A Certificates........................................................ 1
Class A Controlled Amortization Amount...................................... 43
Class A Controlled Distribution Amount...................................... 11
Class A Excess Interest..................................................... 9
Class A Excess Principal.................................................... 55
Class A Expected Final Distribution Date.................................... 12
Class A Initial Investor Interest........................................... 6
Class A Interest Rate Cap................................................... 4
Class A Investor Charge Off................................................. 19
Class A Investor Default Amount............................................. 73
Class A Investor Interest................................................... 6
Class A Investor Percentage................................................. 9
Class A Monthly Cap Rate Interest........................................... 18
Class A Monthly Interest.................................................... 9
Class A Monthly Servicing Fee............................................... 78
Class A Notional Amount..................................................... 49
Class A Payment Amount...................................................... 18
Class A Required Amount..................................................... 18
Class A Underwriters........................................................ 93
Class B Cap Rate............................................................ 49
Class B Certificate Rate.................................................... 9
Class B Certificateholders.................................................. 3
95
Class B Certificates........................................................ 1
Class B Controlled Amortization Amount...................................... 43
Class B Controlled Distribution Amount...................................... 11
Class B Excess Interest..................................................... 10
Class B Excess Principal.................................................... 55
Class B Expected Final Distribution Date.................................... 12
Class B Initial Investor Interest........................................... 6
Class B Interest Rate Cap................................................... 4
Class B Investor Charge Off................................................. 20
Class B Investor Default Amount............................................. 73
Class B Investor Interest................................................... 6
Class B Investor Percentage................................................. 9
Class B Monthly Cap Rate Interest........................................... 19
Class B Monthly Interest.................................................... 10
Class B Monthly Servicing Fee............................................... 78
Class B Notional Amount..................................................... 49
Class B Payment Amount...................................................... 19
Class B Payment Commencement Date........................................... 56
Class B Required Amount..................................................... 19
Closing Date................................................................ 5
Code........................................................................ 87
Collection Account.......................................................... 16
Collection Subaccount....................................................... 64
Collections................................................................. 65
Commission.................................................................. 2
Congress.................................................................... 26
Controlled Amortization Amount.............................................. 43
Controlled Amortization Date................................................ 11
Controlled Amortization Period.............................................. 11
Controlled Distribution Amount.............................................. 11
Cooperative................................................................. 53
Defaulted Accounts.......................................................... 66
Defaulted Receivables....................................................... 73
Deficit Controlled Amortization Amount...................................... 12
Definitive Certificates..................................................... 53
Depositaries................................................................ 51
Depository.................................................................. 48
Determination Date.......................................................... 73
Disclosure Document......................................................... 13
Discount Option............................................................. 63
Discount Percentage......................................................... 63
Distribution Account........................................................ 64
Distribution Date........................................................... 1
DOL......................................................................... 92
DTC Participants............................................................ 51
DTC......................................................................... 2
Eligible Account............................................................ 60
Eligible Additional Account................................................. 62
Eligible Automatic Additional Account....................................... 62
Eligible Receivable......................................................... 61
Enhancement Provider........................................................ 59
Enhancement................................................................. 4
96
ERISA..................................................................... 23
Euroclear Operator........................................................ 52
Euroclear Participants.................................................... 52
Euroclear System.......................................................... 52
Euroclear................................................................. 52
Excess Funding Account.................................................... 64
Excess Principal.......................................................... 55
Excess Spread............................................................. 20
Exchange.................................................................. 13
Exchange Act.............................................................. 2
Exchangeable Transferor Certificate....................................... 5
Expected Class A Principal................................................ 55
Expected Class B Principal................................................ 55
Expected Final Distribution Date.......................................... 12
FDIA...................................................................... 25
FDIC...................................................................... 1
Finance Charge Account.................................................... 64
Finance Charge Collections................................................ 65
Finance Charge Receivables................................................ 14
FIRREA.................................................................... 25
GAO....................................................................... 26
Global Securities......................................................... AII-1
Holders................................................................... 54
Indirect Participants..................................................... 50
Ineligible Receivable..................................................... 59
Initial Cash Collateral Amount............................................ 17
Initial Class A Scheduled Principal Payment Date.......................... 55
Initial Interest Period................................................... 10
Initial Investor Interest................................................. 6
Insolvency Event.......................................................... 76
Interchange............................................................... 39
Interest Period........................................................... 49
Interest Rate Cap Provider................................................ 4
Interest Rate Caps........................................................ 4
Investor Charge Offs...................................................... 74
Investor Default Amount................................................... 73
Investor Exchange......................................................... 13
Investor Interest......................................................... 6
Investor Percentage....................................................... 6
IRS....................................................................... 87
LIBOR..................................................................... 9
LIBOR Determination Date.................................................. 49
Loan Agreement............................................................ 17
London Banking Day........................................................ 48
MasterCard................................................................ 33
Maximum Addition Amount................................................... 62
Minimum Aggregate Principal Receivables................................... 40
Minimum Transferor Interest............................................... 40
Monthly Period............................................................ 7
Monthly Servicer Report................................................... 80
Monthly Servicing Fees.................................................... 78
Moody's................................................................... 64
97
OID......................................................................... 88
Paired Amortization Period.................................................. 7
Paired Certificates......................................................... 7
Participants................................................................ 51
Pay Out Event............................................................... 43
Paying Agent................................................................ 54
Permitted Investments....................................................... 64
Plan Asset Regulation....................................................... 92
Pool Factor................................................................. 81
Portfolio Yield............................................................. 29
Principal Account........................................................... 64
Principal Allocation........................................................ 11
Principal Receivables....................................................... 14
Principal Terms............................................................. 57
PSFC........................................................................ 1
Qualified Institution....................................................... 64
Qualified Substitute Arrangement............................................ 49
Qualified Trust Institution................................................. 64
Rapid Amortization Period................................................... 12
Rating Agency............................................................... 31
Reallocated Principal Collections........................................... 18
Receivables................................................................. 1
Record Date................................................................. 47
Recoveries.................................................................. 14
Reference Banks............................................................. 49
Removal Date................................................................ 63
Removed Accounts............................................................ 15
Replacement Interest Rate Cap............................................... 49
Representative Portfolio.................................................... 37
Required Amounts............................................................ 19
Required Cash Collateral Amount............................................. 17
Revolving Period............................................................ 10
Securities Act.............................................................. 2
Series...................................................................... 3
Series Cut-Off Date......................................................... 14
Service Transfer............................................................ 80
Servicer.................................................................... 16
Servicer Default............................................................ 80
Servicing Fee............................................................... 78
Shared Finance Charge Collections........................................... 21
Standard & Poor's........................................................... 64
Supplement.................................................................. 12
Tax Counsel................................................................. 87
Telerate Page 3750.......................................................... 49
Terms and Conditions........................................................ 53
Total System................................................................ 33
Transfer Agent and Registrar................................................ 54
Transfer Date............................................................... 17
Transferor.................................................................. 1
Transferor Exchange......................................................... 13
Transferor Interest......................................................... 6
Transferor Percentage....................................................... 67
98
Transferor Servicing Fee.................................................. 78
Trust..................................................................... 1
Trust Portfolio........................................................... 5
Trustee................................................................... 3
U.S. Person............................................................... AII-4
UCC....................................................................... 84
Underwriting Agreement.................................................... 92
VISA...................................................................... 33
99
ANNEX I
PRIOR SERIES ISSUED
The table below sets forth the principal characteristics of the four Series
previously issued by the Trust: the Series 1993-1 Certificates, the Series
1994-1 Certificates, the Series 1994-2 Certificates and the Series 1995-1
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
Certificates, a copy of the Disclosure Documents for any previously publicly-
issued Series.
SERIES 1993-1
Initial Investor Interest.................................... $200,000,000
Certificate Rate............................................. 4.80% per annum
Current Investor Interest.................................... $100,000,000
Controlled Amortization Amount............................... $16,666,666.67
Controlled Amortization Date................................. December 1, 1995
Monthly Servicing Fee........................................ 2% per annum
Initial Cash Collateral Amount............................... $6,000,000
Surety Bond Initial Amount................................... $19,000,000
Issuer of the Surety Bond.................................... Financial Guaranty
Insurance Company
Expected Series Final Distribution Date...................... December 1996
Distribution Date
Scheduled Series Termination Date............................ December 1998
Distribution Date
Series Issuance Date......................................... July 9, 1993
SERIES 1994-1
Initial Investor Interest.................................... $200,000,000
Certificate Rate............................................. 5.10% per annum
Current Investor Interest.................................... $200,000,000
Controlled Amortization Amount............................... $16,666,666.67
Controlled Amortization Date................................. August 1, 1996
Monthly Servicing Fee........................................ 2% per annum
Initial Cash Collateral Amount............................... $6,000,000
Surety Bond Initial Amount................................... $19,000,000
Issuer of the Surety Bond.................................... Financial Guaranty
Insurance Company
Expected Series Final Distribution Date...................... August 1997
Distribution Date
Scheduled Series Termination Date............................ August 2000
Distribution Date
Series Issuance Date......................................... February 16, 1994
AI-1
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
through November 14, 1994.................................... 5.3375% per annum
after November 14, 1994...................................... 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
Distribution Date
Class B Expected Final Distribution Date...................... June 1998
Distribution Date
Scheduled Series 1994-2 Termination Date...................... March 2001
Distribution Date
Series Issuance Date.......................................... October 27, 1994
SERIES 1995-1
Initial Investor Interest..................................... $400,000,000
Class A Certificate Rate
through April 16, 1995....................................... 6.325% per annum
after April 16, 1995......................................... LIBOR plus 0.20%
Class B Certificate Rate
through April 16, 1995....................................... 6.475% per annum
after April 16, 1995......................................... 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
Distribution Date
Class B Expected Final Distribution Date...................... November 2000
Distribution Date
Scheduled Series 1995-1 Termination Date...................... August 2003
Distribution Date
Series Issuance Date.......................................... March 21, 1995
AI-2
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 1996-1 and Floating Rate Class B Asset Backed Certificates, Series
1996-1 (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 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
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
AII-2
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:
(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) staggering 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 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 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
Certificate Owner or its agent.
AII-3
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 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 or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source. 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-4
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION 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 DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, 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.
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TABLE OF CONTENTS
PAGE
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Reports to Certificateholders............................................ 2
Available Information.................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 25
The Trust................................................................ 32
The Credit Card Business of People's Bank................................ 33
The Receivables.......................................................... 39
Maturity Assumptions..................................................... 43
Receivable Yield Considerations.......................................... 45
Use of Proceeds.......................................................... 46
People's Bank............................................................ 46
Description of the Certificates.......................................... 47
Certain Legal Aspects of the Receivables................................. 84
Certain Federal Income Tax Consequences.................................. 87
State and Local Tax Consequences......................................... 90
Certain Employee Benefit Plan Considerations............................. 91
Underwriting............................................................. 93
Legal Matters............................................................ 94
Index of Key Terms....................................................... 95
Annex I Prior Series Issued.............................................. AI-1
Annex II Global Clearance, Settlement and Tax Documentation Procedures... AII-1
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UNTIL SEPTEMBER 23, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE 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 RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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$400,000,000
PEOPLE'S BANK CREDIT CARD
MASTER TRUST
$379,000,000 FLOATING RATE
CLASS A ASSET BACKED
CERTIFICATES, SERIES 1996-1
$21,000,000 FLOATING RATE
CLASS B ASSET BACKED
CERTIFICATES, SERIES 1996-1
LOGO
TRANSFEROR AND SERVICER
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PROSPECTUS
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UNDERWRITERS OF THE CLASS A CERTIFICATES
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
SALOMON BROTHERS INC
UNDERWRITERS OF THE CLASS B CERTIFICATES
GOLDMAN, SACHS & CO.
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