<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 3, 2000
Registration Nos. 333-38036 and 333-38036-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
HOUSEHOLD RECEIVABLES FUNDING, INC. III
(Originator of the Trust described herein)
(Exact Name of Registrant as Specified in Its Charter)
HOUSEHOLD CREDIT CARD MASTER NOTE TRUST I
(Issuer of the Notes)
DELAWARE (applied for)
(State or Other Jurisdiction of (I.R.S. Employer Identification
Organization) Number)
1111 Town Center Drive
Las Vegas, Nevada 89134
(702) 243-1156
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Office)
Joan S. Vander Linde
Senior Counsel
Household International, Inc.
2700 Sanders Road
Prospect Heights, Illinois 60070
(847) 564-7958
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Janet L. Burak Edward M. DeSear, Esq.
Vice President, Secretary Orrick, Herrington & Sutcliffe LLP
and General Counsel 666 Fifth Avenue
Household Bank (Nevada), N.A. New York, NY 10103
2700 Sanders Road (212) 506-5060
Prospect Heights, IL 60070
(847) 564-5000
Approximate date of commencement of proposed sale to the public: from time to
time after this registration statement becomes effective as determined by market
conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
Title of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered aggregate price aggregate offering registration fee (d)
(a) (b) per note (c) price (c)
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
Asset Backed Notes $1,000,000 100.00% $1,000,000 $264
==========================================================================================================
</TABLE>
(a) With respect to any Asset Backed Notes issued with original issue discount,
the amount to be registered is calculated based on the initial public
offering price thereof.
(b) With respect to any Asset Backed Notes denominated in any foreign currency,
the amount to be registered shall be the U.S. dollar equivalent thereof
based on the prevailing exchange rate at the time such Asset Backed Note is
first offered.
(c) Estimated solely for the purpose of calculating the registration fee.
(d) Paid on May 30, 2000.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933 or until this registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
Introductory Note
This registration statement includes:
. a representative form of prospectus supplement to the base prospectus
relating to the offering by Household Credit Card Master Note Trust I of a
series of asset backed notes; and
. a base prospectus relating to asset backed notes of Household Credit Card
Master Note Trust I.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus supplement and the accompanying prospectus+
+ is not complete and may be amended. We may not sell these Securities until we+
+ deliver a final prospectus supplement and accompanying Prospectus. This +
+ prospectus supplement and the accompanying prospectus are not an offer to +
+ sell nor are they seeking an offer to buy these securities In any state +
+ where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Representative Form of Prospectus Supplement
Subject to Completion, dated [.], 2000
Prospectus Supplement to Prospectus dated [.], 2000
Household Credit Card Master Note Trust I
Issuer
Household Receivables Funding, Inc. III
Transferor
Series 2000-[.] Asset Backed Notes
<TABLE>
<CAPTION>
Class A notes Class B notes Class C notes
<S> <C> <C> <C>
Principal amount $[.] $[.] $[.]
Interest rate [One-Month LIBOR] plus [One-Month LIBOR] plus [One-Month LIBOR] plus
[.]% per year [.]% per year [.]% per year
Interest payment dates Monthly on the 15th Monthly on the 15th Monthly on the 15th
beginning [.], 2000 beginning [.], 2000 beginning [.], 2000
Expected principal 200[.] 200[.] 200[.]
payment date
Final maturity date 200[.] 200[.] 200[.]
Price to public $[.] (or [.]%) $[.] (or [.]%) $[.] (or [.]%)
Underwriting discount $[.] (or [.]%) $[.] (or [.]%) $[.] (or [.]%)
Proceeds to issuer $[.] (or [.]%) $[.] (or [.]%) $[.] (or [.]%)
</TABLE>
The Class B notes are subordinated to the Class A notes. The Class C notes are
subordinated to the Class A and Class B notes.
The primary assets of the trust are receivables originated under the Union Plus
program in MasterCard and VISA revolving credit card accounts.
We expect to issue your series of notes on or about [.], 2000. We will deliver
your series of notes in book-entry form.
--------------------------------------------------------------------------------
You should consider carefully the risk factors beginning on page [.] in the
prospectus.
A note is not a deposit and neither the notes nor the underlying accounts or
receivables are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
The notes are obligations of Household Credit Card Master Note Trust I only and
are not obligations of Household Receivables Funding, Inc. III, Household
Finance Corporation, Household Bank (Nevada), N.A. or any other person.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these notes or determined that this prospectus
supplement is accurate or complete. Any representation to the contrary is a
criminal offense.
Underwriters of the Series 2000-[.] Notes
[.], 2000
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two separate documents:
(1) this prospectus supplement, which describes the specific terms of your
series of notes, and (2) the accompanying prospectus, which provides general
information, some of which may not apply to your series of notes.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. We have not authorized anyone to provide you with
different information. We are not offering the notes in any state where the
offer is not permitted.
We include cross references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents in the accompanying prospectus provide the pages on which these
captions are located.
This prospectus supplement uses defined terms. Definitions can be found in
the Glossary beginning on page S-[.] in this prospectus supplement and beginning
on page [.] in the accompanying prospectus.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Prospectus Supplement Summary S-5
The Issuer....................................................... S-5
The Receivables.................................................. S-5
The Series 2000-[.] Notes........................................ S-5
Interest................................................... S-5
Principal.................................................. S-6
Credit Enhancement............................................... S-6
Subordination.................................................... S-6
Spread Account................................................... S-6
Events Of Default................................................ S-7
Amortization Events.............................................. S-7
Other Interests in the Trust..................................... S-8
Other Series of Notes....................................... S-8
The Transferor Interest..................................... S-8
Allocations of Collections....................................... S-8
Groups........................................................... S-9
Reallocation Group One...................................... S-9
Excess Finance Charge Sharing Group One..................... S-9
Principal Sharing Group One................................. S-10
Application of Collections....................................... S-10
Finance Charge and Administrative Collections............... S-10
Principal Collections....................................... S-11
Optional Redemption.............................................. S-11
Denominations.................................................... S-12
Registration, Clearance and Settlement........................... S-12
Material Federal Income Tax Consequences......................... S-12
ERISA Considerations............................................. S-12
Risk Factors..................................................... S-12
[Exchange Listing]............................................... S-12
The Originator, The Servicer, The Subservicer and The Transferor..... S-13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Household Bank (Nevada), N.A..................................... S-13
Household Finance Corporation.................................... S-13
Household Credit Services, Inc................................... S-13
Household Receivables Funding, Inc. III.......................... S-14
The Bank's Credit Card Portfolio..................................... S-14
Billing and Payments............................................. S-15
Collection of Delinquent Accounts................................ S-17
Revenue Experience............................................... S-20
Interchange...................................................... S-21
Recoveries....................................................... S-21
Payment Rates.................................................... S-22
The Trust Portfolio.................................................. S-22
Description of Series Provisions..................................... S-27
General.......................................................... S-27
Interest Payments................................................ S-27
Principal Payments............................................... S-28
Revolving Period............................................ S-29
Controlled Accumulation Period.............................. S-29
Postponement of Controlled Accumulation Period.............. S-30
Early Amortization Period................................... S-30
Principal Funding Account................................... S-31
Reserve Account............................................. S-31
Principal Sharing Group One................................. S-33
Paired Series............................................... S-34
Subordination............................................... S-34
Events Of Default................................................ S-34
Amortization Events.............................................. S-35
Allocation Percentages........................................... S-36
Reallocation Group One........................................... S-37
Application of Collections....................................... S-38
Payment of Interest, Fees and Other Items................... S-38
Payments of Principal....................................... S-39
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Excess Finance Charge Sharing Group One.......................... S-40
Subordinated Principal Collections............................... S-40
Defaulted Receivables; Investor Charge-Offs...................... S-41
Spread Account................................................... S-41
Spread Account Distributions..................................... S-44
Servicing Compensation and Payment of Expenses................... S-44
Reports To Noteholders........................................... S-44
ERISA Considerations................................................. S-44
Underwriting......................................................... S-46
Legal Matters........................................................ S-49
Glossary............................................................. S-49
Annex I Other Series Issued And Outstanding......................... 1
</TABLE>
iii
<PAGE>
TRANSACTION SUMMARY
--------------------------------------------------------------------------------
Trust: Household Credit Card Master Note Trust I
Transferor: Household Receivables Funding, Inc. III
Originator: Household Bank (Nevada), N.A.
Servicer: Household Finance Corporation
Indenture Trustee: [.]
Owner Trustee: [.]
Closing Date: [.], 2000
Clearance and Settlement: DTC/Clearstream/Euroclear
Primary Trust Assets: Receivables originated under the Union Plus(R)
program in MasterCard(R) and VISA(R) accounts
Annual Servicing Fee Rate: 2.0%
Principal Sharing Group: Group One
Reallocation Group: Group One
Excess Finance Charge Sharing Group One
Group:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note Structure Amount % of Total Series
<S> <C> <C>
Class A $[.] [.]%
Class B $[.] [.]%
Class C $[.] [.]%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Anticipated Ratings: [.] [.] [.]
[Moody's/Standard &
Poor's/Fitch]
Credit Enhancement: subordination of subordination of spread account
Class B and Class C Class C
Interest Rate: [One-Month LIBOR] [One-Month LIBOR] [One-Month LIBOR]
plus plus plus
[.]% per year [.]% per year [.]% per year
Interest Accrual Method: [actual/360] [actual/360] [actual/360]
Interest Payment Dates: monthly (15th) monthly (15th) monthly (15th)
Interest Rate Index Reset Date: [2 London business [2 London business [2 London business
days before each days before each days before each
interest payment interest payment interest payment
date] date] date]
First Interest Payment Date: [.], 2000 [.], 2000 [.], 2000
Expected Principal Payment Date: [.], 200[.] [.], 200[.] [.], 200[.]
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Commencement of Accumulation Period [.], 200[.] [.], 200[.] [.], 200[.]
(subject to adjustment):
Final Maturity Date: [.], 200[.] [.], 200[.] [.], 200[.]
</TABLE>
S-4
<PAGE>
Prospectus Supplement Summary
This summary highlights information about the notes and does not contain all of
the information that you need to consider in making your investment decision.
You should carefully read this entire document and the accompanying prospectus
before you purchase any notes.
The Issuer
The notes will be issued by Household Credit Card Master Note Trust I, a
Delaware statutory business trust, under an indenture supplement to an
indenture, each between the trust and the indenture trustee.
The indenture trustee is Wells Fargo Bank Minnesota, N.A.
The Receivables
The primary assets of the trust in pool one are receivables originated by the
bank under the Union Plus program in MasterCard and VISA revolving credit card
accounts. The Union Plus program is an affinity arrangement between the bank
and Union Privilege, a marketing company, under which the bank offers a credit
card program to members of unions affiliated with the American Federation of
Labor and Congress of Industrial Organizations. The receivables consist of
principal receivables and finance charge and administrative receivables.
The following information is as of [.], 2000:
. Receivables in the trust: $[.]
. Accounts designated to the trust:
For more information, see "The Trust Portfolio" in this prospectus supplement.
The Series 2000-[.] Notes
Interest
The Class A notes will bear interest at [one-month LIBOR as determined each
month] plus [.]% per annum.
The Class B notes will bear interest at [one-month LIBOR as determined each
month] plus [.]% per annum.
The Class C notes will bear interest at [one-month LIBOR as determined each
month] plus [.]% per annum.
For each class of the Series 2000-[.] notes, interest will be calculated as
follows:
Principal X Number of X Interest
balance days in rate
at end of interest
prior period
-------------
due period 360
Each interest period begins on and includes a distribution date and ends on but
excludes the next distribution date. However, the first interest period will
begin on and include the closing date.
Interest on the Series 2000-[.] notes will be paid on each distribution date,
which will be [.] [15], 2000 and the 15th day of each following month if the
15th is a business day and, if not, the following business day.
You may obtain the interest rates for the current interest period and the
immediately
S-5
<PAGE>
preceding interest period by telephoning the indenture trustee at [.].
See "Description of Series Provisions -- Interest Payments" in this prospectus
supplement for a description of how and when LIBOR will be determined.
Principal
Principal of the Class A notes, the Class B notes and the Class C notes is
expected to be paid in full on the [.] 200[.] distribution date. However:
. no principal will be paid on the Class B notes until the Class A notes are
paid in full; and
. no principal will be paid on the Class C notes until the Class A and Class B
notes are paid in full.
We are scheduled to begin accumulating collections of principal receivables
starting on [.], 200[.] for payment to the Series 2000-[.] noteholders on the
expected principal payment date, but we may begin accumulating at a later date.
Principal of the Series 2000-[.] notes may be paid earlier or later than the
expected principal payment date. You will not be entitled to any premium for
early or late payment of principal. If specified adverse events known as
amortization events occur, principal may be paid earlier than expected. If
collections of the credit card receivables are less than expected or are
collected more slowly than expected, then principal payments may be delayed. If
the Series 2000-[.] notes are not paid on the expected principal payment date,
collections of principal receivables will continue to be used to pay principal
on the Series 2000-[.] notes until the notes are paid or until [.], 200[.],
whichever occurs first. [.], 200[.] is the final maturity date for Series 2000-
[.].
For more information about principal payments, see "Description of Series
Provisions -- Principal Payments" and "-- Allocation Percentages" in this
prospectus supplement.
Credit Enhancement
Subordination
Credit enhancement for the Class A notes is provided by the subordination of the
Class B notes and the Class C notes.
Credit enhancement for the Class B notes is provided by the subordination of the
Class C notes.
Spread Account
A spread account will provide credit enhancement for the Class C notes. The
spread account is not available to fund payments with respect to the Class A
notes or the Class B notes, except following an event of default and, only after
payment in full of the Class C notes. The spread account initially will not be
funded. After the Series 2000-[.] notes are issued, deposits into the spread
account will be made each month from reallocated investor finance charge and
administrative collections and, if necessary and available, excess finance
charge and administrative collections from other series in excess finance charge
sharing group one up to the required spread account amount as described in this
prospectus supplement under "Description of Series Provisions -- Spread
Account." The spread account will be used to make payments on the Class C notes
if collections of receivables allocated to the Series 2000-[.]
S-6
<PAGE>
notes are insufficient to make required payments on the Class C notes.
Credit enhancement for your series is for your series' benefit only, and you are
not entitled to the benefits of credit enhancement available to other series.
For more information about credit enhancement, see "Description of Series
Provisions -- Subordinated Principal Collections," "--Application of
Collections" and "--Defaulted Receivables; Investor Charge-Offs" in this
prospectus supplement.
Events Of Default
The Series 2000-[.] notes are subject to specified events of default described
under "Description of Series Provisions -- Events of Default" in this prospectus
supplement and "The Indenture -- Events of Default; Rights upon Event of
Default" in the accompanying prospectus. These include, among other things, the
failure to pay interest for 35 days after it is due or the failure to pay
principal on the final maturity date.
If any event of default occurs and continues with respect to the Series 2000-[.]
notes, the indenture trustee or holders of more than 50% of the outstanding
principal amount of the Series 2000-[.] notes may declare the Series 2000-[.]
notes to be immediately due and payable. That declaration may, under limited
circumstances be rescinded by holders of more than 50% of the outstanding
principal amount of the Series 2000-[.] notes. See "The Indenture -- Events of
Default; Rights upon Event of Default." in the accompanying prospectus.
After an event of default and the acceleration of the Series 2000-[.] notes,
funds on deposit in the collection account, the principal funding account and
the reserve account will be applied to pay principal of and interest on the
Series 2000-[.] notes to the extent permitted by law. In addition, the spread
account will be applied to pay principal of and interest on the Class C notes,
until paid in full, and then the Class A notes and the Class B notes, until each
class is paid in full. Principal collections and finance charge and
administrative collections allocated to Series 2000-[.] will be applied to make
monthly principal and interest payments on the Series 2000-[.] notes until the
earlier of the date those notes are paid in full or the final maturity date of
those notes.
If the Series 2000-[.] notes are accelerated or the issuer fails to pay the
principal of the Series 2000-[.] notes on the final maturity date, once the
conditions described in the prospectus under "The Indenture -- Events of
Default; Rights upon Event of Default" are satisfied, the indenture trustee may
or, in limited cases, will at the direction of the holders of a specified
percentage of the outstanding principal amount of each class of Series 2000-[.]
notes:
. institute proceedings in its own name for the collection of all amounts then
payable on the Series 2000-[.] notes;
. take any other appropriate action to protect and enforce the rights and
remedies of the indenture trustee and the Series 2000-[.] noteholders; or
. foreclose on a portion of the trust's assets by causing the trust to sell a
portion of the assets of the trust to permitted purchasers under the
indenture.
S-7
<PAGE>
Amortization Events
The documents under which the Series 2000-[.] notes will be issued include a
list of adverse events known as amortization events. If an amortization event
that applies to Series 2000-[.] or to all series occurs, the trust will use
collections of principal receivables allocated to Series 2000-[.] each month to
pay principal on the Series 2000-[.] notes.
Amortization events may occur if the transferor fails to make required payments
or deposits, violates other covenants and agreements or makes representations
and warranties that are materially incorrect.
The following also are amortization events:
. The average series portfolio yield for any three consecutive months is less
than the weighted average interest rate for Series 2000-[.], calculated by
taking into account the interest rate for the Class A notes, the Class B
notes and the Class C notes, plus the servicing fee rate for Series 2000-[.];
. The Class A notes, the Class B notes or the Class C notes are not paid in
full on their expected principal payment dates;
. Bankruptcy, insolvency or similar events relating to the transferor,
including any additional transferor, Household Finance Corporation or the
bank;
. The transferor, including any additional transferor, is unable to transfer
receivables to the trust as required under the transfer and servicing
agreement;
. The transferor does not transfer receivables in additional accounts to the
trust within 5 business days of when required under the transfer and
servicing agreement;
. The occurrence of a servicer default that has an Adverse Effect on the Series
2000-[.] noteholders;
. The trust becomes subject to regulation as an "investment company" under the
Investment Company Act of 1940; or
. An event of default occurs for the Series 2000-[.] notes and the notes are
accelerated.
For a more detailed discussion of the amortization events, see "Description of
Series Provisions -- Amortization Events" in this prospectus supplement and
"Description of the Notes -- Amortization Events" in the accompanying
prospectus.
Other Interests in the Trust
Other Series of Notes
The trust will issue other series of notes secured by the assets of the trust
from time to time in the future. A summary of the outstanding series is in
"Annex I: Other Series Issued and Outstanding" included at the end of this
prospectus supplement. The issuance of future series will occur without prior
review or consent by you or any other noteholder.
The Transferor Interest
The interest in the trust not securing your series or any other series is the
transferor interest. The transferor interest is owned by the transferor. The
transferor may, however, sell all or a portion of its interest in the transferor
interest. The transferor interest
S-8
<PAGE>
does not provide credit enhancement for your series.
Allocations of Collections
Household Finance Corporation, as servicer, will collect payments on the
receivables and will deposit those collections in an account. It will keep
track of those collections that are finance charge and administrative
receivables, those collections that are principal receivables and those
receivables that are written off as uncollectible, called the defaulted amount.
Each month, the servicer will allocate collections received among:
. your series;
. other series outstanding; and
. the transferor interest in the trust.
The amount allocated to your series will be determined based mainly upon the
size of the invested amount of your series compared to the total amount of
principal receivables in the trust. At the time of issuance of the Series 2000-
[.] notes, the invested amount for Series 2000-[.] will be $[.].
You are entitled to receive payments of interest and principal only from
collections of receivables and other trust assets allocated to your series. If
the invested amount of your series declines, amounts allocated and available for
payment to your series and to you may be reduced. For a description of the
allocation calculations and the events which may lead to these reductions, see
"Description of Series Provisions--Allocation Percentages" and "--Subordinated
Principal Collections" in this prospectus supplement.
Groups
This series will not share in principal collections allocated to the transferor
and will not be part of a shared enhancement group.
Reallocation Group One
This series will be included in a group of series designated as reallocation
group one. Collections of finance charge and administrative receivables
allocated to the Series 2000-[.] notes as described above will be combined with
the collections of finance charge and administrative receivables allocated to
any other series which is designated to be part of reallocation group one. The
series, which belong to reallocation group one, will share finance charge and
administrative collections and other amounts pro rata, based upon the relative
size of the required payments to each series in reallocation group one as
compared to the total required payments of all series in reallocation group one.
This reallocated amount is called reallocated investor finance charge and
administrative collections. However, there can be no assurance that the trust
will issue additional series in reallocation group one. See "Description of
Series Provisions--Reallocation Group One" in this prospectus supplement.
Excess Finance Charge Sharing Group One
This series will be included in a group of series designated as excess finance
charge sharing group one. To the extent that reallocated investor finance
charge and administrative collections available to this series exceed the amount
necessary to make required payments for this series, those
S-9
<PAGE>
excess collections may be applied to cover shortfalls of collections of finance
charge and administrative receivables or cover shortfalls of reallocated
investor finance charge and administrative collections allocable to other series
in excess finance charge sharing group one. In addition, you may receive the
benefits of excess collections of finance charge and administrative receivables
or excess collections of reallocated investor finance charge and administrative
collections allocated to other series in excess finance charge sharing group
one. However, there can be no assurance that the trust will issue additional
series in excess finance charge sharing group one. See "Description of the
Notes -- Groups -- Excess Finance Charge Sharing Group" in the accompanying
prospectus.
Principal Sharing Group One
This series will be included in a group of series designated as principal
sharing group one. To the extent that collections of principal receivables
allocated to your series are not needed to make payments or deposits to a trust
account for the benefit of your series, these collections will be applied to
cover principal payments for other series, if any, in principal sharing group
one. Any reallocation for this purpose will not reduce the invested amount for
your series. In addition, you may receive the benefits of collections of
principal receivables and other amounts allocated to other series in principal
sharing group one. However, there can be no assurance that the trust will issue
additional series in principal sharing group one.
See "Description of the Notes-- Groups--Principal Sharing Group " in the
accompanying prospectus.
Application of Collections
Finance Charge and Administrative Collections
The trust will apply reallocated investor finance charge and administrative
collections each month in the following order of priority:
. to pay interest on the Class A notes;
. to pay interest on the Class B notes;
. to pay to the servicer an amount equal to the monthly servicing fee due for
the related distribution date, and past due for any prior distribution date,
if Household Finance Corporation or any of its affiliates is not the
servicer;
. to pay to the administrator an amount equal to the monthly administration fee
for the related distribution date, and past due for any prior distribution
date, if Household Finance Corporation or any of its affiliates is not the
administrator;
. to pay interest on the Class C notes;
. to cover your series' allocation of defaulted receivables;
. to cover reductions in your series' invested amount resulting from investor
charge-offs allocated to your series and from subordinated principal
collections, in each case that have not been reimbursed;
. to pay to the servicer an amount equal to the monthly servicing fee due for
the related distribution date, and past due for any prior distribution date,
if
S-10
<PAGE>
Household Finance Corporation or any of its affiliates is the
servicer;
. to pay to the administrator an amount equal to the monthly administration
fee due for the related distribution date, and past due for any prior
distribution date, if Household Finance Corporation or any of its
affiliates is the administrator;
. to fund, in limited circumstances, a reserve account to cover interest
payment shortfalls for the Class A, Class B and Class C notes during the
accumulation period;
. to make a deposit, if needed, to the spread account for Class C up to the
required spread account amount; and
. to other series in excess finance charge sharing group one or to the
holders of the transferor certificates.
For a more detailed description of these applications, see "Description of
Series Provisions -- Application of Collections" in this prospectus
supplement.
Principal Collections
The trust will apply your series' share of principal collections each month as
follows:
. During the revolving period, no principal will be paid to you or
accumulated in a trust account. Instead, your series' share of principal
collections will be treated as shared principal collections and may be
available to make principal payments for other series in principal sharing
group one.
. The accumulation period is scheduled to begin on [.]__200[.], but may begin
at a later date. During the accumulation period, your series' share of
principal collections will be deposited in a trust account, up to a
controlled deposit amount. On the expected principal payment date, amounts
on deposit in that account will be paid first to the Class A noteholders,
then to the Class B noteholders and then to the Class C noteholders.
. If an amortization event occurs, the early amortization period will begin.
During the early amortization period, your series' share of principal
collections will be paid first to the Class A noteholders, then to the
Class B noteholders and then to the Class C noteholders.
. During any of the above periods, principal collections allocated to your
series, may be reallocated, if necessary, to make required interest
payments on the Class A notes and the Class B notes, and, if Household
Finance Corporation or any of its affiliates, is not the servicer the
servicing fee, in each case to the extent not made from reallocated
investor finance charge and administrative collections and excess finance
charge and administrative collections, if any, allocated from other series.
However, for any due period, the sum of these subordinated principal
collections cannot exceed [.]% of the initial invested amount of your
series, as reduced due to the writing off of receivables or for previously
subordinated principal collections, in each case that have not been
reimbursed.
. Any remaining principal collections will first be made available to other
series in principal sharing group one and then be
S-11
<PAGE>
paid to the holders of the transferor certificates or deposited in the
special funding account.
For a more detailed description of these applications, see "Description of
Series Provisions -- Application of Collections" in this prospectus
supplement.
Optional Redemption
The trust has the option to repurchase your notes when the outstanding principal
amount, excluding any portion of Class C notes held by the transferor or an
affiliate, for your series has been reduced to 10% or less of the initial
principal amount. See "Description of the Notes -- Final Payment of Principal;
Termination" in the accompanying prospectus.
Denominations
Beneficial interests in the Series 2000-[.] notes may be purchased in minimum
denominations of $1,000 and multiples of $1,000 in excess of that amount.
Registration, Clearance and Settlement
The Series 2000-[.] notes will be in book-entry form and will be registered in
the name of Cede & Co., as the nominee of The Depository Trust Company. Except
in limited circumstances, you will not receive a definitive instrument
representing your notes. See "Description of the Notes -- Definitive Notes" in
the accompanying prospectus.
You may elect to hold your Series 2000-[.] notes through The Depository Trust
Company, in the United States, or Clearstream Banking, societe anonyme or the
Euroclear System, in Europe.
Transfers will be made in accordance with the rules and operating procedures of
those clearing systems. See "Description of the Notes -- Book-Entry
Registration" in the accompanying prospectus.
Material Federal Income Tax Consequences
Subject to important considerations described under "Material Federal Income Tax
Consequences" in the accompanying prospectus, Orrick, Herrington & Sutcliffe
LLP, as special tax counsel to the trust, is of the opinion that under existing
law your Series 2000-[.] notes will be characterized as debt for federal income
tax purposes, and that the trust will not be classified as an association or
publicly traded partnership taxable as a corporation and accordingly will not be
subject to federal income tax. By your acceptance of a Series 2000-[.] note,
you will agree to treat your Series 2000-[.] notes as debt for federal, state
and local income and franchise tax purposes. See "Material Federal Income Tax
Consequences" in the accompanying prospectus for additional information
concerning the application of federal income tax laws.
ERISA Considerations
Subject to important considerations described under "ERISA Considerations" in
this prospectus supplement and in the accompanying prospectus, the Series 2000-
[.] notes are eligible for purchase by persons investing assets of employee
benefit plans or individual retirement accounts. A fiduciary or other person
contemplating purchasing the Series 2000-[.] notes on behalf of or with plan
assets of any plan or account should consult with its counsel regarding whether
the purchase or holding of the
S-12
<PAGE>
Series 2000-[.] notes could give rise to a transaction prohibited or not
otherwise permissible under ERISA or Section 4975 of the Internal Revenue Code.
Risk Factors
Investment in the Series 2000-[.] notes involves risks. You should consider
carefully the risk factors beginning on page [.] in the prospectus.
[Exchange Listing
We will apply to list the Series 2000-[.] notes on the Luxembourg Stock
Exchange. We cannot guarantee that the application for the listing will be
accepted.]
S-13
<PAGE>
The Originator, The Servicer, The Subservicer and The Transferor
Household Bank (Nevada), N.A.
Household Bank (Nevada), N.A., located in Las Vegas, Nevada, was chartered
on April 1, 1993 and is a wholly-owned operating subsidiary of Household Finance
Corporation. The bank is principally a nationwide credit card bank offering
MasterCard and VISA credit cards. The principal executive office of the bank is
located at 1111 Town Center Drive, Las Vegas, Nevada 89134 (telephone (702) 222-
4001).
Household Finance Corporation
The servicer, Household Finance Corporation, was incorporated in Delaware
in 1925, as successor to an enterprise which traces its origin through the same
ownership to an office established in 1878. The address of its principal
executive office is 2700 Sanders Road, Prospect Heights, Illinois 60070
(telephone (847) 564-5000). The servicer is a subsidiary of Household
International, Inc.
The servicer and its subsidiaries offer a diversified range of financial
services. The principal products of the servicer's consumer finance business is
the making of cash loans, including home equity loans secured by first and
second mortgages, sales finance loans and unsecured loans directly to consumers
in the United States. Loans are made through branch lending offices, direct
mail, telemarketing and the Internet. The business also includes purchasing
portfolios of open-end and closed-end, secured and unsecured loans.
The servicer through its subsidiaries also offers both MasterCard and VISA
credit card accounts to residents throughout the United States. It also
purchases and services revolving charge card accounts originated by merchants
and directly originates closed-end sales contracts. A subsidiary of the
servicer also makes loans to non-prime borrowers for the purchase of new and
used vehicles, which loans are secured by the vehicles. The servicer also makes
tax refund anticipation loans.
In conjunction with its consumer finance operations and where applicable
laws permit, the servicer makes available to customers credit life, accident,
health and disability insurance. Credit life, accident, health and disability
insurance is generally directly written by, or reinsured with, its insurance
affiliates.
As of March 31, 2000, the servicer had approximately $48.0 billion in total
assets, approximately $42.1 billion in total liabilities and approximately $5.9
billion in shareholder's equity.
Household Credit Services, Inc.
The subservicer, Household Credit Services, Inc., has serviced credit card
accounts and non-credit card products since 1987 and was incorporated in 1989 by
Household International, Inc. to provide origination, servicing and
administrative services to subsidiaries of Household
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<PAGE>
International, Inc., principally subsidiaries that offered or held private
label, VISA and MasterCard credit card accounts. The subservicer provides
services for all credit card accounts owned by the bank, under an agreement with
the bank. That agreement establishes performance standards, including detailed
underwriting criteria, that are to be followed by the subservicer on behalf of
the bank. In its capacity of providing services in connection with VISA and
MasterCard credit card accounts, the subservicer has approximately 2,600
employees operating from its facilities primarily located in Salinas,
California, Chesapeake, Virginia and Las Vegas, Nevada. The principal executive
office of the subservicer is located at 2700 Sanders Road, Prospect Heights
Illinois 60070 (telephone (847) 564-5000).
Household Receivables Funding, Inc. III
The transferor, Household Receivables Funding, Inc. III was formed under
the laws of the State of Delaware on July 28, 2000 and is a Delaware
corporation, all of the common stock in which is held by Household Finance
Corporation. The transferor was organized for the limited purposes of engaging
in the type of transactions described herein and other transactions entered into
in connection with the trust and any activities incidental to and necessary or
convenient for the accomplishment of its limited purpose. Neither the bank nor
the transferor's board of directors intends to change the business purpose of
the transferor. The transferor has its principal office located at 1111 Town
Center Drive, Las Vegas, Nevada 89134 (telephone (702) 243-1156).
The Bank's Credit Card Portfolio
The following discussion describes the material terms and characteristics
that generally apply to the accounts in the bank portfolio from which the
accounts in the trust portfolio were selected and the material terms and
characteristics of the Union Plus program. The accounts selected for the trust
portfolio do not represent the entire bank portfolio. Currently, the accounts
included in the trust portfolio consist of credit card accounts issued by the
bank under the Union Plus program. The Union Plus program is an affinity
arrangement between the bank and Union Privilege under which the bank offers a
credit card program to members of unions affiliated with the American Federation
of Labor and Congress of Industrial Organizations, usually referred to as the
AFL-CIO. Union Privilege is a marketing company that works with the AFL-CIO to
provide new benefits and services for union members and their families.
Currently 70 unions participate representing approximately 14 million members in
the Union Plus program. All of the unions in the program have participation
agreements with Union Privilege. As of March 2000, the largest union in the
Union Plus program accounts for approximately ten percent of the outstanding
receivables in the Union Plus credit card portfolio.
Additional accounts consist of eligible accounts which may or may not
currently be in existence and which may be selected using different criteria
from those used in selecting the accounts already included in the trust
portfolio. See "The Transfer and Servicing Agreement -- Addition of Trust
Assets" in the accompanying prospectus. Consequently, actual loss and
delinquency, revenue and monthly payment rate experience with respect to the
initial accounts
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<PAGE>
and the additional accounts may be different from the historical experience of
the bank portfolio. Also, the additional accounts may be chosen from the bank's
portfolio at large, not just from the Union Plus program. For additional
information regarding the bank's credit card activities, see "The Bank's Credit
Card Activities" in the accompanying prospectus.
Billing and Payments
General. The credit card accounts of the bank have fixed and variable
annual percentage rates and have different billing and payment structures,
including varying fees, depending on the type of account. The following reflects
the typical billing and payment characteristics of the accounts.
Various cardmember agreements and disclosure statements govern the credit
card accounts. Each cardmember agreement provides that, subject to applicable
law, the bank may change the terms and conditions of that agreement at any time,
including, but not limited to, those terms pertaining to minimum payments, the
rate or amount of finance charges, fees or other charges and the method of
computing the balance upon which finance charges are assessed. If required by
applicable law, the bank will provide prior written notice before implementation
of any change in the terms and conditions of a cardmember's agreement. There
can be no assurance that the finance charges, fees and other charges discussed
below will remain at current levels in the future.
Monthly billing statements for the credit card accounts are sent to the
cardholder at the end of each billing cycle generally within five business days
after the cycle date assigned to the related account. Currently, the
subservicer has cycle dates corresponding to twenty-eight cycle days within each
calendar month. The monthly billing statement reflects all purchases; cash
advances; administrative charges; including currency conversion charges, late
charges, returned payment charges, and copying charges, if applicable; annual
fees, if any, credit insurance charges and finance charges incurred by the
credit card account during the billing cycle or a prior billing cycle and
reported to the subservicer; all payments or credits applicable to the account;
and the outstanding balance of the account as of the cycle date, including the
available credit thereunder.
Minimum Payments. Each month, unless a payment holiday is granted by the
bank, each cardholder is required to make a minimum payment. The required
minimum monthly payment for the accounts varies. As for Union Plus accounts,
the cardholder must make a minimum payment equal to $10 or, if the new balance
is less than $10, the new balance, or 1/60 of the new balance as it appears on
the monthly statement, whichever is greater, plus any past due amounts appearing
on the billing statement.
The bank may offer qualified holders of a premium or nonpremium VISA or
MasterCard account the option to enjoy a payment holiday for a particular
billing cycle which gives the cardholder the opportunity to not pay any minimum
payment on his account that cycle. To be qualified, a cardholder's account must
be open and not past due or over the credit limit. During a payment holiday,
finance charges continue to accrue, and the amount of the next
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<PAGE>
minimum monthly payment is determined as described herein, based on the account
balance at the end of the next billing cycle.
Under the Union Plus program, qualified cardholders are allowed two
payment holidays each twelve-month period. The cardholder's membership
organization sets the dates of payment holidays. In addition, a qualified Union
Plus cardholder can elect to skip payments during a union sanctioned strike
that occurred after the opening of his or her account and that has been in
effect for at least 30 days. The cardholder must request each strike related
payment holiday. Qualified cardholders can request up to four strike payment
holidays per twelve-month period. However, no cardholder can take more than
three consecutive payment holidays.
Finance Charges. Finance charges are based on account's average daily
balance. Finance charges are calculated by multiplying the daily periodic rate
by the average daily balance of the account, and then multiplying the result by
the number of days in the billing cycle. To obtain the average daily balance,
all daily balances for the billing cycle are added together and divided by the
number of days in the billing cycle. The daily balance for an account is
computed as its beginning balance each day adjusted by adding new purchases, any
previous day's periodic finance charges, credit insurance charges, cash
advances, any late charges and any other administrative charges to the account
generally on the day they were incurred and subtracting any payments and
credits. The daily periodic rate is 1/365 of the account's variable or fixed
rate in effect.
The majority of the accounts of the bank have a 25-day grace period for
purchases. However, currently a majority of the accounts in the Union Plus
program do not have a grace period for purchases. For accounts with a grace
period for purchases, if the previous balance has been paid in full within 25
days after the close of the cycle, no purchase finance charges will be assessed
on credit card purchases for merchandise or services made during a billing
cycle. Cash advances and purchases on accounts without a grace period are not
entitled to any grace period and are assessed finance charges from the date of
the transaction.
The bank primarily offers variable annual percentage rate or APR credit
card accounts. Most accounts have two separate rates, one for purchases and
another for cash advances. The periodic finance charge assessed on balances in
most credit card accounts from purchases is indexed to the prime rate plus an
add-on percentage. For the Union Plus program, the add-on percentage ranges
from 1.24% to 10.99%. The bank also from time to time offers temporary
promotional rates. For cash advances, the periodic finance charge assessed is
either a variable APR or a fixed APR, with the accounts in the Union Plus
program having a fixed APR of either 17.99% or 19.99%. On all accounts, the
bank has instituted performance based pricing, the terms of which vary by
account type. With respect to most accounts, if the cardholder's minimum
monthly payment is not received within 58 days of the end of the billing cycle,
the rate on the account will be increased, currently to a 19.99% fixed rate for
Union Plus program accounts. Also, in some instances, a promotional rate will
be terminated early if a cardholder's minimum monthly payment is not received
within 30 days of the end of the billing cycle.
S-17
<PAGE>
The Union Plus program accounts presently have a cash advance fee equal to
3.0% of the cash advance, with a minimum fee of $3 or, if obtained through a
credit card check, a cash advance fee equal to 2.0% of the cash advance, with a
minimum fee of $2; provided that there are generally no minimum cash advance
fees charged for cash advances obtained through balance transfer checks.
There are some pricing limitations on the Union Plus program to assure
that it is competitively priced. For instance, credit card products offered
under the Union Plus program must have APRs on purchases which are lower than
the APRs on purchases for similar products offered by the bank in comparable
market segments under its other programs, other than its co-branded programs.
Also, in general, any introductory or "teaser" APRs offered under the Union Plus
program must be lower than the most widely advertised teaser APR in effect on
the bank's other credit card solicitations, other than any co-branded program
solicitation. For existing accounts, the average APR for purchases on the
accounts must be below the major credit card bank average APR for purchases
published in a mutually agreed upon source. Currently, the bank cannot impose
an APR on purchases greater than 19.99% without the permission of its program
partner and cannot increase the APR on purchases for existing cardholders more
than once in any rolling six-month period except for rate increases on variable
rate accounts due to an increase on the prime rate or performance based pricing
increases. In addition, the APR imposed on cash advances, as well as any late,
overlimit, returned check, cash advance fees or other fees disclosed in the
cardholder agreement, on existing accounts, only can be increased once per
rolling twelve-month period and only can be increased to rate or fee amounts
being charged by other comparable credit card issuers. Any of the above
restrictions can be waived by the program partner.
Fees and Charges. Accounts may be assessed administrative charges which
may include:
(1) late charges of $29 if the required minimum payment on the account is
not received on the due date shown on the monthly billing statement;
(2) returned payment charges of $29 for each time a payment on the account
is returned unsatisfied by the bank or other financial institution on
which the payment was drawn
(3) overlimit charges of $29 if the cardholder exceeds the credit limit
any time during a billing cycle; and
(4) reasonable copying fees if a request is made for duplicate statements,
checks or other documents.
Most Union Plus accounts do not have annual membership fees.
Payments. Payments to the bank by cardholders are processed by the
subservicer and are currently generally applied in the following order: first,
to finance charges; second, to fees;
S-18
<PAGE>
third, to promotional cash advances; fourth, to promotional purchase
transactions; fifth, to purchase transactions; and sixth, to cash advances.
Collection of Delinquent Accounts
Minimum scheduled payments for the accounts are generally due 25 days from
the end of the last billing cycle. A credit card account is contractually
delinquent if less than 90% of the minimum payment is not made by the payment
due date. For collections purposes, however, an account is considered
delinquent if at least 90% of the minimum payment required to be made is not
received by the subservicer within five days after the due date reflected in the
respective monthly billing statement. Late fees for credit card accounts
generally are assessed if the minimum monthly payment has not been made by the
payment due date. Upon receipt of two consecutive payments on their respective
due dates, delinquent accounts may qualify to be redesignated as non-delinquent.
Generally, this redesignation can occur once every six months. At lower credit
scores or more serious levels of delinquency, two consecutive payments would
allow for these accounts to be redesignated as non-delinquent only once every
twelve months, and three consecutive payments would allow for these accounts to
be redesignated as non-delinquent once every six months.
Based on the account's behavioral score, balance, level of delinquency and
cash utilization and length of the account's history, the subservicer structures
the timing of the collection activity to be implemented for the account. The
subservicer believes that the use of behavioral scoring enables it to manage
accounts which have a greater probability of experiencing a loss, at an earlier
stage in order to reduce its exposure.
Efforts to collect delinquent credit card receivables are made principally
by the personnel of the subservicer, supplemented by collection agencies and
attorneys retained by the subservicer when deemed necessary. Currently,
collection activity may begin with telephone contact with the cardholder as
quickly as one day after the date the account becomes delinquent and continues
with follow-up contacts of at least one time per week until the account is 59
days delinquent. In the event the collector is unable to establish telephone
contact with the cardholder, the collector is required to send a series of
collection letters to that person until the matter is resolved.
The servicer will service and administer the receivables, will collect and
deposit into the collection account payments due under the receivables, and will
charge-off as uncollectible receivables, all in accordance with its customary
and usual servicing procedures for servicing comparable revolving credit
receivables and in accordance with the credit guidelines of the bank, servicer
or other account owner, as applicable. Except in limited circumstances, the
current policy is to charge-off an account at the end of the month in which that
account becomes 180 days delinquent. In the case of bankruptcy, an account will
be charged-off at the end of the month 60 days after that account is flagged to
indicate that notice has been received of voluntary or involuntary bankruptcy
proceeding being filed.
Depending on the behavioral score established by the subservicer, extension
of credit to an account that is delinquent may be restricted as early as one day
after the date that account becomes delinquent. Typically, the subservicer will
suspend all authorizations of extensions of
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<PAGE>
credit on accounts 30 or more days delinquent and will close any account that is
60 or more days delinquent.
The subservicer also may suspend extensions of credit to an account if that
account exceeds its maximum established credit limit. Its behavioral score, as
well as other factors including the length of the account's history with the
bank and its credit limit amount, determine the amount by which an account may
exceed its established credit limit without being suspended. The subservicer,
as servicer for the bank, may, in its sole discretion, enter into arrangements
with delinquent cardholders to extend or otherwise modify payment
schedules.
The risk evaluation, servicing, charge-off policies and collection
practices discussed above are constantly being reviewed and may change over time
in accordance with the business judgment of the bank and the subservicer and
applicable law and guidelines established by governing regulatory authorities.
The following tables set forth the aggregate delinquency and loss
experience for cardholder payments on the Union Plus credit card accounts in the
bank portfolio for each of the periods shown. Average receivables outstanding
in the Loss Experience table is the average of the average monthly beginning and
average monthly ending receivables balance for the indicated period. The
receivables balance includes both outstanding principal receivables and
outstanding finance charge and administrative receivables for the indicated
period. Net charge-offs include charge-offs of principal receivables and
finance charge and administrative receivables net of recoveries during the
indicated periods. The loss rate for the six months ended June 30, 2000, has
been annualized based on that six-month period.
The bank acquired this portfolio in mid-1996. During the year 1997, the
experience with the portfolio led to better collection strategy design. The
lower delinquency in 1998 was the result of implementing these improved
strategies. Delinquency improvement in 1998 was partially off set by a high
level of personal bankruptcies experienced by our customers and the industry.
Tightened credit extension policies, and re-engineered collection efforts and
declining consumer bankruptcies contributed to the decrease in delinquency and
losses for the year ended December 31, 1999, and the six months ended June 30,
2000. Though risk factors described in the accompanying prospectus may cause
future results to materially differ from the historical results presented in the
following tables, the bank is not currently aware of any reason to expect
negative trends.
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<PAGE>
Loss Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended Year Ended Year Ended
June 30, 2000 Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
<S> <C> <C> <C> <C>
Average Receivables Outstanding....... $4,123,021 $3,788,562 $3,813,938 $3,568,815
Total Net Charge-offs................. 84,543 160,410 179,303 171,342
Total Net Charge-offs as a Percent of
Average Receivables.................. 4.10% 4.23% 4.70% 4.80%
</TABLE>
Average delinquencies shown in the Delinquency Experience table are the average
of month end delinquent receivables. The percentages are calculated by dividing
the average of the month end delinquent receivables during the period by the
average of the month end receivables balances for the indicated period.
Receivables include both principal receivables and finance charge and
administrative receivables.
Delinquency Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Average of Six Average of Year Average of Year Average of Year
Months ended ended Dec. 31, ended Dec. 31, ended Dec. 31,
6/30/00 1999 1998 1997
------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-29 days........... $132,268 3.20% $129,402 3.41% $134,122 3.51% $172,026 4.80%
30-59 days.......... 37,572 0.91% 35,072 0.92% 39,407 1.03% 44,020 1.23%
60-89 days.......... 22,383 0.54% 21,034 0.55% 24,796 0.65% 28,554 0.80%
90-119 days......... 16,026 0.39% 15,191 0.40% 18,477 0.48% 21,194 0.59%
120 days or more.... 23,756 0.57% 24,368 0.64% 28,897 0.76% 32,611 0.91%
-------- -------- -------- --------
Total............... $232,005 5.61% $225,067 5.93% $245,699 6.44% $298,405 8.33%
======== ======== ======== ========
</TABLE>
Revenue Experience
The revenues for the Union Plus accounts in the bank portfolio shown in the
Revenue Experience table are related to finance charges, together with fees,
billed to holders of the accounts. The revenues exclude interchange
attributable to the accounts. The revenues related to finance charges depend in
part upon the collective preference of cardholders to use their credit cards as
revolving debt instruments for purchases and cash
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<PAGE>
advances and paying off credit card account balances over several months as
opposed to convenience use, where the cardholders prefer instead to pay off
their entire balance each month, thereby avoiding finance charges on purchases,
and upon other services of which cardholders choose to avail themselves and
which are paid for by the use of the card. Revenues related to finance charges
and fees also depend on the types of charges and fees assessed by the bank on
the accounts in the bank portfolio. Accordingly, revenues will be affected by
future changes in the types of charges and fees assessed on the accounts.
Revenues could be adversely affected by future changes in the charges and fees
assessed by the bank and other factors. See "The Bank's Credit Card Activities"
in the accompanying prospectus.
The historical revenue figures in the Revenue Experience table include
interest on purchases and cash advances and fees accrued during the cycle. Cash
collections on the receivables may not reflect the historical experience in the
table. During periods of increasing delinquencies, billings of finance charges
and fees may exceed cash payments as amounts collected on credit card
receivables lag behind amounts billed to cardholders. Conversely, as
delinquencies decrease, cash payments may exceed billings of finance charges and
fees as amounts collected in a current period may include amounts billed during
prior periods. Revenues from finance charges and fees on both a billed and a
cash basis will be affected by numerous factors, including the periodic finance
charges on the receivables, the amount of annual membership fees, other fees
paid by cardholders, the percentage of cardholders who pay off their balances in
full each month and do not incur periodic finance charges on purchases and
changes in the level of delinquencies on the receivables. See "Risk Factors" in
the accompanying prospectus.
Average receivables outstanding as used in the Revenue Experience table is
the average of the average monthly beginning and average monthly ending
receivables balance. The receivables balance includes both outstanding principal
receivables and outstanding finance charge and administrative receivables.
Revenue excludes interchange. The revenue rate for the six months ended June 30,
2000, has been annualized based on that six-month period.
Revenue for the year ended December 31, 1999, and the six month period
ended June 30, 2000, benefited from the implementation of risk-based repricing
of the Union Plus portfolio which commenced in the second quarter of 1999.
Additionally, changes in the program's fee structure during 1999, have resulted
in increased fee revenue for both the year ended December 31, 1999, and the six
months ended June 30, 2000. Increases in the prime rate have also contributed to
higher billed revenue for the year ended December 31, 1999, and the six months
ended June 30, 2000.
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<PAGE>
Revenue Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Year Ended
Ended Dec. 31, Dec. 31, Dec. 31,
6/30/00 1999 1998 1997
<S> <C> <C> <C> <C>
Average Receivables Outstanding............. $4,123,021 $3,788,562 $3,813,938 $3,568,815
Total Finance Charges and Administrative
Receivables Billed........................
Total Finance Charges and Administrative... 17.37% 16.31% 14.57% 14.95%
Receivables Billed as a Percentage of
Average Receivables Outstanding...........
</TABLE>
Interchange
Creditors participating in the VISA USA and MasterCard International
associations receive fees, called interchange as partial compensation for taking
credit risk, absorbing fraud losses and funding receivables for a limited period
prior to initial billing. Under the VISA USA and MasterCard International
systems, a portion of this interchange in connection with cardholder charges for
merchandise and services is passed from banks which clear the transactions for
merchants to credit card-issuing banks. MasterCard and VISA set interchange
fees annually based on the number of credit card transactions and the amount
charged per transaction. Interchange ranges between 1% and 2% of the
transaction amount. The bank and the transferor will be required to transfer to
the trust interchange attributed to cardholder charges for merchandise and
services in the related accounts. Interchange will be allocated to the trust as
may be reasonably determined or estimated by the servicer. VISA USA and
MasterCard International may from time to time change the amount of interchange
reimbursed to banks issuing their credit cards.
Recoveries
Under the terms of the transfer and servicing agreement, the transferor
will be required to transfer to the trust all of the recoveries that are
reasonably estimated by the servicer on receivables in charged-off accounts of
the trust. Collections of recoveries will be treated as collections of finance
charge and administrative receivables and included as part of the series
portfolio yield.
Payment Rates
The following table sets forth the highest and lowest cardholder monthly
payment rates on the Union Plus credit card accounts during any month in the
periods shown and the average cardholder monthly payment rates for all months in
the periods shown, in each case calculated as a percentage of total opening
monthly account balances during the periods shown. Payment rates
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<PAGE>
shown in the table are based on amounts which would be deemed payments of
principal receivables and finance charge and administrative receivables with
respect to the accounts.
Cardholder Monthly Payment Rates
<TABLE>
<CAPTION>
Six Months
Ended
6/30/00 Year Ended December 31,
------------- -------------------------------------------
1999 1998 1997
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Lowest Month................... 8.57% 8.09% 7.28% 6.42%
Highest Month.................. 10.56% 10.96% 9.41% 8.38%
Monthly Average................ 9.33% 9.30% 8.51% 7.46%
</TABLE>
____________________
We cannot assure you that the cardholder monthly payment rates in the
future will be similar to the historical experience set forth above. 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. In addition, the payment rates set forth in the table include
collections of both principal receivables and finance charge and administrative
receivables.
The Trust Portfolio
The receivables conveyed to the trust arise in accounts selected from the
bank portfolio. The receivables conveyed to the trust may include receivables
that are contractually delinquent; however, the receivables may not include
receivables that have charged off or with respect to which the servicer believes
the related obligor is bankrupt, in each case as of the cut-off date or as of
its date of designation for inclusion in the trust, as applicable, unless all
receivables included in those accounts are reflected on the books and records of
the transferor as a zero balance and charging privileges for these accounts have
been canceled in accordance with the customary policies and procedures, as
amended from time to time, of the bank or other account owner, as applicable.
The transferor has the right to designate additional accounts for inclusion in
the trust portfolio and to transfer to the trust all receivables of those
additional accounts, whether the receivables already exist or arise after the
designation, if the conditions described under "The Transfer and Servicing
Agreement __ Addition of Trust Assets" in the accompanying prospectus are
satisfied. In addition, the transferor will be required to designate additional
accounts, to the extent available, to maintain, for so long as notes of any
series remain outstanding, an aggregate amount of principal receivables in the
trust portfolio equal to or greater than the required minimum principal balance,
as adjusted for any series having a paired series as described in the related
indenture supplement.
The transferor also has the right to designate removed accounts and to
require the indenture trustee to transfer all receivables in the removed
accounts back to the transferor, whether the receivables already exist or arise
after the designation, if the conditions described
S-24
<PAGE>
in " The Transfer and Servicing Agreement - Removal of Trust Assets" in the
accompanying prospectus are satisfied.
Throughout the term of the trust, the accounts from which the receivables
arise will be the accounts designated by the transferor at the time the trust is
established plus any additional accounts minus any removed accounts. As a
result, the composition of the trust assets is expected to change over time.
For a general description of the receivables in the trust, see "The Trust
Portfolio" in the accompanying prospectus.
The following is particular information about the receivables:
. The receivables in the trust portfolio, as of the beginning of the day
on July 1, 2000, included $3,055.6 million of principal receivables
and $85.8 million of finance charge and administrative
receivables.
. The accounts designated for the trust portfolio had an average
principal receivable balance of $1,361 and an average credit limit of
$6,576.
. The percentage of the aggregate total receivable balance to the
aggregate total credit limit was 21.3%. The average age of the
accounts was approximately 87 months.
. As of the beginning of the day on July 1, 2000, cardholders whose
accounts are designated for the trust portfolio had billing addresses
in all 50 states and the District of Columbia.
The following tables summarize the trust portfolio by various criteria as
of the beginning of the day on July 1, 2000. Because the future composition of
the trust portfolio may change over time, these tables are not necessarily
indicative of the composition of the trust portfolio at any subsequent
time.
S-25
<PAGE>
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Account Balance Number Percentage Receivables Percentage
Range of of Total ($1,000s) of Total
Accounts Number of Receivables
(1,000s) Accounts
---------------------------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Less than or equal to 1,542 68.67% $ 138,247 4.40%
$1,000.00
$1,000.01 to $2,000.00 190 8.46 281,226 8.95
$2,000.01 to $3,000.00 125 5.58 309,157 9.84
$3,000.01 to $4,000.00 92 4.12 321,960 10.25
$4,000.01 to $5,000.00 74 3.30 332,228 10.58
$5,000.01 to $6,000.00 56 2.48 305,280 9.72
$6,000.01 to $7,000.00 44 1.95 283,910 9.04
$7,000.01 to $8,000.00 35 1.55 260,843 8.30
$8,000.01 to $9,000.00 26 1.15 218,419 6.95
$9,000.01 to $10,000.00 20 0.89 189,336 6.03
Over $10,000.00 41 1.85 500,776 15.94
----- ------ ---------- ------
Total.................... 2,245 100.00% $3,141,381 100.00%
===== ====== ========== ======
</TABLE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Credit Limit Number Percentage Receivables Percentage
Range of of Total ($1,000s) of Total
Accounts Number of Receivables
(1,000s) Accounts
---------------------------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Less than or equal to 91 4.05% $ 18,087 0.58%
$1,000.00
$1,000.01 to $2,000.00 175 7.80 128,690 4.10
$2,000.01 to $3,000.00 213 9.51 125,333 3.99
$3,000.01 to $4,000.00 185 8.24 179,904 5.73
$4,000.01 to $5,000.00 271 12.07 245,878 7.83
$5,000.01 to $6,000.00 174 7.76 192,020 6.11
$6,000.01 to $7,000.00 174 7.77 219,223 6.98
$7,000.01 to $8,000.00 253 11.28 290,132 9.24
$8,000.01 to $9,000.00 147 6.56 219,621 6.99
$9,000.01 to $10,000.00 176 7.85 251,031 7.99
Over $10,000.00 384 17.11 1,271,463 40.47
----- ------ ---------- ------
Total.................... 2,245 100.00% $3,141,381 100.00%
===== ====== ========== ======
</TABLE>
S-26
<PAGE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Period of Delinquency Number Percentage Receivables Percentage
(Days Contractually of of Total ($1,000s) of Total
Delinquent) Accounts (1,000s) Number of Receivables
Accounts
----------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Up to 29 days................ 2,225 99.11% $3,060,608 97.43%
30 to 59 Days................ 8 0.37 31,454 1.00
60 to 89 Days................ 5 0.21 18,888 0.60
90 to 119 Days............... 4 0.16 16,183 0.52
120 or More Days............. 3 0.14 14,248 0.45
----- ------ ---------- ------
Total..................... 2,245 100.00% $3,141,381 100.00%
===== ====== ========== ======
</TABLE>
Composition by Account Age
Trust Portfolio
<TABLE>
<CAPTION>
Account Age Number of Percentage Receivables Percentage
Accounts of Total ($1,000s) of Total
(1,000s) Number of Receivables
Accounts
-------------------------------- ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Not More than 6 Months.......... 104 4.62% $ 112,015 3.57%
Over 6 Months to 12 Months...... 117 5.22 153,134 4.87
Over 12 Months to 24 Months..... 173 7.70 232,120 7.39
Over 24 Months to 48 Months..... 594 26.48 495,722 15.78
Over 48 Months to 72 Months.... 124 5.52 187,788 5.98
Over 72 Months to 96 Months..... 370 16.46 622,676 19.82
Over 96 Months to 120 Months.... 229 10.19 379,287 12.07
Over 120 Months................. 534 23.80 958,639 30.52
----- ------ ---------- ------
Total........................ 2,245 100.00% $3,141,381 100.00%
===== ====== ========== ======
</TABLE>
S-27
<PAGE>
Geographic Distribution of Accounts
Trust Portfolio
<TABLE>
<CAPTION>
State Number of Percentage Receivables Percentage
Accounts of Total ($1,000s) of Total
(1,000s) Number of Receivables
Accounts
--------------------------------- --------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
New York 305 13.59% $ 434,538 13.83%
California 252 11.22 417,432 13.29
Pennsylvania 175 7.81 219,185 6.98
Ohio 133 5.92 174,474 5.55
Illinois 125 5.58 173,754 5.53
New Jersey 104 4.64 150,309 4.78
Michigan 107 4.75 145,208 4.62
Texas 65 2.89 102,204 3.25
Florida 69 3.09 94,154 3.00
Massachusetts 64 2.85 84,171 2.68
Wisconsin 71 3.15 82,031 2.61
All Other 775 34.51 1,063,922 33.87
----- ------ ---------- ------
Total 2,245 100.00% $3,141,381 100.00%
===== ====== ========== ======
</TABLE>
S-28
<PAGE>
Description of Series Provisions
The following is a summary of the material provisions of the Series 2000-
[.] notes. This summary is not a complete description of the terms of the
Series 2000-[.] notes. You also should refer to the accompanying prospectus for
a complete description of the terms of the notes. The form of each of the
transfer and servicing agreement, the indenture, an indenture supplement, and
purchase agreement has been filed with the SEC as an exhibit to the registration
statement relating to the notes.
General
The Class A notes, Class B notes and Class C notes comprise the Series
2000-[.] notes and will be issued under the indenture, as supplemented by the
indenture supplement relating to the Series 2000-[.] notes, in each case between
the trust and the indenture trustee. As described under "Description of the
Notes--New Issuances" in the accompanying prospectus, the transferor may cause
the owner trustee, on behalf of the trust, and the indenture trustee to execute
further indenture supplements in order to issue additional series.
The closing date for Series 2000-[.] is [.], 2000. The Series 2000-[.]
notes will be issued in denominations of $1,000 and integral multiples of $1,000
and will be available only in book-entry form, registered in the name of Cede,
as nominee of DTC. As described under "Description of the Notes-General," "--
Book-Entry Registration" and "--Definitive Notes" in the accompanying
prospectus, unless and until definitive notes are issued, you will be able to
transfer your notes only through the facilities of DTC. You will receive
payments and notices through DTC and its participants. Payments of interest and
principal will be made on each distribution date on which those amounts are due
to the noteholders in whose names Series 2000-[.] notes were registered on the
record date.
[Application will be made to list the notes on the Luxembourg Stock
Exchange; however, we cannot assure you that the listing will be obtained. You
should consult with [.], the Luxembourg listing agent for the notes, [Address]
Luxembourg, phone number ([.])[.], for the status of the listing].
Interest Payments
The Class A notes will accrue interest from and including the closing date
through but excluding [.], 2000, and for each following interest period, at a
rate of [.]% per annum above LIBOR for the related LIBOR determination date with
respect to each interest period.
The Class B notes will accrue interest from and including the closing date
through but excluding [.], 2000, and for each following interest period, at a
rate of [.]% per annum above LIBOR for the related LIBOR determination date with
respect to each interest period.
The Class C notes will accrue interest from and including the closing date
through but excluding [.], 2000, and for each following interest period, at a
rate of [.]% per annum above LIBOR for the related LIBOR determination date with
respect to each interest period.
S-29
<PAGE>
The indenture trustee will determine LIBOR for each interest period on the
LIBOR determination date.
The Class A note interest rate, the Class B note interest rate and the
Class C note interest rate applicable to the then current and immediately
preceding interest period may be obtained by telephoning the indenture trustee
at its corporate trust office at [.].
Interest on the notes will be calculated on the basis of the actual number
of days in the related interest period and a 360-day year.
Interest will be paid on each distribution date, which will be [.], 2000
and the 15th day of each following month or, if the 15th day is not a business
day, the following business day.
Interest payments on the Class A notes, the Class B notes and the Class C
notes on any distribution date will be calculated on the aggregate principal
balance of the Class A notes, the Class B notes and the Class C notes, as
applicable, as of the preceding record date, except that interest for the first
distribution date will accrue at the applicable note interest rate on the
initial aggregate principal balance of the Class A notes, the Class B notes and
the Class C notes, as applicable, from the closing date.
Interest due on the Class A notes, the Class B notes and the Class C notes
but not paid on any distribution date will be payable on the following
distribution date, together with additional interest on that amount at the
applicable note interest rate. Additional interest will accrue on the same basis
as interest on the Series 2000-[.] notes, and will accrue from the distribution
date on which the overdue interest became due, to but excluding the distribution
date on which the additional interest is paid.
Interest payments on the Series 2000-[.] notes on any distribution date
will be paid from reallocated investor finance charge and administrative
collections for the related due period and, to the extent reallocated investor
finance charge and administrative collections are insufficient to pay the
interest, from excess finance charge and administrative collections and
subordinated principal collections, to the extent available, for the related due
period. Interest payments on the Class C notes on any distribution date will
also be paid from available amounts on deposit in the spread account to the
extent needed.
Principal Payments
You are expected to receive payment of principal in full on [.], 200[.].
You may, however, receive payments of principal earlier than the expected
principal payment date if an amortization event occurs and the early
amortization period begins. The holders of the Class B notes will not begin to
receive payments of principal until the final principal payment on the Class A
notes has been made. The holders of the Class C notes will not begin to receive
payments of principal until the final principal payments on the Class A notes
and Class B notes have been made.
S-30
<PAGE>
Revolving Period
The revolving period for the Series 2000-[.] notes begins on the closing
date and ends on the earlier of the date the controlled accumulation period or
the early amortization period begins. During the revolving period, the investor
percentage of collections of principal receivables will, subject to limitations,
including the allocation of any subordinated principal collections for that due
period, be treated as shared principal collections and used to pay principal to
other series in principal sharing group one or will be paid to the holders of
the transferor certificates.
Controlled Accumulation Period
Principal for payment to the Series 2000-[.] noteholders will accumulate
during the controlled accumulation period in the principal funding account
established by the indenture trustee. The controlled accumulation period for
the Series 2000-[.] notes is scheduled to begin on [.], 200[.], but may be
postponed, as discussed under "Description of Series Provisions -- Principal
Payments -- Postponement of Controlled Accumulation Period" in this prospectus
supplement, and ends on the earliest of:
(1) the beginning of the early amortization period;
(2) the payment in full of the aggregate principal balance of the notes;
and
(3) the Series 2000-[.] final maturity date.
If an amortization event occurs before the controlled accumulation period
begins, there will be no controlled accumulation period and the early
amortization period will begin.
On each distribution date relating to the controlled accumulation period,
the indenture trustee will deposit in the principal funding account an amount
equal to the least of:
(1) available investor principal collections with respect to that
distribution date;
(2) the applicable controlled deposit amount; and
(3) the adjusted invested amount prior to any deposits on that date.
Amounts in the principal funding account will be paid:
first, to Class A noteholders, up to the aggregate principal balance of the
Class A notes;
second, to Class B noteholders, up to the aggregate principal balance of
the Class B notes; and
third, to Class C noteholders, up to the aggregate principal balance of the
Class C notes;
S-31
<PAGE>
in each case, on the expected principal payment date unless paid earlier due to
the commencement of the early amortization period.
During the controlled accumulation period, the portion of available
investor principal collections not applied for the payment of principal on the
Class A notes, the Class B notes or the Class C notes on a distribution date
generally will be treated as shared principal collections.
We expect, but cannot assure you, that the amounts available in the
principal funding account on the expected principal payment date will be
sufficient to pay in full the aggregate principal balance of the Class A notes,
the Class B notes and the Class C notes. If these amounts are not available on
the expected principal payment date, an amortization event will occur and the
early amortization period will begin.
Postponement of Controlled Accumulation Period
The controlled accumulation period is scheduled to last [.] months.
However, the servicer may elect to extend the revolving period and postpone the
controlled accumulation period by providing a notice to the indenture trustee.
The servicer can make this election only if the number of months needed to fund
the principal funding account based on expected principal collections needed to
pay principal on the Series 2000-[.] notes is less than [.] months.
On each determination date beginning in [.], 200[.] and ending when the
controlled accumulation period begins, the servicer will review the amount of
expected principal collections and determine the number of months expected to be
required to fully fund the principal funding account by the expected principal
payment date and may elect to postpone the controlled accumulation period. In
making its decision, the servicer is required to assume that the principal
payment rate will be no greater than the lowest monthly payment rate for the
prior 12 months and will consider the amount of principal expected to be
allocable to noteholders of all other series, if any, in principal sharing group
one which are expected to be amortizing or accumulating principal during the
controlled accumulation period for Series 2000-[.]. In no case will the
controlled accumulation period be reduced to less than one month.
The method for determining the number of months required to fully fund the
principal funding account may be changed upon receipt of written confirmation
that the change will not result in the reduction or withdrawal by any rating
agency of its rating of any outstanding series or class.
Early Amortization Period
The early amortization period for the Series 2000-[.] notes will begin on
the day on which an amortization event with respect to Series 2000-[.] occurs
and ends on the Series 2000-[.] final maturity date.
If an amortization event occurs during the controlled accumulation period,
on the next distribution date any amount on deposit in the principal funding
account will be paid to the Class A noteholders and, after the principal balance
of the Class A notes has been paid in full, any
S-32
<PAGE>
remaining amount will be paid to the Class B noteholders and, after the
principal balance of the Class B notes has been paid in full, any remaining
amount will be paid to the Class C noteholders, up to the principal balance of
the Class C notes.
In addition, if the principal balance of the Class A notes has not been
paid in full, available investor principal collections will be paid to the Class
A noteholders on each distribution date until the earlier of:
(1) the date the Class A notes are paid in full; and
(2) the Series 2000-[.] final maturity date.
After the Class A notes have been paid in full, and if the Series 2000-[.]
termination date or the trust termination date has not occurred, available
investor principal collections will be paid to the Class B noteholders on each
distribution date until the earlier of:
(1) the date the Class B notes are paid in full; and
(2) the Series 2000-[.] final maturity date.
After the Class B notes have been paid in full, and if the Series 2000-[.]
final maturity date or the trust termination date has not occurred, available
investor principal collections will be paid to the Class C noteholders on each
distribution date until the earlier of:
(1) the date the Class C notes are paid in full; and
(2) the Series 2000-[.] final maturity date.
See "-- Amortization Events" below for a discussion of events that might
lead to the commencement of the early amortization period.
Principal Funding Account
The indenture trustee will establish and maintain with an eligible
institution a segregated trust account held for the benefit of the noteholders
to serve as the principal funding account. During the controlled accumulation
period, the indenture trustee at the direction of the servicer will transfer
available investor principal collections from the collection account to the
principal funding account as described under "-- Application of Collections" in
this prospectus supplement.
Funds on deposit in the principal funding account will be invested to the
following distribution date by the indenture trustee at the direction of the
servicer in eligible investments. Principal funding investment proceeds will be
deposited in the collection account and included in available investor finance
charge and administrative collections for the related due period.
S-33
<PAGE>
Reserve Account
The indenture trustee will establish and maintain with an eligible
institution a segregated trust account held for the benefit of the noteholders
to serve as the reserve account. The reserve account is established to assist
with the subsequent distribution of interest on the notes during the controlled
accumulation period and on the first distribution date with respect to the early
amortization period. On each distribution date from and after the reserve
account funding date, but prior to the termination of the reserve account, the
indenture trustee, acting in accordance with the servicer's instructions, will
apply reallocated investor finance charge and administrative collections and
excess finance charge and administrative collections allocated to the Series
2000-[.] notes (to the extent described under "-- Application of Collections --
Payment of Interest, Fees and Other Items") to increase the amount on deposit in
the reserve account, to the extent that amount is less than the required reserve
account amount.
As long as no event of default for your series has occurred and is
continuing, on each distribution date, after giving effect to any deposit to be
made to, and any withdrawal to be made from, the reserve account on that
distribution date, the indenture trustee will withdraw from the reserve account
an amount equal to the excess, if any, of the amount on deposit in the reserve
account over the required reserve account amount and will distribute that excess
to the owner trustee for distribution to the holders of the transferor
certificates. Any amounts withdrawn from the reserve account and distributed to
the owner trustee as described above will not be available for distribution to
the noteholders. On any day following an event of default and an acceleration of
the notes, funds available in the reserve account will be used to fund any
amounts owed to the noteholders.
So long as the reserve account is not terminated, all amounts on deposit in
the reserve account on any distribution date, after giving effect to any
deposits to, or withdrawals from, the reserve account to be made on that
distribution date, will be invested to the following distribution date by the
indenture trustee at the direction of the servicer in eligible investments. The
interest and other investment income, net of investment expenses and losses,
earned on these investments will be retained in the reserve account, to the
extent the amount on deposit is less than the required reserve account amount,
or deposited in the collection account and treated as available investor finance
charge and administrative collections.
On or before each distribution date with respect to the controlled
accumulation period and on the first distribution date with respect to the early
amortization period, a withdrawal will be made from the reserve account, and the
amount of this withdrawal will be deposited in the collection account and
included as available investor finance charge and administrative collections, as
provided in the Series 2000-[.] indenture supplement, for that distribution date
in an aggregate amount equal to the least of:
(1) the amount then on deposit in the reserve account with respect to that
distribution date
(2) the required reserve account amount; and
S-34
<PAGE>
(3) the reserve draw amount with respect to that distribution date.
However, the amount of the withdrawal will be reduced to the extent that funds
otherwise would be available to be deposited in the reserve account on that
distribution date.
If, for any distribution date, the principal funding investment proceeds
are less than the sum of:
(1) the product of (a) the balance of the principal funding account, up to
the principal balance of the Class A notes, on the record date immediately
preceding that distribution date, (b) the Class A note interest rate for the
related interest period, and (c) the number of days in the related interest
period divided by 360,
(2) the product of (a) the lesser of (1) the balance of the principal
funding account in excess of the principal balance of the Class A notes and (2)
the principal balance of the Class B notes on the record date immediately
preceding that distribution date, (b) the Class B note interest rate for the
related interest period, and (c) the number of days in the related interest
period divided by 360, and
(3) the product of (a) the balance of the principal funding account in
excess of the aggregate principal balance of the Class A notes and the Class B
notes on the record date immediately preceding that distribution date, (b) the
Class C note interest rate for the related interest period, and (c) the number
of days in the related interest period divided by 360,
then the indenture trustee will withdraw the shortfall, called the "reserve
draw amount," to the extent required and available, from the reserve account and
deposit it in the collection account for use as available investor finance
charge and administrative collections.
The reserve account will be terminated upon the earliest to occur of:
(1) the first distribution date for the early amortization period;
(2) the expected principal payment date; and
(3) the termination of the trust.
Upon the termination of the reserve account, all amounts on deposit in the
reserve account (after giving effect to any withdrawal from the reserve account
on that date as described above) will be distributed to the owner trustee for
further distributions to the holders of the transferor certificates. Any
amounts withdrawn from the reserve account and distributed to the owner trustee
as described above will not be available for distribution to the noteholders.
Principal Sharing Group One
This series will be included in a group of series designated as principal
sharing series group one. Collections of principal receivables for any due
period allocated to the invested amount will first be used to cover, during the
controlled accumulation period, deposits
S-35
<PAGE>
of the applicable controlled deposit amount to the principal funding account,
and during the early amortization period, payments to the noteholders. Shared
principal collections will be determined and allocated by the servicer to cover
principal shortfalls. Shared principal collections will not be used to cover
investor charge-offs or unreimbursed subordinated principal collections for any
series. If principal shortfalls exceed shared principal collections for any due
period, shared principal collections will be allocated pro rata among the
applicable series in principal sharing group one based on the relative amounts
of principal shortfalls. To the extent that shared principal collections exceed
principal shortfalls, the balance will, subject to limitations described under
"Description of the Notes - Special Funding Account" and "- Application of
Collections" in the accompanying Prospectus, be paid to the holders of the
transferor certificates.
Paired Series
Your series of notes may be paired with one or more series of notes issued
at a later time once the controlled accumulation period or the early
amortization period for your series begins. We call each of these later issued
series a paired series. All or a portion of a paired series may be pre-funded
with an initial deposit to a funding account that is for the sole benefit of the
paired series; in the alternative, a paired series may have a principal amount
that can be increased. As your series amortizes, if there have been no
unreimbursed investor charge-offs for any paired series, the invested amount of
the paired series will be increased by an amount equal to the related amortized
amount. The issuance of the paired series will be subject to the conditions
described under "Description of the Notes -- New Issuances" in the accompanying
prospectus.
We cannot assure you that the terms of any paired series will not have an
impact on the calculation of the investor percentage or the timing or amount of
payments received by you as a Series 2000-[.] noteholder. The extent to which
the timing or amount of payments received by you may be affected will depend on
many factors, only one of which is a change in the calculation of the investor
percentage.
Subordination
The Class B notes and the Class C notes are subordinated to the Class A
notes. Interest payments will be made on the Class A notes prior to being made
on the Class B notes and the Class C notes. Interest payments will be made on
the Class B notes prior to being made on the Class C notes. Principal payments
on the Class B notes will not begin until the Class A notes have been paid in
full. Principal payments on the Class C notes will not begin until the Class A
notes and the Class B notes have been paid in full. If principal collections
allocated to your series are reallocated to pay the interest on the Class A
notes, the principal amount of the Class B notes and the Class C notes may not
be repaid. If principal collections allocated to your series are reallocated to
pay interest on the Class B notes or to pay the monthly servicing fee, if
Household Finance Corporation or any of its affiliates is not the servicer, the
principal amount of the Class C notes may not be repaid. If a foreclosure and
sale of trust assets after an event of default occurs, the net proceeds of that
sale which are available to pay principal and interest on
S-36
<PAGE>
the Series 2000-[.] notes would be paid first to the Class A notes before any
remaining net proceeds would be available for payments due to the Class B notes
or the Class C notes.
Events Of Default
The events of default for Series 2000-[.], as well as the rights and
remedies available to the indenture trustee and the Series 2000-[.] noteholders
when an event of default occurs, are described under "The Indenture -- Events of
Default; Rights Upon Event of Default" in the accompanying prospectus.
If an event of default for Series 2000-[.] occurs, the indenture trustee or
the holders of a majority of the outstanding principal amount of the Series
2000-[.] notes may declare the Series 2000-[.] notes to be immediately due and
payable. If the Series 2000-[.] notes are accelerated, you may receive
principal prior to the expected principal payment date for your notes.
Amortization Events
As described above, the revolving period will continue through [.], 200[.]
(unless that date is postponed as described under "-- Principal Payments --
Postponement of Controlled Accumulation Period" in this prospectus supplement),
unless an amortization event occurs prior to that date.
An "amortization event" refers to any of the following events:
(1) failure by the transferor (a) to make any payment or deposit on the
date required under the transfer and servicing agreement, the indenture or the
Series 2000-[.] indenture supplement, or within the applicable grace period
which shall not exceed five days or (b) to observe or perform in any material
respect any other covenants or agreements of the transferor set forth in the
transfer and servicing agreement, the indenture or the Series 2000-[.] indenture
supplement, which failure has an Adverse Effect on the Series 2000-[.]
noteholders and which continues unremedied for a period of 60 days after written
notice of the failure, requiring the same to be remedied, and continues to
materially and adversely affect the interests of the noteholders for the
designated period;
(2) any representation or warranty made by the transferor in the transfer
and servicing agreement, the indenture or the Series 2000-[.] indenture
supplement, or any information required to be given by the transferor to the
indenture trustee to identify the accounts proves to have been incorrect in any
material respect when made or delivered and which continues to be incorrect in
any material respect for a period of 60 days after written notice of the
failure, requiring the same to be remedied, and as a result of which the
interests of the noteholders are materially and adversely affected and continue
to be materially and adversely affected for the designated period; except that
an amortization event described in this subparagraph (2) will not occur if the
transferor has accepted reassignment of the related receivable or all related
receivables, if applicable, during the designated period in accordance with the
provisions of the transfer and servicing agreement;
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<PAGE>
(3) any servicer default occurs which would have an Adverse Effect on the
Series 2000-[.] noteholders;
(4) the average of the series portfolio yields for any three consecutive
due periods is less than the average of the base rates for the same due periods;
(5) insufficient moneys are available to pay in full the aggregate
principal balances of all the Series 2000-[.] notes on the expected principal
payment date;
(6) a failure by the transferor to convey receivables in additional
accounts or participations to the trust within 5 business days after the date
required by the transfer and servicing agreement;
(7) bankruptcy, insolvency, liquidation, conservatorship, receivership or
similar events relating to the transferor, including any additional transferor,
Household Finance Corporation or the bank or other account owner, unless written
confirmation from each rating agency that the removal of the bank from this
amortization event will not result in a reduction or withdrawal of its rating of
any outstanding series or class;
(8) the transferor is unable for any reason to transfer receivables to the
trust in accordance with the provisions of the transfer and servicing agreement;
(9) the trust becomes subject to regulation as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended; or
(10) an event of default and acceleration of the notes for Series 2000-[.]
occurs under the indenture.
In the case of any event described in clause (1), (2), (3) or (5) above, an
amortization event will be deemed to have occurred with respect to the notes
only if, after any applicable grace period, either the indenture trustee or the
Series 2000-[.] noteholders evidencing interests aggregating not less than 50%
of the aggregate unpaid principal amount of the Series 2000-[.] notes, by
written notice to the transferor and the servicer (and to the indenture trustee
if given by the Series 2000-[.] noteholders), declare that an amortization event
has occurred with respect to the Series 2000-[.] notes as of the date of the
notice.
In the case of any event described in clause (6), (7), (8) or (9), an
amortization event with respect to all series then outstanding, and in the case
of any event described in clause (4) or (10), an amortization event with respect
to only the Series 2000-[.] notes, will occur without any notice or other action
on the part of the indenture trustee or the Series 2000-[.] noteholders
immediately upon the occurrence of the event.
On the date on which an amortization event is deemed to have occurred, the
early amortization period will begin.
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<PAGE>
See "Description of the Notes -- Amortization Events" in the accompanying
prospectus for an additional discussion of the consequences of an insolvency,
conservatorship or receivership of the transferor.
Allocation Percentages
Under the indenture, with respect to each due period, the servicer will
allocate among the invested amount, the invested amount for all other series
issued and outstanding and the transferor amount, all amounts collected on
finance charge and administrative receivables, all amounts collected on
principal receivables and all defaulted amounts with respect to that due period.
These amounts will be allocated based on the investor percentage. Available
investor finance charge and administrative collections will be reallocated among
all series in reallocation group one as described in "--Reallocation Group One"
in this prospectus supplement.
Defaulted amounts and collections of finance charge and administrative
receivables at any time, and principal receivables during the revolving period
will be allocated to the invested amount based on the floating investor
percentage.
Collections of principal receivables during the controlled accumulation
period and early amortization period will be allocated to the invested amount
based on the fixed investor percentage.
Interest payments on Series 2000-[.] notes will be paid from reallocated
investor finance charge and administrative collections and excess finance charge
and administrative collections. Principal payments on the Series 2000-[.] notes
will be paid from available investor principal collections.
Reallocation Group One
Collections of finance charge and administrative receivables to be
allocated to the Series 2000-[.] notes as described above will then be combined
with the collections of finance charge and administrative receivables allocated
to any other series which is designated to be part of reallocation group one.
Each series in reallocation group one, will share finance charge and
administrative collections and other amounts pro rata, based upon the relative
size of the required payments to each series in reallocation group one as
compared to the aggregate required payments of all series in reallocation group
one plus, to the extent these collections exceed the aggregate required payments
of all series in reallocation group one, a share of that excess based upon the
adjusted invested amount of each series in reallocation group one as compared to
the aggregate adjusted invested amount for all series in reallocation group one.
For each monthly period, the servicer will calculate reallocation group one
investor finance charge and administrative collections and, on the following
distribution date, will allocate the amount of reallocation group one investor
finance charge and administrative collections among the noteholders' interest
for all series in reallocation group one in the following priority:
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<PAGE>
(1) reallocation group one monthly interest;
(2) reallocation group one investor default amount;
(3) reallocation group one monthly fees;
(4) reallocation group one investor additional amounts; and
(5) the balance pro rata among each series in reallocation group one
based on the current adjusted invested amount of that series.
If the amount of reallocation group one investor finance charge and
administrative collections is not sufficient to cover the amounts described in
clauses (1) though (4) in full, the amount available will be allocated among the
series in reallocation group one pro rata based on the claim that each series
has under the applicable clause. This means, for example, that if the amount of
reallocation group one investor finance charge collections is not sufficient to
cover reallocation group one monthly interest, each series in reallocation group
one will share that amount pro rata and any other series in reallocation group
one with a claim with respect to monthly interest, overdue monthly interest and
interest on overdue monthly interest, if applicable, which is larger than the
claim for those amounts for any other series in reallocation group one offered
hereby, due to a higher note interest rate, will receive a proportionately
larger allocation.
Application of Collections
Payment of Interest, Fees and Other Items
On each distribution date, the servicer will direct the indenture trustee
to apply reallocated investor finance charge and administrative collections and
excess finance charge and administrative collections on deposit in the
collection account in the following order:
(1) an amount equal to the Class A monthly interest plus Class A
additional interest due for the related distribution date, and past due for
any prior distribution dates, will be paid to the Class A noteholders on
that distribution date;
(2) an amount equal to the Class B monthly interest plus Class B
additional interest due for the related distribution date, and past due for
any prior distribution dates, will be paid to the Class B noteholders on
that distribution date;
(3) if Household Finance Corporation or any of its affiliates is not
the servicer, an amount equal to the monthly servicing fee due for the
related distribution date, and past due for any prior distribution date,
will be paid to the servicer and if Household Finance Corporation or any of
its affiliates is not the administrator, an amount equal to the monthly
administration fee for the related distribution date, and past due for any
prior distribution date, will be paid to the administrator;
(4) an amount equal to the Class C monthly interest plus Class C
additional
S-40
<PAGE>
interest due for the related distribution date, and past due for any prior
distribution dates, will be paid to the Class C noteholders on that
distribution date;
(5) an amount equal to the investor default amount, if any, for the
related due period, will be treated as available investor principal
collections;
(6) an amount equal to the sum of the investor charge-offs and the
amount of unreimbursed subordinated principal collections will be treated
as available investor principal collections;
(7) if Household Finance Corporation or any of its affiliates is the
servicer, an amount equal to the monthly servicing fee due for the related
distribution date, and past due for any prior distribution date, will be
paid to the servicer;
(8) if Household Finance Corporation or any of its affiliates is the
administrator, an amount equal to the monthly administration fee due for
the related distribution date, and past due for any prior distribution
date, will be paid to the administrator;
(9) on and after the reserve account funding date, an amount equal to
the excess, if any, of the required reserve account amount over the amount
then on deposit in the reserve account will be deposited into the reserve
account;
(10) an amount equal to the excess, if any, of the required spread
account amount over the amount then on deposit in the spread account will
be deposited into the spread account; and
(11) all remaining amounts will be treated as excess finance charge
and administrative collections and will be available to cover any
shortfalls in finance charge and administrative collections for other
outstanding series in excess finance charge sharing group one and, after
payment of these shortfalls, the remaining amount will be paid to the owner
trustee to be applied in accordance with the trust agreement.
In the event that reallocated investor finance charge and administrative
collections and excess finance charge and administrative collections for any due
period are insufficient to pay Class C monthly interest when due, a draw will be
made from amounts available in the spread account and will be paid to the Class
C noteholders on the related distribution date.
Payments of Principal
On each distribution date, the servicer will direct the indenture trustee
to apply available investor principal collections on deposit in the collection
account in the following priority:
. on each distribution date with respect to the revolving period, all
available investor principal collections will be treated as shared principal
collections and applied as
S-41
<PAGE>
described under "Description of Series Provisions --Principal Payments --
Principal Sharing Group One" in this prospectus supplement and "Description of
the Notes -- Group -- Principal Sharing Group" in the accompanying prospectus;
. on each distribution date with respect to the controlled accumulation
period and the early amortization period, all available investor principal
collections will be distributed or deposited in the following priority:
(1) during the controlled accumulation period and prior to the
payment in full of the Class A, Class B and Class C notes, an amount equal
to monthly principal will be deposited in the principal funding account;
(2) during the early amortization period, an amount equal to the
monthly principal will be distributed to the paying agent for payment to
the Class A noteholders until the principal balance of the Class A notes
has been paid in full;
(3) during the early amortization period, an amount equal to monthly
principal will, after the principal balance of the Class A notes has been
paid in full, be distributed to the paying agent for payment to the Class B
noteholders until the principal balance of the Class B notes has been paid
in full;
(4) during the early amortization period, an amount equal to monthly
principal will, after the principal balances of the Class A notes and the
Class B notes have been paid in full, be distributed to the paying agent
for payment to the Class C noteholders until the principal balance of the
Class C notes has been paid in full; and
(5) on each distribution date with respect to the controlled
accumulation period and the early amortization period, the balance of
available investor principal collections not applied as described in
clauses (1) through (4) above, if any, will be treated as shared principal
collections with respect to principal sharing group one and applied as
described under "Description of Series Provisions -- Principal Payments --
Principal Sharing Group One" in this prospectus supplement and "Description
of the Notes -- Groups--Principal Sharing Group" in the accompanying
prospectus; and
. On the earlier to occur of (1) the first distribution date for the
early amortization period and (2) the expected principal payment date, the
indenture trustee will withdraw from the principal funding account and
distribute first, to the Class A noteholders up to the Class A note principal
balance, second, to the Class B noteholders up to the Class B note principal
balance, and third, to the Class C noteholders up to the Class C note principal
balance, the amounts deposited into the principal funding account.
Excess Finance Charge Sharing Group One
This series will be included in a group of series designated as excess
finance charge sharing group one. Reallocated investor finance charge and
administrative collections, and other amounts treated like finance charge and
administrative collections, in excess of the
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<PAGE>
amount required to make payments or deposits for your series will be made
available to other series included in excess finance charge sharing group one
whose allocation of reallocated investor finance charge and administrative
collections (or, if those series are not part of a reallocation group, investor
finance charge and administrative collections) is not sufficient to make its
required payments or deposits. If reallocated investor finance charge and
administrative collections are insufficient to make all required payments, your
series will have access to finance charge and administrative collections -- and
other amounts treated like finance charge and administrative collections -- from
other series in excess finance charge sharing group one. Each series that is
part of excess finance charge sharing group one and has a shortfall will receive
a share of the total amount of excess finance charge and administrative
collections available for that month based on the amount of shortfall for that
series divided by the total shortfall for all series for that same month.
Subordinated Principal Collections
On each distribution date, if the sum of Class A interest, Class B interest
and the monthly servicing fee, if Household Finance Corporation or any of its
affiliates are not the servicer, cannot be paid from reallocated investor
finance charge and administrative collections and excess finance charge and
administrative collections as described under "--Application of Collections,"
then collections of principal receivables allocated to the invested amount will
be available to pay these amounts, in an amount equal to the subordinated
principal collections, and the invested amount will be reduced accordingly. A
reduction in the invested amount will reduce the allocation of collections of
finance charge and administrative receivables and principal receivables to your
series.
Defaulted Receivables; Investor Charge-Offs
The investor default amount represents the series' share of losses from the
trust portfolio. On each distribution date, the servicer will calculate the
investor default amount. If the investor default amount exceeds the amount of
reallocated investor finance charge and administrative collections and excess
finance charge and administrative collections allocated to fund this amount for
the prior month, then the invested amount will be reduced by the excess. The
invested amount will also be reduced by the amount of any subordinated principal
collections. In no event, however, will the invested amount be reduced below
zero. Reductions in the invested amount from both of these items may be
reimbursed from subsequent reallocated investor finance charge and
administrative collections and excess finance charge and administrative
collections allocated for reimbursement, if available. If the invested amount is
reduced to zero, your series will not receive any further allocations of
collections of finance charge and administrative receivables or principal
receivables.
Spread Account
The indenture trustee will establish and maintain with an eligible
institution the spread account as a segregated account held as security for the
benefit of the Class C noteholders. Amounts on deposit in the spread account
will be used to fund shortfalls in interest payments
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<PAGE>
on the Class C notes, and on the Series 2000-[.] final maturity date, to fund
any shortfall in payment of the principal balance of the Class C notes.
The spread account initially will not be funded, but will be funded by
reallocated investor finance charge and administrative collections and excess
finance charge and administrative collections, as described above under "--
Application of Collections -- Payment of Interest, Fees and Other Items,"
deposited into the spread account on any distribution date to the extent that
the funds available in the spread account are less than the required spread
account amount on that distribution date.
The "required spread account amount" will be determined on each
distribution date, and, in general, for any date of determination, will be equal
to the product of:
(1) the spread account percentage in effect on the date of determination,
and
(2) the initial invested amount.
However, the required spread account amount will not exceed the principal
balance of the Class C notes minus the excess, if any, of the principal funding
account balance over the sum of the principal balances of the Class A notes and
the Class B notes on the date of determination.
Once an event of default for your series occurs and is continuing, the
required spread account amount for any distribution date will automatically
increase to the sum of:
(1) the amount on deposit in the spread account on that distribution date,
and
(2) reallocated investor finance charge and administrative collections and
excess finance charge and administrative collections for that
distribution date available immediately after funding the reserve
account.
However, following an event of default for your series, if the maturity of your
notes is not accelerated, the increase in the required spread account amount
will be limited to an amount equal to the aggregate principal balance of your
series of notes.
"spread account percentage" will be determined as follows:
<TABLE>
<CAPTION>
If the Quarterly Excess Spread Percentage less than: then, the Spread Account
is ---------
greater than or equal to: and Percentage will equal:
------------------------ ---------------------
<S> <C> <C>
[.]% [.] 0
[.]% [.]% [.]%
[.]% [.]% [.]%
[.]% [.]% [.]%
[.]% [.]% [.]%
</TABLE>
<PAGE>
After the spread account percentage has been increased above zero as
specified in the table above, it will remain at the specified percentage until:
(1) further increased to a higher required percentage as specified above,
or
(2) the distribution date on which the quarterly excess spread percentage
has increased to a level above that for the then current spread
account percentage, in which case the spread account percentage will
be decreased to the appropriate percentage as specified above or, if
the quarterly excess spread percentage is greater than or equal to
[.]%, the spread account percentage will be zero and the required
spread account amount will be zero.
However, if an amortization event, other than an amortization event
resulting from the occurrence of an event of default, with respect to Series
2000-[.] has occurred, the spread account percentage will equal [.]%, as
provided in the definition of spread account percentage above, and may not be
subsequently reduced.
The "quarterly excess spread percentage" will be determined as follows:
<TABLE>
<S> <C>
For the [Month 1] 2000 The modified excess spread percentage
distribution date:
For the [Month 2] 2000 The modified excess spread percentage
distribution date: for the first due period, plus
the excess spread percentage for the
------------------------------------
[Month 1] 2000 due period
-------------------------
2
For the [Month 3] 2000 The modified excess spread percentage
distribution date: for the first due period, plus
the excess spread percentage for
the [Month 1] 2000 due period plus
the excess spread percentage for
--------------------------------
the [Month 2] 2000 due period
-----------------------------
3
For each following
distribution date: The sum of the excess spread percen-
-----------------------------------
tage for the 3 prior due periods
--------------------------------
3
</TABLE>
The "excess spread percentage" for any due period will be determined as
follows:
Reallocated investor finance charge and administrative
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<PAGE>
collections and excess finance charge and administrative
collections allocated to
Series 2000-[.] for that due period available immediately
prior to making the required deposit into the reserve
account
times 12
------------------------------------------------------------
The adjusted invested amount
on the first day of that due period
The "modified excess spread percentage" will be calculated for the first
due period in accordance with the Series 2000-[.] indenture supplement based
on reallocated investor finance charge and administrative collections and excess
finance charge and administrative collections for that due period in relation to
the amount of interest, investor default amount, monthly servicing fee and
monthly administration fee accrued for the first distribution date and the
initial invested amount.
Funds on deposit in the spread account will be invested at the direction of
the servicer in eligible investments. For purposes of the spread account, the
reference in the definition of eligible investments to a rating in the "highest
rating category" refers to a rating of at least A-2 by Standard & Poor's, P-2 by
Moody's or F2 by Fitch. Investment earnings, net of losses and investment
expenses, will, except as otherwise indicated in this prospectus supplement, not
be deposited into the spread account and will be paid to owner trustee for
distribution to the holders of the transferor certificates. However, after an
event of default relating to your series of notes, these investment earnings
will be available for payment first to holders of the Class C notes and
thereafter to the Class A notes and the Class B notes.
Spread Account Distributions
If on any distribution date, the interest to be paid on the Class C notes
exceeds the amount allocated to pay that interest, the indenture trustee, at the
instruction of the servicer, will withdraw from the spread account the lesser of
(1) the amount on deposit in the spread account, including investment earnings
to the extent necessary to fund that excess, and (2) the amount of the excess,
and will deposit that amount into the collection account for payment of interest
on the Class C notes.
On the Series 2000-[.] final maturity date, funds available in the spread
account, after giving effect to any withdrawals to be made as discussed in the
preceding paragraph, will be used to fund any shortfall in the payment of the
principal balance of the Class C notes. On any day following an event of
default and an acceleration of the notes, funds available in the spread account
will be used to fund any amounts owed first on the Class C notes and then the
Class A notes and the Class B notes, in that order of priority.
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<PAGE>
Funds on deposit in the spread account on any distribution date in excess
of the required spread account amount on that date will be paid to the owner
trustee for distribution to the holders of the transferor certificates. On the
date on which all amounts due to the noteholders from the spread account have
been paid in full, all amounts, if any, then remaining in the spread account
will be distributed to the owner trustee for further distribution to the holders
of the transferor certificates.
Servicing Compensation and Payment of Expenses
The share of the servicing fee allocable to the invested amount with respect to
any distribution date is the monthly servicing fee.
The servicer will pay from its servicing compensation expenses incurred in
connection with servicing the receivables including, without limitation, payment
of the fees and disbursements of the indenture trustee and independent certified
public accountants and other fees which are not expressly stated in the transfer
and servicing agreement, the indenture or the Series 2000-[.] indenture
supplement to be payable by the trust or the noteholders other than federal,
state and local income and franchise taxes, if any, of the trust.
Reports To Noteholders
On each distribution date, the paying agent, on behalf of the indenture
trustee will forward to each noteholder of record, a statement prepared by the
servicer setting forth the items described in "Description of the Notes --
Reports to Noteholders" in the accompanying prospectus.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended, and
Section 4975 of the Code impose requirements on employee benefit plans and other
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and particular collective investment funds or insurance company
general or separate accounts in which the plans, accounts or arrangements are
invested, that are subject to the fiduciary responsibility provisions of ERISA
and/or Section 4975 of the Code, and on persons who are fiduciaries with respect
to Plans, in connection with the investment of "plan assets" of any Plan. ERISA
generally imposes on Plan fiduciaries general fiduciary requirements, including
those of investment prudence and diversification and the requirement that a
Plan's investments be made in accordance with the documents governing the Plan.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons ("parties in interest" under ERISA and
"disqualified persons" under the Code who have specified relationships to a Plan
or its Plan Assets, unless a statutory or administrative exemption is available.
Parties in Interest that participate in a prohibited transaction may be subject
to a penalty imposed under ERISA and/or an excise tax imposed under to Section
4975 of the Code, unless a statutory or administrative exemption is
available.
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<PAGE>
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
Subject to the considerations described in this section and in the
accompanying Prospectus, the notes are eligible for purchase with Plan Assets of
any Plan.
Any fiduciary or other Plan investor considering whether to purchase the
notes with Plan Assets of any Plan should determine whether that purchase is
consistent with its fiduciary duties and whether that purchase would constitute
or result in a non-exempt prohibited transaction under ERISA and/or Section 4975
of the Code because any of the transferor, the servicer, the indenture trustee,
the owner trustee or any other party may be Parties in Interest with respect to
the investing Plan and may be deemed to be benefiting from the issuance of the
notes. If the transferor or the servicer is a Party in Interest with respect to
the prospective Plan investor, any fiduciary or other Plan investor considering
whether to purchase or hold the notes should consult with its counsel regarding
the availability of exemptive relief under U.S. Department of Labor Prohibited
Transaction Class Exemption 96-23 (relating to transactions determined by "in-
house asset managers"), 95-60 (relating to transactions involving insurance
company general accounts), 91-38 (relating to transactions involving bank
collective investment funds), 90-1 (relating to transactions involving insurance
company pooled separate accounts) or 84-14 (relating to transactions determined
by independent "qualified professional asset managers") or any other prohibited
transaction exemption issued by the DOL. A purchaser of the notes should be
aware, however, that even if the conditions specified in one or more of the
above-referenced exemptions are met, the scope of the exemptive relief provided
by the exemption might not cover all acts which might be construed as prohibited
transactions.
In addition, under DOL Regulation Section 2510.3-101, the purchase with
Plan Assets of equity interests in the issuer could, in limited circumstances,
cause the receivables and other assets of the issuer to be deemed Plan Assets of
the investing Plan which, in turn, would subject the issuer and its assets to
the fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code. Nevertheless, because the
notes (a) are expected to be treated as indebtedness under local law and will,
in the opinion of Special Tax Counsel, be treated as debt, rather than equity,
for federal tax purposes (see "Federal Income Tax Consequences -- Tax
Characterization of the Trust and the Notes -- Treatment of the Notes as Debt"
in the accompanying prospectus), and (b) should not be deemed to have any
"substantial equity features," purchases of the notes with Plan Assets should
not be treated as equity investments and, therefore, the receivables and other
assets included as assets of the issuer should not be deemed to be Plan Assets
of the investing Plans. Those conclusions are based, in part, upon the
traditional debt features of the notes, including the reasonable expectation of
purchasers of the notes that the notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features.
The notes may not be purchased or held by any Plan, or any person investing
Plan Assets of any Plan, if any of the transferor, the servicer, the indenture
trustee, the owner trustee or any of their respective affiliates (a) has
investment or administrative discretion with respect to the Plan Assets used to
effect the purchase; (b) has authority or responsibility to give, or regularly
S-48
<PAGE>
gives, investment advice with respect to the Plan Assets, for a fee and under an
agreement or understanding that the advice (1) will serve as a primary basis for
investment decisions with respect to the Plan Assets, and (2) will be based on
the particular investment needs of that Plan; or (c) unless PTCE 95-60, 91-38 or
90-1 is applicable, is an employer maintaining or contributing to that Plan.
Each purchaser or holder of the notes or any interest in the notes will be
deemed to have represented by its purchase and holding of its notes that it is
not subject to the foregoing limitation.
Any fiduciary or other Plan investor considering whether to purchase any notes
on behalf of or with Plan Assets of any Plan should consult with its counsel and
refer to this prospectus supplement for guidance regarding the ERISA
considerations applicable to the notes offered by this prospectus supplement and
the accompanying prospectus.
Underwriting
Subject to the terms and conditions set forth in the Class A underwriting
agreement between the transferor and the Class A underwriters named below, the
terms and conditions set forth in the Class B underwriting agreement between the
transferor and the Class B underwriters named below and the terms and
conditions set forth in the Class C underwriting agreement between the
transferor and the Class C underwriters named below, the transferor has agreed
to sell to the underwriters, and each of the underwriters has severally agreed
to purchase, the principal amount of the notes set forth opposite its name:
Class A underwriters Principal balance of
Class A notes
-------------------- --------------------
$[.]
Total................................... $[.]
====================
Class B underwriters Principal balance of
Class B notes
-------------------- --------------------
$[.]
Total................................... $[.]
====================
Class C underwriters Principal balance of
Class C notes
-------------------- --------------------
$[.]
Total................................... $[.]
====================
In the Class A underwriting agreement, the Class A underwriters have
agreed, subject to the terms and conditions set forth in that agreement, to
purchase all of the Class A notes offered
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<PAGE>
hereby if any of the Class A notes are purchased. In the Class B underwriting
agreement, the Class B underwriters have agreed, subject to the terms and
conditions set forth in that agreement, to purchase all of the Class B notes
offered hereby if any of the Class B notes are purchased. In the Class C
underwriting agreement, the Class C underwriters have agreed, subject to the
terms and conditions set forth in that agreement, to purchase all of the Class C
notes offered hereby if any of the Class C notes are purchased.
The Class A underwriters propose initially to offer the Class A notes to
the public at [.]% of their principal amount and to dealers at that price less
concessions not in excess of [.]% of the principal amount of the Class A notes.
The Class A underwriters may allow, and the dealers may reallow, concessions not
in excess of [.]% of the principal amount of the Class A notes to brokers and
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the Class A underwriters.
The Class B underwriters propose initially to offer the Class B notes to
the public at [.]% of their principal amount and to dealers at that price less
concessions not in excess of [.]% of the principal amount of the Class B notes.
The Class B underwriters may allow, and the dealers may reallow, concessions not
in excess of [.]% of the principal amount of the Class B notes to brokers and
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the Class B underwriters.
The Class C underwriters propose initially to offer the Class C notes to
the public at [.]% of their principal amount and to dealers at that price less
concessions not in excess of [.]% of the principal amount of the Class C notes.
The Class C underwriters may allow, and the dealers may reallow, concessions not
in excess of [.]% of the principal amount of the Class C notes to brokers and
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the Class C underwriters.
We will receive proceeds of approximately $[.] from the sale of the notes,
representing [.]% of the principal amount of each Class A note, [.]% of the
principal amount of each Class B note and [.]% of the principal amount of each
Class C note, after paying the underwriting discount of $[.], representing [.]%
of the principal amount of each Class A note, [.]% of the principal amount of
each Class B note and [.]% of the principal amount of each Class C note.
Additional offering expenses are estimated to be $[.].
Each underwriter has represented and agreed that:
(1) 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 notes in, from or otherwise involving the United
Kingdom;
(2) it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with the issue
or sale of the notes to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom that document may otherwise
lawfully be issued or passed on;
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(3) if it is an authorized person under Chapter III of part I of the
Financial Services Act 1986, it has only promoted and will only promote (as
that term is defined in Regulation 1.02(2) of the Financial Services
(Promotion of Unregulated Schemes) Regulations 1991) to any person in the
United Kingdom the scheme described in this Prospectus Supplement and the
accompanying Prospectus 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;
and
(4) it is a person of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996.
The transferor will indemnify the underwriters against liabilities,
including liabilities under the Securities Act, or contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the notes in accordance with Regulation M under the Exchange Act. Over-allotment
transactions involve syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the notes so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the notes in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when the notes originally sold by
that syndicate member are purchased in a syndicate covering transaction. Over-
allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the prices of the notes to be higher
than they would otherwise be in the absence of those transactions. Neither the
transferor nor the underwriters represent that the underwriters will engage in
any of these transactions or that those transactions, once commenced, will not
be discontinued without notice at any time.
The underwriters may purchase and sell notes in the open market. These
transactions may include short sales, stabilizing transactions and purchases to
cover positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of notes than they are required to purchase in
the offering. "Covered" short sales are sales made in an amount not greater
than the underwriters' option to purchase additional notes from the issuer in
the offering. The underwriters may close out any covered short position by
either exercising their option to purchase additional notes or purchasing notes
in the open market. In determining the source of notes to close out the covered
short position, the underwriters will consider, among other things, the price of
notes available for purchase in the open market as compared to the price at
which they may purchase notes through the over-allotment option. "Naked" short
sales are any sales in excess of that option. The underwriters must close out
any naked short position by purchasing notes in the open market. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the notes in the open market
after pricing that could adversely affect investors who purchase in
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the offering. Stabilizing transactions consist of various bids for or purchases
of notes made by the underwriters in the open market prior to the completion of
the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased notes sold
by or for the account of that underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters' purchases to
cover the syndicate short sales may have the effect of raising or maintaining
the market price of the notes or preventing or retarding a decline in the market
price of the notes. As a result, the price of the notes may be higher than the
price that might otherwise exist in the open market.
Legal Matters
Legal matters relating to the issuance of the notes will be passed upon for
the transferor by John W. Blenke, Vice President - Corporate Law of Household
International, Inc., the parent company of the transferor and the bank, and by
Orrick, Herrington & Sutcliffe LLP, special counsel to the transferor. Legal
matters relating to the federal tax consequences of the issuance of the notes
will be passed upon for the transferor by Orrick, Herrington & Sutcliffe LLP.
Legal matters relating to the issuance of the Notes will be passed upon for the
underwriters by [.]. As of the date of this prospectus supplement, Mr. Blenke is
a full-time employee and officer of Household International, Inc. and
beneficially owns, and holds options to purchase, shares of common stock of
Household International, Inc.
Glossary
"additional amounts" means, for any distribution date, the aggregate amount
of the investor charge-offs and subordinated principal collections with respect
to your series which have not been previously reimbursed.
"adjusted invested amount" means, for any date of determination, an amount
equal to:
(1) the invested amount as of that date, minus
(2) the amount on deposit in the principal funding account for that date.
"adjusted principal balance" means an amount equal to the greater of:
(1) the sum of (a) the total amount of principal receivables as of the
close of business on the last day of the immediately preceding due
period, or with respect to the first due period, the total amount of
principal receivables as of the closing date, and (b) the principal
amount on deposit in the special funding account as of the close of
business on the last day of the immediately
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preceding due period (or with respect to the first due period, the
closing date); and
(2) the sum of the numerators used to calculate the investor percentages
for allocations with respect to principal receivables, finance charge
and administrative receivables or defaulted amounts, as applicable, as
of the date as to which that determination is being made;
provided, however, that with respect to any due period in which an addition date
for an aggregate addition or a removal date occurs, the amount in clause (1)(a)
above shall be the sum of the amounts for each day in that due period computed
as follows and divided by the number of days in that due period:
(A) the aggregate amount of principal receivables as of the close of
business on the last day of the prior due period, for each day in the
period from and including the first day of that due period to but
excluding the related additional cut-off date or removal date; and
(B) the aggregate amount of principal receivables as of the close of
business on the related additional cut-off date or removal date after
adjusting for the aggregate amount of principal receivables added to
or removed on the related additional cut-off date or removal date, as
the case may be, for each day in the period from and including the
related additional cut-off date or removal date to and including the
last day of that due period.
"administration fee" means an annual fee payable to the administrator in an
amount equal to $[.].
"amortization event" has the meaning set forth on page S-[.].
"available investor finance charge and administrative collections" means,
for any due period, an amount equal to the sum of:
(1) the investor finance charge and administrative collections deposited
in the collection account for that due period;
(2) an amount equal to the principal funding investment proceeds, if any,
for the related distribution date; and
(3) amounts, if any, to be withdrawn from the reserve account which are
required to be included in available investor finance charge and
administrative collections under the Series 2000-[.] indenture
supplement for the related distribution date.
"available investor principal collections" means, for any due period, an
amount equal to the sum of:
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(1) the investor percentage of collections of principal receivables
deposited in the collection account for that due period; minus the
amount of subordinated principal collections for that due period;
(2) any shared principal collections from other principal sharing series
in principal sharing group one allocated to your series; and
(3) any amounts treated as available investor principal collections for
the related distribution date.
"base rate" means the weighted average of the Class A note interest rate,
the Class B note interest rate and the Class C note interest rate, weighted
based on the aggregate principal balance of the Class A notes, the Class B notes
and the Class C notes as of the last day of the preceding due period, plus the
servicing fee rate.
"business day" means, any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City, Nevada, Delaware, or any other
state in which the principal executive offices of the bank, the owner trustee,
the indenture trustee or other account owner, as the case may be, are located,
are authorized or obligated by law, executive order or governmental decree to be
closed.
"Class A additional interest" means, for any distribution date, will equal
to the product of:
(1) the excess of Class A monthly interest for that distribution date over
the aggregate amount of funds allocated and available to pay Class A
monthly interest for that distribution date;
(2) the Class A note interest rate for the related interest period; and
(3) the actual number of days in that interest period divided by 360.
"Class A note interest rate" means, for any interest period, a rate of [.]%
per annum above LIBOR for the related LIBOR determination date.
"Class A monthly interest" with respect to any distribution date will equal
the product of:
(1) the Class A note interest rate for the related interest period;
(2) the actual number of days in that interest period divided by 360; and
(3) the principal balance of the Class A notes as of the close of business
on the last day of the prior due period or, with respect to the first
distribution date, the principal balance of the Class A notes as of
the closing date.
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"Class B additional interest" means, for any distribution date, will equal
to the product of:
(1) the excess of Class B monthly interest for that distribution date over
the aggregate amount of funds allocated and available to pay Class B
monthly interest for that distribution date;
(2) the Class B note interest rate for the related interest period; and
(3) the actual number of days in that interest period divided by 360.
"Class B note interest rate" means, for any interest period, a rate of [.]%
per annum above LIBOR for the related LIBOR determination date.
"Class B monthly interest" means, for any distribution date, will equal to
the product of:
(1) the Class B note interest rate for the related interest period;
(2) the actual number of days in that interest period divided by 360; and
(3) the principal balance of the Class B notes as of the close of business
on the last day of the prior due period or, with respect to the first
distribution date, the principal balance of the Class B notes as of
the closing date.
"Class C additional interest" means, for any distribution date, will equal
to the product of:
(1) the excess of Class C monthly interest for that distribution date over
the aggregate amount of funds allocated and available to pay Class C
monthly interest for that distribution date;
(2) the Class C note interest rate for the related interest period; and
(3) the actual number of days in that interest period divided by 360.
"Class C note interest rate" means, for any interest period, a rate of [.]%
per annum above LIBOR for the related LIBOR determination date.
"Class C monthly interest" means, for any distribution date, an amount
equal to the product of:
(1) the Class C note interest rate for the related interest period;
(2) the actual number of days in that interest period divided by 360;
and
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(3) the principal balance of the Class C notes as of the close of business
on the last day of the prior due period or, with respect to the first
distribution date, the principal balance of the Class C notes as of
the closing date.
"controlled accumulation amount" means, for any distribution date with
respect to the controlled accumulation period, $[.]. However, if the
commencement of the controlled accumulation period is postponed as described
under "Description of the Notes -- Principal Payments -- Postponement of
Controlled Accumulation Period," the controlled accumulation amount may be
higher than the amount stated above for each distribution date with respect to
the controlled accumulation period and will be determined by the servicer in
accordance with the Series 2000-[.] indenture supplement based on the principal
payment rates for the accounts and on the invested amounts of other series,
other than excluded series, which are scheduled to be in their revolving periods
and then scheduled to create shared principal collections during the controlled
accumulation period.
"controlled deposit amount" means, for any distribution date, the sum of:
(1) the controlled accumulation amount for that distribution date, plus
(2) the deficit controlled accumulation amount, if any.
"deficit controlled accumulation amount" means:
(1) on the first distribution date during the controlled accumulation
period, the excess, if any, of the controlled accumulation amount for
that distribution date over the amount deposited in the principal
funding account on that distribution date; and
(2) on each subsequent distribution date during the controlled
accumulation period, the excess, if any, of the applicable controlled
accumulation amount for that subsequent distribution date plus any
deficit controlled accumulation amount for the prior distribution date
over the amount deposited in the principal funding account on that
subsequent distribution date.
"distribution date" means [.], 2000 and the 15th day of each following
month or, if the 15th day is not a business day, the following business day.
"due period" means the period from and including the first day of a
calendar month to and including the last day of that calendar month, other than
the initial due period, which will commence on and include [.] and end on and
include [.], 2000.
"excess finance charge and administrative collections" means reallocated
investor finance charge and administrative collections, and other amounts
treated like finance charge and administrative collections, in excess of the
amount required to make payments or deposits for your series.
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"excess spread percentage" has the meaning set forth on page S-[.].
"expected principal payment date" means [.], 20[.].
"fixed investor percentage" means, for any due period, the percentage
equivalent of a fraction:
(1) the numerator of which is the adjusted invested amount as of the close
of business on the last day of the revolving period; and
(2) the denominator of which is the adjusted principal balance.
"floating investor percentage" means, for any due period, the percentage
equivalent of a fraction:
(1) the numerator of which is the adjusted invested amount as of the close
of business on the last day of the preceding due period (or with
respect to the first due period, the initial invested amount); and
(2) the denominator of which is the adjusted principal balance.
"interest period" means the period beginning on and including a
distribution date and ending on but excluding the next distribution date;
provided that the first interest period will begin on and include the closing
date.
"invested amount" means, for any date of determination, an amount equal to:
(1) the initial principal amount of the Series 2000-[.] notes, minus
(2) the amount of principal previously paid to the Series 2000-[.]
noteholders, minus
(3) the amount of unreimbursed investor charge-offs and subordinated
principal collections.
"investor charge-offs" means, for any due period, the excess of:
(1) the investor default amount for the related due period; over
(2) the amount available for reimbursement of investor default amounts
described under clause (5) under "Description of Series Provisions-Application
of Collections-Payment of Interest, Fees and Other Items."
"investor default amount" means, for any date of determination, an amount
equal to the product of:
(1) the floating investor percentage for that month; and
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(2) the defaulted amount.
"investor finance charge and administrative collections" means, for any
distribution date, an amount equal to the product of:
(1) the floating investor percentage for the related due period; and
(2) collections of finance charge and administrative receivables deposited
in the collection account for the related due period.
"investor percentage" means, for any due period:
(1) for defaulted amounts and for collections of finance charge and
administrative receivables at any time and for collections of
principal receivables during the revolving period, the floating
investor percentage; and
(2) for collections of principal receivables during the controlled
accumulation period, and early amortization period, the fixed investor
percentage.
"LIBOR" means, for any LIBOR determination date, the rate for deposits in
United States dollars for a [one-]month period which appears on Telerate Page
3750 as of 11:00 a.m., London time, on that date. If that rate does not appear
on Telerate Page 3750, the rate for that LIBOR determination date will be
determined based on the rates at which deposits in United States dollars are
offered by four major banks selected by the servicer at approximately 11:00
a.m., London time, on that day to prime banks in the London interbank market for
a [one]-month period. The indenture trustee will request the principal London
office of each of those banks to provide a quotation of its rate. If at least
two quotations are provided, the rate for that LIBOR determination date will be
the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that LIBOR determination date will be the arithmetic mean
of the rates quoted by major banks in New York City, selected by the servicer,
at approximately 11:00 a.m., New York City time, on that day for loans in United
States dollars to leading European banks for a [one-]month period.
"LIBOR determination date" means, for any interest period, two London
business days before that interest period commences, provided that the LIBOR
determination date for the first interest period will be two London business
days before the closing date.
"London business day" is any business day on which dealings in deposits in
United States dollars are transacted in the London interbank market.
"monthly administration fee" means an amount equal to one-twelfth of the
administration fee.
"monthly excess spread percentage" has the meaning set forth on page S-[.].
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"monthly interest" means, for any distribution date, an amount equal to the
sum of the Class A monthly interest, the Class B monthly interest and the Class
C monthly interest for that distribution date.
"monthly principal" means, for any distribution date, an amount equal to
the least of:
(1) the available investor principal collections on deposit in the
collection account with respect to that distribution date;
(2) for each distribution date with respect to the controlled accumulation
period, the controlled deposit amount for that distribution date; and
(3) the adjusted invested amount (as adjusted for any investor charge-offs
and subordinated principal collections on that distribution date).
"monthly servicing fee" means, for any distribution date, an amount equal
to one-twelfth of the product of:
(1) the servicing fee rate;
(2) the floating investor percentage for the related due period; and
(3) the total amount of principal receivables as of the close of business
on the last day of the immediately preceding due period, or with
respect to the first due period, the total amount of principal
receivables as of the closing date, in either case, excluding the
principal portion of participation interests;
provided, however, that with respect to any due period in which an addition date
for an aggregate addition or a removal date occurs, the amount in clause (3)
above shall be the sum of the amounts for each day in that due period computed
as follows and divided by the number of days in that due period:
(A) the aggregate amount of principal receivables, excluding the principal
portion of participation interests, as of the close of business on the
last day of the prior due period, for each day in the period from and
including the first day of that due period to but excluding the
related additional cut-off date or removal date; and
(B) the aggregate amount of principal receivables, excluding the principal
portion of participation interests, as of the close of business on the
related additional cut-off date or removal date after adjusting for
the aggregate amount of principal receivables, excluding the principal
portion of participation interests, added to or removed on the related
additional cut-off date or removal date, as the case may be, for each
day in the period from and
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including the related additional cut-off date or removal date to and
including the last day of that due period;
provided further, that with respect to the first distribution date, the monthly
servicing fee will equal $[.].
"monthly subordination amount" means, for any due period, the sum of:
(1) the lower of:
(a) the excess of the amounts needed to pay current and past due
Class A monthly interest as described under " --Application of
Collections -- Payment of Interest, Fees and Other Items" over
the reallocated investor finance charge and administrative
collections and excess finance charge and administrative
collections allocated to cover these amounts; and
(b) [.]% of the initial invested amount minus the amount of
unreimbursed investor charge-offs and unreimbursed subordinated
principal collections; plus
(2) the lower of:
(a) the excess of the amounts needed to pay current and past due
Class B monthly interest and the monthly servicing fee, if
Household Finance Corporation or any of its affiliates is no
longer the servicer, and prior unpaid monthly servicing fees as
described under "--Application of Collections -- Payments of
Interest, Fees and Other Items" over the reallocated investor
finance charge and administrative collections and excess finance
charge and administrative collections allocated to cover these
amounts; and
(b) [.]% of the initial invested amount minus the amount of
unreimbursed investor charge-offs and unreimbursed subordinated
principal collections.
"principal funding investment proceeds" means investment earnings, net of
investment losses and expenses, on funds on deposit in the principal funding
account.
"principal shortfalls" means any scheduled or permitted principal
distributions to noteholders and deposits to principal funding accounts, if any,
for any series in principal sharing group one which have not been covered out of
the collections of principal receivables allocable to the other series in
principal sharing group one and other amounts for those series.
"quarterly excess spread percentage" has the meaning set forth on page S-
[.].
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"reallocated investor finance charge and administrative collections" means
the amount of reallocation group one investor finance charge and administrative
collections allocated to the noteholders' interest for your series.
"reallocation group one investor additional amounts" means, for any
distribution date, the sum of:
(1) additional amounts for that distribution date; and
(2) for all other series included in reallocation group one, the aggregate
net amount by which the invested amounts of those series have been
reduced as a result of investor charge-offs, subordination of
principal collections and funding the investor default amounts for any
class or series enhancement interests of those series as of that
distribution date.
"reallocation group one investor default amount" means, for any
distribution date, the aggregate amount of the investor default amounts for all
the series included in reallocation group one for that distribution date.
"reallocation group one investor finance charge and administrative
collections" means, for any distribution date, the aggregate amount of the
available investor finance charge and administrative collections for all the
series included in reallocation group one.
"reallocation group one monthly interest" means, for any distribution date,
the sum of the aggregate amount of monthly interest, including overdue monthly
interest and interest on that overdue monthly interest, if applicable, for all
the series included in reallocation group one for that distribution date.
"reallocation group one monthly fees" means, for any distribution date, the
sum of:
(1) the monthly servicing fee and monthly administration fee for that
distribution date;
(2) the monthly servicing fee and monthly administration fee past due but
not paid for any prior distribution date; and
(3) fees similar to those described in clauses (1) and (2) above for
reallocation group one plus any additional fees and amounts, including
credit enhancement fees and reserve account funding requirements for
all other series included in reallocation group one.
"record date" means, for any distribution date, the last day of the
calendar month preceding that distribution date.
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"recoveries" are the amounts received by the transferor or the servicer
from the purchaser or transferee with respect to the sale or other disposition
of receivables in defaulted accounts.
"required minimum principal balance" means for all outstanding series,
unless otherwise provided in the related indenture supplement for a series
having a paired series, the sum of the series adjusted invested amounts for each
series outstanding on that date plus the required transferor amount on that
date, minus the amounts on deposit in the special funding account.
"required transferor amount" will be calculated as follows:
required X aggregate series
transferor adjusted invested
percentage amounts of all series
related to pool one
"required transferor percentage" means initially [.]%, but may be reduced
if the transferor provides the servicer and the indenture trustee with written
confirmation that the designation will not result in:
(1) the reduction or withdrawal by any rating agency of its rating of any
outstanding series or class; and
(2) an Adverse Effect.
"required spread account amount" has the meaning set forth on page S-[.].
"reserve account funding date" means the distribution date with respect to
the due period which commences three months prior to the commencement of the
controlled accumulation period, or an earlier date as the servicer may
determine.
"reserve draw amount" has the meaning set forth on page S-[.].
"required reserve account amount" means for any distribution date on or
after the reserve account funding date an amount equal to:
(1) [.]% of the principal balance of the Class A notes; or
(2) any other amount designated by the transferor; except that if the
designation is of a lesser amount, the transferor will provide the
servicer and the indenture trustee with written confirmation that the
designation will not result in the reduction or withdrawal by any
rating agency of its rating of any outstanding series or class and the
transferor will deliver to the indenture trustee a certificate of an
authorized officer of the transferor to the effect that, based on the
facts known to that officer at the time, in the
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reasonable belief of the transferor, the designation will not cause an
amortization event or an event that, after the giving of notice or the
lapse of time, would cause an amortization event to occur with respect
to Series 2000-[.].
"series 2000-[.] final maturity date" means the earlier of:
(1) the payment in full of the aggregate principal balance of the notes;
and
(2) [.], 200[.].
"series adjusted invested amount" means, with respect to any due period:
(1) during the revolving period, the invested amount as of the last day of
the immediately preceding due period; and
(2) during the controlled accumulation period, the invested amount as of
the close of business on the last day of the revolving period less the
amount in the principal funding account on such date of determination;
provided, however, that on any date, at the option of the transferor, such
amount may be reduced below the amount specified for the previous due period to
an amount not less than the greater of:
(a) the invested amount as of the last day of the immediately
preceding due period, less the amount of any distribution of
principal made to noteholders of this series since the last day
of the immediately preceding due period; and
(b) an amount that, if used as the numerator of the fixed investor
percentage for the remainder of the controlled accumulation
period, would assure that available investor principal
collections for this series plus the product of the aggregate
amount of the shared principal collections during each due period
multiplied by a fraction the numerator of which is the invested
amount of this series and the denominator of which is the
aggregate invested amount of all series not scheduled to be in
their revolving period during such due period would equal at
least 125% of the applicable controlled deposit amount for such
due period for so long as the invested amount is greater than
zero, assuming for this purpose that:
(A) the payment rate with respect to collections of principal
receivables remains constant at the level of the immediately
preceding due period;
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(B) the total amount of principal receivables theretofore
conveyed to and in the trust, and the amount on deposit in
the special funding account, remains constant at the level
existing on the date of such reduction;
(C) no amortization event with respect to any series will
subsequently occur; and
(D) no additional series, other than any series being issued on
the date of such reduction, will be subsequently issued; and
(3) during any early amortization period, the invested amount as of the
last day of the revolving period less the amount in the principal
funding account or, if less, the amount last determined under clause
(2) above during the controlled accumulation period.
"servicing fee rate" means 2% per annum or such lesser percentage as may be
specified by the servicer and which, in the reasonable belief of the servicer,
will not result in an Adverse Effect.
"series portfolio yield" means, for any due period, the annualized
percentage equivalent of a fraction:
(1) the numerator of which is the sum of reallocated investor finance
charge and administrative collections and excess finance charge and
administrative collections, if any, deposited in the collection
account and allocable to the Series 2000-[.] notes for that due
period, calculated on a cash basis after subtracting the investor
default amount for that due period; and
(2) the denominator of which is the aggregate principal balance of the
notes as of the close of business on the last day of the immediately
preceding due period.
"shared principal collections" means the amount of collections of principal
receivables for any due period allocated to the invested amount remaining after
covering required payments to the noteholders, any similar amount remaining for
any other series in principal sharing group one and, at the option of the issuer
as specified in the indenture, specified net proceeds from the issuance of a new
series.
"spread account percentage" has the meaning set forth on page S-[.].
"subordinated principal collections" means, for any due period, available
investor principal collections used to pay interest on the Class A notes and the
Class B notes or used to pay the monthly servicing fee, if Household Finance
Corporation or any of its affiliates are not the servicer, in an amount equal to
the lesser of:
(1) the monthly subordination amount for that due period; and
S-64
<PAGE>
(2) the invested amount after giving effect to any investor charge-offs
for that distribution date.
"transferor amount" means with respect to pool one an amount equal to the
difference between:
(1) the sum of (a) the total amount of principal receivables in pool one
of the trust portfolio on the immediately preceding day and (b) the
special funding account balance; and
(2) the aggregate series adjusted invested amounts of all series of notes
related to pool one then outstanding.
"Telerate Page 3750" means the display page currently so designated on the
Bridge Telerate Capital Markets Report, or any other page as may replace that
page on that service for the purpose of displaying comparable rates or
prices.
S-65
<PAGE>
Annex
I
Other Series Issued And Outstanding
The table below sets forth the principal characteristics of the other
series previously issued by the trust that are currently outstanding, [all of
which are in reallocation group one, excess finance charge sharing group one,
and principal sharing group one]. For more specific information with respect to
any series, any prospective investor should contact Household Finance
Corporation, at 2700 Sanders Road, Prospect Heights, Illinois 60070 (telephone
(847) 564-5000). Household Finance Corporation will provide, without charge, to
any prospective purchaser of the notes, a copy of the disclosure documents for
any previous publicly-issued series.
[1. Series 2000-[.]
Initial Class A Invested Amount........................................... $[.]
Current Class A Invested Amount........................................... $[.]
Class A note interest rate.................[one-month] LIBOR plus [.]% per annum
Initial Class B Invested Amount........................................... $[.]
Current Class B Invested Amount........................................... $[.]
Class B note interest rate.................[one-month] LIBOR plus [.]% per annum
Initial Class C Invested Amount........................................... $[.]
Current Class C Invested Amount........................................... $[.]
Class C note interest rate.................[one-month] LIBOR plus [.]% per annum
[controlled accumulation amount...........................................$[.]*]
[Expected principal payment date..........................[.] distribution date]
Annual servicing fee percentage...................................[.]% per annum
[Enhancement for the Class A notes...Subordination of Class B and Class C notes]
[Enhancement for the Class B notes...............Subordination of Class C notes]
[Enhancement for the Class C notes.............................. spread account]
Series 2000-[.] final maturity date........................[.] distribution date
Series Issuance Date................................................. [.] , 2000
____________
* Subject to change if the commencement of the accumulation period or
controlled accumulation period, as applicable, is delayed.]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be amended. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and is not soliciting an offer to buy these +
+ securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated [.], 2000
Prospectus
Household Credit Card Master Note Trust I
Issuer
Household Receivables Funding,
Transferor
Household Finance Corporation
Servicer
Asset Backed Notes
The Trust --
. may periodically issue asset backed notes in one or more series with one or
more classes; and
. will own --
. receivables in a portfolio of revolving credit accounts;
. payments due on those receivables; and
. other property described in this prospectus and in the accompanying
prospectus supplement.
The Notes --
. offered with this prospectus will be rated in one of the four highest
rating categories by at least one nationally recognized rating
organization;
. will be paid only from the trust assets;
. may have one or more forms of credit enhancement; and
. will be issued as part of a designated series which may include one or more
classes of notes and credit enhancement.
-------------------------------------------------------------------------
You should consider carefully the risk factors beginning on page [.] in
this prospectus.
A note is not a deposit and neither the notes nor the underlying accounts
or receivables are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
The notes are obligations of Household Credit Card Master Note Trust I
only and are not obligations of Household Receivables Funding, Inc. III,
Household Finance Corporation, Household Bank (Nevada), N.A. or any other
person.
-------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these notes or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
[.], 2000
<PAGE>
Important Notice about Information Presented in this
Prospectus and the Accompanying Prospectus Supplement
We provide information to you about the notes in two separate documents:
this prospectus, which provides general information, some of which may
not apply to your series of notes; and
the accompanying prospectus supplement, which describes the specific
terms of your series of notes, including:
. the terms, including interest rates, for each class;
. the timing of interest and principal payments;
. information about the receivables;
. information about credit enhancement, if any, for each class;
. the ratings for each class being offered; and
. the method for selling the notes.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the notes in any state where the offer is not
permitted.
We include cross references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
in the accompanying prospectus supplement provide the pages on which these
captions are located.
This prospectus uses defined terms. You can find a listing of beginning on
page [.] in this prospectus.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Prospectus Summary.......................................................... 1
The Issuer............................................................. 1
Risk Factors........................................................... 1
Indenture Trustee...................................................... 1
Owner Trustee.......................................................... 1
Transferor............................................................. 1
Servicer and Administrator............................................. 1
Trust Assets........................................................... 1
Interest Payments on the Notes......................................... 2
Principal Payments on the Notes........................................ 2
Revolving Period.................................................. 2
Controlled Accumulation Period.................................... 3
Controlled Amortization Period.................................... 3
Early Amortization or Early Accumulation Period................... 3
Amortization Events............................................... 4
Events of Default...................................................... 4
General........................................................... 4
Events of Default Remedies........................................ 4
Note Ratings........................................................... 5
Credit Enhancement..................................................... 5
Tax Status............................................................. 5
Collections and Allocations............................................ 5
Groups................................................................. 6
General........................................................... 6
Excess Finance Charge Sharing Group............................... 6
Reallocation Group................................................ 6
Shared Enhancement Group.......................................... 6
Principal Sharing Group........................................... 7
Shared Transferor Principal Collections................................ 7
Risk Factors................................................................ 8
The Issuer..................................................................19
Use of Proceeds.............................................................19
The Bank's Credit Card Activities...........................................19
</TABLE>
<PAGE>
<TABLE>
<S> <C>
General............................................................. 19
Origination......................................................... 20
Account Management.................................................. 21
Interchange......................................................... 22
The Trust Portfolio...................................................... 22
Description of the Notes................................................. 25
General............................................................. 25
Note Ratings........................................................ 26
Book-Entry Registration............................................. 27
Definitive Notes.................................................... 31
New Issuances....................................................... 32
Funding Period...................................................... 33
Paired Series....................................................... 34
Interest Payments................................................... 34
Principal Payments.................................................. 35
Credit Enhancement.................................................. 36
General........................................................ 36
Subordination.................................................. 37
Cash Collateral Guaranty or Account............................ 38
Spread Account................................................. 38
Reserve Account................................................ 38
Letter of Credit............................................... 38
Surety Bond or Insurance Policy................................ 39
Amortization Events................................................. 39
Final Payment of Principal; Termination............................. 40
Defeasance.......................................................... 41
Reports to Noteholders.............................................. 41
Investor Percentage, Transferor Percentage and Credit Enhancement
Percentage.......................................................... 43
Groups.............................................................. 43
General........................................................ 43
Excess Finance Charge Sharing Group............................ 43
Reallocation Group............................................. 44
Shared Enhancement Group....................................... 44
Principal Sharing Group........................................ 44
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Shared Transferor Principal Collections............................... 44
Trust Bank Accounts................................................... 45
Application of Collections............................................ 45
Defaulted Receivables; Investor Charge-Offs........................... 48
Description of the Indenture............................................... 48
Events of Default; Rights Upon Event of Default....................... 48
Material Covenants.................................................... 51
Modification of the Indenture......................................... 52
Annual Compliance Statement........................................... 55
Indenture Trustee's Annual Report..................................... 55
List of Noteholders................................................... 55
Satisfaction and Discharge of Indenture............................... 55
Resignation and Removal of the Indenture Trustee...................... 55
Description of the Transfer and Servicing Agreement........................ 56
General............................................................... 56
Representations and Warranties of the Transferor...................... 56
Regarding No Conflict............................................ 56
Regarding Enforceability......................................... 57
Regarding the Accounts and the Receivables....................... 58
Additional Representations and Warranties in the Prospectus
Supplement....................................................... 58
Additional Transferors................................................ 58
Eligible Accounts..................................................... 59
Eligible Receivables.................................................. 60
Addition of Trust Assets.............................................. 61
Removal of Trust Assets............................................... 63
Discount Option....................................................... 64
Servicing Compensation and Payment of Expenses........................ 64
Matters Regarding the Servicer and the Transferor..................... 65
Servicer Default...................................................... 67
Evidence of Compliance................................................ 68
Assumption of a Transferor's Obligations.............................. 69
Amendments............................................................ 70
Description of the Purchase Agreements..................................... 72
Sale of Receivables................................................... 72
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Representations and Warranties....................................... 72
Amendments........................................................... 73
Termination.......................................................... 74
Material Legal Aspects of the Receivables................................. 74
Transfer of Receivables.............................................. 74
Matters Relating to Conservatorship, Receivership and Bankruptcy..... 76
Consumer Protection Laws............................................. 78
Material Federal Income Tax Consequences.................................. 78
General.............................................................. 78
Tax Characterization of the Trust and the Notes...................... 79
Consequences to Holders of the Offered Notes......................... 80
State and Local Tax Consequences..................................... 83
ERISA Considerations...................................................... 83
Plan of Distribution...................................................... 84
Reports to Noteholders.................................................... 84
Where You Can Find More Information....................................... 85
Glossary.................................................................. 86
Global Clearance, Settlement and Tax Documentation Procedures............. 1
</TABLE>
<PAGE>
Prospectus Summary
This summary highlights information and does not contain all of the
information that you need to consider in making your investment decision. You
should carefully read this entire document and the accompanying prospectus
supplement before you purchase any notes.
The Issuer
Household Credit Card Master Note Trust I, a Delaware statutory business trust,
is the issuer of the notes. The trust's principal place of business is located
at Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001.
Its phone number is (302) 651-8856.
The trust is a master trust and will issue notes in series. Each series of notes
will consist of one or more classes. The classes of a series may be issued at
the same time or at different times. The notes of each series will be issued
from an indenture supplement to an indenture, in each case between the trust and
the indenture trustee.
Some classes or series may not be offered by this prospectus. They may be
offered, for example, in a private placement.
Risk Factors
Investment in the series 2000-[.] Notes involves risks. You should consider
carefully the risk factors beginning on page [.] in the prospectus.
Indenture Trustee
Wells Fargo Bank Minnesota, N.A. is the indenture trustee under the indenture.
Its address is MAC N9311-161, 6th & Marquette, Minneapolis, MN 55479 attention:
Asset Backed Securities. Its phone number is (612) 667-8058.
Owner Trustee
Wilmington Trust Company is the owner trustee under the trust agreement. Its
address is Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-
0001. Its phone number is: (302) 651-8856.
Transferor
Household Receivables Funding, Inc. III is the transferor of the credit card
receivables to the trust. Its address is 1111 Town Center Drive, Las Vegas,
Nevada 89134. Its phone number is (702) 243-1156. Household Receivables
Funding, Inc. III is a special purpose Delaware corporation whose stock is held
by Household Finance Corporation.
Servicer and Administrator
Household Finance Corporation will service the receivables for the trust through
its affiliate, Household Credit Services, Inc., acting as subservicer, and will
act as the trust's administrator. Its address is 2700 Sanders Road, Prospect
Heights, Illinois 60070. Its phone number is (847) 564-5000. Household Finance
Corporation is a wholly-owned subsidiary of Household International, Inc.
In limited cases, the servicer may resign or be removed, and either the
indenture trustee or a third party may be appointed as the new servicer. The
servicer receives a servicing fee from the trust, and each series is obligated
to pay a portion of that fee. In addition, Household Finance Corporation,
acting as trust's administrator, will receive an administration fee from the
trust.
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<PAGE>
Trust Assets
Household Bank (Nevada), N.A. is the originator of the credit card receivables.
It has designated revolving credit card accounts from its portfolio and has sold
the receivables in those accounts to Household Receivables Funding, Inc. III
under a receivables purchase agreement. Household Receivables Funding, Inc. III
has, in turn, sold those receivables to the trust under the transfer and
servicing agreement.
All new receivables generated in the accounts will be transferred automatically
to the trust. The total amount of receivables in the trust fluctuates daily as
new receivables are generated and payments are received on existing receivables.
The receivables transferred to the trust are the primary trust assets.
Additional assets may be transferred to the trust as described under "The
Transfer and Servicing Agreement -- Addition of Trust Assets" in this
prospectus. The transferor may also remove receivables that it transferred to
the trust as described under "Transfer and Servicing Agreement -- Removal of
Trust Assets" in this prospectus.
For more information about the receivables, see "The Trust Portfolio" in this
prospectus.
All trust assets will initially be in a pool of assets designated as pool one.
All series of notes offered by this prospectus will be backed by the assets in
pool one unless the prospectus supplement for a series specifies a different
pool of assets for that series. In the event that assets are deposited into the
trust and designated as being in a pool of assets other than pool one, a
separate collection account and special funding account will be created for that
pool. Series of notes which are issued to finance assets in a different pool
will be backed solely by those assets and not by assets in pool one. All
references in this prospectus to receivables, accounts and notes shall refer to
pool one only, unless otherwise stated.
Interest Payments on the Notes
Each note entitles the holder to receive payments of interest as described in
the applicable prospectus supplement. If a series of notes consists of more
than one class, each class may differ in, among other things, priority of
payments, payment dates, interest rates, methods for computing interest, and
rights to series enhancement.
Each class of notes may have fixed, floating or any other type of interest rate.
Generally, interest will be paid monthly, quarterly, semi-annually or on other
scheduled dates over the life of the notes. See "Description of the Notes -
Interest Payments" in this prospectus.
Principal Payments on the Notes
Each note entitles the holder to receive payments of principal as described in
the applicable prospectus supplement. If a series of notes consists of more
than one class, each class may differ in, among other things, the amounts
allocated for principal payments, priority of payments, payment dates, maturity,
and rights to series enhancement. See "Description of the Notes -- Principal
Payments" in this prospectus.
Revolving Period
Each series of notes will begin with a period during which the trust will not
pay or accumulate principal for payment to the noteholders of that series. The
period when no principal is paid or accumulated is known as the revolving
period. The trust, during the revolving period, will pay available principal to
noteholders of other series in a principal sharing group as shared principal
collections or to the transferor as holder of the transferor interest, or in
limited circumstances described under "Description of the Notes -
2
<PAGE>
Special Funding Account" and "- Application of Collections" will deposit the
available principal in the special funding account. The revolving period for a
series begins on the closing date described in the applicable prospectus
supplement and ends at the start of an amortization period or an accumulation
period.
Following the revolving period, each class of notes will have one or more of the
following periods in which:
. principal is accumulated in specified amounts per month and paid on an
expected principal payment date, known as a controlled accumulation
period;
. principal is paid in fixed amounts at scheduled intervals, known as a
controlled amortization period; or
. principal is paid or accumulated in varying amounts each month based on the
amount of principal receivables collected following an amortization event,
known as an early amortization period or early accumulation period,
respectively.
In addition, each class may have other types of accumulation or amortization
periods as specified in the related prospectus supplement.
Controlled Accumulation Period
If a series or class of notes is in a controlled accumulation period, the trust
is expected to pay available principal to those noteholders on the date
specified in the prospectus supplement for that class or series. If the series
has more than one class, each class may have a different priority for payment, a
different payment methodology and a different expected principal payment date.
For a period of time prior to the expected principal payment date, the trust
will deposit specified amounts of available principal in a trust account. The
controlled accumulation period for a series or class begins on a date specified
in the applicable prospectus supplement and ends when any one of the following
occurs:
. the notes of that series or class are paid in full;
. the early amortization or early accumulation period starts; or
. the latest date by which principal and interest for the series of notes can be
paid, known as the series final maturity date.
Controlled Amortization Period
If a series or class of notes is in a controlled amortization period, the trust
will pay available principal up to a fixed amount to those noteholders on each
distribution date during that period. The trust will pay available principal in
a fixed amount, plus any amounts not previously paid. If the series has more
than one class, each class may have a different priority for payment and a
different payment methodology. The controlled amortization period for a series
or class starts on the date specified in the applicable prospectus supplement
and ends when any one of the following occurs:
. the notes of that series or class are paid in full;
. the early amortization or early accumulation period starts; or
. the series final maturity date.
Early Amortization or Early Accumulation Period
If a series or class of notes is in an early amortization or early accumulation
period, the trust will pay available principal to those noteholders on each
distribution date or accumulate available principal by making a deposit into an
account on each distribution date. If the series has more than one class,
3
<PAGE>
each class may have a different priority for payment. The early amortization
period or early accumulation period for a series or class starts on the day an
amortization event occurs and ends when any of the following occurs:
. the notes of that series or class are paid in full;
. the series final maturity date; or
. the trust termination date.
Amortization Events
An amortization event for any series of notes will include adverse events
described in the prospectus supplement for that series. In addition, the
following will be amortization events for all series:
. bankruptcy, insolvency or similar events relating to the transferor,
including any additional transferor, Household Finance Corporation or the
bank;
. the transferor, including any additional transferor, is unable to transfer
receivables to the trust as required under the transfer and servicing
agreement; or
. the trust becomes subject to regulation as an "investment company" under the
Investment Company Act of 1940.
See "Description of the Notes - Amortization Events" in this prospectus.
Events of Default
General
The indenture and related indenture supplement governing the terms and
conditions of the notes include a list of adverse events called events of
default.
. If an event of default occurs, then, after any applicable cure period, the
indenture trustee or the holders of a majority of the outstanding principal
amount of the affected series of outstanding notes may accelerate the notes by
declaring all the notes of that series to be immediately due and payable.
That declaration may, under limited circumstances described under "The
Indenture - Events of Default; Rights upon Event of Default", be rescinded by
the holders of a majority of the outstanding principal amount of the affected
series of outstanding notes.
Events of default include the following:
. the trust fails to pay interest on any note within 35 days of its due date;
. the trust fails to pay in full principal on any note on its series final
maturity date;
. the trust defaults on any covenant or breaches any agreement under the
indenture and the default or breach continues unremedied for 60 days after
written notice of the default or breach is given to the trust by the indenture
trustee or to the trust and the indenture trustee by holders of at least 25%
of the outstanding principal amount of the affected series of notes; or
. the occurrence of those events of bankruptcy, insolvency, reorganization or
similar events relating to the trust described under "The Indenture - Events
of Default".
See "The Indenture - Events of Default; Rights upon Event of Default" in this
prospectus for a description of the events of default and their consequences to
noteholders.
It is not an event of default if the principal of a note is not paid on its
expected principal payment date.
Events of Default Remedies
After an event of default and the acceleration of a series of notes, funds on
deposit in the collection account and any trust accounts with
4
<PAGE>
respect to that series will be applied to pay principal of and interest on those
notes to the extent permitted by law. After an event of default, principal
collections and finance charge and administrative collections allocated to the
series of notes will be applied to make monthly principal and interest payments
on those notes until the earlier of the date those notes are paid in full or the
series final maturity date of those notes.
After an event of default, the indenture trustee, acting on its own or at the
direction of holders of a specified percentage of the outstanding principal
amount of the accelerated notes, will have a limited right to foreclose on the
portion of the receivables allocable to the accelerated series of notes by
causing the trust to sell principal receivables in an amount generally equal to
the invested amount of the accelerated series of notes plus the related finance
charge and administrative receivables. The proceeds from the sale of the
receivables will be used to pay principal of and interest on your notes. See
"The Indenture - Events of Default; Rights upon Event of Default" in this
prospectus.
Note Ratings
Any note offered by this prospectus and an accompanying prospectus supplement
will be rated in one of the four highest rating categories by at least one
nationally recognized rating organization.
The ratings of the notes address the likelihood of the timely payment of
interest on and the ultimate payment of principal of the notes. The rating
agencies have not rated the ability to pay principal of the notes in full on the
expected principal payment date or any other date prior to the series final
payment date.
A rating is not a recommendation to buy, sell or hold securities, and may be
revised or withdrawn at any time by the assigning agency. Each rating should be
evaluated independently of any other rating. See "Description of the Notes -
Note Ratings" in this prospectus.
Credit Enhancement
Each class of a series may be entitled to credit enhancement. Credit enhancement
for the notes of any class may take the form of one or more of the following:
. subordination . letter of credit
. collateral interest . surety bond
. insurance policy . spread account
. cash collateral guaranty or account . reserve account
. swap arrangements . guaranteed rate agreement
. interest rate cap agreement . tax protection agreement
The type, characteristics and amount of any credit enhancement for a series will
be:
. based on several factors, including the characteristics of the receivables
and accounts at the time a series of notes is issued; and
. established based on the requirements of the rating agencies.
See " Description of the Notes -Credit Enhancement" in this prospectus.
Tax Status
Subject to important considerations described under "Federal Income Tax
Consequences" in this prospectus, Orrick, Herrington & Sutcliffe LLP, as special
tax counsel to the trust, is of the opinion that, for United States federal
income tax purposes the notes will be treated as indebtedness and the trust will
not be an association or a publicly traded partnership taxable as a corporation
and
5
<PAGE>
accordingly will not be subject to federal income tax. In addition,
noteholders will agree, by acquiring notes, to treat the notes as debt of the
transferor for federal, state and local income and franchise tax purposes.
Collections and Allocations
The servicer receives collections on the receivables, deposits those collections
in the collection account and keeps track of them as finance charge and
administrative receivables or principal receivables.
The servicer then allocates those collections among each series of notes
outstanding and the transferor interest. The servicer allocates collections of
finance charge and administrative receivables and principal receivables, and
receivables in accounts written off as uncollectible to each series based on
varying percentages. The accompanying prospectus supplement describes the
allocation percentages applicable to your series.
The interest in the assets not allocated to any series of notes is the
transferor interest. The principal amount of the transferor interest fluctuates
with the amount of the principal receivables held in the trust and the amount of
notes outstanding. The transfer and servicing agreement requires the transferor
to transfer receivables in additional accounts to the trust if the total amount
of principal receivables, as of the last business day of any calendar month, is
less than the sum of the series adjusted invested amounts for each series
outstanding, less any amount in the special funding account, plus an amount
referred to as the required transferor amount. The transferor may sell all or
part of its interest in the transferor's interest by issuing a supplemental
certificate.
Groups
General
The notes of a series may be included in one or more groups of series that share
collections of finance charge and administrative receivables and/or principal
receivables. The prospectus supplement will identify whether your series has
been included in one or more of the following groups.
Excess Finance Charge Sharing Group
The notes of a series may be included in a group of series, called an excess
finance charge sharing group, that shares excess collections of finance charge
and administrative receivables, including excess collections of finance charge
and administrative receivables which have been reallocated to a series which is
included in both an excess finance charge sharing group and a reallocation
group. If specified in the prospectus supplement for any of these series, to
the extent that collections of finance charge and administrative receivables
allocated to a series are not needed for that series, those collections may be
applied to other series in the same excess finance charge sharing group. See
"Description of the Notes - Groups - Excess Finance Charge Sharing Group" in
this prospectus.
Reallocation Group
The notes of a series may be included in a group of series, called a
reallocation group, that reallocates collections of finance charge and
administrative receivables and other amounts among the series in that group.
Collections of finance charge and administrative receivables which would
otherwise be allocated to each series in the reallocation group will instead be
combined and will be available for required payments, described in the
prospectus supplement, to all series in that group. Any issuance of a new
6
<PAGE>
series in a reallocation group may reduce or increase the amount of finance
charge collections allocated to any other series of notes in that group. See
"Description of the Notes - Groups - Reallocation Group" in this prospectus.
Shared Enhancement Group
The notes of a series may be included in a group of series, called a shared
enhancement group, that shares collections of finance charge and administrative
receivables and other amounts and shares in the same credit enhancement for each
series in that shared enhancement group. Shared enhancement may take the form,
among others, of classes of notes of one or more series in a particular shared
enhancement group issued from time to time which are subordinate to other
classes issued at the same or a different time in the same series or in
different series in that shared enhancement group. In addition, if specified in
its prospectus supplement, a series may consist of one or more classes of notes
issued in one or more subseries. References to a series in this prospectus
include any subseries of a series. All subseries of that series would share
collections of finance charge and administrative receivables and other amounts,
described in the prospectus supplement, and share in the same credit enhancement
for that series.
Principal Sharing Group
The notes of a series may be included in a group of series, called a principal
sharing group, that shares collections of principal receivables for each series
in that group. If a series is identified in its prospectus supplement as being
in a group of series that share principal collections, to the extent that
collections of principal receivables allocated to that series are not needed for
that series, those collections may be applied to cover principal payments for
other principal sharing series in the same principal sharing group, and vice
versa. See "Description of the Notes -Groups - Principal Sharing Group" in this
prospectus.
Shared Transferor Principal Collections
If a series is identified in its prospectus supplement as being entitled to
receive shared transferor principal collections, collections of principal
receivables otherwise payable to the transferor may be applied to cover
principal payments for that series. See "Description of the Notes - Shared
Transferor Principal Collections" in this prospectus.
7
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Risk Factors
The risk factors disclosed in this section of the prospectus and in the
prospectus supplement describe the principal risk factors of an investment in
the notes.
Some liens may be given priority over Although the transfer of receivables
your notes which could cause your by the bank or another account owner
receipt of payments to be delayed or or receivables seller is treated as
reduced. a sale, a court could conclude that
any of the trust, the transferor, or
the bank or other account owner or
receivables seller owns the
receivables. Even so, the indenture
trustee would still have a first
priority perfected security interest;
however, the following interests may
receive priority above your
interest:
. a tax or governmental lien, or
other lien imposed under applicable
state or federal law without consent,
on the property of the person that
owns the receivables arising before
receivables come into existence;
. the fees and expenses of a
receiver or conservator for the bank
or any other account owner or
receivables seller which is a bank or
a similarly regulated financial
institution;
. the interests of other creditors
in collections commingled and used
for the benefit of the servicer, if
insolvency or bankruptcy proceedings
were commenced by or against the
servicer.
In addition, if any account owner or
receivables seller is not a bank or a
similarly regulated financial
institution and insolvency or
bankruptcy proceedings were commenced
by or against it, the automatic stay
provisions of that law could
interfere with the timely transfer of
collections to the indenture trustee.
If any of these events were to occur,
payments to you could be delayed or
reduced. See "Material Legal Aspects
of the Receivables- Transfer of
Receivables" and "The Transfer and
Servicing Agreement - Representations
and Warranties of the Transferor" in
this prospectus.
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In addition, with respect to the
addition of additional accounts and
participations to the trust, the
indenture trustee may not have a
first-priority perfected security
interest with respect to those
additional accounts and
participations before the required
delivery date of the computer file or
microfiche list reflecting the
addition of those additional accounts
and participations to the trust. The
required delivery date for new
accounts and participations may be as
long as 109 days after the related
addition date. If insolvency or
bankruptcy proceedings were commenced
by or against the transferor or the
bank or other account owner or
receivables seller after the related
addition date but prior to the
related required delivery date, other
secured or unsecured creditors of the
transferor or the bank or other
account owner or receivables seller
could have claims ranking higher than
yours and, consequently, payments to
you could be reduced.
If a conservator or receiver were If the FDIC were appointed as
appointed for the bank or other account conservator or receiver for the bank
owner or receivables seller, or the or other account owner or
transferor or other account owner or receivables seller, an early payment
receivables seller became a debtor in a or result, and payments to you could
bankruptcy case, delays or reductions be delayed or reduced. If the FDIC
in payment of your notes could did not respect the security
occur. account owner or receivables seller,
in the receivables, the FDIC
could:
. require the indenture trustee to
go through the administrative claims
procedure established by the FDIC in
order to obtain payments on the
notes;
. request a stay of any actions by
the indenture trustee to enforce the
receivables purchase agreement or the
notes against the bank; or
. repudiate the receivables purchase
agreement and limit the claims of the
holders of the notes to their "actual
direct compensatory damages."
If the FDIC were to take any of
these actions,
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<PAGE>
the amount payable to you could be
delayed and could be less than the
outstanding principal and accrued
interest on the notes, thus resulting
in losses to you.
Payments to you also could be delayed
or reduced if the transfer of
receivables to the transferor were
construed as the grant of a security
interest rather than an absolute
assignment or if the assets and
liabilities of the transferor were
substantively consolidated with those
of an entity in bankruptcy.
If a conservator or receiver were
appointed for the bank or any account
owner or receivables seller, of if
the transferor or any account owner
or receivables seller other than the
bank became a debtor in a bankruptcy
case, an early payment of principal
on all outstanding series could
result. Under the terms of the
receivables purchase agreement and
the transfer and servicing agreement,
new principal receivables would not
be transferred to the trust. However,
the bankruptcy court, the conservator
or the receiver may have the power,
regardless of the terms of the
receivables purchase agreement and
the transfer and servicing agreement,
to delay that procedure, to prevent
the early payment of principal, or to
require new principal receivables to
continue being transferred.
In addition, in the event the
servicer became a debtor in a
bankruptcy case, a court overseeing
the servicer's bankruptcy case may
have the power to prevent either the
indenture trustee or the noteholders
from appointing a new servicer. See
"Material Legal Aspects of the
Receivables-Matters Relating to
Conservatorship, Receivership and
Bankruptcy" in this prospectus.
You may have limited or no ability to Under the indenture, noteholders
control actions under the indenture. holding a specified percentage of
This may result in, among other things, the outstanding principal amount of
payment of principal being accelerated or all the notes may take actions,
when it is in your interest to receive or may direct the indenture trustee
to take various actions
10
<PAGE>
payment of principal at the scheduled described under "Description of the
principal payment date, or it may Indenture - Events of Default,
result in payment of principal not Rights Upon Events of Default",
being accelerated when it is in your including accelerating the payment
interest to receive early payment of of principal of the notes. In the
principal. case of votes by series or votes by
holders of all the notes, the most
senior class of notes will generally
be substantially greater than the
subordinate class or classes of
notes. The holders of the most senior
class of notes will therefore
generally have the ability to
determine whether and what actions
are to be taken. The holders of the
subordinate class or classes of notes
will generally need the concurrence
of the holders of the most senior
class of notes to cause actions to be
taken. Therefore, the actions taken
or not taken by the controlling
noteholders may be contrary to the
actions that you determine to be in
your best interest.
If an event of default occurs, your Your remedies may be limited if an
remedy options will be limited and you event of default under your class or
may not receive full payment of series of notes occurs. After an
principal and accrued interest. acceleration of your series of notes
collections of principal receivables
and finance charge and administrative
receivables allocated to those notes
and, if applicable any funds in the
principal funding account for your
series, will be applied to make
payments of monthly interest and
principal on those notes until the
earlier of the date those notes are
paid in full and the final maturity
date of those notes. However, no
principal collections will be
allocated to a class of notes if its
invested amount is zero, even if the
stated principal balance of the note
has not been paid in full. If your
series includes a principal funding
account, funds in that principal
funding account, if any, that are not
reallocated to other classes of that
series will still be available to pay
principal of and interest on classes
of notes with an invested amount of
zero. If your notes are subordinated
notes as specified in the prospectus
supplement, you will receive payment
of principal of those notes only
if
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<PAGE>
and to the extent that, after giving
effect to that payment, the amount of
subordination, as specified in the
prospectus supplement, will be
maintained for the senior classes of
notes in that series.
If the transferor breaches Household Receivables Funding, Inc.
representations and warranties relating III, as transferor of the
to the receivables, payments on your receivables, makes representations
notes may be reduced. and warranties relating to the
validity and enforceability of the
receivables arising under the
accounts in the trust portfolio, and
as to the perfection and priority of
the indenture trustee's interest in
the receivables. However, neither the
owner trustee nor the indenture
trustee will make any examination of
the receivables or the related assets
to determine the presence of defects,
compliance with the representations
and warranties or for any other
purpose.
If a representation or warranty
relating to the receivables is
violated, the related obligors may
have defenses to payment or offset
rights, or creditors of the other
account owner or receivables seller
or the transferor may claim rights to
the trust assets. If a representation
or warranty is violated, the
transferor may have an opportunity to
cure the violation. If it is unable
to cure the violation within the
specified time period or if there is
no right to cure the violation, the
transferor must accept reassignment
of the receivables affected by the
violation. These reassignments are
the only remedy for breaches of
representations and warranties, even
if your damages exceed your share of
the reassignment price. See "The
Transfer and Servicing Agreement -
Representations and Warranties of the
Transferor" in this prospectus.
Changes to consumer protection laws may Receivables that do not comply with
impede collection efforts or reduce consumer protection laws may not be
collections which may result in a valid or enforceable under their
reduction in payments on your notes. terms against the obligors on those
receivables.
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<PAGE>
Federal and state consumer protection
laws regulate the creation and
enforcement of consumer loans,
including credit card accounts and
receivables. Changes or additions to
those regulations could make it more
difficult for the servicer of the
receivables to collect payments on
the receivables or reduce the finance
charges and other fees that the
originator can charge on credit card
account balances, resulting in
reduced collections.
If a cardholder sought protection
under federal or state bankruptcy or
debtor relief laws, a court could
reduce or discharge completely the
cardholder's obligations to repay
amounts due on its account and, as a
result, the related receivables would
be written off as uncollectible. See
"Material Legal Aspects of the
Receivables - Consumer Protection
Laws" in this prospectus.
Competition in the credit card industry The credit card industry is highly
may result in a decline in the bank's competitive. As new credit card
or other account owner's ability to companies enter the market and
generate new receivables. This may companies try to expand their
result in the payment of principal to market share, effective advertising,
you earlier or later that your target marketing and pricing
scheduled principal payment date. strategies grow in importance. The
bank's or other account owner's
ability to compete in this industry
environment will affect its ability
to generate new receivables and might
also affect payment patterns on the
receivables. If the rate at which the
bank or other account owner generates
new receivables declines
significantly, the bank or other
account owner might be unable to
transfer additional receivables or
designate additional accounts to the
trust and an amortization event could
occur, resulting in payment of
principal sooner than expected. If
the rate at which the bank or other
account owner generates new
receivables decreases significantly
at a time when noteholders are
scheduled to receive principal,
noteholders might receive principal
more slowly than
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<PAGE>
planned.
Affinity program restrictions on pricing The accounts, the receivables of
and other account terms could limit the which currently have been conveyed
ability of the bank or other account or will be conveyed to the trust on
owner to change account terms. These the closing date, were originated
restrictions may cause collections to under an affinity agreement between
decline or may affect the rate at which the bank and Union Privilege. The
new receivables are generated in the Union Plus program contains, and
accounts. This may result in early other affinity programs may contain,
payments of principal to you. restrictions on pricing and other
practices. In the future, additional
accounts may also be designated for
inclusion in the trust relating to
other affinity or non-affinity
programs. The current pricing
restrictions in the Union Plus
programs and changes in the terms of
these programs may reduce collections
or may affect the rate at which new
receivables are generated in the
accounts. See "The Bank's Credit Card
Portfolio - Billing and Payments" in
the accompanying prospectus
supplement.
The account owner may change the terms As owner of the accounts, the bank
and conditions of the accounts in a way or other account owner retains the
that reduces collections. These changes right to change various account
may result in reduced or early payments terms including finance charges,
to you. other fees and the required monthly
minimum payment. Those changes may be
voluntary on the part of the bank or
may be forced by law or market
conditions. Changes by the bank or
other account owner in interest rate
and fees charged to its customers
could decrease the effective yield on
the accounts and this could result in
an early payment or reduced payment
of principal of your notes. Changes
in the required monthly minimum
payment could result in delays in the
payment of your notes. Changes in
account terms could also cause a
reduction in the credit ratings on
your notes.
Payment patterns of cardholders may not The receivables transferred to the
be consistent over time and variations trust may be paid at any time. We
in these payment patterns may result in cannot assure the creation of
reduced payment of principal, or additional receivables in the
receipt of payment of principal earlier trust's accounts or that any
or later than expected. particular pattern of cardholder
payments will occur. A
significant decline in the amount of
new
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<PAGE>
receivables generated could result in
the occurrence of an amortization
event for one or more series and the
commencement of the early
amortization period or, if
applicable, the early accumulation
period for each of those series. If
an amortization event occurs, you
could receive payment of principal
sooner than expected. The bank's
ability to compete in the current
industry environment will affect its
ability to generate new receivables
and might also affect payment
patterns on the receivables. In
addition, changes in finance charges
can alter the monthly payment rates
of cardholders. A significant
decrease in monthly payment rates,
including the effect of payment
holidays, could slow the return or
accumulation of principal during an
amortization period or accumulation
period. See "Description of the
Notes -Principal Payments" in this
prospectus.
Recharacterization of principal The transferor may designate a
receivables would reduce principal percentage of the receivables that
receivables and may require the would otherwise be treated as
addition of new receivables. If new principal receivables to be treated
receivables are unavailable when as finance charge and administrative
required you may receive payment of receivables. This designation should
principal earlier than expected. decrease the likelihood of an early
amortization event occurring as
a result of a reduction of the series
portfolio yield for a given period.
However, this designation will also
reduce the aggregate amount of
principal receivables, which may
increase the likelihood that the
transferor will be required to add
receivables to the trust. If the
transferor were unable to add
receivables and could not make a
sufficient cash deposit into the
special funding account, one or more
series of notes, including your
series, could go into early
amortization resulting in principal
being paid before the scheduled
payment date.
Additions to trust assets may decrease The transferor expects that it will
the credit quality of the assets periodically add additional accounts
securing to the
15
<PAGE>
the repayment of your notes. trust and may, at times, be
If this occurs, your receipt of obligated to add additional accounts.
payments of principal and interest may While each additional account must
be reduced, delayed or accelerated. be an eligible account at the time
of its designation, additional
accounts may not be of the same
credit quality as the initial
accounts. There are many reasons
which could cause differences in
credit quality including the fact
that the additional accounts may have
been originated by the bank or other
account owner, as applicable, using
credit criteria different from those
which were applied by the bank to the
initial accounts or may have been
acquired by the bank or other account
owner, as applicable, from an
institution which may have had
different credit criteria.
Consequently, there is no assurance
that future additional accounts will
have the same credit quality as those
currently designated to the trust. If
additional accounts added to the
trust reduce the credit quality of
the trust assets, it will increase
the likelihood that your receipt of
payments will be reduced or not be
received on the scheduled principal
payment date.
The note interest rate and the Some accounts have finance charges
receivables interest rate may re-set at set at a variable rate based on a
different times, resulting in reduced designated index, such as the prime
or early payments to you. rate, while others have finance
charges based upon a fixed rate. A
series of notes may bear interest
either at a fixed rate or at a
floating rate based on a different
index. If the interest rate charged
on the accounts declines, collections
of finance charge and administrative
receivables may be reduced without a
corresponding reduction in the
amounts of interest payable on your
notes and other amounts required to
be paid out of collections of finance
charge and administrative
receivables. This could result in
delayed or reduced payments to
you.
A decrease in the spread, or
difference, between collections of
finance charge and administrative
receivables and those
collections
16
<PAGE>
allocated to make interest payments
on your notes could also increase the
risk of early repayment of your
notes.
Subordinated classes bear losses before One or more classes of notes in a
senior classes. If you own subordinated series may be subordinated to one or
notes, the priority of allocations more senior classes of notes in the
among classes of notes may result in same series. Principal allocations
payment on your notes being reduced or to the subordinated class or classes
delayed. generally do not begin until each of
the more senior classes has been paid
in full. Therefore, if you own
subordinate notes, your receipt of
principal payments may be delayed or
reduced to the extent the senior
noteholders have not received full
and timely payments with respect to
their notes. Additionally, if
collections of finance charge and
administrative receivables allocated
to a series are insufficient to cover
amounts due for that series' senior
notes, the invested amount for the
series might be reduced. This would
reduce the amount of the collections
of finance charge and administrative
receivables allocated to the series
in future periods and could cause a
possible delay or reduction in
principal and interest payments on
the subordinated notes.
Allocations of defaulted receivables The servicer will write off the
could reduce payments to you. receivables arising in accounts in
the trust portfolio if the
receivables become uncollectible.
Your series will be allocated a
portion of these defaulted
receivables. See "Description of
Series Provisions - Allocation
Percentages" and "The Bank's Credit
Card Portfolio - Collection of
Delinquent Accounts" in the
accompanying prospectus supplement.
If the amount of defaulted
receivables allocated to your series
of notes exceeds the amount of funds
available to reimburse those amounts,
you may not receive the full amount
of principal and interest due to you.
See "Description of Series
Provisions-Reallocation Group One,"
"--Application of Collections" and
"--Defaulted Receivables; Investor
Charge-Offs" in the accompanying
prospectus supplement.
17
<PAGE>
There is no public market for the notes. The underwriters may assist in
As a result you may be unable to sell resales of the notes but they are
your notes or the price of the notes not required to do so. A secondary
may suffer. If a secondary market does develop,
it might not continue or it might not
be sufficiently liquid to allow you
to resell any of your notes.
Issuance of additional series by the The trust is expected to issue
trust may affect the timing of payments additional series from time to time.
to you. The trust may issue additional
series with terms that are different
from your series without your prior
review or consent. It is a condition
to the issuance of each new series
that each rating agency that has
rated an outstanding series confirm
in writing that the issuance of the
new series will not result in a
reduction or withdrawal of its rating
of any class of any outstanding
series. The rating agency
confirmation primarily will be based
on the trust's ability to pay
principal by the series final
maturity date and interest on each
distribution date. The rating agency
confirmation will not consider how
the terms of a new series could
affect the timing and amounts of
payments on your series on its
expected principal payment date.
Therefore, the issuance of a new
series may cause payments of
principal and interest on your notes
to be reduced, delayed or
accelerated.
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<PAGE>
The Issuer
Household Credit Card Master Note Trust I is a statutory business trust
created under the laws of the State of Delaware on [.], 2000. It is operated
under a trust agreement, dated as of [.], 2000, between Household Receivables
Funding, Inc. III, as transferor, and Wilmington Trust Company, as owner
trustee.
The activities of the issuer are limited to:
. acquiring, owning and managing the trust assets and the proceeds of
those assets;
. issuing and making payments on the notes; and
. engaging in related activities.
Household Finance Corporation, in its capacity as administrator under the
administration agreement, dated as of [.], 2000, between the administrator and
the issuer, will provide the notices and perform on behalf of the issuer other
administrative obligations required by the transfer and servicing agreement, the
indenture and the indenture supplement for each series, and will be compensated
for acting as the administrator with a monthly fee as specified in the
prospectus supplement. The transferor is responsible for payment of the
administrator's fees, to the extent not paid under the prospectus supplement,
and will reimburse the administrator for any of its liabilities and extra out-
of-pocket expenses related to its performance under the administration agreement
and any other document relating to the issuance of the notes.
The issuer's principal offices are in Delaware, in care of Wilmington Trust
Company, as owner trustee, at the following address: Rodney Square North, 1100
North Market Street, Wilmington, DE 19890-0001. Its phone number is 302-651-
8856.
The transferor will pay the fees of the owner trustee and will reimburse it
for particular liabilities and expenses.
Use of Proceeds
The net proceeds from the sale of each series of notes offered by this
prospectus will be paid to the transferor. The transferor will use those
proceeds to pay the bank or other receivables seller the purchase price of the
receivables transferred to the transferor by the bank or other receivables
seller under the receivables purchase agreement. Any receivables seller other
than the bank will use those proceeds to pay the bank or other account owner the
purchase price of the receivables purchased by it. The bank will use any
proceeds received for its general corporate purposes.
19
<PAGE>
The Bank's Credit Card Activities
General
The credit card accounts owned by Household Bank (Nevada), N.A. primarily
are serviced on behalf of the servicer, Household Finance Corporation, by the
subservicer, Household Credit Services, Inc., an affiliate of the bank. The
accounts are serviced principally from the subservicer's facilities in Salinas,
California, Las Vegas, Nevada and Chesapeake, Virginia.
The credit card accounts currently consist of mostly MasterCard credit card
accounts and a small number of VISA credit card accounts. The accounts in the
trust initially will consist of credit cards issued by Household Bank (Nevada),
N.A. under the Union Plus program.
Origination
The bank principally generates credit card accounts through:
. direct mail and telemarketing account solicitation on a pre-selected
credit basis;
. applications mailed directly to prospective cardholders;
. applications made available to prospective cardholders at various
events and retail outlets;
. applications generated by advertising in magazines and newspapers;
. applications marketed on and submitted through the Internet; and
. purchases of accounts from other issuers.
In originating new credit card accounts, the bank generally evaluates the
ability of an applicant for a credit card to repay credit card balances by
applying a credit scoring system using credit risk models developed in-house and
credit bureau score models and bankruptcy score models developed in conjunction
with third parties. Credit scoring is intended to provide a general idea, based
on the information available, of a person's likelihood to repay his or her
debts. Credit scoring evaluates a potential cardholder's credit profile to
arrive at an estimate of the associated credit risk. The credit scoring model
used depends on a number of factors, including whether it is a prescreened offer
or an unsolicited application. Models for credit scoring are developed using
statistics to evaluate common cardholder characteristics and their correlation
with credit risk. Periodically, the bank reviews its credit scoring models and,
if necessary, updates them to reflect more current statistical data.
New account originations mainly are the result of direct mailings. These
mailings are conducted on a nationwide basis, are targeted to particular states
or, in the case of the Union Plus program, are directed to particular membership
groups. The direct mailings are either done on a pre-selected basis or an
application basis. Persons qualifying for a pre-selected offer are
20
<PAGE>
offered a credit card without having to complete a detailed application. For
direct mailings, the bank obtains lists containing the names and addresses of
individuals from one or more of the independent national credit bureaus or, for
the Union Plus program, from its program partner.
For pre-selected offers, the persons on the lists are credit scored to
evaluate credit risk in accordance with the bank's established credit quality
standards. Based on the outcome of credit scoring and the evaluation of other
credit characteristics such as total amount of outstanding credit card debt and
payment history as well as demographic data, the bank selects the individuals to
receive a pre-selected mailing. The pre-selection process attempts to match
these prospects with a product that would be acceptable to that individual.
Therefore, the bank offers credit cards with different annual percentage rates
and annual fee combinations and enhancement features, i.e. insurance coverage,
extended warranties, cash back rewards and travel services. A predetermined
credit limit is also reserved for each member of the group being solicited, the
amount being dependent on each member's individual credit scores and other
credit characteristics.
To accept a pre-selected credit card offer, the prospective cardholder must
provide requested information on an acceptance certificate and return it to the
subservicer. Upon receipt, the subservicer begins its post-screening process.
First, it automatically requests, in most cases, an updated credit report. This
updated credit report is also credit scored. Pre-selected candidates may be
declined based on their new credit scores, other credit characteristics such as
the presence of bankruptcy filings, tax liens, judgments and foreclosures and
payment history on the credit bureau report, as well as the level of existing
and potential revolving debt relative to stated income. The initial credit line
assigned also may be adjusted based upon the updated credit scores and credit
characteristic data on the bureau report.
The bank also conducts direct mail campaigns which involve sending
applications on a non-pre-selected basis. It selects candidates for these
campaigns by using demographic models designed to identify persons most likely
to respond to direct mail solicitations. When the bank receives a credit card
application from a direct mail solicitation or other source, it reviews that
application for completeness and applies the same post-screening process
described above for pre-selected offers. The subservicer, on behalf of the
bank, may verify information regarding the applicant and request additional
information as deemed necessary to make a decision on the creditworthiness of
the applicant.
Credit limits are established for each prospective cardholder based on
credit scores, income and other credit characteristics. Credit limits range
from $250 to $25,000. The majority of non-premium accounts are in the $1,500 to
$10,000 range, while premium accounts generally are assigned credit limits of
$5,000 or more, with the majority having a credit line of approximately $7,000.
The bank and its affiliates have made portfolio acquisitions in the past
and additional acquisitions are possible in the future. Prior to acquiring a
portfolio, the bank reviews the historical performance and seasoning of the
portfolio and the policies and practices of the selling institution. There can
be no assurance that accounts acquired by this means were originated in a manner
consistent with the bank's policies or that the underwriting and qualification
of these
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<PAGE>
accounts conformed to any given standard. After acquisition, however, all
accounts periodically are credit screened as under "-Account Management."
Account Management
Each month all credit card accounts that have been open for more than four
months are scored using a behavioral scoring system that predicts the likelihood
of serious future delinquency or filing bankruptcy. The behavioral scoring
system incorporates an account's previous history as well as credit bureau data.
The bank uses behavioral scoring for virtually all portfolio management
functions, including to manage credit lines, authorizations, collections, card
re-issuance, re-pricing, credit card upgrades, such as upgrading a classic card
to a gold or platinum card, and balance transfer offers. As opposed to the
credit screening done in originations, the account management credit screening
places more weight on the account's previous history than credit bureau scoring
and data.
Interchange
Creditors participating in the VISA USA and MasterCard International
associations receive fees, called interchange, as partial compensation for
taking credit risk, absorbing fraud losses and funding receivables for a limited
period prior to initial billing. Under the VISA USA and MasterCard
International systems, a portion of this interchange in connection with
cardholder charges for merchandise and services is passed from banks which clear
the transactions for merchants to credit card-issuing banks. MasterCard and
VISA set interchange fees annually based on the number of credit card
transactions and the amount charged per transaction. Interchange ranges between
1% and 2% of the transaction amount. The bank and the transferor may be
required, as described in the accompanying prospectus supplement, to transfer to
the trust interchange attributed to cardholder charges for merchandise and
services in the related accounts. If so, interchange will be allocated to the
trust as may be reasonably determined or estimated by the servicer. VISA USA
and MasterCard International may from time to time change the amount of
interchange reimbursed to banks issuing their credit cards.
For additional information regarding the bank's credit card activities, see
"The Bank's Credit Card Portfolio" in the accompanying prospectus supplement.
The Trust Portfolio
The assets of the trust include receivables generated through accounts
designated as trust accounts, all of which are owned by the bank. The bank has
transferred and assigned to the transferor, for transfer and assignment by the
transferor to the trust, all of the bank's right, title and interest in and to
the receivables in the trust portfolio. In addition to the receivables in the
trust portfolio, the trust assets include, to the extent noted below:
. all monies due or to become due in payment of these receivables;
. all proceeds of these receivables;
. all proceeds of any credit insurance policies relating to these
receivables;
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. interchange, if the prospectus supplement for your series of notes so
indicates;
. any recoveries allocable to the trust because of these receivables;
. any participations and the related collections conveyed to the trust;
. all monies on deposit in specified trust accounts or investments made
with these monies, including any earned investment proceeds if the
prospectus supplement for your series of notes so indicates;
. proceeds of any credit enhancement, as described in the prospectus
supplement for your series of notes;
. proceeds of any derivative contracts between the trust and a
counterparty, as described in the prospectus supplement for your
series of notes; and
. any other amounts so specified in the prospectus supplement.
Receivables in the trust consist of:
. principal receivables; and
. finance charge and administrative receivables.
The trust considers collections of interchange and recoveries as
collections of finance charge and administrative receivables. In addition,
principal receivables include the principal portion of participations, as
determined under the terms and provisions of the participation agreements. If
the bank exercises the discount option, a portion of monthly collections of
principal receivables will be considered finance charge and administrative
collections and principal receivables will be reduced by that amount. See "The
Transfer and Servicing Agreement - Discount Option" for a description of the
manner of and the conditions to exercise of the discount option.
Each of the bank and the transferor has indicated and, in connection with
each future transfer of receivables to the trust, the bank, or any other account
owner or receivables seller, and the transferor, including any additional
transferor, will indicate in its computer files or books and records that the
receivables have been conveyed to the trust. In addition, each of the bank and
the transferor, including any additional transferor, has provided or caused to
be provided to the owner trustee on the required delivery date computer files or
microfiche lists, containing a true and complete list showing each account,
identified by account number and by total outstanding balance on the date of
transfer. None of the bank, or any other account owner or receivables seller,
or the transferor, including any additional transferor, will deliver to the
owner trustee any other records or agreements relating to the accounts or the
receivables, except in connection with additions or removals of accounts.
Except as stated above, the records and agreements relating to the accounts and
the receivables maintained by any of the bank, or any other account owner or
receivables seller, and the transferor, including any additional
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transferor, are not and will not be segregated from other documents and
agreements relating to other credit card accounts and receivables and are not
and will not be stamped or marked to reflect the transfers described above, but
the computer records of each of the bank, or any other account owner or
receivables seller, and the transferor, including any additional transferor, are
and will be required to be marked to evidence these transfers. Each of the bank
and the transferor has filed in all appropriate jurisdictions Uniform Commercial
Code financing statements with respect to the receivables meeting the
requirements of applicable law. See "Risk Factors - Some liens would be given
priority over your notes which could cause delayed or reduced payments" and
"Material Legal Aspects of the Receivables" in this prospectus.
All trust assets will initially be in a pool of assets designated as pool
one. All series of notes offered by this prospectus will be backed by the
assets in pool one unless the prospectus supplement for a series specifies a
different pool of assets for that series. In the event that assets are
deposited into the trust and designated as being in a pool of assets other than
pool one, a separate collection account and special funding account will be
created for that pool. Series of notes which are issued to finance assets in a
different pool will be backed solely by those assets and not by assets in pool
one. All references in this prospectus to receivables, accounts and notes shall
refer to pool one only, unless otherwise stated.
Initially, a group of accounts were selected on the cut-off date and
designated as trust accounts. In the future, additional accounts may be
designated for inclusion in the trust as well as participations in lieu of, or
in addition to, additional accounts. Accounts initially designated as trust
accounts and any future accounts designated for inclusion in the trust must meet
eligibility criteria set forth in the transfer and servicing agreement.
Receivables conveyed to the trust must also meet eligibility criteria set forth
in the transfer and servicing agreement. If receivables conveyed to the trust
are found to have been ineligible when created or designated for inclusion, the
transferor must accept retransfer of these receivables.
The transferor has the right, and may be required to, designate additional
accounts for inclusion in the trust portfolio, as described under "The Transfer
and Servicing Agreement - Addition of Trust Assets" in this prospectus.
The transferor also has the right to remove accounts from the trust
portfolio, as described under "The Transfer and Servicing Agreement - Removal of
Trust Assets" in this prospectus. If the transferor does so, the trust will
reconvey all receivables in these removed accounts, whether existing or to be
created, to the transferor.
When the trust issues a new series of notes, the transferor will represent
and warrant to the trust that, as of the closing date for the new series, the
accounts designated as trust accounts met the eligibility criteria set forth in
the transfer and servicing agreement at their time of designation. See "The
Transfer and Servicing Agreement - Representations and Warranties of the
Transferor" in this prospectus for more information on eligibility criteria for
accounts and receivables.
The prospectus supplement relating to each series of notes will provide
information about the trust portfolio as of the date specified. This information
will include:
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. the amount of principal receivables;
. the amount of finance charge and administrative receivables;
. the range and average of principal balances of the accounts;
. the range and average of credit limits of the accounts;
. the range and average of ages of the accounts;
. the geographic distribution of the accounts; and
. delinquency statistics relating to the accounts.
Description of the Notes
The notes will be issued in series. Each series will represent an
obligation of the trust. Each series of notes will be issued from the indenture,
as supplemented by an indenture supplement, in each case entered into by the
trust and the indenture trustee. The following summaries describe the material
provisions common to each series of notes. The accompanying prospectus
supplement gives you additional information specific to the notes of your
series.
General
The notes will be secured by and paid from the assets of the trust.
Each series will be allocated collections of principal receivables and finance
charge and administrative receivables based on the investor percentage. The
investor percentage will be based on the invested amount for a series.
References to a series in this prospectus include any subseries of a
series.
Each series of notes may consist of one or more classes, one or more of
which may be senior notes and one or more of which may be subordinated notes.
Each class of a series will evidence the right to receive a specified portion of
each distribution of principal or interest or both. Each class of a series may
differ from other classes in some aspects, including:
. note rating;
. availability and amount of enhancement;
. priority of entitled payments;
. amounts allocated to interest and principal payments;
. interest rate; and
. maturity date.
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Payments and deposits of interest and principal will be made on payment
dates to noteholders in whose names the notes were registered on the record
dates specified in the accompanying prospectus supplement. Interest will be
distributed to noteholders in the amounts, for the periods and on the dates
specified in the accompanying prospectus supplement.
The transferor initially will own the transferor interest. The holder of
the transferor interest, subject to limitations, will have the right to the
transferor percentage of all cardholder payments from the receivables in the
trust. The transferor interest may be transferred, in whole or in part, subject
to the limitations and conditions set forth in the trust agreement and the
transfer and servicing agreement, and, at the discretion of the transferor, the
transferor interest may be held either in an uncertificated form or in the form
of a transferor certificate. See "The Transfer and Servicing Agreement --Matters
Regarding the Servicer and the Transferor" in this prospectus.
During the revolving period, the invested amount of a series will remain
constant except under limited circumstances. See "--Defaulted Receivables;
Investor Charge-Offs" in this prospectus. The amount of principal receivables in
the trust, however, will vary each day as new principal receivables are created
and others are paid. The amount of the transferor interest will fluctuate each
day, therefore, to reflect the changes in the amount of the principal
receivables in the trust. When a series is amortizing, the invested amount of
that series will decline as customer payments of principal receivables are
collected and distributed, or accumulated for distribution, to the noteholders.
As a result, the transferor interest will generally increase to reflect
reductions in the invested amount for that series and will also change to
reflect the variations in the amount of principal receivables in the trust. The
transferor interest may also be reduced as the result of new issuances. See "--
New Issuances" in this prospectus.
If the servicer adjusts the amount of any principal receivable because of
transactions occurring in respect of a rebate or refund to a cardholder, or
because that principal receivable was created in respect of merchandise which
was refused or returned by a cardholder, then the transferor interest will be
reduced by the amount of the adjustment. In addition, the transferor interest
will be reduced as a result of transactions in respect of any principal
receivable which was discovered as having been created through a fraudulent or
counterfeit charge.
Note Ratings
Any rating of the notes by a rating agency will indicate:
. its view on the likelihood that noteholders will receive required
interest and principal payments; and
. its evaluation of the receivables and the availability of any credit
enhancement for the notes.
Among the things a rating will not indicate are:
. the likelihood that interest or principal payments will be paid on a
scheduled date;
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. the likelihood that an amortization event will occur;
. the likelihood that a U.S. withholding tax will be imposed on non-U.S.
noteholders;
. the marketability of the notes;
. the market price of the notes; or
. whether the notes are an appropriate investment for any purchaser.
A rating will not be a recommendation to buy, sell or hold the notes. A
rating may be lowered or withdrawn at any time by a rating agency.
The transferor will request a rating of the notes offered by this prospectus and
the accompanying prospectus supplement from at least one rating agency. Rating
agencies other than those requested could assign a rating to the notes and, if
so, that a rating could be lower than any rating assigned by a rating agency
chosen by the transferor.
Book-Entry Registration
Generally, notes offered through the prospectus and the accompanying
prospectus supplement:
. will be represented by notes registered in the name of a DTC nominee;
. will be available for purchase in minimum denominations of $1,000 and
multiples of $1,000 in excess of that amount; and
. will be available for purchase in book-entry form only.
The accompanying prospectus supplement will specify if your notes have
different characteristics from those listed above.
DTC has informed the transferor that its nominee will be Cede & Co.
Accordingly, Cede & Co. is expected to be the holder of record of each series of
notes. As an owner of beneficial interests in the notes, you will generally not
be entitled to a definitive note representing your interest in the issued notes
because you will own notes through a book-entry record maintained by DTC.
References in this prospectus and the accompanying prospectus supplement to
distributions, reports, notices and statements to noteholders refer to DTC or
Cede & Co., as registered holder of the notes, for distribution to you in
accordance with DTC procedures. All references in this prospectus and the
accompanying prospectus supplement to actions by noteholders shall refer to
actions taken by DTC upon instructions from DTC participants.
The accompanying prospectus supplement may state that application will be
made to list your series or class of notes on the Luxembourg Stock Exchange or
another exchange.
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Following is a description of the form your notes will take. We also
describe how your notes may be transferred and how payments will be made to you.
The information in this section concerning DTC and DTC's book-entry system
has been provided by DTC. The transferor has not independently verified the
accuracy of this information.
You may hold your notes through DTC in the U.S., Clearstream Luxembourg or
Euroclear in Europe or in any other manner described in the accompanying
prospectus supplement. You may hold your notes directly with one of these
systems if you are a participant in the system, or indirectly through
organizations which are participants.
Cede & Co., as nominee for DTC, will hold the global notes. Clearstream
Luxembourg and Euroclear will hold omnibus positions on behalf of the
Clearstream customers and the Euroclear participants, respectively, through
customers' securities accounts in Clearstream's and Euroclear's names on the
books of their respective depositaries which in turn will hold those 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 under the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of 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 other organizations. Indirect access to the DTC
system also is available to others such as banks, brokers, dealers and trust
companies, as indirect participants, that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Clearstream customers 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, on the one hand, and directly or indirectly through Clearstream
customers or Euroclear participants, on the other, will be effected through DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary; however, those cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that 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. Clearstream customers and Euroclear
participants may not deliver instructions directly to the depositaries.
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Because of time-zone differences, credits of securities in Clearstream
Luxembourg or Euroclear as a result of a transaction with a participant will be
made during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and those credits or any transactions in
those securities settled during the subsequent securities settlement processing
will be reported to the relevant Clearstream customer or Euroclear participant
on that business day. Cash received in Clearstream Luxembourg or Euroclear as a
result of sales of securities by or through a Clearstream customer 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 Clearstream or
Euroclear cash account only as of the business day following settlement in DTC.
Note owners that are not participants or indirect participants but desire
to purchase, sell or otherwise transfer ownership of, or other interest in,
notes may do so only through participants and indirect participants. In
addition, note owners will receive all distributions of principal of and
interest on the notes from the indenture trustee through the participants who in
turn will receive them from DTC. Under a book-entry format, note owners may
experience some delay in their receipt of payments, since those payments will be
forwarded by the indenture trustee to Cede & Co., as nominee for DTC. DTC will
forward those payments to its participants, which thereafter will forward them
to indirect participants or note owners. It is anticipated that the only
"noteholder" will be Cede & Co., as nominee of DTC. Note owners will not be
recognized by the indenture trustee as noteholders, as that term is used in the
indenture, and note owners will only be permitted to exercise the rights of
noteholders indirectly through the participants who in turn will exercise the
rights of noteholders 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 notes and is required to receive and
transmit distributions of principal and interest on the notes. Participants and
indirect participants with which note owners have accounts with respect to the
notes similarly are required to make book-entry transfers and receive and
transmit those payments on behalf of their respective note owners. Accordingly,
although note owners will not possess notes, note 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 banks, the ability of a note owner to pledge
notes to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of those notes, may be limited due to the lack
of a physical certificate for those notes.
DTC has advised the transferor that it will take any action permitted to be
taken by a noteholder under the indenture only at the direction of one or more
participants to whose account with DTC the notes are credited. Additionally, DTC
has advised the transferor that it will take those actions with respect to
specified percentages of the invested amount only at the direction of and on
behalf of participants whose holdings include interests that satisfy those
specified percentages. DTC may take conflicting actions with respect to other
interests to the extent that those actions are taken on behalf of participants
whose holdings include those interests.
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Clearstream Banking, societe anonyme, was incorporated in 1970 as "Cedel
S.A.," a company with limited liability under Luxembourg law, a societe anonyme.
Clearstream Luxembourg holds securities for its customers and facilitates the
clearance and settlement of securities transactions between Clearstream
customers through electronic book-entry changes in accounts of Clearstream
customers, thereby eliminating the need for physical movement of certificates.
Transactions may be settled by Clearstream Luxembourg in any of 36 currencies,
including United States Dollars. Clearstream Luxembourg provides to its
customers, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream Luxembourg also deals with domestic
securities markets in over 30 countries through established depository and
custodial relationships. Clearstream Luxembourg is registered as a bank in
Luxembourg. Clearstream Luxembourg is subject to regulation by the Commission de
Surveillance du Secteur Financier, which supervises Luxembourg banks.
Clearstream's customers are world-wide financial institutions including
underwriters, securities brokers, and dealers, banks, trust companies and
clearing corporations. Clearstream U.S. customers are limited to securities
brokers and dealers, and banks. Currently, Clearstream Luxembourg has
approximately 2,000 customers located in over 80 countries, including all major
European countries, Canada, and the United States. Indirect access to
Clearstream Luxembourg is available to other institutions that clear through or
maintain a custodial relationship with an account holder of Clearstream
Luxembourg.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System 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 notes and any
risk from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 27 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 as the Euroclear operator, under
contract with Euro-clear Clearance System, S.C., a Belgian cooperative
corporation. 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 notes. 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. 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.
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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.
These rules and laws 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 these rules and laws only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Distributions with respect to notes held through Clearstream Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream customers or
Euroclear participants in accordance with the relevant system's rules and
procedures, to the extent received by its depositary. Distributions with respect
to notes held through Clearstream Luxembourg or Euroclear will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Federal Income Tax Consequences" in this prospectus. Clearstream Luxembourg
or the Euroclear operator, as the case may be, will take any other action
permitted to be taken by a noteholder under the indenture on behalf of a
Clearstream customer or Euroclear participant only in accordance with its
relevant rules and procedures and subject to its depositary's ability to effect
those actions on its behalf through DTC.
Although DTC, Clearstream Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of notes among
participants of DTC, Clearstream Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform those procedures and those
procedures may be discontinued at any time.
Definitive Notes
The notes of each series will be issued as definitive notes to note owners
or their nominees, rather than to DTC or its nominee, only if:
. the administrator advises the indenture trustee for that series in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to a given class of notes,
and the administrator is unable to locate a qualified successor;
. the administrator, at its option, advises the indenture trustee in
writing that it elects to terminate the book-entry system through DTC; or
. after the occurrence of a servicer default or an event of default, note
owners of a class representing more than 50% of the outstanding principal
amount of that class of notes advise the indenture 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
interest of the note owners of that class of notes.
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If any of these events occur, DTC must notify all participants of the
availability through DTC of definitive notes. Upon surrender by DTC of the
definitive instrument representing the notes and instructions for re-
registration, the indenture trustee will issue the notes as definitive notes,
and thereafter the indenture trustee will recognize the registered holders of
those definitive notes as noteholders under the indenture.
Distribution of principal and interest on the notes will be made by the
indenture trustee directly to holders of definitive notes in accordance with the
procedures set forth in this prospectus and in the indenture. Interest payments
and any principal payments on each payment date will be made to holders in whose
names the definitive notes were registered at the close of business on the
related record date. Distributions will be made by check mailed to the address
of the noteholders as it appears on the register maintained by the indenture
trustee. The final payment on any note, whether definitive notes or the notes
registered in the name of Cede & Co. representing the notes, however, will be
made only upon presentation and surrender of that note at the office or agency
specified in the notice of final distribution to noteholders. The indenture
trustee will provide this notice to registered noteholders not later than the
fifth day of the month of the final distributions.
Definitive notes will be transferable and exchangeable at the offices of
the transfer agent and registrar, which will initially be the indenture trustee.
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 with the
transfer or exchange. The transfer agent and registrar will not be required to
register the transfer or exchange of definitive notes for a period of fifteen
days preceding the due date for any payment on those definitive notes.
New Issuances
The indenture provides that, under any one or more indenture supplements,
the transferor may cause the owner trustee, on behalf of the trust, to issue one
or more new series of notes and may define all principal terms of those series.
Each series issued may have different terms and enhancements than any other
series. Upon the issuance of an additional series of notes, the transferor, the
servicer, the indenture trustee or the trust are not required and do not intend
to obtain the consent of any noteholder of any other series previously issued by
the trust. However, as a condition of a new issuance, the indenture trustee must
receive written confirmation that the new issuance will not result in the
reduction or withdrawal by any rating agency of its rating of any outstanding
series or class. The trust may offer any series under a prospectus or other
disclosure document in offerings under this prospectus or in transactions either
registered under the Securities Act, or exempt from registration under the
Securities Act directly, through one or more other underwriters or placement
agents, in fixed-price offerings or in negotiated transactions or
otherwise.
Unless otherwise specified in the accompanying prospectus supplement, a new
issuance may only occur upon the satisfaction of conditions provided in the
indenture. The transferor may cause the owner trustee, on behalf of the trust,
to issue new series of notes by notifying the owner trustee, the indenture
trustee, the servicer and each rating agency at least five days in
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advance of the date upon which the new issuance is to occur. The notice will
state the date upon which the new issuance is to occur.
The owner trustee will execute, and the indenture trustee will
authenticate, the notes of any series only upon delivery to them of the
following items, or satisfaction of the following conditions, among others:
(1) an indenture supplement specifying the principal terms of the new
series;
(2) a tax opinion;
(3) if required by the related indenture supplement, the form of credit
enhancement and an appropriate credit enhancement agreement with
respect to that credit enhancement executed by the transferor and the
issuer of the credit enhancement;
(4) written confirmation from each rating agency that the new issuance
will not result in a reduction or withdrawal of its rating of any
outstanding series or class;
(5) a certificate of an authorized officer of the transferor to the effect
that it reasonably believes the new issuance will not have an Adverse
Effect; and
(6) after giving effect to the new issuance, the total amount of principal
receivables plus the principal amount of any participation interests
previously transferred to the trust exceeds the required minimum
principal balance.
To the extent set forth in the prospectus supplement, additional notes of
the same series may be issued subject to the conditions set forth in the
applicable indenture supplement.
Funding Period
For any series of notes, the total amount of principal receivables in the
trust available to that series may be less than the total principal amount of
the notes of that series. If this occurs, the initial invested amount for that
series of notes will be less than the principal amount of that series of notes.
In this case, the related prospectus supplement will set forth the terms of the
funding period
During the funding period, the portion of the series amount not invested in
receivables will be maintained in a pre-funding account. On the closing date for
that series of notes, this amount may be up to 100% of the principal balance of
that series of notes. The invested amount for that series will increase as new
receivables are transferred to the trust or as the invested amounts of other
outstanding series are reduced. The invested amount may decrease due to charge-
offs allocated to the series.
During the funding period, funds on deposit in the pre-funding account will
be paid to the transferor as the invested amount increases. If the invested
amount for that series is not increased so that it equals the principal balance
of the notes of that series by the end of the funding period, any amount
remaining in the pre-funding account will be repaid to noteholders. This type of
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event may also cause repayment of other amounts to noteholders, as set forth in
the related prospectus supplement.
If so specified in the related prospectus supplement, funds on deposit in
the pre-funding account will be invested by the indenture trustee in eligible
investments or will be subject to a guaranteed rate or investment agreement or
other similar arrangement. On each distribution date during the funding period,
earnings on funds in the pre-funding account during the related monthly period
will be withdrawn from the pre-funding account and deposited, together with any
applicable payment under a guaranteed rate or investment agreement or other
similar arrangement, into the collection account as finance charge and
administrative collections to make interest payments on the notes of the related
series in the manner specified in the related prospectus supplement.
The prospectus supplement for a series with a funding period will set
forth:
. the series' initial invested amount;
. the series' full invested amount, which is the initial principal balance
of the series of notes;
. the date on which the series' invested amount is expected to equal the
full invested amount;
. the date by which the funding period will end, provided that the funding
period will not exceed one year; and
. what other events, if any, will occur if the end of the funding period is
reached before the full invested amount is funded.
Paired Series
The prospectus supplement for a series of notes will specify whether that
series may be paired with a previously or later issued series so that a decrease
in the invested amount of the previously issued series results in a
corresponding increase in the invested amount of the later issued series. In
general, a series may be issued as a paired series so the trust can fund the
amount by which the previously issued series has amortized and will amortize in
the future.
If an amortization event occurs for the previously issued series or its
paired series when the previously issued series is amortizing, the investor
percentage for the allocation of collections of principal receivables for the
previously issued series may be reset to a lower percentage as described in the
prospectus supplement for that series and the period over which it will amortize
may be lengthened as a result. The extent to which the period over which it
amortizes is lengthened will depend on many factors, only one of which is the
reduction of its investor percentage. For a discussion of these factors, see
"Risk Factors - Issuance of additional series by the trust may affect the timing
of payments to you" in this prospectus and "Description of Series Provisions -
Principal Payments - Controlled Accumulation Period" and "- Early Amortization
Period" in the accompanying prospectus supplement.
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Interest Payments
For each series of notes and each related class, interest will accrue from
the relevant closing date on the applicable principal balance at the applicable
interest rate. The interest rate on any note may be a fixed, floating or any
other type of rate as specified in the accompanying prospectus supplement.
Interest on the notes, other than zero coupon notes, will generally be paid, or
deposited for later payment, to noteholders on the distribution dates.
Interest payments or deposits on any distribution date will be funded from:
. collections of finance charge and administrative receivables allocated to
the invested amount during the preceding due period or periods;
. investment earnings, if any, on any funds held in trust accounts;
. any credit enhancement, to the extent described in the accompanying
prospectus supplement;
. any derivative counterparty, to the extent described in the accompanying
prospectus supplement; and
. other amounts specified in the prospectus supplement.
If interest payments will be made less frequently than monthly, an interest
funding account may be established to accumulate the required interest amount.
If a series has more than one class of notes, that series may have more than one
interest funding account.
Your class of notes will pay interest on the dates and at the interest rate
specified in the accompanying prospectus supplement. If your notes bear interest
at a floating or variable rate, the accompanying prospectus supplement will
describe how that rate is calculated.
Principal Payments
Generally, each series will begin with a revolving period during which no
principal payments will be made to the noteholders of that series. Following
its revolving period, each series of notes is expected to begin to accumulate
principal or begin to distribute principal to noteholders. The accompanying
prospectus supplement describes the conditions under which an accumulation or
amortization period will begin for your class of notes.
Principal payments for any series or the related class will be funded from
collections of principal receivables and other trust assets received during the
related due period or periods as specified in the accompanying prospectus
supplement and allocated to that series or class. Principal payments may also
be funded from proceeds from the issuance of notes in the same principal sharing
group, subject to the consent of the noteholders of a series or class
representing a majority of the outstanding principal amount of the notes of that
series or class.
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Principal will accumulate in a principal funding account if your series
features a controlled accumulation period or an early accumulation period and
one of these accumulation periods begins. As described in the accompanying
prospectus supplement, during a controlled accumulation period, on each
distribution date an amount of principal, up to the amount specified, will be
set aside in a principal funding account. If an amortization event occurs and
your series features an early accumulation period after that amortization event,
the full amount of principal available to your series will be deposited in the
principal funding account, up to the amount specified in the related prospectus
supplement. This accumulated principal is expected to be paid to those
noteholders on the date specified in the prospectus supplement for that class or
series, or earlier if an amortization period begins before your expected
principal payment date. Note that although your series may feature an
accumulation period, your class of notes might not make use of it.
Funds on deposit in any principal funding account for a series may be
subject to a guaranteed rate agreement or guaranteed investment contract or
other arrangement specified in the accompanying prospectus supplement intended
to assure a minimum rate of return on the investment of those funds. In order to
enhance the likelihood of the payment in full of the principal amount of a
series or a related class of notes at the end of an accumulation period, that
series or class of notes may be subject to a principal guaranty or other similar
arrangement specified in the accompanying prospectus supplement.
If your series features a controlled amortization period and this
amortization period begins, principal will be paid to you in increments, up to
the amount specified in the accompanying prospectus supplement. Your class of
notes might also begin to pay principal to you if the accompanying prospectus
supplement specifies that your class will begin early amortization and an
amortization event occurs.
If the series described in the accompanying prospectus supplement features
multiple classes, different classes of your series may have differing priorities
for the accumulation or payment of principal. This means that noteholders of
other classes could begin to receive payments of principal before you do. The
accompanying prospectus supplement will specify the manner, timing and priority
of principal payments to noteholders of each class.
We cannot assure you that principal will be available when expected, either
to accumulate or to pay to you. The expected principal payment date for your
class of notes is based upon assumptions about payment rates on the receivables,
as detailed in the accompanying prospectus supplement. We cannot assure you that
these payment rate assumptions will be correct. Payment rates depend on
collections of receivables. Collections can vary seasonally and are also
affected by general economic conditions and the payment habits of individual
cardholders. The accompanying prospectus supplement will provide historical
payment rates, total charge-offs and other information relating to the bank
portfolio. We cannot assure you that future events will be consistent with this
historical performance. The life of your notes might be longer than expected if
principal is collected more slowly. Alternatively, the occurrence of any
amortization event may substantially shorten the average life of your notes.
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Credit Enhancement
General
For any series, credit enhancement may be provided by one or more of the
related classes or one or more other series. Credit enhancement may be in the
form of the subordination of one or more classes of the notes of that series or
one or more other series, a letter of credit, the establishment of a cash
collateral guaranty or account, a surety bond, an insurance policy, a spread
account, a reserve account, the use of cross support features or another method
of credit enhancement described in the accompanying prospectus supplement, or
any combination of these. If so specified in the accompanying prospectus
supplement, any form of credit enhancement may be structured so as to be drawn
upon by more than one class or series to the extent described in that
accompanying prospectus supplement.
Unless otherwise specified in the accompanying prospectus supplement for a
series, the credit enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
notes and interest thereon. If losses occur which exceed the amount covered by
the credit enhancement or which are not covered by the credit enhancement,
noteholders will bear their allocable share of deficiencies.
If credit enhancement is provided with respect to a series, the
accompanying prospectus supplement will include a description of:
. the amount payable under that credit enhancement;
. any conditions to payment not described here;
. the conditions, if any, under which the amount payable under that credit
enhancement may be reduced and under which that credit enhancement may be
terminated or replaced; and
. any material provision of any agreement relating to that credit
enhancement.
Additionally, the accompanying prospectus supplement may set forth
information with respect to any credit enhancement provider, including:
. a brief description of its principal business activities;
. its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business;
. if applicable, the identity of regulatory agencies which exercise primary
jurisdiction over the conduct of its business; and
. its total assets, and its stockholders' or policy holders' surplus, if
applicable, and other appropriate financial information as of the date
specified in the prospectus supplement.
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If so specified in the accompanying prospectus supplement, credit
enhancement with respect to a series may be available to pay principal of the
notes of that series following the occurrence of specified amortization events
with respect to that series. In this event, the credit enhancement provider will
have an interest, called a collateral invested amount, in specified cash flows
in respect of the receivables to the extent described in that prospectus
supplement.
Subordination
If so specified in the accompanying prospectus supplement, a series or one
or more classes of any particular series will be subordinated as described in
the accompanying prospectus supplement to the extent necessary to fund payments
with respect to other series or to the senior notes within that series. The
rights of the holders of these subordinated notes to receive distributions of
principal and/or interest on any distribution date for that series will be
subordinate in right and priority to the rights of the holders of other senior
series or senior notes within that series, but only to the extent set forth in
the accompanying prospectus supplement. If so specified in the accompanying
prospectus supplement, subordination may apply only in the event of specified
types of losses not covered by another credit enhancement.
The accompanying prospectus supplement will also set forth information
concerning:
. the amount of subordination of a series or a class or classes of
subordinated notes within a series;
. the circumstances in which that subordination will be applicable;
. the manner, if any, in which the amount of subordination will decrease
over time; and
. the conditions under which amounts available from payments that would
otherwise be made to holders of those subordinated notes will be
distributed to holders of other senior series or senior notes of that
series.
If collections of receivables otherwise distributable to holders of a
subordinated class of a series will be used as support for another series or
another class in that series, the accompanying prospectus supplement will
specify the manner and conditions for applying that cross-support feature.
Cash Collateral Guaranty or Account
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by a guaranty,
referred to as the cash collateral guaranty, secured by the deposit of cash or
permitted investments in an account, referred to as the cash collateral account,
reserved for the beneficiaries of the cash collateral guaranty or by a cash
collateral account alone. The amount available under the cash collateral
guaranty or the cash collateral account will be the lesser of amounts on deposit
in the cash collateral account and an amount specified in the accompanying
prospectus supplement. The accompanying prospectus supplement will set forth the
circumstances under which payments are made to beneficiaries of
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the cash collateral guaranty from the cash collateral account or from the cash
collateral account directly.
Spread Account
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by the periodic
deposit of available excess cash flow from the trust assets into an account,
referred to as the spread account, intended to assist with subsequent
distribution of interest and principal on the notes of that class or series in
the manner specified in the accompanying prospectus supplement.
Reserve Account
If so specified in the accompanying prospectus supplement, support for a series
or one or more of the related classes or any related enhancement will be
provided by the establishment of an account, referred to as the reserve account.
The reserve account may be funded, to the extent provided in the accompanying
prospectus supplement, by an initial cash deposit, the retention of specified
periodic distributions of principal or interest or both otherwise payable to one
or more classes of notes, including the subordinated notes, or the provision of
a letter of credit, guarantee, insurance policy or other form of credit or any
combination of these arrangements. The reserve account will be established to
assist with the subsequent distribution of principal or interest on the notes of
that series or the related class or any other amount owing on any related
enhancement in the manner provided in the accompanying prospectus
supplement.
Letter of Credit
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by one or more
letters of credit. A letter of credit may provide limited protection against
specified losses in addition to or in lieu of other credit enhancement. The
issuer of the letter of credit, referred to as the L/C bank, will be obligated
to honor demands with respect to that letter of credit, to the extent of the
amount available thereunder, to provide funds under the circumstances and
subject to any conditions as are specified in the accompanying prospectus
supplement.
The maximum liability of an L/C bank under its letter of credit will
generally be an amount equal to a percentage specified in the accompanying
prospectus supplement of the initial invested amount of a series or a class of
that series. The maximum amount available at any time to be paid under a letter
of credit will be set forth in the accompanying prospectus supplement.
Surety Bond or Insurance Policy
If so specified in the accompanying prospectus supplement, insurance with
respect to a series or one or more of the related classes will be provided by
one or more insurance companies. The insurance policy will guarantee, with
respect to one or more classes of the related series, distributions of interest
or principal in the manner and amount specified in the accompanying prospectus
supplement.
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If so specified in the accompanying prospectus supplement, a surety bond
will be purchased for the benefit of the holders of any series or class of that
series to assure distributions of interest or principal with respect to that
series or class of notes in the manner and amount specified in the accompanying
prospectus supplement.
Amortization Events
Unless otherwise specified in the accompanying prospectus supplement, as
described above, the revolving period will continue through the date specified
in the accompanying prospectus supplement unless an amortization event occurs
prior to that date.
In addition, an amortization event may occur with respect to any series
upon the occurrence of any other event specified in the accompanying prospectus
supplement. On the date on which an amortization event is deemed to have
occurred, the early amortization period or, if so specified in the accompanying
prospectus supplement, the early accumulation period will commence. If, because
of the occurrence of an amortization event, the early amortization period begins
earlier than the scheduled commencement of an amortization period or prior to an
expected principal payment date, noteholders will begin receiving distributions
of principal earlier than they otherwise would have, which may shorten the
average life of the notes.
In addition to the consequences of an amortization event discussed above,
unless otherwise specified in the accompanying prospectus supplement, if
bankruptcy, insolvency or similar proceedings under the Bankruptcy Code or
similar laws occur with respect to the transferor, on the day of that event the
transferor will immediately cease to transfer principal receivables to the trust
and promptly give notice to the indenture trustee and the owner trustee of this
event. Any principal receivables transferred to the trust prior to the event, as
well as collections on those principal receivables and finance charge and
administrative receivables accrued at any time with respect to those principal
receivables, will continue to be part of the trust assets and will be applied as
specified above in "-- Application of Collections" and in the accompanying
prospectus supplement.
If the only amortization event to occur is either the insolvency of the
transferor or the commencement of a bankruptcy case by or against the
transferor, the bankruptcy court may have the power to require the continued
transfer of principal receivables to the trust. See "Risk Factors - If a
conservator or receiver were appointed for the bank or other receivables seller,
or the transferor or receivables seller other than the bank became a debtor in a
bankruptcy case, delays or reductions in payment of your notes could occur" in
this prospectus.
Final Payment of Principal; Termination
For each series, the transferor has the option to repurchase the notes at
any time after the remaining outstanding principal amount of that series,
excluding any portion of a class of notes held by the transferor or an
affiliate, is 10% or less of the initial principal amount of that series if
conditions set forth in the related indenture supplement are met. The repurchase
price will equal:
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(1) the outstanding principal amount of the notes of that series, plus
(2) any accrued and unpaid interest through the day preceding the
distribution date on which the repurchase occurs or, if the repurchase
occurs on any other date, through the day preceding the distribution
date immediately following the repurchase date.
Any amounts on deposit in the principal funding account for that series
will be applied toward the repurchase price on behalf of the transferor.
For any series of notes, the related prospectus supplement may specify
different conditions to the transferor's repurchase option and a different
method for determining the repurchase price; provided, that:
. the repurchase price of a series of notes will never be less than the
outstanding principal amount of the notes of that series and accrued
and unpaid interest through the repurchase date; and
. the transferor may only exercise its repurchase option if noteholders
will receive an amount equal to the outstanding principal amount of their
notes together with accrued and unpaid interest thereon through the
repurchase date.
The notes of each series will be retired on the day following the date on
which the final payment of principal is scheduled to be made to the noteholders,
whether as a result of optional reassignment to the transferor or otherwise.
Each prospectus supplement will specify the latest date by which principal and
interest for the series of notes can be paid, known as the series final maturity
date. However, the notes may be subject to prior termination as provided above.
For any series the failure to pay principal of the related notes on the series
final maturity date will be an event of default and the indenture trustee or
holders of a specified percentage of the notes of that series will have the
rights described under "The Indenture - Events of Default; Rights upon Event of
Default" in this prospectus.
Unless the servicer and the holder of the transferor interest instruct the
indenture trustee otherwise, the trust will terminate on the trust termination
date. Upon the termination of the trust and the surrender of the transferor
certificates, the indenture trustee shall convey to the holders of the
transferor certificates all right, title and interest of the trust in and to the
receivables and other funds of the trust. Upon termination of the trust, the
trust or noteholders as sellers of the trust receivables back to the holders of
the transferor certificate will not retain any direct or indirect liability to
the holders of the transferor certificate with respect to those
receivables.
Defeasance
If so specified in the prospectus supplement relating to a series, the
transferor may terminate its substantive obligations in respect of that series
or the trust by depositing with the indenture trustee, from amounts
representing, or acquired with, collections of receivables, money
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or eligible investments sufficient to make all remaining scheduled interest and
principal payments on that series or all outstanding series of notes of the
trust, as the case may be, on the dates scheduled for those payments and to pay
all amounts owing to any credit enhancement provider with respect to that series
or all outstanding series, as the case may be, if that action would not result
in an amortization event for any series. Prior to its first exercise of its
right to substitute money or eligible investments for receivables, the
transferor will deliver to the indenture trustee:
. a statement from a firm of nationally recognized independent public
accountants, who may also render other services to the transferor, to the
effect that the deposit is sufficient to make all the payments specified
above;
. an officer's certificate stating that the transferor reasonably believes
that the deposit and termination of obligations will not, based on the
facts known to that officer at the time of the certification, then cause
an event of default or an amortization event with respect to any series;
. written confirmation from each rating agency that the deposit and
termination of obligations will not result in a reduction or withdrawal
of its rating of any outstanding series or class; and
. an opinion of counsel to the effect that:
. for federal income tax purposes, the deposit and termination of
obligations will not cause the trust, or any portion of the trust,
to be deemed to be an association, or publicly traded partnership,
taxable as a corporation; and
. the deposit and termination of obligations will not result in the
trust being required to register as an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
Reports to Noteholders
Noteholders of each series issued by the trust will receive reports with
information on the series and the trust. The paying agent will forward to each
noteholder of record a report, prepared by the servicer, for its series on the
distribution dates for that series. The report will set forth information as
specified in the related prospectus supplement. If a series has multiple
classes, information will be provided for each class, as specified in the
related prospectus supplement.
Periodic information to noteholders generally will include:
. the total amount distributed;
. the amount of principal and interest for distribution;
. if the series or a class of the series bears interest at a floating or
variable rate, information relating to that rate;
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. collections of principal receivables and finance charge and
administrative receivables allocated to the series ;
. the aggregate investor default amount allocated to the series;
. investor charge-offs for the series and any reimbursements of previous
investor charge-offs;
. the monthly servicing fee for that series;
. the aggregate amount of principal receivables, the outstanding
principal amount of the notes and the outstanding principal amount of
the notes as a percentage of the aggregate amount of the principal
receivables in the trust portfolio;
. the invested amount and the adjusted invested amount for that series;
. the amount available under any enhancement and credit enhancement, if
any, for the series or each class of the series;
. the base rate and the series portfolio yield, each as defined in the
accompanying prospectus supplement, for the series;
. the aggregate outstanding balance of accounts broken out by
delinquency status; and
. the pool factor.
In addition, with respect to a series that incorporates a funding period,
as described under "Description of the Notes-Funding Period" periodic
information to noteholders will include:
. the series' initial invested amount, the series' full invested amount,
and the series' current invested amount; and
. the amount on deposit in the pre-funding account.
By January 31 of each calendar year, the paying agent will also provide to
each person who at any time during the preceding calendar year was a noteholder
of record a statement, prepared by the servicer, containing the type of
information presented in the periodic reports, aggregated for that calendar year
or the portion of that calendar year that the notes were outstanding, together
with other information that is customarily provided to holders of debt, to
assist noteholders in preparing their United States tax returns.
In addition, noteholders will receive reports with information regarding
the indenture trustee. See "The Indenture - Indenture Trustee's Annual Report"
in this prospectus.
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Investor Percentage, Transferor Percentage and Credit Enhancement Percentage
The servicer will allocate all collections of finance charge and
administrative receivables, all collections of principal receivables and all
defaulted amounts among:
(1) each series issued and outstanding;
(2) the transferor interest; and
(3) if the related prospectus supplement so states, to any credit
enhancement providers.
All allocations of these amounts will be made through the respective investor
percentages for each series, the transferor percentage and, where applicable,
the credit enhancement percentage. The related prospectus supplements will set
forth how the investor percentages are calculated.
Groups
General
The notes of a series may be included in one or more groups of series that
share specified collections of finance charge and administrative receivables
and/or principal receivables. The prospectus supplement will identify whether
your series has been included in one or more of the following groups.
Excess Finance Charge Sharing Group
If a series is identified in the prospectus supplement for that series as
included in an excess finance charge sharing group, collections of finance
charge and administrative receivables in the trust portfolio allocated to the
series in excess of the amount needed to make deposits or payments may be shared
with other series identified in the prospectus supplements for those other
series as included in the same group. If one series requires more collections of
finance charge and administrative receivables than allocated through its
investor percentage, it will have access to all of these shared excess finance
charge and administrative collections in other series in its group. If two or
more series require more collections of finance charge and administrative
receivables, excess finance charge and administrative collections in the group
will be shared among the series in the manner and priority set forth in the
related prospectus supplements.
Reallocation Group
If a series is identified in the prospectus supplement for that series as
included in a reallocation group, collections of finance charge and
administrative receivables which would otherwise be allocated to each series in
the reallocation group will instead be combined and will be available for
specified required payments to all series in that group. Any issuance of a new
series in a reallocation group may reduce or increase the amount of collections
of finance charge and administrative receivables allocated to any other series
of notes in that group. See "Risk
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Factors - Issuance of additional series by the trust may affect the timing of
payments to you." The prospectus supplement with respect to a series offered
hereby will specify whether that series will be included in a reallocation group
or another type of group and whether any previously issued series have been
included in that group. Any series offered hereby may, if so specified in the
related prospectus supplement, be included in a reallocation group. Other series
issued in the future may also be included in that reallocation group.
Shared Enhancement Group
If a series is identified in the prospectus supplement for that series as
included in a shared enhancement group, that series may share collections of
finance charge and administrative receivables and other amounts and share in the
same credit enhancement for each series in that group. Any issuance of a new
series in a shared enhancement group may reduce or increase the amount of
collections of finance charge and administrative receivables allocated to any
other series of notes in that group. See "Risk Factors - Issuance of additional
series by the trust may affect the timing of payments to you." Sharing may take
the form, among others, of classes of notes of one or more series in a
particular shared enhancement group issued from time to time which are
subordinate to other classes issued at the same or a different time in different
series in that group. In addition, if specified in its prospectus supplement a
series may consist of one or more classes of notes issued in one or more
subseries. All subseries of that series would share collections of finance
charge and administrative receivables and other amounts and share in the same
credit enhancement for that series.
Principal Sharing Group
If a series is identified in the prospectus supplement for that series as
included in a principal sharing group, to the extent that principal allocated to
that series is in excess of the amount needed for deposit or distribution for
that series, this excess amount will be available to make principal payments or
deposits required by other series, if any, in the same principal sharing group.
If collections of principal receivables in the trust portfolio allocated to a
series are shared with another series, the invested amount for the series from
which collections were shared will not be reduced.
Shared Transferor Principal Collections
If a series is identified in its prospectus supplement as being entitled to
receive shared transferor principal collections, collections of principal
receivables in the trust portfolio otherwise payable to the holders of the
transferor interest may be available to make principal payments or deposits
required by noteholders of one or more series. These shared transferor principal
collections will be limited to those series identified in the prospectus
supplements as being entitled to receive shared transferor principal
collections. If two or more series require more collections of principal
receivables, transferor principal collections will be shared among the series in
the manner and priority set forth in the related prospectus supplements.
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Trust Bank Accounts
The servicer will establish and maintain in the name of the indenture
trustee, for the benefit of noteholders of all series, a collection account,
which shall be a qualified account. The servicer will also establish and
maintain with a securities intermediary in the name of the indenture trustee, a
special funding account, which also is required to be a qualified account. Funds
in the collection account and the special funding account will be assets of the
trust and will be invested, at the direction of the servicer, in eligible
investments.
The paying agent, will have the revocable power to withdraw funds from the
collection account for the purpose of making payments to the noteholders of any
series under the related indenture supplement.
Application of Collections
Except in the circumstance described in this section, the servicer must
deposit into the collection account, no later than two business days after
processing, all payments made on receivables in the trust portfolio. The
servicer must also allocate these deposits between accounts and to various
parties. However, the servicer will be able to make these deposits on a monthly
or other periodic basis if one of the following is true:
(1) Household Finance Corporation remains the servicer under the
transfer and servicing agreement and maintains a commercial paper
rating of not less than A-1 by Standard & Poor's and P-1 by
Moody's;
(2)(a) Household Finance Corporation remains the servicer under the
transfer and servicing agreement;
(b) no amortization event, reinvestment event or event of default has
occurred;
(c) Household International, Inc. maintains a commercial paper rating
of not less than A-1 by Standard & Poor's and P-1 by Moody's;
(d) Household Finance Corporation remains a wholly-owned subsidiary
of Household International, Inc., directly or indirectly;
and
(e) in the event of a material change in the financial relationship
between them:
(1) Household Finance Corporation notifies each rating
agency; and
(2) written confirmation is received from each rating agency
that the material change will not result in a reduction
or withdrawal of its rating of any outstanding series or
class; or
(3) any other arrangements are made and written confirmation is received
from each rating agency that the arrangements will not result in a
reduction or withdrawal of its rating of any outstanding series or
class.
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The servicer must make daily or periodic deposits to the collection account
only to the extent that the funds are needed for deposit into other trust
accounts or distribution to noteholders or other parties. If the collection
account balance ever exceeds this amount for deposit or distribution, the
servicer will be able to withdraw the excess. Subject to the immediately
preceding sentence, the servicer may retain its servicing fee with respect to
any series and will not be required to deposit it in the collection account.
Each time a collection account deposit is made, the servicer will withdraw
from, or retain in, the collection account, as applicable, the following amounts
and apply them as indicated:
(1) the transferor percentage of collections of finance charge and
administrative receivables in the trust portfolio will be paid or held
for payment to the owner trustee for distribution to the holders of
the transferor certificates in accordance with the trust agreement,
(2) collections of principal receivables in the trust portfolio allocable
to the holders of the transferor certificates will be:
(a) paid to the owner trustee for distribution to the holders of the
transferor certificates in accordance with the trust agreement
only if the transferor interest exceeds zero and those
collections are not required to be used as shared transferor
principal collections;
(b) deposited in the special funding account; or
(c) available to make principal payments or deposits required by
noteholders of one or more series if those collections are
required to be treated as shared transferor principal
collections;
(3) for each series, the relevant investor percentage of collections of
finance charge and administrative receivables in the trust portfolio
will be retained in the collection account for allocation and payment
as set forth in the related prospectus supplement;
(4) if the series is in its revolving period, the applicable investor
percentage of collections of principal receivables in the trust
portfolio allocated to the series will be:
(a) paid to the owner trustee for distribution to the holders of the
transferor certificates in accordance with the trust agreement
only if the transferor interest is greater than the required
transferor amount and those collections are not required to be
used as shared principal collections;
(b) deposited in the special funding account; or
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(c) available to make principal payments or deposits required by
noteholders of one or more series if those collections are
required to be treated as shared principal collections;
(4) if the series is in its controlled accumulation period, controlled
amortization period or early accumulation period, as applicable, the
applicable investor percentage of collections of principal receivables
in the trust portfolio allocated to the series up to the amount, if
any, specified in the accompanying prospectus supplement will be
retained in the collection account or deposited in a principal funding
account, as applicable, for allocation and payment to noteholders as
described in the accompanying prospectus supplement; provided that if
collections of principal receivables exceed the principal payments
which may be allocated or distributed to noteholders, the excess will
be paid to other noteholders or to the owner trustee for distribution
to the holders of the transferor certificates in accordance with the
trust agreement, subject to the limitations described in clause (3)(a)
above; and
(5) if the series is in its early amortization period, the applicable
investor percentage of collections of principal receivables in the
trust portfolio will be retained in the collection account for
application and payment as provided in the accompanying prospectus
supplement.
In the case of a series of notes having more than one class, the amounts in
the collection account will be allocated and applied to each class in the manner
and order of priority described in the accompanying prospectus supplement.
Any amounts collected in respect of principal receivables and not paid to
the owner trustee for distribution to the holders of the transferor certificates
in accordance with the trust agreement because the transferor interest is less
than the required transferor amount as described in paragraph (3) above,
together with any adjustment payments, will be paid to and held in the special
funding account and paid to the owner trustee for distribution to the holders of
the transferor certificates in accordance with the trust agreement if, and only
to the extent that, the transferor interest is greater than the required
transferor amount. If an amortization period or accumulation period has
commenced, the amounts described in the previous sentence will be held for
distribution to the noteholders on the dates specified in the accompanying
prospectus supplement or accumulated for distribution on the expected principal
payment date, as applicable, and distributed to the noteholders of each class or
held for and distributed to the noteholders of other series of notes issued by
the trust in the manner and order of priority specified in the accompanying
prospectus supplement.
If the servicer determines, based upon the yield of special funding account
investments during the previous due period, that by decreasing the amount on
deposit in the special funding account, any outstanding series which permits the
partial amortization of the principal balance of its notes may be prevented from
experiencing an amortization event based upon insufficiency of yield, the
servicer will on the next distribution date instruct the indenture trustee to
apply funds on deposit in the special funding account as partial amortization
sfa amounts to that
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series, and if more than one series, to each on a pro rata basis according to
each invested amount, in an amount such that the special funding account is
reduced to an amount which, based on the then current investment yield, would
not cause a yield insufficiency amortization event for any series then
outstanding.
Defaulted Receivables; Investor Charge-Offs
Unless otherwise specified in the accompanying prospectus supplement, for
each series of notes, on the determination date, the servicer will calculate the
aggregate investor default amount for the preceding due period, which will be
equal to the aggregate amount of the investor percentage of defaulted amounts.
If so provided in the accompanying prospectus supplement, an amount equal to the
investor default amount for any due period may be paid from collections of
finance charge and administrative receivables allocable to that series and other
amounts specified in the accompanying prospectus supplement, including from
credit enhancement, and applied to pay principal to noteholders or, subject to
limitations, the holder of the transferor interest, as appropriate.
With respect to each series of notes, the invested amount with respect to
that series will be reduced by investor charge-offs. Investor charge-offs will
be reimbursed on any distribution date to the extent amounts on deposit in the
collection account and otherwise available exceed the interest, the investor
default amount and any other fees specified in the accompanying prospectus
supplement which are payable on that date. This reimbursement of investor
charge-offs will result in an increase in the invested amount with respect to
that series.
Description of the Indenture
The following summarizes the material terms of the indenture.
Events of Default; Rights Upon Event of Default
With respect to the notes of any series, "events of default" under the
indenture will be any of the following:
(1) the trust fails to pay principal when it becomes due and payable for
that series of notes on the series final maturity date;
(2) the trust fails to pay interest on the notes when it becomes due and
payable and the default continues for a period of 35 days;
(3) bankruptcy, insolvency, conservatorship, receivership, liquidation or
similar events relating to the trust;
(4) the trust fails to observe or perform covenants or agreements made in
the indenture and the failure continues, or is not cured, for 60 days
after notice to the trust by the indenture trustee or to the trust and
the indenture trustee by noteholders representing 25% or more of the
outstanding principal amount of the affected series; or
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(5) any other events of default described in the accompanying prospectus
supplement.
Failure to pay the full principal amount of a note on its expected
principal payment date will not constitute an event of default.
An event of default with respect to one series of notes will not
necessarily be an event of default with respect to any other series of notes.
If an event of default, other than with respect to clause (3) above, should
occur and be continuing with respect to the notes, the indenture trustee or
noteholders holding more than 50% of the outstanding principal amount of the
notes of the affected series may declare all the notes of that series to be
immediately due and payable. This declaration may, under limited circumstances,
be rescinded by noteholders holding more than 50% of the outstanding principal
amount of the notes of that series. If an event of bankruptcy, insolvency,
conservatorship, receivership, liquidation, or similar events relating to the
trust should occur and be continuing, the indenture trustee will declare all of
the notes immediately due and payable. Upon such declaration, the revolving
period, or other period of principal payment or accumulation, other than an
early amortization period, with respect to the affected series will terminate
and an early amortization period will commence.
Generally, in the case of any event of default, the indenture trustee will
be under no obligation to exercise any of the rights or powers under the
indenture if requested or directed by any of the holders of the notes of the
affected series if the indenture trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with that request. Subject to those provisions
for indemnification and limitations contained in the indenture, noteholders
holding more than 50% of the outstanding principal amount of the notes of the
affected series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee, and
noteholders holding more than 50% of the outstanding principal amount of the
notes of the affected series may, in limited cases, waive any default with
respect to the notes, except a default in the payment of principal or interest
or a default relating to a covenant or provision of the indenture that cannot be
modified without the waiver or consent of all noteholders of the affected
series.
After acceleration of a series of notes, principal collections and finance
charge and administrative collections allocated to those notes will be applied
to make monthly principal and interest payments on the notes until the earlier
of the date the notes are paid in full or the final maturity date of the notes.
Funds in the collection account and other trust accounts for an accelerated
series of notes will be applied immediately to pay principal of and interest on
those notes.
Upon acceleration of the maturity of a series of notes following an event
of default, the indenture trustee will have a lien on the collateral for those
notes for its unpaid fees and expenses that ranks senior to the lien of those
notes on the collateral.
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In general, the indenture trustee will enforce the rights and remedies of
the holders of the accelerated series of notes. However, noteholders will have
the right to institute any proceeding with respect to the indenture if the
following conditions are met:
(1) the noteholders of at least 25% of the outstanding principal amount of
the affected series make a written request to the indenture trustee to
institute a proceeding in its own name as indenture trustee;
(2) the noteholders give the indenture trustee written notice of a
continuing event of default;
(3) the noteholders offer reasonable indemnification to the indenture
trustee against the costs, expenses and liabilities of instituting a
proceeding;
(4) the indenture trustee has not instituted a proceeding within 60 days
after receipt of the notice, request and offer of indemnification; and
(5) the indenture trustee has not received during the 60-day period
described in clause (4) above, from noteholders holding more than 50%
of the outstanding principal amount of the notes of that series a
direction inconsistent with the request;
provided, however, you may at any time, institute a proceeding to enforce your
right to receive all amounts of principal and interest due and owing to you
under your note.
If any series of notes has been accelerated following an event of default,
and the indenture trustee has not received any valid directions from the
noteholders regarding the time, method and place of conducting any proceeding
for any remedy available to the indenture trustee, the indenture trustee may
elect to continue to hold the portions of the trust assets that secures those
notes and apply distributions on the trust assets to make payments on those
notes to the extent funds are available.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, in case any event of default occurs and is continuing with
respect to the notes, the indenture trustee:
. may institute proceedings in its own name for the collection of all
amounts then payable on the notes of the affected series; or
. may take any other appropriate action to protect and enforce the
rights and remedies of the indenture trustee and the noteholders of
the affected series.
. may, at its own election or at the direction of noteholders holding
more than 50% of the outstanding principal amount of the accelerated
series of notes, excluding any portion of a class of notes held by the
transferor or an affiliate, foreclose on the portion of the
receivables which secure that accelerated series of notes by causing
the trust to sell principal receivables in an amount generally equal
to the invested amount of the accelerated series notes plus the
related finance charge and
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administrative receivables to a third party, who would not cause the
trust to be taxable as a publicly traded partnership for federal
income tax purposes, but only if it determines that the proceeds of
the sale of principal receivables will be sufficient to pay principal
of and interest on the accelerated series of notes in full; and
. must, at the direction of noteholders holding more than 66-2/3% of the
outstanding principal amount of each class of notes of the accelerated
series, excluding any portion of a class of notes held by the
transferor or an affiliate, foreclose on the portion of the
receivables which secure that accelerated series of notes by causing
the trust to sell principal receivables in an amount generally equal
to the invested amount of the accelerated notes plus the related
finance charge and administrative receivables to a third party, who
would not cause the trust to be taxable as a publicly traded
partnership for federal income tax purposes, regardless of the
sufficiency of the proceeds recovered from the sale of principal
receivables.
Following the foreclosure and sale of the collateral, or portion of the
collateral, for the notes of a series and the application of the proceeds of
that sale to that series and the application of the amounts then held in the
collection account, the special funding account and any series accounts for that
series and any amounts available under the series enhancement for that series,
that series will no longer be entitled to any allocation of collections or other
property constituting the collateral for the notes of that series under the
indenture and the notes of that series will no longer be outstanding.
None of the transferor, the administrator, the owner trustee, the indenture
trustee, the servicer, the bank or the trust, in its individual capacity, nor
any holder of an ownership interest in the trust, nor any of their respective
owners, beneficiaries, agents, officers, directors, managers, employees,
successors or assigns shall, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the notes or for the agreements of the trust contained in the indenture. The
notes will represent obligations solely of the trust, and the notes will not be
insured or guaranteed by the transferor, the servicer, the administrator, the
owner trustee, the indenture trustee, the bank or any other person or entity.
Material Covenants
The indenture provides that the trust may not consolidate with, merge into
or sell its business to, another entity, unless:
. the entity formed by or surviving the consolidation or merger, or that
acquires the Issuer's business, is organized under the laws of the
United States, any state of the United States or the District of
Columbia;
. the entity is not subject to regulation as an "investment company"
under the Investment Company Act of 1940, as amended;
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. the entity expressly assumes, by supplemental indenture, the trust's
obligation to make due and punctual payments upon the notes and the
performance of every covenant of the trust under the indenture;
. no amortization event or event of default shall have occurred and be
continuing immediately after the merger, consolidation or sale;
. written confirmation is received from each rating agency that the
transaction will not result in a reduction or withdrawal of its rating
of any outstanding series or class;
. the trust has received an opinion of counsel to the effect that the
consolidation, merger or sale would have no material adverse federal
income tax consequence to any noteholder;
. any action as is necessary to maintain the lien and security interest
created by the indenture shall have been taken; and
. the trust has delivered to the indenture trustee an opinion of counsel
and officer's certificate each stating that the consolidation, merger
or sale satisfies all requirements under the indenture and that the
supplemental indenture is duly authorized, executed and delivered and
is valid, binding and enforceable.
The trust will not, among other things:
. except as expressly permitted by the indenture, the transfer and
servicing agreement or related documents, sell, transfer, exchange or
otherwise dispose of any of the assets of the trust;
. claim any credit on or make any deduction from payments in respect of
the principal of and interest on the notes, other than amounts
withheld under the Code or applicable state law, or assert any claim
against any present or former noteholders because of the payment of
taxes levied or assessed upon the trust;
. voluntarily dissolve or liquidate in whole or in part; or
. permit (1) the validity or effectiveness of the indenture to be
impaired, or permit the lien under the indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
person to be released from any covenants or obligations with respect
to the notes under the indenture except as may be expressly permitted
by the indenture, (2) any lien, charge, excise, claim, security
interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of the trust or any part
of the trust, except as may be created by the terms of the indenture;
or (3) the lien of the indenture not to constitute a valid first
priority perfected security interest in the assets of the trust that
secure the notes.
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The trust may not engage in any activity other than as specified under "The
Issuer" in this prospectus. The trust will not incur, assume or guarantee any
indebtedness other than indebtedness incurred under the notes and the indenture.
Modification of the Indenture
The trust and the indenture trustee may, without the consent of any
noteholders, enter into one or more supplemental indentures, upon receiving
written confirmation from each rating agency that the action will not result in
a reduction or withdrawal of its rating of any outstanding series or class, for
any of the following purposes:
. to correct or enhance the description of any property subject to the
lien of the indenture, or to take any action that will enhance the
indenture trustee's lien under the indenture, or to add to the
property pledged to secure the notes;
. to reflect the agreement of another person to assume the role of the
trust;
. to add to the covenants of the trust, for the benefit of the
noteholders, or to surrender any right or power of the trust;
. to transfer or pledge any property to the indenture trustee;
. to appoint a successor to the indenture trustee with respect to the
notes and to add to or change any of the provisions of the indenture
to allow more than one indenture trustee to act under the indenture;
. to modify, eliminate or add to the provisions of the indenture as
necessary to qualify the indenture under the Trust Indenture Act of
1939, as amended, or any similar federal statute later enacted;
. to permit the issuance of one or more new series of notes in
accordance with the indenture; or
. to terminate any interest rate swap agreement or other credit
enhancement in accordance with the related indenture supplement.
The trust and the indenture trustee may also, without the consent of any
noteholders and without prior notice to each rating agency, enter into one or
more supplemental indentures in order to cure any ambiguity, to correct or
supplement any provision in the indenture or in any supplemental indenture that
may be inconsistent with any other provision in the indenture or in any
supplemental indenture or to make any other provisions with respect to matters
or questions arising under the indenture or in any supplemental indenture upon
receipt of a certificate of an authorized officer of the transferor to the
effect that, in the transferor's reasonable belief, the action will not have an
Adverse Effect.
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The trust and the indenture trustee may also, without the consent of any
noteholders, enter into one or more supplemental indentures to add provisions
to, change in any manner or eliminate any provision of the indenture, or to
change the rights of the noteholders under the indenture, upon:
. receipt of written confirmation from each rating agency that the action
will not result in a reduction or withdrawal of its rating of any
outstanding series or class;
. receipt of a certificate of an authorized officer of the transferor to
the effect that, in the transferor's reasonable belief, the action will
not have an Adverse Effect; and
. receipt of a tax opinion.
The trust and the indenture trustee may also, without the consent of the
noteholders of any series or the series enhancers for any series, enter into one
or more supplemental indentures to add, modify or eliminate any provisions
necessary or advisable in order to enable the trust or any portion of the trust
to qualify as, and to permit an election to be made for the trust to be treated
as, a "financial asset securitization investment trust" under the Internal
Revenue Code of 1986, as amended and to avoid the imposition of state or local
income or franchise taxes on the trust's property or its income. The following
conditions apply for the amendments described in this paragraph:
. delivery to the owner trustee and the indenture trustee of a certificate
of an authorized officer of the transferor to the effect that the
requirements under the indenture applicable to the proposed amendments
have been met;
. receipt of written confirmation from each rating agency that the action
will not result in a reduction or withdrawal of its rating of any
outstanding series or class; and
. the amendment must not affect the rights, duties or obligations of the
indenture trustee or the owner trustee under the indenture.
The trust and the indenture trustee will not, without prior notice to each
rating agency and without the consent of each noteholder affected, enter into
any supplemental indenture to:
. change the date of payment of any installment of principal of or
interest on any note or reduce the principal amount of a note, the note
interest rate or the redemption price of the note or change any place of
payment where, or the currency in which, any note is payable;
. impair the right to institute suit for the enforcement of specified
payment provisions of the indenture;
. reduce the percentage which constitutes a majority of the outstanding
principal amount of the notes of any series, whose consent is required
for execution of any supplemental indenture or for any waiver of
compliance with specified provisions
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of the indenture or of some defaults under the indenture and their
consequences provided in the indenture;
. reduce the percentage of the outstanding principal amount of the notes
required to direct the indenture trustee to sell or liquidate the trust
assets if the proceeds of the sale would be insufficient to pay the
principal amount and interest due on those notes;
. decrease the percentage of the outstanding principal amount of the notes
required to amend the sections of the indenture that specify the
percentage of the aggregate principal amount of the notes of a series
necessary to amend the indenture or other related agreements;
. modify any provisions of the indenture regarding the voting of notes held
by the trust, any other party obligated on the notes, or the bank, any
other account owner or any of their affiliates; or
. permit the creation of any lien superior or equal to the lien of the
indenture with respect to any of the collateral for any notes or, except
as otherwise permitted or contemplated in the indenture, terminate the
lien of the indenture on the collateral or deprive any noteholder of the
security provided by the lien of the indenture.
The trust and the indenture trustee may otherwise, with prior notice to
each rating agency and with the consent of noteholders holding more than 50% of
the outstanding principal amount of the notes of each series adversely affected,
enter into one or more supplemental indentures to add provisions to, change in
any manner or eliminate any provision of the indenture, or to change the rights
of the noteholders under the indenture.
Annual Compliance Statement
The trust will be required to present to the indenture trustee each year a
written statement as to the performance of its obligations under the indenture.
Indenture Trustee's Annual Report
The indenture trustee will be required to mail to the noteholders each year
a brief report relating to its eligibility and qualification to continue as
indenture trustee under the indenture, the property and funds physically held by
the indenture trustee and any action it took that materially affects the notes
and that has not been previously reported.
List of Noteholders
Upon the issuance of definitive notes, three or more holders of the notes
who have each owned a note for at least six months may obtain access to the list
of noteholders the indenture trustee maintains for the purpose of communicating
with other noteholders. The indenture trustee may elect not to allow the
requesting noteholders access to the list of noteholders if it agrees to mail
the requested communication or proxy, on behalf and at the expense of the
requesting noteholders, to all noteholders of record.
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Satisfaction and Discharge of Indenture
An indenture will be discharged with respect to the notes upon the delivery
to the indenture trustee for cancellation of all the notes or, with specific
limitations, upon deposit with the indenture trustee of funds sufficient for the
payment in full of all the notes.
Resignation and Removal of the Indenture Trustee
The indenture trustee may resign at any time, in which event your
administrator will appoint a successor indenture trustee for your series. The
administrator may also remove the indenture trustee if it ceases to be eligible
to continue as an indenture trustee under the indenture or if the indenture
trustee becomes insolvent. The administrator will then be obligated to appoint a
successor indenture trustee for your series. If an event of default occurs under
the indenture and the accompanying prospectus supplement provides that a given
class of notes of your series is subordinated to one or more other classes of
notes of your series, under the Trust Indenture Act of 1939, as amended, the
indenture trustee may be deemed to have a conflict of interest and be required
to resign as indenture trustee for one or more of those classes of notes. In
that case, a successor indenture trustee will be appointed for one or more of
those classes of notes and may provide for rights of senior noteholders to
consent to or direct actions by the indenture trustee which are different from
those of subordinated noteholders. Any resignation or removal of the indenture
trustee and appointment of a successor indenture trustee for any series of notes
will not become effective until the successor indenture trustee accepts its
appointment for your series.
Description of the Transfer and Servicing Agreement
General
On the initial closing date the transferor will transfer the receivables to
the issuer under the transfer and servicing agreement. In the transfer and
servicing agreement, Household Finance Corporation will agree to service the
receivables for the trust through its affiliate, Household Credit Services,
Inc., acting as subservicer. The following summarizes the material terms of the
Transfer and Servicing Agreement. A form of this agreement is filed as an
exhibit to the registration statement of which this prospectus is a part.
Representations and Warranties of the Transferor
When the trust issues a new series of notes, the transferor will make
several representations and warranties to the trust in the transfer and
servicing agreement, including the following:
Regarding No Conflict
. the execution and delivery by the transferor of the transfer and
servicing agreement and each other document relating to the issuance to
which it is a party will not conflict with any law or any other
agreement to which the transferor is a party; and
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. all required governmental approvals in connection with the execution and
delivery by the transferor of the transfer and servicing agreement and
each other document relating to the issuance have been obtained and
remain in force and effect.
If a representation or warranty made by the transferor is later found to be
materially incorrect when made, and:
. continues to be materially incorrect for 60 days after notice to the
transferor by the indenture trustee, or to the transferor and the
indenture trustee by any noteholder; and
. as a result, the interests of the noteholders are materially and
adversely affected, and continue to be materially and adversely affected
during the 60-day period,
then the indenture trustee or noteholders holding more than 50% of the
outstanding principal amount of the notes of the affected series may give notice
to the transferor and the servicer, and to the indenture trustee if given by the
noteholders, declaring that an amortization event has occurred. Declaring an
amortization event will automatically begin early amortization or, if specified
in the accompanying prospectus supplement, early accumulation of principal.
Regarding Enforceability
The transferor will make other representations and warranties to the trust
in the transfer and servicing agreement, including the following:
. as of the closing date, the transferor is duly incorporated and in good
standing and has the authority to consummate the issuance;
. the transfer and servicing agreement and each other document relating to
the issuance to which it is a party constitutes a legal, valid and
binding obligation enforceable against the transferor; and
. the trust has all right, title and interest in the receivables in the
trust portfolio or has a first priority perfected security interest in
these receivables.
In the event:
. any representation or warranty described immediately above is breached;
and
. as a result, the interests of noteholders in the receivables in the
trust portfolio are materially and adversely affected;
then any of the owner trustee, the indenture trustee or noteholders representing
50% or more of the outstanding principal amount of all of the trust's
outstanding series may give notice to the transferor and the servicer, and to
the owner trustee and indenture trustee if given by the noteholders, directing
the transferor to accept reassignment of the entire trust portfolio and to pay
into the trust's collection account a cash deposit equal to the sum of the
amounts specified
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with respect to each outstanding series in the related indenture supplement.
However, no reassignment will be required if:
. within 60 days, or up to 120 days if specified in the notice, the
transferor cures the breach and any material adverse effect caused by
the breach; or
. on any day within the applicable 60-day to 120-day period the relevant
representation and warranty is then true and correct in all material
respects and the transferor delivers to the owner trustee a certificate
of an authorized officer describing the nature of the breach and the
manner in which the relevant representation and warranty became true and
correct.
Reassignment of the trust portfolio and the transferor's obligation to make
the cash deposit in the trust's collection account are the only remedies to any
breach of the representations and warranties described above.
Regarding the Accounts and the Receivables
The transferor makes representations and warranties in the transfer and
servicing agreement concerning the accounts and the receivables in the trust
portfolio. Only eligible accounts can be designated as accounts for the trust
portfolio. We can give you no assurance that eligible accounts will remain
eligible once added to the trust.
The transferor also represents that each receivable in the trust portfolio
is an eligible receivable when created. If a receivable in the trust portfolio
is found to be ineligible when created, and, as a result, the interests of
noteholders in any receivable in the trust portfolio are materially and
adversely affected, the transferor must accept reassignment of the principal
amount of this ineligible receivable. However, the transferor will have 60 days,
or up to 120 days if agreed to by the indenture trustee and the servicer, from
the earlier to occur of discovery of the breach by the transferor or receipt by
the transferor of written notice of the breach given by the owner trustee, the
indenture trustee or the servicer, to cure the ineligibility before reassignment
is required.
The transferor will accept reassignment of an ineligible receivable by
directing the servicer to deduct the principal amount of the ineligible
receivable from the transferor interest. If this would reduce the transferor
interest below the required transferor amount, the transferor will make a cash
deposit in the trust's special funding account in the amount by which the
transferor interest would have been reduced below the required transferor
amount. Any deduction or deposit is considered a repayment in full of the
ineligible receivable. The transferor's obligation to accept reassignment of any
ineligible receivable is the only remedy for any breach of a representation
concerning eligibility of receivables.
Additional Representations and Warranties in the Prospectus Supplement
The accompanying prospectus supplement may specify additional
representations and warranties made by the transferor when your notes are
issued. The indenture trustee is not required to make periodic examinations of
receivables in the trust portfolio or any records
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relating to them. However, the servicer will deliver to the indenture trustee
once each year an opinion of counsel affirming, among other things, that no
further action is necessary to maintain the trust's perfected security interest
in the receivables.
Additional Transferors
The transferor may, from time to time, designate one or more of its
affiliates as additional transferors under the transfer and servicing agreement.
In connection with this designation, the transferor will exchange the transferor
certificate for a newly issued transferor certificate modified to reflect any
additional transferor's interest in the transferor interest. The transfer and
servicing agreement may be amended to permit the designation of these additional
transferors and the exchange of the transferor certificate without noteholder
consent upon:
. delivery to the owner trustee and the indenture trustee of a tax opinion
regarding the exchange; and
. receipt of written confirmation from each rating agency that the
exchange will not result in a reduction or withdrawal of its rating of
any outstanding series or class.
Eligible Accounts
An "eligible account" means, as of the cut-off date, or with respect to
additional accounts, as of their date of designation for inclusion in the trust,
each consumer revolving credit account owned by the bank or other account
owner:
. which was in existence and maintained by the bank or other account
owner, as applicable;
. which is payable in United States dollars;
. the obligor of which has provided, as his or her most recent billing
address, an address located in the United States or its territories,
possessions or military bases;
. which, except as provided below, has an obligor who has not been
identified by the servicer in its computer files as currently being
involved in a bankruptcy proceeding;
. which has not been classified as an account with respect to which the
related card, if any, has been lost or stolen or the related account
number has been stolen;
. which has not been sold or pledged to any other party except for any
sale to another account owner that has either entered into a receivables
purchase agreement or is an additional transferor or to Household
Receivables Funding, Inc. III under a receivables purchase
agreement;
. which, with respect to the initial accounts, is an account in existence
and maintained by the bank as of the initial cut-off date or as of its
date of designation for inclusion in the trust with respect to
additional accounts;
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. which does not have any receivables that are defaulted receivables,
except as provided below; and
. which does not have any receivables that have been identified by the
servicer or the relevant obligor as having been incurred as a result of
fraudulent use of any related credit card, if any, or related account
number.
Eligible accounts may include accounts, the receivables of which have been
charged off, or with respect to which the servicer believes the related obligor
is bankrupt, in each case as of the cut-off date or as of its date of
designation for inclusion in the trust, as applicable, if:
. the balance of all receivables included in those accounts is reflected
on the books and records of the transferor as "zero"; and
. charging privileges for these accounts have been canceled in accordance
with the customary policies and procedures, as amended from time to
time, of the bank or other account owner, as applicable.
Under the transfer and servicing agreement, the definition of eligible
account may be changed by amendment to the agreement without the consent of the
noteholders if: the transferor delivers to the owner trustee and the indenture
trustee a certificate of an authorized officer to the effect that, in the
reasonable belief of the transferor, the amendment will not as of the date of
the amendment adversely affect in any material respect the interest of the
noteholders, and the amendment will not result in a withdrawal or reduction of
the rating of any outstanding series under the trust.
Eligible Receivables
With respect to each series of notes, an "eligible receivable" means each
receivable:
. which has arisen in an eligible account;
. which was created in compliance, in all material respects, with all
requirements of law applicable to the institution that owned the
receivable at the time of its creation, and under the terms of a credit
agreement which complies in all material respects with all requirements
of law applicable to the bank or other account owner, as applicable;
. with respect to which all material consents, licenses or authorizations
of, or registrations with, any governmental authority required to be
obtained or given in connection with the creation of the receivable or
the execution, delivery and performance by the bank or other account
owner or receivables seller, as applicable, of the related credit
agreement have been duly obtained or given and are in full force and
effect;
. as to which, at the time of its transfer to the trust, the transferor or
the trust has good title, free and clear of all liens and security
interests arising under or through the
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transferor, other than some tax liens for taxes not then due or which
the transferor is contesting;
. which has been the subject of either a valid transfer and assignment
from the transferor to the trust of all of the transferor's right, title
and interest in the receivable, including any proceeds of the
receivable, or the grant of a first priority perfected security interest
in the receivable, and in the proceeds of the receivable, effective
until the termination of the trust;
. which is the legal, valid and binding payment obligation of the obligor
under the receivable, legally enforceable against that obligor in
accordance with its terms, subject to some bankruptcy-related
exceptions;
. which, at the time of transfer to the trust, has not been waived or
modified except as permitted under the customary policies and
procedures, as amended from time to time, of the bank or other account
owner or receivables seller, as applicable, and then only if the waiver
or modification is reflected in the servicer's computer file of
revolving credit accounts;
. which, at the time of transfer to the trust, is not subject to any right
of rescission, setoff, counterclaim or any other defense, including
defenses arising out of violations of usury laws, of the obligor, other
than defenses arising out of bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights in general;
. which, at the time of transfer to the trust, the bank or other account
owner or receivables seller, as applicable, has satisfied all of its
obligations required to be satisfied by that time;
. which, at the time of transfer to the trust, none of the transferor, the
bank or any other account owner or receivables seller, as applicable,
has taken any action, or omitted to take any action, that would impair
the rights of the trust or the noteholders; and
. which constitutes an "account" or "general intangible" under Article 9
of the UCC as then in effect in the State of Nevada or any other state
where the filing of a financing statement is required to perfect the
trust's interest in the receivables and the proceeds of those
receivables.
Addition of Trust Assets
As described above under "The Trust Portfolio," the transferor will have
the right to designate, from time to time, additional accounts to be included as
accounts for the trust. The additional accounts will consist of either aggregate
addition accounts or new accounts. In addition, the transferor will be required
to designate additional accounts under the circumstances and in the amounts
specified in the accompanying prospectus supplement. The transferor will
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convey to the trust its interest in all receivables of those additional
accounts, whether the receivables are then existing or subsequently created.
Each additional account will be selectively or randomly chosen from
eligible accounts in the bank's or other account owner's portfolio of revolving
credit accounts and thus may not be a Union Plus account. However, these
additional accounts may not be of the same credit quality as the initial
accounts. Additional accounts may have been originated by the bank or other
account owner, as applicable, using credit criteria different from those which
were applied by the bank to the initial accounts or may have been acquired by
the bank or other account owner, as applicable, from an institution which may
have had different credit criteria.
The transferor is also permitted to add, from time to time, participations
and related collections to the trust. These participations must be undivided
interests in a pool of assets primarily consisting of receivables arising under
consumer revolving credit accounts. Participations may be issued under separate
agreements that are similar to the agreements governing the issuance of the
notes and that entitle the holder of the participation to receive percentages of
collections generated by the pool of assets supporting the participation.
Participations may have their own credit enhancement, amortization events,
servicing obligations and servicer defaults, all of which are likely to be
enforceable by a separate trustee under these participation agreements and may
be different from those specified in this prospectus. The rights and remedies of
the trust as the holder of a participation, and, therefore, the noteholders,
will be subject to all the terms and provisions of those participation
agreements.
Any participation interests to be included as trust assets or any eligible
accounts, other than new accounts, designated to be included as accounts after
the initial selection date, are collectively referred to as an aggregate
addition.
When the transferor transfers receivables in additional accounts or
participations, it must satisfy several conditions, including, as applicable:
. with respect to any aggregate addition, notice to the owner trustee, the
indenture trustee, the servicer and each rating agency;
. delivery and acceptance by the owner trustee of a written assignment of
receivables in the additional accounts or participations to the trust;
. delivery on the required delivery date to the owner trustee of a
computer file or microfiche list with an accurate list of all additional
accounts;
. delivery to the owner trustee and the indenture trustee of a certificate
of an authorized officer to the effect that:
(1) as of the addition date, each additional account is an eligible
account;
(2) the transferor has deposited into the collection account any
collections relating to additional accounts or participation
interests;
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(3) in circumstances where the transferor is not required to designate
additional accounts to be included as accounts for the trust, or to
add participations to the trust, each rating agency then rating any
series of notes outstanding under the trust shall have previously
consented to the designation of the aggregate addition;
(4) as of the addition date, none of the bank, or any other account owner
or receivables seller, or the transferor is insolvent and the
transfer of the receivables was not made in contemplation of
insolvency;
(5) in the transferor's reasonable belief, adding the receivables in
aggregate addition accounts or participations will not have an
Adverse Effect;
. delivery on the required delivery date of opinions of counsel with
respect to the transfer of the receivables in the additional accounts or
the participations to the trust; and
. in circumstances where the transferor, in its discretion, designates
aggregate addition accounts to be included as accounts for the trust or
adds participations to the trust, written confirmation from each rating
agency that the aggregate addition will not result in the reduction or
withdrawal of its rating of any outstanding series or class.
In addition to the periodic reports otherwise required to be filed by the
servicer with the SEC under the Securities Exchange Act of 1934, the servicer
intends to file, on behalf of the trust, a Report on Form 8-K with respect to
any addition to the trust of receivables in additional accounts or
participations that would have a material effect on the composition of the
assets of the trust.
Removal of Trust Assets
The transferor has the right to designate zero balance accounts, specific
terminated merchant or co-branding participant accounts and randomly chosen
removed accounts and to remove participations from the trust and to require the
indenture trustee to transfer all receivables in the removed accounts and
removed participations back to the transferor, whether the receivables already
exist or arise after the designation. These removed accounts may not be of the
same credit quality as the initial accounts but on average could be of a better
quality than the trust accounts taken as a whole. The removal of accounts from
the trust will reduce the transferor interest. The transferor's rights to
removal are subject to satisfaction of several conditions, including:
. written notice to the owner trustee, the indenture trustee, the
servicer, each rating agency and each series enhancer;
. delivery to the owner trustee for execution a written reassignment of
receivables in the removed accounts and removed participations to the
transferor or its designee;
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. delivery on the required delivery date to the owner trustee of a
computer file or microfiche list with an accurate list of all removed
accounts;
. written confirmation from each rating agency that the removal will not
result in the reduction or withdrawal of its rating of any outstanding
series or class;
. delivery to the owner trustee and the indenture trustee a certificate of
an authorized officer to the effect that, in the transferor's reasonable
belief:
. the removal will not have an Adverse Effect; and
. the accounts to be removed were not chosen through a selection
process believed to be materially adverse to the interests of the
noteholders; and
. any other conditions specified in the accompanying prospectus
supplement.
The conditions described above relating to rating agency confirmation and
the delivery of an officer's certificate will not apply if the removed accounts
are zero balance accounts or the transferor is purchasing receivables in
accounts designated for re-purchase by a merchant or co-branding participant
upon termination of its affinity agreement with the bank or other account owner,
as applicable.
In addition, any receivable that becomes a defaulted receivable will be
automatically removed from the trust and will be transferred to the transferor
without any further action or consideration by the indenture trustee, provided
that recoveries with respect to those accounts will be applied as collections of
finance charge and administrative receivables.
Discount Option
The transferor has the option to reclassify a percentage, called the
discount percentage, of principal receivables in the trust portfolio as finance
charge and administrative receivables. This option is referred to as the
discount option. The transferor may use the discount option to compensate for a
decline in the portfolio yield, but only if there would be sufficient principal
receivables to allow for that discounting. Exercise of the discount option would
result in a larger amount of collections of finance charge and administrative
receivables and a smaller amount of collections of principal receivables. By
doing so, the transferor would reduce the likelihood that an amortization event
would occur as a result of a decreased portfolio yield and, at the same time,
would increase the likelihood that the transferor will have to add principal
receivables to the trust.
Collections of discount option receivables will be considered collections
of finance charge and administrative receivables in the trust portfolio and
allocated with all other collections of finance charge and administrative
receivables in the trust portfolio.
The Transferor may increase, reduce or withdraw the discount percentage, at
any time and from time to time, on and after the discount option date. To
increase, reduce or withdraw the discount option, the transferor must satisfy
the conditions in the transfer and
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servicing agreement, including receipt of a certificate of an authorized officer
of the transferor to the effect that, in the transferor's reasonable belief, the
action will not have an Adverse Effect and written confirmation from each rating
agency that use of the discount option will not result in a reduction or
withdrawal of its rating of any outstanding series or class; provided, however,
the discount percentage will be reduced or withdrawn on the date on which the
transferor delivers to the indenture trustee a certificate of an authorized
officer of the transferor to the effect that, in the transferor's reasonable
belief, the continued discounting of principal receivables would have an adverse
regulatory implication for the transferor.
Servicing Compensation and Payment of Expenses
For each series of notes, the servicer will be responsible for servicing
and administering the receivables in accordance with the servicer's policies and
procedures for servicing revolving credit receivables comparable to the
receivables.
The servicer receives a fee for its servicing activities and reimbursement
of expenses incurred in administering the trust. This servicing fee accrues for
each outstanding series in the amounts and is calculated on the balances set
forth in the related prospectus supplement. Each series' servicing fee is
payable each period from collections of finance charge and administrative
receivables allocated to the series; some series, however, may direct all or a
portion of the interchange arising from the accounts toward paying the servicing
fee. Neither the trust nor the noteholders are responsible for any servicing fee
allocable to the transferor interest.
Matters Regarding the Servicer and the Transferor
The servicer may not resign from its obligations and duties under the
transfer and servicing agreement, except:
. upon a determination that performance of its duties is no longer
permissible under applicable law and there is no reasonable action which
the servicer could take to make the performance of its duties
permissible under applicable law; or
. upon assumption of its obligations and duties by one of its affiliates
that is a wholly owned subsidiary of Household International, Inc. or by
appointment of any other eligible successor if written confirmation is
received from each rating agency that the appointment will not result in
a reduction or withdrawal of its rating of any outstanding series or
class.
If within 120 days of the determination that the servicer is no longer
permitted to act as servicer and the indenture trustee is unable to appoint a
successor, the indenture trustee will act as servicer. If the indenture trustee
is unable to act as servicer, it will petition an appropriate court to appoint
an eligible successor.
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The servicer may not resign until the indenture trustee or another
successor has assumed the servicer's obligations and duties. Household Finance
Corporation is permitted to assign part or all of its obligations and duties as
servicer to one of its affiliates if it guarantees its affiliates performance.
The servicer will indemnify the trust, the owner trustee and the indenture
trustee for any losses suffered as a result of its actions or omissions as
servicer or the administration by the owner trustee of the trust, except in each
case, for losses resulting from the negligence or willful misconduct of the
owner trustee or the indenture trustee, as applicable.
Neither the servicer nor any of its directors, officers, employees or
agents will be under any other liability to the trust, the owner trustee, the
indenture trustee, the noteholders, any series enhancer or any other person for
any action taken, or for refraining from taking any action, in good faith under
the transfer and servicing agreement. However, none of them will be protected
against any liability resulting from willful wrongdoing, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of obligations and duties under the transfer and servicing agreement. In
addition, the transfer and servicing 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 transfer and
servicing agreement and which in its opinion may expose it to any expense or
liability.
Each transferor will be severally, but not jointly, liable for all of its
obligations, covenants, representations and warranties under the transfer and
servicing agreement. No transferor nor any of its directors, managers, officers,
employees, incorporators or agents will be liable to the trust, the owner
trustee, the indenture trustee, the noteholders, any series enhancer or any
other person for any action taken, or for refraining from taking any action, in
good faith under the transfer and servicing agreement. However, none of them
will be protected against any liability resulting from willful wrongdoing, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of obligations and duties under the transfer and servicing
agreement.
The trust agreement provides that the transferor may transfer its interest
in all or a portion of the transferor certificate by exchanging its transferor
certificate for a supplemental certificate. The terms of the supplemental
certificate must be defined in a supplement to the trust agreement. Before a
supplemental certificate is issued, the following must occur:
. notice of the exchange to the owner trustee, the indenture trustee,
the servicer and each rating agency;
. delivery to the owner trustee and the indenture trustee of an executed
supplement to the trust agreement;
. written confirmation from each rating agency that the exchange will
not result in a reduction or withdrawal of its rating of any
outstanding series or class;
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. delivery to the owner trustee and the indenture trustee of a
certificate of an authorized officer of the transferor to the effect
that it reasonably believes the exchange will not have an Adverse
Effect;
. delivery to the owner trustee and the indenture trustee of a tax
opinion regarding the exchange; and
. the total amount of principal receivables in the trust portfolio, plus
the principal amount of any participations transferred to the trust
must exceed the required minimum principal balance on the date of the
exchange.
No supplemental certificate may be transferred or exchanged unless a tax
opinion is delivered to the owner trustee and the indenture trustee regarding
the exchange.
The transferor or the servicer may consolidate with, merge into, or sell
its business to, another entity, in accordance with the transfer and servicing
agreement, and the surviving entity will be the successor to the transferor or
servicer, as the case may be, on the following conditions:
. execution of an agreement relating to the succession that supplements
the transfer and servicing agreement;
. in the case of a succession relating to the transferor, delivery to
the owner trustee and the indenture trustee of a certificate of an
authorized officer of the transferor and an opinion of counsel, each
addressing compliance with the applicable provisions of the transfer
and servicing agreement and the validity and enforceability of the
supplemental agreement, and written confirmation from each rating
agency that the succession will not result in a reduction or
withdrawal of its rating of any outstanding series or class; and
. in the case of a succession relating to the servicer, delivery to the
owner trustee and the indenture trustee of a certificate of an
authorized officer of the servicer and an opinion of counsel, each
addressing compliance with the applicable provisions of the transfer
and servicing agreement, notification of the succession to each rating
agency, and that the successor is eligible to act as servicer.
Servicer Default
The transfer and servicing agreement specifies the duties and obligations
of the servicer. A failure by the servicer to perform its duties or fulfill its
obligations can result in a servicer default.
A "servicer default" includes each of the following:
(1) failure by the servicer to make any payment, transfer or deposit, or
to give instructions or to give notice to the indenture trustee to do
so, on the required date
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under the transfer and servicing agreement, the indenture or any
indenture supplement or within the applicable grace period not
exceeding 5 business days;
(2) failure on the part of the servicer to observe or perform in any
material respect any of its other covenants or agreements if the
failure:
(a) has an Adverse Effect; and
(b) continues unremedied for a period of 60 days after written notice
to the servicer by the owner trustee or the indenture trustee, or
the servicer, the owner trustee and the indenture trustee by
noteholders of 10% or more of the outstanding principal amount of
all of the trust's outstanding series or, where the servicer's
failure does not relate to all series, 10% or more of the
outstanding principal amount of all series affected; or the
assignment or the delegation by the servicer of its duties,
except as specifically permitted under the transfer and servicing
agreement;
(3) any representation, warranty or certification made by the servicer in
the transfer and servicing agreement, or in any certificate delivered
as required by the transfer and servicing agreement, proves to have
been incorrect when made if it:
(a) has an Adverse Effect; and
(b) continues to be incorrect and to materially adversely affect
those noteholders for a period of 60 days after written notice to
the servicer by the owner trustee or the indenture trustee, or
the servicer, the owner trustee and the indenture trustee by
noteholders of 10% or more of the outstanding principal amount of
all of the trust's outstanding series or, where the servicer's
inaccuracy does not relate to all series, 10% or more of the
outstanding principal amount of all series affected;
(4) specific bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the servicer; or
(5) any other event specified in the accompanying prospectus supplement.
A delay in or failure of performance referred to in clause (1) above for a
period of 10 business days after the applicable grace period, or referred to
under clause (2) or (3) for a period of 60 business days after the applicable
grace period, will not constitute a servicer default if the delay or failure
could not be prevented by the exercise of reasonable diligence by the servicer
and the delay or failure was caused by an act of God or other similar
occurrence. Upon the occurrence of any of these events, the servicer shall not
be relieved from using all commercially reasonable efforts to perform its
obligations in a timely manner in accordance with the terms of the transfer and
servicing agreement and the servicer must provide the indenture trustee, the
owner trustee each transferor and any series enhancer with an officer's
certificate giving prompt notice of its failure or delay, together with a
description of its efforts to perform its obligations.
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If a servicer default occurs, for as long as it has not been remedied, the
indenture trustee or noteholders representing a majority of the outstanding
principal amount of all of the trust's outstanding series may give a notice to
the servicer and the owner trustee, and to the indenture trustee if given by the
noteholders, terminating all of the rights and obligations of the servicer under
the transfer and servicing agreement and the indenture trustee may appoint a new
servicer. The indenture trustee will as promptly as possible appoint an eligible
successor to the servicer. If no successor has been appointed or has accepted
the appointment by the time the servicer ceases to act as servicer, the
indenture trustee will automatically become the successor. If the indenture
trustee is unable to obtain bids from eligible servicers and the servicer
delivers a certificate of an authorized officer to the effect that it cannot in
good faith cure the servicer default which gave rise to a transfer of servicing,
and if the indenture trustee is legally unable to act as successor, then the
indenture trustee will give the transferor a right of first refusal to purchase
the interests of the noteholders in the trust on the distribution date in the
next calendar month at a price equal to the sum of the amounts specified for
each series outstanding in the related indenture supplement.
The rights and obligations of the transferor under the transfer and
servicing agreement will be unaffected by any change in servicer.
In the event of the bankruptcy of the servicer, the bankruptcy court may
have the power to prevent either the indenture trustee or the noteholders from
appointing a successor servicer.
Evidence of Compliance
The transfer and servicing agreement provides that on or before March 31 of
each calendar year, the servicer will have a firm of independent certified
public accountants furnish a report showing that, for the prior calendar year:
. the accounting firm has reviewed management's assertion that the
system of internal control over servicing of securitized credit card
receivables met the criteria for effective internal control and that,
in the accounting firm's opinion, management's assertion is fairly
stated in all material respects, and
. the accounting firm has compared amounts set forth in the periodic
reports prepared by the servicer for the prior calendar year with the
servicer's computer reports and that, in the accounting firm's
opinion, the amounts are in agreement, except for any discrepancies
disclosed.
The transfer and servicing agreement also provides that by March 31 of each
calendar year, the servicer will deliver to the owner trustee, the indenture
trustee and each rating agency a certificate of an authorized officer to the
effect that the servicer has fully performed its obligations under the transfer
and servicing agreement during the preceding year, or, if there has been a
default in the performance of any of its obligations, specifying the nature and
status of default.
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Assumption of a Transferor's Obligations
A transferor may, from time to time, consider a transfer of all or a
portion of its right, title and interest in and to the receivables and/or its
interest in the transferor certificate, collectively referred to as the assigned
assets, together with all servicing functions, if any, and other obligations
under the transfer and servicing agreement or relating to the transactions
contemplated thereby, collectively referred to as, the assumed obligations, to
another entity, called the assuming entity, which may be an entity that is not
affiliated with the transferor. In the transfer and servicing agreement, each
transferor is permitted to assign, convey and transfer assigned assets and
assumed obligations to the assuming entity without the consent or approval of
the holders of any outstanding notes if the following conditions, among others,
are satisfied:
(1) the assuming entity, that transferor and the trustee shall have
entered into and delivered to the trustee a supplement to the transfer
and servicing agreement or an assumption agreement providing for the
assuming entity to assume the assumed obligations, including the
obligation under the transfer and servicing agreement to transfer the
transferor's interest in the receivables arising under the accounts
and the receivables arising under any additional accounts to the
trust;
(2) all UCC filings required to perfect the interest of the indenture
trustee in the receivables arising under those accounts shall have
been duly made and copies of all UCC filings shall have been delivered
by each transferor to the indenture trustee;
(3) if the assuming entity shall be eligible to be a debtor in a case
under the bankruptcy code, that transferor shall have delivered to the
rating agencies, with a copy to the servicer and the trustee, notice
of the transfer and assumption, and that each rating agency that has
rated an outstanding series of notes confirm in writing that the
transfer will not result in a reduction or withdrawal of its rating of
any class of any outstanding series of notes or, if the assuming
entity shall not be eligible to be a debtor under the bankruptcy code,
that transferor shall have delivered to the rating agencies notice of
the transfer and assumption;
(4) the trustee shall have received an opinion of counsel to the effect
that
(a) the transfer of the receivables by the assuming entity shall
constitute either a sale of, or the granting of a security
interest in, the receivables by the assuming entity to the
trust,
(b) the condition specified in clause (2) shall have been satisfied,
and
(c) if the assuming entity shall be subject to the FDIA, the interest
of the trust in the receivables should not be subject to
avoidance by the FDIC if the
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FDIC were to become the receiver or conservator of the assuming
entity; and
(5) the trustee shall have received a tax opinion. The transfer and
servicing agreement provides that the transferor, the assuming entity
and the owner trustee may enter into amendments to the transfer and
servicing agreement to permit the transfer and assumption described
above without the consent of the holders of any outstanding notes.
After any permitted transfer and assumption, the assuming entity will
be considered to be a "transferor" for all purposes hereof, and that
transferor will have no further liability or obligation under the
transfer and servicing agreement, other than those liabilities that
arose prior to that transfer.
Amendments
The transfer and servicing agreement may be amended by the transferor, the
servicer and the owner trustee, without the consent of the indenture trustee or
the noteholders of any series, on the following conditions:
. the transferor delivers to the owner trustee and the indenture trustee
a certificate of an authorized officer stating that, in the
transferor's reasonable belief, the amendment will not have an Adverse
Effect; and
. written confirmation from each rating agency that the amendment will
not result in a reduction or withdrawal of its rating of any
outstanding series or class.
The transfer and servicing agreement may also be amended by the servicer,
the transferor and the owner trustee, without the consent of any noteholders and
without prior notice to each rating agency, in order to cure any ambiguity, to
correct or supplement any provision in the transfer and servicing agreement or
in any amendment to the transfer and servicing agreement that may be
inconsistent with any other provision in the transfer and servicing agreement or
in any amendment to the transfer and servicing agreement or to make any other
provisions with respect to matters or questions arising under the transfer and
servicing agreement or in any amendment to the transfer and servicing agreement
upon receipt of a certificate of an authorized officer of the transferor to the
effect that, in the transferor's reasonable belief, the action will not have an
Adverse Effect.
The transfer and servicing agreement may also be amended by the servicer
and the owner trustee at the direction of the transferor, without the consent of
the indenture trustee, the noteholders of any series or the series enhancers for
any series to add, modify or eliminate any provisions necessary or advisable in
order to enable the trust or any portion of the trust to
(1) qualify as, and to permit an election to be made for the trust to be
treated as, a "financial asset securitization investment trust" under
the Internal Revenue Code of 1986, as amended and
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(2) avoid the imposition of state or local income or franchise taxes on
the trust's property or its income. The following conditions apply for
the amendments described in this paragraph:
. delivery to the owner trustee and the indenture trustee of a
certificate of an authorized officer of the transferor to the
effect that the requirements under the transfer and servicing
agreement applicable to the proposed amendments have been met;
. receipt of written confirmation from each rating agency that the
amendment will not result in a reduction or withdrawal of its
rating of any outstanding series or class; and
. the amendment must not affect the rights, duties or obligations
of the indenture trustee or the owner trustee under the transfer
and servicing agreement.
The amendments which the transferor may make without the consent of the
noteholders of any series or the series enhancers for any series in accordance
with the preceding paragraph may include, without limitation, the addition of a
sale of receivables in the trust portfolio.
The transfer and servicing agreement may also be amended by the transferor,
the servicer and the owner trustee with the consent of noteholders representing
at least 66 2/3% of the outstanding principal amount of the notes of all series
adversely affected by the amendment. Even with consent, no amendment may occur
if it:
(1) reduces the amount of, or delays the timing of:
(a) any distributions to be made to noteholders of any series,
changes in amortization events that decrease the likelihood of
the occurrence of those events will not be considered delays in
the timing of distributions for purposes of this clause;
(b) deposits of amounts to be distributed; or
(c) the amount available under any series enhancement, without the
consent of each affected noteholder;
(2) changes the manner of calculating the interests of any noteholder,
without the consent of each affected noteholder;
(3) reduces the percentage of the outstanding principal amount of the
notes required to consent to any amendment, without the consent of
each affected noteholder; or
(4) adversely affects the rating of any series or class by each rating
agency, without the consent of noteholders representing at least 66
2/3% of the outstanding principal amount of the notes of each affected
series or class.
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Description of the Purchase Agreements
On the initial closing date, the bank will transfer the initial receivables
to the transferor under the receivables purchase agreement, between the bank and
the transferor which was entered into in the ordinary course of their respective
businesses. The receivables purchase agreement permits the addition of
receivables sellers in addition to the bank. The following summarizes the
material terms of the receivables purchase agreement. References to the bank
below include additional receivables sellers. A form of this agreement is filed
as an exhibit to the registration statement of which this prospectus is a
part.
Sale of Receivables
The receivables transferred to the trust by the transferor were acquired by
the transferor from the bank under the receivables purchase agreement. Under
the receivables purchase agreement, the bank sold and, in the future, may sell
to the transferor all of its right, title and interest in and to all of the
receivables existing in the initial accounts as of the cut-off date and in
additional accounts as of their date of designation for inclusion in the trust
and recoveries allocable to those receivables and other property.
In connection with the sale of receivables to the transferor, the bank will
indicate in its computer files that those receivables have been sold to the
transferor by the bank and that those receivables will be sold or transferred by
the transferor to the trust. The records and agreements relating to the
accounts and receivables for the trust portfolio may not be segregated by the
bank from other documents and agreements relating to other credit accounts and
receivables. The bank and the transferor will file UCC financing statements
meeting the requirements of applicable law in each of the jurisdictions
necessary to perfect the ownership or security interest of the transferor in
those receivables. See "Risk Factors - Some liens would be given priority over
your notes which could cause delayed or reduced payments" and "Material Legal
Aspects of the Receivables" in this prospectus.
Representations and Warranties
In the receivables purchase agreement, the bank represents and warrants to
the transferor to the effect that, among other things, as of the date of the
receivables purchase agreement and, with respect to any receivables in any
designated additional accounts, as of the date of designation of those
additional accounts, it is duly organized and in good standing and has the
authority to consummate the transactions contemplated by the receivables
purchase agreement. In the receivables purchase agreement, the bank
additionally represents and warrants that as of the initial cut-off date and,
with respect to any receivables in any designated additional accounts, as of
each date of designation of those additional accounts, each receivable
transferred thereunder is an eligible receivable. In the event of a breach of
any representation and warranty set forth in the receivables purchase agreement
which results in the requirement that the transferor accept retransfer of an
ineligible receivable under the transfer and servicing agreement, then the bank
will repurchase that ineligible receivable from the transferor on the date of
the retransfer. The purchase price for the ineligible receivables will be the
principal amount of those receivables plus applicable finance charge and
administrative receivables.
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The bank also represents and warrants to the transferor in the receivables
purchase agreement that, among other things, as of the date of the receivables
purchase agreement and, with respect to any receivables in any designated
additional accounts, as of each date of designation of those additional accounts
the receivables purchase agreement constitutes a valid and binding obligation of
the bank, and the receivables purchase agreement constitutes a valid sale to the
transferor of all right, title and interest of the bank in and to the
receivables existing in the accounts as of the initial cut-off date and, with
respect to any receivables in any designated additional accounts, as of each
date of designation of those additional accounts to the trust portfolio and in
the proceeds of the trust portfolio. If the breach of any of the representations
or warranties described in this paragraph results in the obligation of the
transferor under the transfer and servicing agreement to accept retransfer of
the receivables, the bank will repurchase the receivables retransferred to the
transferor for an amount of cash at least equal to the amount of cash the
transferor is required to deposit under the transfer and servicing agreement in
connection with the retransfer.
Amendments
The receivables purchase agreement may be amended by the transferor and the
bank without the consent of the noteholders
(1) to cure any ambiguity,
(2) to correct or supplement any provisions therein which may be
inconsistent with any other provisions therein or in any conveyance
paper,
(3) to add any other provisions with respect to matters or questions
arising thereunder or any conveyance papers which shall not be
inconsistent with the provisions of the receivables purchase agreement
or any conveyance papers,
(4) to provide for the transfer by the bank or Household Receivables
Funding, Inc. III of its interest in and to all or part of the
accounts in accordance with the provisions of the transfer and
servicing agreement, if that transfer is for less than all of the
accounts, the respective rights, duties and obligations of Household
Receivables Funding, Inc. III, the bank and the servicer will be
determined at the time of that transfer.
No amendment, however, may have an Adverse Effect in any material respect
on the interests of the Indenture Trustee or the Noteholders, unless the
Indenture Trustee shall consent thereto, and no amendment may change, modify,
delete or add any other obligation of the bank or the transferor unless written
confirmation is received from each rating agency that the amendment will not
result in a reduction or withdrawal of its rating of any outstanding series or
class.
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Termination
The receivables purchase agreement will terminate immediately after the
trust terminates. In addition, if a receiver or conservator is appointed for the
bank or other bankruptcy, liquidation, insolvency or similar events occur, the
bank will immediately cease to sell receivables to the transferor and promptly
give notice of that event to the transferor and the indenture trustee, unless
the bankruptcy court, receiver or conservator instructs otherwise.
Material Legal Aspects of the Receivables
Transfer of Receivables
The bank or other account owner or receivables seller in the receivables
purchase agreement will represent and warrant that its transfer of receivables
constitutes a valid sale and assignment of all of its right, title and interest
in and to the receivables. In the transfer and servicing agreement, the
transferor will represent and warrant that its transfer of receivables
constitutes a valid sale and assignment of all of its right, title and interest
in and to the receivables, except for its interest as the holder of the
transferor certificate, or creates in favor of the trust a valid first-priority
perfected security interest in the transferor's rights in the receivables in
existence at the time that the trust is formed or at the time that receivables
in accounts are transferred, as the case may be, and a valid first-priority
perfected security interest in the transferor's rights in the receivables
arising in accounts already designated for the trust on and after their
creation, in each case until termination of the trust. For a discussion of the
trust's rights arising from these representations and warranties not being
satisfied, see "The Transfer and Servicing Agreement - Representations and
Warranties of the Transferor" in this prospectus.
Each of the transferor in the transfer and servicing agreement and the bank
or other account owner or receivables seller in the receivables purchase
agreement will represent that the receivables are "accounts" or "general
intangibles" for purposes of the UCC. Both the sale of accounts and the transfer
of accounts as security for an obligation are subject to the provisions of
Article 9 of the UCC. In addition, a transfer of general intangibles as security
for an obligation is subject to the provisions of Article 9 of the UCC.
Therefore, the bank and the transferor will file appropriate UCC financing
statements to perfect the respective transferee's security interest in the
receivables. Article 9 of the UCC, however, does not apply to the sale of
general intangibles. As a consequence, some other action under applicable state
law may be required in order to perfect that sale against the interests of third
parties.
There are limited circumstances in which prior or subsequent transferees of
receivables coming into existence after a series closing date could have an
interest in those receivables with priority over the trust's interest. Under the
receivables purchase agreement, the bank or other account owner or receivables
seller will represent and warrant that it has transferred the receivables to the
transferor free and clear of the lien of any third party, other than the
indenture trustee. In addition, the bank or other account owner or receivables
seller will covenant that it will not sell, pledge, assign, transfer or grant
any lien on any receivable, or any interest in any receivables, other than to
the transferor. Similarly, under the transfer and servicing agreement, the
transferor will represent and warrant that it has transferred the receivables to
the trust free and
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clear of the lien of any third party, other than the indenture trustee, and the
transferor will covenant that it will not sell, pledge, assign, transfer, or
grant any lien on any receivable, or any interest in any receivable, other than
to the trust. Nevertheless, a tax, governmental or other nonconsensual lien on
property of the transferor or the bank arising prior to the time a receivable
comes into existence may have priority over the interest of the trust in that
receivable. Furthermore, if the FDIC were appointed as a receiver or conservator
of the bank, some administrative expenses of the receiver or conservator may
have priority over the interest of the trust in the receivables.
For as long as one of the following is true:
(1) Household Finance Corporation remains the servicer under the
transfer and servicing agreement and maintains a commercial paper
rating of not less than A-1 by Standard & Poor's and P-1 by
Moody's;
(2)(a) Household Finance Corporation remains the servicer under the
transfer and servicing agreement;
(b) no amortization event, reinvestment event or event of default has
occurred;
(c) Household International, Inc. maintains a commercial paper rating
of not less than A-1 by Standard & Poor's and P-1 by Moody's,
respectively;
(d) Household Finance Corporation remains a wholly-owned subsidiary of
Household International, Inc., directly or indirectly; and
(e) in the event of a material change in the financial relationship
between them:
. Household Finance Corporation notifies each rating agency;
and
. written confirmation is received from each rating agency that
the material change will not result in a reduction or
withdrawal of its rating of any outstanding series or class;
or
(3) any other arrangements are made and written confirmation is received
from each rating agency that the arrangements will not result in a
reduction or withdrawal of its rating of any outstanding series or
class,
cash collections held by the servicer may be commingled and used for the benefit
of the servicer prior to each distribution date and, in the event of the
insolvency or bankruptcy of the servicer or, in limited circumstances, the lapse
of specified time periods, the trust may not have a first-priority perfected
security interest in those commingled cash collections. If the trust does not
have a first priority perfected security interest in commingled cash
collections, the amount payable to you could be lower than the outstanding
principal and accrued interest on the notes, thus resulting in losses to you.
However, if the conditions specified in (1), (2) or (3) above are not satisfied,
the servicer will begin within five business days to deposit collections
directly into the collection account within two business days of each date of
processing.
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Matters Relating to Conservatorship, Receivership and Bankruptcy
The bank is chartered as a national banking association and is regulated
and supervised by the Office of the Comptroller of the Currency, which is
authorized to appoint the FDIC as conservator or receiver for the bank if
specified events occur relating to the bank's financial condition or the
propriety of its actions. In addition, the FDIC could appoint itself as
conservator or receiver for the bank.
To the extent that
(1) the bank is the account owner and the receivables purchase agreement
complies with the regulatory requirements of the FDIA,
(2) the security interest granted under the receivables purchase agreement
was perfected before the FDIC is appointed as conservator or receiver
for the bank, and
(3) the security interest was not taken in contemplation of the bank's
insolvency or with the intent to hinder, delay or defraud the bank or
its creditors, the FDIA provides that the security interest should be
respected. In addition, opinions and policy statements issued by the
FDIC suggest that, because of the manner in which these transactions
are structured, the FDIC would respect the security interest granted
by the bank in the receivables.
Nevertheless, if the FDIC were to assert a contrary position, or were to
require the indenture trustee to go through the administrative claims procedure
established by the FDIC in order to obtain payments on the notes, or were to
request a stay of any actions by the indenture trustee to enforce the
receivables purchase agreement or the notes against the bank, delays in payments
on outstanding series of notes and possible reductions in the amount of those
payments could occur.
In addition, the FDIC as conservator or receiver for the bank could
repudiate the receivables purchase agreement. The FDIA would limit the damages
for any repudiation to the trust's "actual direct compensatory damages"
determined as of the date that the FDIC were appointed as conservator or
receiver for the bank. The FDIC, moreover, could delay its decision whether to
repudiate the receivables purchase agreement for a reasonable period following
its appointment as conservator or receiver for the bank. Therefore, if the FDIC
as conservator or receiver for the bank were to repudiate the receivables
purchase agreement, the amount payable to you could be lower than the
outstanding principal and accrued interest on the notes, thus resulting in
losses to you.
In addition, regardless of the terms of the indenture, the FDIC as
conservator or receiver for the bank may have the power to prevent the
commencement of an early amortization period, to prevent or limit the early
liquidation of the receivables and termination of the trust, or to require the
continued transfer of new principal receivables. Regardless of the instructions
of those authorized to direct the indenture trustee's action, moreover, the FDIC
as conservator or
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receiver for the bank may have the power to require the early liquidation of the
receivables, to require the early termination of the trust and the retirement of
the notes, or to prohibit or limit the continued transfer of new principal
receivables.
In the event of the bankruptcy of the servicer, the bankruptcy court may
have the power to prevent either the indenture trustee or the noteholders from
appointing a successor servicer. In addition, if the servicer becomes a debtor
in a bankruptcy case, the servicer's rights under the transfer and servicing
agreement, including the right to service the receivables, would be property of
the estate of the servicer and, under the Bankruptcy Code, subject to the
servicer's right to assume or reject the transfer and servicing agreement. See
"The Transfer and Servicing Agreement - Servicer Default" in this
prospectus.
The transferor has been structured such that the filing of a voluntary or
involuntary petition for relief by or against the transferor under the
Bankruptcy Code and the substantive consolidation of the assets and liabilities
of the transferor with those of the bank is unlikely. The transferor is a
separate, limited purpose corporation, and its articles of incorporation contain
limitations on the nature of its business and restrictions on its ability to
commence a voluntary case or proceeding under the Bankruptcy Code or similar
laws without the prior unanimous consent of all of its directors and the holders
of the transferor's preferred stock. The transferor's preferred stock has been
issued to the issuer and pledged to the indenture trustee. The indenture trustee
will hold the pledged preferred stock of the transferor in trust for the benefit
of the noteholders and vote such preferred stock only according to the written
instructions of the noteholders representing more than 50% of the outstanding
principal amount of the notes of all series. The preferred stock is non-
transferable except by a vote of the noteholders representing 100% of the
outstanding principal amount of all series of notes and written confirmation
from each rating agency that such transfer of the preferred stock will not
result in the reduction or withdrawal by any rating agency of its rating of any
outstanding series or class of notes. In addition, the indenture trustee will
covenant in the indenture that it will not at any time institute against the
transferor any bankruptcy, insolvency or similar proceedings under the
Bankruptcy Code or similar laws. In addition, if any account owner or
receivables seller other than the bank is an entity subject to the Bankruptcy
Code, the transfer of the receivables and collections thereon will be structured
as a sale for purposes of the Bankruptcy Code. Nevertheless, if the transferor
were to become a debtor in a bankruptcy case and if a bankruptcy trustee or
creditor of the transferor or the transferor as debtor-in-possession were to
take the position that the transfer of the receivables by the transferor to the
trust should be characterized as a pledge of those receivables, or if the assets
and liabilities of the transferor were substantively consolidated with those of
an entity in bankruptcy, then delays in payments on the notes and possible
reductions in the amount of those payments could result.
If bankruptcy, insolvency or similar proceedings under the Bankruptcy Code
or similar laws occur with respect to the transferor or any account owner or
receivables seller, the transferor will promptly notify the indenture trustee
and an amortization event will occur with respect to each series. Under the
transfer and servicing agreement, newly created receivables will not be
transferred to the trust on and after any event described in the preceding
sentence. Any principal receivables transferred to the trust prior to the event,
as well as collections on those
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principal receivables and finance charge and administrative receivables accrued
at any time with respect to those principal receivables, will continue to be
part of the trust assets and will be applied as specified above in "Description
of the Notes - Application of Collections" and in the accompanying prospectus
supplement.
The bankruptcy court, however, may have the power to delay any procedure or
to require the continued transfer of principal receivables to the trust. See
"Risk Factors - If a conservator or receiver were appointed for the bank or
other receivables seller, or the transferor or other receivables seller became a
debtor in a bankruptcy case, delays or reductions in payment of your notes could
occur" in this prospectus.
Consumer Protection Laws
The relationship of the consumer and the provider of consumer credit is
extensively regulated by federal and state consumer protection laws. With
respect to credit accounts issued by the bank, the most significant federal laws
include the Federal Truth-in-Lending, Equal Credit Opportunity, Fair Credit
Reporting and Fair Debt Collection Practices Acts. These statutes impose various
disclosure requirements either before or when an account is opened, or both, and
at the end of monthly billing cycles, and, in addition, limit account holder
liability for unauthorized use, prohibit particular discriminatory practices in
extending credit, and regulate practices followed in collections. In addition,
account holders are entitled under these laws to have payments and credits
applied to the revolving credit account promptly and to request prompt
resolution of billing errors. Congress and the states may enact new laws and
amendments to existing laws to regulate further the consumer revolving credit
industry. The trust may be liable for 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 the party directly responsible for obligations arising after the transfer.
In addition, an account holder may be entitled to assert those violations by way
of set-off against the obligation to pay the amount of receivables owing. All
receivables that were not created in compliance in all material respects with
the requirements of applicable consumer protection laws, if noncompliance has an
Adverse Effect, will be reassigned to the transferor. The servicer has also
agreed in the transfer and servicing agreement to indemnify the trust, among
other things, for any liability arising from violations described in the
preceding sentence. For a discussion of the trust's rights if the receivables
were not created in compliance in all material respects with applicable laws,
see "The Transfer and Servicing Agreement - Representations and Warranties of
the Transferor" in this prospectus.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the noteholders if those laws result in any receivables
being charged-off as uncollectible. See "Description of the Notes - Defaulted
Receivables; Investor Charge-Offs" in this prospectus.
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Material Federal Income Tax Consequences
General
The following summary describes the material United States federal income
tax consequences of the purchase, ownership and disposition of the notes.
Additional federal income tax considerations relevant to a particular series may
be set forth in the accompanying prospectus supplement. The following summary
has been prepared and reviewed by Orrick, Herrington & Sutcliffe LLP as special
tax counsel to the Issuer. The summary is based on the Internal Revenue Code of
1986, as amended as of the date hereof, and existing final, temporary and
proposed Treasury regulations, revenue rulings and judicial decisions, all of
which are subject to prospective and retroactive changes. The summary is
addressed only to original purchasers of the notes, deals only with notes held
as capital assets within the meaning of Section 1221 of the Code and, except as
specifically set forth below, does not address tax consequences of holding notes
that may be relevant to investors in light of their own investment circumstances
or their special tax situations, such as particular financial institutions, tax-
exempt organizations, life insurance companies, dealers in securities, non-U.S.
persons, or investors holding the notes as part of a conversion transaction, as
part of a hedge or hedging transaction, or as a position in a straddle for tax
purposes. Further, this discussion does not address alternative minimum tax
consequences or any tax consequences to holders of interests in a noteholder.
Special tax counsel is of the opinion that the following summary of federal
income tax consequences is correct in all material respects. An opinion of
special tax counsel, however, is not binding on the IRS or the courts, and no
ruling on any of the issues discussed below will be sought from the IRS.
Further, such opinion, as well as the opinions set forth below, are subject to
finalization of documents including those which are exhibits to the registration
statement of which this prospectus forms a part in a form which is satisfactory
to special tax counsel and which is not inconsistent with the descriptions in
the body of this prospectus and the related prospectus supplement. Moreover,
there are no authorities on similar transactions involving interests issued by
an entity with terms similar to those of the notes described in this prospectus.
Accordingly, it is suggested that persons considering the purchase of notes
should consult their own tax advisors with regard to the United States federal
income tax consequences of an investment in the notes and the application of
United States federal income tax laws, as well as the laws of any state, local
or foreign taxing jurisdictions, to their particular situations.
Tax Characterization of the Trust and the Notes
Treatment of the Trust as an Entity Not Subject to Tax. Special 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, the trust will not be classified as an
association or as a publicly traded partnership taxable as a corporation for
federal income tax purposes and accordingly the trust will not be subject to
federal income tax. However, as discussed above, this opinion is not binding on
the IRS and no assurance can be given that this characterization will
prevail.
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The precise tax characterization of the trust for federal income tax
purposes is not certain. It might be viewed as merely holding assets on behalf
of the transferor as collateral for notes issued by the transferor. On the other
hand, the trust could be viewed as a separate entity for tax purposes issuing
its own notes. This distinction, however, should not have a significant tax
effect on noteholders except as stated below under "Possible Alternative
Characterizations."
Treatment of the Notes as Debt. Special 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, the
notes will be characterized as debt for United States federal income tax
purposes. Additionally, the trust will agree by entering into the Indenture, and
the noteholders will agree by their purchase and holding of notes, to treat the
notes as debt for United States federal income tax purposes.
Possible Alternative Characterizations. If, contrary to the opinion of
special tax counsel, the IRS successfully asserted that a series or class of
notes did not represent debt for United States federal income tax purposes,
those notes might be treated as equity interests in the trust or some other
entity for such purposes. If so treated, investors could be treated for such
purposes either as partners in a partnership or, alternatively, as shareholders
in a taxable corporation. Treatment of a noteholder as a partner could have
adverse tax consequences to some holders; for example, income to foreign persons
generally would be subject to United States tax and United States tax return
filing and withholding requirements, and individual holders might be subject to
limitations on their ability to deduct their share of partnership expenses. If
notes instead were treated as corporate stock, the taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on notes
recharacterized as equity, and any increase in the corporate tax imposed with
respect to such corporation could materially reduce cash available to make
payments on the notes; further, noteholders might not be entitled to any
dividends received deduction in respect of payments of interest on notes treated
as dividends. In addition, even if the notes are treated as debt, the trust is
also able to issue other securities which may be treated as debt or as equity
interests in the trust. The issuance of those securities requires the delivery
of a new opinion of counsel generally to the effect that issuance of those
securities will not cause the trust to become taxable as a separate entity for
federal income tax purposes; however, any new opinion would not bind the IRS,
and the trust could become taxable as a corporation as a result of the issuance
of those securities, potentially diminishing cash available to make payments on
the notes. Prospective investors should consult with their own tax advisors with
regard to the consequences of each possible alternative characterization to them
in their particular circumstances; the following discussion assumes that the
characterization of the notes as debt is correct.
Consequences to Holders of the Offered Notes
Interest and Original Issue Discount. In general, stated interest on a note
will be includible in gross income as it accrues or is received in accordance
with an noteholder's usual method of tax accounting. If a class of notes is
issued with original issue discount, the provisions of Sections 1271 through
1273 and 1275 of the Code will apply to those notes. Under those provisions, a
holder of a note with original issue discount, including a cash basis holder,
generally would be required to include the OID on a note in income for federal
income
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tax purposes on a constant yield basis, resulting in the inclusion of OID in
income in advance of the receipt of cash attributable to that income. In
general, a note will be treated as having OID to the extent that its "stated
redemption price" exceeds its "issue price," if that excess equals or exceeds
0.25 percent multiplied by the weighted average life of the note, determined by
taking into account the number of complete years following issuance until
payment is made for each partial principal payment. Under Section 1272(a)(6) of
the Code, special provisions apply to debt instruments on which payments may be
accelerated due to prepayments of other obligations securing those debt
instruments. However, no regulations have been issued interpreting those
provisions, and the manner in which those provisions would apply to the notes is
unclear, but the application of Section 1272(a)(6) could affect the rate of
accrual of OID and could have other consequences to holders of the notes.
Additionally, the IRS could take the position based on Treasury regulations that
none of the interest payable on a note is "unconditionally payable" and hence
that all of the interest payable on a note should be included in the note's
stated redemption price at maturity. If sustained, that treatment should not
significantly affect tax liabilities for most holders of the notes, but
prospective noteholders should consult their own tax advisors concerning the
impact to them in their particular circumstances. The trust intends to take the
position that interest on the notes constitutes "qualified stated interest" and
that the above consequences do not apply.
Market Discount. A holder of a note who purchases an interest in a note at
a discount that exceeds any OID not previously includible in income may be
subject to the "market discount" rules of Sections 1276 through 1278 of the
Code. These rules provide, in part, that gain on the sale or other disposition
of a note and partial principal payments on a note are treated as ordinary
income to the extent of accrued market discount. The market discount rules also
provide for deferral of interest deductions with respect to debt incurred to
purchase or carry a note that has market discount.
Market Premium. A holder of a note who purchases an interest in a note at a
premium may elect to amortize the premium against interest income over the
remaining term of the note in accordance with the provisions of Section 171 of
the Code.
Disposition of the Notes; Defeasance. Upon the sale, exchange or retirement
of a note, the holder of the note generally will recognize taxable gain or loss
in an amount equal to the difference between the amount realized on the
disposition, other than amounts attributable to accrued interest, and the
holder's adjusted tax basis in the note. A taxable exchange of a note could also
occur as a result of the transferor's substitution of money or investments for
the receivables in the trust portfolio. See "Description of the Notes -
Defeasance" in this prospectus. The holder's adjusted tax basis in the note
generally will equal the cost of the note to that holder, increased by any
market or original issue discount previously included in income by that holder
with respect to the note, and decreased by the amount of any bond premium
previously amortized and any payments of principal or OID previously received by
that holder with respect to such note. Any gain or loss generally will be
capital gain or loss, except to the extent of accrued market discount not
previously included in income, and will be long-term capital gain or loss if at
the time of sale the note has been held for more than one year.
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Foreign Holders. Under United States federal income tax law now in effect,
payments of interest by the trust to a holder of a note who, as to the United
States, is a nonresident alien individual or a foreign corporation generally
will be considered "portfolio interest," and generally will not be subject to
United States federal income tax and withholding tax, provided the interest is
not effectively connected with the conduct of a trade or business within the
United States by the foreign person and the foreign person
(1) is not for United States federal income tax purposes
(a) actually or constructively a "10 percent shareholder" of
the transferor or the trust,
(b) a "controlled foreign corporation" with respect to which
the transferor or the trust is a "related person" within
the meaning of the Code, or
(c) a bank extending credit under a loan agreement entered
into in the ordinary course of its trade or business,
and
(2) provides the person who is otherwise required to withhold United
States tax with respect to the notes with an appropriate
statement, on IRS Form W-8BEN or a substitute form, signed under
penalties of perjury, certifying that the beneficial owner of the
note is a foreign person and providing the foreign person's name,
address and other specified information.
If a note is held through a securities clearing organization or other
financial institutions ,as is expected to be the case unless definitive notes
are issued, the organization or institution may provide the relevant signed
statement generally to the withholding agent; in that case, however, the signed
statement generally must be accompanied by an IRS Form W-8BEN or substitute form
provided by the foreign person that owns the note. If interest is not portfolio
interest, then it will be subject to United States federal income and
withholding tax at a rate of 30%, unless reduced or eliminated under an
applicable tax treaty or interest is effectively connected with the conduct of a
trade or business within the United States and, in either case, the appropriate
statement has been provided. The U.S. Treasury Department recently issued final
Treasury regulations which will revise some of the foregoing procedures whereby
a foreign person may establish an exemption from withholding generally beginning
January 1, 2001; foreign persons should consult their tax advisors concerning
the impact to them, if any, of those revised procedures.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person will be exempt from United
States federal income tax and withholding tax; provided that
(1) that gain is not effectively connected with the conduct of a trade or
business in the United States by the foreign person, and
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(2) in the case of an individual foreign person, that individual is not
present in the United States for 183 days or more in the taxable
year.
Backup Withholding and Information Reporting. Payments of principal and
interest, as well as payments of proceeds from the sale, retirement or
disposition of a note, may be subject to "backup withholding" tax under Section
3406 of the Code at a rate of 31% if a recipient of such payments fails to
furnish to the payor particular identifying information. Any amounts deducted
and withheld would be allowed as a credit against such recipient's United States
federal income tax, provided appropriate proof is provided under rules
established by the IRS. Furthermore, penalties may be imposed by the IRS on a
recipient of payments that is required to supply information but that does not
do so in the proper manner. Backup withholding will not apply with respect to
payments made to some exempt recipients, such as corporations and financial
institutions. Information may also be required to be provided to the IRS
concerning payments, unless an exemption applies. Holders of the notes should
consult their tax advisors regarding their qualification for exemption from
backup withholding and information reporting and the procedure for obtaining
such an exemption.
The United States federal income tax discussion set forth above is included
for general information only, may not be applicable depending upon a holder's
particular tax situation, and does not purport to address the issues described
with the degree of specificity that would be provided by a taxpayer's own tax
advisor. Prospective purchasers should consult their own tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of the notes and the possible effects of changes in federal tax
laws.
State and Local Tax Consequences
The discussion above does not address the taxation of the trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
notes under any state or local tax law. Each investor should consult its own tax
adviser regarding state and local tax consequences.
ERISA Considerations
Subject to the considerations described under this heading, and in the
accompanying prospectus supplement, the notes may be purchased by, on behalf of,
or with "plan assets" of any employee benefit or other plan that is subject to
the ERISA, or Section 4975 of the Internal Revenue Code of 1986, as amended
(each, a "Plan"). Any Plan fiduciary that proposes to cause a Plan to acquire
any of the notes should consult with its counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
such Certificates. See "ERISA Considerations" in the accompanying prospectus
supplement.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans from
engaging in particular transactions involving "plan assets" with persons that
are "parties in interest" under ERISA or "disqualified persons" under the Code
(collectively, "Parties in Interest") with respect to the Plan. A violation of
these "prohibited transaction" rules may generate excise tax
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and other liabilities under ERISA and Section 4975 of the Code for such persons,
unless a statutory, regulatory or administrative exemption is available.
Some employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and particular church plans (as defined in Section 3(33)
of ERISA), are not subject to the requirements of ERISA or Section 4975 of the
Code. Accordingly, assets of such plans may be invested in the notes without
regard to the ERISA considerations described herein, subject to the provisions
or other applicable federal and state law. However, any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
is subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Fiduciaries or other persons contemplating purchasing the notes on behalf
or with "plan assets" of any Plan should consult their own counsel regarding
whether the trust assets represented by the notes would be considered "plan
assets," the consequences that would apply if the trust's assets were considered
"plan assets," and the availability of exemptive relief from the prohibited
transaction rules.
Finally, Plan fiduciaries and other Plan investors should consider the
fiduciary standards under ERISA or other applicable law in the context of the
Plan's particular circumstances before authorizing an investment of a portion of
the Plan's assets in the notes. Accordingly, among other factors, Plan
fiduciaries and other Plan investors should consider whether the investment
(1) satisfies the diversification requirement of ERISA or other applicable
law,
(2) is in accordance with the Plan's governing instruments, and
(3) is prudent in light of the "Risk Factors" and other factors discussed
in the accompanying prospectus supplement.
Plan of Distribution
Subject to the terms and conditions set forth in an underwriting agreement
to be entered into with respect to each series of notes, the transferor will
cause the notes to be sold by the trust to each of the underwriters named in
that underwriting agreement and in the accompanying prospectus supplement, and
each of those underwriters will severally agree to purchase from the trust, the
principal amount of notes set forth in that underwriting agreement and in the
accompanying prospectus supplement, subject to proportional adjustment on the
terms and conditions set forth in the related underwriting agreement in the
event of an increase or decrease in the aggregate amount of notes offered by
this prospectus and by the accompanying prospectus supplement.
In each underwriting agreement, the several underwriters will agree,
subject to the terms and conditions set forth in that underwriting agreement, to
purchase all the notes offered by this prospectus and by the accompanying
prospectus supplement if any of those notes are purchased. In the event of a
default by any underwriter, each underwriting agreement will provide that,
in
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particular circumstances, purchase commitments of the nondefaulting underwriters
may be increased or the underwriting agreement may be terminated.
Each prospectus supplement will set forth the price at which each series of
notes or class being offered initially will be offered to the public and any
concessions that may be offered to dealers participating in the offering of
those notes. After the initial public offering, the public offering price and
such concessions may be changed.
Each underwriting agreement will provide that the transferor will indemnify
the related underwriters against some liabilities, including liabilities under
the Securities Act of 1933, as amended.
The place and time of delivery for any series of notes in respect of which
this prospectus is delivered will be set forth in the accompanying prospectus
supplement.
Reports to Noteholders
The servicer will prepare monthly and annual reports that will contain
information about the trust. The financial information contained in the reports
will not be prepared in accordance with generally accepted accounting
principles. Unless and until definitive notes are issued, the reports will be
sent to Cede & Co. which is the nominee of The Depository Trust Company and the
registered holder of the notes. No financial reports will be sent to you. See
"Description of the Notes - Book-Entry Registration," "--Reports to Noteholders"
and "The Transfer and Servicing Agreement--Evidence of Compliance" in this
prospectus.
Where You Can Find More Information
We filed a registration statement relating to the notes with the SEC. This
prospectus is part of the registration statement, but the registration statement
includes additional information.
The servicer, on behalf of the trust will file with the SEC all required
annual, monthly and special SEC reports and other information about the trust .
You may read and copy any reports, statements or other information the
servicer files on behalf of the Trust at the SEC's public reference room in
Washington, D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. The SEC
filings relating to the Trust are also available to the public on the SEC
Internet site (http://www.sec.gov.).
The SEC allows us to "incorporate by reference" information filed with the
SEC on behalf of the Trust, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus.
Information filed later with the SEC, on our behalf, will automatically update
the information in this prospectus. In all cases, you should rely on the later
information over different information included in this prospectus or the
accompanying prospectus supplement.
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We incorporate by reference any future annual, monthly and special SEC reports
and proxy materials filed by or on behalf of the trust until we terminate our
offering of the notes.
As a recipient of this prospectus, you may request a copy of any document
incorporated by reference, except exhibits to the documents, unless the exhibits
are specifically incorporated by reference, at no cost, by writing or calling us
at: Household Finance Corporation, 2700 Sanders Road, Prospect Heights, Illinois
60070, Attention: Office of Secretary, Telephone: (847) 564-5000.
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Glossary
"addition date" means:
(1) with respect to aggregate addition accounts and new accounts, the date
from and after which such aggregate addition accounts and new accounts
are to be included as accounts; and
(2) with respect to participation interests, the date from and after which
such participation interests are to be included as assets of the
Trust.
"Adverse Effect" means any action, the result of which:
(1) causes an amortization event, reinvestment event or an event of
default; or
(2) materially and adversely effects the amount or timing of payments to
be made to the noteholders of any series or class.
"aggregate addition" means any participation interests to be included as
trust assets or any eligible accounts, other than new accounts, designated to be
included as accounts after the initial selection date.
"aggregate addition accounts" are eligible accounts designated to be
included as accounts.
"amortization event" means, with respect to all series issued by the trust,
the occurrence of any of the following events:
(1) bankruptcy, insolvency, liquidation, conservatorship, receivership or
similar events relating to the transferor, including any additional
transferor, Household Finance Corporation or the bank or other account
owner or receivables seller, unless written confirmation is received
from each rating agency that the removal of the bank from this
amortization event will not result in a reduction or withdrawal of its
rating of any outstanding series or class;
(2) the transferor is unable for any reason to transfer receivables to the
trust in accordance with the provisions of the transfer and servicing
agreement; or
(3) the trust becomes subject to regulation as an "investment company"
within the meaning of the Investment Company Act of 1940.
"bank portfolio" means the portfolio of accounts held by the bank.
"Clearstream Luxembourg" means Clearstream Banking, societe anonyme.
"Code" means the Internal Revenue Code of 1986, as amended.
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"controlled accumulation period" means the period during which principal is
accumulated in specified amounts per month and paid on an expected principal
payment date. The controlled accumulation period will commence at the close of
business on the date or dates specified in the prospectus supplement and ends
when any of the following occur:
(1) the notes of that series or class are paid in full;
(2) the early amortization or early accumulation period starts; or
(3) the series final maturity date.
"controlled amortization period" means the period during which principal is
paid in fixed amounts at scheduled intervals. The controlled accumulation period
will commence at the close of business on the date or dates specified in the
prospectus supplement and ends when any of the following occur:
(1) the notes of that series or class are paid in full;
(2) the early amortization or early accumulation period starts; or
(3) the series final maturity date.
"credit enhancement percentage" means the percentage interest of credit
enhancement providers.
"cut-off date" means [.], 2000.
"defaulted amounts" means, for any due period, an amount equal to:
(1) the amount of principal receivables which became defaulted receivables
in such due period, minus
(2) the amount of any defaulted receivables of which the transferor or the
servicer became obligated to accept reassignment or assignment, as
described under "Description of the Transfer and Servicing Agreement-
Representations and Warranties of the Transferor-Regarding the
Accounts and the Receivables".
"definitive notes" means notes issued in fully registered, certificated
form.
"determination date" means the earlier of the third business day and the
fifth calendar day, or if the fifth calendar day is not a business day the
preceding business day, preceding the fifteenth day of each calendar month.
"depositaries" Citibank, N.A., as depositary for Clearstream Luxembourg,
and Morgan Guaranty Trust Company of New York, as depositary for Euroclear.
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"discount percentage" means the percentage designated by the transferor,
which may be a fixed or variable percentage.
"discount option" means the transferor's option to designate all or any
specified portion of principal receivables existing on and after the discount
option date to be treated as finance charge and administrative receivables.
"discount option receivables" means any principal receivables designated by
the transferor to be treated as finance charge and administrative receivables.
"DTC" The Depository Trust Company.
"early accumulation period" means the period during which principal is
accumulated in varying amounts each month based on the amount of principal
receivables collected following an amortization event. The early accumulation
period for a series or class starts on the day an amortization event occurs and
ends when any of the following occurs:
(1) the notes of that series or class are paid in full;
(2) the series final maturity date; or
(3) the trust termination date.
"early amortization period" means the period during which principal is paid
in varying amounts each month based on the amount of principal receivables
collected following an amortization event. The early amortization period for a
series or class starts on the day an amortization event occurs and ends when any
of the following occurs:
(1) the notes of that series or class are paid in full;
(2) the series final maturity date; or
(3) the trust termination date.
"eligible account" has the meaning set forth on page [.] of this
prospectus.
"eligible institution" means:
(1) (a) a depository institution, which may include the owner trustee or
the indenture trustee;
(b) an entity organized under the laws of the United States or any
one of the states of the United States, including the District of
Columbia, or any domestic branch of a foreign bank; and
(c) which at all times is a member of the FDIC and has either a long-
term unsecured debt rating or a certificate of deposit rating
acceptable to each rating agency selected by the transferor to
rate a series or class of notes; or
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(2) any other institution acceptable to each rating agency selected by
the transferor to rate a series or class of notes.
"eligible investments" means securities, instruments, security entitlements
or other investment property which evidence:
(1) direct obligations of, or obligations fully guaranteed as to timely
payment by, the United States of America;
(2) demand deposits, time deposits or certificates of deposit, having
original maturities of no more than 365 days, of depository
institutions or trust companies incorporated under the laws of the
United States or any state of the United States, including the
District of Columbia, or domestic branches of foreign banks, and
subject to supervision and examination of federal or state banking or
depository institution authorities; provided that at the time of the
trust's investment or contractual commitment to invest, the short-
term debt rating of that depository institution or trust company
shall be in the highest rating category of Standard & Poor's and
Moody's;
(3) commercial paper, having original or remaining maturities of no more
than 30 days, having, at the time of the trust's investment or
contractual commitment to invest, a rating in the highest rating
category of Standard & Poor's and Moody's;
(4) demand deposits, time deposits and certificates of deposit which are
fully insured by the FDIC having, at the time of the trust's
investment, a rating in the highest rating category of Standard &
Poor's and Moody's;
(5) bankers' acceptances, having original maturities of no more than 365
days, issued by any depository institution or trust company referred
to in clause (2) above;
(6) money market funds having, at the time of the trust's investment, a
rating in the highest rating category of Standard & Poor's and
Moody's, including funds for which the indenture trustee or any of
its affiliates is investment manager or advisor;
(7) time deposits, having maturities not later than the next distribution
date, other than those referred to in clause (4) above, with a person
whose commercial paper has a credit rating satisfactory to Standard &
Poor's and Moody's; or
(8) any other investment upon receipt of written confirmation from each
rating agency that the additional form of investment will not result
in a reduction or withdrawal of its rating of any outstanding series
or class.
"eligible receivable" has the meaning set forth on page [.] of this
prospectus.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"expected principal payment date" has the meaning set forth in the
prospectus supplement.
"finance charge and administrative receivables" are periodic finance
charges and other amounts charged to trust accounts, including cash advance
fees, late fees and annual membership fees. Finance charge and administrative
receivables will include the interest portion of any participation interests.
"foreign person" means any holder of a note who, as to the United States,
is a nonresident alien individual or a foreign corporation.
"funding period" is the period from the series' closing date to the earlier
of:
(1) the date the series' invested amount equals the principal amount of
that series of notes; and
(2) the date specified in the related prospectus supplement; provided that
the funding period shall not exceed one year.
"interchange" means interchange fees payable to the bank or any other
Account Owner, in its capacity as credit issuer, through MasterCard or VISA or
any similar entity or organization with respect to any type of revolving credit
accounts included as accounts (except as otherwise provided in the initial
assignment with respect to any an account), in connection with obligor charges
for goods or services with respect to the accounts, as calculated as described
in the prospectus supplement.
"invested amount" for a series on any date will be equal to:
(1) the initial outstanding principal amount of that series of notes as of
the related closing date for that series; minus
(2) the amount of principal paid to the related noteholders prior to that
date; minus
(3) the amount of unreimbursed investor charge-offs with respect to that
series prior to that date.
If so specified in the prospectus supplement relating to any series of
notes, under limited circumstances the invested amount may be further adjusted
by funds on deposit in any specified account, and any other amount specified in
the accompanying prospectus supplement.
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"investor charge-offs" means with respect to any series the excess of the
investor default amount for that series over the amount available to reimburse
such investor default amount described in the prospectus supplement.
"investor percentage" means for any class or series of notes, the investor
percentage calculated in the related prospectus supplement.
"new accounts" are those eligible accounts that the transferor may from
time to time, at its sole discretion, designate to be included as accounts
subject to the limitations and conditions specified in this paragraph. For
purposes of the definition of new accounts, eligible accounts will be deemed to
include only types of revolving credit accounts which are included as initial
accounts or which have previously been included in any aggregate addition if the
assignment related to that aggregate addition provides that type of revolving
credit account or other revolving credit account is permitted to be designated
as a new account. To the extent new accounts are designated for inclusion in
the trust, the transferors will deliver to the trustee, at least quarterly on
each distribution date relating to each of the three consecutive due periods
ending in March, June, September and December, an opinion of counsel with
respect to the receivables in new accounts included as accounts confirming the
creation and perfection of a security interest in respect of each transfer of
those receivables. If the opinion of counsel with respect to receivables in any
new accounts is not so received, all receivables arising in the new accounts to
which that failure relates will be removed from the trust.
"note owner" means the beneficial owner of a note.
"partial amortization sfa amounts" means the amount withdrawn from the
special funding account and applied to one or more outstanding series of notes
to prevent those series from experiencing an amortization event based upon
insufficiency of yield.
"participations" are undivided interests in a pool of assets primarily
consisting of receivables arising under consumer revolving credit accounts.
"paying agent" means the indenture trustee, acting as the initial paying
agent, together with any successor to the indenture trustee acting in that
capacity, and any entity specified in an indenture supplement to act in that
capacity for the related series.
"pool factor" means the ratio of the current invested amount to the initial
invested amount.
"principal receivables" means the amounts charged by trust account obligors
for goods and services, cash advances and consolidation or transfer of balances
from other credit cards.
"qualified account" means either a segregated trust account established
with the corporate trust department of a securities intermediary or a segregated
account with a securities intermediary that is an eligible institution.
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"rating agency" means any rating agency selected by the transferor to rate
the notes of a series or class issued by the trust.
"reinvestment event" means, if a series is subject to reinvestment events,
the definition of reinvestment event as it would appear in the prospectus
supplement.
"required delivery date" means:
(1) on or prior to the closing date in the case of the initial accounts;
(2) the date that is five business days after the applicable addition
date, in the case of an aggregate addition;
(3) the distribution date on which the opinion of counsel is required to
be delivered as described above, in the case of new accounts; and
(4) the date that is five business days after the applicable date of
removal, in the case of removed accounts.
"required minimum principal balance" means unless otherwise described in
the prospectus supplement, relating to a series having a paired series, with
respect to any date:
(1) the sum of the series adjusted invested amounts for each series
outstanding on such date; plus
(2) the required transferor amount; minus
(3) the amount on deposit in the special funding account.
"required transferor amount" means the product of the required transferor
percentage and the aggregate series adjusted invested amounts of all series
outstanding.
"revolving period" means, with respect to a series, a period during which
the trust will not pay or accumulate principal for payment to the noteholders of
that series. The revolving period for a series begins on the closing date
described in the applicable prospectus supplement and ends at the start of an
amortization period or an accumulation period.
"securities intermediary" means Wells Fargo Bank Minnesota, N.A. or to any
other entity which is a person, including a bank or broker, that in the ordinary
course of its business maintains securities accounts for others and is acting in
that capacity and which is also a depository institution organized under the
laws of the United States or any one of the states of the United States,
including the District of Columbia, or any domestic branch of a foreign bank,
and having a credit rating from each rating agency in one of its generic credit
rating categories which signifies investment grade.
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"series enhancer" means any provider of enhancement and/or any issuer of
any third-party credit enhancement.
"series final maturity date" means with respect to each series, the meaning
set forth in the related prospectus supplement.
"servicer default" has the meaning set forth on page [.].
"supplemental certificate" means a certificated or uncertificated interest
in the transferor's interest.
"tax opinion" means, with respect to any action, an opinion of counsel to
the effect that, for federal income tax purposes:
(1) such action will not adversely affect the tax characterization as debt
of the notes of any outstanding series or class that were
characterized as debt at the time of their issuance;
(2) such action will not cause the trust to be deemed to be an association
(or publicly traded partnership) taxable as a corporation; and
(3) such action will not cause or constitute an event in which gain or
loss would be recognized by any noteholder.
"transferor certificate" means a certificate evidencing an interest in the
transferor interest.
"transferor interest" means an interest that represents the right to
receive all cash flows from the trust assets not required to make payments on
the notes or to credit enhancement providers.
"transferor percentage" means a percentage equal to:
(1) 100%; minus
(1) the total investor percentages for all outstanding series; and, if
applicable, minus
(2) the total credit enhancement percentages for all outstanding series.
"trust portfolio" means the portfolio of accounts designated by the bank
as accounts of the trust.
"trust termination date" means the earlier of:
(1) the day after the distribution date on which the principal amount with
respect to each series outstanding is zero; or
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(2) January 1, 20[.].
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Annex I
Global Clearance, Settlement and Tax Documentation Procedures
Except in limited circumstances, the globally offered Household Credit Card
Master Note Trust I Asset Backed Notes to be issued in series from time to time
will be available only in book-entry form. Investors in the global securities
may hold those global securities through any of The Depository Trust Company,
Clearstream Luxembourg or Euroclear. The global securities will be tradable 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 Clearstream Luxembourg 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.
Secondary cross-market trading between Clearstream Luxembourg or Euroclear
and DTC participants holding notes will be effected on a delivery-against-
payment basis through the respective depositaries of Clearstream Luxembourg and
Euroclear, in that capacity, and as DTC participants.
Non-U.S. holders of global securities will be subject to U.S. withholding
taxes unless those holders meet 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 direct
and indirect participants in DTC. As a result, Clearstream Luxembourg and
Euroclear will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold those positions in accounts as
DTC participants.
Investors electing to hold their global securities through DTC, other than
through accounts at Clearstream Luxembourg or Euroclear, will follow the
settlement practices applicable to U.S. corporate debt obligations. 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 Clearstream
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds in registered form. Global securities will
be credited to the securities custody accounts on the settlement date against
payment for value on the settlement date.
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Secondary Market Trading
Because 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, other than Citibank, N.A. and Morgan Guaranty Trust Company of New
York as depositories for Clearstream Luxembourg and Euroclear, respectively,
will be settled using the procedures applicable to U.S. corporate debt
obligations in same-day funds.
Trading between Clearstream Customers and/or Euroclear Participants.
Secondary market trading between Clearstream customers or Euroclear participants
will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
global securities are to be transferred from the account of a DTC participant,
other than Citibank and Morgan as depositories for Clearstream Luxembourg and
Euroclear, respectively, to the account of a Clearstream customer or a Euroclear
participant, the purchaser must send instructions to Clearstream Luxembourg
prior to settlement date 12:30. Clearstream Luxembourg or Euroclear, as the case
may be, will instruct Citibank or Morgan, respectively, to receive the global
securities for payment. Payment will then be made by Citibank or Morgan, as the
case may be, 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 Clearstream customer's or Euroclear
participant's account. Credit for the global securities 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, for example, the trade fails, the
Clearstream Luxembourg or Euroclear cash debit will be valued instead as of the
actual settlement date.
Clearstream customers 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 Clearstream Luxembourg or
Euroclear. Under this approach, they may take on credit exposure to Clearstream
Luxembourg or Euroclear until the global securities are credited to their
accounts one day later.
As an alternative, if Clearstream Luxembourg or Euroclear has extended a
line of credit to them, Clearstream customers or Euroclear participants can
elect not to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Clearstream customers 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
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may substantially reduce or offset the amount of those overdraft charges,
although this result will depend on each Clearstream customer'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
Citibank or Morgan for the benefit of Clearstream customers or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently from a trade between two DTC participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream customers and Euroclear
participants may employ their customary procedures for transactions in which
global securities are to be transferred by the respective clearing system,
through Citibank or Morgan, to another DTC participant. The seller will send
instructions to Clearstream Luxembourg before settlement date 12:30. In these
cases, Clearstream Luxembourg or Euroclear will instruct Citibank or Morgan, as
appropriate, to credit the global securities to the DTC participant's account
against payment. The payment will then be reflected in the account of the
Clearstream customer or Euroclear participant the following day, and receipt of
the cash proceeds in the Clearstream customer'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. If the Clearstream customer or
Euroclear participant has a line of credit with its respective clearing system
and elects to draw on that line of credit in anticipation of receipt of the sale
proceeds in its account, the back-valuation may substantially reduce or offset
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 Clearstream customer's or Euroclear participant's account
would instead be valued as of the actual settlement date.
U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global securities holding securities through
Clearstream Luxembourg 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 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 that beneficial owner takes
appropriate steps to obtain an exemption or reduced tax rate. See "Federal
Income Tax Consequences."
I-3
<PAGE>
Household Credit Card Master Note Trust I
Issuer
Household Receivables Funding, Inc. III
Transferor
Series 2000-[.]
$[.]
Class A Floating Rate Asset Backed Notes
$[.]
Class B Floating Rate Asset Backed Notes
$[.]
Class C Floating Rate Asset Backed Notes
________________
PROSPECTUS SUPPLEMENT
________________
Underwriters of the Class A Notes
Underwriters of the Class B Notes
Underwriters of the Class C Notes
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the notes in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this prospectus
supplement and the accompanying prospectus as of any date other than the
dates stated on their respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the notes and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the notes will deliver a
prospectus supplement and prospectus until [.], 2000.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder, other
than underwriting discounts and commissions.
Registration Fee................................... $ 264*
Printing and Engraving Expenses.................... **
Trustee's Fees and Expenses........................ **
Legal Fees and Expenses............................ **
Accountants' Fees and Expenses..................... **
Blue Sky Fees and Expenses......................... **
Rating Agency Fees................................. **
Miscellaneous Expenses............................. **
Total.............................................. $ **
=====
_______________
* Actual
** To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes said corporation to buy directors'
and officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
The Certificate of Incorporation of Household Receivables Funding, Inc. III
provides for indemnification to the fullest extent permitted by the General
Corporation Law of Delaware of directors, officers and employees of Household
Receivables Funding, Inc. III
II-1
<PAGE>
and also to persons who are serving at the request of Household Receivables
Funding, Inc. III as directors, officers or employees of another
corporation.
A bylaw of Household Finance Corporation states and makes mandatory the
indemnification expressly authorized under the General Corporation Law of
Delaware, in the absence of other indemnification by contract, vote of
stockholders or otherwise, with these exceptions: the bylaw makes no
distinction between litigation brought by third parties and litigation brought
by or in the right of Household Finance Corporation as regards the required
standard of conduct imposed upon the individual in order to be entitled to
indemnification. The bylaw standard application in all cases, excepting
indemnification in connection with the successful defense of any proceeding or
matter therein which is mandatory under the General Corporation Law of Delaware
and the bylaw without reference to any such standard, is that the individual
shall have acted in good faith and in a manner he/she reasonably believed to be
in or not opposed to the best interests of Household Finance Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his/her conduct was unlawful. Further, the bylaw would protect
directors, officers, employees and agents against any and all expenses and
liability with respect to actions brought against them by or in the right of
Household Finance Corporation if the required standard of conduct is met. The
bylaw is qualified in its entirety in that no indemnification will be made if
prohibited by applicable law. The bylaw is applicable only to claims, actions,
suits or proceedings made or commenced after its adoption, whether arising from
prior or subsequent act. The bylaw is applicable to directors, officers,
employees or agents of Household Finance Corporation and also to persons who are
serving at the request of Household Finance Corporation as directors, officers,
employees or agents of other corporations; including subsidiaries such as
Household Receivables Funding, Inc. III.
Article VII of the Restated Certificate of Incorporation of Household
International, Inc. provides for indemnification to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware for directors,
officers and employees of Household International, Inc. and also to persons who
are serving at the request of Household International, Inc. as directors,
officers or employees of other corporations, including subsidiaries such as
Household Receivables Funding, Inc. III. Household International, Inc. has
purchased liability policies which indemnify Household Receivables Funding, Inc.
III's officers and directors against loss arising from claims by reason of their
legal liability for acts as officers and directors, subject to limitations and
conditions as set forth in the policies.
Pursuant to agreements which Household Receivables Funding, Inc. III may
enter into with underwriters or agents, forms of which are included as exhibits
to this Registration Statement, officers and directors of Household Receivables
Funding, Inc. III, and affiliates thereof, may be entitled to indemnification by
such underwriters or agents against some liabilities, including liabilities
under the Securities Act of 1933, arising from information which has been
furnished to Household Receivables Funding, Inc. III by such underwriters or
agents that appear in the Registration Statement or any Prospectus.
ITEM 16. EXHIBITS.
II-2
<PAGE>
<TABLE>
(a) Exhibits.
<S> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of Household Receivables Funding, Inc. III
4.1 -- Form of Master Indenture
4.2 -- Form of Indenture Supplement, including form of Notes
4.3 -- Certificate of Trust of Household Credit Card Master Note Trust I/*/
4.4 -- Form of Trust Agreement of Household Credit Card Master Note Trust I
5.1 -- Opinion of John W. Blenke, Esq., Vice President - Corporate Law of Household International,
Inc.
8.1 -- Opinion of Orrick, Herrington & Sutcliffe LLP with respect to tax matters
10.1 -- Form of Transfer and Servicing Agreement
10.2 -- Form of Administration Agreement
10.3 -- Form of Receivables Purchase Agreement
23.1 -- Consent of John W. Blenke, Esq. (included in Exhibit 5.1)
23.2 -- Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 8.1)
24.1 -- Powers of Attorney (included on page II-6)
25.1 -- Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939,
as amended, of Wells Fargo Bank Minnesota, N.A., as indenture trustee under the Indenture
</TABLE>
_______________
/*/ To be filed by Amendment.
(b) Financial Statements
All financial statements, schedules and historical information have been
omitted as they are not applicable.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from
II-3
<PAGE>
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that (a)(1)(i) and (a)(1)(ii) will not apply if the
information required to be included in a post-effective amendment thereby is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering hereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination of the
offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of each issue.
(d)(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in
II-4
<PAGE>
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, has reasonable grounds to believe
that the security rating requirement contained in Transaction Requirement B.5.
of Form S-3 will be met by the time of the sale of the securities registered
hereunder and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Prospect
Heights, state of Illinois, on August 3, 2000.
HOUSEHOLD RECEIVABLES FUNDING, INC. III,
as originator of the Trust, Co-Registrant
and on behalf of
the Trust as Co-Registrant
By: /s/ S. N. Mehta
-------------------------------
Name: S. N. Mehta
Title: President and Chief Executive
Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. W. Blenke, L. S. Mattenson and J. S. Vander
Linde, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for and in his own name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this registration statement, any registration
statement for additional Asset Backed Notes that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933 and any or all other
documents in connection therewith, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said persons
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
might or could be done in person, hereby ratifying and confirming all said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on August 3, 2000 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ S.N. Mehta President and Chief Executive Officer,
------------------------
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
S. N. Mehta Director
/s/ B. B. Moss, Jr. Vice President, Treasurer, and Chief Financial
------------------------ Officer, Director
B. B. Moss, Jr.
/s/ S. L. McDonald Vice President, Controller and Chief
------------------------ Accounting Officer
S. L. McDonald
/s/ J.W. Blenke Vice President, Director
------------------------
J. W. Blenke
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of Household Receivables Funding, Inc. III
4.1 -- Form of Master Indenture
4.2 -- Form of Indenture Supplement, including form of Notes
4.3 -- Certificate of Trust of Household Credit Card Master Note Trust I/*/
4.4 -- Form of Trust Agreement of Household Credit Card Master Note Trust I
5.1 -- Opinion of John W. Blenke, Esq., Vice President - Corporate Law of Household International,
Inc.
8.1 -- Opinion of Orrick, Herrington & Sutcliffe LLP with respect to tax matters
10.1 -- Form of Transfer and Servicing Agreement
10.2 -- Form of Administration Agreement
10.3 -- Form of Receivables Purchase Agreement
23.1 -- Consent of John W. Blenke, Esq. (included in Exhibit 5.1)
23.2 -- Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 8.1)
24.1 -- Powers of Attorney (included on page II-6)
25.1 -- Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939,
as amended, of Wells Fargo Bank Minnesota, N.A., as indenture trustee under the Indenture
</TABLE>
_______________
/*/ To be filed by Amendment.
___________
