<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
HOUSEHOLD RECEIVABLES FUNDING, LLC
(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)
<TABLE>
<CAPTION>
DELAWARE (not applicable)
<S> <C>
(State or Other Jurisdiction of Organization) (I.R.S. Employer Identification Number)
</TABLE>
1111 Town Center Drive
Las Vegas, Nevada 89134
(702) 243-1230
(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:
<TABLE>
<S> <C>
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
</TABLE>
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>
----------------------------------------------------------------------------------------------------------------------------
Amount to be Proposed maximum Proposed maximum
Title of securities to registered aggregate Price aggregate offering Amount of
be registered (a) (b) per note (c) price (c) registration fee
----------------------------------------------------------------------------------------------------------------------------
<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.
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 form of 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, LLC
Transferor
Household Finance Corporation
Servicer
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] [One-Month LIBOR] [One-Month LIBOR]
plus [.]% per year plus [.]% per year plus [.]% per year
Interest payment dates Monthly on the 15th Monthly on the 15th Monthly on the 15th
beginning [.], beginning [.], beginning [.],
2000 2000 2000
Expected principal
payment date 200[.] 200[.] 200[.]
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.
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, LLC, Household Finance
Corporation, Household Bank (Nevada), N.A. or any other person.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
--------------------------------------------------------------------------------
Neither the securities and exchange commission nor any state securities
commission has approved these notes or determined that this prospectus
supplement or the prospectus 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:
(a) this prospectus supplement, which describes the specific terms of your
series of notes, and (b) the accompanying prospectus, which provides general
information, some of which may not apply to your series of notes.
If the terms of your series of notes vary between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement.
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. You can find a listing of
the pages where definitions can be found under the caption "Index of Terms for
Prospectus Supplement" beginning on page S-39 in this prospectus supplement and
under the caption "Index of Terms for Prospectus" beginning on page 62 in the
accompanying prospectus.
S-2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY OF TERMS.................................................. S-6
The Issuer........................................................ S-6
The Receivables................................................... S-6
The Series 2000-[.] Notes......................................... S-6
Interest.......................................................... S-6
Principal......................................................... S-6
Credit Enhancement................................................ S-7
Subordination..................................................... S-7
Spread Account.................................................... S-7
Events Of Default................................................. S-7
Amortization Events............................................... S-8
Other Interests in the Trust...................................... S-9
Other Series of Notes............................................. S-9
The Transferor Interest........................................... S-9
Allocations of Collections........................................ S-9
Groups............................................................ S-9
Reallocation Group One............................................ S-9
Excess Finance Charge Sharing Group
One..................................................... S-10
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-11
Registration, Clearance and Settlement............................ S-11
Tax Status........................................................ S-12
ERISA Considerations.............................................. S-12
[Exchange Listing................................................. S-12
The Originator, The Servicer, The
Subservicer and The Transferor.......................... S-13
Household Bank (Nevada), N.A...................................... S-13
Household Finance Corporation..................................... S-13
Household Credit Services, Inc.................................... S-13
Household Receivables Funding, LLC................................ S-14
The Bank's Credit Card Portfolio.................................. S-14
Billing and Payments.............................................. S-14
Collection of Delinquent Accounts................................. S-16
Revenue Experience................................................ S-18
Interchange....................................................... S-20
Recoveries........................................................ S-20
Payment Rates..................................................... S-20
The Trust Portfolio............................................... S-21
Description of Series Provisions.................................. S-25
General........................................................... S-25
Interest Payments................................................. S-25
Principal Payments................................................ S-27
Revolving Period.................................................. S-27
Controlled Accumulation Period.................................... S-27
Postponement of Controlled
Accumulation Period..................................... S-28
Early Amortization Period......................................... S-28
Principal Funding Account......................................... S-29
Reserve Account................................................... S-30
Principal Sharing Group One....................................... S-31
Paired Series..................................................... S-32
Subordination..................................................... S-32
Events Of Default................................................. S-32
Amortization Events............................................... S-33
Allocation Percentages............................................ S-34
Floating Allocation Definitions................................... S-35
Fixed Allocation Definitions...................................... S-36
Invested Amount Definitions....................................... 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
Excess Finance Charge Sharing Group
One..................................................... S-41
Subordinated Principal Collections................................ S-41
Defaulted Receivables; Investor Charge-
Offs.................................................... S-42
Spread Account.................................................... S-43
Spread Account Distributions...................................... S-44
Servicing Compensation and Payment
of Expenses............................................. S-45
Reports To Noteholders............................................ S-45
ERISA Considerations.............................................. S-45
Underwriting...................................................... S-47
LEGAL MATTERS..................................................... S-49
Annex I Other Series Issued And
Outstanding............................................. I-1
INDEX OF TERMS FOR
PROSPECTUS SUPPLEMENT................................... i
</TABLE>
S-3
<PAGE>
TRANSACTION SUMMARY
<TABLE>
---------------------------------------------------------------------------------------------------------
<S> <C>
Trust: Household Credit Card Master Note Trust I
Transferor: Household Receivables Funding, LLC
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 pursuant to 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 Group One
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Note Structure Amount % of Total Series
Class A $[.] [.]%
Class B $[.] [.]%
Class C $[.] [.]%
Class A Class B Class C
------- ------- -------
Anticipated Ratings: + [.] [.] [.]
Moody's/Standard &
Poor's/Fitch IBCA
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[.]
Commencement of Accumulation Period
(subject to adjustment): [.], 200[.] [.], 200[.] [.], 200[.]
</TABLE>
+ It is a condition to issuance that one of these ratings be obtained with
respect to each class.
* MasterCard(R), VISA(R) and Union Plus(R) are federally registered
servicemarks of MasterCard International Inc., Visa U.S.A., Inc., and Union
Privilege, respectively.
S-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Final Maturity Date: [.], 200[.] [.], 200[.] [.], 200[.]
</TABLE>
S-5
<PAGE>
SUMMARY OF TERMS
This summary highlights selected 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
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, pursuant to an indenture supplement to an
indenture, each between the trust and the indenture trustee.
The indenture trustee is Norwest Bank Minnesota, NA.
The Receivables
The primary assets of the trust in pool one are receivables originated pursuant
to the Union Plus program in MasterCard and VISA revolving credit card accounts.
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 balance X Number of days in X Interest rate
at end of prior interest 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 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
S-6
<PAGE>
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-[.] 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 certain
circumstances be rescinded by holders of more than 50% of the outstanding
principal amount of the Series 2000-[.] notes.
S-7
<PAGE>
After an event of default and the acceleration of the Series 2000-[.] notes,
funds on deposit in the collection account, the principal funding account, the
reserve account and, with respect to the Class C notes (and then the Class A
notes and the Class B notes), the spread account will be applied to pay
principal of and interest on the Series 2000-[.] notes to the extent permitted
by law. 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 certain
conditions described in the prospectus under "The Indenture Events of Default;
Rights upon Event of Default" are satisfied, the indenture trustee may or, in
certain 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 certain purchasers permitted under
the indenture.
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;
. Certain 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;
. Certain defaults of the servicer;
. 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
S-8
<PAGE>
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 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.
S-9
<PAGE>
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, such 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 series 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 certain 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;
. if Household Finance Corporation or any of its affiliates is not the
servicer, to pay the servicing fee;
. 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 fund, in limited circumstances, a reserve account to cover interest
payment shortfalls for Class A and Class B during the accumulation
period;
. to pay any unpaid servicing fee;
. to pay the administration fee;
. 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.
S-10
<PAGE>
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 (described below) 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 in certain cases
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 [o]% 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 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 5% 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 certain 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.
S-11
<PAGE>
Tax Status
Subject to important considerations described under "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. 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 "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 Series 2000-[.] notes could give rise to a
transaction prohibited or not otherwise permissible under ERISA or Section 4975
of the Internal Revenue Code.
[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-12
<PAGE>
The Originator, The Servicer, The Subservicer and The Transferor
Household Bank (Nevada), N.A.
Household Bank (Nevada), N.A., (the "bank") 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, credit
accident, health and disability insurance. Such insurance is generally directly
written by, or reinsured with, its insurance affiliates.
As of December 31, 1999, the servicer had approximately $46.8 billion in
total assets, approximately $40.9 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 International, Inc.,
principally subsidiaries that offered or held private label, VISA and MasterCard
credit card accounts. Pursuant to an agreement with the bank, the subservicer
provides such services for all credit card accounts owned by the bank. That
agreement establishes certain performance standards, including detailed
underwriting criteria, that are to be followed by the subservicer on behalf of
such entities. In its capacity of providing certain 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).
S-13
<PAGE>
Household Receivables Funding, LLC
The transferor, Household Receivables Funding, LLC was formed under the
laws of the State of Delaware on May 24, 2000 and is a special purpose limited
liability company all of the equity membership interests in which are held by
Household Card Services, Inc. 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 such
purposes. 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) 243-1230)
The Bank's Credit Card Portfolio
The following discussion describes certain terms and characteristics that
generally apply to the accounts in the bank portfolio from which the accounts in
the trust portfolio were selected. 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 certain 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 (10%) 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 and the additional accounts may be different from the
historical experience of the bank portfolio. 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 such 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.
S-14
<PAGE>
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 such 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, if applicable (such as currency conversion charges, late
charges, returned payment charges, and copying charges), 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 (i.e., the opportunity
to withhold the remittance of any minimum payment on their account) for a
particular billing 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 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 such 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 (a) 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 (b) 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.
S-15
<PAGE>
The bank primarily offers variable annual percentage rate ("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.
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 (a) 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, (b)
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, (c) overlimit charges of $29 if the cardholder exceeds the
credit limit any time during a billing cycle and (d) 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 to: (i)
finance charges, (ii) fees, (iii) promotional cash advances, (iv) promotional
purchase transactions, (v) purchase transactions, and (vi) 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 the minimum payment is not made by
S-16
<PAGE>
the payment due date. For collections purposes, however, an account is
considered delinquent (or one payment past due) if 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 such consecutive
payments would allow for these accounts to be redesignated as non-delinquent
only once every twelve months, and three such 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 such 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 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 such as 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.
S-17
<PAGE>
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.
Loss Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
[.] Months
Ended Year Ended Year Ended Year Ended
[.] [.] [.] [.]
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)................ $[.] $[.] $[.] $[.]
Total Net Charge Offs(2)..........................
Total Net Charge Offs as a Percent of Average
Receivables.................................... (3)% [.]% [.]% [.]%
</TABLE>
___________________
(1) Calculated as the average of the average monthly beginning and average
monthly ending receivables balance.
(2) Net charge-offs include charge-offs of principal receivables and finance
charge and administrative receivables net of recoveries during the
periods.
(3) Annualized based on the [.] month period ended [.].
Delinquency Experience(1)(2)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Average of [.]
Months ended Average of Year ended Average of Year Average of Year
[.] [.] ended [.] ended [.]
<S> <C> <C> <C> <C>
1-29 days................ $[.] [.]% $[.] [.]% $[.] [.]% $[.] [.]%
30-59 days...............
60-89 days...............
90-119 days..............
120 days or more.........
----- ----- ------ ------- ------ ------- ------ -------
Total.................... $[.] [.]% $[.] [.]% $[.] [.]% $[.] [.]%
</TABLE>
___________________
(1) Average delinquencies are the average of month end delinquent amounts.
(2) The percentages are calculated by dividing average delinquencies during
the period by average receivables outstanding for the applicable period.
Revenue Experience
The revenues from finance charges and fees billed to Union Plus
cardholders are set forth in the following tables for each of the periods shown.
The historical revenue figures in the tables 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
S-18
<PAGE>
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.
Revenue Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
[.] Months
Ended Year Ended Year Ended Year Ended
[.] [.] [.] [.]
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1).................... $[.] $[.] $[.] $[.]
Total Finance Charges and Administrative Receivables
Billed(2)...........................................
Total Finance Charges and Administrative
Receivables Billed as a Percentage of
Average Receivables Outstanding..................... %(3) [.]% [.]% [.]%
</TABLE>
__________________
(1) Calculated as the average of the average monthly beginning and average
monthly ending receivables balance.
(2) Excludes revenue attributable to interchange and is net of finance charge
and administrative receivables accrued on charged off accounts.
(3) Represents annualized percentage based on the [.] month period ended [.].
The revenues for the Union Plus accounts in the bank portfolio shown in the
tables above 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 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.
S-19
<PAGE>
Interchange
Creditors participating in the VISA USA and MasterCard International
associations receive certain 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
Pursuant to 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, including 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 ("recoveries"). 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 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>
Year Ended [.],
----------------------------------------------------
[.] Months Ended [.] [.] [.]
-------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Lowest Month......................... [.]% [.]% [.]% [.]%
Highest Month........................ [.]% [.]% [.]% [.]%
Monthly Average...................... [.]% [.]% [.]% [.]%
</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.
S-20
<PAGE>
The Trust Portfolio
The receivables conveyed to the trust arise in accounts selected from the
bank portfolio at the time the trust was established, and in additional accounts
selected since that time, on the basis of criteria set forth in the transfer and
servicing agreement (the "trust portfolio"). 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 certain conditions
are satisfied. For a discussion of these conditions, see "The Transfer and
Servicing Agreement -- Addition of Trust Assets" in the accompanying prospectus.
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 "required minimum principal balance" on any date is, 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.
The "series adjusted invested amount" means, with respect to any due
period:
(a) during the revolving period, the invested amount as of the last
day of the immediately preceding due period;
(b) 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 Seller, such amount
may be reduced below the amount specified for the previous due period to an
amount not less than the greater of:
(i) 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
(ii) 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, (B)
the total amount of principal receivables and the outstanding principal
amount of any participation interests 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
S-21
<PAGE>
(c) 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 pursuant to clause (b) above
during the controlled accumulation period.
The "transferor amount" with respect to pool one on any date is equal to
the difference between:
(a) the sum of (i) total amount of principal receivables in pool one
of the trust portfolio on immediately prior day and (ii) the special funding
account balance, minus
(b) aggregate invested amounts of all series of notes related to pool one
then outstanding.
The "required transferor amount" will be calculated as follows:
required X aggregate invested
transferor amounts of all series
percentage related to pool one
The "required transferor percentage" initially is [.]%, but may be reduced
if the transferor provides the servicer and the indenture trustee with written
confirmation that the designation will not result in (i) the reduction or
withdrawal by any rating agency of its rating of any outstanding series or class
and (ii) an Adverse Effect.
The transferor also has the right to designate certain 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 certain conditions are satisfied. For a discussion of
these conditions, see " The Transfer and Servicing Agreement -Removal of Trust
Assets" in the accompanying prospectus.
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 selected information about the receivables:
. The receivables in the trust portfolio, as of the beginning of the day
on [.], included $[.] of principal receivables and $[.] of finance
charge and administrative receivables.
. The accounts designated for the trust portfolio had an average
principal receivable balance of $[.] and an average credit limit of
$[.].
. The percentage of the aggregate total receivable balance to the
aggregate total credit limit was [.]%. The average age of the accounts
was approximately [.] months.
. As of the beginning of the day on [.], cardholders whose accounts are
designated for the trust portfolio had billing addresses in all 50
states and the District of Columbia.
S-22
<PAGE>
The following tables summarize the trust portfolio by various criteria
as of the beginning of the day on [.]. 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.
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Account Balance Range Accounts Accounts Receivables Receivables
--------------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance................ [.] [.]% $[.] [.]%
No Balance....................
$.01-$5,000.00................
$5,000.01-$10,000.00..........
$10,000.01-$15,000.00.........
$15,000.01-$20,000.00.........
$20,000.01-$25,000.00.........
$25,000.01 or More............
----- ---- -----
Total................... [.] 100.0% $[.] 100.0%
===== ==== =====
</TABLE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Account Balance Range Accounts Accounts Receivables Receivables
--------------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance................ [.] [.]% $[.] [.]%
No Balance....................
$.01-$5,000.00................
$5,000.01-$10,000.00..........
$10,000.01-$15,000.00.........
$15,000.01-$20,000.00.........
$20,000.01-$25,000.00.........
$25,000.01 or More............
----- ---- -----
Total................... [.] 100.0% $[.] 100.0%
===== ==== =====
</TABLE>
S-23
<PAGE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Period of Delinquency Number of Number of of Total
(Days Contractually Delinquent) Accounts Accounts Receivables Receivables
------------------------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Not Delinquent................. [.] [.]% $[.] [.]%
Up to 29 days..................
30 to 59 Days..................
60 to 89 Days..................
90 or More Days................
--- ----- ---- -----
Total.................... [.] 100.0% $[.] 100.0%
===== ==== =====
</TABLE>
Composition by Account Age
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Account Age Accounts Accounts Receivables Receivables
----------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Not More than 6 Months......... [.] [.]% $[.] [.]%
Over 6 Months to 12 Months.....
Over 12 Months to 24 Months....
Over 24 Months to 36 Months....
Over 36 Months to 48 Months....
Over 48 Months to 60 Months....
Over 60 Months to 72 Months....
Over 72 Months.................
--- ----- ---- -----
Total.................... [.] 100.0% $[.] 100.0%
===== ==== =====
</TABLE>
Geographic Distribution of Accounts
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
State Accounts Accounts Receivables Receivables
----- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
[California.................... [.] [.]% [.] [.]%
New York.......................
Texas..........................
Florida........................
Pennsylvania...................
New Jersey.....................
Illinois.......................
Ohio...........................
Maryland.......................
Michigan]......................
Other..........................
--- ----- ---- -----
Total.................... [.] 100.0% $[.] 100.0%
===== ==== =====
</TABLE>
S-24
<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 should refer to "Description of the Notes" in the
accompanying prospectus as well as to the transfer and servicing agreement, the
indenture and the Series 2000-[.] indenture supplement for a complete
description. The form of each of the transfer and servicing agreement, the
indenture and an indenture supplement 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 (the "Series 2000-[.]
indenture supplement"), 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
last day of the calendar month preceding that distribution date (each, a "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 A note interest rate").
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 B note interest rate").
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 (the "Class C note interest rate").
The indenture trustee will determine LIBOR for each interest period two
London business days before the related interest period commences, provided that
the LIBOR determination date for the first interest period will be two London
business days before the closing date. We refer to each of these determination
dates as a "LIBOR determination date." For purposes of calculating LIBOR, a
S-25
<PAGE>
"London business day" is any business day on which dealings in deposits in
United States dollars are transacted in the London interbank market.
An "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.
"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.
"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).
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). For purposes of this prospectus supplement and
the accompanying prospectus, a "business day" is, unless otherwise indicated,
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.
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. We refer to this additional interest as "Class A
additional interest," "Class B additional interest" and "Class C additional
interest," as applicable. 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.
S-26
<PAGE>
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.
Each "due period" will be 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).
Principal Payments
You are expected to receive payment of principal in full on [.], 200[.],
the "expected principal payment date." 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.
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 certain
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:
. the beginning of the early amortization period;
. the payment in full of the aggregate principal balance of the notes;
and
. 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 (a) available investor principal collections with respect
to that distribution date, (b) the applicable controlled deposit amount and (c)
the
S-27
<PAGE>
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;
. then to Class B noteholders, up to the aggregate principal balance of
the Class B notes; and
. then to Class C noteholders, up to the aggregate principal balance of
the Class C notes;
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 earlier of:
. the payment in full of the aggregate principal balance of the notes;
and
. [.], 200[.], called the "Series 2000-[.] final maturity date".
S-28
<PAGE>
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 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:
. the date the Class A notes are paid in full; and
. 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:
. the date the Class B notes are paid in full; and
. 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:
. the date the Class C notes are paid in full; and
. 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. Investment earnings (net of investment losses
and expenses) on funds on deposit in the principal funding account (the
"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-29
<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 pursuant to 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 below 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).
The "reserve account funding date" will be 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.
The "required reserve account amount" for any distribution date on or
after the reserve account funding date will be equal to (a) [.]% of the
principal balance of the Class A notes or (b) 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 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-[.].
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 such 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 as described below,
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
S-30
<PAGE>
2000-[.] indenture supplement, for that distribution date in an aggregate amount
equal to the least of (a) the amount then on deposit in the reserve account with
respect to that distribution date, (b) the required reserve account amount and
(c) 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:
(a) the product of (i) 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, (ii) the Class A note interest rate for the
related interest period and (iii) the number of days in the related interest
period divided by 360,
(b) the product of (i) the lesser of (a) the balance of the principal
funding account in excess of the principal balance of the Class A notes and (b)
the principal balance of the Class B notes on the record date immediately
preceding that distribution date, (ii) the Class B note interest rate for the
related interest period and (iii) the number of days in the related interest
period divided by 360, and
(c) the product of (i) 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, (ii) the
Class C note interest rate for the related interest period and (iii) 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:
. the first distribution date for the early amortization period;
. the expected principal payment date; and
. 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
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 of the applicable controlled deposit amount to the
principal funding account, and during the early amortization period, payments to
the noteholders. The servicer will determine the amount of collections of
principal receivables for any due period allocated to the invested amount
remaining after covering required payments to the noteholders and any similar
amount remaining for any other series in principal sharing group one ("shared
principal collections"). The servicer will allocate the shared principal
collections to cover any scheduled or permitted principal distributions to
noteholders and deposits to principal funding accounts, if any, for any
S-31
<PAGE>
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 certain other amounts for those series ("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 certain limitations, 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 such 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 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
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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:
(a) failure by the transferor (i) 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 (ii) 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;
(b) 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 pursuant to this subparagraph (b) 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;
(c) any servicer default occurs which would have an Adverse Effect on
the Series 2000-[.] noteholders;
(d) 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;
(e) insufficient moneys are available to pay in full the aggregate
principal balances of all the Series 2000-[.] notes on the expected principal
payment date;
(f) 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;
(g) certain 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;
(h) the transferor is unable for any reason to transfer receivables to
the trust in accordance with the provisions of the transfer and servicing
agreement;
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(i) the trust becomes subject to regulation as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended; or
(j) 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 (a), (b), (c) or (e)
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 (f), (g), (h) or (i), an
amortization event with respect to all series then outstanding, and in the case
of any event described in clause (d) or (j), 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.
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.
. The term "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 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.
The term "series portfolio yield" means, with respect to any due
period, the annualized percentage equivalent of a fraction:
. 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
. 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.
Allocation Percentages
Pursuant to 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.
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The term "investor percentage," for any due period, means (a) 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 (b) for collections of
principal receivables during the controlled accumulation period, and early
amortization period, the fixed investor percentage.
Available investor finance charge and administrative collections will
be reallocated among all series in reallocation group one as set forth in
"--Reallocation Group One" in this prospectus supplement.
"available investor finance charge and administrative collections"
means, with respect to any due period, an amount equal to the sum of:
(a) the investor finance charge and administrative collections
deposited in the collection account for that due period;
(b) an amount equal to the principal funding investment
proceeds, if any, for the related distribution date; and
(c) amounts, if any, to be withdrawn from the reserve account
which are required to be included in available investor finance charge
and administrative collections pursuant to the Series 2000-[.]
indenture supplement for the related distribution date.
"investor finance charge and administrative collections" means for any
distribution date an amount equal to the product of (a) floating investor
percentage for the related due period and (b) collections of finance charge and
administrative receivables deposited in the collection account for the related
due period.
Floating Allocation Definitions
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. The "floating investor percentage" means, with respect to any due
period, the percentage equivalent of a fraction:
(a) 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
(b) the denominator of which is the adjusted principal balance.
"adjusted principal balance" shall mean an amount equal to the
greater of:
(a) the sum of (i) 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 (ii) the principal
amount on deposit in the Special Funding Account as of the close of
business on such last day (or with respect to the first due period, the
closing date); and
(b) the sum of the numerators used to calculate the investor
percentages for allocations with respect to principal receivables as of
the date as to which such determination is being made;
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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 (a)(i) above shall be the sum of the amounts for each
day in such due period computed as follows and divided by the number of
days in such due period:
(1) 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 such due period
to but excluding the related additional cut-off date or removal date;
and
(2) 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 such due period.
Fixed Allocation Definitions
Principal payments on the Series 2000-[.] notes will be paid from
"available investor principal collections" which, for any due period, equal the
sum of:
(a)(i) the investor percentage of collections of principal
receivables deposited in the collection account for
that due period; minus
(ii) the amount of subordinated principal collections for
that due period;
(b) any shared principal collections from other principal
sharing series in principal sharing group one allocated to your series;
and
(c) any amounts treated as available investor principal
collections for the related distribution date, including proceeds of
any new series to the extent permitted by the indenture trustee acting
on behalf of the affected noteholders.
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. The "fixed investor percentage" means,
with respect to any due period, the percentage equivalent of a fraction:
(a) the numerator of which is the adjusted invested
amount as of the close of business on the last day of the revolving
period; and
(b) the denominator of which is the adjusted principal
balance.
Invested Amount Definitions
The term "invested amount," for any date of determination, means an
amount equal to (a) the initial principal amount of the Series 2000-[.] notes,
minus (b) the amount of principal previously paid to the Series 2000-[.]
noteholders, minus (c) the amount of unreimbursed investor charge-offs and
subordinated principal collections.
The term "adjusted invested amount," for any date of determination,
means (a) the invested amount as of that date, minus (b) the amount on deposit
in the principal funding account for that date.
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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 total required payments of 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 such amount among the noteholders' interest for
all series in such group in the following priority:
(i) reallocation group one monthly interest;
(ii) reallocation group one investor default amount;
(iii) reallocation group one monthly fees;
(iv) reallocation group one investor additional amounts;
and
(v) the balance pro rata among each series in such group
based on the current invested amount of each such
series.
In the case of clauses (i), (ii) and (iii), if the amount of
reallocation group one investor finance charge and administrative collections is
not sufficient to cover each such amount in full, the amount available will be
allocated among the series in such group 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 such
group will share such amount pro rata and any other series in such group with a
claim with respect to monthly interest, overdue monthly interest and interest on
such overdue monthly interest, if applicable, which is larger than the claim for
such amounts for any other series in such group offered hereby (due to a higher
note interest rate) will receive a proportionately larger allocation.
The amount of reallocation group one investor finance charge and
administrative collections allocated to the noteholders' interest for your
series as described above is referred to herein as "reallocated investor finance
charge and administrative collections."
"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.
"reallocation group one" means your series and each other series
specified in the related prospectus supplement to be included in reallocation
group one.
"reallocation group one investor additional amounts" means for any
distribution date, the sum of (a) additional amounts for such distribution date
and (b) for all other series included in reallocation group one, the aggregate
net amount by which the invested amounts of such 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 such series as of such distribution date.
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"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 such 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 such overdue monthly interest, if applicable,
for all the series included in reallocation group one for such distribution
date.
"reallocation group one monthly fees" means for any distribution date,
the sum of (a) the monthly servicing fee and monthly administration fee for such
distribution date, (b) the servicing fee and administration fee past due but not
paid for any prior distribution date and (c) fees similar to those described in
clauses (a) and (b) 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.
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:
. 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;
. 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;
. 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;
. an amount equal to the Class C monthly interest plus Class C
additional 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;
. an amount equal to the investor default amount, if any, for the
related due period, will be treated as available investor
principal collections;
. 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;
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. 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;
. 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;
. an amount equal to the administration fee due for the related
distribution date, and past due for any prior distribution date,
will be paid to the administrator;
. 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;
. 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.
"Class A monthly interest" with respect to any distribution date will
equal the product of (a) the Class A note interest rate for the related interest
period, (b) the actual number of days in that interest period divided by 360 and
(c) 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.
"Class B monthly interest" with respect to any distribution date will
equal the product of (a) the Class B note interest rate for the related interest
period, (b) the actual number of days in that interest period divided by 360 and
(c) 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 monthly interest" with respect to any distribution date will
equal the product of (a) the Class C note interest rate for the related interest
period, (b) the actual number of days in that interest period divided by 360 and
(c) 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.
"monthly interest" with respect to any distribution date will equal the
sum of the Class A monthly interest, the Class B monthly interest and the Class
C monthly interest for that 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:
(a) on each distribution date with respect to the revolving period, all
available investor
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principal collections will be treated as shared principal collections and
applied as 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;
(b) 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:
(i) 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;
(ii) 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;
(iii) 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;
(iv) 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
(v) 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 pursuant to (i)
through (iv) 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
(c) On the earlier to occur of (i) the first distribution date for the
early amortization period and (ii) 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.
"monthly principal" with respect to any distribution date will equal
the least of (i) the available investor principal collections on deposit in the
collection account with respect to that distribution date, (ii) for each
distribution date with respect to the controlled accumulation period, the
controlled deposit amount for that distribution date and (iii) the adjusted
invested amount (as adjusted for any investor charge-offs and subordinated
principal collections on that distribution date).
"controlled deposit amount" means, for any distribution date, the sum
of (i) the controlled accumulation amount for that distribution date, plus (ii)
the deficit controlled accumulation amount, if any.
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"controlled accumulation amount" means for any distribution date with
respect to the controlled accumulation period, $[o]. However, if the
commencement of the controlled accumulation period is postponed as described
above under "--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-[o] indenture supplement based on the principal payment rates for the
accounts and on the invested amounts of other series (other than certain
excluded series) which are scheduled to be in their revolving periods and then
scheduled to create shared principal collections during the controlled
accumulation period.
"deficit controlled accumulation amount" means:
(a) 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
(b) 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.
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 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 such series is not part of a reallocation
group, investor finance charge and administrative collections) is not sufficient
to make its required payments or deposits. We call these collections "excess
finance charge and administrative collections." If your series requires more
finance charge and administrative collections than allocated through the
investor percentage, it 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 below under "--Application of
Collections," then collections of principal receivables allocated to the
invested amount will be treated as collections of finance charge and
administrative receivables and 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.
"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
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servicing fee (if Household Finance Corporation or any of its affiliates are not
the servicer) in an amount equal to the lesser of:
. the monthly subordination amount for that due period; and
. the invested amount after giving effect to any investor charge-offs
for that distribution date.
"monthly subordination amount" means, for any due period, the sum of:
. the lower of:
. 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
. [.]% of the initial invested amount minus the amount of
unreimbursed investor charge-offs and unreimbursed subordinated
principal collections; plus
. the lower of:
. 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
. [.]% of the initial invested amount minus the amount of
unreimbursed investor charge-offs and unreimbursed subordinated
principal collections.
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" by multiplying:
. the floating investor percentage for that month, by
. the "defaulted amount," which is the total amount of principal
receivables (other than ineligible receivables) in the trust that were
charged-off for that month.
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 ("investor charge-offs").
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.
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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 (the "spread account"). Amounts on deposit in
the spread account will be used (a) to fund shortfalls in interest payments on
the Class C notes and (b) on the Series 2000-[o] 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 (a) the spread account percentage in effect on the date of
determination and (b) 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 (a) the amount on deposit in the spread account on that
distribution date and (b) 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 is then, the Spread Account
greater than or equal to: and less than: Percentage will equal:
------------------------ --------- -----------------------------
<S> <C> <C>
[.]% [.] 0
[.]% [.]% [.]%
[.]% [.]% [.]%
[.]% [.]% [.]%
[.]% [.]% [.]%
</TABLE>
After the spread account percentage has been increased above zero as
specified in the table above, it will remain at the specified percentage until:
(a) further increased to a higher required percentage as specified
above, or
(b) 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
S-43
<PAGE>
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>
<CAPTION>
<S> <C>
For the [Month 1] 2000
distribution date: The modified excess spread percentage
For the [Month 2] 2000 The modified excess spread percentage for the first due period, plus
distribution date: the excess spread percentage for the [Month 1] 2000 due period
---------------------------------------------------------------------
2
For the [Month 3] 2000 The modified excess spread percentage for the first due period, plus
distribution date: 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 percentage 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 collections and
excess finance charge and administrative collections allocated to
Series 2000-[.] for that due period available immediately
after 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 collections of 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 and
monthly servicing fee accrued for the first distribution date.
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
S-44
<PAGE>
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 (i) the amount on deposit in the spread account (including investment
earnings to the extent necessary to fund that excess) and (ii) 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.
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 (the "monthly servicing fee") will be equal to
one-twelfth of the product of (a) the servicing fee rate, (b) the adjusted
invested amount as of the opening of business on the first day of the due period
preceding that distribution date, and (c) one minus a fraction the numerator of
which is the amount, if any, on deposit in the special funding account as of the
opening of business on the first day of the due period preceding that
distribution date and the denominator of which is the adjusted principal balance
as of such date. However, with respect to the first distribution date, the
monthly servicing fee will equal $[.].
"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.
The servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the receivables including, without
limitation, payment of the fees and disbursements of the 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
("ERISA"), and Section 4975 of the Code impose certain requirements on employee
benefit plans and certain other plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and certain collective investment
funds or insurance company general or separate accounts in which the plans,
accounts or
S-45
<PAGE>
arrangements are invested, that are subject to the fiduciary responsibility
provisions of ERISA and/or Section 4975 of the Code (collectively, "Plans"), and
on persons who are fiduciaries with respect to Plans, in connection with the
investment of "plan assets" of any Plan ("Plan Assets"). ERISA generally imposes
on Plan fiduciaries certain 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, collectively, "Parties In
Interest") who have certain 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 pursuant to Section
4975 of the Code, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
Subject to the considerations described below 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 ("DOL")
Prohibited Transaction Class Exemption ("PTCE") 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 "Plan Asset
Regulation"), the purchase with Plan Assets of equity interests in the issuer
could, in certain 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.
S-46
<PAGE>
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 gives, investment advice with respect to the Plan Assets, for a fee
and pursuant to 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
thereof 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 an underwriting
agreement as supplemented by a terms agreement relating to the Class A notes
(together, the "Class A underwriting agreement") between the transferor and the
Class A underwriters named below (the "Class A underwriters"), the terms and
conditions set forth in an underwriting agreement as supplemented by a terms
agreement relating to the Class B notes (together, the "Class B underwriting
agreement") between the transferor and the Class B underwriters named below (the
"Class B underwriters") and the terms and conditions set forth in an
underwriting agreement as supplemented by a terms agreement relating the Class C
notes (together, the "Class C underwriting agreement" and, together with the
Class A underwriting agreement and the Class B underwriting agreement, the
"underwriting agreement") between the transferor and the Class C underwriters
named below (the "Class C underwriters" and, together with the Class A
underwriters and the Class B underwriters, the "underwriters"), 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:
<TABLE>
Principal balance of
Class A underwriters Class A notes
-------------------- ----------------------
<S> <C>
$[.]
Total......................................... $[.]
====
Principal balance of
Class B underwriters Class B notes
-------------------- ----------------------
$[.]
Total......................................... $[.]
====
Principal balance of
Class C underwriters Class C notes
-------------------- ----------------------
$[.]
Total......................................... $[.]
====
</TABLE>
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 hereby if any
S-47
<PAGE>
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 certain 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 certain 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 certain 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 certain 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 certain 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 certain 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:
(a) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in relation
to the notes in, from or otherwise involving the United Kingdom;
(b) 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;
(c) 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
S-48
<PAGE>
Financial Services (Promotion of Unregulated Schemes) Regulations 1991; and
(d) 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 certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the underwriters may be required to make in respect thereof.
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.
LEGAL MATTERS
Certain 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. Certain 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. Certain legal matters relating to the issuance of
the Notes will be passed upon for the underwriters by [o]. 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.
S-49
<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-[.]
<TABLE>
<S> <C>
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-[o] final maturity date....................................................[.] distribution date
Series Issuance Date..............................................................................[.] , 2000
</TABLE>
------------
* Subject to change if the commencement of the accumulation period or
controlled accumulation period, as applicable, is delayed.]
I-1
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
additional amounts............................... S-37
adjusted invested amount......................... S-36
adjusted principal balance....................... S-35
AFL-CIO.......................................... S-14
amortization event............................... S-33
APR.............................................. S-16
available investor finance charge and
administrative collections.................. S-35
available investor principal collections......... S-36
bank............................................. S-13
base rate........................................ S-34
business day..................................... S-26
Class A additional interest...................... S-26
Class A monthly interest......................... S-39
Class A note interest rate....................... S-25
Class A underwriters............................. S-47
Class A underwriting agreement................... S-47
Class B additional interest...................... S-26
Class B monthly interest......................... S-39
Class B note interest rate....................... S-25
Class B underwriters............................. S-47
Class B underwriting agreement................... S-47
Class C additional interest...................... S-26
Class C monthly interest......................... S-39
Class C note interest rate....................... S-25
Class C underwriters............................. S-47
Class C underwriting agreement................... S-47
closing date..................................... S-25
controlled accumulation amount................... S-41
controlled accumulation period................... S-27
controlled deposit amount........................ S-40
defaulted amount................................. S-42
deficit controlled accumulation amount........... S-41
distribution date................................ S-26
DOL.............................................. S-46
due period....................................... S-27
early amortization period........................ S-28
ERISA............................................ S-45
excess finance charge and administrative
collections................................. S-41
excess finance charge sharing group one.......... S-10
excess spread percentage......................... S-44
expected principal payment date.................. S-27
fixed investor percentage........................ S-36
floating investor percentage..................... S-35
interchange...................................... S-20
interest period.................................. S-26
invested amount.................................. S-36
investor charge-offs............................. S-42
investor default amount.......................... S-42
investor finance charge and administrative
collections................................. S-35
investor percentage.............................. S-35
LIBOR............................................ S-26
LIBOR determination date......................... S-25
London business day.............................. S-26
modified excess spread percentage................ S-44
monthly interest................................. S-39
monthly principal................................ S-40
monthly servicing fee............................ S-45
monthly subordination amount..................... S-42
paired series.................................... S-32
Parties In Interest.............................. S-46
Plan Asset Regulation............................ S-46
Plan Assets...................................... S-46
Plans............................................ S-46
principal funding account........................ S-29
principal funding investment proceeds............ S-29
principal sharing series group one............... S-10
principal shortfalls............................. S-32
PTCE............................................. S-46
quarterly excess spread percentage............... S-44
reallocated investor finance charge and
administrative collections.................S-9, S-37
reallocation group one..........................S-9, S-37
reallocation group one investor additional
amounts..................................... S-37
reallocation group one investor default
amount...................................... S-38
reallocation group one investor finance charge
and administrative collections.............. S-38
reallocation group one monthly fees.............. S-38
reallocation group one monthly interest.......... S-38
record date...................................... S-25
recoveries....................................... S-20
required minimum principal balance............... S-21
required reserve account amount.................. S-30
required spread account amount................... S-43
required transferor amount....................... S-22
required transferor percentage................... S-22
reserve account.................................. S-30
reserve account funding date..................... S-30
reserve draw amount.............................. S-31
revolving period................................. S-27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Series 2000-[.] final maturity date.............. S-28
Series 2000-[.] indenture supplement............. S-25
Series 2000-[.] notes............................ S-25
series adjusted invested amount.................. S-21
series portfolio yield........................... S-34
servicing fee rate............................... S-45
shared principal collections..................... S-31
spread account................................... S-43
spread account percentage........................ S-43
subordinated principal collections............... S-41
Telerate Page 3750............................... S-26
transferor amount................................ S-22
trust portfolio.................................. S-21
underwriters..................................... S-47
underwriting agreement........................... S-47
</TABLE>
ii
<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, LLC
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, LLC, Household
Finance Corporation, Household Bank (Nevada), N.A. or any other person.
This prospectus may be used to offer and sell notes of a series only if
accompanied by the prospectus supplement for that series.
--------------------------------------------------------------------------
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: (a) this prospectus, which provides general information, some of
which may not apply to your series of notes, and (b) 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.
If the terms of your series of notes vary between this prospectus and
the accompanying prospectus supplement, you should rely on the information in
the prospectus supplement.
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 the pages
where definitions can be found under the caption "Index of Terms for Prospectus"
beginning on page [.] in this prospectus.
2
<PAGE>
Prospectus Summary
This summary highlights selected 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 (612) 316-4795.
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
pursuant to an indenture supplement (the "indenture supplement")to an indenture
(the "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.
Indenture Trustee
Norwest Bank Minnesota, NA is the indenture trustee pursuant to the indenture.
Its address is MAC N9311-161, 6th & Marquette, Minneapolis, MN 55479 attention:
Asset Backed Securities. Its phone number is (612) 316-4795.
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) 651-8651.
Transferor
Household Receivables Funding, LLC 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) 243-1230. Household Receivables Funding,
LLC is a special purpose Delaware limited liability company all of the equity
membership interests in which are held by Household Card Services, Inc.
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.
Household Finance Corporation, or any new servicer, is called the "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.
Trust Assets
Household Bank (Nevada), N.A. is the originator of the credit card receivables.
It has designated selected revolving credit card accounts from its portfolio and
has sold the receivables in those accounts to Household Receivables Funding, LLC
under a receivables purchase agreement. Household Receivables Funding, LLC 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.
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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 such 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
certain circumstances 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
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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. We call this
date an "expected principal payment date." 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, 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:
. certain 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.
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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 such series to be immediately due and payable. That
declaration may, under certain circumstances, 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:
. 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 certain events of bankruptcy, insolvency, reorganization
or similar events relating to the trust.
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 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 such 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.
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 . reserve account
guaranty or account
. swap arrangements . guaranteed rate
agreement
. interest rate cap . tax protection
agreement agreement
The type, characteristics and amount of any credit enhancement for a series will
be:
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. 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 (1) the notes will be treated as indebtedness and (2) the
trust will not be an association or a publicly traded partnership taxable as a
corporation. 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 (a) collections
of finance charge and administrative receivables and principal receivables and
(b) 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 interest. 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
certain 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 cover certain shortfalls of 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 certain required payments to all series in
that group. Any issuance of a new
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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 certain other amounts and shares in the same credit enhancement
for each series in such group. Such 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 such 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 such series would share collections of
finance charge and administrative receivables and certain other amounts and
share in the same credit enhancement for such 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 such 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.
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RISK FACTORS
You should consider the following risk factors in deciding whether to purchase
the notes.
Some liens would be given priority over The bank accounts for the
your notes which could cause delayed or transfers of the
reduced payments. receivables a sale. Any future
account owner or receivables
seller other than the bank would
be expected to similarly account
for the transfer of their
receivables as a sale. Even so, a
court could conclude that any of
the bank, such other account
owner or receivables seller or
the transferor owns the
receivables and that the trust
holds only a security interest.
Even if a court would reach that
conclusion, however, the
indenture trustee will have a
first-priority perfected security
interest.
If a court were to conclude that
the trust has only a security
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
may be senior to the trust's
interest in the receivables.
Additionally, if a receiver or
conservator were appointed for
the bank or any other account
owner or receivables seller which
is a bank or a similarly
regulated financial institution,
the fees and expenses of the
receiver or conservator might be
paid from the receivables before
the trust receives any payments
on the receivables. If insolvency
or bankruptcy proceedings were
commenced by or against the
servicer or if certain time
periods were to elapse, moreover,
the trust may not have a first-
priority perfected security
interest in collections
commingled and used for the
benefit of the servicer. If any
account owner or receivables
seller is not the bank or a
similarly regulated financial
institution and insolvency or
bankruptcy proceeding were
commenced by or against it, the
automatic stay provision of
applicable bankruptcy 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 "Certain Legal
Aspects of the Receivables -
Transfer of Receivables" and "The
Transfer and Servicing Agreement-
Representations and Warranties of
the Transferor" in this
prospectus.
In addition, with respect to the
addition of additional
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<PAGE>
accounts and participations to
the trust, the indenture trustee
may not have a first-priority
perfected security interest with
respect to such additional
accounts and participations
before the required delivery date
of the computer file or
microfiche list reflecting the
addition of such additional
accounts and participations to
the trust. The required delivery
date for new accounts may be as
long as 109 days after the
related addition date. If
insolvency or bankruptcy
proceedings were commenced by or
against the transferor after the
related addition date but prior
to the related required delivery
date, other secured or unsecured
creditors of the transferor could
have claims ranking higher than
yours against the transferor and,
consequently, payments to you
could be reduced.
If a conservator or receiver were appointed The Federal Deposit Insurance
for the bank or other receivables seller, Act,as amended by Financial
or the transferor or other receivables seller InstitutionsReform, Recovery and
became a debtor in a bankruptcy case, delays Enforcement or other Act of 1989
or reductions in payment of your notes (the "FDIA"), provides that a
could occur. security interest granted by the
bank in the receivables would be
respected to the extent that --
. the receivables purchase
agreement complies with the
regulatory requirements of
the FDIA;
. the security interest
granted under the
receivables purchase
agreement was perfected
before the Federal Deposit
Insurance Corporation (the
"FDIC") is appointed as
conservator or receiver for
the bank; and
. 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.
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. If the FDIC were to
assert a contrary position,
however, payments of principal
and interest on your notes could
be delayed and possibly reduced.
Furthermore, the FDIC could:
. require the indenture
trustee to go through the
administrative claims
procedure established by
the FDIC in
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<PAGE>
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, the amount payable to you
could be lower than the outstanding
principal and accrued interest on the
notes, thus resulting in losses to
you.
If a conservator or receiver were
appointed for the bank, or 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 receivables purchase
agreement and the transfer and
servicing agreement, (a) to delay any
such procedure, (b) to prevent the
early payment of principal or (c) 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 "Certain Legal Aspects of the
Receivables -Certain Matters Relating
to Conservatorship, Receivership and
Bankruptcy" in this prospectus.
Limited control of certain actions under Under the indenture, noteholders
the indenture. holding a specified percentage of the
outstanding principal amount of notes
of a series or class or all the notes
may take certain actions, or may
direct the indenture trustee to take
certain actions, including
accelerating the payment of principal
of the notes. In the case of votes by
series or votes by holders of all the
notes, the most senior class of notes
will generally be
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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.
Limited remedies upon event of default. Your remedies may be limited if an
event of default under your class or
series of notes occurs. After an event
of default and the acceleration of
your series of notes, until all of the
affected notes are paid in full,
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 such principal
funding account, if any, that are not
reallocated to other classes of that
series will still be available to pay
principal or 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 on those notes only if
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.
Limited remedies for breaches of Household Receivables Funding, LLC, as
representations could reduce or transferor of the receivables, makes
delay payments. representations 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
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<PAGE>
have defenses to payment or offset
rights, or creditors of the owner of
the account 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 Federal and state consumer
impede collection efforts or reduce protection laws regulate the
collections. 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.
Receivables that do not comply with
consumer protection laws may not be
valid or enforceable under their terms
against the obligors on those
receivables.
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
"Certain Legal Aspects of the
Receivables -Consumer Protection Laws"
in this prospectus.
Competition in the credit card industry. The credit card industry is highly
competitive. As new credit card
companies enter the market and all
companies try to expand their market
share, effective advertising, target
marketing and pricing 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
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<PAGE>
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 planned.
Affinity program restrictions could The accounts, the receivables of which
limit the ability to change account. currently have been conveyed or will
terms be conveyed to the trust on the
closing date, were originated under an
affinity agreement between the bank
and Union Privilege and are generated
under the MasterCard(R)* and Visa(R)*
programs of the bank known as the
Union Plus(R)* program. The Union Plus
program contains, and other affinity
programs may contain, certain
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. Changes in the terms of such
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 or
and conditions of the accounts in a way other account owner retains the rights
that reduces collections. to change various account term
including finance charges, other fees
and the required monthly minimum
payment. Such changes may be voluntary
on the part of the bank or may be
forced by law or market conditions.
Changes in interest and fees could
decrease the effective yield on the
accounts and this could result in an
early 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 receivables could The receivables transferred to the
reduce collections. trust may be paid at any time. We
cannot assure the creation of
additional receivables in the trust's
accounts or that any particular
pattern of cardholder payments will
occur. A significant decline in the
amount of new
_____________________________
* MasterCard(R), VISA(R) and Union Plus are federally registered servicemarks of
MasterCard International Inc., Visa U.S.A., and Union Privilege, respectively.
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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 addition would otherwise be treated as
of new receivables. principal receivables to be treated as
finance charge and administrative
receivables. This designation should
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.
Effect of addition to trust assets on The transferor expects that it will
credit quality. periodically add additional accounts
to the trust and may, at times, be
obligated to add additional accounts.
While each additional account must be
an eligible account at the time of its
designation, such additional accounts
may not be of the same credit quality
as the initial accounts. There are
many reasons which could cause such
differences 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
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<PAGE>
will have the same credit quality as
those currently designated to the
trust.
In addition, the transfer and
servicing agreement allows the
transferor to add participation
interests in other assets to the
trust. The addition of such
participation interests and of
additional accounts will be subject to
the satisfaction of certain conditions
described in this prospectus under
"The Transfer and Servicing Agreement-
Addition of Trust Assets."
The note interest rate and the Some accounts have finance
receivables interest rate may charges set at a variable rate based
re-set at different times, on a designated index (for example,the
resulting in reduced or early prime rate), while others have finance
payments to you. 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
allocated to make interest payments on
your notes could also increase the
risk of early repayment of your notes.
Subordinated classes bear losses One or more classes of notes in a
before senior classes. series may be subordinated to one or
more senior classes of notes in the
same series. Principal allocations to
the subordinated class or classes
generally do not begin until each of
the more senior classes has been paid
in full. 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
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<PAGE>
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 such 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.
It may not be possible to find an The underwriters may assist in
investor to purchase your notes. resales of the notes but they are not
required to do so. A secondary market
for any notes may not develop. 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 trust is expected to issue
the trust may affect the timing of additional series from time to time.
payments 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.
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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, LLC, as transferor, and Wilmington Trust Company, as owner trustee. We
refer to Household Credit Card Master Note Trust I as the "issuer" or the
"trust" and Wilmington Trust Company, in its capacity as owner trustee of the
issuer, as the "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
certain 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 pursuant to 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
612-316-4795.
The transferor will pay the fees of the owner trustee and will
reimburse it for certain 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 pursuant to 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.
The Bank's Credit Card Activities
General
The credit card accounts owned by Household Bank (Nevada), N.A. (the
"bank") 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.
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<PAGE>
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 certain
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 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 certain 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.
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<PAGE>
To accept a pre-selected credit card offer, the prospective cardholder
must provide certain 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 such
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 certain 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 accounts conformed to any given standard. After acquisition, however,
all accounts periodically are credit screened as described below 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 (i.e. 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 certain 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
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<PAGE>
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 accounts designated as accounts of the trust and future
receivables created in these accounts. These designated accounts are referred to
as 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;
. 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;
. the preferred membership interest of the transferor issued to the
trustee; and
. any other amounts so specified in the prospectus supplement.
Receivables in the trust consist of:
. "principal receivables," which are amounts charged by trust account
obligors for goods and services, cash advances and consolidation or
transfer of balances from other credit cards; and
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<PAGE>
. "finance charge and administrative receivables," which are periodic
finance charges and other amounts charged to trust accounts,
including cash advance fees, late fees and annual membership fees.
The trust considers collections of interchange and recoveries as
collections of finance charge and administrative receivables. 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 such 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
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
"Certain 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 such 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 [.], 2000 (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.
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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
certain information about the trust portfolio as of the date specified. This
information will include:
. 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 pursuant to the
indenture, as supplemented by an indenture supplement, in each case entered into
by the trust and the indenture trustee. The following summaries describe certain
provisions common to each series of notes. The accompanying prospectus
supplement gives you additional information specific to the notes of your
series. The summaries are not complete and are subject to, and are qualified by,
all of the provisions of the transfer and servicing agreement, the indenture and
the related indenture supplement.
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 a percentage called 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. The "invested amount" for a series on any date will be
equal to:
. the initial outstanding principal amount of that series of notes
as of the related closing date for that series; minus
. the amount of principal paid to the related noteholders prior to
that date; minus
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. 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 certain 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.
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.
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" which
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. The
holder of the transferor interest, subject to certain limitations, will have the
right to a percentage, called 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 certain limitations and conditions
described 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 certificate representing the
transferor interest, called a "transferor certificate." See "The Transfer and
Servicing Agreement -- Certain 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 certain 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
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<PAGE>
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;
. 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. Except as otherwise expressly stated, any reference in
this prospectus or the accompanying prospectus supplement to a "rating agency"
refers to a rating agency selected by the transferor to rate the notes of a
series or class issued by the trust.
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.
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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, called a "note owner,"
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.
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 collectively called the "depositaries,"
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
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 certain 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, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such
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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.
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 such credits or any transactions in
such securities settled during such processing will be reported to the relevant
Clearstream customer or Euroclear participant on such 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 such payments will be
forwarded by the indenture trustee to Cede & Co., as nominee for DTC. DTC will
forward such 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 such 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 such 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 certain 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 such 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 such
specified percentages. DTC may take conflicting actions with respect to other
interests to the extent that such actions are taken on behalf of participants
whose holdings include such interests.
Clearstream Banking, societe anonyme ("Clearstream Luxembourg"), was
incorporated in 1970 as "Cedel S.A.," a company with limited liability under
Luxembourg law (a societe anonyme).
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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, and as such 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. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law. 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. Such distributions will be
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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 such 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 such procedures and such procedures
may be discontinued at any time.
Definitive Notes
We refer to notes issued in fully registered, certificated form as
"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 representing more than 50% of the outstanding principal
amount of such 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 such class of notes.
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
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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, pursuant to 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 pursuant to this prospectus
or in transactions either registered under the Securities Act of 1933, as
amended (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 certain 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
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) an opinion of counsel to the effect that, for federal income
tax purposes:
(i) the issuance will not adversely affect the tax
characterization as debt of notes of any outstanding
series or class that were characterized as debt at
the time of their issuance;
(ii) the new issuance will not cause the trust to be
deemed to be an association (or publicly traded
partnership) taxable as a corporation; and
(iii) the new issuance will not cause or constitute an
event in which gain or loss would be recognized by
any noteholder (an opinion of counsel with respect to
any matter to the effect referred to in this
paragraph (2) with respect to any action is referred
to in this prospectus as 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; and
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(5)(a) the new issuance will not:
(i) cause an amortization event or an event of default;
or
(ii) materially and adversely affect the amount or timing
of payments to be made to the noteholders of any
series or class (any such effect referred to in
clause (i) or this clause (ii) with respect to any
action is referred to in this prospectus as an
"Adverse Effect"); and
(b) 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
exceed a specified minimum principal balance, called 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," which is the period from that series' closing date to
the earlier of:
. the date that series' invested amount equals the principal
amount of that series of notes; and
. the date specified in the related prospectus supplement.
During the funding period, the portion of the series amount not
invested in receivables will be maintained in a "pre-funding account," which is
a trust account established with the indenture trustee for the benefit of the
noteholders of that series. 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
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
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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; 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. We
call each of these series a "paired 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.
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;
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. 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 certain 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
representing a majority of the outstanding principal amount of the notes of such
series or class.
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 controlled accumulation period, on each
distribution date an amount of principal, up to the amount specified, will be
set aside in a trust account, called a "principal funding account." If an
amortization event occurs and your series features early accumulation for such
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 will be paid to you on
the expected principal payment date for your class of notes, 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 such 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
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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.
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.
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Additionally, the accompanying prospectus supplement may set forth
certain 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.
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 certain amortization events
with respect to that series. In this event, the credit enhancement provider will
have an interest in certain cash flows in respect of the receivables to the
extent described in that prospectus supplement (called the "collateral invested
amount").
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 certain
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 or
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.
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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
certain 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 pursuant to 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
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 certain 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
certain 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
certain 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. Such insurance
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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.
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. An "amortization event" occurs with respect to all
series issued by the trust upon the occurrence of any of the following events:
(a) certain 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;
(b) 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
(c) the trust becomes subject to regulation as an
"investment company" within the meaning of the
Investment Company Act of 1940.
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
certain 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
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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 5% or less of the initial principal amount of that series if
certain conditions set forth in the related indenture supplement are met. The
repurchase price will equal:
. the outstanding principal amount of the notes of that series, plus
. 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.
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 series final maturity
date with respect to the related series of notes. 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 certain 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 earlier of (a)
the day after the distribution date on which the principal amount with respect
to each series outstanding is zero, or (b) January 1, 20[o], (this date, 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.
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 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:
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. a statement from a firm of nationally recognized independent
public accountants (who may also render other services to the
transferor) to the effect that such deposit is sufficient to make
all the payments specified above;
. an officer's certificate stating that the transferor reasonably
believes that such deposit and termination of obligations will
not, based on the facts known to such officer at the time of such
certification, then cause an event of default or an amortization
event with respect to any series;
. written confirmation from each rating agency that such 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;
. 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;
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. 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," which is the ratio of the current invested
amount to the initial invested amount.
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.
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
principal receivables in accounts which were written off as uncollectible by the
servicer, called "defaulted amounts," among:
. each series issued and outstanding;
. the transferor interest; and
. 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 percentage interest of certain credit enhancement providers, called the
"credit enhancement percentage." The related prospectus supplements will set
forth how the investor percentages are calculated.
The transferor percentage is, in all cases, equal to 100% minus:
. the total investor percentages for all outstanding series; and, if
applicable, minus
. the total credit enhancement percentages for all outstanding
series.
Groups
General
The notes of a series may be included in one or more groups of series
(each, a "group") that share certain collections of finance charge and
administrative receivables and/or principal receivables. The
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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
certain 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 finance
charge collections 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." The prospectus supplement with respect to a series offered
hereby will specify whether such series will be included in a reallocation group
or another type of group and whether any previously issued series have been
included in such 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 such reallocation group.
Shared Enhancement Group
If a series is identified in the prospectus supplement for that series
as included in a shared enhancement group, such series may share collections of
finance charge and administrative receivables and certain other amounts and
share in the same credit enhancement for each series in such group. Such 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 such 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 such series would share collections of finance
charge and administrative receivables and certain other amounts and share in the
same credit enhancement for such 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 such 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
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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.
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 either (a) a segregated trust account established with the
corporate trust department of a securities intermediary or (b) a segregated
account with a securities intermediary that is an eligible institution (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. References to the
"securities intermediary" shall refer to Norwest Bank Minnesota, NA 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 thereof, 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. An "eligible institution" is
defined as:
(1)(a) a depository institution, which may include the owner trustee
or the indenture trustee;
(b) organized under the laws of the United States or any one of the
states thereof, including the District of Columbia (or any
domestic branch of a foreign bank); and
(c) which at all times (i) is a member of the FDIC and (ii) 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
(2) any other institution acceptable to each rating agency selected
by the transferor to rate a series or class of notes.
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" consisting of 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 of America or any
state thereof, 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 &
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Poor's Ratings Group ("Standard & Poor's") and Moody's
Investors Service Inc. ("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.
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, referred to collectively as 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 pursuant to the related
indenture supplement.
Application of Collections
Except in the circumstance described below, 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, as described
below. 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;
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(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:
(i) Household Finance Corporation notifies each rating
agency; and
(ii) 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.
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 such 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 such
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:
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(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 a specified minimum level,
called the "required transferor interest" and such
collections are not required to be used as shared
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 such
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 interest as described in paragraph
(3) above, together with any adjustment payments as described below, 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 interest. 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
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account as "partial amortization SFA amounts" to such series (and if more than
one such series, to each on a pro rata basis according to each such 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 such series then outstanding.
Defaulted Receivables; Investor Charge-Offs
Unless otherwise specified in the accompanying prospectus supplement,
for each series of notes, on the earlier of (a) the third business day and (b)
the fifth calendar day (or, if the fifth calendar day is not a business day,
then the preceding business day) preceding the fifteenth day of each calendar
month (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 such series and other amounts
specified in the accompanying prospectus supplement, including from credit
enhancement, and applied to pay principal to noteholders or, subject to certain
limitations, the holder of the transferor interest, as appropriate.
With respect to each series of notes, if the investor default amount
for that series exceeds the amounts available to reimburse such investor default
amount as described above, the invested amount with respect to that series will
be reduced by the amount of such excess ("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.
The Indenture
The following summarizes certain terms of the indenture and is
qualified in its entirety by reference to 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:
. the trust fails to pay principal when it becomes due and payable for that
series of notes on the series final maturity date;
. 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;
. certain bankruptcy, insolvency, conservatorship, receivership, liquidation
or similar events relating to the trust ;
. 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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. 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 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 certain circumstances, be rescinded by noteholders holding more than
50% of the outstanding principal amount of the notes of that series.
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 certain 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 certain 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.
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:
. 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;
. the noteholders give the indenture trustee written notice of a
continuing event of default;
. the noteholders offer reasonable indemnification to the indenture trustee
against the costs, expenses and liabilities of instituting a proceeding;
. the indenture trustee has not instituted a proceeding within 60 days after
receipt of the notice, request and offer of indemnification; and
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. the indenture trustee has not received during such 60-day period
from noteholders holding more than 50% of the outstanding principal
amount of the notes of that series a direction inconsistent with
the request.
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 such accelerated series of
notes by causing the trust to sell principal receivables in an
amount generally equal to the invested amount of such 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), but
only if it determines that the proceeds of such sale 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 such accelerated series of notes by
causing the trust to sell principal receivables in an amount
generally equal to the invested amount of such 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 such sale.
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.
Certain Covenants
The indenture provides that the trust may not consolidate with, merge
into or sell its business to, another entity, unless:
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. 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 thereof 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;
. 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 certain related documents, sell, transfer,
exchange or otherwise dispose of any of the assets of the trust,
unless directed to do so by the indenture trustee;
. 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 (A) 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, (B) 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 thereof, except as may be created
by the terms of the indenture; or (C) 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 pursuant to 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 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 if that action would not materially and
adversely affect the interests of the noteholders;
. 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, 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.
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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 (i) 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 (ii) 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 (a) for execution of any supplemental indenture
or (b) for any waiver of compliance with specified provisions 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.
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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.
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 of 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.
The Transfer and Servicing Agreement
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General
On the initial closing date the transferor will transfer the
receivables to the issuer pursuant to the transfer and servicing agreement.
Pursuant to 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.
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
. 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.
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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 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 interest, 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
interest. 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
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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 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 (i) the
related card, if any, has been lost or stolen or (ii) the related account
number has been stolen;
. which has not been sold or pledged to any other party except for any sale
(i) to another account owner that has either entered into a receivables
purchase agreement or is an additional transferor or (ii) to Household
Receivables Funding, LLC pursuant to 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;
. which does not have any receivables that are defaulted receivables, except
as provided below; and
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. 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: (i) 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 (ii) 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 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;
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. 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 Delaware 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 thereof.
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 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 must be an eligible account at the time of its
designation. However, 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.
"aggregate addition accounts" means eligible accounts designated to be
included as accounts.
"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 such aggregate addition provides that such type of 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 such
receivables. If such opinion of counsel with respect to receivables in any new
accounts is not so received, all receivables arising in the new accounts to
which such failure relates will be removed from the trust.
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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 herein
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:
. as of the date of assignment, called the "addition date,"
each additional account is an eligible account;
. the transferor has deposited into the collection account any
collections relating to such additional accounts or
participation interest;
. 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;
. 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;
. 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 certain opinions of counsel with
respect to the transfer of the receivables in the additional accounts or
the participations to the trust; and
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. 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.
The "required delivery date" means (a) on or prior to the closing date
in the case of the initial accounts, (b) the date that is five business days
after the applicable addition date, in the case of an aggregate addition, (c)
the distribution date on which the opinion of counsel is required to be
delivered as described above, in the case of new accounts, and (d) the date that
is five business days after the applicable date of removal, in the case of
removed accounts.
In addition to the periodic reports otherwise required to be filed by
the servicer with the Securities and Exchange Commission (the "SEC") pursuant to
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 certain removed accounts
("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. 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;
. 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 selected 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 (a) the removed
accounts are small balance accounts or (b) 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.
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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 such accounts will be applied as described
herein.
Discount Option
The transferor has the option to reclassify a percentage, called the
"discount percentage," of principal receivables in the trust portfolio
("discount option receivables") as collections of 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.
To exercise the discount option, the transferor must satisfy the conditions in
the transfer and servicing agreement, including 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.
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.
Certain 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 (i) performance of its duties is no
longer permissible under applicable law and (ii) 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
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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.
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 (a) its actions or
omissions as servicer or (b) 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 newly issued transferor certificate and a second
certificate, called 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;
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. 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;
. 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, (i)
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
(ii) 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, (i)
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,
(ii) notification of the succession to each rating agency and
(iii) 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 under the
transfer and servicing agreement, the indenture or any
indenture supplement or within the applicable grace period not
exceeding 5 business days;
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(2) failure on the part of the servicer to observe or perform 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 (i) the servicer by the owner trustee
or the indenture trustee, or (ii) 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 (c) 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 pursuant to 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 (i) the servicer by the owner trustee
or the indenture trustee, or (ii) 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.
Notwithstanding the foregoing, 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
provider of enhancement and/or any issuer of any third-party credit enhancement
(a "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.
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
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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 certain 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.
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 any
participation interest in which it has an interest and/or its interest in the
transferor certificate (collectively, 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, the "assumed obligations"), to another entity (the "assuming
entity") which may be an entity that is not affiliated with the transferor.
Pursuant to 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: (i)
the assuming entity, such 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 such transferor's interest in the receivables arising under the
accounts and the receivables arising under any
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additional accounts to the trust; (ii) all UCC filings required to perfect the
interest of the indenture trustee in the receivables arising under such accounts
shall have been duly made and copies thereof shall have been delivered by such
transferor to the indenture trustee; (iii) if the assuming entity shall be
eligible to be a debtor in a case under the bankruptcy code, such transferor
shall have delivered to the rating agencies (with a copy to the servicer and the
trustee) notice of such transfer and assumption, and that each rating agency
that has rated an outstanding series of notes confirm in writing that such
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, such transferor shall have
delivered to the rating agencies notice of such transfer and assumption; (iv)
the trustee shall have received an opinion of counsel to the effect that (a) the
transfer of such receivables by the assuming entity shall constitute either a
sale of, or the granting of a security interest in, such receivables by the
assuming entity to the trust, (b) the condition specified in paragraph (ii)
shall have been satisfied, and (c) if the assuming entity shall be subject to
the FDIA, the interest of the trust in such receivables should not be subject to
avoidance by the FDIC if the FDIC were to become the receiver or conservator of
the assuming entity; and (v) 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 such transferor will have no further
liability or obligation under the transfer and servicing agreement, other than
those liabilities that arose prior to such 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 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 (i)
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 (ii) 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
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. 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.
Description of the Purchase Agreements
The following summary is qualified in its entirety by the receivables
purchase agreement entered into by the bank and the transferor (the "receivables
purchase agreement") 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. References to the bank below
include such 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 pursuant to the receivables purchase
agreement. Pursuant to 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 (i) 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 (ii) recoveries allocable to those receivables and
certain other property.
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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 "Certain 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 charges.
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 (a) the receivables purchase agreement constitutes a valid
and binding obligation of the bank and (b) 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 thereof. 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 (i) to cure any ambiguity, (ii)
to correct or supplement any provisions therein which may be inconsistent with
any other provisions therein or in any conveyance paper, (iii) 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 thereof or
any conveyance papers, (iv) to provide for the transfer by the bank or Household
Receivables Funding, LLC of its interest in and to all or part of the accounts
in accordance with the provisions of the transfer and servicing agreement (if
such transfer is for less than all of the accounts, the respective rights,
duties and obligations of Household Receivables Funding, LLC, the bank and the
servicer will be determined at the time of such transfer). No amendment,
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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.
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 certain other liquidation, bankruptcy, 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.
Certain 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 such a sale against the interests of
third parties.
There are certain limited circumstances in which prior or subsequent
transferees of receivables coming into existence after a series closing date
could have an interest in such 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 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
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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 such receivable.
Furthermore, if the FDIC were appointed as a receiver or conservator of the
bank, certain 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:
(i) Household Finance Corporation notifies each rating
agency; and
(ii) 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 certain circumstances, the lapse
of certain time periods, the trust may not have a first-priority perfected
security interest in such collections. In such an event, 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) or (2) 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.
Certain 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
certain 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.
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To the extent that (i) the bank is the account owner and the
receivables purchase agreement complies with the regulatory requirements of the
FDIA, (ii) the security interest granted under the receivables purchase
agreement was perfected before the FDIC is appointed as conservator or receiver
for the bank, and (iii) 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 such 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 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 such agreement. See "The Transfer
and Servicing Agreement - Servicer Default" in this prospectus.
The transferor has been structured such that (i) the filing of a
voluntary or involuntary petition for relief by or against the transferor under
the Bankruptcy Code and (ii) 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 limited liability company, and its limited
liability agreement contains 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 membership interest.
The transferor's preferred membership interest has been issued to the issuer and
pledged to the indenture trustee. The indenture trustee will hold the pledged
preferred membership interest of the transferor in trust for the benefit of the
noteholders and vote such preferred membership interest only pursuant to the
written instructions of the noteholders representing more than 50% of the
outstanding principal amount of the notes of all series. The preferred
membership interest is non-transferable except pursuant 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
will not result in the reduction or withdrawal by any rating agency of its
rating of any
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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. Pursuant to
the transfer and servicing agreement, newly created receivables will not be
transferred to the trust on and after any such 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 "Description
of the Notes - Application of Collections" and in the accompanying prospectus
supplement.
The bankruptcy court, however, may have the power to delay any such
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 certain 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 certain violations of consumer protection
laws that apply to the receivables, either as assignee from the transferor with
respect to obligations arising before transfer of the receivables to the trust
or as the party directly responsible for obligations arising after the transfer.
In addition, an account holder may be entitled to assert such 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 such laws (if such 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 such violations. 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.
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Application of federal and state bankruptcy and debtor relief laws
would affect the interests of the noteholders if such laws result in any
receivables being charged-off as uncollectible. See "Description of the Notes -
Defaulted Receivables; Investor Charge-Offs" in this prospectus.
Federal Income Tax Consequences
General
The following summary describes generally the material United States
federal income tax consequences of an investment in 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 ("special tax counsel"). The summary is based on the
Internal Revenue Code of 1986, as amended (the "Code") 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
certain 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 Internal Revenue Service ("IRS") or the courts, and no ruling
on any of the issues discussed below will be sought from the IRS. 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, 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. As a result, 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.
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
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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 certain 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 certain 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 such securities
requires the delivery of a new opinion of counsel generally to the effect that
such issuance will not cause the trust to become taxable as a separate entity
for federal income tax purposes; however, any such new opinion would not bind
the IRS, and the trust could become taxable as a corporation as a result of such
issuance, 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 such 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 ("OID"), the provisions of Sections
1271 through 1273 and 1275 of the Code will apply to those notes. Under those
provisions, a holder of such a note (including a cash basis holder) generally
would be required to include the OID on a note in income for federal income 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 such 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 such interest should be included in the note's stated redemption
price at maturity. If sustained, such 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.
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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 such holder, increased by any
market or original issue discount previously included in income by such 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
such holder with respect to such note. Any such 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.
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 (a
"foreign person") 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 (i) 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 pursuant to a loan agreement entered into in the
ordinary course of its trade or business, and (ii) 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 certain
other information. If a note is held through a securities clearing organization
or certain 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
such 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 pursuant to an applicable tax treaty or such 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 such
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
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that (i) such gain is not effectively connected with the conduct of a trade or
business in the United States by the foreign person, and (ii) in the case of an
individual foreign person, such 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 certain 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, certain 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 certain 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 below 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
Employee Retirement Income Security Act of 1974, as amended ("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 certain 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 and other
liabilities under ERISA and Section 4975 of the Code for such persons, unless a
statutory, regulatory or administrative exemption is available.
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA) and certain 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
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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 (i)
satisfies the diversification requirement of ERISA or other applicable law, (ii)
is in accordance with the Plan's governing instruments, and (iii) 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
certain 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 certain 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 certain 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
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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 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 we
file 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. Our SEC filings are also available to
the public on the SEC Internet site (http://www.sec.gov.).
The SEC allows us to "incorporate by reference" information we file
with it, 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 that we file later with
the SEC 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. 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 we
incorporate 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.
77
<PAGE>
Index of Terms For Prospectus
<TABLE>
<CAPTION>
<S> <C>
addition date........................................................... 58
administrator........................................................... 18
Adverse Effect.......................................................... 31
aggregate addition...................................................... 58
aggregate addition accounts............................................. 57
amortization event...................................................... 37
assigned assets......................................................... 65
assumed obligations..................................................... 65
assuming entity......................................................... 65
bank.................................................................... 18
cash collateral account................................................. 36
cash collateral guaranty................................................ 36
Citibank................................................................ 2
Clearstream............................................................. 27
Code.................................................................... 72
collateral invested amount.............................................. 35
collection account...................................................... 42
controlled accumulation period.......................................... 4
controlled amortization period.......................................... 4
credit enhancement percentage........................................... 40
cut-off date............................................................ 22
defaulted amounts....................................................... 40
definitive notes........................................................ 29
depositaries............................................................ 26
determination date...................................................... 46
discount option......................................................... 60
discount option receivables............................................. 60
discount percentage..................................................... 60
DTC..................................................................... 1
early accumulation period............................................... 4
early amortization period............................................... 4
eligible account........................................................ 55
eligible institution.................................................... 42
eligible investments.................................................... 42
eligible receivable..................................................... 56
ERISA................................................................... 75
events of default....................................................... 46
excess finance charge sharing group..................................... 7
expected principal payment date......................................... 5
FDIA.................................................................... 10
FDIC.................................................................... 10
finance charge and administrative receivables........................... 22
foreign person.......................................................... 74
funding period.......................................................... 31
global securities....................................................... 1
group................................................................... 40
indenture............................................................... 3
indenture supplement.................................................... 3
interchange............................................................. 20
invested amount......................................................... 23
investor charge-offs.................................................... 46
investor percentage..................................................... 23
IRS..................................................................... 72
issuer.................................................................. 18
L/C bank................................................................ 36
Moody's................................................................. 43
Morgan.................................................................. 2
new accounts............................................................ 58
note owner.............................................................. 26
OID..................................................................... 73
owner trustee........................................................... 18
paired series........................................................... 32
partial amortization sfa amounts........................................ 46
participations.......................................................... 58
Parties in Interest..................................................... 76
paying agent............................................................ 43
Plan.................................................................... 76
pool factor............................................................. 40
pre-funding account..................................................... 31
principal funding account............................................... 33
principal receivables................................................... 21
principal sharing group................................................. 8
qualified account....................................................... 42
rating agency........................................................... 25
reallocation group...................................................... 7
receivables purchase agreement.......................................... 67
removed accounts........................................................ 59
required delivery date.................................................. 59
required minimum principal balance...................................... 31
required transferor interest............................................ 45
reserve account......................................................... 36
revolving period........................................................ 4
SEC..................................................................... 59
securities act.......................................................... 30
securities intermediary................................................. 42
series.................................................................. 1
series enhancer......................................................... 64
series final maturity date.............................................. 5
servicer................................................................ 3
servicer default........................................................ 63
shared enhancement group................................................ 8
special funding account................................................. 42
special tax counsel..................................................... 72
spread account.......................................................... 36
</TABLE>
78
<PAGE>
<TABLE>
<S> <C>
Standard & Poor's..................................................... 43
supplemental certificate.............................................. 62
tax opinion........................................................... 30
transferor certificate................................................ 24
transferor interest................................................... 24
transferor percentage................................................. 24
trust................................................................. 18
trust portfolio....................................................... 21
trust termination date................................................ 38
</TABLE>
79
<PAGE>
Annex I
Global Clearance, Settlement and Tax Documentation Procedures
Except in certain limited circumstances, the globally offered Household
Credit Card Master Note Trust I Asset Backed Notes (the "global securities") to
be issued in series from time to time (each, a "series") 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 ("DTC"), 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 such capacity) and as DTC participants.
Non-U.S. holders (as described below) of global securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All global securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the global
securities will be represented through financial institutions acting on their
behalf as 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 such 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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<PAGE>
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. ("Citibank") and Morgan Guaranty Trust
Company of New York ("Morgan") 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 (i.e., 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 may substantially reduce
or offset the amount of such 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
I-2
<PAGE>
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 such 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.
Certain 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 (i) each clearing system, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes
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, LLC
Transferor
Household Finance Corporation
Servicer
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.
<TABLE>
<S> <C>
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................................................................. $ **
=
</TABLE>
---------------
* Actual
** To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
The Delaware Limited Liability Company Act (Section 18-108) gives
Delaware limited liability companies broad powers to indemnify and hold harmless
any member, director, or manager or other person from and against any and all
claims and demands whatsoever. 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 Limited Liability Company Agreement of Household Receivables
Funding, LLC provides for indemnification to the fullest extent permitted by the
Delaware Limited Liability Company Act of members, managers, directors, officers
and employees of Household Receivables Funding, LLC and also to persons who are
serving at the request of Household Receivables Funding, LLC as directors,
officers or employees of another entity.
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<PAGE>
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, LLC).
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, LLC). Household International, Inc. has purchased
liability policies which indemnify Household Receivables Funding, LLC'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, LLC 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, LLC, and affiliates thereof, may be entitled to indemnification by such
underwriters or agents against certain liabilities, including liabilities under
the Securities Act of 1933, arising from information which has been furnished to
Household Receivables Funding, LLC by such underwriters or agents that appear in
the Registration Statement or any Prospectus.
ITEM 16. EXHIBITS.
(a) Exhibits.
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Formation of Household Receivables Funding,
LLC*
3.2 -- Limited Liability Company Agreement of Household
Receivables Funding, LLC*
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*
II-2
<PAGE>
10.1 -- Form of Transfer and Servicing Agreement*
10.2 -- Form of Administration 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-5)
25.1 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, of Norwest Bank
Minnesota, NA, as indenture trustee under the Indenture*
---------------
* 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 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
II-3
<PAGE>
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 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-4
<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 May 30, 2000.
HOUSEHOLD RECEIVABLES FUNDING, LLC,
as originator of the Trust, Registrant
and on behalf of the Trust as 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 May 30, 2000 by the following persons
in the capacities indicated.
Signature Title
--------- -----
/s/ S. N. Mehta President and Chief Executive
---------------------------- Officer, Director
S. N. Mehta
/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
II-5
<PAGE>
EXHIBIT INDEX
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Formation of Household Receivables Funding,
LLC*
3.2 -- Limited Liability Company Agreement of Household
Receivables Funding, LLC*
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*
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-5)
25.1 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, of Norwest
Bank Minnesota, NA, as indenture trustee under the
Indenture*
-----------
* To be filed by amendment.
