<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
(REGISTRANT AND THE TRUST IN WHICH THE INVESTOR CERTIFICATES EVIDENCE UNDIVIDED
INTERESTS)
NEW YORK
(STATE OF ORGANIZATION)
6799 NOT APPLICABLE
(PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
HOUSEHOLD AFFINITY FUNDING CORPORATION
(REGISTRANT AND ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
DELAWARE
(STATE OF INCORPORATION)
6799
(PRIMARY STANDARD 88-0300291
INDUSTRIAL CLASSIFICATION CODE NUMBER) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
1111 TOWN CENTER DRIVE
LAS VEGAS, NEVADA 89134
(702) 243-1240
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
LAURIE S. MATTENSON
ASSOCIATE GENERAL COUNSEL-CORPORATE FINANCE
HOUSEHOLD INTERNATIONAL, INC.
2700 SANDERS ROAD
PROSPECT HEIGHTS, ILLINOIS 60070
(847) 564-6557
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JANET L. BURAK, ESQ. EDWARD M. DESEAR, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND ORRICK, HERRINGTON & SUTCLIFFE LLP
SECRETARY 666 FIFTH AVENUE
HOUSEHOLD BANK (SB), N.A. NEW YORK, NEW YORK 10103
2700 SANDERS ROAD
PROSPECT HEIGHTS, ILLINOIS 60070
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH AMOUNT OFFERING PRICE MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE PER AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED CERTIFICATE OFFERING PRICE FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Certificates...... $1,000,000 100% $1,000,000 $304.00
- --------------------------------------------------------------------------------
Class B Certificates...... $1,000,000 100% $1,000,000 $304.00
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
--------------
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>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
NAME AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
---------------------------- ---------------------
<S> <C>
1.Forepart of Registration State-
ment and Outside Front Cover Front Cover of Registration Statement;
Page of Prospectus............ Outside Front Cover Page of Prospectus
2.Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3.Summary Information, Risk Fac-
tors and Ratio of Earnings to
Fixed Charges................. Prospectus Summary; Risk Factors
4.Use of Proceeds................. Use of Proceeds
5.Determination of Offering Price. *
6.Dilution........................ *
7.Selling Security Holders........ *
8.Plan of Distribution............ Underwriting; Risk Factors
9.Description of Securities to be Prospectus Summary; The Accounts; The
Registered.................... Trust; Principal Payment Considerations;
Description of the Investor Certificates
10.Interests of Named Experts and
Counsel....................... Legal Matters
11.Information with Respect to the The Credit Card Business of Household Bank
Registrant.................... (SB), N.A.; The Seller; The Servicer; The
Subservicer; The Trust
12.Disclosure of Commission Posi-
tion on Indemnification of Se-
curities Act Liabilities...... *
</TABLE>
- --------
*Not Applicable
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED DECEMBER 27, 1996
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES 1997-1
$ Floating Rate Class A Credit Card Participation Certificates
$ % Class B Credit Card Participation Certificates
HOUSEHOLD AFFINITY FUNDING CORPORATION
SELLER
HOUSEHOLD FINANCE CORPORATION
SERVICER
The Floating Rate Class A Credit Card Participation Certificates, Series 1997-1
(the "Class A Certificates") and the % Class B Credit Card Participation
Certificates, Series 1997-1 (the "Class B Certificates"; and together with the
Class A Certificates, the "Investor Certificates") offered hereby evidence
undivided interests in certain assets of the Household Affinity Credit Card
Master Trust I (the "Trust") created pursuant to a Pooling and Servicing
Agreement dated as of April 30, 1993, as amended by the Amended and Restated
Pooling and Servicing Agreement dated as of August 1, 1993, as amended as of
April 12, 1995 (collectively, the "Pooling and Servicing Agreement") and as
supplemented by a Supplement to the Pooling and Servicing Agreement dated as of
(the "Series 1997-1 Supplement") among Household Affinity Funding
Corporation, as seller (the "Seller"), Household Finance Corporation, as
servicer (the "Servicer") and The Bank of New York, as trustee (the "Trustee").
Interest will accrue on the Class A Certificates from to and
excluding at the rate of % per annum and with respect to
each Interest Period (as defined herein) thereafter at the rate of % per
annum above the London interbank offered quotations rate for one month United
States Dollar Deposits. The assets of the Trust (the "Trust Assets") include
receivables, including the collections thereon (the "Receivables"), that are
generated
(Continued on following page)
----------
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
CERTIFICATES, SEE "RISK FACTORS" ON PAGE 27 HEREIN.
----------
THE INVESTOR CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND
DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, HOUSEHOLD BANK
(SB), N.A., THE SERVICER OR HOUSEHOLD INTERNATIONAL, INC. OR ANY AFFILIATE
THEREOF. NEITHER THE INVESTOR CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR
RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) THE SELLER(2)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Certificate % % %
- --------------------------------------------------------------------
Per Class B Certificate % % %
- --------------------------------------------------------------------
Total $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) The Seller has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Seller, estimated to be $ .
The Investor Certificates are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify any order without notice.
It is expected that delivery of the Investor Certificates will be made in book-
entry form through the facilities of The Depository Trust Company, Cedel Bank
societe anonyme and the Euroclear System on or about .
The date of this Prospectus is , .
<PAGE>
(Continued from previous page)
from time to time in a portfolio of consumer revolving credit card accounts
(the "Accounts"). Receivables in the Accounts at the close of business on April
1, 1993 (the "Initial Cut-Off Date") and generated thereafter through November
30, 1993 have been sold by Household Bank, f.s.b. to the Seller and Receivables
generated thereafter have been and will be sold by Household Bank (SB), N.A.
("Household Bank"), a wholly-owned operating subsidiary of Household Bank,
f.s.b., to the Seller and then, in each case, transferred by the Seller to the
Trust as more fully described herein. On December 1, 1993, Household Bank,
f.s.b. transferred its interest in the Accounts to Household Bank. The
fractional undivided interest in the Trust represented by the Class B
Certificates will be subordinated to the extent necessary to fund payments with
respect to the Class A Certificates to the extent described herein. In
addition, the Investor Certificates will have the benefit of the Collateral
Invested Amount (as defined herein) in the initial amount of $ and
the Cash Collateral Account (as defined herein) which will have a beginning
balance of zero. See "Description of the Investor Certificates--Subordination"
and "--Description of the Cash Collateral Account". Only the Class A
Certificates and the Class B Certificates and not the Collateral Interest (as
defined herein) are being offered hereby.
Interest with respect to each class of Investor Certificates will accrue from
(the "Issuance Date") and is payable monthly on the fifteenth
day of each month, or if such day is not a business day, the next succeeding
business day (each, a "Distribution Date"), commencing on the
Distribution Date. Principal payments with respect to the Class A Certificates
will be payable on each Distribution Date commencing with the
Distribution Date (the "Controlled Amortization Date"). Principal payments with
respect to the Class B Certificates will be payable on each Distribution Date
commencing with the Distribution Date, provided that principal
payments will not commence to holders of the Class B Certificates (the "Class B
Certificateholders") earlier than the Distribution Date on which the final
principal payment has been made to the Class A Certificateholders. Principal
may be paid to the holders of the Class A Certificates (the "Class A
Certificateholders") and the holders of the Class B Certificates (the "Class B
Certificateholders") earlier upon the limited circumstances described herein.
(The Class A Certificateholders and the Class B Certificateholders are herein
collectively referred to as the "Investor Certificateholders".) See "Principal
Payment Considerations".
No public market for the Investor Certificates currently exists and there can
be no assurance that one will develop. If no public market develops, Class A
Certificateholders and Class B Certificateholders may not be able to completely
liquidate their investment in Investor Certificates until termination of the
Trust. See "Risk Factors". Also, should an Amortization Event (as defined
herein) occur, this may result in the repayment of the Investor Certificates
earlier than otherwise provided for herein. See "Risk Factors" for a discussion
of certain factors that should be considered in connection with an investment
in the securities offered hereby.
[Application will be made to list the Investor Certificates on the Luxembourg
Stock Exchange.]
AVAILABLE INFORMATION
The Seller, as originator of the Trust, has filed a Registration Statement
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the "Commission") with respect to the
Investor Certificates offered pursuant to this Prospectus. For further
information, reference is made to the Registration Statement and amendments
thereof and exhibits thereto, which are available for inspection without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549; Seven World Trade Center, New
York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, or through the Web site maintained by the Commission at
(http://www.sec.gov). Copies of the
2
<PAGE>
Registration Statement and amendments thereof and exhibits thereto may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Servicer, on
behalf of the Trust, intends to register the Class A Certificates under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and will file with the Commission such periodic reports, if any, with respect
to the Trust as are required under the Exchange Act, and the rules, regulations
or orders of the Commission thereunder.
REPORTS TO INVESTOR CERTIFICATEHOLDER
Unless and until Definitive Certificates (as defined herein) are issued,
monthly and annual unaudited reports, containing information concerning the
Trust and prepared by the Servicer, will be sent on behalf of the Trust to Cede
& Co. ("Cede"), as nominee of The Depository Trust Company ("DTC") and
registered holder of the Investor Certificates pursuant to the Pooling and
Servicing Agreement and the Series 1997-1 Supplement [and to the Luxembourg
Paying Agent, if any]. Such reports will be made available by DTC and its
participants to the Investor Certificateholders in accordance with the rules,
regulations and procedures creating and affecting DTC. See "Description of the
Investor Certificates--Reports" and "The Pooling and Servicing Agreement
Generally--Evidence as to Compliance". Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. The Pooling and Servicing Agreement does not require the sending
of, and the Seller does not intend to send, any of its financial reports to the
Investor Certificateholders.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES OR CLASS B CERTIFICATES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Reference is made
to the Index for the location herein of the definitions of certain capitalized
terms used herein.
Title of Securities............... $ Floating Rate Class A Credit
Card Participation Certificates, Series
1997-1 (the "Class A Certificates").
$ % Class B Credit Card Par-
ticipation Certificates, Series 1997-1 (the
"Class B Certificates"; and together with
the Class A Certificates, the "Investor
Certificates").
Issuer............................ Household Affinity Credit Card Master Trust
I (the "Trust"). The Trust, as a master
trust, previously has issued ten series of
investor certificates (each, a "Series")
and is expected to issue additional Series
from time to time. The Trust is expected to
continue as a trust after the Series 1997-1
Termination Date (as defined herein). The
assets of the Trust are expected to change
over the life of the Trust as certain in-
terests and receivables in revolving credit
card accounts and related assets are in-
cluded in the Trust and as certain inter-
ests and receivables in accounts subject to
the Trust are charged-off or removed. See
"The Trust", "Risk Factors--Master Trust
Considerations" and "--Addition of Trust
Assets", "The Pooling and Servicing Agree-
ment Generally--Addition of Accounts or
Participation Interests" and "--Removal of
Accounts".
Class A Certificate Rate.......... The London interbank offered quotations
rate for United States Dollar deposits for
a one month period ("LIBOR") (determined as
described herein) plus % (the "Class A
Certificate Rate").
Class B Certificate Rate.......... % per annum (the "Class B Certificate
Rate").
Household Bank.................... Household Bank (SB), N.A. ("Household
Bank"), a national banking association and
an affiliate of the Servicer, is the owner
of the Accounts from which the Receivables
arise.
Seller............................ Household Affinity Funding Corporation (the
"Seller"), a corporation organized under
the laws of the State of Delaware and a
special purpose subsidiary of Household
Bank, is the seller of the Receivables and
originator of the Trust.
Servicer.......................... Household Finance Corporation (the
"Servicer"), a Delaware corporation.
Trustee........................... The Bank of New York (the "Trustee"), a New
York banking corporation.
4
<PAGE>
Trust Assets...................... The assets of the Trust (the "Trust As-
sets") include the Receivables arising un-
der the Accounts (as defined herein), in-
cluding the proceeds thereof, monies on de-
posit in certain accounts of the Trust for
the benefit of investor certificateholders,
including any funds deposited in an account
in the name of the Trustee for the benefit
of the Investor Certificateholders (the
"Cash Collateral Account"), funds collected
or to be collected from Participation In-
terests (as defined herein), if any, and
any Series Enhancement (as defined herein)
issued with respect to a particular Series
(the drawing on or payment of any Series
Enhancement for the benefit of a Series or
class of investor certificateholders will
not be available to the investor
certificateholders of any other Series or
class), certain rights of the Seller to re-
ceive Recoveries (as defined herein) and
Interchange (as defined herein) and the
preferred stock of the Seller issued to the
Trustee (the "Preferred Stock"). "Series
Enhancement" means, with respect to any Se-
ries or class of investor certificates, any
letter of credit, surety bond, subordinated
interest in the Trust Assets, collateral
account, spread account, guaranteed rate
agreement, maturity liquidity facility, tax
protection agreement, interest rate swap
agreement, interest rate cap agreement or
other similar arrangement for the benefit
of investor certificateholders of such Se-
ries or class. The subordination of any Se-
ries or class of investor certificates to
another Series or class of investor certif-
icates shall be deemed to be a Series En-
hancement. "Participation Interests" means
participations representing undivided in-
terests in a pool of assets primarily con-
sisting of revolving credit card receiv-
ables, consumer loan receivables, charge
card receivables and other self-liquidating
financial assets.
The Trust Assets will be allocated among
the Class A Certificateholders (the "Class
A Interest") and the Class B
Certificateholders (the "Class B Interest";
the Class A Interest and the Class B
Interest are collectively referred to
herein as the "Certificateholders'
Interest"), the interests of the Seller
(the "Seller's Interest"), and the investor
certificateholders of other Series and may
be allocated to any Series Enhancement all
as described below. An undivided interest
in the Trust Assets (the "Collateral
Invested Amount"), in the initial amount of
$ of Principal Receivables (such
amount represents % of the sum of the
original Class A Invested Amount (as
defined herein), the original Class B
Invested Amount (as defined herein) and the
original Collateral Invested Amount)
constitutes the Series Enhancement for the
Investor Certificates. The
5
<PAGE>
provider of such Series Enhancement is the
"Collateral Interest Holder". Trust Assets
will be allocated to the interests of the
Collateral Interest Holder (the "Collateral
Interest") in an amount equal to the sum of
the Collateral Invested Amount and the
amount, if any, on deposit in the Cash
Collateral Account (the "Collateral
Amount").
To the extent provided in any Supplement
(as defined herein), or in an amendment to
the Pooling and Servicing Agreement, all or
a portion of the Receivables or
Participation Interests conveyed to the
Trust and all collections received with
respect thereto may be allocated to one or
more Series or groups of Series (each a
"Group") as long as the Rating Agency
Condition (as defined herein) shall have
been satisfied with respect to such
allocation and the Servicer shall have
delivered an officer's certificate to the
Trustee to the effect that the Servicer
reasonably believes such allocation will
not have an Adverse Effect (as defined
herein). The Investor Certificates are part
of the seventh Series in a group of Series
("Group One") expected to be issued from
time to time by the Trust and, to the
extent described herein, Receivables,
Participation Interests and all collections
received with respect thereto may be
allocated to other Series in Group One.
The Accounts...................... The Accounts generally consist of
nonpremium and premium, variable rate VISA*
and MasterCard* consumer revolving credit
card accounts originated or purchased and
designated from time to time by Household
Bank (or an affiliate thereof), that, in
each case, met the criteria provided in the
Pooling and Servicing Agreement for an Eli-
gible Account (as defined herein), but will
not include any Removed Accounts (as de-
fined herein). The Accounts are not being
sold or transferred to the Trust and will
continue to be controlled and held by
Household Bank (or an affiliate thereof)
unless transferred as described herein. See
"The Credit Card Business of Household Bank
(SB), N.A.--General"; "--The Accounts";
"Description of the Bank Purchase Agree-
ment--Transfer of Accounts".
Household Bank, f.s.b. and the Seller en-
tered into a receivables purchase agreement
dated as of April 30, 1993, as amended (to-
gether with any supplements thereto, the
"Bank Purchase Agreement"). As of December
1, 1993, Household Bank, f.s.b. assigned
its interest in the Bank Purchase Agreement
to House-
- --------
*VISA and MasterCard are registered trademarks of VISA USA, Inc. and MasterCard
International Incorporated, respectively.
6
<PAGE>
hold Bank in accordance with the terms
thereof and the Pooling and Servicing
Agreement. Pursuant to the Bank Purchase
Agreement, Household Bank has sold and will
from time to time sell to the Seller all of
its right, title and interest in the Re-
ceivables arising in the Accounts whether
such Receivables are then existing or
thereafter created and Household Bank is
obligated to sell to the Seller the Receiv-
ables arising in Additional Accounts (as
defined herein) from time to time. In addi-
tion, Household Bank has assigned to the
Seller its rights to Recoveries and Inter-
change allocable to the Accounts. See "De-
scription of the Bank Purchase Agreement".
In addition, the Seller may enter into a
similar agreement with other affiliates of
Household Bank.
The Seller in turn has transferred and
will, from time to time, transfer, as the
case may be, such Receivables, including
the right to Recoveries and Interchange, to
the Trust pursuant to the Pooling and Ser-
vicing Agreement. The initial transfer of
Receivables occurred on May 5, 1993 (the
"Initial Issuance Date").
The Seller has conveyed to the Trust Re-
ceivables existing on April 1, 1993 (the
"Initial Cut-Off Date") in certain
MasterCard consumer revolving credit card
accounts (the "Initial Accounts") that met
the criteria provided in the Pooling and
Servicing Agreement for an Eligible Account
and will convey Receivables arising in the
Initial Accounts from time to time thereaf-
ter until the termination of the Trust.
Since the Initial Cut-Off Date, the Seller
has conveyed to the Trust the Receivables
arising in certain Additional Accounts in-
cluded in Aggregate Additions (as defined
herein) in accordance with the provisions
of the Pooling and Servicing Agreement. In
addition, pursuant to the Pooling and Ser-
vicing Agreement, the Seller expects (sub-
ject to certain limitations and condi-
tions), and in some circumstances will be
obligated, to have more Additional Accounts
designated, the Receivables of which will
be included in the Trust or, in lieu
thereof or in addition thereto, to include
Participation Interests in the Trust. Addi-
tional Accounts include New Accounts (as
defined herein) and Aggregate Addition Ac-
counts (as defined herein). The Seller will
convey to the Trust all Receivables in Ad-
ditional Accounts, whether such Receivables
are then existing or thereafter created.
The addition to the Trust of Receivables in
Aggregate Additions or Participation Inter-
ests will be subject to certain conditions,
including, among others, that (a) unless
such addition is a required addition, such
addition
7
<PAGE>
will not result in the failure to satisfy
the Rating Agency Condition and (b) the
Seller shall have delivered to the Trustee
a certificate of an authorized officer to
the effect that, in the reasonable belief
of the Seller, such addition will not have
an Adverse Effect. The Seller will also
have the right, in certain circumstances,
to remove from the Trust all Receivables of
certain Accounts (the "Removed Accounts").
See "The Pooling and Servicing Agreement
Generally--Additions of Accounts or Partic-
ipation Interests" and "--Removal of Ac-
counts".
The Receivables................... The Receivables include (a) all periodic
finance charges, cash advance fees, annual
membership fees and the interest portion of
any Participation Interests as determined
pursuant to the applicable Supplement (the
"Finance Charge Receivables"), (b) all ad-
ministrative fees and late charges on
amounts charged for merchandise and servic-
es, credit insurance premiums and all other
fees or charges billed to cardholders on
the Accounts (the "Administrative Receiv-
ables"; and together with the Finance
Charge Receivables, the "Finance Charge and
Administrative Receivables") and (c) all
amounts charged by cardholders for merchan-
dise and services, amounts advanced to
cardholders as cash advances and the prin-
cipal portion of any Participation Inter-
ests as determined pursuant to the applica-
ble Supplement (the "Principal Receiv-
ables"). Recoveries attributed to charged-
off Receivables (the "Recoveries") will be
treated as collections of Finance Charge
and Administrative Receivables. In addi-
tion, certain Interchange attributed to
cardholder charges for merchandise and
services in the Accounts will be treated as
collections of Finance Charge and Adminis-
trative Receivables. See "The Credit Card
Business of Household Bank (SB), N.A.--In-
terchange".
The aggregate amount of Receivables per-
taining to the Accounts as of the close of
business on , , was
$ , of which $
were Principal Receivables and $
were Finance Charge and Administrative Re-
ceivables (which amounts include past due
Receivables). All new Receivables arising
in the Accounts during the term of the
Trust will automatically be sold by House-
hold Bank to the Seller and then trans-
ferred by the Seller to the Trust. Accord-
ingly, the amount of Receivables will fluc-
tuate from day to day as new Receivables
are generated and as existing Receivables
8
<PAGE>
are collected, charged-off as uncollectible
or otherwise adjusted.
Finance charges are assessed on Principal
Receivables. [The annual percentage rate
assessed on the Accounts will generally be
[10.4] percentage points over the highest
prime rate as published in The Wall Street
Journal on the fourth Thursday of the month
preceding that month in which the billing
period ends (the "Prime Rate").] The annual
percentage rate depends on whether the Ac-
count is a nonpremium or premium Account
and, in certain circumstances, the amount
of the outstanding balance on the Account.
For premium Accounts with average daily
balances of $2,500 or more, the annual per-
centage rate assessed on such Accounts is
generally [7.4] percentage points over the
Prime Rate. The minimum annual percentage
rate for nonpremium Accounts is [14.9]%.
For premium Accounts with an average daily
balance under $2,500, the minimum annual
percentage rate is [16.4]% and for premium
Accounts with an average daily balance of
$2,500 or greater the minimum annual per-
centage rate is [13.4]%. As of the close of
business on , , the Receiv-
able balance of the nonpremium and premium
Accounts as a percentage of the total Re-
ceivable balance of the Accounts was ap-
proximately % and %, respective-
ly. From time to time, Household Bank has
and may offer special rates to customers
for various purposes and periods or may
change rates generally as permitted in the
Receivables Purchase Agreement.
The Investor Certificates......... The Investor Certificates will be available
for purchase in minimum denominations of
$1,000 and in integral multiples thereof.
Except in certain limited circumstances as
described herein under "Description of the
Investor Certificates--Definitive Investor
Certificates", the Investor Certificates
will only be available in book-entry form.
The aggregate principal amount of the Class
A Invested Amount and the Class B Invested
Amount will, except as otherwise provided
herein, remain fixed at $ and
$ , respectively. The principal
amount of the Seller's Interest will fluc-
tuate as the amount of Receivables in the
Trust changes from time to time. The Sell-
er's Interest will represent the right to
the Trust Assets not allocated to the
Certificateholders' Interest, the Collat-
eral Invested Amount, or to any interest of
any other Series. The Seller has the right
to sell, or borrow against, the Sell-
9
<PAGE>
er's Interest and Household Bank has the
right to assign and transfer the Accounts
and assign its obligations under the Bank
Purchase Agreement at any time, in whole or
in part, provided certain conditions are
satisfied. See "The Pooling and Servicing
Agreement Generally--Transfer of Seller's
Interest"; "Description of the Bank Pur-
chase Agreement--Transfer of Accounts".
The Class A Certificates will evidence un-
divided interests in the Trust Assets allo-
cated to the Class A Interest and will rep-
resent the right to receive from such as-
sets funds up to (but not in excess of) the
amounts required to make payments of inter-
est on the Class A Certificates on each
Distribution Date at the per annum rate
equal to the Class A Certificate Rate, cal-
culated on the basis of the actual number
of days in the period and a 360-day year
and payments of principal on each Distribu-
tion Date during the Controlled Amortiza-
tion Period (as defined herein) or any
Early Amortization Period (as defined here-
in) to the extent of Class A Principal (as
defined herein). The Class A Invested
Amount may be less than the aggregate un-
paid principal amount of the Class A Cer-
tificates, in certain circumstances, if the
amount of Principal Receivables which are
charged off as uncollectible during a Due
Period (as defined herein) (the "Defaulted
Receivables") allocated to the Class A In-
terest exceeds available cash, the Collat-
eral Invested Amount and the Class B In-
vested Amount. "Due Period" means the pe-
riod beginning at the close of business on
the last business day of the second month
preceding a Distribution Date and ending at
the close of business on the last business
day of the month immediately preceding such
Distribution Date. See "Description of the
Investor Certificates--Investor Charge-
Offs".
The Class B Certificates (which are subor-
dinated to the Class A Certificates to the
extent provided herein and, during any pe-
riod in which Household Finance Corporation
or an affiliate thereof is no longer the
Servicer, the Servicing Fee, as defined
herein, in each case to the extent de-
scribed herein), will evidence undivided
interests in the Trust Assets allocated to
the Class B Interest and will represent the
right to receive from such assets, after
distributions in full have been made to the
Class A Certificateholders and, if applica-
ble, the Servicing Fee is paid in full,
funds up to (but not in excess of) the
amounts required to make payments of inter-
est on each Distribution Date on the Class
B Certificates at the per annum rate equal
to the
10
<PAGE>
Class B Certificate Rate calculated on the
basis of a 360-day year of twelve 30-day
months, and payments of principal on each
Distribution Date with respect to the Class
B Certificates during the Controlled Amor-
tization Period, or any Early Amortization
Period, to the extent of the Class B Prin-
cipal (as defined herein). The Class B In-
vested Amount may be less than the aggre-
gate unpaid principal amount of the Class B
Certificates in certain circumstances as
more fully described herein.
The certificateholders' interest of any Se-
ries, including the Class A Interest and
the Class B Interest, will each include the
right to receive (but only to the extent
needed to make required payments under the
Pooling and Servicing Agreement and the re-
lated Supplement and subject to any reallo-
cation of such amounts if the related Sup-
plement so provides) varying percentages of
collections of Finance Charge and Adminis-
trative Receivables and Principal Receiv-
ables and such interests will be allocated
a portion of Defaulted Receivables in the
Trust during each Due Period. If the in-
vestor certificates of a Series include
more than one class of investor certifi-
cates, the Trust Assets allocable to the
certificateholders' interest of such Series
will be further allocated among each class
within such Series. See "Risk Factors",
"Description of the Investor Certificates--
Allocation of Collections; Deposits in Col-
lection Account" and "--Reallocation of
Cash Flows", and "--Reallocations Among In-
vestor Certificates of Different Series".
The Investor Certificates represent benefi-
cial interests in the Trust only and do not
represent interests in or obligations of
the Seller, the Servicer, Household Bank,
Household International, Inc. or any affil-
iate thereof. None of the Investor Certifi-
cates, the investor certificates of any
other Series, the Accounts or the Receiv-
ables are insured or guaranteed by the Fed-
eral Deposit Insurance Corporation (the
"FDIC") or any other governmental agency or
instrumentality.
Issuance of Additional Series..... The Pooling and Servicing Agreement autho-
rizes the Trustee to issue three types of
certificates: (i) one or more Series of in-
vestor certificates, (ii) a certificate ev-
idencing the Seller's Interest in the
Trust, which is to be held by the Seller
and (iii) supplemental certificates to be
held by transferees of a portion of the
certificate evidencing the Seller's Inter-
est in the Trust (each, a "Supplemental
Certificate"). The certificate
11
<PAGE>
evidencing the Seller's Interest in the
Trust and any Supplemental Certificates are
collectively referred to herein as the
"Seller's Certificate". The Pooling and
Servicing Agreement provides that, pursuant
to any one or more supplements to the Pool-
ing and Servicing Agreement (each a "Sup-
plement"), the Seller may cause the Trustee
to issue one or more new Series and accord-
ingly cause a reduction in the Seller's In-
terest represented by the Seller's Certifi-
cate. Under the Pooling and Servicing
Agreement, the Seller may define, with re-
spect to any Series, the principal terms of
such Series. The Seller may offer any Se-
ries to the public or other investors in
transactions either registered under the
Securities Act or exempt from registration
thereunder, directly or through one or more
underwriters or placement agents, in fixed-
price offerings or in negotiated transac-
tions or otherwise. The Seller expects to
offer, from time to time, additional Series
issued by the Trust.
It is anticipated that the investor certif-
icates of each Series will have expected
final payment dates, revolving periods and
periods during which the principal amount
of such investor certificates is accumu-
lated in a principal funding account or
paid to holders of such investor certifi-
cates which differ from those for the In-
vestor Certificates, although it is ex-
pected that Series in a Group will have
substantially similar amortization events.
Accordingly, it is anticipated that some
Series will be in their revolving periods
while others are in accumulation periods or
in amortization periods. In addition, a Se-
ries not included in Group One may have en-
tirely different methods for calculating
the amount and timing of principal and in-
terest distributions to investor
certificateholders and the Series Enhance-
ments of such Series and may utilize other
methods for determining the portion of col-
lections of Receivables allocable to such
investor certificateholders and Series En-
hancements. See "Risk Factors--Master Trust
Considerations".
A new Series may only be issued upon satis-
faction of certain conditions including,
among others, that (a) such issuance will
satisfy the Rating Agency Condition and (b)
the Seller shall have delivered to the
Trustee a certificate of an authorized of-
ficer to the effect that, in the reasonable
belief of the Seller, such issuance will
not have an Adverse Effect. See "Risk Fac-
tors--Master Trust Considerations--Issuance
of Additional Series".
12
<PAGE>
Allocations Among Series.......... Pursuant to the Pooling and Servicing
Agreement, during each Due Period, the
Servicer is required to first allocate to
each Series collections of Principal Re-
ceivables and Finance Charge and Adminis-
trative Receivables and the Defaulted Re-
ceivables with respect to such Due Period
based on the initial amount of Principal
Receivables allocated to such Series less
unreimbursed investor charge-offs. See "De-
scription of the Investor Certificates--Al-
locations". Subject to reallocation among
Series in a Group, such amounts allocated
to each Series are then further allocated
within each Series to the investor
certificateholders, any Series Enhancement
and the Seller pursuant to the terms of the
related Supplement.
Reallocations Among Series in a The investor certificates of a Series may
Group............................ be included in a Group of Series. A Series
included in any Group issued by the Trust
may be subject to reallocations of collec-
tions of Receivables and other amounts or
obligations among the Series in the Group.
Collections of Finance Charge and Adminis-
trative Receivables allocable to each Se-
ries in Group One will be aggregated and
made available for required payments for
all Series in Group One. Consequently, the
issuance of new Series in Group One may
have the effect of reducing or increasing
the amount of collections of Finance Charge
and Administrative Receivables allocable to
the Investor Certificates. See "Description
of the Investor Certificates--Reallocations
Among Investor Certificates of Different
Series" to determine the manner and extent
of any reallocation among Series included
in Group One. See also "Risk Factors--Mas-
ter Trust Considerations--Issuance of Addi-
tional Series".
Reallocation of Excess Principal To the extent that collections of Principal
Collections...................... Receivables and other amounts that are al-
located to the Certificateholders' Interest
for the Series offered hereby are available
to be reinvested in the Trust, they may be
applied to cover principal payments due to
or for the benefit of investor
certificateholders or Series Enhancements
of another Series. Any such reallocation
will not result in a reduction in the
Certificateholders' Interest. In addition,
collections of Principal Receivables and
certain other amounts otherwise allocable
to other Series, to the extent such collec-
tions are available to be reinvested in the
Trust, may be applied to cover principal
payments due to or for the benefit of the
Investor Certificateholders. See "Descrip-
tion of the Investor Certificates--Reallo-
cation of Trust Excess Principal Collec-
tions".
13
<PAGE>
Previously Issued Series.......... Two Series of investor certificates in a
Group ("Group A") have previously been is-
sued, one of which has since been retired.
One Series of investor certificates in a
Group ("Group B") and one Series of in-
vestor certificates in a Group ("Group C")
have also previously been issued. In addi-
tion, six Series of investor certificates
have been previously issued in Group One.
See "Annex I: Prior Issuance of Investor
Certificates" for a summary of the Series
of investor certificates previously issued
by the Trust and still outstanding. The In-
vestor Certificates will not be part of
Group A, Group B or Group C but will be a
part of Group One.
Registration of Investor The Investor Certificates will initially be
Certificates..................... represented by one or more Investor Certif-
icates of each class registered in the name
of Cede, as the nominee of DTC. No person
acquiring an interest in the Investor Cer-
tificates will be entitled to receive a
fully registered, certificated Investor
Certificate (a "Definitive Certificate")
representing such person's interest, except
in the event that Definitive Certificates
are issued under the limited circumstances
described herein. See "Description of the
Investor Certificates--Definitive Investor
Certificates".
Clearance and Settlement.......... Investor Certificateholders must elect to
hold their Investor Certificates through
any of DTC (in the United States) or Cedel
Bank, societe anonyme ("CEDEL") or
Euroclear System ("Euroclear") (in Europe).
Transfers within DTC, CEDEL or Euroclear,
as the case may be, will be in accordance
with the usual rules and operating proce-
dures of the relevant system. Crossmarket
transfers between persons holding directly
or indirectly through DTC, on the one hand,
and counterparties holding directly or in-
directly through CEDEL or Euroclear, on the
other, will be effected in DTC through
Citibank, N.A. ("Citibank") or The Chase
Manhattan Bank, ("Chase"), the relevant de-
positaries of CEDEL and Euroclear, respec-
tively. See "Description of the Investor
Certificates--Book-Entry Registration".
Interest.......................... Interest will accrue on the unpaid princi-
pal amount of the Investor Certificates
during each Interest Period at the Class A
Certificate Rate or the Class B Certificate
Rate (the payment thereof being referred to
herein as the "Class A Interest Payment"
and "Class B Interest Payment", respective-
ly), as the case may be, with respect to
such Interest Period and, except as other-
wise provided herein, be distributed to In-
vestor Certificateholders on the 15th day
of every month, or
14
<PAGE>
if such day is not a business day, on the
next succeeding business day (each, a "Dis-
tribution Date") commencing on the
Distribution Date. Interest for any
Distribution Date will accrue from and in-
clude the preceding Distribution Date to
but excluding such Distribution Date (an
"Interest Period"), and interest owing on
the Class A Certificates and the Collateral
Interest will be calculated on the basis of
actual number of days and a 360-day year
and interest on the Class B Certificates
will be calculated on the basis of a 360-
day year of twelve 30-day months. For the
first Interest Period, interest will accrue
from and including the Issuance Date to,
but excluding, . Interest on
the Investor Certificates for any Distribu-
tion Date due but not paid on such Distri-
bution Date will be due on the next suc-
ceeding Distribution Date together with ad-
ditional interest on such amount at the ap-
plicable Class A or Class B Certificate
Rate. In addition, interest will accrue on
the outstanding Collateral Invested Amount
at LIBOR plus [1]% (the "Collateral Rate").
See "Description of the Investor Certifi-
cates--General" and "--Distributions from
the Collection Account; Allocation of
Funds".
Revolving Period.................. No principal will be payable to the Class A
Certificateholders until the earlier to oc-
cur of the Controlled Amortization Date and
an Amortization Event as described herein.
Principal payments to the Class B
Certificateholders will not occur until the
final principal payment has been made to
the Class A Certificateholders. For each
Due Period commencing (the
"Series 1997-1 Cut-Off Date") and ending on
the earlier of the last business day of
and the last day of the Due Pe-
riod immediately preceding the Due Period
in which an Amortization Event occurs or,
under certain limited circumstances, the
date on which an Amortization Event occurs
("Revolving Period"), in order to maintain
the Certificateholders' Interest and the
Collateral Invested Amount, all collections
of Principal Receivables otherwise alloca-
ble to the Investor Certificates and the
Collateral Invested Amount (other than any
Subordinated Principal Collections that are
used to pay the Class A Required Amount or
the Class B Required Amount) will, unless a
reduction in the Required Collateral Amount
has occurred, generally be allocated and
paid to the Seller to purchase additional
Receivables, or reallocated for payment of
principal to investors in other Series. See
"Principal Payment Considerations" and "De-
scription of the Investor Certificates--
Principal". The Due Period for the Investor
Certificates with respect to the first Dis-
tribution Date will commence
15
<PAGE>
on the Series 1997-1 Cut-Off Date and will
end at the close of business on the last
business day of the month immediately pre-
ceding the first Distribution Date. See
"Description of the Investor Certificates--
Reallocation of Cash Flows; Class B In-
vested Amount" and "--Amortization Events"
for a discussion of the events which might
lead to the termination of the Revolving
Period prior to its scheduled ending date.
It is anticipated that the final principal
payment with respect to each Investor Cer-
tificate will be made on the Series 1997-1
Expected Final Payment Date (as defined
herein).
Principal Payments; Controlled
Amortization Period..............
It is expected that the final payment with
respect to the Class A Certificates will be
made on the Distribution Date
and with respect to the Class B Certifi-
cates will be made on the
Distribution Date (the "Series 1997-1 Ex-
pected Final Distribution Date"). Unless
and until an Amortization Event shall have
occurred, on each Distribution Date with
respect to a Due Period occurring during
the period beginning at the close of busi-
ness on the last business day of
and ending upon the earliest to occur of
(x) the commencement of the Early Amortiza-
tion Period, (y) the payment in full of the
Class A Invested Amount, the Class B In-
vested Amount and the Collateral Invested
Amount and (z) the date on which the Trust
has otherwise terminated (the "Controlled
Amortization Period"), all collections of
Principal Receivables allocable to the
Certificateholders' Interest plus certain
other amounts available for the payment of
Class A Principal or Class B Principal
(other than Subordinated Principal Collec-
tions that are used to pay the Class A Re-
quired Amount or the Class B Required
Amount) will be distributed monthly up to
the applicable Controlled Distribution
Amount (as defined herein) and will be paid
to the Investor Certificateholders on each
Distribution Date as follows: (a) to the
Class A Certificateholders until the Class
A Invested Amount is paid in full and (b)
following the final principal payment to
the Class A Certificateholders, to the
Class B Certificateholders until the Class
B Invested Amount is paid in full. If Prin-
cipal Collections allocable to the
Certificateholders' Interest are insuffi-
cient to pay the Controlled Distribution
Amount, then such amount may be paid from
Principal Collections reallocated from
other Series. If a reduction in the Re-
quired Collateral Amount has occurred, col-
lections in excess of the Controlled Dis-
tribution Amount will be applied to
16
<PAGE>
reduce the Collateral Amount to such Re-
quired Collateral Amount. During the Con-
trolled Amortization Period, until the fi-
nal principal payment is made to the Class
B Certificateholders, collections of Prin-
cipal Receivables allocable to the Collat-
eral Invested Amount (other than Subordi-
nated Principal Collections that are used
to pay the Class A Required Amount or Class
B Required Amount and collections used to
make payments with respect to reductions in
the Required Collateral Amount) will gener-
ally be paid to the Seller to maintain the
Collateral Invested Amount at its required
level. See "Description of the Investor
Certificates--Principal" and "Principal
Payment Considerations."
Early Amortization Period......... During the period from the first day of the
Due Period in which an Amortization Event
has occurred or, under certain limited cir-
cumstances, the day on which an Amortiza-
tion Event has occurred, to, in either such
case, the earlier of the date on which the
Class A Invested Amount, the Class B In-
vested Amount and the Collateral Invested
Amount have each been paid in full, the Se-
ries 1997-1 Termination Date or the date on
which the Trust has otherwise terminated
(the "Early Amortization Period"), the
Principal Allocation Percentage of collec-
tions of Principal Receivables and certain
other amounts allocable to the Investor
Certificates (other than Subordinated Prin-
cipal Collections that are used to pay the
Class A Required Amount or the Class B Re-
quired Amount) will no longer be paid to
the Seller or otherwise reallocated to any
other Series, but instead will be distrib-
uted monthly and will be paid to the In-
vestor Certificateholders on each Distribu-
tion Date as follows: (a) to the Class A
Certificateholders until the Class A In-
vested Amount is paid in full and (b) fol-
lowing the final principal payment to the
Class A Certificateholders, to the Class B
Certificateholders until the Class B In-
vested Amount is paid in full. During the
Early Amortization Period, collections of
Principal Receivables allocable to the Col-
lateral Invested Amount will be deposited
into the Cash Collateral Account and held
for the benefit of the Investor
Certificateholders to the extent set forth
herein. See "Principal Payment Considera-
tions."
Subordination; Additional Amounts
Available to Investor
Certificateholders...............
The fractional undivided interest in the
Trust Assets allocable to the Class B Cer-
tificates (the "Class B Invested Amount")
and the Collateral Amount will be subordi-
nated to the extent necessary to fund cer-
tain payments with respect to the Class A
Certificates and
17
<PAGE>
the Servicing Fee during any period in
which Household Finance Corporation or an
affiliate is no longer the Servicer. In ad-
dition, the Collateral Amount will be sub-
ordinated to the extent necessary to fund
certain payments with respect to the Class
B Certificates.
If collections of Finance Charge and Admin-
istrative Receivables allocable to the
Class A Interest for any Due Period are in-
sufficient to pay interest on the Class A
Certificates and any interest on amounts
not paid to the Class A Certificateholders
in accordance with the Pooling and Servic-
ing Agreement and the Series 1997-1 Supple-
ment (with interest thereon), the Class A
Investor Default Amount (as defined here-
in), the Servicing Fee and any overdue Ser-
vicing Fee during any period in which
Household Finance Corporation or an affili-
ate is no longer the Servicer, on the re-
lated Distribution Date for such Due Period
(such insufficiency being the "Class A Re-
quired Amount"), Excess Finance Charge and
Administrative Collections (as defined
herein) will be applied to fund the Class A
Required Amount. If Excess Finance Charge
and Administrative Collections available
with respect to such Due Period are less
than the Class A Required Amount, any
amounts on deposit in the Cash Collateral
Account shall be withdrawn to pay the Class
A Required Amount and if the amount avail-
able to be withdrawn is less than the Class
A Required Amount, Subordinated Principal
Collections allocable first to the Collat-
eral Invested Amount and then the Class B
Invested Amount for such Due Period will
then be used to fund the remaining Class A
Required Amount. "Subordinated Principal
Collections" shall mean, with respect to
each Distribution Date, the product of (a)
with respect to any Due Period during the
Revolving Period, the Floating Allocation
Percentage of Series Allocable Principal
Collections allocated to the Investor Cer-
tificates and the Collateral Invested
Amount for such Due Period and with respect
to any Due Period during the Controlled Am-
ortization Period or any Early Amortization
Period, the Principal Allocation Percentage
of Series Allocable Principal Collections
allocated to the Investor Certificates and
the Collateral Invested Amount for such Due
Period multiplied by (b) a fraction the nu-
merator of which is equal to the sum of the
Class B Invested Amount and the Collateral
Invested Amount as of the close of business
on the last day of the second preceding Due
Period and the denominator of which is
equal to the sum of the Class A Invested
Amount, the Class B Invested Amount and the
Collat-
18
<PAGE>
eral Invested Amount (collectively, the
"Invested Amount") at the close of business
on such day.
If any amount available to be withdrawn
from the Cash Collateral Account and Subor-
dinated Principal Collections are insuffi-
cient to fund the remaining Class A Re-
quired Amount for such Due Period, the Col-
lateral Invested Amount will be reduced
(but not in excess of the Class A Investor
Default Amount for such Distribution Date)
by the amount of such remaining insuffi-
ciency until such time as it has reached
zero and then the Class B Invested Amount
will be reduced (but not in excess of the
Class A Investor Default Amount for such
Distribution Date) by the amount of such
remaining insufficiency to avoid a charge-
off with respect to the Class A Certifi-
cates.
To the extent the Class B Invested Amount
is decreased, the percentage of collections
of Finance Charge and Administrative Re-
ceivables allocated to the Class B
Certificateholders in subsequent Due Peri-
ods will be reduced. Moreover, to the ex-
tent the amount of such decrease in the
Class B Invested Amount is not reimbursed,
the amount of principal distributable to
the Class B Certificateholders from the
Collection Account (as defined herein) will
be reduced. See "Description of the In-
vestor Certificates--Allocations" and "--
Subordination". Reductions of the Class B
Invested Amount will be reimbursed and the
Class B Invested Amount increased on each
Distribution Date by the sum of the Series
Allocable Miscellaneous Payments (as de-
fined herein) to the extent not used to re-
imburse the Class A Invested Amount, and
the amount, if any, of Excess Finance
Charge and Administrative Collections allo-
cable and available for that purpose. See
"Description of the Investor Certificates--
Subordination", "--Excess Finance Charge
and Administrative Collections" and "--Sub-
ordinated Principal Collections".
If the Class B Invested Amount is reduced
to zero, the Class A Invested Amount will
be reduced if there is any remaining unpaid
Class A Required Amount for any Due Period,
but not in excess of the Class A Investor
Default Amount for such Due Period, and the
Class A Certificateholders will bear di-
rectly the credit and other risks associ-
ated with their undivided interest in the
Trust. See "Description of the Investor
Certificates--Reallocation of Cash Flows",
"--Subordinated Principal Collections" and
"--Investor Charge-Offs".
19
<PAGE>
If collections of Finance Charge and Admin-
istrative Receivables allocable to the
Class B Interest for any Due Period, to-
gether with Excess Finance Charge and Ad-
ministrative Collections not required to
pay the Class A Required Amount, are insuf-
ficient to pay interest on the unpaid prin-
cipal balance of the Class B Certificates
and any interest on amounts not paid to the
Class B Certificateholders in accordance
with the Pooling and Servicing Agreement
and the Series 1997-1 Supplement (with in-
terest thereon), plus the Class B Investor
Default Amount (as defined herein), on the
related Distribution Date for such Due Pe-
riod (such insufficiency being the "Class B
Required Amount"), monies, if any, in the
Cash Collateral Account not required to pay
the Class A Required Amount will be with-
drawn and applied to fund the Class B Re-
quired Amount. If such monies available
with respect to such Due Period are less
than the Class B Required Amount, Subordi-
nated Principal Collections allocable to
the Collateral Invested Amount for such Due
Period will then be used to fund the re-
maining Class B Required Amount.
If any such amount available to be with-
drawn from the Cash Collateral Account and
Subordinated Principal Collections alloca-
ble to the Collateral Invested Amount are
insufficient to fund the remaining Class B
Required Amount for such Due Period, then
the Collateral Invested Amount will be re-
duced (but not in excess of the Class B In-
vestor Default Amount for such Distribution
Date) by the amount of such insufficiency
to avoid a charge-off with respect to the
Class B Certificates.
Such reductions of the Collateral Invested
Amount shall thereafter be reimbursed and
the Collateral Invested Amount increased on
each Distribution Date by certain Excess
Finance Charge and Administrative Collec-
tions and Series Allocable Miscellaneous
Payments for such Distribution Date allo-
cated and available for that purpose.
The Class B Invested Amount will also be
reduced if the Collateral Amount has been
reduced to zero and there remains any un-
paid Class B Required Amount for any Due
Period, but not in excess of the Class B
Investor Default Amount for such Due Peri-
od, and the Class B Certificateholders will
bear directly the credit and other risks
associated with their undivided interest in
the Trust. See "Description of the Investor
Certificates--Reallocation of Cash Flows",
"--Subordinated Principal Collections" and
"--Investor Charge-Offs".
20
<PAGE>
In the event of a reduction of the Class A
Invested Amount, the Class B Invested
Amount or the Collateral Amount, the amount
available to fund payments with respect to
the Class A Certificates and the Class B
Certificates will be decreased. See "De-
scription of the Investor Certificates--Al-
locations".
The Cash Collateral Account....... The Investor Certificateholders will have
the benefit of the Cash Collateral Account
which will be held in the name of the
Trustee for the benefit of the Investor
Certificateholders and the Collateral In-
terest Holder. The Cash Collateral Account
will have a beginning balance of zero which
will be increased (i) to the extent the
Seller elects, subject to the Rating Agency
Condition, to apply collections of Princi-
pal Receivables to decrease the Collateral
Invested Amount, (ii) to the extent collec-
tions of Principal Receivables allocable to
the Collateral Invested Amount are required
to be deposited therein and (iii) to the
extent collections of Excess Finance Charge
and Administrative Receivables are required
to be deposited therein as described below.
See "Description of the Investor Certifi-
cates--Description of the Cash Collateral
Account".
To the extent set forth herein, withdrawals
will be made from the Cash Collateral Ac-
count to pay the Class A Required Amount
first and then, to pay the Class B Required
Amount. See "Description of the Investor
Certificates--Allocation of Collections",
and "--Reallocation of Cash Flows".
Available Collateral Amount....... On each Distribution Date for the Investor
Certificates, the amount of Series Enhance-
ment available to the Investor
Certificateholders (the "Available Collat-
eral Amount") will equal the lesser of (i)
the Collateral Amount and (ii) the Required
Collateral Amount. The "Required Collateral
Amount" with respect to any Distribution
Date for the Investor Certificates means
(i) $ initially and (ii) thereaf-
ter an amount equal to the greater of (a)
(1) % of the Class A Invested Amount
minus (2) the Class B Invested Amount, (b)
% of the unpaid principal balance of the
Class B Certificates and (c) % of the In-
vested Amount, in each case as of such Dis-
tribution Date after taking into account
distributions made on such date; provided,
however, (1) that if certain reductions in
the Collateral Amount occur or if an Amor-
tization Event occurs, the Required Collat-
eral Amount for such Distribution Date
shall equal the Required Collateral Amount
for the Distribution Date immediately
preced-
21
<PAGE>
ing the occurrence of such reduction or Am-
ortization Event; (2) in no event shall the
Required Collateral Amount exceed the un-
paid principal amount of the Investor Cer-
tificates as of the last day of the Due Pe-
riod preceding such Distribution Date; (3)
the Required Collateral Amount may be re-
duced at any time to a lesser amount if the
Rating Agency Condition is satisfied; and
(4) the Seller at its option may at any
time increase the Required Collateral
Amount to a greater amount. The percentage
set forth in (a)(1) above is equal to a
fraction expressed as a percentage, the nu-
merator of which is the sum of the initial
Class B Invested Amount plus the initial
Collateral Invested Amount and the denomi-
nator of which is the initial Class A In-
vested Amount.
With respect to any Distribution Date, if
the Collateral Amount is less than the Re-
quired Collateral Amount, certain Excess
Finance Charge and Administrative Collec-
tions will be reallocated to increase the
Collateral Invested Amount or deposited
into the Cash Collateral Account to the ex-
tent of such shortfall. See "Description of
the Investor Certificates--Reallocation of
Cash Flows". Any of such Excess Finance
Charge and Administrative Collections not
required to be so reallocated or deposited
into the Cash Collateral Account with re-
spect to any Distribution Date will be ap-
plied in accordance with the Collateral
Agreement among the Seller, the Trustee,
the Servicer and the Collateral Interest
Holder (the "Collateral Agreement"). See
"Description of the Investor Certificates--
Excess Finance Charge and Administrative
Collections".
If on any Distribution Date, the Collateral
Amount exceeds the Required Collateral
Amount, such excess will be applied in ac-
cordance with the Collateral Agreement and
will not be available to the Investor
Certificateholders. See "Description of the
Investor Certificates--Description of the
Cash Collateral Account".
Seller Exchanges.................. From time to time, the Seller may purchase
in the open market from investors willing
to sell, Investor Certificates and, to the
extent of such purchases, become a
Certificateholder. On any subsequent Dis-
tribution Date during the Revolving Period,
the Seller may cancel Investor Certificates
it holds, subject to satisfaction of the
Rating Agency Condition, thereby reducing
the Invested Amount and the Required Col-
lateral Amount, and increasing the Seller's
Interest.
22
<PAGE>
Servicing......................... The Servicer, acting through Household
Credit Services, Inc., a Delaware corpora-
tion (the "Subservicer"), will be responsi-
ble for servicing, managing and making col-
lections on the Receivables. The Servicer
is required to deposit into the Collection
Account all collections of Receivables re-
ceived by it no later than the second busi-
ness day after the processing of any such
collections, unless Household Finance Cor-
poration is acting as the Servicer and has
a short-term rating of not less than A-1
and P-1 or the equivalent from the applica-
ble Rating Agency (as defined herein) in
which case the Servicer may make a single
deposit into the Collection Account on each
Distribution Date. Currently, Household Fi-
nance Corporation meets such requirements
and will make deposits of collections re-
ceived during the preceding Due Period into
the Collection Account on each Distribution
Date.
In addition, the Subservicer has retained
Electronic Data Systems, Inc. ("EDS") for
purposes of providing certain data process-
ing services and generating monthly billing
statements, including the application of
payments received by the Servicer or the
Subservicer in respect of the Receivables.
The Subservicer has on-line access to the
customer account information maintained by
EDS. The Subservicer shall be solely re-
sponsible for all costs and expenses relat-
ing to this engagement.
On or about the earlier of the third busi-
ness day and the fifth calendar day preced-
ing the fifteenth day of each calendar
month (a "Determination Date"), the
Servicer will calculate the amount of col-
lections of Receivables received with re-
spect to the related Due Period to be allo-
cated among all Series and to the investor
certificateholders (including the Class A
Certificateholders and the Class B
Certificateholders), the Seller, and any
Series Enhancements, including the Collat-
eral Invested Amount, as described herein.
In certain limited circumstances Household
Finance Corporation may resign or be re-
moved as Servicer under the Pooling and
Servicing Agreement, in which event either
the Trustee or, so long as it meets certain
eligibility standards set forth in the
Pooling and Servicing Agreement, a third-
party servicer may be appointed as succes-
sor Servicer. References to the "Servicer"
include Household Finance Corporation or
any such successor Servicer. Household Fi-
nance Corporation is permitted to delegate
any of its duties as Servicer under the
Pooling and Servicing Agreement,
23
<PAGE>
but any such delegation will not relieve
the Servicer of its obligations thereunder.
Household Finance Corporation has delegated
its duties under the Pooling and Servicing
Agreement as Servicer to the Subservicer
and EDS. The Servicer will receive the Ser-
vicing Fee, the servicing fee allocable to
the Seller's Interest and certain other
amounts as described herein as servicing
compensation from the Trust. See "Descrip-
tion of the Investor Certificates--Servic-
ing Compensation and Payment of Expenses".
Mandatory Reassignment and
Transfer of Certain Receivables..
The Seller will make certain representa-
tions and warranties in the Pooling and
Servicing Agreement with respect to the Ac-
counts and the Receivables and the Servicer
will make certain representations and war-
ranties in the Pooling and Servicing Agree-
ment in its capacity as Servicer. If the
Seller or the Servicer breaches certain
representations and warranties with respect
to any Receivable and such breach remains
uncured for a specified period after the
Seller or the Servicer becomes aware or re-
ceives notice thereof from the Trustee and
such breach has a material adverse effect
on the certificateholders' interest there-
in, such certificateholders' interest shall
be reassigned to the Seller or assigned to
the Servicer, as the case may be. If the
Seller or the Servicer fails to comply in
all material respects with certain cove-
nants or warranties with respect to any Re-
ceivable and such noncompliance is not
cured within a specified period after the
Seller or the Servicer becomes aware or re-
ceives notice thereof from the Trustee and
such noncompliance has a material adverse
effect on the certificateholders' interest
therein, such certificateholders' interest
may be reassigned to the Seller or assigned
to the Servicer, as the case may be. In the
event of a transfer of servicing obliga-
tions to a successor Servicer, such succes-
sor Servicer, rather than Household Finance
Corporation, would be responsible for any
failure to comply with the Servicer's cove-
nants and warranties arising thereafter.
Tax Status........................ Special counsel to the Seller is of the
opinion that under existing law the In-
vestor Certificates will be characterized
as indebtedness for Federal income tax pur-
poses. Under the Pooling and Servicing
Agreement and the Series 1997-1 Supplement,
the Seller and the Investor
Certificateholders will agree to treat the
Investor Certificates as debt for Federal,
state, local, foreign and other tax purpos-
es. See "Tax Matters".
24
<PAGE>
ERISA Considerations.............. The purchase and holding of Class A Certif-
icates by most employee benefit plans is
subject to the fiduciary responsibility
rules of the Employee Retirement Income Se-
curity Act of 1974, as amended ("ERISA"),
including its "prohibited transaction"
rules. The application of ERISA's prohib-
ited transaction rules to such investment
depends upon whether for ERISA purposes the
Class A Certificates are considered debt of
the Seller or equity interests in the Trust
and upon the availability of prohibited
transaction class exemptions issued by the
United States Department of Labor (the
"DOL"). If the Certificates are equity in-
terests under ERISA, under regulations is-
sued by the DOL, the Trust's assets would
not be deemed "plan assets" (as defined
herein) of an employee benefit plan holding
the Class A Certificates if certain condi-
tions are met, including that the Class A
Certificates be held by at least 100 per-
sons who are independent of the Issuer and
of one another at the conclusion of the of-
fering. The Underwriters (as defined here-
in) expect, although no assurances can be
given, that the Class A Certificates will
be held by at least 100 persons, and the
Seller anticipates that the other condi-
tions of the regulations will be met. In
any event, employee benefit plans contem-
plating purchasing the Class A Certificates
should consult their counsel before making
a purchase. See "ERISA Considerations".
The Class A Certificates may not be ac-
quired by or on behalf of any Benefit Plan
(as defined herein), including an individ-
ual retirement account, that is subject to
ERISA or Section 4975 of the Internal Reve-
nue Code of 1986, as amended (the "Code"),
if such Benefit Plan has certain relation-
ships with Household Bank, the Seller, the
Servicer, the Trustee, an underwriter or
their respective affiliates. See "ERISA
Considerations".
The Class B Certificates may not be pur-
chased by any Benefit Plan, including any
individual retirement account. See "ERISA
Considerations".
Class A Certificate Rating; Class
B Certificate Rating.............
It is a condition to the issuance of the
Class A Certificates that they be rated in
the highest rating category by at least one
nationally recognized statistical rating
organization. The rating of the Class A
Certificates is based primarily on the
value of the Receivables, the credit qual-
ity of the Servicer, the terms of the Class
B Certificates and the circumstances, as
described herein, in which the Collateral
Amount may be available for
25
<PAGE>
the benefit of the Class A
Certificateholders. See "Description of the
Investor Certificates--Reallocation of Cash
Flows; Class B Invested Amount" and "Risk
Factors--Rating of the Investor Certifi-
cates".
It is a condition to the issuance of the
Class B Certificates that they be rated at
least "A" or its equivalent by at least one
nationally recognized statistical rating
organization. The rating of the Class B
Certificates is based primarily on the
value of the Receivables, the credit qual-
ity of the Servicer, and the circumstances,
as described herein, in which the Collat-
eral Amount may be available for the bene-
fit of the Class B Certificateholders. See
"Description of the Investor Certificates"
and "Risk Factors--Rating of the Investor
Certificates".
Any rating of the Investor Certificates
does not address the possibility of the im-
position of United States backup withhold-
ing tax with respect to non-U.S. persons or
that the principal of, or interest on, the
Investor Certificates will be paid on a
scheduled date. The ratings assigned are
not recommendations to purchase, hold or
sell the Investor Certificates, inasmuch as
such ratings do not comment as to market
price, the marketability of the Investor
Certificates or suitability for a particu-
lar purpose.
Listing........................... Application will be made to list the In-
vestor Certificates on the Luxembourg Stock
Exchange.
26
<PAGE>
RISK FACTORS
Limited Liquidity. There currently is no market for the Investor
Certificates. To the extent permitted, the Underwriters (as defined herein)
currently intend to make a market in the Investor Certificates, but the
Underwriters are not under any obligation to do so. The Investor Certificates
will not be listed on any securities exchange, and there can be no assurance
that a secondary market will develop or, if a secondary market does develop,
that it will provide Class A Certificateholders or Class B Certificateholders
with liquidity of investment or that it will continue for the life of the
Investor Certificates.
Characteristics as a Sale; Bankruptcy Risks. Household Bank has warranted in
the Bank Purchase Agreement that the transfer of all Receivables pursuant
thereto to the Seller is either a valid sale and assignment of such Receivables
from Household Bank to the Seller or the grant to the Seller of a security
interest in such Receivables. The Seller and Household Bank have filed and will
file appropriate Uniform Commercial Code ("UCC") financing statements to
evidence this sale and perfect the Seller's right, title and interest in such
Receivables. The Seller has warranted in the Pooling and Servicing Agreement
that the transfer of the Receivables by it to the Trust pursuant to such
Agreement is either a valid sale and assignment of such Receivables to the
Trust or the grant to the Trust of a security interest in such Receivables. The
Seller has taken or will take certain actions as are required to perfect the
Trust's interest in such Receivables. The Seller has warranted that if the
transfer by it to the Trust is deemed to be a grant to the Trust of a security
interest in the Receivables, the Trust will have a first priority perfected
security interest therein. See "Certain Legal Aspects of the Receivables--
Transfer of Receivables".
Household Bank and the Seller intend to treat the transfer of the Receivables
pursuant to the above referenced agreements as a sale of the Receivables by
Household Bank to the Seller. However, in the event of an insolvency of
Household Bank, it is possible that a receiver or conservator could attempt to
characterize the transaction between Household Bank and the Seller as a pledge
of the Receivables rather than a true sale, in which event delays in payments
on the Investor Certificates and possible reductions in the amount of those
payments could occur. If the transfer of the Receivables to the Seller by
Household Bank, or to the Trust by the Seller is deemed to create a security
interest therein, a tax lien, government lien or other lien created by
operation of law on the property of Household Bank or the Seller may have
priority over the Trust's interest in such Receivables.
In the event of a Servicer Default relating to the bankruptcy or insolvency
of the Servicer, and no Servicer Default other than such bankruptcy or
insolvency-related Servicer Default exists, the bankruptcy trustee or receiver
may have the power to prevent either the Trustee or the majority of the
Investor Certificateholders from appointing a successor Servicer. If a
conservator or receiver were appointed for Household Bank or if certain other
events occur relating to the bankruptcy, receivership or insolvency of the
Seller (an "Insolvency Event"), new Principal Receivables would not be
transferred by the Seller to the Trust. In the event of an Insolvency Event,
the Trustee would sell the Receivables (unless Holders (as defined herein) of
investor certificates evidencing undivided interests aggregating more than 50%
of the aggregate unpaid principal amount of each Series or any person entitled
pursuant to any Supplement instruct otherwise and provided that a conservator
or receiver for the Seller does not order a sale despite such instructions not
to sell), thereby causing early termination of the Trust. As of this date, any
one of the credit enhancers for Series 1993-1, 1993-2, 1993-3, 1994-1, 1994-2
and 1995-1 may instruct the Trustee not to sell the Receivables. [The credit
enhancer for Series 1997-1 may similarly object and prevent such sale.] The
entire proceeds of such sale or liquidation will be treated as collections of
Receivables and allocated accordingly among Series. In the case of the Investor
Certificates, such proceeds allocable to the Certificateholders' Interest will
be applied first to pay the Class A Certificates in full and then the Class B
Certificates. If such proceeds are not sufficient to pay the entire Class A
Invested Amount, the amount of principal returned to the Class A
Certificateholders will be reduced and the Class A Certificateholders will
incur a loss and no principal
27
<PAGE>
would be available to pay the Class B Certificateholders. See "Description of
the Investor Certificates--Amortization Events" for a discussion of other
events which might lead to the commencement of an Early Amortization Period.
Upon the occurrence of an Amortization Event, if a conservator or receiver is
appointed for Household Bank or a trustee is appointed for the Seller and no
Amortization Event other than such conservatorship or receivership or
insolvency of Household Bank or Seller exists, the conservator, receiver or
trustee may have the power to prevent the early sale, liquidation or
disposition of the Receivables and the commencement of the Early Amortization
Period. See "Certain Legal Aspects of the Receivables--Certain Matters Relating
to Insolvency".
While Household Finance Corporation is the Servicer, cash collections held by
Household Finance Corporation may, subject to certain conditions, be commingled
and used for the benefit of Household Finance Corporation prior to each
Distribution Date and, in the event of the insolvency or receivership of
Household Finance Corporation or, in certain circumstances, the lapse of
certain time periods, the Trust may not have a perfected interest in such
collections. Unless otherwise agreed to by each nationally recognized
statistical rating organization selected by the Seller to rate the investor
certificates of any Series or class, as specified in the applicable Supplement
(each, a "Rating Agency"), if the commercial paper rating of Household Finance
Corporation is reduced below A-1 or P-1 by the applicable Rating Agency,
Household Finance Corporation will, within five business days, commence the
deposit of collections directly into the Collection Account within two business
days of the day of processing.
The Seller will not engage in any activities except the transactions
described herein and as contemplated by the Pooling and Servicing Agreement and
any Supplement and similar transactions and activities incidental to, or
necessary or convenient to accomplish, the foregoing. The Seller does not have
any current intention to file a voluntary petition under the Bankruptcy Code of
1978, as amended (the "Bankruptcy Code"), or any similar applicable state law.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of investor certificateholders, including the Class A
Certificateholders, in the Receivables if such laws result in any Receivables
being written off as uncollectible and the total of the Defaulted Receivables
exceeds funds available in the Cash Collateral Account, the Collateral Invested
Amount and the Class B Invested Amount. Application of such laws would also
affect the interests of the Class B Certificateholders in the Receivables if
such laws result in any Receivables being written off as uncollectible when
there are insufficient amounts remaining in the Cash Collateral Account or to
be reallocated from the Collateral Invested Amount. See "Description of the
Investor Certificates--Defaulted Receivables; Rebates and Fraudulent Charges".
Consumer Protection Laws. The Accounts and Receivables are subject to
numerous Federal and state consumer protection laws which impose requirements
on the solicitation, making, enforcement and collection of consumer loans. Such
laws, as well as any new laws or rulings which may be adopted (including, but
not limited to, federal or state interest rate caps on credit cards), may
adversely affect the Servicer's ability to collect on the Receivables or
maintain the required level of periodic finance charges, annual membership fees
and other fees. In addition, failure by the Servicer to comply with such
requirements could adversely affect the Servicer's ability to enforce the
Accounts or Receivables.
Pursuant to the Pooling and Servicing Agreement, the Seller will make certain
representations and warranties relating to the validity and enforceability of
the Accounts and the Receivables. However, it is not anticipated that the
Trustee will make any examination of the Receivables or the records relating
thereto for the purpose of establishing the presence or absence of defects,
compliance with such representations and warranties, or for any other purpose.
The sole remedy if any such representation or warranty is not complied with and
such noncompliance continues beyond the applicable cure period, is that the
Receivables affected thereby will be reassigned to the Seller or assigned to
the Servicer, as the case may be. In addition, in the event of the breach of
certain representations and warranties, the
28
<PAGE>
Seller may be obligated to accept the reassignment of the entire Trust
portfolio. See "The Pooling and Servicing Agreement Generally--Representations
and Warranties" and "--Servicer Covenants" and "Certain Legal Aspects of the
Receivables--Consumer Protection Laws".
Proposed Legislation--Limitation on Finance Charges. Congress and the states
may enact new laws and amendments to existing laws to regulate further the
credit card industry or to reduce finance charges or other fees or charges
applicable to credit card accounts. The potential effect of any such
legislation could be to reduce the yield on the Accounts. If such yield is
reduced, an Amortization Event could occur, and an Early Amortization Period
may commence. See "Description of the Investor Certificates--Amortization
Events".
Pursuant to the Pooling and Servicing Agreement, if the interest of the Class
A Certificateholders and Class B Certificateholders in a Receivable is
materially adversely affected by the failure of the Receivable to comply in all
material respects with applicable requirements of law, the interest of such
Investor Certificateholders in all Receivables in the affected Account will be
reassigned to Household Bank or, in some circumstances, to the Servicer. On the
Issuance Date, Household Bank will make certain other representations and
warranties relating to the validity and enforceability of the Accounts and the
Receivables. The sole remedy, if any such representation or warranty is
breached and such breach has a material adverse effect on the interest of
Investor Certificateholders in any Receivable and continues beyond the
applicable cure period, is that the Receivables affected thereby will be
reassigned to Household Bank or assigned to the Servicer, as the case may be.
In addition, in the event of the breach of certain representations and
warranties, Household Bank may be obligated to accept the reassignment of the
entire Trust portfolio. See "The Pooling and Servicing Agreement Generally--
Representations and Warranties" and "--Servicer Covenants" and "Certain Legal
Aspects of the Receivables--Consumer Protection Laws".
Generation of Additional Receivables; Dependency on Cardholder Repayments.
The Receivables may be paid at any time and there is no assurance that there
will be additional Receivables created in the Accounts, that Receivables will
be added to the Trust from additional Accounts designated to the Trust, or that
any particular pattern of cardholder repayments will occur. The commencement
and continuation of a Controlled Amortization Period will be dependent upon the
continued generation of new Receivables to be conveyed to the Trust. A
significant decline in the amount of Receivables generated could result in the
occurrence of an Amortization Event and the commencement of the Early
Amortization Period. In addition, there is no assurance that the repayment
history of Receivables generated under cardholder agreements which are part of
a program where rebates on certain purchases are offered to cardholders in
connection with their usage of such cards, will not be affected by any change
in the amount or other terms of such rebates that may be offered from time to
time. The amount or other terms of any such rebates may generally be changed at
any time. While none of the Seller, Household Bank, the Servicer or the
Subservicer are able to determine, and have no basis to predict, how
cardholders may react to such changes, those changes may affect the
continuation of the generation of Receivables. See "--Affinity Programs". The
full payment of the Class A Invested Amount and the Class B Invested Amount is
dependent on cardholder repayments and will not be made if such repayment
amounts are insufficient to pay the Class A Invested Amount in full and,
thereafter, the Class B Invested Amount. The Bank Purchase Agreement provides
that the Seller will require, and Household Bank will be obligated, to
designate Additional Accounts, the receivables of which will be added to the
Trust in the event that the amount of the Principal Receivables is not
maintained at a certain minimum amount. If Additional Accounts are not
designated by Household Bank when required, an Amortization Event may occur and
result in the commencement of an Early Amortization Period. In addition, a
decrease in the effective yield on the Receivables due to, among other things,
a change in the annual percentage rates applicable to the Accounts, an increase
in the level of delinquencies or increased convenience use, where cardholders
pay their Receivables early and thus avoid all finance charges on purchases,
could cause the commencement of an Early Amortization Period as well as result
in decreased protection to Investor Certificateholders against defaults under
the Accounts.
29
<PAGE>
Social, Legal, Economic and Other Factors. Changes in card use and payment
patterns by cardholders result from a variety of social, legal and economic
factors. Economic factors include the rate of inflation, unemployment levels,
tax law changes and relative interest rates. The use of incentive programs
(e.g., gift awards for card usage) may also affect card use. The Seller and
Household Bank are unable to determine and have no basis to predict whether or
to what extent tax law changes or other economic or social factors will affect
card use or repayment patterns. See "The Accounts".
Competition in the Credit Card Industry. The credit card industry is highly
competitive and operates in a legal and regulatory environment increasingly
focused on the cost of services charged for credit cards. As new credit card
issuers seek to enter the market and issuers seek to expand their market share,
there is increased use of advertising, target marketing and pricing
competition. Congress and the states may enact new laws and amendments to
existing laws to regulate further the credit card industry or to reduce finance
charges or other fees or charges applicable to credit card accounts. In
addition, certain credit card issuers assess annual percentage rates or other
fees or charges at rates lower than the rate currently being assessed on most
of the Accounts. If cardholders choose to utilize competing sources of credit,
the rate at which new Receivables are generated in the Accounts may be reduced
and certain purchase and payment patterns with respect to Receivables may be
affected. The Trust will be dependent upon Household Bank's continued ability
to generate new Receivables. If the rate at which new Receivables are generated
declines significantly and Household Bank does not add Additional Accounts, an
Amortization Event could occur, in which event an Early Amortization Period
would commence.
In September 1994, the United States Court of Appeals for the Tenth Circuit
reversed a 1992 Utah federal court decision that the VISA association violated
antitrust laws when it denied membership in VISA to a subsidiary of Sears
Roebuck & Co., on the basis that another Sears subsidiary is the issuer of the
Discover credit card, a competitor of the VISA credit card. In June 1995, the
United States Supreme Court declined to review such decision of the Tenth
Circuit. MasterCard has settled a similar lawsuit. This settlement by
MasterCard and/or a final decision against or a similar settlement by VISA
could result in increased competition among issuers of VISA and MasterCard
credit cards and thereby have adverse consequences for members of the
MasterCard association, such as Household Bank, and members of the VISA
association.
Ability of Household Bank to Change Terms of the Accounts; Decrease in
Finance Charges. Pursuant to the Pooling and Servicing Agreement, the Seller
will not be transferring to the Trust the Accounts but only the Receivables
arising in the Accounts. As holder of the Accounts, Household Bank will have
the right to determine the annual percentage rates and the fees which will be
applicable from time to time to the Accounts, to alter the minimum monthly
payment required under the Accounts and to change various other terms with
respect to the Accounts. A decrease in the annual percentage rates or a
reduction in fees would decrease the effective yield on the Accounts and could
result in the occurrence of an Amortization Event and the commencement of an
Early Amortization Period. An alteration of payment terms may result in fewer
payments on Receivables being made in any month. Under the Bank Purchase
Agreement, Household Bank agrees that, unless required by law or unless, in its
good faith judgment, it deems it necessary to maintain on a competitive basis
its credit card business or a program operated by such credit card business and
only if the change giving rise to such reduction with respect to a specific
program is made applicable to substantially all of the credit card accounts
subject to such program, it will not take any action which would have the
effect of reducing the Portfolio Yield (as defined herein) to a level that
could reasonably be expected to cause any Series to experience an amortization
event based on the insufficiency of the Portfolio Yield or any similar test or
take any action that would have the effect of reducing the Portfolio Yield to
less than the highest Average Rate (as defined herein) for any Group.
"Portfolio Yield" means, with respect to the Trust as a whole and, with respect
to any Due Period, the annualized percentage equivalent of a fraction (a) the
numerator of which is the aggregate of the sum of the Series Allocable Finance
Charge and
30
<PAGE>
Administrative Collections (as defined herein) for all Series during the
immediately preceding Due Period calculated on a cash basis after subtracting
therefrom the Series Allocable Defaulted Amount (as defined herein) for all
Series for such Due Period and (b) the denominator of which is the total amount
of Principal Receivables as of the last day of such immediately preceding Due
Period. "Average Rate" means, with respect to any Group (including, with
respect to the Group containing the Investor Certificates, the Collateral
Invested Amount as if it were a class of investor certificates), the percentage
equivalent of a decimal equal to the sum of the amounts for each outstanding
Series (or each class within a Series consisting of more than one class) within
such Group obtained by multiplying (a) the certificate rate for such Series or
class (reduced to take into account any payments made pursuant to any interest
rate agreements) and (b) a fraction, the numerator of which is the aggregate
unpaid principal amount of the investor certificates of such Series or class
and the denominator of which is the aggregate unpaid principal amount of all
investor certificates within such Group. In servicing the Accounts, each of the
Servicer, the Subservicer and any successor servicer will be required to
exercise the same care and apply the same policies that it exercises in
handling similar matters for its own or other comparable accounts. Household
Bank will also agree not to change the terms of the Accounts unless the change
made with respect to a specific program is made applicable to substantially all
of the credit card accounts subject to such program. Except as specified above,
there are no restrictions specified in the Pooling and Servicing Agreement on
the ability of Household Bank to change the terms of the Accounts.
There can be no assurances that changes in applicable law, changes in the
marketplace or prudent business practice might not result in a determination by
Household Bank to decrease customer finance charges or otherwise take actions
which would change other Account terms. Under certain circumstances, the Seller
will have the right and may be required from time to time to require Household
Bank to designate Receivables from time to time existing in Additional Accounts
or Participation Interests for inclusion in the Trust. However, such Additional
Accounts or Participation Interests may not be of the same credit quality or
have the same characteristics as the Accounts, the Receivables of which have
been conveyed to the Trust. See "The Pooling and Servicing Agreement
Generally--Additions of Accounts or Participation Interests".
Basis Risk. The Accounts will have finance charges set at a variable rate
above the Prime Rate. The Class A Certificates bear interest at a floating rate
based on LIBOR. If there is a decline in the Prime Rate, the amount of
collections of Finance Charge Receivables on the Accounts may be reduced,
whereas the amounts payable as interest with respect to the Class A
Certificates and other amounts required to be funded out of collections of
Finance Charge Receivables may not be similarly reduced.
Affinity Programs. The Accounts, the Receivables of which currently have been
conveyed or will be conveyed to the Trust on the Issuance Date, were originated
under an affinity agreement between Household International and General Motors
Corporation and are generated under the MasterCard program of Household Bank
known as the "The GM CardSM". See "The Credit Card Business of Household Bank
(SB), N.A.--The Accounts". In the future, Additional Accounts may also be
designated to the Trust relating to other affinity or non-affinity programs.
Changes in the terms of such programs may affect the rate at which new
Receivables are generated in the Accounts.
Cash Collateral Account and Collateral Invested Amount--Limitations. Although
credit enhancement with respect to the Investor Certificates will be provided
by the funds and securities held in the Cash Collateral Account and the
Collateral Invested Amount, such amounts are limited. If the Collateral
Invested Amount and any amount on deposit in the Cash Collateral Account is
reduced to zero, the Class B Certificateholders will bear directly the credit
and other risks associated with their undivided interest in the Trust and the
Class B Invested Amount may be reduced. If the Class B Invested Amount is
reduced to zero, Class A Certificateholders will bear directly the credit and
other risks associated with their undivided interest in the Trust. See
"Description of the Investor Certificates--Description of the Cash Collateral
Account".
31
<PAGE>
Rating of the Investor Certificates. It is a condition to issuance of the
Class A Certificates that they be rated in the highest rating category by at
least one Rating Agency. The rating of the Class A Certificates is based
primarily on the value of the Receivables, the credit quality of the Servicer,
and the circumstances as described herein, in which the Cash Collateral Account
and Collateral Invested Amount may be available for the benefit of the Class A
Certificates, and the terms of the Class B Certificates. See "Description of
the Investor Certificates--Reallocation of Cash Flows". It is a condition to
the issuance of the Class B Certificates that they be rated at least "A" or its
equivalent by at least one Rating Agency. The rating of the Class B
Certificates is based primarily on the value of the Receivables and the credit
quality of the Servicer, and the circumstances, as described herein, in which
the Cash Collateral Account and the Collateral Invested Amount may be available
for the benefit of the Class B Certificates.
The ratings of the Investor Certificates are not a recommendation to
purchase, hold or sell such Investor Certificates, inasmuch as such ratings do
not comment as to market price or suitability for a particular investor. There
is no assurance that the ratings of the Investor Certificates will remain for
any given period of time or that such ratings will not be lowered or withdrawn
entirely by the Rating Agency if in its judgment circumstances in the future so
warrant. The ratings of the Class A Certificates and the Class B Certificates
do not address the possibility of the imposition of United States withholding
tax with respect to non-U.S. persons. Although the ratings of the Class A
Certificates and the Class B Certificates address the respective likelihood of
the ultimate payment of principal and interest on the Class A Certificates and
the Class B Certificates, such ratings do not address the likelihood that the
outstanding principal amount of a class of the Investor Certificates will be
paid by the Series 1997-1 Expected Final Distribution Date. The ratings also do
not address the possibility of the occurrence of an Amortization Event which
could result in the payment of the outstanding principal amount of the Class A
Certificates and the Class B Certificates prior to the Series 1997-1 Expected
Final Distribution Date. The Rating Agency does not evaluate, and the
respective ratings of the Class A Certificates and the Class B Certificates do
not address, the likelihood that the outstanding principal amount of the Class
A Certificates or the Class B Certificates will be paid in accordance with the
Controlled Distribution Amounts.
Book-Entry Registration. The Investor Certificates will be initially
represented by one or more Class A Certificates and one or more Class B
Certificates registered in the name of Cede, the nominee for DTC, and will not
be registered in the names of the Investor Certificateholders or their
nominees. Because of this, unless and until Definitive Certificates are issued,
Investor Certificateholders will not be recognized by the Trustee as "Investor
Certificateholders" (as that term is used in the Pooling and Servicing
Agreement). Hence, until Definitive Certificates are issued, holders of
beneficial interests in Investor Certificates will only be able to exercise the
rights of Investor Certificateholders indirectly through DTC. See "Description
of the Investor Certificates--Book-Entry Registration" and "--Definitive
Investor Certificates".
ERISA Restrictions Applicable to Class B Certificates. Registration of
transfer of any Class B Certificate shall be effected only if such transfer is
made to a person which is not a Benefit Plan. By purchasing and holding a Class
B Certificate, a Class B Certificateholder shall be deemed to have represented
and warranted that it is not a Benefit Plan. By acquiring any interest in a
Class B Certificate, the beneficial owner thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan. See "ERISA
Considerations".
[No Gross-Up for Withholding Tax. A non-U.S. person who complies with the
applicable identification requirements of the IRS should generally not be
subject to United States withholding tax. If such law were to change and, as a
result thereof, United States withholding tax were imposed on such payments, a
non-U.S. person would receive such payments net of such withholding tax, and
none of the Seller, Household Bank, the Trust, the Servicer or any Saleservicer
would have any obligation to gross up such payments to account for such
withholding tax.]
32
<PAGE>
MASTER TRUST CONSIDERATIONS
Issuance of Additional Series. The Trust, as a master trust, previously has
issued ten Series and is expected to issue additional Series from time to time.
While the terms of any Series will be specified in a Supplement, the provisions
of a Supplement and, therefore, the terms of any additional Series, will not be
subject to the prior review or consent of holders of the investor certificates
of any previously issued Series. Such terms may include methods for determining
applicable investor percentages and allocating collections, provisions creating
different or additional security or other Series Enhancements, provisions
subordinating such Series to other Series or subordinating other Series (if the
Supplement relating to such Series so permits) to such Series, and any other
amendment or supplement to the Pooling and Servicing Agreement which is made
applicable only to such Series. The obligation of the Trustee to issue any new
Series is subject to the following conditions, among others: (a) such issuance
will not result in any Rating Agency reducing or withdrawing its then existing
rating of the investor certificates of any outstanding Series or class with
respect to which it is a Rating Agency (the notification in writing by each
Rating Agency to the Seller, the Servicer and the Trustee that any action will
not result in such a reduction or withdrawal is referred to herein as the
"Rating Agency Condition") and (b) the Seller shall have delivered to the
Trustee a certificate of an authorized officer to the effect that, in the
reasonable belief of the Seller, such issuance will not (i) result in the
occurrence of an Amortization Event or (ii) materially adversely affect the
timing or amount of payments to investor certificateholders of any Series or
class (any of the conditions referred to in the preceding clauses (i) and (ii)
are referred to herein as an "Adverse Effect"). There can be no assurance,
however, that the issuance of any other Series, including any Series issued
from time to time hereafter, might not have an impact on the timing or amount
of payments received by an Investor Certificateholder. In addition, the
Supplements relating to Series which are part of a Group as described herein
may provide that collections of Receivables allocable to such Series will be
reallocated among all Series in the Group. Consequently, the issuance of new
Series in a Group may have the effect of reducing the amount of collections of
Receivables which are reallocated to the investor certificates of existing
Series in such Group. For example, in Group One, which provides for the
reallocation of collections of Finance Charge and Administrative Receivables
allocable to a Series among all Series in such Group, an additional Series
which is issued with a larger claim with respect to monthly interest than that
of previously issued Series in Group One (due to a higher certificate rate)
will receive a proportionately larger reallocation of Group One Investor
Finance Charge and Administrative Receivables. Such issuance will reduce the
amount of Group One Investor Finance Charge and Administrative Receivables
which are reallocated to the existing Series in Group One. See "Description of
the Investor Certificates--Reallocations Among Investor Certificates of
Different Series".
Addition of Trust Assets. The Seller may from time to time designate
Participation Interests to be conveyed to the Trust or may designate Additional
Accounts, the Receivables in which are conveyed to the Trust. In addition,
under certain circumstances, the Seller will be obligated to designate
Aggregate Addition Accounts or, at the Seller's option, Participation Interests
for inclusion in the Trust. "Aggregate Addition Accounts" shall mean revolving
credit card accounts established pursuant to a credit card agreement between
the Bank or any additional seller and the person or persons obligated to make
payments thereunder, excluding any merchant, which is designated by the Seller
to be included as an Account. Aggregate Addition Accounts may be subject to
different eligibility criteria than the Accounts, the Receivables of which are
currently included in the Trust, and may include accounts or other consumer
loan receivables originated using criteria different from those which were
applied to the Accounts, the Receivables of which are currently included in the
Trust, because such accounts or other consumer loan receivables were originated
at a later date or were part of a portfolio of credit card accounts or other
consumer loan receivables which were not part of the Accounts or which were
acquired from another credit card issuer. Moreover, Aggregate Addition Accounts
may not be accounts or other consumer loan receivables of the same type
previously included in the Trust. Consequently, there can be no assurance that
such Aggregate Addition Accounts will be of the same credit quality as
33
<PAGE>
the Accounts, the Receivables of which are currently included in the Trust. In
addition, such Aggregate Addition Accounts may consist of credit card accounts
or other consumer loan receivables which have different terms than the
Accounts, the Receivables of which are currently included in the Trust,
including lower periodic finance charges, which may have the effect of reducing
the average yield on the portfolio of Accounts. The designation of Aggregate
Addition Accounts will be subject to the satisfaction of certain conditions,
including that (a) such addition will satisfy the Rating Agency Condition and
(b) the Seller shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of the Seller,
such addition will not have an Adverse Effect. The Seller has conveyed and
expects to continue to convey from time to time to the Trust the Receivables
arising in certain Aggregate Addition Accounts in accordance with the
provisions of the Pooling and Servicing Agreement.
The Seller may from time to time, at its sole discretion, designate newly
originated Eligible Accounts to be included as Accounts ("New Accounts")
subject to the limitations and conditions specified in this paragraph. For
purposes of the definition of New Accounts, Eligible Accounts shall be deemed
to include only types of revolving credit card 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 revolving credit card account is permitted to be designated as a
New Account. Unless each applicable Rating Agency otherwise consents, the
number of New Accounts designated with respect to any of the three consecutive
Due Periods beginning in January, April, July and October of each calendar year
shall not exceed 15% of the number of Accounts as of the first day of the
calendar year during which such Due Periods commence and the number of New
Accounts designated during any such calendar year shall not exceed 20% of the
number of Accounts as of the first day of such calendar year. The Seller shall
deliver to the Trustee, at least semi-annually, an opinion of counsel with
respect to the New Accounts included as Accounts confirming the validity and
perfection of each transfer of such New Accounts. If such opinion of counsel
with respect to 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.
The Seller will designate New Accounts subject to the following conditions,
among others: (a) the New Accounts shall all be Eligible Accounts; (b) such
conveyance will not result in the occurrence of an Amortization Event; and (c)
such conveyance shall not have been made in contemplation of an Insolvency
Event with respect to the Seller or Household Bank. New Accounts and Aggregate
Addition Accounts are collectively referred to herein as "Additional Accounts".
Any Participation Interests to be included as Trust Assets or any Eligible
Accounts, other than New Accounts, to be included as Accounts, are collectively
referred to herein as an "Aggregate Addition". "Eligible Account" means a
revolving credit card account owned by Household Bank and its successors and
assigns and/or any transferee of the Accounts from such bank or any other
originator of Accounts which enters into a receivables purchase agreement with
the Seller or any additional Seller which, as of the respective date of
designation, is in existence and maintained by Household Bank or such
successors, transferees or originator, is payable in United States dollars, has
a cardholder whose address is in the United States or its territories or
possessions, has a cardholder who has not been identified as being involved in
any voluntary or involuntary bankruptcy proceeding, has not been identified as
an account with respect to which the related card has been lost or stolen, has
not been sold or pledged to any other party except for any transferee referred
to above, does not have receivables which have been sold or pledged to any
other party; and with respect to Additional Accounts, certain other accounts
which shall have satisfied the Rating Agency Condition.
Allocations. To the extent provided in any Supplement, or any amendment to
the Pooling and Servicing Agreement, portions of the Receivables or
Participation Interests conveyed to the Trust and all collections received with
respect thereto may be allocated to one or more Series or Groups as long as the
Rating Agency Condition shall have been satisfied with respect to such
allocation and the Servicer shall have delivered an officer's certificate to
the Trustee to the effect that the Servicer reasonably believes such allocation
will not have an Adverse Effect.
34
<PAGE>
THE CREDIT CARD BUSINESS OF HOUSEHOLD BANK (SB), N.A.
GENERAL
Pursuant to the Bank Purchase Agreement, Household Bank (or Household Bank,
f.s.b., as its predecessor in interest under the Bank Purchase Agreement) has
transferred and Household Bank will transfer to the Seller, and the Seller in
turn has transferred and will transfer to the Trust pursuant to the Pooling and
Servicing Agreement, the Receivables which have or will be generated from
transactions made by holders of certain VISA and MasterCard credit card
accounts. Accounts are serviced by Household Credit Services, Inc. primarily
from its facilities in Salinas, California, Las Vegas, Nevada and Chesapeake,
Virginia.
All accounts are scored each month with a behavioral scoring system that
predicts the likelihood of serious future delinquency based on the account's
previous history. Household Bank uses behavioral scoring to manage credit
lines, authorizations, collections and card reissuance.
The VISA and MasterCard credit card accounts held or to be held by Household
Bank are or will be principally generated through: (i) the mailing of
preapproved applications directly to prospective cardholders by Household Bank;
(ii) the request for an application as the result of phone contact or the
availability of applications or brochures for prospective cardholders at
various merchant locations and (iii) magazine inserts.
THE ACCOUNTS
The Accounts currently consist solely of MasterCard credit card accounts
generated under "The GM CardSM " program and originated by Household Bank or
its affiliate, Household Bank, f.s.b. The Accounts were issued by Household
Bank or such affiliate in accordance with the underwriting criteria as
explained below.
Household Bank's new account originations are primarily the result of direct
mail solicitations conducted on a nationwide basis, or in certain cases
targeted to particular states. The Subservicer, on behalf of Household Bank,
obtains the names and addresses of creditworthy individuals from one or more of
the independent national credit bureaus. These individuals are then credit
bureau scored to evaluate credit risk in accordance with Household Bank's
established credit quality standards. Credit bureau scoring is intended to
provide a general indication, based on the information available, of an
individual's likelihood to repay his or her obligations. Based on credit bureau
scores, other credit characteristics and demographic information, certain
individuals are then selected for solicitation. This selection process attempts
to match these prospects with a product that would be acceptable to that
individual. Therefore, Household Bank offers credit cards with different annual
percentage rates and annual fee combinations, enhanced special features such as
bonus points, discounts, extended warranties for products and travel benefits.
Individuals qualifying for preapproved direct mail solicitation are offered a
credit card through the use of an acceptance certificate similar to traditional
preapproved coupons which are standard in the industry. The prospective
cardholder is required to provide certain information and return the
certificate to the Subservicer. Upon receipt, the Subservicer automatically
requests, in most cases, an updated credit report. The updated credit report
obtained upon response is also credit bureau scored, and the initial credit
line assigned may be adjusted based upon this updated credit bureau risk
profile.
When Household Bank receives an application for a credit card that has been
obtained from a sourcing institution, or requested by phone, it reviews such
application for completeness and obtains a credit report and credit bureau
score from an independent national credit bureau on the applicant. The
Subservicer, on behalf of Household 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.
35
<PAGE>
Credit limits are established for each prospective cardholder based on credit
bureau score, income and other credit characteristics. The Receivables, which
have been conveyed to the Trust, generally have credit limits ranging from
[$250 to $10,000,] the majority of non premium accounts being in the [$2,000 to
$6,000] range, with premium Accounts generally being assigned credit limits of
[$5,000 or more], with the majority at [$7,000].
ADDITIONAL ACCOUNTS
Receivables from Additional Accounts, if needed, will be added to the Trust
from accounts originated by Household Bank (or its affiliates) through
preapproved applications or agent bank relationships or affinity relationships.
In addition, Household Bank may purchase additional portfolios of VISA and
MasterCard credit card accounts from other financial institutions. See "Risk
Factors--Master Trust Considerations--Addition of Trust Assets".
COLLECTION OF DELINQUENT ACCOUNTS
Minimum scheduled payments under the Accounts are generally due [25 days]
from the date of such billing statement, and 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 that monthly billing statement. In the case of Accounts generated
under "The GM CardSM" program, monthly billing statements are prepared by EDS.
Late fees for the Accounts, the Receivables of which have been conveyed to the
Trust, are generally assessed on such Accounts if the minimum monthly payment
has not been made by the due date set forth in the monthly billing statement.
The Subservicer, through its customer account review program, creates a
behavioral score for all accounts to predict the probability of an account
becoming 60 days or more delinquent. Based on the behavioral score and the
account balance, 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 at an early stage that
have a greater probability of experiencing a loss in order to reduce exposure
thereto.
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 eight days 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. Receivables in any Account will generally be charged-off as
uncollectible in accordance with the credit card guidelines of the Servicer of
the Account and the Subservicer's customary and usual policies and procedures
for servicing comparable credit card accounts, unless otherwise prescribed by
applicable laws or regulations. The current policy of Household Bank is to
charge-off an account when that account becomes 181 days delinquent (or less,
in the case of a bankruptcy). 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, Household Bank will not extend credit to any account that is 30 days
or more delinquent. Additionally, extensions of credit to an account may be
suspended if that account exceeds its maximum established credit limit. The
amount by which an account may exceed its established credit limit is
determined by the behavioral score assigned by the Subservicer to the account.
The Subservicer, on behalf of Household Bank, may, in its sole discretion,
enter into arrangements with delinquent cardholders to extend or otherwise
modify payment schedules; provided, however, that in no event will any such
extension or modification result in negative amortization to the account. The
risk evaluation, servicing, charge-off policies and collection practices
discussed herein
36
<PAGE>
are constantly being reviewed and may change over time in accordance with the
business judgment of Household Bank, the Servicer and the Subservicer,
applicable law and guidelines established by governing regulatory authorities.
ORIGINATED PORTFOLIO EXPERIENCE
The following tables and the table under "Principal Payment Considerations"
set forth certain experience for each of the periods shown for the Originated
Portfolio. The "Originated Portfolio" includes all credit card accounts (other
than private label credit cards) serviced by the Servicer and all credit card
accounts originated by affiliates of the Servicer, including the Accounts
generated under the program known as "The GM CardSM", excluding GM Card
Accounts converted from other credit card accounts, during the periods shown in
such tables. Origination of Accounts with respect to "The GM CardSM" program
commenced in September 1992 and accordingly there is no information on the
performance of such Accounts over a significant period of time. Information for
the GM Card Accounts presented below are for a limited period and reflect
performance of all GM Card Accounts, excluding GM Card Accounts converted from
other credit card accounts, of Household Bank or an affiliate during the
periods indicated and excluding GM Card Accounts originated by Household Bank
(Nevada), N.A. Not all such accounts have been designated to the Trust.
Although the Servicer believes the information on the Originated Portfolio to
be reliable, because various terms of the accounts in the Originated Portfolio
and various policies (including, in certain cases, charge-off policies)
regarding the Originated Portfolio may have been modified during this period
and because historical performance may not be indicative of future performance,
there can be no assurance that the actual experience for the Receivables in the
future will be similar to the historical experience set forth below with
respect to the Originated Portfolio.
LOSS AND DELINQUENCY EXPERIENCE
The following tables set forth the loss and delinquency experience for the
Originated Portfolio and the GM Card Accounts for each of the periods shown.
LOSS EXPERIENCE FOR THE ORIGINATED PORTFOLIO(1)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables
Outstanding(2).................. $ $7,270,142 $4,603,336 $1,417,322
Total Net Charge-offs(3)......... $ $ 294,009 $ 145,271 $ 96,555
Total Net Charge-offs as a
Percentage of Average
Receivables Outstanding......... % 4.04% 3.16% 6.81%
</TABLE>
LOSS EXPERIENCE FOR "THE GM CARDSM" ACCOUNTS(1)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Average Receivables Outstanding(2)...... $ $5,444,143 $3,188,019
Total Net Charge-offs(4)................ $ $ 167,214 $ 39,794
Total Net Charge-offs as a Percentage of
Average Receivables Outstanding........ % 3.07% 1.25%
</TABLE>
- --------
(1) All information for "The GM CardSM" Accounts was derived from reports
prepared by a servicer that is not affiliated with Household Bank or the
Servicer.
(2) Calculated as the average of the average monthly beginning and average
monthly ending receivables balance.
37
<PAGE>
(3) Net charge-offs include charge-offs of principal, fees and fraud losses net
of recoveries during the periods.
(4) Net charge-offs include charge-offs of principal and fees net of recoveries
during the periods.
(5) The policy of Household Bank was to charge-off an account when an account
became 181 days delinquent.
Losses for newer portfolios, such as the Accounts, are initially low due to
the lack of time for the accounts to charge off.
AVERAGE DELINQUENCIES AS A PERCENTAGE OF THE ORIGINATED PORTFOLIO(1)(2)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
AVERAGE OF
YEAR ENDED AVERAGE OF AVERAGE OF AVERAGE OF
DECEMBER 31, YEAR ENDED YEAR ENDED YEAR ENDED
1995 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
NUMBER OF ------------ ------------------- ------------------- -------------------
DAYS DELINQUENT DELINQUENT PERCENT- DELINQUENT PERCENT- DELINQUENT PERCENT-
DELINQUENT AMOUNT AMOUNT AGE(3) AMOUNT AGE(3) AMOUNT AGE(3)
- ------------------------ ------------ ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1-29(4)................. $ $272,882 3.75% $188,914 4.10% $ 91,381 6.45%
30-59................... 80,058 1.11% 54,264 1.18% 29,021 2.05%
60-89................... 50,255 0.69% 33,143 0.72% 19,481 1.37%
90-119.................. 39,498 0.54% 24,527 0.53% 15,012 1.06%
120+.................... 62,162 0.85% 34,924 0.76% 23,107 1.63%
-------- -------- ----- -------- ----- -------- ------
Total $ $504,855 6.94% $335,772 7.29% $178,002 12.56%
======== ======== ===== ======== ===== ======== ======
</TABLE>
AVERAGE DELINQUENCIES AS A PERCENTAGE OF "THE GM CARDSM" ACCOUNTS(1)(2)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
AVERAGE OF AVERAGE OF AVERAGE OF
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
NUMBER OF ------------------- ------------------- -------------------
DAYS DELINQUENT PERCENT- DELINQUENT PERCENT- DELINQUENT PERCENT-
DELINQUENT AMOUNT AGE(3) AMOUNT AGE(3) AMOUNT AGE(3)
---------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
5-29.............. $ % $179,326 3.29% $ 95,374 2.99%
30-59............. % 49,993 0.92% 22,586 0.71%
60-89............. % 30,785 0.57% 13,166 0.41%
90-119............ % 24,452 0.45% 9,535 0.30%
120+.............. % 39,507 0.73% 12,325 0.39%
------- ----- -------- ----- -------- -----
Total $ % $324,063 5.96% $152,986 4.80%
======= ===== ======== ===== ======== =====
</TABLE>
- --------
(1) Average delinquencies are the average of month end delinquent amounts.
(2) All information for "The GM CardSM" Accounts was derived from reports
prepared by a servicer that is not affiliated with Household Bank or the
Servicer.
(3) The percentages are the result of dividing average delinquent amounts
during the period by average receivables outstanding for the applicable
period.
(4) The first delinquent stage for "The GM CardSM" Accounts represents
receivables that are 5 to 29 days delinquent.
REVENUE EXPERIENCE
The revenues for the Originated Portfolio from finance charges and fees
billed to cardholders are set forth in the following tables for each of the
periods shown.
38
<PAGE>
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 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".
REVENUE EXPERIENCE FOR THE ORIGINATED PORTFOLIO(1)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993 1992
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding (2).. $ $7,270,142 $4,603,336 $1,417,322
Total Finance Charges and Fees Billed
(3)................................. $ $1,104,174 $ 703,064 $ 251,130
Total Finance Charges and Fees Billed
as a Percentage of Average
Receivables Outstanding............. %(4) 15.19%(4) 15.27%(4) 17.72%(4)
</TABLE>
REVENUE EXPERIENCE FOR "THE GM CARDSM" ACCOUNTS(1)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Average Receivables Outstanding (2)..... $ $5,444,143 $3,188,019
Total Finance Charges and Fees Billed
(3).................................... 816,264 453,865
Total Finance Charges and Fees Billed as
a Percentage of Average Receivables
Outstanding............................ % 14.99% 14.24%
</TABLE>
- --------
(1) All information for "The GM CardSM" Accounts was derived from reports
prepared by a servicer that is not affiliated with Household Bank or the
Servicer.
(2) Calculated as the average of the average monthly beginning and average
monthly ending receivables balance.
(3) Excludes revenue attributable to Interchange and is net of finance charges
accrued on charged-off accounts.
[(4) The rate assessed on receivable balances was fixed for the majority of
cardholders prior to 1992. A significant number of these accounts were
repriced in 1992 to a variable rate structure. The repricings resulted in
finance charges and fees billed as a percentage of average receivables
outstanding to decline in 1992, 1993 and 1994.]
The revenues for the Originated Portfolio shown in the tables above are
related to finance charges, together with fees, billed to holders of the
accounts. The finance charge assessed on most of the premium accounts for
purchases of merchandise and services in the Originated Portfolio is lower than
the finance charge assessed on most of the nonpremium credit card accounts for
such purchases, although the annual membership fee on the premium credit card
accounts is generally higher. 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
39
<PAGE>
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 Household Bank on the accounts in the
Originated Portfolio and on whether such accounts are nonpremium or premium
credit card accounts. Accordingly, revenues will be affected by future changes
in the types of charges and fees assessed on the accounts and on the respective
percentages of the receivable balances of nonpremium and premium credit card
accounts. Revenues could be adversely affected by future changes in the charges
and fees assessed by Household Bank and other factors. See "Certain Legal
Aspects of the Receivables--Consumer Protection Laws". Neither the Servicer or
any of its affiliates has any basis to predict how any future changes in the
usage of the accounts by cardholders or in the terms of accounts may affect the
revenue for the Originated Portfolio.
INTERCHANGE
Creditors participating in the VISA USA and MasterCard International
associations receive certain fees ("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. Interchange
ranges from approximately 1% to 2% of the transaction amount. Household Bank
will be required, pursuant to the terms of the Bank Purchase Agreement, and the
Seller will be required, pursuant to the terms of the Pooling and Servicing
Agreement, to transfer to the Trust Interchange attributed to cardholder
charges for merchandise and services in the 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.
THE ACCOUNTS
GENERAL
The Receivables to be conveyed to the Trust arise in the Accounts. The
Accounts currently consist of MasterCard accounts generated in connection with
the affinity program with General Motors Corporation under "The GM CardSM"
program which meet the eligibility criteria set forth in the Pooling and
Servicing Agreement.
Pursuant to the Bank Purchase Agreement and the Pooling and Servicing
Agreement, the Seller will have the right or be obligated (subject to certain
limitations and conditions) to require and Household Bank will be obligated to
designate, from time to time, additional qualifying VISA and MasterCard
consumer revolving credit card accounts to be included as Accounts and to
convey to the Seller for conveyance to the Trust all Receivables of such
Additional Accounts, whether such Receivables are then existing or thereafter
created. Those Accounts must meet the eligibility criteria set forth in the
Bank Purchase Agreement as of the date Household Bank designates such Accounts
as Additional Accounts. Household Bank will convey its interest in the
Receivables then existing or thereafter created under such Additional Accounts
to the Seller which in turn will convey such Receivables to the Trust. Under
the Pooling and Servicing Agreement, the Seller also has the right to convey
Participation Interests to the Trust subject to the conditions described in the
Pooling and Servicing Agreement. See "The Pooling and Servicing Agreement
Generally--Additions of Accounts or Participation Interests".
40
<PAGE>
As of each date with respect to which Additional Accounts are designated,
Household Bank has and will represent and warrant to the Seller that the
Receivables generated under the Additional Accounts meet the eligibility
requirements set forth in the Bank Purchase Agreement and the Seller has and
will represent and warrant to the Trust that such Receivables or Participation
Interests, if any, meet the eligibility requirements set forth in the Pooling
and Servicing Agreement. See "The Pooling and Servicing Agreement Generally--
Conveyance of Receivables". Because the Initial Accounts were designated as of
the Initial Cut-Off Date and subsequent Aggregate Addition Accounts have been
and may be designated from time to time, there can be no assurance that all of
such Accounts will continue to meet the eligibility requirements as of any
Series issuance date, including the Issuance Date.
Subject to certain limitations and restrictions, the Seller may also
designate certain Accounts or Participation Interests, if any, for removal from
the Trust, in which case such Participation Interests or the Receivables of the
Removed Accounts will be reassigned to the Seller. Throughout the term of the
Trust, the Receivables in the Trust will consist of Receivables generated under
the Initial Accounts and include Participation Interests, if any, and the
Receivables generated under Additional Accounts but not the Receivables
generated under Removed Accounts or removed Participation Interests.
As of the close of business on December 31, 1995, the Receivables pertaining
to the Accounts had an average principal balance of $ , and the Accounts had
an average credit limit of $ and a weighted average age of approximately
months. The average total Receivable balance as a percentage of the average
credit limit with respect to such Accounts was % as of the close of
business on December 31, 1995. Approximately %, %, %, % and
% of the Receivables as of the close of business on December 31, 1995
relate to cardholders having billing addresses in [California, New York, Texas,
Michigan and Florida,] respectively. As of the close of business on December
31, 1995, the Receivable balance of the nonpremium and premium Accounts as a
percentage of the total Receivable balance of the Accounts was approximately
% and %, respectively.
As of the close of business on December 31, 1995, Accounts
representing $ or % of the total Receivables outstanding were
current or less than 30 days delinquent, and Accounts representing
$ or % of the total Receivables outstanding were greater than 29
days delinquent as reflected on the Subservicer's collection system. The
Receivables currently in the Trust were generated under Accounts that were
originated in 1992, 1993, 1994, 1995 and 1996. There can be no assurance that
such Accounts will maintain such level of performance or will perform in a
manner similar to the other VISA and MasterCard accounts serviced by the
Servicer.
The following tables summarize the Accounts by various criteria as of the
close of business on December 31, 1995 for such Accounts. References to
Receivables Outstanding in the following tables include Finance Charge and
Administrative Receivables and Principal Receivables in such Accounts. Because
the composition of the Accounts may change in the future, these tables are not
necessarily indicative of the future composition of the Accounts.
41
<PAGE>
COMPOSITION OF ACCOUNTS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNT BALANCE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- --------------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Less than $0.00................ % $ %
No balance..................... % %
Less than or equal to $500.00.. % %
$500.01 to $1,000.00........... % %
$1,000.01 to $2,000.00......... % %
$2,000.01 to $3,000.00......... % %
$3,000.01 to $4,000.00......... % %
$4,000.01 to $5,000.00......... % %
$5,000.01 to $6,000.00......... % %
$6,000.01 to $7,000.00......... % %
$7,000.01 to $8,000.00......... % %
$8,000.01 to $9,000.00......... % %
$9,000.01 to $10,000.00........ % %
Over $10,000.00................ % %
--------- ------- -------------- -------
Total........................ 100.00% $ 100.00%
========= ======= ============== =======
</TABLE>
COMPOSITION OF ACCOUNTS BY CREDIT LIMIT
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
CREDIT LIMIT ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- ------------ --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Less than or equal to
$1,000.00..................... % $ %
$1,000.01 to $2,000.00......... % %
$2,000.01 to $3,000.00......... % %
$3,000.01 to $4,000.00......... % %
$4,000.01 to $5,000.00......... % %
$5,000.01 to $6,000.00......... % %
$6,000.01 to $7,000.00......... % %
$7,000.01 to $8,000.00......... % %
$8,000.01 to $9,000.00......... % %
$9,000.01 to $10,000.00........ % %
Over $10,000.00................ % %
--------- ------- -------------- -------
Total........................ 100.00% $ 100.00%
========= ======= ============== =======
</TABLE>
COMPOSITION OF ACCOUNTS BY AGE
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
AGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- --- --------- ---------- -------------- -----------
<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 48 months.... % %
--------- ------- -------------- -------
Total........................ 100.00% $ 100.00%
========= ======= ============== =======
Weighted Average Age (Months)..
</TABLE>
42
<PAGE>
BILLING AND PAYMENTS
General. The Accounts, which have variable annual percentage rates, are
governed by various cardmember agreements and disclosure statements and have
different billing and payment structures, including varying fees, depending on
the type of account. Each cardmember agreement provides that, subject to
applicable law, Household 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, Household Bank will provide prior
written notice before implementation of any such change to the terms and
conditions of a cardmember's agreement. There can be no assurance that the
finance charges, fees and other charges discussed herein (including minimum
monthly periodic rates) will remain at current levels in the future.
Monthly billing statements for the Accounts are sent to the cardholder at the
end of each billing cycle generally within two business days after the cycle
date assigned to such Account by the Subservicer. Currently, the Subservicer
has cycle dates corresponding to twenty-three 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 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
Household Bank, the holder of a nonpremium Account must, under most of the
cardmember agreements, make a minimum payment equal to [$10 (or, if the new
balance is less than $10, the new balance) or 2.0%] of the new balance as it
appears on the monthly statement, whichever is greater, plus the greater of (i)
any past due amounts, or (ii) the amount by which the new balance exceeds the
established credit limit for the account.
Each holder of a premium Account is required, under most of the cardmember
agreements, unless a payment holiday is granted by Household Bank, to make a
minimum payment each month equal to either [2.0% of the new balance reflected
on the monthly statement (depending on the cardmember agreement) or $15 (or the
amount of the new balance if less than $15)], whichever is greater, plus the
greater of (i) any past due amounts, or (ii) the amount by which the new
balance exceeds the established credit limit for the account.
Household 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. [Although Household Bank is not currently making such
offers], Household Bank may make similar offers or increase the frequency of
this program in the future. Monthly periodic finance charges in connection with
a payment holiday 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. The effect of a payment holiday is to
increase the yield on the Receivables on a billed basis and to decrease the
rate of payments of Finance Charge and Administrative Receivables and Principal
Receivables during the billing cycles for which the offer applies.
Finance Charges. Prior to April 1, 1995, finance charges assessed on the
Accounts are the total of (a) periodic finance charges and (b) cash advance fee
finance charges. Periodic finance charges and cash advance fee finance charges
are assessed on purchases of merchandise or services or cash advances allocated
to the Account and are computed as follows: (i) the average daily balance
during the billing cycle multiplied by (ii) the monthly periodic rate
applicable to the Account. To obtain the
43
<PAGE>
average daily balance the beginning balance of the account for each day during
the billing cycle is determined (the "Daily Balance") by (x) adding new
purchases, credit insurance charges, cash advances, annual fee, if applicable,
or administrative charges to the account generally on the day they were
incurred and (y) subtracting any payments or credits and any unpaid finance
charges applied to the Account. All Daily Balances for each day during a
billing cycle are then added together and divided by the total number of days
in that billing cycle to obtain the average daily balance. Generally, the
monthly periodic rate will be a variable rate that may change from month to
month and will be one-twelfth of the sum of the Prime Rate plus [10.4]
percentage points for a nonpremium Account. For premium Accounts, the monthly
periodic rate will be one-twelfth of the sum of the Prime Rate plus (i) [10.4]
percentage points for accounts with average daily balances of less than
[$2,500] and (ii) [7.4] percentage points for accounts with average daily
balances of [$2,500 or greater]. The minimum monthly periodic rate for
nonpremium Accounts is [1.24]% (corresponding to a 14.9% annual percentage
rate). The minimum monthly periodic rate for premium Accounts with an average
daily balance under $2,500 is [1.37]% (corresponding to a 16.4% annual
percentage rate) while those with an average daily balance of $2,500 or greater
have a minimum monthly periodic rate of [1.12]% (corresponding to a 13.4%
annual percentage rate). Household Bank has and may again offer special
marketing rates. Effective April 1, 1995, periodic finance charges are computed
as follows: (i) the "sum of the balances" is multiplied by (ii) the Daily
Periodic Rate. To obtain the sum of the balances all Daily Balances (as
described above, except that billed but unpaid finance charges are applied to
the Account and not subtracted out) for the billing cycle are added. The Daily
Periodic Rate is 1/365 of the sum of the Prime Rate plus (a) [10.4] percent for
a non premium account and (b) for a premium account plus (i) [10.4] percentage
points for accounts with an average daily balance less than $2,500 and (ii)
[7.4] percentage points for accounts with average daily balances of $2,500 or
greater. The minimum monthly periodic rates will remain the same.
If the previous balance has been paid in full, no purchase finance charges
will be assessed on purchases for merchandise or services made during a billing
cycle provided, however, payment is received for those purchases in full by the
due date (25 days after the close of the cycle) noted on the billing statement.
Cash advances, however, are not entitled to any grace period and are assessed
finance charges from the date of the transaction. Most Accounts provide that
for each billing cycle in which a finance charge is payable, the finance charge
will be at least [50 cents]. Some Accounts have a cash advance fee finance
charge equal to [2.0]% of the cash advance, with a minimum fee of $[2] or, if
obtained through a convenience check, a cash advance fee finance charge equal
to [1.0]% of the cash advance, with a minimum fee of $[1]; provided that there
are generally no minimum fees charged for cash advances obtained through
balance transfer checks in addition to the cash advance fee finance charges
payable thereon.
Fees and Charges. Accounts may be assessed administrative charges which may
include (a) late charges of $[15] if the required minimum payment on the
account is not received on its due date shown on the monthly billing statement,
(b) returned payment charges of $[10] for each time a payment on the account is
returned unsatisfied by the bank or other financial institution on which the
payment was drawn, and (c) reasonable copying fees if a request is made for
duplicate statements, checks or other documents. In addition, the premium
Accounts have a $[39] non-refundable annual membership fee.
Payments. Payments to Household Bank by holders of the Accounts are processed
by the Subservicer and generally applied in the following order: (i) to cash
advance finance charges, (ii) to cash advance fees, (iii) to purchase finance
charges, (iv) to late fees, (v) to previously billed cash advances and then
cash advances in the current billing cycle, and (vi) to previously billed
purchases and other fees and then purchases and other fees in the current
billing cycle. Any excess is credited to the Account as an overpayment amount
to purchases.
44
<PAGE>
THE SELLER
The Seller, Household Affinity Funding Corporation, was incorporated under
the laws of the State of Delaware on April 27, 1993 and was a special purpose
subsidiary of Household Bank, f.s.b. Effective January 1995, the Seller became
a wholly owned subsidiary of Household Bank. The Seller was organized for the
limited purposes of engaging in the type of transaction 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 Household Bank nor the Seller's board of directors intends to
change the business purpose of the Seller. The Seller has its principal office
located at 1111 Town Center Drive, Las Vegas, Nevada 89134 (telephone (702)
243-1240).
HOUSEHOLD BANK (SB), N.A.
Household Bank, located in Las Vegas, Nevada, was chartered as a wholly-owned
operating subsidiary of Household Bank, f.s.b. on December 1, 1993 and
continues to be a wholly-owned operating subsidiary of Household Bank, f.s.b.
Household Bank is principally a nationwide credit card bank offering MasterCard
credit cards and is eligible to offer VISA credit cards. The principal
executive office of Household Bank is located at 1111 Town Center Drive, Las
Vegas, Nevada 89134 (telephone (702) 222-4001).
THE SERVICER
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. ("Household International").
The Servicer and its subsidiaries offer a diversified range of financial
services. The principal products of the Servicer's consumer financial business
is the making of cash loans, including home equity loans secured by first and
second mortgages, automobile loans and unsecured credit advances to consumers
in the United States. The business also includes purchasing sales finance
receivables from retail merchants. Loans are made through branch lending
offices and direct marketing.
In conjunction with its consumer finance operations and where applicable laws
permit, the Servicer makes available to customers credit life, credit accident
and health, and household contents insurance. Credit life, credit accident and
health insurance are generally directly written by or reinsured with Household
Life Insurance Company or its affiliates.
As of December 31, 1995, the Servicer had approximately $18 billion in total
assets, approximately $16 billion in total liabilities and approximately $1.8
billion in shareholder's equity.
THE SUBSERVICER
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 to provide origination, servicing and administrative
services to subsidiaries of Household International, principally subsidiaries
that offered or held private label, VISA and MasterCard credit card accounts.
Pursuant to an agreement with Household Bank, the Subservicer provides such
services for all credit card accounts owned by Household Bank. That agreement
establishes certain performance standards, including
45
<PAGE>
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 [3,700] employees operating from its facilities primarily located
in Salinas, California, Chesapeake, Virginia, Las Vegas, Nevada, Wood Dale,
Illinois and Prospect Heights, Illinois. The principal executive office of the
Subservicer is located at 2700 Sanders Road, Prospect Heights, Illinois 60070
(telephone (847) 564-5000).
THE TRUST
The Trust was formed pursuant to the Pooling and Servicing Agreement and
prior to formation had no assets or obligations. The Trust will not engage in
any business activity other than acquiring and holding the Receivables and the
other assets of the Trust and proceeds therefrom, issuing investor certificates
and the certificate evidencing the Seller's Interest and any supplemental
certificate thereto and making payments thereon and on certain Series
Enhancements, including the Collateral Amount, and related activities. As a
consequence, the Trust is not expected to have any source of capital other than
the Trust Assets. The Trust will be administered in accordance with the laws of
the State of New York.
The Seller conveyed to the Trust, without recourse, its interests in all
Receivables existing in the Initial Accounts at the close of business on the
Initial Cut-Off Date, and all Receivables arising under such Accounts
thereafter, in exchange for the net cash proceeds from the sale of a Series of
investor certificates plus a certificate representing the Seller's Interest. In
addition, the Seller has conveyed and may convey from time to time to the
Trust, without recourse, its interests in all Receivables existing in certain
Additional Accounts and Participation Interests, if any, at the close of
business on each applicable date of designation thereof. The Trust Assets will
consist of the Receivables and any Participation Interests conveyed to the
Trust, all monies due or to become due thereunder, the proceeds of the
Receivables, all monies on deposit in certain accounts maintained for the
benefit of the investor certificateholders, the Cash Collateral Account for the
benefit of the Investor Certificateholders, the Preferred Stock and the right
to receive Recoveries and Interchange allocable to the Trust for the benefit of
the Investor Certificateholders. The Class A Certificates will have rights to
the Cash Collateral Account and certain distributions with respect to the
Collateral Invested Amount prior to the rights of the Class B
Certificateholders. Pursuant to the Bank Purchase Agreement, the Seller will
have the right (subject to certain limitations and conditions) and in some
circumstances under the Pooling and Servicing Agreement will be obligated, to
require Household Bank to designate from time to time Additional Accounts to be
included as Accounts and the Seller will convey to the Trust, pursuant to the
Pooling and Servicing Agreement, its interests in all Receivables of such
Additional Accounts or Participation Interests. Under the Pooling and Servicing
Agreement, the Seller may convey Participation Interests to the Trust. See "The
Pooling and Servicing Agreement Generally--Additions of Accounts or
Participation Interests". In addition, the Seller may, but is not obligated to
designate, from time to time, Participation Interests or Receivables from
Accounts to be removed from the Trust. See "The Pooling and Servicing Agreement
Generally--Removal of Accounts".
Undivided interests in the Trust Assets will be allocated among the Class A
Interest, the Class B Interest, the Seller's Interest and the interests of
investor certificateholders of other Series and may be allocated to any Series
Enhancement, including the Collateral Amount.
USE OF PROCEEDS
Net proceeds from the sale of the Investor Certificates will be paid to the
Seller. The Seller will use such proceeds for general corporate purposes,
including the repayment of intercompany loans from its affiliates.
46
<PAGE>
PRINCIPAL PAYMENT CONSIDERATIONS
Unless an Amortization Event has occurred, the Class A Certificateholders
will not begin to receive payments of principal until the Controlled
Amortization Period which will begin at the close of business on the last
business day of . The first Distribution Date for which principal
payments will be distributed on account of the Controlled Amortization Period
will be . The Class A Principal to be paid to the Class A
Certificateholders on each Distribution Date with respect to the Controlled
Amortization Period will be equal to the lesser of (a) the Class A Controlled
Distribution Amount, (b) the Class A Invested Amount, and (c) Available
Investor Principal Collections (as defined herein) received during the Due
Period immediately preceding such Distribution Date. See "Description of the
Investor Certificates--Distributions from the Collection Account; Allocation of
Funds".
The Class B Principal will not begin to receive payments of principal until
the final principal payment on the Class A Certificates has been made. The
Class B Principal to be paid to the Class B Certificateholders on each such
Distribution Date with respect to the Controlled Amortization Period will be an
amount equal to the lesser of (a) the Controlled Distribution Amount less the
amount of Class A Principal paid on such date and (b) the amount available to
the Class B Certificateholders from the Collection Account but not more than
the Class B Invested Amount.
In the event of the occurrence of an Amortization Event, Class A Principal
will be payable on each Distribution Date thereafter up to the Class A Invested
Amount. In addition, principal will be distributed first to the Class A
Certificateholders and then to the Class B Certificateholders on the
Distribution Date following a sale, disposition or other liquidation of the
Receivables as a result of an Amortization Event and in the event of an
Insolvency Event with respect to the Seller as described under "Description of
the Investor Certificates--Amortization Events" or in connection with
termination of the Trust on the final Termination Date as described under
"Description of the Investor Certificates--Termination". During the Controlled
Amortization Period and any Early Amortization Period, payments of principal
will also be made to reduce the Collateral Invested Amount to the Required
Collateral Amount. See "Description of the Investor Certificates--Principal."
Monthly payment rates on the Receivables may vary because, among other
things, cardholders may fail to make a required minimum payment, may only make
payments as low as the minimum required payment or may make payments as high as
the entire outstanding balance. Monthly payment rates on the Receivables may
also vary due to seasonal purchasing and payment habits of cardholders and to
changes in any terms of rebate programs in which cardholders participate. The
following table sets forth the highest and lowest cardholder monthly payment
rates for the Originated Portfolio during any month in the periods shown and
the average of the cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of the total beginning
account balances for such month. Monthly payment rates reflected in the table
include amounts which would be deemed payments of Principal Receivables or
Finance Charge and Administrative Receivables with respect to the Accounts. In
addition, the amount of outstanding Receivables and the rates of payments,
delinquencies, charge-offs and new borrowings on the Accounts depend on a
variety of factors including seasonal variations, the availability of other
sources of credit, general economic conditions, tax laws, consumer spending and
borrowing patterns, terms of rebate programs, and the terms of the Accounts
(which are subject to change by Household Bank). See "The Credit Card Business
of Household Bank (SB), N.A.--Originated Portfolio Experience".
The ability of the Investor Certificateholders to receive payments of
principal during the Controlled Amortization Period in amounts equal to the
Controlled Amortization Amount may be adversely affected by the issuance of
additional Series with controlled amortization periods which coincide in whole
or in part with the Controlled Amortization Period or the occurrence of an
amortization event with respect to any Series scheduled to be in its revolving
period during the Controlled Amortization Period.
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Due to the reasons set forth above, and the fact that payment experience with
respect to the Accounts is limited, there can be no assurance that principal
payments on the Investor Certificates will be made in accordance with the
Controlled Distribution Amount.
CARDHOLDER MONTHLY PAYMENT RATES FOR THE ORIGINATED PORTFOLIO(1)(2)(3)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993 1992
----- ------ ------ ------
<S> <C> <C> <C> <C>
Lowest Month......................................... % 20.80% 20.25% 9.43%
Highest Month........................................ % 28.75% 24.66% 23.82%
Average of the Months in the Period.................. % 23.60% 22.91% 12.86%
</TABLE>
- --------
(1) Payment rates are the percentages resulting from dividing total principal,
finance charges and fees collected in a month by the beginning receivables
balance for such month.
(2) The cardholder lowest monthly payment rate, highest monthly payment rate
and average monthly payment rate for "The GM CardSM" Accounts for the year
ending December 31, 1993 was 25.85%, 34.45% and 29.10%, respectively, and
for the year ending December 31, 1994 was 24.80%, 34.00% and 27.67%,
respectively.
(3) All information for "The GM CardSM" Accounts was derived from reports
prepared by a servicer that is not affiliated with Household Bank or the
Servicer.
DESCRIPTION OF THE INVESTOR CERTIFICATES
GENERAL
The Investor Certificates will be issued pursuant to the Pooling and
Servicing Agreement and the Series 1997-1 Supplement substantially in the forms
filed as exhibits to the Registration Statement of which this Prospectus is a
part. The Trustee will provide a copy of the Pooling and Servicing Agreement
and the Series 1997-1 Supplement (without exhibits or schedules) to Investor
Certificateholders on written request. The following summary describes certain
terms of the Pooling and Servicing Agreement and the Series 1997-1 Supplement
and is qualified in its entirety by reference to the Pooling and Servicing
Agreement and the Series 1997-1 Supplement.
The Class A Certificates and the Class B Certificates will evidence undivided
beneficial interests in the Trust Assets allocated to the Class A Interest and
the Class B Interest, respectively, representing the right to receive from such
Trust Assets funds up to (but not in excess of) the amounts required to make
payments of interest and principal in the manner described below.
The Investor Certificates will initially be represented by one or more Class
A Certificates and one or more Class B Certificates registered in the name of
the nominee of DTC (together with any successor depository selected by the
Seller, the "Depository"), except as set forth below. The Investor Certificates
will be available for purchase in minimum denominations of $1,000 and integral
multiples thereof in book-entry form. Each $1,000 principal amount of Class A
Certificates will represent of the Class A Interest and each $1,000
principal amount of Class B Certificates will represent of the Class B
Interest. The Seller has been informed by DTC that DTC's nominee will be Cede.
Accordingly, Cede is expected to be the holder of record of the Class A
Certificates and the Class B Certificates. No Investor Certificateholder will
be entitled to receive a Definitive Certificate representing such person's
interest in the Investor Certificates. Unless and until Definitive Certificates
are issued under the limited circumstances described herein, all references
herein to actions by Class A Certificateholders and/or Class B
Certificateholders shall refer to actions taken by DTC upon instructions from
its Participants (as defined herein), and all references herein to
distributions, notices, reports and statements to Class A or Class B
Certificateholders shall refer to distributions, notices, reports and
statements to Cede, as
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<PAGE>
the registered holder of the Class A Certificates and/or Class B Certificates,
for distribution to the beneficial owners of the Class A Certificates and/or
Class B Certificates in accordance with DTC procedures. See "--Book-Entry
Registration" and "--Definitive Investor Certificates".
Payments of interest and principal will be made on each related Distribution
Date to the Investor Certificateholders in whose names the Class A Certificates
and the Class B Certificates, as the case may be, were registered on the last
day of the calendar month preceding such Distribution Date, unless otherwise
specified in a Supplement (each, a "Record Date").
INTEREST
Interest will accrue on the unpaid principal amount of the Class A
Certificates and the Class B Certificates during each Interest Period at the
Class A Certificate Rate and the Class B Certificate Rate, respectively. Except
as otherwise provided herein, interest will be distributed to the Investor
Certificateholders monthly on each Distribution Date commencing
and on each Distribution Date thereafter in an amount equal to the product of
the applicable Class A or Class B Certificate Rate and with respect to the
Class A Certificates the applicable unpaid principal amount and with respect to
the Class B Certificates, the Class B Invested Amount. Interest for the Class A
Certificates will be calculated on the basis of the actual number of days in
the period and a 360-day year, and interest for the Class B Certificates will
be calculated on the basis of a 360-day year of twelve 30-day months, but for
purposes of calculating the interest payable with respect to the first Interest
Period, interest will accrue from and include the Issuance Date to but
excluding .
The Class A Certificate Rate from to and excluding
will be at a rate of % per annum, and for each Interest Period
thereafter will be LIBOR plus % per annum. The Class B Certificate Rate for
each Interest Period will be % per annum. For the purpose of calculating
the rate for the Class A Certificates and for the Collateral Interest Payment,
"LIBOR" means the per annum rate for deposits in United States dollars for a
period of one month which appears on Telerate Page 3750 as of 11:00 a.m.,
London time, on the second London business day prior to the commencement of an
Interest Period. If such rate does not appear on Telerate Page 3750 on such
day, the rate will be determined on the basis of the rates at which deposits in
United States dollars are offered by four major reference banks in the London
interbank market selected by the Servicer at approximately 11:00 a.m., London
time, on such day to prime banks in the London interbank market for a period of
one month commencing on that day. The Servicer will request the principal
London office of each of such reference banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for that day will
be the arithmetic mean of the quotations. If fewer than two quotations are
provided as requested, the rate for that day will be the arithmetic mean of the
rates quoted by two or more major banks in New York City, selected by the
Servicer in its sole discretion, 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 period of one month. The rate will be calculated on the basis of the
actual number of days in the period and a 360-day year.
PRINCIPAL
No principal payments will be made to the Class A Certificateholders until
the commencement of the Controlled Amortization Period or upon the occurrence
of an Amortization Event and commencement of an Early Amortization Period as
described herein. No Principal Payments will be made to the Class B
Certificateholders until the final principal payment has been made to the Class
A Certificateholders. No principal payments will be made in respect of the
Collateral Invested Amount (other than deposits to the Cash Collateral Account
and payments with respect to reductions in the Required Collateral Amount)
until the final principal payment has been made to the Class A
Certificateholders and the Class B Certificateholders.
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<PAGE>
On each Distribution Date during the Revolving Period, unless a reduction in
the Required Collateral Amount has occurred, collections of Principal
Receivables allocable to the Certificateholders' Interest and the Collateral
Invested Amount will, subject to certain limitations, including the
reallocation of any Subordinated Principal Collections with respect to the
related Due Period to pay the Class A Required Amount and the Class B Required
Amount, be paid to the Seller to purchase additional Receivables in order to
maintain the Invested Amount. If a reduction in the Required Collateral Amount
has occurred, collections of Principal Receivables allocable to the
Certificateholders' Interest and the Collateral Invested Amount will be applied
to reduce the Collateral Amount to the Required Collateral Amount.
Unless and until an Amortization Event and commencement of an Early
Amortization Period shall have occurred, on each Distribution Date with respect
to the Controlled Amortization Period, all collections of Principal Receivables
allocable to the Certificateholders' Interest, plus certain other amounts
comprising Class A Principal and Class B Principal (other than Subordinated
Principal Collections that are used to pay the Class A Required Amount or the
Class B Required Amount) will no longer be paid to the Seller as described
above but instead an amount thereof up to $ , or $ with
respect to the Distribution Date (plus any shortfalls in such
amount, the "Controlled Distribution Amount"), will be paid to the Investor
Certificateholders on each Distribution Date beginning with the
Distribution Date, as follows: (a) to the Class A Certificateholders until the
Class A Invested Amount has been paid in full and (b) following the final
principal payment to the Class A Certificateholders, to the Class B
Certificateholders until the Class B Invested Amount is paid in full. Any
collections of Principal Receivables allocable to Investor Certificateholders
during the Revolving Period or the Controlled Amortization Period in excess of
the Controlled Distribution Amount and the amount applied to reduce the
Collateral Amount to the Required Collateral Amount (such excess collections
are herein referred to as "Trust Excess Principal Collections") will be
allocated to other Series of investor certificates, or paid to the Seller as
described under "--Reallocation of Trust Excess Principal Collections".
Similarly, payments of the Controlled Distribution Amount, to the extent
collections of Principal Receivables allocable to the Certificateholders'
Interest are insufficient to pay such amount, may be made from such excess
collections from other Series, if any. During the Controlled Amortization
Period until the final principal payment to the Class B Certificateholders,
collections of Principal Receivables allocable to the Collateral Invested
Amount (other than Subordinated Principal Collections that are used to pay the
Class A Required Amount or the Class B Required Amount and collections used to
make payments with respect to reductions in the Required Collateral Amount) but
not deposited in the Cash Collateral Account for distribution to the Collateral
Interest Holder will generally be paid to the Seller to purchase additional
Receivables in order to maintain the Collateral Invested Amount at its required
level. See "Principal Payment Considerations".
Unless and until an Amortization Event and commencement of an Early
Amortization Period shall have occurred, on each Distribution Date during the
Controlled Amortization Period commencing with the Distribution Date on which
the final payment of principal is made with respect to the Class A
Certificates, all collections of Principal Receivables allocable to the
Certificateholders' Interest plus certain other amounts comprising Class B
Principal up to the Controlled Distribution Amount remaining after paying the
Class A Certificates will be distributed to the Class B Certificateholders.
During the Early Amortization Period, the Principal Allocation Percentage of
collections of Principal Receivables allocable to the Series offered hereby and
certain other amounts allocable to the Investor Certificates (other than
Subordinated Principal Collections that are used to pay the Class A Required
Amount or the Class B Required Amount and Collateral Principal Collections)
will be distributed monthly and will be paid to the Investor Certificateholders
on each Distribution Date as follows: (a) to the Class A Certificateholders
until the Class A Invested Amount is paid in full and (b) following the final
principal payment to the Class A Certificateholders, to the Class B
Certificateholders until the Class B Invested
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<PAGE>
Amount is paid in full. During the Early Amortization Period, collections of
Principal Receivables allocable to the Collateral Invested Amount will be
deposited into the Cash Collateral Account. Amounts will be retained in the
Cash Collateral Account to the extent necessary to maintain the Collateral
Amount at its required level and be made available to cover shortfalls with
respect to the Class A Certificates and the Class B Certificates. See "--
Description of the Cash Collateral Account".
In the event of a sale of the Receivables and an early termination of the
Trust due to an Insolvency Event with respect to the Seller, an optional
repurchase of the Receivables by the Seller, a purchase of the Receivables in
connection with a Servicer Default or a sale of the Receivables in connection
with the final Termination Date of the Trust (each as described under
"Amortization Events", "Optional Repurchase", "Servicer Default", and
"Termination" below), the proceeds of any such sale or repurchase will be
allocated first to pay amounts due with respect to the Class A Certificates,
then to pay amounts due with respect to the Class B Certificates and then to
reduce the Collateral Invested Amount.
SUBORDINATION
The Class B Invested Amount and the Collateral Amount will be subordinated to
the extent necessary to fund certain payments with respect to the Class A
Certificates and, during any period in which Household Finance Corporation or
an affiliate thereof is no longer the Servicer, the Servicing Fee. In addition,
the Collateral Amount will be subordinated to the extent necessary to fund
certain payments with respect to the Class B Certificates. Certain principal
payments otherwise allocable to the Class B Certificateholders may be
reallocated to the Class A Certificateholders and the Class B Invested Amount
may be decreased. Similarly, certain principal payments otherwise allocable to
the Collateral Invested Amount may be reallocated to the Class A
Certificateholders and the Class B Certificateholders and the Collateral
Invested Amount may be decreased. To the extent the Class B Invested Amount is
decreased, the percentage of collections of Finance Charge and Administrative
Receivables allocated to the Class B Certificateholders in subsequent Due
Periods will be reduced. Moreover, to the extent the amount of such decrease in
the Class B Invested Amount is not reimbursed, the amount of principal
distributable to the Class B Certificateholders from the Collection Account
will be reduced. See "--Allocations" and "Reallocation of Cash Flows; Class B
Invested Amount".
COLLECTION ACCOUNT
The Servicer will establish and maintain, or cause to be established and
maintained for the benefit of investor certificateholders and Series
Enhancements in the name of the Trustee, on behalf of the Trust, an account
(the "Collection Account") with an Eligible Institution. "Eligible Institution"
means the Trustee or any other depository institution organized under the laws
of the United States or any one of the states thereof, which at all times has a
short-term unsecured debt rating of at least A-1+ and P-1 by the applicable
Rating Agency, except that no such rating will be required of an institution
which maintains a trust fund in a fully segregated trust account with the trust
department of such institution as long as such institution maintains the credit
rating of the Rating Agency in one of its generic credit rating categories
which signifies investment grade and is a member of the FDIC. Notwithstanding
the preceding sentence, any institution the appointment of which satisfies the
Rating Agency Condition will be an Eligible Institution. Funds in the
Collection Account generally will be invested in (i) obligations fully
guaranteed by the United States of America, (ii) demand deposits, time deposits
or certificates of deposit of depository institutions or trust companies
incorporated under the laws of the United States of America or any state
thereof and subject to supervision and examination by federal or state banking
or depository institution authorities; provided the short-term debt rating of
such depository institution or trust company shall be in the highest rating
category of the applicable Rating Agency, (iii) commercial paper having, at the
time of the Trust's investment or a contractual commitment to invest, a rating
in the highest rating category of the applicable Rating Agency, (iv) demand
deposits, time deposits and
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<PAGE>
certificates of deposit which are fully insured by the FDIC having, at the time
of the Trust's investment therein, a rating in the highest rating category of
the applicable Rating Agency, (v) bankers' acceptances issued by any depository
institution or trust company described in (ii) above, (vi) money market funds
having, at the time of the Trust's investment therein, a rating in the highest
rating category of the applicable Rating Agency, (vii) time deposits, other
than as referred to in (iv) above (having maturities not later than the
succeeding Distribution Date), with an entity, the commercial paper of such
entity having a credit rating in the highest rating category of the applicable
Rating Agency, (viii) demand notes of Household Finance Corporation for so long
as Household Finance Corporation commercial paper has, at the time of the
Trust's investment therein, a rating in the highest rating category of the
applicable Rating Agency and (ix) any other investment if the Rating Agency
Condition has been satisfied (collectively, "Eligible Investments"). Any
earnings (net of losses and investment expenses) on funds in the Collection
Account will be paid to the Seller. The Servicer will have the revocable power
to withdraw funds from the Collection Account and to instruct the Trustee to
make withdrawals and payments from the Collection Account for the purpose of
carrying out its duties under the Pooling and Servicing Agreement and any
Supplement.
ALLOCATIONS
Allocations among Series. Pursuant to the Pooling and Servicing Agreement,
during each Due Period the Servicer will allocate to each outstanding Series
its Series Allocable Finance Charge and Administrative Collections, Series
Allocable Principal Collections, Series Allocable Defaulted Amount and Series
Allocable Miscellaneous Payments.
"Series Allocable Finance Charge and Administrative Collections", "Series
Allocable Principal Collections" and "Series Allocable Defaulted Amount"
mean, with respect to any Series and for any Due Period, the product of (a)
the Series Allocation Percentage and (b) the amount of collections of
Finance Charge and Administrative Receivables deposited in the Collection
Account, Principal Receivables deposited in the Collection Account and the
amount of all Defaulted Amounts with respect to such Due Period,
respectively.
"Series Allocation Percentage" means, with respect to any Series and for
any Due Period, the percentage equivalent of a fraction, the numerator of
which is the Series Adjusted Invested Amount as of the last day of the
immediately preceding Due Period plus, for purposes of allocating
Collections of Principal Receivables to a Series, the Series Required
Seller Amount and the denominator of which is the Trust Adjusted Invested
Amount, plus, for purposes of allocating Principal Collections to a Series,
the sum of series required seller amounts for all Series as of such last
day.
"Series Allocable Miscellaneous Payments" means, with respect to any
Series and for any Due Period, the product of (a) the Series Allocation
Percentage and (b) any Unallocated Principal Collections available to be
treated as such as described herein under "--Reallocation of Trust Excess
Principal Collections".
"Series Adjusted Invested Amount" means, with respect to any Series and
for any Due Period, the initial invested amount of such Series less the
excess, if any, of the cumulative amount of charge-offs allocable to the
invested amount for such Series as of the last day of the immediately
preceding Due Period over the aggregate reimbursement of such charge-offs
as of such last day. With respect to the Series which includes the Investor
Certificates, such amount, when used to compute the Principal Allocation
Percentage, will be adjusted to include the Collateral Invested Amount as
of the last day of the Revolving Period (less the aggregate unreimbursed
Collateral Charge-Offs after such last day), as opposed to the initial
Collateral Invested Amount.
"Series Required Seller Amount" means an amount equal to a designated
percentage of the initial invested amount for such Series; for Series 1997-
1 equal to 7% of the initial Invested Amount.
"Trust Adjusted Invested Amount" means, with respect to any Due Period,
the sum of the Series Adjusted Invested Amounts for all outstanding Series.
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Series 1997-1 Allocations. During each Due Period with respect to the
Revolving Period, the Servicer will allocate among the Class A Interest, the
Class B Interest, the Collateral Invested Amount and the Seller's Interest all
collections on Finance Charge and Administrative Receivables and all
collections on Principal Receivables and the amount of all Defaulted
Receivables in accordance with the Floating Allocation Percentage. The Floating
Allocation Percentage will equal a fraction the numerator of which is the
Invested Amount on the last day of the preceding Due Period and the denominator
of which is the product of the total amount of Principal Receivables in the
Trust on the last day of the preceding Due Period and the Series Allocation
Percentage. During the Revolving Period, all Principal Receivables collected
which are allocable to the Certificateholders Interest will be treated as Trust
Excess Principal Collections or distributed to the Seller (except for the
portions of such collections which are Subordinated Principal Collections used
to pay the Class A Required Amount or the Class B Required Amount as described
under "--Reallocation of Cash Flows"). During the Controlled Amortization
Period and any Early Amortization Period, Series Allocable Principal
Collections will be allocated to the Certificateholders' Interest (the
"Investor Principal Collections") with respect to any Due Period, based on the
percentage equivalent of the product of (1) the ratio which the Series Adjusted
Invested Amount as of the last day of the Revolving Period bears to the product
of (a) the total amount of Principal Receivables in the Trust as of the last
day of the immediately preceding Due Period, and (b) the Series Allocation
Percentage, on the last day of such immediately preceding Due Period (such
ratio being the "Principal Allocation Percentage") and (2) the sum of the Class
A Invested Percentage (as defined herein) and the Class B Invested Percentage
with respect to the first day of such amortization period. Investor Principal
Collections also include certain collections of Reallocated Investor Finance
Charge and Administrative Collections and Excess Finance Charge and
Administrative Collections treated as Investor Principal Collections as
described herein (See "--Distributions from the Collection Account; Allocation
of Funds'' and ""--Excess Finance Charge and Administrative Collections'').
"Collateral Principal Collections" means with respect to any Distribution Date,
the Floating Allocation Percentage with respect to the Revolving Period, or the
Principal Allocation Percentage with respect to the Controlled Amortization
Period or any Early Amortization Period, of Series Allocable Principal
Collections less Investor Principal Collections other than Finance Charge and
Administrative Collections treated as Investor Principal Collections as
mentioned above.
"Class A Invested Amount" for any date means an amount equal to the
initial principal balance of the Class A Certificates, minus the amount of
principal payments made to Class A Certificateholders prior to such date
and minus the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs for all Distribution Dates preceding such date over the
aggregate amount of any reimbursements of Class A Investor Charge-Offs for
all Distribution Dates preceding such date.
"Class B Invested Amount" for any date means an amount equal to (i) the
initial principal balance of the Class B Certificates, minus (ii) the
amount of principal payments made to Class B Certificateholders prior to
such date, minus (iii) the aggregate amount of Class B Investor Charge-Offs
for all prior Distribution Dates, minus (iv) the aggregate amount of
Subordinated Principal Collections other than those allocable to the
Collateral Invested Amount for all prior Distribution Dates which have been
used to fund the Class A Required Amount or the Class B Required Amount
with respect to such Distribution Dates, minus (v) an amount equal to the
aggregate amount by which the Class B Invested Amount has been reduced to
fund the Class A Investor Default Amount on all prior Distribution Dates as
described under "--Investor Charge-Offs", and plus (vi) the sum of (A) the
aggregate amount of Series Allocable Miscellaneous Payments allocated and
available on all prior Distribution Dates to fund the Class B Investor
Default Amount and (B) the aggregate amount of Excess Finance Charge and
Administrative Collections and certain other amounts allocated and
available on all prior Distribution Dates for the purpose of reimbursing
amounts deducted pursuant to the foregoing clauses (iii), (iv) and (v).
"Collateral Invested Amount" means an amount equal to (i) the initial
Collateral Invested Amount, minus (ii) the aggregate amount of deposits
made to the Cash Collateral Account from Principal Collections, minus (iii)
the aggregate amount of Collateral Charge-Offs (as defined herein)
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for all prior Distribution Dates, minus (iv) the aggregate amount of
Subordinated Principal Collections allocable to the Collateral Invested
Amount for all prior Distribution Dates which have been used to fund the
Class A Required Amount or the Class B Required Amount, minus (v) an amount
equal to the aggregate amount by which the Collateral Invested Amount has
been reduced to fund the Class A Investor Default Amount and the Class B
Investor Default Amount on all prior Distribution Dates as described under
"--Investor Charge-Offs" and plus (vi) the sum of (A) the aggregate amount
of Series Allocable Miscellaneous Payments allocated and available on all
prior Distribution Dates to fund the Collateral Charge-Off (as defined
herein) and (B) the aggregate amount of Excess Finance Charge and
Administrative Collections and certain other amounts allocated and
available for purposes of reimbursing amounts deducted pursuant to the
foregoing clauses (iii), (iv) and (v) provided, however, that the
Collateral Invested Amount may not be reduced below zero.
"Seller's Percentage", with respect to the Investor Certificates, means
(i) when used with respect to Finance Charge and Administrative Receivables
and Defaulted Receivables and Principal Receivables during the Revolving
Period, 100% minus the Floating Allocation Percentage, and (ii) when used
with respect to Principal Receivables during the Controlled Amortization
Period and any Early Amortization Period, 100% minus the Principal
Allocation Percentage.
As a result of the Floating Allocation Percentage, collections on Finance
Charge and Administrative Receivables and the portion of Defaulted Receivables
allocated to the Class A and Class B Certificateholders will change each Due
Period based on the relationship of the amount of the Class A Invested Amount,
the Class B Invested Amount and the Collateral Invested Amount to the total
amount of Principal Receivables on the last day of the immediately preceding
Due Period. Collections on Principal Receivables allocable to the Class A
Interest and Class B Interest each day during the Controlled Amortization
Period or any Early Amortization Period, however, will generally not decline as
a result of reductions in the Class A Invested Amount and Class B Invested
Amount due to payments for the benefit of investors but will be subject to the
possible reallocation of all or a portion of the collections of Principal
Receivables allocable to the Class B Interest for the benefit of the Class A
Certificateholders as described under "--Reallocation of Cash Flows".
ALLOCATION OF COLLECTIONS; DEPOSITS IN COLLECTION ACCOUNT
The Servicer, no later than two business days after the processing date, will
deposit all collections received with respect to the Receivables in each Due
Period into the Collection Account, and the Servicer will make the deposits and
payments to the accounts and parties shown below on the date of such deposit.
Notwithstanding the foregoing, for as long as Household Finance Corporation
remains the Servicer under the Pooling and Servicing Agreement and maintains a
rating of P-1 from Moody's Investors Service, Inc. and A-1 from Standard &
Poor's Ratings Group, which is currently the case, the Servicer need not
deposit collections into the Collection Account on the day indicated in the
preceding sentence but may use for its own benefit all such collections until
the related Distribution Date at which time the Servicer will make such
deposits in an amount equal to the net amount of such deposits and withdrawals
which would have been made had the conditions of this sentence not applied.
With respect to the Investor Certificates, if the net amount in respect of
Finance Charge and Administrative Receivables to be deposited into the
Collection Account on any Distribution Date pursuant to the preceding sentence
exceeds the sum of the Class A Interest Payment and Class B Interest Payment
for such Distribution Date, any overdue Class A Interest Payment and Class B
Interest Payment (plus any additional interest accrued on such overdue Class A
Interest Payment and Class B Interest Payment), the Class A Investor Default
Amount and the Class B Investor Default Amount for such Distribution Date, and
the Servicing Fee plus certain amounts payable with respect to the Collateral
Invested Amount, the Servicer may deduct the Servicing Fee and, during the
Revolving Period, the Class A Investor Default Amount and the Class B Investor
Default Amount (which will be distributed to
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the Seller, but not in an amount exceeding the Seller's Interest in Principal
Receivables on such day (after giving effect to any new Receivables transferred
to the Trust on such day)) from the net amount to be deposited into the
Collection Account. In addition, on each Distribution Date with respect to the
Controlled Amortization Period, the Servicer may deduct the amount of any Trust
Excess Principal Collections not required to cover Principal Shortfalls (which
will be distributed to the Seller, but not in an amount exceeding the Seller's
Interest in Principal Receivables on such day (after giving effect to any new
Receivables transferred to the Trust on such day)) from the net amount to be
deposited into the Collection Account.
On the day any such deposit is made into the Collection Account, the Servicer
will withdraw from the Collection Account and pay to the Seller to the extent
not deducted from collections as described above, (i) an amount equal to the
excess, if any, of the aggregate amount of such deposits in respect of
Principal Receivables treated as Trust Excess Principal Collections for all
Series over the aggregate amount of Principal Shortfalls for all Series and,
without duplication, (ii) the aggregate amount of Series Allocable Principal
Collections for all outstanding Series to be paid to the Seller with respect to
such date. Any amounts in respect of Principal Receivables not distributed to
the Seller on any day because the Seller's Participation Amount does not exceed
zero on such day (after giving effect to any Principal Receivables transferred
to the Trust on such day) (the "Unallocated Principal Collections") shall be
held in the Collection Account until distributable to the Seller or, if the
Controlled Amortization Period or an Early Amortization Period has commenced,
on each Distribution Date shall be treated as "Series Allocable Miscellaneous
Payments". The proceeds of any sale, disposition or liquidation of Receivables
following an Insolvency Event or in connection with the Series 1997-1
Termination Date will also be deposited into the Collection Account immediately
upon receipt.
REALLOCATION OF TRUST EXCESS PRINCIPAL COLLECTIONS
The Servicer will determine for any Due Period the amount of Trust Excess
Principal Collections for all Series. The Servicer will allocate the Trust
Excess Principal Collections from a particular Series and, at the option of the
Seller, certain collections of Principal Receivables allocated to Series
Enhancements (i) to the Seller in order to purchase additional Trust Assets, or
(ii) to cover any principal distributions to investor certificateholders and
Series Enhancements and deposits to principal accumulation accounts for any
Series which are either scheduled or permitted and which have not been covered
out of the investor principal collections and certain other amounts for such
Series ("Principal Shortfalls"). Any such allocation will, in the case of the
Investor Certificates, maintain the Invested Amount. Trust Excess Principal
Collections will generally not be used to cover investor charge-offs for any
Series. If Principal Shortfalls exceed Trust Excess Principal Collections for
any Due Period, Trust Excess Principal Collections will be allocated pro rata
among the applicable Series based on the relative amounts of Principal
Shortfalls. To the extent that Trust Excess Principal Collections exceed
Principal Shortfalls, the balance will be allocated to the Seller, unless the
Seller's Interest in Principal Receivables at such time (after giving effect to
any new Receivables transferred to the Trust) is zero. Any amount not allocated
to the Seller because its interest in Principal Receivables is zero will be
held unallocated as "Unallocated Principal Collections" until the Seller's
Interest in Principal Receivables is greater than zero (at which time such
amount will be allocated to the Seller) or until an amortization event occurs
or an accumulation period (or amortization period, if applicable) commences for
any Series (after which such amount will be treated as a Series Allocable
Miscellaneous Payment).
REALLOCATION OF CASH FLOWS
On each Determination Date with respect to the Investor Certificates, the
Servicer will determine the Class A Required Amount, which will be equal to the
amount, if any, by which (a) the sum of (i) Class A Interest Payment for the
following Distribution Date, (ii) any Class A Interest Payment previously due
but not distributed to the Class A Certificateholders on a prior Distribution
Date, (iii) any additional
55
<PAGE>
interest with respect to interest amounts that were due to the Class A
Certificateholders but not paid on a prior Distribution Date, (iv) the Class A
Investor Default Amount, if any, for such Distribution Date and (v) during any
period in which Household Finance Corporation or an affiliate thereof is no
longer the Servicer, the Servicing Fee and overdue Servicing Fees, exceeds (b)
the product of the Class A Invested Percentage for such Distribution Date and
the Reallocated Investor Finance Charge and Administrative Collections (as
defined herein) for such Distribution Date. If the Class A Required Amount is
greater than zero, collections designated as "Excess Finance Charge and
Administrative Collections" in "--Distributions from the Collection Account;
Allocation of Funds" ("Excess Finance Charge and Administrative Collections")
will be used to pay the Class A Required Amount with respect to such
Distribution Date. If such Excess Finance Charge and Administrative Collections
are insufficient to pay the Class A Required Amount, any amounts on deposit in
the Cash Collateral Account will be withdrawn down to zero to pay the Class A
Required Amount and if such withdrawal is less than the Class A Required
Amount, Subordinated Principal Collections will be used to fund the remaining
Class A Required Amount.
If Subordinated Principal Collections and withdrawals from the Cash
Collateral Account with respect to any Due Period are insufficient to fund the
remaining Class A Required Amount for such Due Period, the Collateral Invested
Amount will be reduced (but not in excess of the Class A Investor Default
Amount) by the amount of such insufficiency until such time as it has reached
zero and then the Class B Invested Amount, if any, will be reduced (but not in
excess of the Class A Investor Default Amount) to avoid a charge-off with
respect to the Class A Certificates.
Such reductions of the Class B Invested Amount shall thereafter be reimbursed
and the Class B Invested Amount increased on each Distribution Date by the
amount, if any, of Excess Finance Charge and Administrative Collections and
Series Allocable Miscellaneous Payments for such Distribution Date allocated
and available for that purpose. See "--Excess Finance Charge and Administrative
Collections" and "--Subordinated Principal Collections". When such reductions
of the Class B Invested Amount have been fully reimbursed, reductions of the
Collateral Amount shall be reimbursed and the Collateral Amount increased up to
the Required Collateral Amount in a similar manner.
If collections of Finance Charge and Administrative Receivables allocable to
the Class B Interest for any Due Period are insufficient to pay interest on the
Class B Certificates (including additional interest on unpaid interest) and the
Class B Investor Default Amount (as defined herein), on the related
Distribution Date for such Due Period (such insufficiency being the "Class B
Required Amount"), Excess Finance Charge and Administrative Collections not
required to fund the Class A Required Amount will be applied to fund the Class
B Required Amount. If Excess Finance Charge and Administrative Collections
available with respect to such Due Period and amounts on deposit in the Cash
Collateral Account are less than the Class B Required Amount, Subordinated
Principal Collections allocable to the Collateral Invested Amount for such Due
Period will then be used to fund the remaining Class B Required Amount.
If Subordinated Principal Collections allocable to the Collateral Invested
Amount with respect to any Due Period are insufficient to fund the remaining
Class B Required Amount for such Due Period, then the Collateral Invested
Amount will be reduced (but not in excess of the Class B Investor Default
Amount for such Due Period) by the amount of such insufficiency to avoid a
charge-off with respect to the Class B Certificates.
If the Cash Collateral Account and the Collateral Invested Amount are reduced
to zero, the Class B Invested Amount will be reduced if the Class B Required
Amount for any Due Period exceeds the sum of Excess Finance Charge and
Administrative Collections not required to fund the Class A Required Amount and
Subordinated Principal Collections, if any, allocable to the Collateral
Invested Amount for such Due Period, but not in excess of the Class B Investor
Default Amount for such Due
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<PAGE>
Period, and the Class B Certificateholders will bear directly the credit and
other risks associated with their undivided interest in the Trust. See
"Description of the Investor Certificates--Reallocation of Cash Flows; Class B
Invested Amount", "--Subordinated Principal Collections" and "--Investor
Charge-Offs".
If the Class B Invested Amount is reduced to zero, the Class A Invested
Amount will be reduced if the Class A Required Amount for any Due Period
exceeds the sum of Excess Finance Charge and Administrative Collections, the
amount on deposit in the Cash Collateral Account, if any, and Subordinated
Principal Collections, if any, for such Due Period, but not in excess of the
Class A Investor Default Amount for such Due Period, and the Class A
Certificateholders will bear directly the credit and other risks associated
with their undivided interest in the Trust. See "--Investor Charge-Offs" below.
DISTRIBUTIONS FROM THE COLLECTION ACCOUNT; ALLOCATION OF FUNDS
The Servicer shall apply or shall cause the Trustee to apply the funds
allocated to the Series offered hereby and on deposit in the Collection Account
with respect to each Distribution Date to make the following distributions with
respect to the Investor Certificates for such Distribution Date:
(a) An amount equal to the product of the Class A Invested Percentage and
Reallocated Investor Finance Charge and Administrative Collections with
respect to such Distribution Date will be distributed in the following
priority:
(i) an amount equal to the Class A Interest Payment for such
Distribution Date, plus the amount of any Class A Interest Payment
previously due but not distributed to Class A Certificateholders on a
prior Distribution Date, plus any additional interest with respect to
interest amounts that were due but not paid on a prior Distribution
Date, will be held on deposit in the Collection Account for
distribution to the Class A Certificateholders;
(ii) an amount equal to the aggregate Class A Investor Default Amount
for such Distribution Date shall be treated as a portion of Investor
Principal Collections;
(iii) an amount equal to the Servicing Fee for such Distribution Date
will be distributed to the Servicer (unless such amount has been
previously netted against deposits to the Collection Account); and
(iv) the balance, if any, will constitute a portion of Excess Finance
Charge and Administrative Collections and will be allocated and
distributed as described below under "--Excess Finance Charge and
Administrative Collections".
"Class A Invested Percentage" means, with respect to any Distribution
Date, the percentage equivalent of a fraction, the numerator of which is
the Class A Invested Amount as of the last day of the second preceding Due
Period and the denominator of which is the Invested Amount as of such last
day.
(b) An amount equal to the product of the Class B Invested Percentage and
Reallocated Investor Finance Charge and Administrative Collections with
respect to such Distribution Date will be distributed in the following
priority:
(i) an amount equal to the Class B Interest Payment (computed on the
Class B Invested Amount rather than the unpaid principal amount of the
Class B Certificates) for such Distribution Date, plus the amount of
any such Class B interest previously due but not distributed to Class B
Certificateholders on a prior Distribution Date, plus any additional
interest with respect to interest amounts that were due but not paid on
a prior Distribution Date, will be distributed to the Class B
Certificateholders; and
(ii) the balance, if any, will constitute a portion of Excess Finance
Charge and Administrative Collections and will be allocated and
distributed as described below under "--Excess Finance Charge and
Administrative Collections".
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<PAGE>
The term "Class B Invested Percentage" means the percentage equivalent of
a fraction the numerator of which is the Class B Invested Amount as of the
last day of the second preceding Due Period, and the denominator of which
is the Invested Amount as of such last day.
(c) An amount equal to the product of the Collateral Invested Percentage
and Reallocated Investor Finance Charge and Administrative Collections with
respect to such Distribution Date will constitute a portion of Excess
Finance Charge and Administrative Collections and will be allocated and
distributed as described below under "--Excess Finance Charge and
Administrative Collections".
"Collateral Invested Percentage" means the percentage equivalent of a
fraction the numerator of which is the Collateral Invested Amount as of the
last day of the second preceding Due Period, and the denominator of which
is the Invested Amount as of such last day.
(d) For each Distribution Date with respect to the Controlled
Amortization Period or any Early Amortization Period, an amount equal to
Available Investor Principal Collections with respect to such Distribution
Date will be distributed in the following priority:
(i) an amount equal to Class A Principal for such Distribution Date,
plus the amount of any Class A Principal previously due but not
distributed to the Class A Certificateholders on a prior Distribution
Date (but not exceeding the Class A Invested Amount) will be
distributed to the Class A Certificateholders;
(ii) for each Distribution Date with respect to the Controlled
Amortization Period on or prior to the Distribution Date on which the
Class A Invested Amount is paid in full and prior to the occurrence of
an Amortization Event, an amount equal to the balance of any such
remaining funds on deposit in the Collection Account in excess of
amounts applied to reduce the Collateral Amount to the Required
Collateral Amount shall be treated as Trust Excess Principal
Collections; and
(iii) for each Distribution Date beginning with the Distribution Date
on which the Class A Invested Amount is paid in full, an amount equal
to the balance of any such remaining funds on deposit in the Collection
Account up to the amount of the Class B Principal for such Distribution
Date, plus the amount of any Class B previously due but not distributed
to the Class B Certificateholders on a prior Distribution Date will be
distributed to the Class B Certificateholders.
"Available Investor Principal Collections" means the sum of (a) an amount
equal to (i) Investor Principal Collections minus (ii) the amount of
Subordinated Principal Collections allocable to the Class B Invested Amount
required to fund any deficiency as described above under "--Reallocation of
Cash Flows" plus (b) Series Allocable Miscellaneous Payments allocated to
the Certificateholders' Interest on deposit in the Collection Account plus
(c) Trust Excess Principal Collections allocated from other Series to the
Investor Certificateholders as described above under "--Reallocation of
Trust Excess Principal Collections" plus (d) subordinated principal
collections reallocated from other Series.
(e) For each Distribution Date with respect to the Revolving Period and
the Controlled Amortization Period in which a reduction in the Required
Collateral Amount has occurred, Available Investor Principal Collections
not applied to Class A Principal or Class B Principal for such Distribution
Date will be applied to reduce the Collateral Amount to the Required
Collateral Amount.
EXCESS FINANCE CHARGE AND ADMINISTRATIVE COLLECTIONS
On each Distribution Date, the Servicer will apply or cause the Trustee to
apply Excess Finance Charge and Administrative Collections with respect to the
Due Period immediately preceding such Distribution Date, to make the following
distributions with respect to the Investor Certificates in the following
priority:
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(a) an amount equal to the Class A Required Amount, if any, with respect
to such Due Period will be used to fund any deficiency for such
Distribution Date (i) in Class A Interest Payments, Class A Interest
Payments previously due but not distributed to Class A Certificateholders
and any interest thereon, (ii) the amount equal to the Class A Investor
Default Amount to be treated as Investor Principal Collections and (iii)
the Servicing Fee if Household Finance Corporation or an affiliate is not
acting as Servicer;
(b) an amount equal to the aggregate amount of Class A Investor Charge-
Offs which have not been previously reimbursed will be treated as Investor
Principal Collections;
(c) an amount equal to the amount of interest which has accrued with
respect to the outstanding aggregate principal amount of the Class B
Certificates at the Class B Certificate Rate but has not been distributed
to the Class B Certificateholders either on such Distribution Date or on a
prior Distribution Date will be distributed to the Class B
Certificateholders;
(d) an amount equal to the aggregate Class B Investor Default Amount, if
any, for such Distribution Date will be treated as Investor Principal
Collections;
(e) an amount equal to the aggregate amount by which the Class B Invested
Amount has been reduced below the initial Class B Invested Amount other
than by payments of Class B Principal (but not in excess of the aggregate
amount of such reductions which have not been previously reimbursed) will
be treated as Investor Principal Collections;
(f) an amount equal to Collateral Monthly Interest (defined below) for
such Distribution Date, plus the amount of any Collateral Monthly Interest
previously due but not distributed to the Collateral Interest Holder on a
prior Distribution Date, plus the amount of any Collateral Additional
Interest for such Distribution Date shall be paid to the Collateral
Interest Holder;
(g) an amount equal to the unpaid Servicing Fee will be paid to the
Servicer;
(h) an amount equal to the Collateral Default Amount for such
Distribution Date will be treated as Collateral Principal Collections;
(i) during the Revolving Period and the Controlled Amortization Period,
an amount equal to the aggregate amount by which the Collateral Invested
Amount has been reduced by Collateral Charge-Offs shall be treated as
Collateral Principal Collections;
(j) an amount equal to the excess of the Required Collateral Amount over
the Collateral Amount shall be deposited in the Cash Collateral Account;
and
(k) the balance, if any, after giving effect to the payments made
pursuant to subparagraphs (a) through (j) above shall be applied in
accordance with the provisions of the Collateral Agreement.
"Collateral Monthly Interest," for each Distribution Date, means an
amount equal to monthly interest on the Collateral Invested Amount as of
the close of business on the preceding Distribution Date at a rate equal to
[LIBOR plus 1.00%] per annum.
REALLOCATIONS AMONG INVESTOR CERTIFICATES OF DIFFERENT SERIES
Group One Investor Finance Charges. The Series offered hereby will be
included in Group One. Series 1993-1, Series 1993-2, Series 1993-3, Series
1994-1, Series 1994-2 and Series 1995-1 also are included in Group One and
other Series issued in the future may also be included in Group One. See "Annex
I--Prior Issuance of Investor Certificates."
The Servicer will calculate for each Due Period Group One Investor Finance
Charge and Administrative Collections and on the following Distribution Date
shall allocate such amount among the Certificateholders' Interest (including
the Collateral Interest) and the certificateholders' interest for all other
Series in Group One in the following priority:
(i) Group One Investor Monthly Interest;
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<PAGE>
(ii) Group One Investor Default Amounts;
(iii) Group One Investor Monthly Fees;
(iv) Group One Investor Additional Amounts; and
(v) the balance pro rata among each Series in Group One based on the
current invested amount of each such Series.
In the case of clauses (i), (ii), (iii) and (iv), if the amount of 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 Group One pro rata based on the claim that each Series has under
the applicable clause. This means, for example, that if the amount of Group One
Investor Finance Charge and Administrative Collections is not sufficient to
cover Group One Investor Monthly Interest, each Series in Group One will share
such amount pro rata and any Series 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
the Series offered hereby (due to a higher certificate rate) will receive a
proportionately larger allocation.
The amount of Group One Investor Finance Charge and Administrative
Collections allocated to the Certificateholders' Interest and Collateral
Interest for the Series offered hereby as described above is referred to herein
as "Reallocated Investor Finance Charge and Administrative Collections".
"Group One Investor Additional Amounts" means for any Distribution Date
the sum of (a) with respect to the Investor Certificates and the Collateral
Invested Amount, generally the amounts set forth in clauses (b), (c), (e)
and (i) under "--Excess Finance Charge and Administrative Collections" and
(b) with respect to any other Series in Group One, (i) an amount equal to
the amount by which the invested amount of any class of investor
certificates or certain Series Enhancement interests has been reduced as a
result of investor charge-offs, subordination of principal collections and
funding the investor default amount for any other class of investor
certificates or certain Series Enhancement interests of such Series and
(ii) if the related Supplement so provides, the amount of interest at the
applicable certificate rate that has accrued on the amount described in the
preceding clause (i).
"Group One Investor Default Amount" means for any Distribution Date the
sum of (a) with respect to the Investor Certificates and the Collateral
Invested Amount, the product of Series Allocable Defaulted Amount for such
Distribution Date and the Floating Allocation Percentage for such
Distribution Date and (b) with respect to any other Series in Group One,
the product of (i) series allocable defaulted amounts for each such Series
for such Distribution Date and (ii) the floating allocation percentage of
each such Series for such Distribution Date.
"Group One Investor Finance Charge and Administrative Collections" means
for any Distribution Date the sum of (a) the aggregate amount of Investor
Finance Charge and Administrative Collections for such Distribution Date
and (b) the aggregate amount of investor finance charge and administrative
collections for such Distribution Date for all other Series in Group One.
"Group One Investor Monthly Fees" means for any Distribution Date the sum
of (a) the Servicing Fee and (b) the portion of the servicing fee allocable
to the investor certificates or Series Enhancement investor interest of
each other Series in Group One, any Series Enhancement fees and any other
similar fees which are paid out of reallocated investor finance charge and
administrative collections for such Series pursuant to the applicable
Supplement.
"Group One Investor Monthly Interest" means for any Distribution Date the
sum of (a) interest payable on the Class A Certificates for such
Distribution Date, plus the amount of any interest previously due but not
paid to the Class A Certificateholders on a prior Distribution Date, plus
any additional interest with respect to interest amounts that were due but
not paid on a prior Distribution
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Date, plus interest payable on the Class B Certificates for such
Distribution Date, plus the amount of any interest previously due but not
paid to the Class B Certificateholders on a prior Distribution Date, plus
any additional interest with respect to interest amounts that were due but
not paid on a prior Distribution Date plus all interest payable to the
Collateral Interest Holder at the lesser of the Collateral Rate and 11% and
(b) the aggregate amount of monthly interest, including overdue monthly
interest and interest on such overdue monthly interest, if applicable, for
all other Series in Group One for such Distribution Date.
The chart below demonstrates the manner in which collections of Finance
Charge and Administrative Collections are allocated and reallocated among
Series in Group One. The chart assumes that the Trust has issued three Series
(Series 93-1, 93-2 and 93-3), and that each such Series is in its Revolving
Period. The Trust, in fact, has ten series outstanding, six of which are in
Group One. See "Annex I--Prior Issuance of Investor Certificates." The Investor
Certificates will be the seventh Series in Group One, and there is no limit to
the number of Series which may be included in Group One or in any other Group.
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CREDIT CARD MASTER TRUST
FINANCE CHARGE COLLECTIONS
----------------------------------------------------
Series 1993-2 Series 1993-3
Series 1993-1
Series Series Series
Allocable Allocable Allocable
Finance Finance Finance
Charge and Charge and Charge and
Administrative Administrative Administrative
Collections Collections Collections
Step 1
(based upon the (based upon the (based upon the
Series Series Series
Allocation Allocation Allocation
Percentage) Percentage) Percentage)
------------- ------------- -------------
Investor Investor Investor
Finance Finance Finance
Charge and Charge and Charge and
Administrative Administrative Administrative
Collections Collections Collections
(based (based (based
upon the upon the upon the
Floating Floating Floating
Allocation Allocation Allocation
Percentage) Percentage) Percentage)
Step 2
Seller's Seller's Seller's
Finance Finance Finance
Charges Charges Charges
-------------------------------------------------
Step 3
Group One
---- Investor Finance Charge and Administrative
Collections
----------------------------
---------------------------------
Step 4 Series 93-1 Series 93-2 Series 93-3
Investor Investor Investor
Monthly Monthly Monthly
Interest Interest Interest
----------------------------
---------------------------------
Series 93-1 Series 93-2 Series 93-3
Investor Investor Investor
Default Amounts Default Amounts Default Amounts
----------------------------
---------------------------------
Series 93-1 Series 93-2 Series 93-3
Investor Investor Investor
Monthly Fees Monthly Fees Monthly Fees
----------------------------
---------------------------------
Series 93-1 Series 93-2 Series 93-3
Investor Additional Amounts
Investor Additional Amounts
Investor Additional Amounts
----------------------------
---------------------------------
Series 93-1 Series 93-2 Series 93-3
Balance based Balance based Balance based
upon Invested upon Invested upon Invested
Amount Amount Amount
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<PAGE>
In Step 1, total Finance Charge and Administrative Collections are allocated
among the three Series based on the Series Allocation Percentage for each
Series. The amount allocated to each Series pursuant to Step 1 is referred to
as "Series Allocable Finance Charge and Administrative Collections". See
"Description of the Investor Certificates--Allocations--Allocations among
Series".
In Step 2, the amount of Finance Charge and Administrative Collections
allocable to the investor certificates or Series Enhancement invested interest
of a Series (the "Investor Finance Charge and Administrative Collections") is
determined by multiplying Series Allocable Finance Charge Collections for each
Series by the Floating Allocation Percentage. See "--Allocations--Series 1997-1
Allocations" and see also "--Reallocations Among Investor Certificates of
Different Series--Group One Investor Finance Charges".
Investor Finance Charge and Administrative Collections for all Series in the
Group (or Group One Investor Finance Charge and Administrative Collections) are
pooled as shown in Step 3 for reallocation to each such Series as shown in Step
4. In Step 4, Group One Investor Finance Charge and Administrative Collections
are reallocated to each Series in Group One as described above based on the
Series' respective claim with respect to interest payable on the investor
certificates or Series Enhancement invested interest of such Series, the
investor default amounts and the servicing fee and certain other amounts in
respect of such Series. The excess is allocated pro rata among the Series based
on their respective invested amounts.
ALLOCATION OF RECEIVABLES OR PARTICIPATION INTERESTS
To the extent provided in any Supplement, or any amendment to the Pooling and
Servicing Agreement, portions of the Receivables or Participation Interests
conveyed to the Trust and all collections received with respect thereto may be
allocated to one or more Series or Groups as long as the Rating Agency
Condition shall have been satisfied with respect to such allocation and the
Servicer shall have delivered an officer's certificate to the Trustee to the
effect that the Servicer reasonably believes such allocation will not have an
Adverse Effect.
DISCOUNT AND PREMIUM OPTION
The Pooling and Servicing Agreement provides that the Seller may at any time
designate a fixed percentage of the amount of Receivables arising in the
Accounts on and after the date of such designation (a) that otherwise would be
treated as Principal Receivables to be treated as Finance Charge and
Administrative Receivables or (b) that otherwise would be treated as Finance
Charge Receivables to be treated as Principal Receivables. The Seller must
provide 30 days' prior written notice to the Servicer, the Trustee, and each
Rating Agency of any such designation, and such designation will become
effective on the date specified therein only if (i) an officer's certificate is
delivered to the effect that in the reasonable belief of the Seller such
designation would not have an Adverse Effect and (ii) the Rating Agency
Condition is satisfied.
DESCRIPTION OF THE CASH COLLATERAL ACCOUNT
The Trust will have the benefit of the Cash Collateral Account which will be
held in the name of the Trustee for the benefit of the Investor
Certificateholders and the Collateral Interest Holder and will be invested in
certain obligations (which may include obligations of Household Finance
Corporation) meeting the requirements for "Eligible Investments".
The initial amount on deposit in the Cash Collateral Account will be zero and
will increase as the Collateral Invested Amount is reduced to the extent the
Seller elects, subject to the Rating Agency Condition, to deposit collections
of Principal Receivables in the Cash Collateral Account and through payments of
principal with respect to the Collateral Invested Amount which are required to
be deposited
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<PAGE>
in the Cash Collateral Account. Amounts on deposit in the Cash Collateral
Account will also increase by the deposit of Excess Finance Charge and
Administrative Receivables to increase the Available Collateral Amount up to
the Required Collateral Amount. For a discussion of the extent to which
withdrawals will be made from the Cash Collateral Account to pay the Class A
Required Amount and the Class B Required Amount, see "--Allocation of
Collections", and "--Reallocation of Cash Flows". The Cash Collateral Account
will be terminated following the earlier to occur of (a) the date on which the
Class A Certificates and Class B Certificates are paid in full, (b) the Series
1997-1 Termination Date (as defined herein) and (c) the final Termination Date
of the Trust.
The "Required Collateral Amount" with respect to any Distribution Date for
the Investor Certificates means (i) $ initially and (ii) thereafter
an amount equal to the greater of (a) % of the Class A Invested Amount
minus the Class B Invested Amount, (b) % of the unpaid principal balance of
the Class B Certificates and (c) % of the Invested Amount, in each case as of
such Distribution Date after taking into account distributions made on such
date; provided, however, (1) that if certain withdrawals are made from the
Cash Collateral Account, certain reductions in the Collateral Invested Amount
are made or if an Amortization Event occurs, the Required Collateral Amount
for such Distribution Date shall equal the Required Collateral Amount for the
Distribution Date immediately preceding the occurrence of such withdrawal,
reduction or Amortization Event, (2) in no event shall the Required Collateral
Amount exceed the unpaid principal amount of the Investor Certificates as of
the last day of the Due Period preceding such Distribution Date and (3) the
Required Collateral Amount may be reduced at any time to a lesser amount if
the Rating Agency Condition is satisfied and (4) the Seller at its option may
at any time increase the Required Collateral Amount to a greater amount.
With respect to any Distribution Date, if the Collateral Amount is less than
the Required Collateral Amount, certain Excess Finance Charge and
Administrative Collections and Series Allocable Miscellaneous Payments will be
reallocated to increase the Collateral Invested Amount or deposited into the
Cash Collateral Account to the extent of such shortfall. Any of such Excess
Finance Charge and Administrative Collections not required to be reallocated
or deposited into the Cash Collateral Account with respect to any Distribution
Date will be applied in accordance with the Collateral Agreement. See "--
Excess Finance Charge and Administrative Collections".
If on any Distribution Date, the amount on deposit in the Cash Collateral
Account plus the Collateral Invested Amount exceeds the Required Collateral
Amount, such excess in the Cash Collateral Account will be applied in
accordance with the Collateral Agreement and will not be available to the
Investor Certificateholders.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES
The "Defaulted Amount" for any Due Period will be an amount (not less than
zero) equal to (a) the amount of Defaulted Receivables less (b) the sum of (i)
the full amount of any Defaulted Receivables of which the Seller or the
Servicer becomes obligated to accept reassignment for such Due Period unless
certain events of bankruptcy, insolvency or receivership have occurred with
respect to the Seller or the Servicer, in which event the amount of Defaulted
Receivables will not be reduced for those Defaulted Receivables, and (ii) the
excess, if any, for the immediately preceding Due Period of the sum computed
pursuant to this clause (b) for such Due Period over the amount of Principal
Receivables which became Defaulted Receivables in such Due Period. Receivables
in any Account will be charged-off as uncollectible in accordance with the
credit card guidelines of the Servicer of the Account and the Subservicer's
customary and usual policies and procedures for servicing comparable credit
card accounts, but in any event Receivables in any Account will generally be
charged-off when the Account becomes 181 [or more] days delinquent (or less in
the case of bankruptcy) [at the end of any month unless the cardholder cures
such default by making payments which qualify under the standards customarily
applied by the Subservicer]. Household Bank retains the right to change these
policies. A portion of the Defaulted Amount (the "Class A Investor Default
Amount") will be allocated to Class A
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Certificateholders for each Distribution Date in an amount equal to the product
of the Class A Invested Percentage applicable during the immediately preceding
Due Period and an amount equal to the product of the Series Allocation
Percentage with respect to such Due Period, the Floating Allocation Percentage
with respect to such Due Period and the Defaulted Amount for such Due Period
(the "Investor Defaulted Amount"). A portion of the Defaulted Amount (the
"Class B Investor Default Amount") will be allocated to the Class B
Certificateholders for each Distribution Date in an amount equal to the product
of the Class B Invested Percentage applicable during the immediately preceding
Due Period and the Investor Defaulted Amount.
If the Servicer adjusts the amount of any Receivable because of a rebate,
refund, unauthorized charge, billing error or certain other noncash items to a
cardholder, or because such Receivable was created in respect of merchandise
which was refused or returned by a cardholder, or if the Servicer charges-off
as uncollectible certain small balances, the amount of Principal Receivables
used to calculate the Seller's Interest and the Seller's Participation Amount
will be reduced by the amount of the adjustment or charge-off. In addition, the
principal amount of the Seller's Interest in Principal Receivables will be
reduced by the amount of any Receivable which was discovered as having been
created through a fraudulent or counterfeit charge or which was subject to
certain liens specified in the Pooling and Servicing Agreement. Furthermore, to
the extent that the reduction in the Seller's Participation Amount would reduce
such amount below zero, the Seller will deposit an offsetting amount of cash
into the Collection Account on the Distribution Date following such Due Period.
Any amount deposited into the Collection Account in connection with the
adjustment of a Receivable will be considered Collections of Principal
Receivables and will be allocated and distributed accordingly. See "--
Principal" and "--Allocations of Principal Collections".
INVESTOR CHARGE-OFFS
On each Distribution Date, if the Class A Required Amount for such
Distribution Date exceeds the sum of Excess Finance Charge and Administrative
Collections, funds available in the Cash Collateral Account and Subordinated
Principal Collections with respect to the Due Period immediately preceding such
Distribution Date, the Collateral Invested Amount and, if necessary, the Class
B Invested Amount, will be reduced by the amount of such excess, but not more
than the Class A Investor Default Amount for such Distribution Date. In the
event that such reduction would cause the sum of the Collateral Invested Amount
and the Class B Invested Amount to be a negative number, the Collateral
Invested Amount and the Class B Invested Amount will be reduced to zero, and
the Class A Invested Amount will be reduced by the amount by which the
Collateral Invested Amount and the Class B Invested Amount would have been
reduced below zero, but not more than the Class A Investor Default Amount for
such Distribution Date (a "Class A Investor Charge-Off"), which will have the
effect of slowing or reducing the return of principal to the Class A
Certificateholders. If the Class A Invested Amount has been reduced by the
amount of any Class A Investor Charge-Offs, it will be increased on any
Distribution Date (but not by an amount in excess of the aggregate Class A
Investor Charge-Offs) by the sum of (i) the amount of any Series Allocable
Miscellaneous Payments allocable to the Investor Certificateholders then on
deposit in the Collection Account and (ii) the amount of Excess Finance Charge
and Administrative Collections allocated and available for such purpose as
described under "--Excess Finance Charge and Administrative Collections".
If on any Distribution Date, the Class B Required Amount, if any, for such
Distribution Date exceeds the amount of Excess Finance Charge and
Administrative Collections which are allocated and available to fund such
amount as described under "--Excess Finance Charge and Administrative
Collections", funds available in the Cash Collateral Account and Subordinated
Principal Collections allocable to the Collateral Invested Amount (to the
extent not used to pay the Class A Required Amount), then the Collateral
Invested Amount shall be reduced by the aggregate amount of such excess but not
more than the Class B Investor Default Amount for such Distribution Date. In
the event that such reduction would cause the Collateral Invested Amount to be
a negative number, the Collateral Invested Amount will be reduced to zero, and
the Class B Invested Amount will be reduced by the remainder of such
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reduction (a "Class B Investor Charge-Off"). The Class B Invested Amount will
also be reduced if Subordinated Principal Collections allocable to the Class B
Certificates are used to fund the Class A Required Amount. The Class B Invested
Amount will thereafter be increased (but not in excess of the aggregate Class B
Investor Charge-Offs) on any Distribution Date by the sum of (i) the amount of
any Series Allocable Miscellaneous Payments then on deposit in the Collection
Account (but only to the extent such deposits are not required to reimburse
Class A Investor Charge-Offs as described above) and (ii) the amount of Excess
Finance Charge and Administrative Collections allocated and available for that
purpose as described under "--Excess Finance Charge and Administrative
Collections".
OPTIONAL REPURCHASE
On the Distribution Date occurring on or after the date that the sum of the
Class A Invested Amount and the Class B Invested Amount is reduced to
$ (5% of the initial outstanding aggregate principal amount of the
Class A Certificates, the Class B Certificates and the Collateral Interest) or
less, the Seller will have the option to repurchase the Certificateholders'
Interest. The purchase price will be equal to the sum of the Class A Invested
Amount and the Class B Invested Amount plus accrued and unpaid interest on the
unpaid principal amount of the Class A Certificates and the Class B
Certificates (and accrued and unpaid interest with respect to interest amounts
that were due but not paid on such Distribution Date or any prior Distribution
Date) through the day preceding such Distribution Date at the Class A
Certificate Rate and the Class B Certificate Rate, respectively. Such proceeds
will be allocated first to pay amounts due to the Class A Certificateholders
and secondly, to pay amounts due to the Class B Certificateholders. Following
any such repurchase, the Receivables will be assigned to the Seller and the
Class A Certificateholders and the Class B Certificateholders will have no
further rights with respect thereto. In the event that the Seller fails for any
reason to deposit the aggregate purchase price for such Receivables, the Trust
will continue to hold the Receivables and payments will continue to be made to
the Class A and Class B Certificateholders as described herein.
AMORTIZATION EVENT
An "Amortization Event" refers to any of the following events:
(a) failure on the part of the Seller (i) to make any payment or deposit
required under the Pooling and Servicing Agreement and Series 1997-1
Supplement within five business days after the date such payment or deposit
is required to be made; or (ii) to observe or perform any other covenants
or agreements of the Seller set forth in the Pooling and Servicing
Agreement and Series 1997-1 Supplement, which failure has a material
adverse effect on the Investor Certificateholders and which continues
unremedied for a period of 60 days after written notice;
(b) any representation or warranty made by the Seller in the Pooling and
Servicing Agreement and Series 1997-1 Supplement or any information
required to be given by the Seller to the Trustee to identify the Accounts
proves to have been incorrect in any material respect when made and which
continues to be incorrect in any material respect for a period of 60 days
after written notice and as a result of which the interests of the Investor
Certificateholders are materially and adversely affected, provided,
however, that an Amortization Event shall not be deemed to occur thereunder
if the Seller has repurchased the related Receivables or all such
Receivables, if applicable, during such period in accordance with the
provisions of the Pooling and Servicing Agreement and such Supplement;
(c) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Seller, any additional Seller or Household
Bank;
(d) any reduction of the Series Adjusted Portfolio Yield (averaged over
any three consecutive Due Periods) to a rate below the Base Rate;
(e) the Trust becomes subject to regulation by the Commission as an
investment company within the meaning of the Investment Company Act of
1940, as amended;
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(f) a failure by the Seller to convey Receivables in Additional Accounts
to the Trust so as to increase the Principal Receivables in the Trust to
the Required Minimum Principal Balance within five business days after the
day on which such required balance is no longer satisfied under the Pooling
and Servicing Agreement;
(g) any Servicer Default occurs which would have a material adverse
effect on the Investor Certificateholders or the Collateral Interest
Holder;
(h) failure to distribute an amount equal to the full Invested Amount of
the Class A Certificates, or the Class B Certificates, as the case may be,
and all interest accrued thereon, on or before the
Distribution Date;
(i) on any Determination Date, the Class B Invested Amount on the next
Distribution Date will be less than 1% of the initial Invested Amount; or
(j) the Seller is unable for any reason to transfer Receivables to the
Trust in accordance with the Pooling and Servicing Agreement.
"Series Adjusted Portfolio Yield" as used in paragraph (d) above means with
respect to the Series offered hereby and any Due Period, the annualized
percentage equivalent of a fraction the numerator of which is the amount of
Reallocated Investor Finance Charge and Administrative Collections during the
immediately preceding Due Period calculated on a cash basis, after subtracting
therefrom the Investor Defaulted Amount with respect to such Due Period and the
denominator of which is the Invested Amount as of the last day of the
immediately preceding Due Period. "Base Rate" as used in paragraph (d) above
means the weighted average of the Class A Certificate Rate, the Class B
Certificate Rate and the lesser of the Collateral Rate and 11% (weighted based
on the Class A Invested Amount, the Class B Invested Amount and the Collateral
Invested Amount as of the last day of the preceding Due Period) plus 2.00% per
annum.
If any event described in (a), (b) or (g) occurs, an Amortization Event will
be deemed to have occurred only if, after the applicable grace period described
in such clauses, if any, either the Trustee or Investor Certificateholders
holding Investor Certificates evidencing more than 50% of the aggregate unpaid
principal amount of the Investor Certificates by written notice to the Seller
and the Servicer (and to the Trustee, if given by the Investor
Certificateholders) declare that an Amortization Event has occurred as of the
date of such notice. If any event described in clauses (c), (d), (e), (f), (h),
(i) or (j) occurs, subject to applicable law and after the applicable grace
period described in such clauses, if any, an Amortization Event will be deemed
to have occurred without any notice or other action on the part of the Trustee
or the Investor Certificateholders immediately upon the occurrence of such
event. The Early Amortization Period will commence as of the first day of the
Due Period in which an Amortization Event has occurred unless at the time of
such event the Servicer is required to make daily deposits of collections into
the Collection Account, in which case the Early Amortization Period will
commence as of the day on which the Amortization Event occurs. Principal
payments with respect to the Class B Certificates will not be made until the
final principal payment has been paid to the Holders of the Class A
Certificates.
For purposes of the foregoing discussion pertaining to the Amortization
Events, references to the Investor Certificates will include the Collateral
Interest.
In addition to the consequences of an Amortization Event discussed above, if
an Insolvency Event with respect to the Seller occurs, pursuant to the Pooling
and Servicing Agreement, on the day of such Insolvency Event, the Seller will
(subject to the actions of the investor certificateholders and the Collateral
Interest Holder) immediately cease to transfer Principal Receivables to the
Trust and promptly give notice to the Trustee of such Insolvency Event. Under
the terms of the Pooling and Servicing Agreement, within fifteen days the
Trustee will publish a notice of Insolvency Event stating that the Trustee
intends to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable
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manner and on commercially reasonable terms unless within a specified period of
time the holders of investor certificates evidencing more than 50% of the
aggregate unpaid principal amount of each Series or any person granted such
right in any Supplement may instruct the Trustee not to dispose of or liquidate
the Receivables and to continue transferring Principal Receivables as before
such Insolvency Event. As of this date, any one of the credit enhancers for
Series 1993-1, 1993-2, 1993-3, 1994-1, 1994-2 and 1995-1 may object and prevent
such sale (unless a receiver orders a sale despite such objection). The credit
enhancer for Series 1997-1 may similarly object and prevent such sale. The
proceeds from such sale, disposition or liquidation of the Receivables
("Insolvency Proceeds") will be treated as collections on the Receivables and
deposited in the Collection Account. If the portion of such proceeds allocated
first to the Class A Interest and then to the Class B Interest and the proceeds
of any collections on the Receivables in the Collection Account allocated to
the Class A Interest and the Class B Interest, respectively, are not sufficient
to pay first the Class A Invested Amount and then the Class B Invested Amount
in full, the amount of principal returned to the Class B Certificateholders and
Class A Certificateholders, respectively, will be reduced and the Class B
Certificateholders and Class A Certificateholders, respectively, will incur a
loss.
Upon the occurrence of an Amortization Event, if a conservator or receiver is
appointed for Household Bank and no Amortization Event other than such
conservatorship or receivership or insolvency of Household Bank exists, the
conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the
Amortization Period.
TERMINATION
The Trust will terminate on the earlier to occur of (a) April 30, 2014, (b)
at the option of the Seller, the day following the Distribution Date on which
the invested amount for each Series is zero and (c) the day following the
Distribution Date that Insolvency Proceeds have been distributed to investor
certificateholders and in respect of any Series Enhancement (the "Termination
Date"). Upon the Termination Date, all right, title and interest in the
Receivables and other funds of the Trust (other than amounts in the accounts
maintained by the Trust for the final payment of principal and interest to
investor certificateholders) will, unless the Receivables have been sold as
provided above, be conveyed and transferred to the Seller.
In the event that the Invested Amount for the Series offered hereby is
greater than zero on the Distribution Date (the "Series 1997-1
Termination Date") (after giving effect to deposits and distributions otherwise
to be made on such date), the Trustee will sell or cause to be sold an amount
of Principal Receivables (or interests therein) equal to 100% of the Invested
Amount on such date plus related Finance Charge and Administrative Receivables
but not in excess of the Series Allocation Percentage for the Series offered
hereby of Receivables on such date. The proceeds from the sale of the
Receivables will be treated as collections on the Receivables and deposited
into the Collection Account.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation in connection with the Investor Certificates for
its servicing activities and reimbursement for its expenses will be a servicing
fee, payable monthly in arrears on each Distribution Date, in an amount equal
to one-twelfth of the product of 2.00% and the amount of Principal Receivables
as of the last day of the second preceding Due Period and the Series Allocation
Percentage for the Series offered hereby. The servicing fee will be allocated
between the Seller's Interest, the Certificateholders' Interest and the
Collateral Interest. The portion of the servicing fee allocable to the
Certificateholders' Interest and the Collateral Interest on each Distribution
Date (the "Servicing Fee") will be equal to one-twelfth of the product of (a)
(i) 2.00% less (ii) the amount by which Interchange received during the
preceding Due Period as a percentage of the total amount of Principal
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Receivables at the end of such Due Period is less than 1.25% per annum and (b)
the Invested Amount on the last day of the second preceding Due Period or, in
the case of the first Distribution Date, the initial Invested Amount. The
remaining portion of the servicing fee will be allocable to the Seller's
Interest. The Servicing Fee will be paid with respect to each Due Period from
the Collection Account (unless such amount has been netted against deposits to
the Collection Account) as described under "--Distributions from the Collection
Account; Allocation of Funds" above.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Accounts and the Receivables
including, without limitation, expenses related to enforcement of the
Receivables, payment of fees and disbursements of the Trustee and independent
accountants and all other fees and expenses which are not expressly stated in
the Pooling and Servicing Agreement to be payable by the Trust or the Seller or
allocated as an expense to the Investor Certificateholders other than Federal,
state and local income and franchise taxes, if any, of the Trust.
REPORTS
No later than the second business day prior to each Distribution Date, the
Servicer will forward to the Trustee a statement (the "Servicer Report")
prepared by the Servicer setting forth certain information with respect to the
Trust and the Investor Certificates, including: (a) the aggregate amount of
collections, the aggregate amount of collections in respect of Finance Charge
and Administrative Receivables and the aggregate amount of collections in
respect of Principal Receivables processed during the immediately preceding Due
Period; (b) the Floating Allocation Percentage for such Due Period and, during
the Controlled Amortization Period and any Amortization Period, the Principal
Allocation Percentage; (c) the aggregate outstanding balance of the Accounts
which were delinquent by one monthly payment, two monthly payments and three or
more monthly payments as of the close of business at the end of the calendar
month immediately preceding such Date; (d) the Class A Investor Default Amount,
the Class B Investor Default Amount and the product of the Investor Defaulted
Amount for the prior Due Period and the Collateral Invested Percentage (the
"Collateral Default Amount") for such Distribution Date; (e) the amount of
Class A Investor Charge-Offs, Class B Investor Charge-Offs and the amounts by
which the Collateral Invested Amount has been reduced, due to the Collateral
Default Amount with respect to any Due Period being in excess of the Excess
Finance Charge and Administrative Collections available therefor for such Due
Period, as described under "--Excess Finance Charge and Administrative
Collections" (a "Collateral Charge-Off") and the amount of reimbursements of
each for such Distribution Date; (f) the amount of the Servicing Fee for such
Distribution Date; (g) the aggregate amount of Principal Receivables and
Finance Charge and Administrative Receivables in the Trust at the close of
business on the last day of the Due Period preceding such Distribution Date;
(h) the Class A Invested Amount, the Class B Invested Amount and the Collateral
Invested Amount at the close of business on the last day of the Due Period
immediately preceding such Distribution Date; and (i) the amount of
Subordinated Principal Collections for such Distribution Date and the
respective amounts of such Collections allocable to the Class B Certificates
and the Collateral Invested Amount. The Trustee will make such statement
available to the Investor Certificateholders upon request.
On each Distribution Date the Trustee will forward to the registered holder
of each Investor Certificate (which initially will be Cede) a statement (the
"Distribution Date Statement") prepared by the Servicer setting forth the
information with respect to the Class A Certificates or Class B Certificates,
as the case may be, set forth in the Servicer Report supplied to the Trustee as
described in the preceding paragraph since the immediately preceding
Distribution Date, as the case may be, and the following additional information
(which, in the case of (a), (b) and (c) below, will be stated on the basis of
an original principal amount of $1,000 per Class A Certificate or Class B
Certificate, as the case may be): (a) the total amount distributed to Investor
Certificateholders; (b) the amount of such distribution allocable to principal
on the Class A Certificates or Class B Certificates, as the case may be; (c)
the
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amount of such distribution allocable to interest on the Class A Certificates
or Class B Certificates, as the case may be; (d) the amount, if any, by which
the principal balance of the Class A Certificates or Class B Certificates
exceeds the Class A Invested Amount or Class B Invested Amount, respectively,
as of the Record Date with respect to such Distribution Date; and (e) the
"Class A Pool Factor" or "Class B Pool Factor", as the case may be, as of the
end of the Record Date with respect to such Distribution Date (consisting of an
eight-digit decimal expressing the Class A Invested Amount or Class B Invested
Amount as of such Record Date (determined after taking into account any
increase or decrease in the Class A Invested Amount or Class B Invested Amount,
respectively, which will occur on the following Distribution Date) as a
proportion of the initial Class A Invested Amount or Class B Invested Amount,
respectively, on the Issuance Date).
The Trustee will furnish (or cause to be furnished) to each person who at any
time during the preceding calendar year was an investor certificateholder of
record a statement containing the information required to be provided by an
issuer of indebtedness under the Code for such preceding calendar year or the
applicable portion thereof during which such person was an investor
certificateholder, together with such other customary information as is
necessary to enable the investor certificateholders to prepare their tax
returns. See "Tax Matters".
BOOK-ENTRY REGISTRATION
Investor Certificateholders may hold their Investor Certificates through DTC
(in the United States) or CEDEL or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems.
Cede, as nominee for DTC, will hold the global Class A Certificate or
Certificates and the global Class B Certificate or Certificates. CEDEL and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective Depositaries (as defined herein) which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC. Citibank will act as depositary for CEDEL and Chase will act as
depositary for Euroclear (in such capacities, the "Depositaries").
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 UCC and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and facilitate
the settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants
include the Underwriters, securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants (as defined herein) and Euroclear
Participants (as defined herein) will occur in accordance with their respective
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
systems by its Depositary. Cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver
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instructions to its Depositary to take action to effect final settlement on its
behalf by delivering or receiving securities in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. CEDEL Participants and Euroclear Participants may not
deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or a Euroclear Participant to a Participant will be received with value on the
DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Investor Certificates, see "Tax Matters--Federal Tax Consequences--United
States Alien Holders".
Investor Certificateholders that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Investor Certificates may do so only through
Participants and Indirect Participants. In addition, Investor
Certificateholders will receive all distributions of principal and interest on
the Investor Certificates from the Trustee through DTC and its Participants.
Under a book-entry format, Investor Certificateholders will receive payments
after the related Distribution Date, as the case may be, because, while
payments are required to be forwarded to Cede, as nominee for DTC, on each such
date, DTC will forward such payments to its Participants which thereafter will
be required to forward them to Indirect Participants or holders of beneficial
interests in the Investor Certificates. It is anticipated that the only "Class
A Certificateholder" and "Class B Certificateholder" will be Cede, as nominee
of DTC, and that holders of beneficial interests in the Class A Certificates or
the Class B Certificates will not be recognized by the Trustee as Class A
Certificateholders or Class B Certificateholders, respectively, under the
Pooling and Servicing Agreement. Holders of beneficial interests in the Class A
Certificates and Class B Certificates will only be permitted to exercise the
rights of Class A Certificateholders or Class B Certificateholders,
respectively, under the Pooling and Servicing Agreement indirectly through DTC
and its Participants who in turn will exercise their rights 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 Investor Certificates and is
required to receive and transmit distributions of principal of and interest on
the Investor Certificates. Participants and Indirect Participants with which
holders of beneficial interests in the Investor Certificates have accounts
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of these respective holders.
Because DTC can only act on behalf of Participants, who in turn act on behalf
of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Investor Certificates to pledge Investor
Certificates to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Investor Certificates, may be
limited due to the lack of a Definitive Certificate for such Investor
Certificates.
DTC has advised the Seller that it will take any action permitted to be taken
by a Class A Certificateholder or Class B Certificateholder under the Pooling
and Servicing Agreement and the Series 1997-1 Supplement only at the direction
of one or more Participants to whose account with DTC the Class A Certificates
or Class B Certificates are credited. Additionally, DTC has advised the Seller
that it may take actions with respect to the Class A Interest, the Class B
Interest, or Certificateholders' Interest that conflict with other of its
actions with respect thereto.
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CEDEL is incorporated under the laws of [Luxembourg] as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of [28]
currencies, including United States dollars. CEDEL provides to CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to CEDEL is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. Euroclear 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. Euroclear is operated by [the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euro-clear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative")]. All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear 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. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
[The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.]
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities
and cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Investor Certificates held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Tax Matters--Federal Tax Consequences--United States
Alien Holders" and"--Information Reporting and Backup Withholding". CEDEL or
the Euroclear Operator, as the case may be, will take any other action
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permitted to be taken by an Investor Certificateholder under the Pooling and
Servicing Agreement and the Series 1997-1 Supplement on behalf of a CEDEL
Participant 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, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Investor Certificates among participants of
DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE INVESTOR CERTIFICATES
Definitive Certificates will be issued to Class A Certificateholders or Class
B Certificateholders, as the case may be, rather than to DTC or its nominee,
only if (i) the Seller advises the Trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as Depository with
respect to the Class A Certificates or Class B Certificates, as the case may
be, and the Trustee or the Seller is unable to locate a qualified successor,
(ii) the Seller, at its option, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of a Servicer Default, certificate
owners evidencing not less than 50% of the aggregate unpaid principal amount of
the Investor Certificates, advise the Trustee and DTC through Participants in
writing that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the best interests of certificate owners
with respect to the Investor Certificates, as the case may be.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Investor Certificates and
instructions for reregistration, the Trustee will issue the Investor
Certificates in the form of Definitive Certificates, and thereafter the Trustee
will recognize the holders of such Definitive Certificates as Class A
Certificateholders or Class B Certificateholders, as the case may be, under the
Pooling and Servicing Agreement and the Series 1997-1 Supplement ("Holders").
Distribution of principal and interest on the Investor Certificates will be
made by the Trustee directly to Holders in accordance with the procedures set
forth herein and in the Pooling and Servicing Agreement and the Series 1997-1
Supplement. Interest payments and principal payments will be made to Holders in
whose names the Definitive Certificates were registered at the close of
business on the related Record Date. Distributions will be made by check mailed
to the address of such Holder as it appears on the register maintained by the
Trustee. The final payment on any Investor Certificate (whether Definitive
Certificates or Certificates registered in the name of Cede), however, will be
made only upon presentation and surrender of such Investor Certificate on the
final payment date at such office or agency as is specified in the notice of
final distribution to Investor Certificateholders. The Trustee will provide
such notice to registered Investor Certificateholders not later than the fifth
day of the month of the final distribution.
Definitive Certificates will be transferable and exchangeable at the offices
of the Transfer Agent and Registrar, which shall initially be the 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 therewith.
THE POOLING AND SERVICING AGREEMENT GENERALLY
CONVEYANCE OF RECEIVABLES
On the Initial Issuance Date, the Seller sold and assigned to the Trust its
interest in all Receivables in the Accounts existing as of the Initial Cut-Off
Date, all Receivables thereafter created under the
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Accounts, all Recoveries and Interchange allocable to the Trust, and the
proceeds of all of the foregoing. The Seller has also sold and assigned to the
Trust and may hereafter sell and assign to the Trust from time to time
Receivables in designated Aggregate Addition Accounts and may from time to time
sell and assign to the Trust its interest in Participation Interests or the
Receivables in Additional Accounts as of the applicable date of designation,
all Recoveries and Interchange allocable to the Trust and the proceeds of all
of the foregoing.
On each issuance date for any Series, including the Issuance Date, the
Trustee will authenticate and deliver one or more certificates representing the
Series or class of investor certificates, in each case against payment to the
Seller of the net proceeds of the sale of the investor certificates. In the
case of the Initial Issuance Date, the Trustee also delivered a certificate
representing the Seller's Interest to the Seller, which may be supplemented
from time to time.
In connection with the transfer of the Receivables to the Trust, Household
Bank will indicate in its computer records that the Receivables have been
conveyed to the Seller and from the Seller to the Trust. In addition, the
Seller will provide to the Trustee a computer file or a microfiche list from
Household Bank containing a true and complete list showing for each Account, as
of the applicable date of designation (i) its account number, (ii) the
aggregate amount outstanding in such Account and (iii) except in the case of
New Accounts, the aggregate amount of Principal Receivables in such Account.
The Subservicer will retain and will not deliver to the Trustee any other
records or agreements relating to the Accounts or the Receivables. Except as
set forth above, the records and agreements relating to the Accounts and the
Receivables will not be segregated from those relating to other credit card
accounts and receivables, and the physical documentation relating to the
Accounts or Receivables will not be stamped or marked to reflect the transfer
of Receivables to the Seller or to the Trust. Household Bank and the Seller
will file UCC financing statements with respect to the sale of the Receivables
from Household Bank to the Seller and from the Seller to the Trust,
respectively, meeting the requirements of applicable state law. See "Risk
Factors" and "Certain Legal Aspects of the Receivables".
As described below under "--Additions of Accounts or Participation
Interests", the Seller will have the right (subject to certain limitations and
conditions) and, in some circumstances will be obligated, to require Household
Bank to designate from time to time Additional Accounts to be included as
Accounts and to convey to the Seller (for conveyance by the Seller to the
Trust) all Receivables in such Additional Accounts, whether such Receivables
are then existing or thereafter created. Each such Additional Account must be
an Eligible Account. In respect of any designation of Additional Accounts, the
Seller will follow the procedures set forth in the preceding paragraph, except
the list will show information for such Additional Accounts as of the date such
Additional Accounts are identified and selected. Aggregate Addition Accounts
will be selected by Household Bank in a manner which it reasonably believes
will not be materially adverse to the certificateholders' interest. The Seller
has the right (subject to certain conditions described under "--Additions of
Accounts or Participation Interests") to convey Participation Interests to the
Trust. In addition, the Seller may (under certain circumstances and subject to
certain limitations and conditions) remove the Participation Interests and the
Receivables in certain Accounts as described under "--Removal of Accounts".
REPRESENTATIONS AND WARRANTIES
The Seller makes representations and warranties to the Trust in the Pooling
and Servicing Agreement, relating to the Accounts and the Receivables as of
each Closing Date for a Series (or as of the related Addition Date with respect
to Additional Accounts) to the effect, among other things, that as of each
applicable date of designation, (a) each Account was an Eligible Account, (b)
each of the Receivables then existing in the Accounts or in the Additional
Accounts is an Eligible Receivable and (c) thereafter, on the date of creation
of any new Receivable, such Receivable is an Eligible Receivable.
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If the Seller breaches any representation and warranty described in this
paragraph in any material respect and such breach remains uncured for 60 days,
or such longer period as may be agreed to by the Trustee and the Servicer after
the earlier to occur of the discovery of such breach by the Seller or receipt
of written notice of such breach by the Seller and such breach has a material
adverse effect on the certificateholders' interest in such Receivable, all
Receivables with respect to the Account affected ("Ineligible Receivables")
will be reassigned to the Seller on the terms and conditions set forth below
and such Account shall no longer be included as an Account.
"Eligible Receivable" means each receivable (a) which has arisen under an
Eligible Account, (b) which was created in compliance in all material respects
with all requirements of law and pursuant to a credit card agreement which
complies in all material respects with all requirements of law applicable to
Household Bank, (c) with respect to which all material consents, licenses,
approvals or authorizations of, or registrations or declarations with, any
governmental authority required to be obtained, effected or given in connection
with the creation of such Receivable or the execution, delivery, creation and
performance by Household Bank or by the original credit card issuer, if not
Household Bank, of the related credit card agreements pursuant to which such
Receivable was created have been duly obtained or given and are in full force
and effect, (d) as to which at the time of its transfer to the Trust, the
Seller or the Trust will have good and marketable title, free and clear of all
liens, encumbrances, charges and security interests, (e) which has been the
subject of either a valid transfer and assignment from the Seller to the Trust
of all the Seller's right, title and interest therein (and in the proceeds
thereof), or the grant of a first priority perfected security interest therein
(and in the proceeds thereof), effective until the termination of the Trust,
(f) which will at all times be the legal, valid and binding payment obligation
of the cardholder thereof enforceable against such cardholder in accordance
with its terms, subject to certain bankruptcy or insolvency related exceptions,
(g) which at the time of its transfer to the Trust, has not been waived or
modified except as permitted under the Pooling and Servicing Agreement, (h)
which is not at the time of its transfer to the Trust subject to any right of
rescission, setoff, counterclaim or defense (including the defense of usury),
other than certain bankruptcy and insolvency related defenses, (i) as to which
Household Bank and the Seller have satisfied all obligations to be fulfilled at
the time it is transferred to the Trust, (j) as to which, at the time of its
transfer to the Trust, neither Household Bank nor the Seller has taken any
action which would impair or failed to take any action the result of which
would impair the rights of the Trust or the Investor Certificateholders therein
and (k) which constitutes either an "account" or a "general intangible" under
the applicable UCC as then in effect.
An Ineligible Receivable shall be reassigned to the Seller on or before the
end of the Due Period in which such reassignment obligation arises by the
Seller directing the Servicer to deduct the portion of such Ineligible
Receivable which is a Principal Receivable from the aggregate amount of the
Principal Receivables used to calculate the Seller's Participation Amount (as
defined herein). In the event that the exclusion of the principal portion of an
Ineligible Receivable from the calculation of the Seller's Participation Amount
would cause the Seller's Participation Amount to be a negative number, on the
Distribution Date following the Due Period in which such reassignment
obligation arises the Seller will make a deposit into the Collection Account in
immediately available funds in an amount equal to the amount by which the
Seller's Participation Amount would be reduced below zero. The reassignment of
any Ineligible Receivable to the Seller, and the obligation of the Seller to
make any deposits into the Collection Account as described in this paragraph,
is the sole remedy respecting any breach of the representations and warranties
described in the preceding paragraph with respect to such Receivable available
to the investor certificateholders or the Trustee on behalf of investor
certificateholders. Household Bank has agreed, in the Bank Purchase Agreement,
to repurchase from the Seller any Ineligible Receivables reassigned to the
Seller and to provide the Seller any amounts necessary to enable the Seller to
make the deposit referred to above. The term "Seller's Participation Amount"
means at any time of determination, an amount equal to the total aggregate
amount of Principal Receivables in the Trust at such time minus the aggregate
invested amounts (including the Invested Amount) for all outstanding Series at
such time.
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The Seller will also make representations and warranties to the Trust to the
effect, among other things, that as of each closing date for a Series it is a
corporation validly existing under the laws of the State of Delaware, it has
the authority to consummate the transactions contemplated by the Pooling and
Servicing Agreement and each Supplement and further represents to the Trust on
each closing date for a Series and, with respect to the Additional Accounts, as
of each addition date (a) the Pooling and Servicing Agreement and each
Supplement constitutes a valid, binding and enforceable agreement of the Seller
and (b) the Pooling and Servicing Agreement and each Supplement constitutes
either a valid sale, transfer and assignment to the Trust of all right, title
and interest of the Seller in the Receivables, whether then existing or
thereafter created and the proceeds thereof (including proceeds in any of the
accounts established for the benefit of the investor certificateholders) and in
Recoveries and Interchange or the grant of a first priority perfected security
interest under the applicable UCC in such Receivables and the proceeds thereof
(including proceeds in any of the accounts established for the benefit of the
investor certificateholders) and in Recoveries and Interchange, which is
effective as to each Receivable then existing on such date. In the event of a
material breach of any of the representations and warranties described in this
paragraph that has a material adverse effect on the certificateholders'
interest in the Receivables or the availability of the proceeds thereof to the
Trust (which determination will be made without regard to whether funds are
then available pursuant to any Series Enhancement), either the Trustee or
investor certificateholders (including the Collateral Interest Holder) holding
investor certificates (and a portion of the Collateral Amount) evidencing not
less than 50% of the aggregate unpaid principal amount of all outstanding
investor certificates (and interests in the Collateral Amount), by written
notice to the Seller and the Servicer (and to the Trustee if given by the
investor certificateholders), may direct the Seller to accept the reassignment
of the Receivables in the Trust within 60 days of such notice, or within such
longer period specified in such notice. The Seller will be obligated to accept
the reassignment of such Receivables on the Distribution Date following the Due
Period in which such reassignment obligation arises. Such reassignment will not
be required to be made, however, if at the end of such applicable period, the
representations and warranties shall then be true and correct in all material
respects and any material adverse effect caused by such breach shall have been
cured. The price for such reassignment with respect to the Investor
Certificates will be equal to the Invested Amount on such Distribution Date on
which the purchase is scheduled to be made plus accrued and unpaid interest on
the unpaid principal amount of the Class A Certificates and the Class B
Certificates and certain interest amounts that were due but not paid on a prior
Distribution Date at the Class A Certificate Rate or the Class B Certificate
Rate, as the case may be, through the day preceding such Distribution Date. The
payment of such reassignment price in immediately available funds, will be
considered a payment in full of the Class A Interest and Class B Interest and
such funds will be distributed upon presentation and surrender of the Class A
Certificates and Class B Certificates. If the Trustee or investor
certificateholders give a notice as provided above, the obligation of the
Seller to make any such deposit will constitute the sole remedy respecting a
breach of the representations and warranties available to investor
certificateholders or the Trustee on behalf of investor certificateholders.
Under the Bank Purchase Agreement, Household Bank will repurchase from the
Seller Receivables purchased by the Seller in accordance with this paragraph.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of the Receivables or any records relating to the
Receivables for the purpose of establishing the presence or absence of defects,
compliance with Household Bank's and the Seller's representations and
warranties or for any other purpose. In addition, it is not anticipated or
required that the Trustee will make any initial or periodic general examination
of the Servicer or Subservicer for the purpose of establishing the compliance
by the Servicer with its representations or warranties or the performance by
the Servicer of its obligations under the Pooling and Servicing Agreement, any
Supplement or for any other purpose. The Servicer, however, will deliver to the
Trustee on or before March 31 of each calendar year an opinion of counsel with
respect to the validity of the interest of the Trust in and to the Receivables
and certain other components of the Trust.
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TRANSFER OF SELLER'S INTEREST
Except as set forth in the Pooling and Servicing Agreement, the Seller may
not transfer the Seller's Interest or its obligations under the Pooling and
Servicing Agreement and any Supplement, unless the Rating Agency has advised
the Seller and the Trustee that the Rating Agency Condition has been satisfied.
ADDITIONS OF ACCOUNTS OR PARTICIPATION INTERESTS
The Seller will have the right to require Household Bank to designate from
time to time Additional Accounts to be included as Accounts. Household Bank
will in each case convey to the Seller, which in turn will convey to the Trust,
its interest in all Receivables arising from such Additional Accounts, whether
such Receivables are then existing or thereafter created, subject to the
following conditions, among others: (i) each such Additional Account must be an
Eligible Account; and (ii) except for the addition of New Accounts (a) the
selection of the Aggregate Addition Accounts is done in a manner which it
reasonably believes will not result in an Adverse Effect; and (b) the Rating
Agency Condition shall have been satisfied. "Adverse Effect" means any action
that will result in the occurrence of an Amortization Event or materially
adversely affect the amount or timing of distributions to the Investor
Certificateholders; for purposes of this definition the Collateral Interest
Holder will be treated as an Investor Certificateholder. The Seller will be
obligated to require Household Bank to add Additional Accounts (to the extent
available) if the aggregate amount of Principal Receivables in the Trust on the
last business day of any calendar month is less than the Required Minimum
Principal Balance as of such last day. In lieu of adding Additional Accounts,
the Seller may convey Participation Interests to the Trust. "Required Minimum
Principal Balance" means the sum of the initial Invested Amount and the initial
invested amounts for all outstanding Series plus the sum of the Series Required
Seller Amount (as defined herein) and the series required seller amounts for
each such Series.
Each Additional Account must be an Eligible Account at the time of its
designation. However, since Additional Accounts or Participation Interests
which may be created after the Issuance Date may not have been a part of the
Originated Portfolio as of the close of business on December 31, 1995, they may
not be of the same credit quality as the Initial Accounts or the Aggregate
Addition Accounts existing as of the close of business on December 31, 1995
because such Additional Accounts or Participation Interests may have been
originated at a later date using credit criteria different from those which
were applied to the Initial Accounts or the Aggregate Addition Accounts
existing as of the close of business on December 31, 1995 or may have been
acquired from another credit card issuer or entity who had different credit
criteria. Consequently, the performance of such Additional Accounts or
Participation Interests may be better or worse than the performance of the
Accounts in the Originated Portfolio as of the close of business on December
31, 1995.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth in the next succeeding sentence, the
Seller may on any day of any Due Period, but shall not be obligated to, acquire
all Receivables and proceeds thereof with respect to Removed Accounts and
Participation Interests. The Seller is permitted to designate and require
reassignment to it of the Receivables from Removed Accounts and Participation
Interests only upon satisfaction of the following conditions: (i) the Seller
shall have delivered to the Trustee a computer file or microfiche list
containing a true and complete list of all Removed Accounts, such Accounts to
be identified by, among other things, account number and their aggregate amount
of Principal Receivables; (ii) the Seller shall have delivered an officer's
certificate to the trustee to the effect that (a) no selection procedure
reasonably believed by the Seller to be materially adverse to the interests of
the investor certificateholders was utilized in removing the Removed Accounts
from among any pool of Accounts of a similar type; (b) in the reasonable belief
of the Seller, such removal will not result in the occurrence of an
Amortization Event and (c) in the reasonable belief of Seller such removal will
not have an Adverse
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Effect and (iii) the Seller shall have delivered prior written notice (the
"Removal Notice") of the removal to each Rating Agency, the Trustee and the
Servicer and prior to the date on which such Receivables are to be removed the
Rating Agency Condition shall have been satisfied with respect to such removal.
INDEMNIFICATION
The Pooling and Servicing Agreement provides that the Servicer will indemnify
the Trust and the Trustee from and against any loss, liability, expense, damage
or injury suffered or sustained arising out of certain of the Servicer's
actions or omissions with respect to the Trust pursuant to the Pooling and
Servicing Agreement.
The Pooling and Servicing Agreement provides that neither the Seller nor the
Servicer or any of their directors, officers, employees or agents will be under
any other liability to the Trust, the Trustee, the investor certificateholders
or any other person for any action taken, or for refraining from taking any
action, in good faith pursuant to the Pooling and Servicing Agreement. However,
neither the Seller nor the Servicer will be protected against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence of the Seller, the Servicer or any such person in the
performance of their duties or by reason of reckless disregard of their
obligations and duties thereunder.
In addition, the Pooling 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 Pooling and
Servicing Agreement. The Servicer may, in its sole discretion, undertake any
such legal action which it may deem necessary or desirable for the benefit of
Investor Certificateholders with respect to the Pooling and Servicing Agreement
and the rights and duties of the parties thereto and the interests of the
Investor Certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
responsible for servicing, collecting, enforcing and administering the
Receivables in accordance with customary and usual procedures for servicing
credit card receivables, but in any event at least comparable with the policies
and procedures and the degree of skill and care applied or exercised with
respect to any other credit card receivables it, or its affiliates, service.
Pursuant to the Bank Purchase Agreement, except as otherwise required by any
requirement of law or as is deemed by Household Bank (or any successor to
Household Bank under such agreement) to be necessary in order for it to
maintain its credit card business or a program operated by such credit card
business on a competitive basis based on a good faith assessment by it of the
nature of the competition in the credit card business or such program and only
if the change giving rise to such reduction with respect to a specific program
is made applicable to substantially all of the credit card accounts subject to
such program, Household Bank will not take any action that will have the effect
of reducing the Portfolio Yield to a level that could reasonably be expected to
cause any Series to experience an amortization event based on the insufficiency
of the Portfolio Yield or take any action that would have the effect of
reducing the Portfolio Yield to less than the highest Average Rate for any
Group. Household Bank also will covenant that it may only change the terms
relating to the Accounts if the change made with respect to a specific program
is made applicable to substantially all of the Accounts subject to such
program.
Servicing activities to be performed by the Servicer include collecting and
recording payments, communicating with cardholders, investigating payment
delinquencies, evaluating the increase of credit limits and the issuance of
credit cards, providing billing and tax records to cardholders and maintaining
internal records with respect to each Account. Managerial and custodial
services performed by the Servicer on behalf of the Trust include providing
assistance in any inspections of the documents and
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records relating to the Accounts and Receivables by the Trustee pursuant to the
Pooling and Servicing Agreement, maintaining the agreements, documents and
files relating to the Accounts and Receivables as custodian for the Trust and
providing related data processing and reporting services for Investor
Certificateholders and on behalf of the Trustee.
The Pooling and Servicing Agreement provides that the Servicer may delegate
its duties under that agreement to any entity that agrees to conduct such
duties in accordance with the Pooling and Servicing Agreement and the credit
card guidelines set forth therein. The Servicer has delegated its duties to
Household Credit Services, Inc., an affiliate of the Servicer and to EDS.
Notwithstanding the delegation to Household Credit Services, Inc., or any other
such delegation, the Servicer will continue to be liable for all of its
obligations under the Pooling and Servicing Agreement.
SERVICER COVENANTS
In the Pooling and Servicing Agreement, the Servicer has agreed as to each
Receivable and related Account that it will: (a) duly fulfill all obligations
on its part to be fulfilled under or in connection with the Receivables or the
related Accounts, and will maintain in effect all qualifications required and
comply in all material respects with all requirements of law in order to
service the Receivables and Accounts the failure to maintain or comply with
which would have a material adverse effect on the investor certificateholders;
(b) not permit any rescission or cancellation of the Receivables except as
ordered by a court of competent jurisdiction or other governmental authority;
(c) do nothing to impair the rights of the investor certificateholders in the
Receivables or the related Accounts; and (d) not reschedule, revise or defer
payments due on the Receivables except in accordance with its guidelines for
servicing receivables.
Under the terms of the Pooling and Servicing Agreement, all Receivables in an
Account will be assigned and transferred to the Servicer and such Account will
no longer be included as an Account if the Servicer discovers, or receives
written notice from the Trustee, that any covenant of the Servicer set forth
above has not been complied with in all material respects and such
noncompliance has not been cured within 60 days (or such longer period as may
be agreed to by the Trustee and the Seller) thereafter and has a material
adverse effect on the certificateholders' interest in such Receivable. Such
assignment and transfer will be made when the Servicer deposits an amount equal
to the amount of such Receivable in the Collection Account on the business day
preceding the Distribution Date following the Due Period during which such
obligation arises. This transfer and assignment to the Servicer constitutes the
sole remedy available to the investor certificateholders if such covenant or
warranty of the Servicer is not satisfied and the Trust's interest in any such
assigned Receivables will be automatically assigned to the Servicer.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the Pooling
and Servicing Agreement except (i) upon determination that the performance of
such duties is no longer permissible under applicable law or (ii) if such
obligations and duties are assumed by any affiliate of the Servicer that is a
wholly owned subsidiary of Household International or by any other entity that
has satisfied the Rating Agency Condition. No such resignation will become
effective until the Trustee or a successor to the Servicer has assumed the
Servicer's responsibilities and obligations under the Pooling and Servicing
Agreement.
Any person into which, in accordance with the Pooling and Servicing
Agreement, the Seller or the Servicer may be merged or consolidated or any
person resulting from any merger or consolidation to which the Seller or the
Servicer is a party, or any person succeeding to the business of the Seller or
the Servicer, will be the successor to the Seller or the Servicer, as the case
may be, under the Pooling and Servicing Agreement.
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SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the Trustee
or investor certificateholders holding investor certificates evidencing more
than 50% of the aggregate unpaid principal amount of the investor certificates,
by written notice to the Servicer (and to the Trustee if given by the investor
certificateholders) (a "Termination Notice"), may terminate all of the rights
and obligations of the Servicer, as Servicer, under the Pooling and Servicing
Agreement and in and to the Receivables and the proceeds thereof and the
Trustee will appoint a new Servicer (a "Service Transfer"). For purposes of
this section, references to investor certificates will include the Collateral
Amount and any other similar collateral amounts under Series Enhancements of
other Series similar to the Series Enhancement provided to the Investor
Certificates. The rights and interest of the Seller under the Pooling and
Servicing Agreement in the Seller's Interest will not be affected by any
Termination Notice or Service Transfer. If within 60 days of receipt of a
Termination Notice the Trustee does not receive any bids from eligible
Servicers to act as successor Servicer and receives an officer's certificate
from the Seller to the effect that the Servicer cannot in good faith cure the
Servicer Default which gave rise to the Termination Notice, the Trustee shall
grant a right of first refusal to the Seller which would permit the Seller at
its option to purchase the certificateholders' interest on the Distribution
Date in the next calendar month. The purchase price for the certificateholders'
interest shall be equal to the sum of the amounts specified therefor with
respect to each outstanding Series in the related Supplement, and, for purposes
of the Investor Certificateholders, shall be equal to the higher of (i) the
Invested Amount on the Distribution Date of such purchase, plus accrued and
unpaid interest on the unpaid principal amount of the Class A Certificates and
the Class B Certificates and certain interest amounts that were due but not
paid on a prior Distribution Date at the Class A Certificate Rate or the Class
B Certificate Rate, as the case may be, through the day preceding such
Distribution Date, and (ii) the average bid price quoted by two recognized
dealers for each of two securities, one of which is similar to the Class A
Certificates and rated in the highest investment category by the Rating Agency
with a remaining maturity approximately equal to the remaining maturity of the
Class A Certificates, and the other of which is similar to the Class B
Certificates and rated in the same rating category as the initial rating of the
Class B Certificates with a remaining maturity approximately equal to the
remaining maturity of the Class B Certificates.
The Trustee will as promptly as possible, after the giving of a Termination
Notice, appoint a successor Servicer and if no successor Servicer has been
appointed by the Trustee and has accepted such appointment by the time the
Servicer ceases to act as Servicer, all rights, authority, power and
obligations of the Servicer under the Pooling and Servicing Agreement will be
vested in the Trustee. Prior to any Service Transfer, the Trustee will seek to
obtain bids from potential Servicers meeting certain eligibility requirements
set forth in the Pooling and Servicing Agreement to serve as a successor
Servicer for servicing compensation not in excess of the Servicing Fee plus any
amounts payable to the Seller pursuant to the Pooling and Servicing Agreement.
A "Servicer Default" refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or deposit, or
to give instructions to the Trustee to make any payment, transfer or
deposit, on the date the Servicer is required to do so under the Pooling
and Servicing Agreement or any Supplement, which is not cured within a five
business day grace period;
(b) failure on the part of the Servicer duly to observe or perform in any
material respect any other covenants or agreements of the Servicer in the
Pooling and Servicing Agreement or any Supplement which has an Adverse
Effect and which continues unremedied for a period of 60 days after written
notice, or the Servicer assigns its duties under the Pooling and Servicing
Agreement, except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the Servicer in
the Pooling and Servicing Agreement, any Supplement or in any certificate
delivered pursuant to the Pooling and
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Servicing Agreement or any Supplement proves to have been incorrect in any
material respect when made, which has an Adverse Effect on the rights of
the investor certificateholders of any Series, and which material adverse
effect continues for a period of 60 days after written notice; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred
to under clause (a) above for a period of ten business days after the
applicable grace period or referred to under clauses (b) or (c) for a period of
60 business days after the applicable grace period, will not constitute a
Servicer Default if such delay or failure could not be prevented by the
exercise of reasonable diligence by the Servicer and such delay or failure was
caused by an act of God or other similar occurrence. Upon the occurrence of any
such event the Servicer will not be relieved from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of the
Pooling and Servicing Agreement and the Servicer must provide the Trustee, the
Seller and any Series Enhancer prompt notice of such failure or delay by it,
together with a description of its efforts to so perform its obligations.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that on or before March 31 of
each calendar year, the Servicer will cause a firm of nationally recognized
independent public accountants (who may also render other services to the
Servicer, the Seller or Household Bank and any affiliates thereof) to furnish a
report to the effect that such firm has examined certain documents and records
relating to the servicing of the Accounts, compared the information contained
in the Servicer's certificates delivered during the period covered by the
report with such documents and records and that, on the basis of such
examination, such firm is of the opinion that such servicing was conducted in
compliance with the Pooling and Servicing Agreement and applicable provisions
of each Supplement except for such exceptions or errors as such firm shall
believe to be immaterial and such other exceptions as shall be set forth in
such statement.
The Pooling and Servicing Agreement provides for delivery to the Trustee on
or before March 31, of each calendar year of a statement signed by an officer
of the Servicer to the effect that the Servicer has, or has caused to be, fully
performed its obligations in all material respects under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
default in the performance of any such obligation, specifying the nature and
status of the default.
Copies of all statements, certificates and reports furnished to the Trustee
may be obtained by a request in writing delivered to the Trustee.
AMENDMENTS
The Pooling and Servicing Agreement and any Supplement may be amended by the
Seller, the Servicer and the Trustee, without investor certificateholder
consent, except to the extent provided below. No such amendment, however, may
have an Adverse Effect.
The Pooling and Servicing Agreement or any Supplement may be amended by the
Seller, the Servicer and the Trustee with the consent of the holders of
investor certificates (including the Collateral Interest Holder) evidencing not
less than 66 2/3% of the aggregate unpaid principal amount of the investor
certificates (and interests in the Collateral Amount) of all affected Series
for which the Seller has not delivered an officer's certificate stating that
there is no Adverse Effect, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Pooling and
Servicing Agreement or any Supplement or of modifying in any manner the rights
of investor certificateholders. No such amendment, however, may (a) reduce in
any manner the amount of, or delay
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the timing of, deposits or distributions on any Class A Certificate without the
consent of each Class A Certificateholder, (b) reduce in any manner the amount
of, or delay the timing of, deposits or distributions on any Class B
Certificate, (c) (i) change the definition or the manner of calculating the
Certificateholders' Interest, the Class A Interest or the Class B Interest or
(ii) reduce the aforesaid percentage of the aggregate unpaid principal amount
of the Investor Certificates the holders of which are required to consent to
any such amendment, in each case without the consent of each Investor
Certificateholder or (d) adversely affect the rating of the Class A
Certificates or the Class B Certificates by the Rating Agency without the
consent of the holders of Class A Certificates or Class B Certificates
evidencing not less than 66 2/3% of the aggregate unpaid principal amount of
the Class A Certificates or the Class B Certificates, respectively. Promptly
following the execution of any amendment to the Pooling and Servicing Agreement
(other than an amendment described in the preceding paragraph), the Trustee
will furnish written notice of the substance of such amendment to each investor
certificateholder. For purposes of this paragraph, references to the Investor
Certificates will include the Collateral Interest. Notwithstanding the
foregoing, any Supplement executed in connection with the issuance of one or
more new Series of investor certificates will not be considered an amendment to
the Pooling and Servicing Agreement. Any designation of additional Sellers in
accordance with the terms of the Pooling and Servicing Agreement will also not
be considered an amendment of the Pooling and Servicing Agreement unless the
Supplement designating such additional Seller expressly amends the Pooling and
Servicing Agreement.
LIST OF INVESTOR CERTIFICATEHOLDERS
At such time, if any, as Definitive Certificates have been issued, upon
written request of any Holder or Holders of investor certificates of any Series
or of all outstanding Series of record holding investor certificates evidencing
not less than 10% of the aggregate unpaid principal amount of the investor
certificates, the Trustee will afford such Holder or Holders of investor
certificates access during business hours to the current list of investor
certificateholders of such Series or of all outstanding Series, as the case may
be, for purposes of communicating with other Holders of investor certificates
with respect to their rights under the Pooling and Servicing Agreement. See
"Description of the Investor Certificates--Book-Entry Registration" and "--
Definitive Investor Certificates".
The Pooling and Servicing Agreement will not provide for any annual or other
meetings of investor certificateholders.
THE TRUSTEE
The Bank of New York will act as trustee under the Pooling and Servicing
Agreement. The Corporate Trust Department of The Bank of New York is located at
101 Barclay Street, Floor 21W, New York, New York 10286. The Seller, Household
Bank, the Servicer and their respective affiliates may from time to time enter
into normal banking and trustee relationships with the Trustee and its
affiliates. The Trustee, the Seller, Household Bank, the Servicer and any of
their respective affiliates may hold investor certificates in their own names;
however, any investor certificates so held shall not be entitled to participate
in any decisions made or instructions given to the Trustee by the investor
certificateholders as a group. In addition, for purposes of meeting the legal
requirements of certain local jurisdictions, the Trustee shall have the power
to appoint a co-trustee or separate trustees of all or any part of the Trust.
In the event of such appointment, all rights, powers, duties and obligations
shall be conferred or imposed upon the Trustee and such separate trustee or co-
trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee, who shall exercise and perform such rights, powers,
duties and obligations solely at the direction of the Trustee.
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DESCRIPTION OF THE BANK PURCHASE AGREEMENT
The Receivables transferred to the Trust by the Seller were originally
acquired by the Seller from Household Bank f.s.b. pursuant to the Bank Purchase
Agreement entered into between the Seller, as purchaser of the Receivables, and
Household Bank, f.s.b., as seller. Household Bank, f.s.b. assigned its interest
in the Bank Purchase Agreement to Household Bank as of December 1, 1993. As
such, Receivables arising on and after December 1, 1993 were acquired by the
Seller from Household Bank. Pursuant to the Pooling and Servicing Agreement,
all such Receivables are transferred by the Seller to the Trust. The following
summary relating to the ongoing sales is qualified in its entirety by reference
to the Bank Purchase Agreement, a form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part and which is
incorporated by reference herein.
SALE OF RECEIVABLES
Pursuant to the Bank Purchase Agreement, Household Bank has sold to the
Seller all its right, title and interest in and to (i) all of the Receivables
in the Accounts and all of the Receivables thereafter created in such Accounts
and (ii) the Receivables in each Additional Account added from time to time to
the Accounts as of the date of such addition, whether such Receivables shall
then be existing or shall thereafter be created. The purchase price of the
Purchased Receivables will not be less than the principal amount thereof as of
the time of sale plus the present value of anticipated excess spread.
In connection with such sale of the Receivables to the Seller, Household Bank
has or will indicate in its computer files that the Receivables have been sold
to the Seller by Household Bank and that such Receivables have been sold or
transferred by the Seller to the Trust. In addition, Household Bank has or will
provide to the Seller a computer file or a microfiche list containing a true
and complete list showing each Account, identified by account number and by
total outstanding balance on the applicable Series date of designation or
addition date for Additional Accounts, as the case may be. The records and
agreements relating to the Accounts and Receivables are not segregated by
Household Bank from other documents and agreements relating to other credit
card accounts and receivables and are not stamped or marked to reflect the sale
or transfer of the Receivables to the Seller, but the computer records of
Household Bank are or will be marked to evidence such sale or transfer.
Household Bank, as debtor/seller has filed a UCC financing statement meeting
the requirements of applicable state law and in each of the jurisdictions in
which the books and records relating to the Accounts are maintained with
respect to the Receivables in the Initial Accounts and Household Bank has filed
and will similarly file with respect to the Receivables in Additional Accounts.
See "Risk Factors--Characteristics as a Sale; Bankruptcy Risks" and "Certain
Legal Aspects of the Receivables".
Pursuant to the Bank Purchase Agreement, Household Bank will, if the Seller
is required to cause Household Bank to designate Additional Accounts under the
Pooling and Servicing Agreement, designate Additional Accounts to be included
as Accounts under the Bank Purchase Agreement. Household Bank and the Seller
may also agree from time to time to designate Additional Accounts under the
Bank Purchase Agreement. See "The Pooling and Servicing Agreement Generally--
Additions of Accounts or Participation Interests". The purchase price for
accounts so designated will not be less than an amount equal to the Principal
Receivables conveyed by Household Bank to the Seller plus estimated collections
of Finance Charge and Administrative Receivables.
REPRESENTATIONS AND WARRANTIES
In the Bank Purchase Agreement, Household Bank represents and warrants to the
Seller to the effect that, among other things, (a) as of each date of
designation from and after December 1, 1993 with respect to Additional
Accounts, it is duly organized and in good standing and that it has the
authority to consummate the transactions contemplated by the Bank Purchase
Agreement, (b) as of
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each date of designation from and after December 1, 1993 with respect to
Additional Accounts, each Additional Account will be an Eligible Account and
(c) as of each date of designation from and after December 1, 1993 with respect
to Additional Accounts, each Receivable generated thereunder is, on the
applicable date of designation, an Eligible Receivable. Household Bank has also
confirmed the representations made by Household Bank, f.s.b. under the Bank
Purchase Agreement prior to December 1, 1993 (x) that as of the Initial
Issuance Date and as of each date of designation prior to December 1, 1993 with
respect to Additional Accounts, Household Bank, f.s.b. was duly organized and
in good standing and had the authority to consummate the transactions
contemplated by the Bank Purchase Agreement and (y) that each Account as of the
Initial Cut-Off Date and as of each date of designation prior to December 1,
1993 with respect to Additional Accounts was an Eligible Account and each
Receivable as of the Initial Cut-Off Date and as of each date of designation
prior to December 1, 1993 with respect to Additional Accounts was a Receivable
eligible to be included in the Trust. In the event of a breach of any
representation and warranty set forth in the Pooling and Servicing Agreement
which results in the requirement that the Seller accept retransfer of each
Ineligible Receivable, then Household Bank shall repurchase such Ineligible
Receivable from the Seller on the date of such retransfer. The purchase price
for such Ineligible Receivables shall be the principal amount thereof plus
applicable finance charges.
Household Bank also represents and warrants to the Seller that, among other
things, as of the Issuance Date (a) the Bank Purchase Agreement constitutes a
valid and binding obligation of Household Bank and (b) the Bank Purchase
Agreement constitutes either a valid sale to the Seller of all right, title and
interest of Household Bank in and to the Receivables, thereafter created in the
Accounts and in the proceeds thereof or constitutes a grant of a security
interest in the Receivables. If the breach of any of the representations and
warranties described in this paragraph results in the obligation of the Seller
under the Pooling and Servicing Agreement to accept retransfer of the
Receivables, Household Bank will repurchase the Receivables retransferred to
the Seller for an amount of cash equal to the amount of cash the Seller is
required to deposit under the Pooling and Servicing Agreement in connection
with such retransfer.
CERTAIN COVENANTS
In the Bank Purchase Agreement, Household Bank may change the terms and
provisions of cardmember agreements relating to the Accounts in any respect
(including, without limitation, the calculation of the amount, or the timing,
of charge-offs), so long as any such changes made with respect to a specific
program are made applicable to substantially all of the credit card accounts
subject to such program.
Household Bank also covenants that, except as required by law or as Household
Bank shall deem necessary in order for Household Bank to maintain its credit
card business or a program operated by such credit card business on a
competitive basis based on a good faith assessment by Household Bank of the
nature of its competition with respect to its credit card business or such
program, Household Bank will not take any action which will have the effect of
reducing the Portfolio Yield to a level that could reasonably be expected to
cause any Series to experience an amortization event based on the insufficiency
of the Portfolio Yield and, except as required by law, take any action that
would have the effect of reducing the Portfolio Yield to less than the highest
Average Rate for any Group.
Household Bank also agrees, for the benefit of the Trust, that any amounts
payable by Household Bank to the Seller pursuant to the Bank Purchase Agreement
that are to be paid by the Seller to the Trustee for the benefit of the
Investor Certificateholders will be paid by Household Bank, on behalf of the
Seller, directly to the Trustee. The Seller has agreed in the Pooling and
Servicing Agreement to enforce the covenants and agreements of Household Bank
in the Bank Purchase Agreement.
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AMENDMENTS
The Bank Purchase Agreement may be amended by the Seller and Household Bank
without the consent of the investor certificateholders. No such amendment,
however, may have an Adverse Effect.
TRANSFER OF ACCOUNTS
Household Bank has the right to transfer all or a portion of the Accounts to
(i) any successor by merger assuming the Bank Purchase Agreement, (ii) any
affiliate owned by Household International or (iii) to any entity provided that
the Rating Agency Condition has been satisfied. After a transfer of Accounts,
the credit rating of the transferee will be a factor in the rating of the
investor certificates thereafter.
The Accounts, the Receivables of which have been conveyed to the Trust, were
originated under an affinity agreement between Household International and
General Motors Corporation ("GM") and are generated under the MasterCard
program of Household Bank known as "The GM CardSM". Such agreement contemplates
and provides for securitization transactions of receivables generated by "The
GM CardSM".
The Office of Thrift Supervision has approved the establishment of Household
Bank as a wholly-owned operating subsidiary of Household Bank, f.s.b., and on
December 1, 1993 the Comptroller of the Currency granted Household Bank's
charter. In connection therewith, Household Bank, f.s.b. transferred the
Accounts and assigned its obligations under the Bank Purchase Agreement to
Household Bank without the approval of any Rating Agency in accordance with the
terms of the Bank Purchase Agreement and Pooling and Servicing Agreement.
TERMINATION
The Bank Purchase Agreement will terminate immediately after the Trust
terminates. In addition, if a conservator or receiver is appointed for
Household Bank or certain other liquidation events occur, Household Bank will
immediately cease to sell or transfer Receivables to the Seller and promptly
give notice of such event to the Seller and to the Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Household Bank will sell the Receivables to the Seller and the Seller, in
turn, will transfer all Receivables to the Trust. Household Bank and the Seller
will represent and warrant that its respective transfers constitute valid sales
and assignments of all of its respective right, title and interest in and to
the Receivables, except for the interest of the Seller as holder of the
Seller's Interest, and if the assignment by the Seller to the Trust does not
constitute a sale of the Receivables, it constitutes a grant of a security
interest to the Trust in and to the Receivables. The Seller will also represent
and warrant that, if the transfer of Receivables by the Seller to the Trust is
deemed to create a security interest under the UCC, there will exist a valid,
subsisting and enforceable first priority perfected security interest in the
Receivables, in existence at the time of the formation of the Trust or at the
date of addition of any Additional Accounts, as the case may be, in favor of
the Trust and a valid, subsisting and enforceable first priority perfected
security interest in the Receivables created thereafter in favor of 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 Pooling and Servicing Agreement
Generally--Representations and Warranties".
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Household Bank and the Seller 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 treated
under the UCC as creating a security interest therein and are subject to its
provisions and the filing of an appropriate financing statement or statements
is required to perfect the interest of the Trust in the Receivables. If a
transfer of general intangibles is deemed to create a security interest, the
UCC applies and filing an appropriate financing statement or statements is also
required in order to perfect the Trust's security interest. Financing
statements covering the Receivables have been and will be filed under the UCC
to protect the Seller and the Trust if any of the transfers by Household Bank
or the Seller is deemed to be subject to the UCC. If a transfer of general
intangibles is deemed to be a sale, then the UCC is not applicable and no
further action under the UCC is required to protect the Trust's interest from
third parties.
There are certain limited circumstances under the UCC in which prior or
subsequent transferees of Receivables coming into existence after the Issuance
Date could have an interest in such Receivables with priority over the Trust's
interest. A tax or other government lien on property of the Seller or Household
Bank arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable. Furthermore, if the
FDIC were appointed as a receiver of Household Bank, the receiver's
administrative expenses may also have priority over the interest of the Trust
in such Receivables. Under the Bank Purchase Agreement, however, Household Bank
will warrant that it has transferred the Receivables to the Seller free and
clear of the lien of any third party. In addition, Household Bank will covenant
that it will not sell, pledge, assign, transfer or grant any lien on any
Receivable (or any interest therein) other than to the Seller.
CERTAIN MATTERS RELATING TO INSOLVENCY
Household Bank and the Seller have arranged for the transfer of Receivables
pursuant to the Bank Purchase Agreement to be a sale of the Receivables by
Household Bank to the Seller. However, in the event of an insolvency of
Household Bank it is possible that a receiver or conservator could attempt to
characterize the transaction between Household Bank and the Seller as a pledge
of the Receivables rather than a true sale. The Financial Institutions Reform,
Recovery and Enforcement Act ("FIRREA") sets forth certain powers that a
conservator or receiver for Household Bank could exercise. Positions taken by
the FDIC before the passage of FIRREA do not suggest that a conservator or
receiver for Household Bank would interfere with the timely transfer to the
Seller (or by the Seller to the Trust) of payments collected on the
Receivables. If the security interest granted by Household Bank in the
Receivables to the Seller was validly perfected before Household Bank's
insolvency and was not taken in contemplation of insolvency, such security
interests should not be subject to avoidance, and payments to the Seller with
respect to the Receivables should not be subject to recovery by a conservator
or receiver for Household Bank. If, however, a conservator or receiver for
Household Bank were to assert a contrary position, or were to require the
Seller to establish its right to those payments by submitting to and completing
the administrative claims procedure established under FIRREA, or the
conservator or receiver were to request a stay of proceedings with respect to
Household Bank as provided under FIRREA, delays in payments on the Investor
Certificates and possible reductions in the amount of those payments could
occur.
Upon the appointment of a conservator or receiver or upon a voluntary
liquidation with respect to Household Bank, Household Bank will promptly give
notice thereof to the Trustee and the Seller and an Amortization Event will
occur. Pursuant to the Bank Purchase Agreement and the Pooling and Servicing
Agreement, newly created Receivables will not be transferred to the Trust on
and after any such appointment or voluntary liquidation, and, in the event of
an Insolvency Event with respect to the Seller, the Trustee will proceed to
sell, dispose of or otherwise liquidate the Receivables in a commercially
reasonable manner and on commercially reasonable terms, unless within a
specified period of time investor certificateholders representing undivided
interests aggregating more than 50%
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of each Series or any person granted such right in any Supplement instructs
otherwise (assuming that the conservator or receiver does not order such a sale
despite such instructions). As of this date, any one of the credit enhancers
for Series 1993-1, 1993-2, 1993-3, 1994-1, 1994-2 and 1995-1 may object and
prevent such sale. The credit enhancer for Series 1997-1 may similarly object
and prevent such sale. The proceeds from the sale of the Receivables would be
treated as collections of the Receivables and deposited into the Collection
Account. This procedure could be delayed, as described above. In addition, upon
the occurrence of an Amortization Event, if a trustee in bankruptcy, a
conservator or receiver is appointed for Household Bank or the Seller, as
applicable, and no Amortization Event other than such conservatorship or
receivership or insolvency of Household Bank or the Seller, as applicable,
exists, the conservator or receiver may have the power to prevent the early
sale, liquidation or disposition of the Receivables and the commencement of the
Early Amortization Period. See "Description of the Investor Certificates--
Amortization Events".
While Household Finance Corporation is the Servicer, cash collections held by
Household Finance Corporation may, subject to certain conditions, be commingled
and used for the benefit of Household Finance Corporation prior to each
Distribution Date and, in the event of the insolvency or receivership of
Household Finance Corporation or, in certain circumstances, the lapse of
certain time periods, the Trust may not have a perfected interest in such
collections. Unless otherwise agreed to by the applicable Rating Agency, if the
commercial paper rating of Household Finance Corporation is reduced below A-1
or P-1 by the applicable Rating Agency, Household Finance Corporation will,
within five business days, commence the deposit of collections directly into
the Collection Account within two business days of the day of processing. See
"Description of the Investor Certificates--Allocation of Collections; Deposits
in Collection Account".
The Seller will not engage in any activities except purchasing receivables or
Participation Interests from Household Bank or other originators of Accounts,
forming the Trust or trusts similar thereto, transferring receivables or
Participation Interests to such trusts and engaging in activities incident to,
or necessary or convenient to accomplish, the foregoing. The Seller has no
current intention of filing a voluntary petition under the Bankruptcy Code, or
any similar applicable state law.
In the event of a Servicer Default relating to the bankruptcy or insolvency
of the Servicer, and no Servicer Default other than such bankruptcy or
insolvency related Servicer Default exists, the trustee in bankruptcy may have
the power to prevent either the Trustee or the investor certificateholders from
appointing a successor Servicer. See "The Pooling and Servicing Agreement
Generally--Servicer Default".
CONSUMER PROTECTION LAWS
The relationship of the cardholder and credit card issuer is extensively
regulated by Federal and state consumer protection laws. With respect to credit
cards issued by Household 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 cardholder liability for
unauthorized use, prohibit certain discriminatory practices in extending
credit, and regulate practices followed in collections. In addition,
cardholders are entitled under these laws to have payments and credits applied
to the credit card 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 credit card industry. The Trust may be liable for
certain violations of consumer protection laws that apply to the Receivables,
either as assignee from the Seller (as Household Bank's assignee) 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, a cardholder may be entitled to assert such violations by way of set-
off against the obligation
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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 a material adverse effect on the certificateholders'
interest therein) will be reassigned to the Seller. The Servicer has also
agreed in the Pooling 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 Pooling and Servicing
Agreement Generally--Representations and Warranties".
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of the investor certificateholders if such laws result in
any Receivables being charged off as uncollectible. See "Description of the
Investor Certificates--Defaulted Receivables; Rebates and Fraudulent Charges"
and "--Investor Charge-Offs".
PROPOSED LEGISLATION
Congress and the states may enact new laws and amendments to existing laws to
regulate further the credit card industry or to reduce finance charges or other
fees or charges applicable to credit card accounts. The potential effect of any
such legislation could be to reduce the yield on the Accounts. If such yield is
reduced, an Amortization Event could occur, and the Early Amortization Period
would commence. See "Description of the Investor Certificates--Amortization
Events".
Pursuant to the Pooling and Servicing Agreement, if the interest of the Class
A Certificateholders and Class B Certificateholders in a Receivable is
materially adversely affected by the failure of the Receivable to comply in all
material respects with applicable requirements of law, the interest of such
Investor Certificateholders in all Receivables in the affected Account will be
reassigned to Household Bank or, in some circumstances, to the Servicer. On the
closing dates for each Series, Household Bank will make certain other
representations and warranties relating to the validity and enforceability of
the Accounts and the Receivables. The sole remedy, if any such representation
or warranty is breached and such breach has a material adverse effect on the
interest of Investor Certificateholders in any Receivable and continues beyond
the applicable cure period, is that the interest of the Investor
Certificateholders in the Receivables affected thereby will be reassigned to
Household Bank or assigned to the Servicer, as the case may be. In addition, in
the event of the breach of certain representations and warranties, Household
Bank may be obligated to accept the reassignment of the entire Trust portfolio.
See "The Pooling and Servicing Agreement Generally--Representations and
Warranties" and "--Servicer Covenants" and "Certain Legal Aspects of the
Receivables--Consumer Protection Laws".
TAX MATTERS
The following is a general discussion of the material anticipated Federal
income tax consequences to holders of the Investor Certificates. This
discussion does not purport to deal with all aspects of Federal income taxation
that may be relevant to holders of the Investor Certificates in light of their
personal investment circumstances, nor to certain types of holders subject to
special treatment under the Federal income tax laws (for example, banks, life
insurance companies, dealers in securities, tax-exempt organizations and
foreign persons). In addition, this discussion is generally limited to
investors who will hold the Investor Certificates as "capital assets"
(generally, property held for investment, within the meaning of Section 1221 of
the Code). Prospective investors are advised to consult their own tax advisors
with regard to the Federal income tax consequences of holding and disposing of
the Investor Certificates, as well as the tax consequences arising under the
laws of any state, foreign country or other jurisdiction. This discussion is
based upon the present provisions of the Code, the regulations promulgated
thereunder, and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. No ruling on any of the issues
discussed below will be sought from the Internal Revenue Service (the "IRS").
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TREATMENT OF THE INVESTOR CERTIFICATES AS INDEBTEDNESS
Orrick, Herrington & Sutcliffe LLP, special counsel to the Seller ("Special
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, for Federal income tax purposes the
Investor Certificates will be characterized as indebtedness that is secured by
the Receivables, the issuance of the Investor Certificates will not be treated
as a sale of the Receivables and the Trust will not be an entity subject to
Federal income tax. Such opinion is based, in part, upon (i) the agreement of
the Seller and each Investor Certificateholder to treat the Investor
Certificates for Federal, state, local and foreign and other tax purposes as
indebtedness (and assumed compliance with such agreement), and (ii) Special
Counsel's conclusion that the Federal income tax treatment of the Investor
Certificates will be determined based on the economic substance of the
transactions resulting from the Pooling and Servicing Agreement, the Series
1997-1 Supplement and the related documents. Although there can be no assurance
that the IRS will not take one or more possible contrary positions described
below, in the opinion of Special Counsel none of those positions, if asserted
by the IRS, would prevail.
Except where indicated to the contrary, the following discussion assumes that
the Investor Certificates will be treated as indebtedness for Federal income
tax purposes.
FEDERAL INCOME TAX CONSEQUENCES--UNITED STATES HOLDERS
The following is a discussion of the material United States Federal income
tax considerations that may be relevant to an Investor Certificateholder that
is a United States Person. A United States Person is a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or any estate or trust the income of which is subject to
United States Federal income taxation regardless of its sources.
Interest Income to Certificateholders. Interest on the Investor Certificates
will be taxable as ordinary income for Federal income tax purposes when
received by Investor Certificateholders utilizing the cash method of accounting
and when accrued by Investor Certificateholders utilizing the accrual method of
accounting. Interest received on the Investor Certificates also may constitute
"investment income" for purposes of certain limitations of the Code concerning
the deductibility of investment interest expense.
Original Issue Discount. It is anticipated that neither the Class A
Certificates nor the Class B Certificates will have any original issue discount
("OID") other than possibly OID within a de minimis exception and that
accordingly the provisions of sections 1271 through 1273 and 1275 of the Code
generally will not apply to either the Class A Certificates or the Class B
Certificates. OID will be considered de minimis if it is less than 0.25% of the
principal amount of an Investor Certificate multiplied by its expected weighted
average life. However, section 1272(a)(6) of the Code applies certain special
OID provisions to debt instruments on which payments may be accelerated due to
prepayments of other obligations securing those debt instruments; no
regulations have been issued interpreting those provisions, and the manner in
which those provisions would apply to the Investor Certificates is unclear.
Additionally, the IRS could take the position based on recent Treasury
regulations that none of the interest payable on a Certificate is
"unconditionally payable" and hence that all of such interest should be treated
as OID and thereby accrued in income for federal income tax purposes on a
constant yield basis, resulting in the inclusion of OID in income somewhat in
advance of the receipt of cash attributable to that income. If sustained, such
treatment should not significantly affect the tax liability of most Investor
Certificateholders, but prospective Investor Certificateholders should consult
their own tax advisers concerning the impact to them in their particular
circumstances.
Market Discount. A subsequent purchaser who buys an Investor Certificate for
less than its principal amount may be subject to the "market discount" rules of
Sections 1276 through 1278 of the
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Code. If a subsequent purchaser of an Investor Certificate disposes of such
Investor Certificate (including certain nontaxable dispositions such as a
gift), or receives a principal payment, any gain upon such a sale or other
disposition will be recognized, or the amount of such principal payment will be
treated, as ordinary income to the extent of any "market discount" accrued for
the period that such purchaser holds the Investor Certificate. Such holder may
instead elect to include market discount in income as it accrues with respect
to all debt instruments acquired in the year of acquisition of the Investor
Certificates and thereafter. Market discount generally will equal the excess,
if any, of the then-current unpaid principal balance of the Investor
Certificate over the purchaser's basis in the Investor Certificate immediately
after such purchaser acquired the Investor Certificate. In general, market
discount on an Investor Certificate will be treated as accruing over the term
of such Investor Certificate in the ratio of interest for the current period
over the sum of such current interest and the expected amount of all remaining
interest payments, or at the election of the holder, under a constant yield
method. At the request of a holder of an Investor Certificate, information will
be made available that will allow the holder to compute the accrual of market
discount under the first method described in the preceding sentence.
The market discount rules also provide that a holder who incurs or continues
indebtedness to acquire an Investor Certificate at a market discount may be
required to defer the deduction of all or a portion of the interest on such
indebtedness until the corresponding amount of market discount is included in
income.
Notwithstanding the above rules, market discount on an Investor Certificate
will be considered to be zero if it is less than a de minimis amount, which is
0.25% of the remaining principal balance of the Certificate multiplied by its
expected weighted average remaining life. If OID or market discount is de
minimis, the actual amount of discount must be allocated to the remaining
principal distributions on the Investor Certificates and, when each such
distribution is received, capital gain equal to the discount allocated to such
distribution will be recognized.
Market Premium. A subsequent purchaser who buys an Investor Certificate for
more than its principal amount generally will be considered to have purchased
the Investor Certificate at a premium. Such holder may amortize such premium,
using a constant yield method, over the remaining term of the Investor
Certificate and, except as future regulations may otherwise provide, may apply
such amortized amounts to reduce the amount of interest income reportable with
respect to such Investor Certificate over the period from the purchase date to
the date of maturity of the Investor Certificate. Legislative history to the
Tax Reform Act of 1986 indicates that the amortization of such premium on an
obligation that provides for partial principal payments prior to maturity
should be governed by the methods for accrual of market discount on such an
obligation (described above). A holder that elects to amortize such premium
must reduce his tax basis in the related obligation by the amount of the
aggregate deductions (or interest offsets) allowable for amortizable premium.
If a debt instrument purchased at a premium is redeemed in full prior to its
maturity, a purchaser who has elected to amortize premium should be entitled to
a deduction for any remaining unamortized premium in the taxable year of
redemption.
Sale or Exchange of Investor Certificates. If an Investor Certificate is sold
or exchanged, the seller of the Investor Certificate will recognize gain or
loss equal to the difference between the amount realized on the sale or
exchange and the adjusted basis of the Investor Certificate. The adjusted basis
of an Investor Certificate will generally equal its cost, increased by any OID
or market discount includible in income with respect to the Investor
Certificate through the date of sale and reduced by any principal payments
previously received with respect to the Investor Certificate and any amortized
market premium. Subject to the market discount rules, gain or loss will
generally be capital gain or loss if the Investor Certificate was held as a
capital asset. Capital losses generally may be used only to offset capital
gains.
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FEDERAL TAX CONSEQUENCES--UNITED STATES ALIEN HOLDERS
The following is a discussion of certain United States federal tax
consequences of the purchase, ownership and disposition of an Investor
Certificate by an Investor Certificateholder that is a United States Alien (a
"United States Alien Holder"). A "United States Alien" is any person who, for
United States Federal income tax purposes, is (i) a foreign corporation; (ii) a
non-resident alien individual; (iii) an estate or trust that is not an estate
or trust that is subject to United States Federal income taxation regardless of
the source of its income or (iv) a foreign partnership. Some United States
Alien Holders (including certain residents of certain United States possessions
or territories) may be subject to special rules not discussed herein.
Interest (including OID, if any) and principal payments on an Investor
Certificate made by the Trustee or any paying agent on an Investor Certificate
to a United States Alien Holder will not be subject to United States
withholding tax, provided that in the case of interest, (a) the holder does not
actually or constructively own 10% or more of the total combined voting power
of all classes of stock of the Seller entitled to vote (or of stock in the
Trust if treated as a corporation or of a profits or capital interest in the
Trust if treated as a partnership); (b) the holder is not a controlled foreign
corporation that is related to the Seller (or the Trust if treated as a
partnership) through stock ownership; (c) the holder is not a bank receiving
interest described in section 881(c)(3)(A) of the Code; (d) the holder does not
bear certain relationships to any holder of either the Seller's Certificates
other than the Seller or any other interest in the Trust not properly
characterized as debt; and (e) either (i) the beneficial owner of the Investor
Certificate certifies (e.g., on IRS Form W-8) under penalties of perjury, that
it is not a United States person (defined above), and provides its name and
address or (ii) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "financial institution") and holds the Investor
Certificate on behalf of the beneficial owner certifies, under penalties of
perjury, that such statement has been received from the beneficial owner by it
or by a financial institution between it and the beneficial owner and furnishes
the payor with a copy thereof. Such interest payments may also be exempt from
United States withholding tax under an applicable tax treaty, provided that the
beneficial owner of the Investor Certificate furnishes to the payor IRS Form
1001 claiming such exemption.
A United States Alien Holder will not be subject to United States Federal
income tax on gain realized on the sale, exchange or retirement of an Investor
Certificate if (a) such gain is not effectively connected with the conduct of a
United States trade or business; (b) in the case of a United States Alien
Holder who is an individual, such holder is not present in the United States
for a total of 183 days or more during the taxable year in which such gain is
realized; and (c) in the case of gain representing accrued interest (or OID),
the conditions described in the preceding paragraph are satisfied.
If the United States Alien Holder is engaged in a trade or business in the
United States and interest on an Investor Certificate is effectively connected
with the conduct of such trade or business, the United States Alien Holder,
although exempt from the withholding tax discussed in this section upon the
delivery to the payor of a properly executed IRS Form 4224, may be subject to
United States income tax on such interest, in the same manner as if it were a
United States person. Potential United States Alien Holders that are or may be
engaged in a trade or business in the United States should consult their own
tax advisors in determining the relevant tax considerations of purchasing,
holding and disposing of the Investor Certificates.
An Investor Certificate held by an individual who at the time of death is not
a citizen or resident of the United States (including its territories,
possessions and other areas subject to its jurisdiction, such as the
Commonwealth of Puerto Rico) will not be subject to United States federal
estate tax as a result of such individual's death if the individual does not
actually or constructively own 10% or more of the total combined voting power
of all classes of stock of the Seller entitled to vote and, at the time of the
individual's death, payments with respect to the Investor Certificate would not
have been effectively connected with the conduct of a trade or business by the
individual in the United States.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current United States Federal income tax law, a 31% "backup"
withholding tax is applied to certain interest and principal payments
(including OID, if any) made to, and to the proceeds of sales before maturity
by, certain United States persons if such persons fail to supply taxpayer
identification numbers and other information. In addition, certain persons
making such payments, such as the Trustee, are required to submit information
returns to the United States Treasury Department with regard to those payments.
Backup withholding and information reporting, however, generally do not apply
to any such payments made to certain "exempt recipients" such as corporations.
As long as the only holder of the Investor Certificates of record is Cede, as
nominee for DTC, Investor Certificateholders and the IRS will receive tax and
other information only from Participants and Indirect Participants rather than
from the Trustee. Each nonexempt Investor Certificateholder will be required to
provide, under penalties of perjury, a certificate on Internal Revenue Service
Form W-9 containing the Investor Certificateholder's name, address, correct
Federal taxpayer identification number and a statement that the Investor
Certificateholder is not subject to backup withholding.
Under current law, backup withholding and information reporting will not
apply to interest and principal payments (including OID, if any) made by the
Trustee or any of its paying agents on an Investor Certificate if the Trustee
or such a paying agent, as the case may be, receives the certification
described in the second paragraph under "United States Alien Holders" above and
do not have actual knowledge that the payee is a United States person, and in
the case of principal payments, receive certification from the payee as to the
absence of the conditions set forth in the third paragraph under "--Federal Tax
Consequences--United States Alien Holders" above.
Under current regulations, payments on the sale, exchange or retirement of an
Investor Certificate to or through a foreign office of a broker will not be
subject to backup withholding or information reporting. Such payments, however,
will be subject to information reporting if the broker is a United States
person, a controlled foreign corporation for United States Federal income tax
purposes or a foreign person 50% of more of whose gross income is effectively
connected with the conduct of a United States trade or business for a specified
three-year period, unless the broker has in its records documentary evidence
that the beneficial owner is not a United States person and certain other
conditions are met, or the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a refund or a credit against such holder's United
States Federal income tax liability, provided that the required information is
provided to the IRS.
POSSIBLE CLASSIFICATION OF THE INVESTOR CERTIFICATES AS INTERESTS IN A
PARTNERSHIP OR ASSOCIATION
Although, as described above, it is the opinion of Special Counsel that the
Investor Certificates will properly be characterized as debt for Federal income
tax purposes, such opinion is not binding on the IRS and thus no assurance can
be given that such a characterization will prevail. If the IRS were to contend
successfully that the Investor Certificates were not debt obligations for
Federal income tax purposes, the arrangement between the Seller and the
Investor Certificateholders might be classified as a partnership for Federal
income tax purposes, as an association taxable as a corporation or as a
"publicly traded partnership" taxable as a corporation.
If the transaction were treated as creating a partnership, the partnership
itself would not be subject to federal income tax (unless characterized as a
"publicly traded partnership" taxable as a corporation); rather, the Servicer,
the Seller and each Certificateholder would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount, timing and characterization of items of
income and deductions for a Certificateholder would differ if the Certificates
were held to constitute partnership interests, rather than indebtedness.
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If the transaction were treated as creating a partnership in which some or
all holders of interests in the publicly offered Investor Certificates were
partners, that partnership could be classified as a publicly traded
partnership, and so could be taxable as a corporation. Further, regulations
published by the Treasury Department on December 4, 1995 (the "Regulations")
could cause the Trust to constitute a publicly traded partnership even if all
holders of interests in publicly offered Investor Certificates are treated as
holding debt. The Regulations generally apply to taxable years beginning after
December 31, 1995, and thus could affect the classification of presently
existing entities and the ongoing tax treatment of already completed
transactions. Although the Regulations provide for a 10-year grandfather period
for a partnership actively engaged in an activity before December 4, 1995, it
is not clear whether the Trust would qualify for this grandfather period. If
the Trust were classified as a publicly traded partnership, whether by reason
of the treatment of publicly offered Investor Certificates as equity or by
reason of the Regulations, it would avoid taxation as a corporation if its
income was not derived in the conduct of a "financial business"; however,
whether the income of the Trust would be so classified is unclear.
Under the Code and the Regulations, a partnership will be classified as a
publicly traded partnership if equity interests therein are traded on an
"established securities market," or are "readily tradable" on a "secondary
market" or its "substantial equivalent." The Seller intends to take measures
designed to reduce the risk that the Trust could be classified as a publicly
traded partnership by reason of interests in the Trust other than the publicly
traded Investor Certificates. However, certain of the actions that may be
necessary for avoiding the treatment of such interests as "readily tradable" on
a "secondary market" or its "substantial equivalent" are not fully within the
control of the Seller, and certain Series predating the Regulations may not
conform to the requirements of the Regulations. As a result, there can be no
assurance that the measures the Seller intends to take will in all
circumstances be sufficient to prevent the Trust from being classified as a
publicly traded partnership under the Regulations.
If it were determined that this transaction created an entity classified as a
corporation (including a "publicly traded partnership" taxable as a
corporation), the Trust would be subject to federal income tax at corporate
income tax rates on the income it derives from the Receivables, which would
reduce the amounts available for distribution to the Certificateholders. Cash
distributions to the Certificateholders treated as equity interests in such
corporation generally would be treated as dividends for tax purposes to the
extent of the corporation's earnings and profits. The Certificates treated as
equity might include all of the Investor Certificates or only the Class B
Certificates, with the Class A Certificates being treated as indebtedness.
Since the Seller will treat the Investor Certificates as indebtedness for
Federal income tax purposes, the Trustee (and Participants and Indirect
Participants) will not attempt to satisfy the tax reporting requirements that
would apply under these alternative characterizations of the Investor
Certificates.
If the IRS were to contend successfully that the Investor Certificates are
interests in a partnership (not taxable as a corporation) and if such a
partnership were considered to be engaged in a trade or business within the
United States, the partnership would be subject to a withholding tax on
distributions to (or, at its election, income allocable to) United States Alien
Holders, and each such holder would be credited for his share of the
withholding tax paid by the partnership. In such case, the holder generally
would be subject to United States federal income tax at regular federal income
tax rates. Further, even if the partnership is not considered to be engaged in
a trade or business within the United States, it appears that partnership
withholding will be required in the case of any United States Alien Holder that
is engaged in a trade or business within the United States to which the
Investor Certificate income is effectively connected.
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Alternatively, although there may be arguments to the contrary, it appears
that if such a partnership is not considered to be engaged in a trade or
business within the United States and if income with respect to an Investor
Certificate is not otherwise effectively connected with the conduct of a trade
or business within the United States by a United States Alien Holder, the
holder would be subject to United States Federal income tax and withholding at
a rate of 30% (unless reduced by an applicable tax treaty) on his distributive
share of the partnership's interest income.
If the Investor Certificates were treated as interests in an association or a
"publicly traded partnership" taxable as a corporation, interest payments to
United States Alien Holders could be treated as dividend distributions subject
to United States Federal income tax and withholding at a rate of 30% unless
reduced by an applicable tax treaty.
Finally, if the IRS were to contend that even though the Class A Certificates
are properly classified as debt obligations for Federal income tax purposes,
the Class B Certificates are not properly classified as such, any United States
Alien Holder of a Class A Certificate who is the actual or constructive owner
of 10% or more of the outstanding principal amount of the Class B Certificates
might be treated as a "10 percent shareholder". See "--Federal Tax
Consequences--United States Alien Holders".
STATE AND LOCAL TAX CONSEQUENCES
General. State tax consequences to each Investor Certificateholder will
depend upon the provisions of the state tax laws to which the Investor
Certificateholder is subject. Most states modify or adjust the taxpayer's
Federal taxable income to arrive at the amount of income potentially subject to
state tax. Resident individuals generally pay state tax on 100% of such state-
modified income, while corporations and other taxpayers generally pay state tax
only on that portion of state-modified income assigned to the taxing state
under the state's own apportionment and allocation rules. Because each state's
tax law varies, it is impossible to predict the tax consequences to the
Investor Certificateholders in all of the state taxing jurisdictions in which
they are already subject to tax. Investor Certificateholders are urged to
consult their own tax advisors with respect to state taxes.
California. Some of the activities to be undertaken by the Subservicer in
servicing and collecting the Receivables will take place in California. The
California Bank and Corporation Tax Law imposes a franchise tax on banks and
financial corporations doing business in the State of California measured by
their net income allocated and apportioned to California. This discussion is
based upon present provisions of California law and regulations, and applicable
judicial or ruling authority, all of which are subject to change, which change
may be retroactive. No ruling on any of the issues discussed below will be
sought from the California Franchise Tax Board.
Assuming the Investor Certificates are treated as indebtedness for Federal
income tax purposes, this treatment will also apply for California tax
purposes. Pursuant to this treatment, Investor Certificateholders not otherwise
subject to California tax would not become subject to such tax solely because
of their ownership of the Investor Certificates. Investor Certificateholders
already subject to taxation in California, however, could be required to pay
tax on the income generated from ownership of these Investor Certificates.
If the Investor Certificates are treated as interests in a partnership (not
taxable as a corporation) for Federal income tax purposes, the same treatment
should also apply for California tax purposes. In such case, California could
view the partnership as doing business in California, and an Investor
Certificateholder not otherwise subject to taxation in California could become
subject to California income, franchise or withholding taxes as a result of its
mere ownership of Investor Certificates.
If the Investor Certificates are instead treated as ownership interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, then the entity could be subject
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to California franchise or income tax. Such taxes could result in reduced
distributions to Investor Certificateholders. An Investor Certificateholder not
otherwise subject to tax in California would not become subject to direct
California taxes as a result of its mere ownership of such an interest.
Finally, even if the Class A Certificates are properly classified as debt
obligations for Federal income tax purposes, they might be treated as debt
obligations of an entity owned by the Seller and the Class B
Certificateholders. If that entity were itself characterized as an association
taxable as a corporation or a "publicly traded partnership" taxable as a
corporation, then the hypothetical entity could be subject to California
franchise or income taxes. Such taxes could result in reduced distributions to
Investor Certificateholders. An Investor Certificateholder not otherwise
subject to tax in California would not become subject to California taxes as a
result of its mere ownership of such an interest. If the hypothetical entity
were instead characterized as a partnership for Federal income tax purposes,
this treatment will also apply for California tax purposes. In such case,
California could view the hypothetical entity as doing business in California
and a Class B Certificateholder not otherwise subject to taxation in California
could become subject to California income or franchise or withholding taxes as
a result of its mere ownership of such an interest.
Nevada. Some of the activities to be undertaken by the Subservicer in
servicing and collecting the Receivables will also take place in Nevada.
Currently, the State of Nevada does not impose an income tax on individuals,
partnerships or corporations doing business in Nevada; however, Nevada does
impose property and other taxes on businesses in Nevada. The following
discussion is based upon present provisions of Nevada law and regulations, and
applicable judicial or ruling authority, all of which are subject to change,
which change may be retroactive. No ruling on any of the issues will be sought
from the Nevada Department of Taxation.
Assuming the Investor Certificates are treated as indebtedness for Federal
income tax purposes, this treatment will apply for Nevada tax purposes.
Pursuant to this treatment, Investor Certificateholders not otherwise subject
to Nevada tax would not become subject to tax in Nevada because of their
ownership of the Investor Certificates.
If the Investor Certificates are instead treated as ownership interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation or other entity having property or personnel in Nevada, then
such entity may be subject to Nevada taxes. Such taxes could result in reduced
distributions to Investor Certificateholders. An Investor Certificateholder,
however, not otherwise subject to tax in Nevada would not become subject to
Nevada taxes as a result of its mere ownership of such an interest.
Virginia. Some of the activities to be undertaken by the Subservicer in
servicing and collecting the Receivables will also take place in Virginia. The
Virginia Income Tax Act imposes a tax on partnerships and corporations doing
business in Virginia measured by their net income allocated and apportioned to
Virginia. This discussion is based upon present provisions of Virginia law and
regulations, and applicable judicial or ruling authority, all of which are
subject to change, which change may be retroactive. No ruling on any of the
issues discussed below will be sought from the Virginia Department of Taxation.
Assuming the Investor Certificates are treated as indebtedness for Federal
income tax purposes, this treatment will also apply for Virginia tax purposes.
Pursuant to this treatment, Investor Certificateholders not otherwise subject
to Virginia tax would not become subject to such tax solely because of their
ownership of the Investor Certificates. Investor Certificateholders already
subject to taxation in Virginia, however, could be required to pay tax on the
income generated from ownership of these Investor Certificates.
If the Investor Certificates are treated as interests in a partnership (not
taxable as a corporation) for Federal income tax purposes, the same treatment
should also apply for Virginia tax purposes. In
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such case, Virginia could view the partnership as doing business in Virginia,
and an Investor Certificateholder not otherwise subject to taxation in Virginia
could become subject to Virginia taxes as a result of its mere ownership of
Investor Certificates.
If the Investor Certificates are instead treated as ownership interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, then the entity could be subject to Virginia income tax. Such
taxes could result in reduced distributions to Investor Certificateholders. An
Investor Certificateholder not otherwise subject to tax in Virginia would not
become subject to direct Virginia taxes as a result of its mere ownership of
such an interest.
Finally, even if the Class A Certificates are properly classified as debt
obligations for Federal income tax purposes, they might be treated as debt
obligations of an entity owned by the Seller and the Class B
Certificateholders. If that entity were itself characterized as an association
taxable as a corporation or a "publicly traded partnership" taxable as a
corporation, then the hypothetical entity could be subject to Virginia income
taxes. Such taxes could result in reduced distributions to Investor
Certificateholders. An Investor Certificateholder not otherwise subject to tax
in Virginia would not become subject to Virginia taxes as a result of its mere
ownership of such an interest. If the hypothetical entity were instead
characterized as a partnership for Federal income tax purposes, this treatment
will also apply for Virginia tax purposes. In such case, Virginia could view
the hypothetical entity as doing business in Virginia and a Class B
Certificateholder not otherwise subject to taxation in Virginia could become
subject to Virginia income or withholding taxes as a result of its mere
ownership of such an interest.
Other States. There can be no assurance that other states will not claim that
the Subservicer has undertaken activities in such states. If such a claim were
made, no assurances can be given as to whether the Investor Certificates would
be treated as indebtedness by any particular state.
ERISA CONSIDERATIONS
Class A Certificates may be purchased by an employee benefit plan which is
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code, or a person utilizing the assets of any
such plan (collectively, "Benefit Plans"). A fiduciary of a Benefit Plan must
determine that the purchase of an Investor Certificate is made in accordance
with the governing plan documents, does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code and,
with respect to a Benefit Plan subject to ERISA (an "ERISA Plan"), satisfies
the general fiduciary requirements of ERISA including the requirements of
investment prudence and diversification.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under Section 410(d) of the Code), are not
subject to the restrictions of ERISA, and assets of such plans may be invested
in the Class A Certificates without regard to the ERISA considerations
described below, subject to other applicable Federal and state law. However,
any such governmental or church plan which is qualified under Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code is subject
to the prohibited transaction rules set forth in Section 503 of the Code.
CLASS A CERTIFICATES
Prohibited Transactions. Section 406 of ERISA prohibits parties in interest
with respect to a Benefit Plan from engaging in certain transactions involving
its assets unless a statutory or administrative exemption applies to the
transaction, and Section 4975 of the Code (or, in some cases, Section 502(i)
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of ERISA) imposes excise taxes (or civil fines) on disqualified persons or
parties in interest (collectively, "parties in interest") with respect to any
Benefit Plans which engage in non-exempt prohibited transactions. The
application of the prohibited transaction rules to the purchase and holding of
Class A Certificates by a Benefit Plan differs depending upon whether for ERISA
purposes such Class A Certificates are considered debt of the Seller or equity
interests in the Trust. The fact that the Class A Certificates are to be
treated as debt for Federal income tax purposes, as discussed above, is not
determinative of the status of the Class A Certificates under ERISA and it is
expected that the Class A Certificates will be considered to represent equity
interests for ERISA purposes (although no assurances can be given).
In the event that the Class A Certificates were determined to be debt of the
Seller, a prohibited transaction could arise, if the Seller, Household Bank or
any of their respective affiliates is or becomes a party in interest of a
Benefit Plan that acquires or holds Class A Certificates. An exemption might,
however, be available under such circumstances. See discussion below.
Assuming, however, that the Class A Certificates were determined to be equity
interests in the Trust, other prohibited transactions could arise. The DOL has
issued a final regulation (the "Plan Asset Regulation") concerning the
definition of what constitutes "plan assets" of a Benefit Plan. Under the Plan
Asset Regulation, the assets and properties of corporations, partnerships,
trusts, insurance company general or separate accounts and certain other
entities in which a Benefit Plan makes an equity investment are deemed to be
assets of the Benefit Plan unless an exception under the Plan Asset Regulation
is applicable. Accordingly, if a Benefit Plan (or other entities whose assets
include plan assets) purchases Class A Certificates, the Trust could be deemed
to hold plan assets of the investing Benefit Plan, unless an exception is
available.
The Plan Asset Regulation contains an exception that provides that if a
Benefit Plan (or other entities whose assets include plan assets) acquires a
"publicly offered security", the issuer of the security is not deemed to hold
plan assets. A publicly-offered security is a security that is (a) freely
transferable, (b) part of a class of securities that is owned immediately
subsequent to the initial offering by 100 or more investors independent of the
issuer and of one another and (c) either is (i) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act, or (ii) sold to
the plan as part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and the class of
securities of which such security is a part is registered under the Exchange
Act within 120 days (or such later time as may be allowed by the Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred.
It is reasonably anticipated that the Class A Certificates will meet the
criteria of publicly-offered securities as set forth above. The Underwriters
expect (although no assurances can be given) that the Class A Certificates will
be held by at least 100 persons independent of the issuer and of one another at
the conclusion of the offering; there are no restrictions imposed on the
transfer of the Class A Certificates; and the Class A Certificates will be sold
as part of an offering pursuant to an effective registration statement under
the Securities Act, and then will be timely registered under the Exchange Act.
If the Class A Certificates failed to meet the criteria of publicly-offered
securities and the Trust's Assets were deemed to include assets of Benefit
Plans that are Class A Certificateholders, transactions involving the Trust and
parties in interest with respect to such Benefit Plans might be prohibited
under Section 406 of ERISA and Section 4975 of the Code unless an exemption is
applicable. In addition, the persons providing services with respect to the
assets of the Trust could become parties in interest and would, in certain
cases, be subject to the fiduciary rules of ERISA. As an example, if a
participant in any Benefit Plan is a cardholder of one of the Accounts, the
purchase of Class A Certificates by such Benefit Plan could constitute a
prohibited transaction.
97
<PAGE>
In the event that the purchase of the Class A Certificates by Benefit Plans
would result in a prohibited transaction, there are five class exemptions
issued by the DOL that could apply: DOL Prohibited Transaction Exemptions 84-14
(Class Exemption for Plan Asset Transactions Determined by Independent
Qualified Professional Asset Managers), 91-38 (Class Exemption for Certain
Transactions Involving Bank Collective Investment Funds), 90-1 (Class Exemption
for Certain Transactions involving Insurance Company Pooled Separate Accounts),
95-60 (Class Exemption for Certain Transactions Involving Insurance Company
General Accounts), and 96-23 (Class Exemption for Plan Asset Transactions
Determined by In-House Asset Managers). There is, however, no assurance that
these exemptions, even if all of the conditions specified therein are
satisfied, will apply to all transactions involving the Trust's Assets.
The Class A Certificates may not be purchased with the assets of a Benefit
Plan if Household Bank, the Seller, the Servicer, the Trustee, an underwriter,
agent or dealer involved with the distribution of the Class A Certificates or
any of their respective affiliates, either: (a) has investment or
administrative discretion with respect to such plan assets; (b) has authority
or responsibility to give or regularly gives investment advice with respect to
such plan assets, for a fee, and pursuant to an agreement or understanding that
such advice will serve as a primary basis for investment decisions with respect
to such plan assets and that such advice will be based on the particular
investment needs of such plan; or (c) is an employer maintaining or
contributing to such plan.
[Unrelated Business Income Tax. As discussed above, while Special Counsel has
given its opinion that the Class A Certificates will properly be treated as
debt of the Seller for Federal income tax purposes, the Class A Certificates
may be treated as interests in an entity classified as a partnership for
federal income tax purposes. If so treated, a Benefit Plan investor's share of
income from the partnership will be treated as "unrelated business taxable
income" to the extent that the partnership is treated as engaged in a trade or
business that is an unrelated trade or business with respect to that investor.]
Review By Plan Fiduciaries and Insurance Companies. In light of the
foregoing, fiduciaries of a Benefit Plan (or other entities whose assets
include plan assets) considering the purchase of Class A Certificates should
consult their own counsel as to the applicability of the fiduciary duty and
prohibited transaction provisions of ERISA and the Code to such investments
including (but not limited to) such matters as whether the Trust Assets which
are represented by the Class A Certificates would be considered plan assets,
the consequences that would apply if the Trust's Assets were considered plan
assets, the applicability of exemptive relief from the prohibited transaction
rules and the applicability of the unrelated business income and unrelated
debt-financed income tax. Insurance companies considering the purchase of
Investor Certificates should also consult their own counsel as to the
application of the decision by the United States Supreme Court in John Hancock
Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.Ct. 517
(1993), to such a purchase. Under that decision, assets held in an insurance
company's general account may be deemed assets of Benefit Plans under certain
circumstances and under such decision a purchase of Investor Certificates with
assets of an insurance company's general account may be subject to the
prohibited transaction rules described above. Insurance company general account
investors should also consider the effect of the recent enactment of Section
401(c) of ERISA.
CLASS B CERTIFICATES
The Class B Certificates may not be acquired by or on behalf of a Benefit
Plan including any purchase using assets of a Benefit Plan held in an insurance
company's general account. By purchasing, holding or acquiring any interest in
a Class B Certificate, the Class B Certificateholder, or the beneficial owner
thereof, shall be deemed to have represented and warranted that it is not a
Benefit Plan and is not purchasing the Class B Certificate, or the interest
therein, on behalf of a Benefit Plan.
98
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
relating to the Certificates (the "Underwriting Agreement"), among the Seller,
as originator of the Trust, Household Bank, Household Finance Corporation and
each of the underwriters named below (the "Underwriters"), the Seller has
agreed to cause the Trust to sell, and each of the Underwriters have severally
agreed to purchase, the principal amount of Class A Certificates set forth
opposite its name:
CLASS A CERTIFICATES
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ---------------
<S> <C>
$
$
$
$
---------------
$
===============
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all $
aggregate principal amount of the Class A Certificates offered hereby if any
Class A Certificates are purchased. In the event of default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the nondefaulting Underwriters may be increased or the purchase
commitment of all of the Underwriters may be terminated. The Seller has been
advised by the Underwriters that the several Underwriters propose initially to
offer the Investor Certificates to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Class A Certificates. The Underwriters may allow and such dealers may reallow
to other dealers a concession not in excess of % of such principal amount.
After the initial public offering, the public offering price may be changed.
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Seller has agreed to cause the Trust to sell, and each of the Underwriters
have severally agreed to purchase, the principal amount of Class B Certificates
set forth opposite its name:
CLASS B CERTIFICATES
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- -----------
<S> <C>
$
$
$
$
-----------
$
===========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all $
aggregate principal amount of the Class B Certificates offered hereby if any
Class B Certificates are purchased. In the event of default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the nondefaulting Underwriters may be increased or the purchase
commitment of all of the Underwriters may be terminated. The Seller has been
advised by the Underwriters that the
99
<PAGE>
several Underwriters propose initially to offer the Investor Certificates to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of % of the principal amount of the Class B Certificates. The
Underwriters may allow and such dealers may reallow to other dealers a
concession not in excess of % of such principal amount. After the initial
public offering, the public offering price may be changed.
Each Underwriter that is not a member of the National Association of
Securities Dealers, Inc. (the "NASD") is a foreign broker or dealer not
eligible for membership in the NASD which has agreed not to make any sales
within the United States, its territories or possessions or to persons who are
citizens thereof or residents therein (other than certain sales made by the
Underwriters as a group) except that each such Underwriter shall be permitted
to make sales to the other Underwriters or to their United States affiliates
provided that such sales are made in compliance with applicable rules under the
Exchange Act and in conformity with the Rules of Fair Practice of the NASD.
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 Investor Certificates
in, from or otherwise involving the United Kingdom; (b) it has only issued or
passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the Investor
Certificates if that person is of a kind described in Article 9(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988
(as amended); (c) if it is an authorized person under Chapter III of the
Financial Services Act 1986, it has only promoted and will only promote (as
that term is defined in Regulation 1.02 of the Financial Services (Promotion of
Unregulated Collective Investment Schemes) Regulations 1991) to any person in
the United Kingdom the scheme described in this Prospectus if that person is of
a kind described either in Section 76(2) of the Financial Services Act 1986 or
if the circumstances are such that promotion would be permitted under paragraph
1.04 of the Financial Services (Promotion of Unregulated Collective Investment
Schemes) Regulations 1991; and (d) it is a person of a kind described in
Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1988 (as amended).
The Underwriting Agreement provides that the Seller will indemnify the
several Underwriters against certain liabilities, including liabilities under
applicable securities laws, or contribute to payments the several Underwriters
may be required to make in respect thereof.
The closing of the sale of the Class A Certificates is conditioned upon the
closing of the sale of the Class B Certificates.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may in the future engage in
investment banking or commercial banking transactions with Household Bank and
its affiliates.
LEGAL MATTERS
Certain legal matters relating to the Investor Certificates will be passed
upon for the Seller, Household Bank and the Trust by John W. Blenke, Vice
President--Corporate Law and Assistant Secretary of Household International,
Inc., the parent company of the Seller and Household Bank and by Orrick,
Herrington & Sutcliffe LLP, New York, New York. Certain legal matters will be
passed upon for the Underwriters by Orrick, Herrington & Sutcliffe LLP, New
York, New York. As of the date of this Prospectus, Mr. Blenke is a full-time
employee and an officer of Household International, Inc. and owns, and holds
options to purchase, shares of common stock of Household International, Inc.
100
<PAGE>
INDEX
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- --------
<S> <C>
Accounts.............................................................. 2, 6, 41
Additional Accounts................................................... 7, 35
Administrative Receivables............................................ 8
Adverse Effect........................................................ 33, 77
Aggregate Addition.................................................... 35
Aggregate Addition Account............................................ 34
Amortization Event.................................................... 66
Available Collateral Amount........................................... 21
Available Investor Principal Collections.............................. 59
Average Rate.......................................................... 31
Bank Purchase Agreement............................................... 6
Bankruptcy Code....................................................... 28
Base Rate............................................................. 67
Benefit Plans......................................................... 97
Cash Collateral Account............................................... 5
Cede.................................................................. 3
CEDEL................................................................. 14
CEDEL Participants.................................................... 72
Certificateholders' Interest.......................................... 5
Chase................................................................. 14
Citibank.............................................................. 14
Class A Certificate(s)................................................ 1, 4
Class A Certificate Rate.............................................. 4
Class A Certificateholders............................................ 2
Class A Interest...................................................... 5
Class A Interest Payment.............................................. 14
Class A Invested Amount............................................... 54
Class A Invested Percentage........................................... 58
Class A Investor Charge-Off........................................... 65
Class A Investor Default Amount....................................... 64
Class A Pool Factor................................................... 70
Class A Principal..................................................... 47
Class A Required Amount............................................... 18
Class B Certificate(s)................................................ 1, 4
Class B Certificate Rate.............................................. 4
Class B Certificateholders............................................ 2
Class B Interest...................................................... 5
Class B Interest Payment.............................................. 14
Class B Invested Amount............................................... 17, 54
Class B Invested Percentage........................................... 58
Class B Investor Charge-Off........................................... 66
Class B Investor Default Amount....................................... 65
Class B Pool Factor................................................... 70
Class B Principal..................................................... 47
Class B Required Amount............................................... 20, 57
Code.................................................................. 25
Collateral Agreement.................................................. 22
Collateral Amount..................................................... 6
Collateral Charge-Off................................................. 69
Collateral Default Amount............................................. 69
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- -------
<S> <C>
Collateral Interest................................................... 6
Collateral Interest Holder............................................ 6
Collateral Invested Amount............................................ 5, 54
Collateral Invested Percentage........................................ 58
Collateral Principal Collections...................................... 54
Collateral Rate....................................................... 15
Collection Account.................................................... 52
Commission............................................................ 2
Controlled Amortization Date.......................................... 2
Controlled Amortization Period........................................ 16
Controlled Distribution Amount........................................ 50
Cooperative........................................................... 72
Daily Balance......................................................... 44
Defaulted Amount...................................................... 64
Defaulted Receivables................................................. 10
Definitive Certificate(s)............................................. 14
Depositaries.......................................................... 70
Depository............................................................ 49
Determination Date.................................................... 23
Distribution Date..................................................... 2, 14
Distribution Date Statement........................................... 69
DOL................................................................... 25
DTC................................................................... 3
Due Period............................................................ 10
Early Amortization Period............................................. 17
EDS................................................................... 23
Eligible Account...................................................... 35
Eligible Institution.................................................. 52
Eligible Investments.................................................. 52
Eligible Receivable................................................... 75
ERISA................................................................. 25, 96
ERISA Plan............................................................ 96
Euroclear............................................................. 14
[Euroclear Operator................................................... 72]
Euroclear Participants................................................ 72
Excess Finance Charge and Administrative Collections.................. 56
Exchange Act.......................................................... 2
FDIC.................................................................. 11
Finance Charge and Administrative Receivables......................... 8
Finance Charge Receivables............................................ 8
financial institution................................................. 91
FIRREA................................................................ 87
Floating Allocation Percentage........................................ 53
GM.................................................................... 85
Group................................................................. 6
Group A............................................................... 14
Group One............................................................. 6
Group One Investor Additional Amounts................................. 60
Group One Investor Default Amount..................................... 61
Group One Investor Finance Charge and Administrative Collections...... 61
Group One Investor Monthly Fees....................................... 61
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- -------
<S> <C>
Group One Investor Monthly Interest.................................... 61
Holders................................................................ 73
Household Bank......................................................... 2, 4
Household International................................................ 46
Indirect Participants.................................................. 70
Ineligible Receivable.................................................. 75
Initial Accounts....................................................... 7
Initial Cut-Off Date................................................... 2, 7
Initial Issuance Date.................................................. 7
Insolvency Event....................................................... 27
Insolvency Proceeds.................................................... 68
Interchange............................................................ 40
Interest Period........................................................ 15
Invested Amount........................................................ 18
Investor Certificate(s)................................................ 1, 4
Investor Certificateholders............................................ 2
Investor Defaulted Amount.............................................. 65
Investor Finance Charge and Administrative Collections................. 63
Investor Principal Collections......................................... 53
IRS.................................................................... 89
Issuance Date.......................................................... 2
LIBOR.................................................................. 50
MasterCard............................................................. 6
MasterCard International............................................... 6
NASD................................................................... 100
New Account............................................................ 34
OID.................................................................... 90
Originated Portfolio................................................... 37
Participants........................................................... 70
Participation Interests................................................ 5
parties in interest.................................................... 97
plan assets............................................................ 97
Plan Asset Regulation.................................................. 97
Pooling and Servicing Agreement........................................ 1
Portfolio Yield........................................................ 31
Preferred Stock........................................................ 5
Prime Rate............................................................. 9
Principal Allocation Percentage........................................ 53
Principal Receivables.................................................. 8
Principal Shortfalls................................................... 56
publicly offered security.............................................. 97
Publicly Traded Partnership............................................ 93
Rating Agency.......................................................... 28
Rating Agency Condition................................................ 33
Reallocated Investor Finance Charge and Administrative Collections..... 60
Receivables............................................................ 1, 8
Record Date............................................................ 49
Recoveries............................................................. 8
Regulations............................................................ 92
Removal Notice......................................................... 78
Removed Accounts....................................................... 8
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- -------
<S> <C>
Required Collateral Amount............................................. 21, 64
Required Minimum Principal Balance..................................... 77
Revolving Period....................................................... 15
Securities Act......................................................... 2
Seller................................................................. 1, 4
Seller's Certificate................................................... 12
Seller's Interest...................................................... 5
Seller's Participation Amount.......................................... 76
Seller's Percentage.................................................... 54
Series................................................................. 4
Series Adjusted Invested Amount........................................ 53
Series Adjusted Portfolio Yield........................................ 67
Series Allocable Defaulted Amount...................................... 52
Series Allocable Finance Charge and Administrative Collections......... 52
Series Allocable Miscellaneous Payments................................ 53
Series Allocable Principal Collections................................. 52
Series Allocation Percentage........................................... 53
Series Enhancement..................................................... 5
Series 1997-1 Cut-Off Date............................................. 15
Series 1997-1 Expected Final Distribution Date......................... 16
Series 1997-1 Supplement............................................... 1
Series 1997-1 Termination Date......................................... 68
Series Required Seller Amount.......................................... 53
Service Transfer....................................................... 80
Servicer............................................................... 1, 4
Servicer Default....................................................... 81
Servicer Report........................................................ 69
Servicing Fee.......................................................... 68
Special Counsel........................................................ 89
Subordinated Principal Collections..................................... 18
Subservicer............................................................ 22
Supplement............................................................. 12
Supplemental Certificate............................................... 11
10 percent shareholder................................................. 94
Termination Date....................................................... 68
Termination Notice..................................................... 80
Terms and Conditions................................................... 72
The GM CardSM.......................................................... 85
Trust.................................................................. 1, 4
Trust Adjusted Invested Amount......................................... 53
Trust Assets........................................................... 1, 5
Trust Excess Principal Collections..................................... 51
Trustee................................................................ 1, 4
UCC.................................................................... 27
Unallocated Principal Collections...................................... 55
Underwriters........................................................... 99
Underwriting Agreement................................................. 99
United States Alien.................................................... 91
United States Alien Holder............................................. 91
United States Person................................................... 90
VISA................................................................... 6
VISA USA, Inc. ........................................................ 6
</TABLE>
104
<PAGE>
ANNEX I
PRIOR ISSUANCE OF INVESTOR CERTIFICATES
The Trust has issued previously ten series in four Groups. Class A and Class
B Credit Card Participation Certificates, Series 1993-A and Series 1993-B were
issued in Group A. Of these, Series 1993-A has been retired. Class A and Class
B Variable Funding Credit Card Participation Certificates, Series 1996-A were
issued in Group B. Class A and Class B Variable Funding Credit Card
Participation Certificates, Series 1996-B were issued in Group C. Class A and
Class B Credit Card Participation Certificates, Series 1993-1, Class A and
Class B Credit Card Participation Certificates, Series 1993-2, Class A and
Class B Credit Card Participating Certificates, Series 1993-3, Class A and
Class B Credit Card Participation Certificates, Series 1994-1, Class A and
Class B Credit Card Participation Certificates, Series 1994-2 and Class A and
Class B Credit Card Participation Certificates, Series 1995-1, were issued in
Group One. The table below sets forth, by group, the characteristics of the
certificates currently outstanding. For more specific information with respect
to Series 1993-B, Series 1993-1, Series 1993-2, Series 1993-3, Series 1994-1,
Series 1994-2 and Series 1995-1, any prospective investor should contact the
Servicer.
GROUP A
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1993-B
<TABLE>
<S> <C>
Class A
Invested
Amount
(Maximum
Amount)... $900,000,000
Class B
Invested
Amount
(Maximum
Amount)... $100,000,000
Class A
Certificate
Rate...... Floating Rate
Class B
Certificate
Rate...... Floating Rate
Series
Issuance
Date...... December 17, 1993
GROUP B
CLASS A AND CLASS B VARIABLE FUNDING CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1996-A
Class A
Invested
Amount.... Up to a maximum of $600,000,000
Class B
Invested
Amount.... Up to a maximum of $98,902,000
Class A
Certificate
Rate...... Floating Rate
Class B
Certificate
Rate...... Floating Rate
Series
Issuance
Date...... March 15, 1996
GROUP C
CLASS A AND CLASS B VARIABLE FUNDING CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1996-B
Class A
Invested
Amount.... Up to a maximum of $1,000,000,000
Class B
Invested
Amount.... Up to a maximum of $86,957,000
Class A
Certificate
Rate...... Floating Rate
Class B
Certificate
Rate...... Floating Rate
Series
Issuance
Date...... June 17, 1996
</TABLE>
I-1
<PAGE>
GROUP ONE
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1993-1
<TABLE>
<S> <C>
Class A Invested Amount........................... $900,000,000
Class B Invested Amount........................... $52,945,000
Class A Certificate Rate.......................... One-month LIBOR plus 0.20%
Class B Certificate Rate.......................... 5.30% per annum
Series Issuance Date.............................. September 16, 1993
The above Series 1993-1 certificates were supported by a collateral interest
in the receivables which on the Series Issuance Date had an invested amount of
$105,883,000.
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1993-2
Class A Invested Amount........................... $500,000,000
Class B Invested Amount........................... $29,412,000
Class A Certificate Rate.......................... 5.60% per annum
Class B Certificate Rate.......................... 5.90% per annum
Series Issuance Date.............................. November 16, 1993
</TABLE>
The above Series 1993-2 certificates were supported by a collateral interest
in the receivables which on the Series Issuance Date had an invested amount of
$58,824,000.
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1993-3
<TABLE>
<S> <C>
Class A Invested Amount........................... $500,000,000
Class B Invested Amount........................... $29,412,000
Class A Certificate Rate.......................... One-month LIBOR plus 0.17%
Class B Certificate Rate.......................... 4.95% per annum
Series Issuance Date.............................. November 16, 1993
</TABLE>
The above Series 1993-3 certificates were supported by a collateral interest
in the receivables which on the Series Issuance Date had an invested amount of
$58,824,000.
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1994-1
<TABLE>
<S> <C>
Class A Invested Amount........................... $850,000,000
Class B Invested Amount........................... $50,000,000
Class A Certificate Rate.......................... One-month LIBOR plus 0.15%
Class B Certificate Rate.......................... 6.05% per annum
Series Issuance Date.............................. March 3, 1994
</TABLE>
The above Series 1994-1 certificates were supported by a collateral interest
in the receivables which on the Series Issuance Date had an invested amount of
$100,000,000.
I-2
<PAGE>
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1994-2
<TABLE>
<S> <C>
Class A Invested Amount................................... $870,000,000
Class B Invested Amount................................... $40,000,000
Class A Certificate Rate.................................. 7.00% per annum
Class B Certificate Rate.................................. 7.20% per annum
Series Issuance Date...................................... September 28, 1994
</TABLE>
The above Series 1994-2 certificates were supported by a collateral interest
in the receivables which on the Series Issuance Date had an invested amount of
$90,000,000.
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1995-1
<TABLE>
<S> <C>
Class A Invested Amount........................... $522,000,000
Class B Invested Amount........................... $24,000,000
Class A Certificate Rate.......................... One-month LIBOR plus 0.15%
Class B Certificate Rate.......................... 7.70% per annum
Series Issuance Date.............................. March 7, 1995
</TABLE>
The above Series 1995-1 certificates were supported by a collateral interest
in the receivables which on the Series Issuance Date had an invested amount of
$54,000,000.
I-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE SELLER OR THE SERVICER OR ANY AFFILIATE THEREOF OR THE RECEIV-
ABLES OR THE ACCOUNTS SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Reports to Investor Certificateholders..................................... 3
Prospectus Summary......................................................... 4
Risk Factors............................................................... 27
The Credit Card Business of Household Bank (SB), N.A....................... 35
The Accounts............................................................... 40
The Seller................................................................. 45
Household Bank (SB), N.A. ................................................. 45
The Servicer............................................................... 45
The Subservicer............................................................ 45
The Trust.................................................................. 46
Use of Proceeds............................................................ 46
Principal Payment Considerations........................................... 47
Description of the Investor Certificates................................... 48
The Pooling and Servicing Agreement Generally.............................. 73
Description of the Bank Purchase Agreement................................. 83
Certain Legal Aspects of the Receivables................................... 85
Tax Matters................................................................ 88
ERISA Considerations....................................................... 96
Underwriting............................................................... 99
Legal Matters.............................................................. 100
Index...................................................................... 101
</TABLE>
------------
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A OR CLASS B CERTIFICATES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
HOUSEHOLD AFFINITY
CREDIT CARD MASTER
TRUST I
SERIES 1997-1
$
FLOATING RATE CLASS A CREDIT CARD
PARTICIPATION CERTIFICATES
$
% CLASS B CREDIT CARD
PARTICIPATION CERTIFICATES
HOUSEHOLD AFFINITY
FUNDING CORPORATION
SELLER
HOUSEHOLD FINANCE
CORPORATION
SERVICER
------------
PROSPECTUS
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[TO COME]
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following is an itemized list of 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................................................... $608*
Printing and Engraving............................................. +
Trustee's Fees..................................................... +
Legal Fees and Expenses............................................ +
Blue Sky Fees and Expenses......................................... +
Accountants' Fees and Expenses..................................... +
Rating Agency Fees................................................. +
Miscellaneous Fees................................................. +
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Total............................................................ +
====
</TABLE>
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* Actual
+ To be filed by Amendment
ITEM 14. Indemnification of Directors and Officers
(a) Indemnification. 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.
A bylaw adopted by Household Finance Corporation, a Delaware corporation
("HFC") state and make mandatory the indemnification expressly authorized under
the General Corporation Law of Delaware, in the absence of other
indemnification by contract, votes of stockholders or otherwise except that the
bylaw makes no distinction between litigation brought by third parties and
litigation brought by HFC as regards the required standard of conduct imposed
upon the individual in order to be entitled to indemnification. The standard
applicable 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 without reference to any such
standard) is that the individual shall have acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the applicable company and with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful. Further,
the bylaw would protect directors, officers and employees and agents against
any and all expenses and liability with respect to actions brought against them
by or in the right of HFC if the required standard of conduct is met.
Article VII of the Certificate of Incorporation of Household International,
Inc., a Delaware Corporation, 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 Bank and the Seller). Household International, Inc. has also
purchased liability policies which indemnify the Seller'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.
II-1
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Pursuant to agreements which the Seller may enter into with underwriters or
agents (forms of which are included as exhibits to this Registration
Statement), officers and directors of the Seller, 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 the Seller by such underwriters or
agents that appears in the Registration Statement or any Prospectus.
(b) Pooling and Servicing Agreement. The Pooling and Servicing Agreement
provides that no director, officer, employee or agent of Household Finance
Corporation, as Servicer or Household Credit Services, Inc., as Subservicer, or
the Seller is liable to any holder of the investor certificates or to the
Trustee on behalf of the holders of such investor certificates, except for such
person's own willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
ITEM 15. Recent Sales of Unregistered Securities
(a) Securities Sold. On December 17, 1993, Floating Rate Class A and Class B
Credit Card Participation Certificates, Series 1993-B (the "Series 93-B
Certificates") were sold together with the Series 1993-B Collateral Invested
Amount. On December 14, 1994, the Series 1993-B was amended so that the maximum
Class A Invested Amount was $900,000,000 and the maximum Class B Invested
Amount was $100,000,000. The Collateral Invested Amount related to this Series
1993-B was retired. On April 1, 1996, the Series 1993-B was further amended so
that the maximum Class A Invested Amount was $1,150,000,000. On March 3, 1994,
the Series 1994-1 Collateral Invested Amount was sold with an initial invested
amount of $100,000,000. On September 28, 1994 the Series 1994-2 Collateral
Invested Amount was sold with an initial invested amount of $90,000,000. On
March 7, 1995, the Series 1995-1 Collateral Invested Amount was sold with an
initial invested amount of $54,000,000. On March 15, 1996, Floating Rate
Class A and Class B Variable Funding Credit Card Participation Certificates,
Series 1996-A (the "Series 1996-A Certificates") were sold with a maximum
Class A Invested Amount of $600,000,000 and a maximum Class B Invested Amount
of $98,902,000. On June 17, 1996, Floating Rate Class A and Class B Variable
Funding Credit Card Participation Certificates, Series 1996-B (the "Series
1996-B Certificates") were sold with a maximum Class A Invested Amount of
$1,000,000,000 and a maximum Class B Invested Amount of $86,957,000. The
aforementioned Series 1993-B Certificates, Series 1996-A Certificates, Series
1996-B Certificates and the Series 1994-1, Series 1994-2 and Series 1995-1
Collateral Invested Amount are the only unregistered securities sold or offered
by the Trust within the past three years.
(b) Underwriters and Other Purchasers. There was no underwriter in connection
with the sale of the Series 1993-B, Series 1996-A or Series 1996-B
Certificates. Multi-seller/commercial paper conduit programs purchased the
Series 1993-B Class A and Class B Certificates, the Series 1996-A Class A
Certificates and the Series 1996-B Class A Certificates and Household Finance
Corporation purchased the Series 1996-A Class B Certificate and the Series
1996-B Class B Certificate. The Collateral Invested Amounts were purchased by
banks and Household Affinity Funding Corporation.
(c) Consideration. Upon utilization of the Series 1993-B Certificates, such
certificates will be offered at par up to a maximum aggregate offering price of
$1,150,000,000 for all Class A Certificates of such Series and $100,000,000 for
the Class B Certificates of such Series. Upon utilization of the Series 1996-A
Certificates, such certificates will be offered at par up to a maximum
aggregate offering price of $600,000,000 for all Class A Certificates of such
Series and $98,902,000 for all Class B Certificates purchased from the Trust
for such Series. Upon utilization of the Series 1996-B Certificates, such
certificates will be offered at par up to a maximum aggregate offering price of
$1,000,000,000 for all Class A Certificates of such Series and $86,957,000 for
all Class B Certificates purchased from the Trust for such Series. The Series
1994-1 and Series 1995-1 Collateral Invested Amounts were sold at par. There
were no underwriting discounts or commissions.
II-2
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(d) Exemption from Registration. Exemption from registration was claimed
pursuant to Section 4(2) of the Securities Act of 1933, as amended. All
purchasers of the Certificates and the purchasers of the Collateral Invested
Amounts listed above in this Item 15 were sophisticated institutional
investors.
ITEM 16. Exhibits and Financial Statements
(a) All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
(b) Exhibits
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<S> <C>
1* --Form of Underwriting Agreement for Investor Certificates.
3.1* --Certificate of Incorporation, as amended, of Household Affinity Funding
Corporation.
3.2* --By-laws of Household Affinity Funding Corporation.
4.1* --Amended and Restated Pooling and Servicing Agreement, as amended.
4.2* --Form of Series 1997-1 Supplement.
5* --Opinion of John W. Blenke, Vice President--Corporate Law of Household
International, Inc.
8* --Opinion of Orrick, Herrington & Sutcliffe LLP as to tax matters.
10.1* --Bank Purchase Agreement, as amended, by and between Household Bank,
f.s.b. and Household Affinity Funding Corporation.
10.2* --Assignment Agreement dated as of December 1, 1993 between Household
Bank, f.s.b. and Household Bank (SB), N.A.
23.1* --Consent of John W. Blenke, Vice President--Corporate Law of Household
International, Inc. is included in his opinion filed as Exhibit 5 hereto.
23.2* --Consent of Orrick, Herrington & Sutcliffe LLP is included in their
opinions filed as Exhibit 8 hereto.
24 --Powers of Attorney (included on Pages II-5 and II-6 hereof).
</TABLE>
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* To be filed by Amendment.
ITEM 17. Undertakings
The undersigned registrant hereby agrees:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement Certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) 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 14
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in 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 such
issue.
II-3
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(c) That, 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 of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(d) That, 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, Household
Affinity Funding Corporation on behalf of Household Affinity Credit Card Master
Trust I, does hereby certify that it has duly caused this Registration
Statement to be signed on behalf of Household Affinity Credit Card Master Trust
I by the undersigned, thereunto duly authorized, in the City of Prospect
Heights, and State of Illinois, on the 27th day of December, 1996.
Household Affinity Credit Card
Master Trust I
/s/ J. W. Blenke
By: _________________________________
Household Affinity Funding
Corporation J. W. Blenke, Vice
President
Each person whose signature appears below constitutes and appoints J.W.
Blenke, L.S. Mattenson and P.D. Schwartz and each or any of them (with full
power to act alone), as his/her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him/her in his/her
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Form S-1 and to file
the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each such
attorneys-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he/she might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or their 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 on Form S-1 has been signed on the 27th day of December, 1996 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
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<S> <C>
/s/ J. W. Saunders
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J. W. Saunders President (Principal Executive Officer) and
Director
/s/ David A. Schoenholz
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David A. Schoenholz Senior Vice President and Controller
(Principal Financial and Accounting
Officer)
/s/ B. B. Moss, Jr.
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B. B. Moss, Jr. Senior Vice President, Treasurer and
Director
/s/ S. H. Smith
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S. H. Smith Vice President, Assistant Treasurer and
Director
/s/ J. W. Blenke
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J. W. Blenke Vice President, Secretary and Director
</TABLE>
II-5
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Household
Affinity Funding Corporation does hereby certify that it has duly caused this
Registration Statement to be signed on behalf of Household Affinity Credit Card
Master Trust I by the undersigned, thereunto duly authorized, in the City of
Prospect Heights, and State of Illinois, on the 27th day of December, 1996.
Household Affinity Funding
Corporation as originator of the
Trust, Registrant
/s/ J. W. Saunders
By: _________________________________
J. W. Saunders, President
Each person whose signature appears below constitutes and appoints J.W.
Blenke, L.S. Mattenson and P.D. Schwartz and each or any of them (with full
power to act alone), as his/her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him/her in his/her
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Form S-1 and to file
the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each such
attorneys-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he/she might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or their 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 on Form S-1 has been signed on the 27th day of December, 1996 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ J. W. Saunders
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J. W. Saunders President (Principal Executive Officer) and
Director
/s/ David A. Schoenholz
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David A. Schoenholz Senior Vice President and Controller
(Principal Financial and Accounting
Officer)
/s/ B. B. Moss, Jr.
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B. B. Moss, Jr. Senior Vice President, Treasurer and
Director
/s/ S. H. Smith
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S. H. Smith Vice President, Assistant Treasurer and
Director
/s/ J. W. Blenke
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J. W. Blenke Vice President, Secretary and Director
</TABLE>
II-6
