<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1997
REGISTRATION NO. 333-18913
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
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 88-0300291
(PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION CODE NUMBER) 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
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.... $870,000,000 100% $870,000,000 $263,637
- --------------------------------------------------------------------------------
Class B Certificates.... $ 47,500,000 100% $ 47,500,000 $ 14,394
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
*$608.00 of the registration fee was paid previously.
--------------
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 MARCH 17, 1997
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES 1997-1
$870,000,000 Floating Rate Class A Credit Card Participation Certificates
$47,500,000 Floating Rate 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 Floating Rate 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 March 1, 1997 (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
(Continued on following page)
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
CERTIFICATES, SEE "RISK FACTORS" ON PAGE 31 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>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC 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
$1,000,000.
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 ,
1997.
CREDIT SUISSE FIRST BOSTON
CITICORP SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
UBS SECURITIES
The date of this Prospectus is , 1997.
<PAGE>
(Continued from previous page)
on the Class A Certificates from and including to and excluding
April 15, 1997 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 ("LIBOR").
Interest will accrue on the Class B Certificates from and including
to and excluding April 15, 1997 and with respect to each Interest
Period thereafter at the rate of % per annum above LIBOR. The assets of the
Trust (the "Trust Assets") include receivables, including the collections
thereon (the "Receivables"), that are generated 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 $82,500,000 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 April
1997 Distribution Date. Principal payments with respect to the Class A
Certificates and the Class B Certificates are scheduled to be made on the
March 2002 Distribution Date, but may be paid earlier or later under certain
limited circumstances described herein. Principal payments will not be made 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 holders of the Class A Certificates (the "Class A Certificateholders").
(The Class A Certificateholders and the Class B Certificateholders are herein
collectively referred to as the "Investor Certificateholders".) See "Principal
Payment Considerations" and "Description of the Investor Certificates--
Principal."
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 and the Early Amortization Period (as defined
herein) commence, the Investor Certificates may be repaid 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 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
2
<PAGE>
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 CERTIFICATEHOLDERS
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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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...............
$870,000,000 Floating Rate Class A Credit
Card Participation Certificates, Series
1997-1 (the "Class A Certificates").
$47,500,000 Floating Rate Class B Credit
Card Participation Certificates, Series
1997-1 (the "Class B Certificates"; and to-
gether 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"),
two of which have been retired, and is ex-
pected to issue additional Series from time
to time. The Trust is expected to continue
as a trust after the Series 1997-1 Termina-
tion Date (as defined herein). The assets
of the Trust are expected to change over
the life of the Trust as certain interests
and receivables in revolving credit card
accounts and related assets are included in
the Trust and as certain interests and re-
ceivables in accounts subject to the Trust
are charged-off or removed. See "The
Trust", "Risk Factors--Master Trust Consid-
erations" and "--Addition of Trust Assets",
"The Pooling and Servicing Agreement Gener-
ally--Additions of Accounts or Participa-
tion 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..........
LIBOR plus % (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.
4
<PAGE>
Servicer.......................... Household Finance Corporation (the
"Servicer"), a Delaware corporation.
Trustee........................... The Bank of New York (the "Trustee"), a New
York banking corporation.
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 any of
three account(s) (the "Cash Collateral Ac-
count," the "Principal Funding Account" and
the "Reserve Account") each in the name of
the Trustee for the benefit of the Investor
Certificateholders, funds collected or to
be collected from Participation Interests
(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 in-
vestor 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 Inter-
est are collectively referred to herein as
the "Certificateholders' Interest"), the
interests of the Seller (the "Seller's In-
terest"), and the investor
certificateholders of other
5
<PAGE>
Series and may be allocated to any Series
Enhancement all as described below. An un-
divided interest in the Trust Assets (the
"Collateral Invested Amount"), in the ini-
tial amount of $82,500,000 of Principal Re-
ceivables (such amount represents 8.25% 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 provider
of such Series Enhancement is the "Collat-
eral Interest Holder". Trust Assets will be
allocated to the interests of the Collat-
eral Interest Holder (the "Collateral In-
terest") in an amount equal to the sum of
the Collateral Invested Amount and the
amount, if any, on deposit in the Cash Col-
lateral 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 Participa-
tion Interests conveyed to the Trust and
all collections received with respect
thereto may be allocated to one or more Se-
ries 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 Certifi-
cates are part of the first Series in a
group of Series ("Group Two"). To the ex-
tent described herein, Receivables, Partic-
ipation Interests and all collections re-
ceived with respect to the Investor Certif-
icates may be allocated to other Series in
Group Two. While other Series may be issued
in Group Two, there can be no assurance
that any other Series will actually be is-
sued in Group Two.
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 con-
- --------
*VISA and MasterCard are registered trademarks of VISA USA, Inc. and MasterCard
International Incorporated, respectively.
6
<PAGE>
trolled 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.--Gen-
eral"; "--The Accounts"; "Description of
the Bank Purchase Agreement--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 Household 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
7
<PAGE>
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 ad-
dition thereto, to include Participation
Interests in the Trust. Additional Accounts
include New Accounts (as defined herein)
and Aggregate Addition Accounts (as defined
herein). The Seller will convey to the
Trust all Receivables in Additional Ac-
counts, whether such Receivables are then
existing or thereafter created. The addi-
tion to the Trust of Receivables in Aggre-
gate Additions or Participation Interests
will be subject to certain conditions, in-
cluding, among others, that (a) unless such
addition is a required addition, such addi-
tion will not result in the failure to sat-
isfy 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 addition will
not have an Adverse Effect. The Seller will
also have the right, in certain circum-
stances, to remove from the Trust all Re-
ceivables of certain Accounts (the "Removed
Accounts"). See "The Pooling and Servicing
Agreement Generally--Additions of Accounts
or Participation Interests" and "--Removal
of Accounts".
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".
8
<PAGE>
The aggregate amount of Receivables per-
taining to the Accounts as of the close of
business on December 31, 1996 was
$6,803,556,923, of which $6,714,768,079
were Principal Receivables and $88,788,844
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
are collected, charged-off as uncollectible
or otherwise adjusted.
Finance charges are assessed on Principal
Receivables. The annual percentage rate as-
sessed 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 generally
16.9%. For premium Accounts with an average
daily balance under $2,500, the minimum an-
nual percentage rate is 16.4% and for pre-
mium Accounts with an average daily balance
of $2,500 or greater the minimum annual
percentage rate is 13.4%. As of the close
of business on December 31, 1996, the Re-
ceivable balance of the nonpremium and pre-
mium Accounts as a percentage of the total
Receivable balance of the Accounts was ap-
proximately 77% and 23%, respectively. From
time to time, Household Bank has and may
offer special rates to customers for vari-
ous purposes and periods or may change
rates generally as permitted in the Receiv-
ables 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.
9
<PAGE>
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 $870,000,000 and
$47,500,000, respectively. During the Con-
trolled Accumulation Period (as defined
herein), for the purpose of allocating col-
lections of Finance Charge and Administra-
tive Receivables and the Defaulted Amount
(as defined herein) with respect to each
Due Period (as defined herein), the Class A
Interest will be reduced (in an amount not
to exceed the Class A Invested Amount) by
the principal amount, if any, on deposit in
the Principal Funding Account (as so re-
duced, the "Class A Adjusted Invested
Amount") and the Class B Interest will be
reduced (in an amount not to exceed the
Class B Invested Amount) by the amount by
which the principal amount on deposit, if
any, in the Principal Funding Account ex-
ceeds the Class A Invested Amount (as so
reduced, the "Class B Adjusted Invested
Amount" and, together with the Class A Ad-
justed Invested Amount and the Collateral
Invested Amount, the "Adjusted Invested
Amount"). The principal amount of the Sell-
er's Interest will fluctuate as the amount
of Receivables in the Trust changes from
time to time. The Seller's Interest will
represent the right to the Trust Assets not
allocated to the Certificateholders' Inter-
est, the Collateral Invested Amount, or to
any interest of any other Series. The
Seller has the right to sell, or borrow
against, the Seller's Interest and House-
hold Bank has the right to assign and
transfer the Accounts and assign its obli-
gations 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"; "Descrip-
tion of the Bank Purchase Agreement--Trans-
fer 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 related Interest Period (as
defined herein) and a 360-day year and pay-
ments of principal on each Distribution
Date during any Early Amortization Period
(as defined herein) or on the Series 1997-1
Expected Final Payment Date (as defined
herein) with respect to the
10
<PAGE>
Controlled Accumulation Period or any Early
Accumulation Period (as defined herein) to
the extent described under "Description of
the Investor Certificates--Principal" and
"Principal Payment Considerations" herein.
The Class A Invested Amount may be less
than the aggregate unpaid principal amount
of the Class A Certificates, in certain
circumstances, if the amount of Principal
Receivables which are charged off as uncol-
lectible during a Due Period (the "De-
faulted Receivables") allocated to the
Class A Interest exceeds available cash,
the Collateral Invested Amount and the
Class B Invested Amount. "Due Period" means
the period beginning at the close of busi-
ness 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 pre-
ceding such Distribution Date. See "De-
scription of the Investor Certificates--In-
vestor 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 Class B Certificate Rate calculated
on the basis of the actual number of days
in the related Interest Period and a 360-
day year, and payments of principal on each
Distribution Date with respect to the Class
B Certificates during any Early Amortiza-
tion Period or on the Series 1997-1 Ex-
pected Final Payment Date with respect to
the Controlled Accumulation Period or any
Early Accumulation Period, to the extent
described under "Description of the In-
vestor Certificates--Principal" and "Prin-
cipal Payment Considerations" herein. The
Class B Invested Amount may be less than
the aggregate unpaid principal amount of
the Class B Certificates in certain circum-
stances as more fully described herein.
The certificateholders' interest of any Se-
ries, including the Class A Interest and
the Class B Interest, will
11
<PAGE>
each include the right to receive (but only
to the extent needed to make required pay-
ments under the Pooling and Servicing
Agreement and the related Supplement and
subject to any reallocation of such amounts
if the related Supplement so provides) va-
rying percentages of collections of Finance
Charge and Administrative Receivables and
Principal Receivables and such interests
will be allocated a portion of Defaulted
Receivables in the Trust during each Due
Period. If the investor certificates of a
Series include more than one class of in-
vestor certificates, the Trust Assets allo-
cable to the certificateholders' interest
of such Series will be further allocated
among each class within such Series. See
"Risk Factors", "Description of the In-
vestor Certificates--Allocation of Collec-
tions; Deposits in Collection Account" and
"--Reallocation of Cash Flows", and "--
Reallocations Among Investor 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 evidencing
the Seller's Interest in the Trust and any
Supplemental Certificates are collectively
referred to herein as the "Seller's Certif-
icate". The Pooling and Servicing Agreement
provides that, pursuant to any one or more
supplements to the Pooling and Servicing
Agreement (each a "Supplement"), the Seller
may cause the Trustee to issue one or more
new Series and accordingly cause a reduc-
tion in the Seller's Interest represented
by the Seller's Certificate. Under the
Pooling and Servicing Agreement, the Seller
may define, with respect to any Series, the
principal terms of such Series. The Seller
may offer any Series to the public or other
investors in transactions either regis-
12
<PAGE>
tered under the Securities Act or exempt
from registration thereunder, directly or
through one or more underwriters or place-
ment agents, in fixed-price offerings or in
negotiated transactions 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 Two 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".
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.
13
<PAGE>
Reallocations Among Series in a
Group............................ The investor certificates of a Series may
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 Two will be aggregated and
made available for required payments for
all Series in Group Two. Consequently, the
issuance of new Series in Group Two 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 Two. 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".
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 a Group
("Group One"), one of which has since been
retired. 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 Investor Certificates will not be part
of Group A, Group B, Group C or Group One
but will be a part of
14
<PAGE>
Group Two and will be the first Series to
be issued in Group Two.
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 if such day is not a
business day, on the next succeeding busi-
ness day (each, a "Distribution Date") com-
mencing on the April 1997 Distribution
Date. Interest for any Distribution Date
will accrue from and including the preced-
ing Distribution Date to but excluding such
Distribution Date (an "Interest Period"),
and interest owing on the Investor Certifi-
cates and the Collateral Interest will be
calculated on the basis of actual number of
days in the related Interest Period and a
360-day year. For the first Interest Peri-
od, inter -
15
<PAGE>
est will accrue from and including the Is-
suance Date to, but excluding, April 15,
1997. Interest on the Investor Certificates
for any Distribution Date due but not paid
on such Distribution Date will be due on
the next succeeding Distribution Date to-
gether with additional interest on such
amount at the applicable Class A or Class B
Certificate Rate. In addition, interest
will accrue on the outstanding Collateral
Invested Amount at LIBOR plus 1% (the "Col-
lateral Rate"). See "Description of the In-
vestor Certificates--General" and "--Dis-
tributions from the Collection Account; Al-
location of Funds".
Revolving Period..................
No principal will be paid to the Class A
Certificateholders until the earlier to oc-
cur of the Series 1997-1 Expected Final
Payment Date and the commencement of any
Early Amortization Period. Principal pay-
ments 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 in
the period commencing at the close of busi-
ness on February 28, 1997 (the "Series
1997-1 Cut-Off Date") and ending on the
earlier of the commencement of the Con-
trolled Accumulation Period, any Early Ac-
cumulation Period or any Early Amortization
Period ("Revolving Period"), in order to
maintain the Certificateholders' Interest
and the Collateral Invested Amount, all
collections of Principal Receivables other-
wise allocable 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 pur-
chase additional Receivables, or reallo-
cated for payment of principal to investors
in other Series. See "Principal Payment
Considerations" and "Description of the In-
vestor Certificates--Principal". The Due
Period for the Investor Certificates with
respect to the first Distribution Date will
commence on the Series 1997-1 Cut-Off Date
and will end at the close of business on
the last business day of the month immedi-
ately preceding the first Distribution
Date. See "Description of the Investor Cer-
tificates--Reallocation of Cash Flows" and
"--Amortization Event" for a discussion of
the events which might lead to the termina-
tion of the Revolving Period prior to its
scheduled ending date. Unless an Amortiza-
tion Event shall have occurred, the Revolv-
ing Period will end and the Controlled Ac-
cumulation Period will com -
16
<PAGE>
mence at the close of business on the last
business day of August 2001; provided,
that, subject to the conditions set forth
under "Description of the Investor Certifi-
cates--Principal" herein, the day on which
the Revolving Period ends and the Con-
trolled Accumulation Period begins may be
delayed to no later than the close of busi-
ness on the last business day of January
2002.
Principal Payments; Controlled
Accumulation Period.........
Unless an Amortization Event shall have oc-
curred and an Early Amortization Period
shall have commenced, the final payment
with respect to the Investor Certificates
is scheduled to be made on the March 2002
Distribution Date (the "Series 1997-1 Ex-
pected Final Payment Date"). Unless and un-
til an Amortization Event shall have oc-
curred and an Early Accumulation Period or
Early Amortization Period shall have com-
menced, the Controlled Accumulation Period
with respect to the Investor Certificates
(the "Controlled Accumulation Period") will
commence at the close of business on the
last business day of August 2001; provided,
that, subject to the conditions set forth
under "Description of the Investor Certifi-
cates--Principal" herein, the day on which
the Revolving Period ends and the Con-
trolled Accumulation Period begins may be
delayed to no later than the close of busi-
ness on the last business day of January
2002. The Controlled Accumulation Period
will end upon the earliest to occur of (x)
the commencement of any Early Accumulation
Period or any Early Amortization Period,
(y) the payment in full of the Class A In-
vested Amount, the Class B Invested Amount
and the Collateral Invested Amount (collec-
tively, the "Invested Amount") and (z) the
Series 1997-1 Termination Date (as defined
herein). During the Controlled Accumulation
Period, collections of Principal Receiv-
ables and certain other amounts allocable
to the Certificateholders' Interest will
generally be deposited on each Distribution
Date in a segregated trust account estab-
lished for the benefit of the Investor
Certificateholders (the "Principal Funding
Account") until the amount on deposit in
the Principal Funding Account is equal to
the sum of the Class A Invested Amount and
the Class B Invested Amount. Any amounts
deposited into the Principal Funding Ac-
count will not be considered as principal
payments made to the Investor
Certificateholders. Unless an Early Amorti-
zation Period shall have commenced, the
amount on deposit in the Principal Funding
Account will be distributed to
17
<PAGE>
the Investor Certificateholders on the Se-
ries 1997-1 Expected Final Payment Date to
the extent described herein. The maximum
amount to be deposited in the Principal
Funding Account during the Controlled Accu-
mulation Period (the "Controlled Deposit
Amount") will be limited to an amount equal
to the sum of the Controlled Accumulation
Amount (as defined below) plus any existing
deficit controlled accumulation amount
arising from prior Distribution Dates. See
"Description of the Investor Certificates--
Principal" and "Principal Payment Consider-
ations" herein. For each Distribution Date
with respect to a Due Period during the
Controlled Accumulation Period, the "Con-
trolled Accumulation Amount" shall mean
$152,916,667; except that, if the commence-
ment of the Controlled Accumulation Period
is delayed as described herein, the Con-
trolled Accumulation Amount for each Dis-
tribution Date with respect to a Due Period
during the Controlled Accumulation Period
will be determined as described under "De-
scription of the Investor Certificates--
Principal". If collections of Principal Re-
ceivables allocable to the Certificate-
holders' Interest are insufficient to make
the deposit of the Controlled Deposit
Amount, then such amount may be deposited
from Principal Collections reallocated from
other Series. If a reduction in the Re-
quired Collateral Amount has occurred dur-
ing the Controlled Accumulation Period,
collections in excess of the Controlled Ac-
cumulation Amount will be applied to reduce
the Collateral Amount to such Required Col-
lateral Amount. During the Controlled Accu-
mulation Period, until the final principal
payment is made to the Class B
Certificateholders, collections of Princi-
pal Receivables allocable to the Collateral
Invested Amount (other than Subordinated
Principal Collections that are used to pay
the Class A Required Amount or Class B Re-
quired Amount and collections used to make
payments with respect to reductions in the
Required Collateral Amount) will generally
be paid to the Seller to maintain the Col-
lateral Invested Amount at its required
level. See "Description of the Investor
Certificates--Principal" and "Principal
Payment Considerations."
Although it is anticipated that during the
Controlled Accumulation Period, prior to
the payment of the Class A Invested Amount
and the Class B Invested Amount in full,
funds will be deposited in the Principal
Funding Account and that the amount on de-
posit therein will be available for distri-
bution to the Investor Certificateholders
on the Series 1997-1 Expected Final Payment
18
<PAGE>
Date, no assurance can be given that any
funds will be so deposited or that the
amount of funds so deposited will be suffi-
cient to make the anticipated distribution
in full to the Investor Certificateholders
on the Series 1997-1 Expected Final Payment
Date. See "Principal Payment Consider-
ations". See also "Description of the In-
vestor Certificates--Amortization Event"
for a description of the events which might
lead to the commencement of an Early Accu-
mulation Period or Early Amortization Peri-
od.
During the Controlled Accumulation Period
all funds on deposit in the Principal Fund-
ing Account will be invested in certain el-
igible investments as described herein. The
amount of investment earnings, if any, on
funds on deposit in the Principal Funding
Account (net of investment expenses and
losses) will be available to be allocated
as payments of interest on the Investor
Certificates to the extent described here-
in. See "Description of the Investor Cer-
tificates--Principal Funding Account" and
"--Distributions from the Collection Ac-
count; Allocation of Funds." Such invest-
ment earnings will not be considered as
part of any amount on deposit in the Prin-
cipal Funding Account. No assurance can be
given, however, that any investment earn-
ings will be earned. See "Principal Payment
Considerations".
Early Accumulation Period.... During the period commencing on the close
of business on the business day immediately
preceding the day on which any Amortization
Event other than those Amortization Events
as described herein under paragraphs (c),
(e), (h) or (i) under "Description of the
Investor Certificates--Amortization Event"
has occurred, until the earlier of the com-
mencement of any Early Amortization Period
and the Series 1997-1 Expected Final Pay-
ment Date (the "Early Accumulation Peri-
od"), collections of Principal Receivables
and certain other amounts allocable to the
Certificateholders' Interest will generally
be deposited on each Distribution Date in
the Principal Funding Account until the
amount on deposit therein is equal to the
sum of the Class A Invested Amount and the
Class B Invested Amount. Amounts deposited
into the Principal Funding Account will not
be considered as principal payments made to
the Investor Certificateholders. Unless any
Early Amortization Period shall have com-
menced, the amount on deposit in the Prin-
cipal Funding Account will be distributed
to the Investor Certificateholders on the
Series 1997-1 Expected
19
<PAGE>
Final Payment Date to the extent described
herein. See "Description of the Investor
Certificates--Principal". The amount to be
deposited in the Principal Funding Account
during the Early Accumulation Period will
not be limited to any Controlled Deposit
Amount. Although it is anticipated that
during the Early Accumulation Period, prior
to the payment of the Class A Invested
Amount and the Class B Invested Amount in
full, funds will be deposited in the Prin-
cipal Funding Account and that the amount
on deposit therein will be available for
distribution to the Investor
Certificateholders on the Series 1997-1 Ex-
pected Final Payment Date, no assurance can
be given that any funds will be so depos-
ited or that the amount of funds so depos-
ited will be sufficient to make the antici-
pated distribution in full to the Investor
Certificateholders on the Series 1997-1 Ex-
pected Final Payment Date. See "Principal
Payment Considerations". See also "Descrip-
tion of the Investor Certificates--Amorti-
zation Event" for a description of the
events which might lead to the commencement
of an Early Amortization Period.
During the Early Accumulation Period all
funds on deposit in the Principal Funding
Account will be invested, in certain eligi-
ble investments as described herein. The
amount of investment earnings, if any, on
funds on deposit in the Principal Funding
Account (net of investment expenses and
losses) will be available to be allocated
as payments of interest on the Investor
Certificates to the extent described here-
in. See "Description of the Investor Cer-
tificates--Principal Funding Account" and
"--Distributions from the Collection Ac-
count; Allocation of Funds". Such invest-
ment earnings will not be considered as
part of any amount on deposit in the Prin-
cipal Funding Account. No assurance can be
given, however, that any investment earn-
ings will be earned.
Early Amortization Period.........
During the period from the first day of the
Due Period in which any Amortization Event
as described herein under paragraphs (c),
(e), (h) or (i) under "Description of the
Investor Certificates--Amortization Event"
has occurred or, under certain limited cir-
cumstances, the day on which such an Amor-
tization Event has occurred, to, in either
such case, the earliest of the date on
which the Invested Amount has been paid in
full, the Series 1997-1 Termination Date or
the date on which the Trust has otherwise
terminated (the "Early Amortization Peri-
od"), the Principal Allocation Per -
20
<PAGE>
centage (as defined herein) of collections
of Principal Receivables and certain other
amounts allocable to the Investor Certifi-
cates (other than any Subordinated Princi-
pal 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, accumulated or otherwise real-
located to any other Series, but instead
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 Amount is paid in full. In addi-
tion, upon any commencement of the Early
Amortization Period, any funds on deposit
in the Principal Funding Account will be
distributed to the Investor
Certificateholders on the first Distribu-
tion Date following the commencement of
such Early Amortization Period. 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 the Servicing Fee during
any period in which Household Finance Cor-
poration or an affiliate is no longer the
Servicer. In addition, the Collateral
Amount will be subordinated to the extent
necessary to fund certain payments with re-
spect 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
21
<PAGE>
insufficiency being the "Class A Required
Amount"), Excess Finance Charge and Admin-
istrative Collections (as defined herein)
will be applied to fund the Class A Re-
quired 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 Re-
quired Amount and if the amount available
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
Adjusted Invested Amount for such Due Pe-
riod will then be used to fund the remain-
ing Class A Required Amount. "Subordinated
Principal Collections" shall mean, with re-
spect to each Distribution Date, the prod-
uct of (a) with respect to any Due Period
during the Revolving Period, the Floating
Allocation Percentage of Series Allocable
Principal Collections (each, as defined
herein) allocated to the Investor Certifi-
cates and the Collateral Invested Amount
for such Due Period and with respect to any
Due Period during the Controlled Accumula-
tion Period, any Early Accumulation Period
or any Early Amortization Period, the Prin-
cipal Allocation Percentage of Series Allo-
cable Principal Collections allocated to
the Investor Certificates and the Collat-
eral Invested Amount for such Due Period
multiplied by (b) a fraction the numerator
of which is equal to the sum of the Class B
Adjusted 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 Adjusted 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 Adjusted 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 Cer-
tificates.
To the extent the Class B Adjusted Invested
Amount is decreased, the percentage of col-
lections of Finance
22
<PAGE>
Charge and Administrative Receivables allo-
cated 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 Adjusted Invested
Amount is not reimbursed, the amount of
principal distributable to the Class B
Certificateholders from the Collection Ac-
count (as defined herein) will be reduced.
See "Description of the Investor Certifi-
cates--Allocations" and "--Subordination".
Reductions of the Class B Adjusted Invested
Amount will be reimbursed and the Class B
Adjusted 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 Adjusted Invested
Amount, and the amount, if any, of Excess
Finance Charge and Administrative Collec-
tions allocable and available for that pur-
pose. See "Description of the Investor Cer-
tificates--Subordination", "--Excess Fi-
nance Charge and Administrative Collec-
tions".
If the Class B Adjusted Invested Amount is
reduced to zero, the Class A Adjusted In-
vested Amount will be reduced if there is
any remaining unpaid Class A Required
Amount for any Due Period, but not in ex-
cess 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
"Description of the Investor Certificates--
Reallocation of Cash Flows" and "--Investor
Charge-Offs".
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
23
<PAGE>
Collections allocable to the Collateral In-
vested Amount for such Due Period will then
be used to fund the remaining Class B Re-
quired 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 Adjusted Invested Amount will
also be reduced if the Collateral Amount
has been reduced to zero and there remains
any unpaid Class B Required Amount for any
Due Period, but not in excess of the Class
B Investor Default Amount for such Due Pe-
riod, and the Class B Certificateholders
will bear directly the credit and other
risks associated with their undivided in-
terest in the Trust. See "Description of
the Investor Certificates--Reallocation of
Cash Flows" and "--Investor Charge-Offs".
In the event of a reduction of the Class A
Adjusted Invested Amount, the Class B Ad-
justed Invested Amount or the Collateral
Amount, the amount available to fund pay-
ments with respect to the Class A Certifi-
cates and the Class B Certificates will be
decreased. See "Description of the Investor
Certificates--Allocations".
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 allo-
24
<PAGE>
cable 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 de-
scribed below. See "Description of the In-
vestor Certificates--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) $82,500,000 initially and (ii) thereaf-
ter an amount equal to the greater of (a)
8.25% of the sum of the Class A Adjusted
Invested Amount, the Class B Adjusted In-
vested Amount and the Required Collateral
Amount in each case as of such Distribution
Date after taking into account distribu-
tions made on such date and (b)
$30,000,000; provided, however, (1) that if
certain withdrawals are made from the Cash
Collateral Account, 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 pre-
ceding 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; (3) the Required Collateral Amount
may be reduced at any time to a lesser
amount if the Rating Agency Condition is
satisfied; (4) the Seller at its option may
at any time increase the Required Collat-
eral Amount to a greater amount and (5) if
any amount on deposit in the Principal
Funding Account is equal to the sum of the
initial Class A Invested Amount and the
initial Class B Invested Amount, the Re-
quired Collateral Amount will be zero.
25
<PAGE>
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 or depos-
ited into the Reserve Account (as defined
herein) with respect to any Distribution
Date will be applied in accordance with the
Collateral Agreement among the Seller, the
Trustee, the Servicer and the Collateral
Interest Holder (the "Collateral Agree-
ment"). See "Description of the Investor
Certificates--Excess Finance Charge and Ad-
ministrative 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.
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. Cur-
26
<PAGE>
rently, Household Finance Corporation meets
such requirements and will make deposits of
collections received 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, 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
27
<PAGE>
respect to the Accounts and the Receivables
and the Servicer will make certain repre-
sentations and warranties in the Pooling
and Servicing Agreement in its capacity as
Servicer. If the Seller or the Servicer
breaches certain representations and war-
ranties with respect to any Receivable and
such breach remains uncured for a specified
period after the Seller or the Servicer be-
comes aware or receives notice thereof from
the Trustee and such breach has a material
adverse effect on the certificateholders'
interest therein, 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 covenants or warranties with re-
spect to any Receivable and such noncompli-
ance is not cured within a specified period
after the Seller or the Servicer becomes
aware or receives notice thereof from the
Trustee and such noncompliance has a mate-
rial adverse effect on the
certificateholders' interest therein, such
certificateholders' interest may be reas-
signed to the Seller or assigned to the
Servicer, as the case may be. In the event
of a transfer of servicing obligations to a
successor Servicer, such successor
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 will deliver
its opinion that under existing law the In-
vestor Certificates will be characterized
as debt for federal income tax purposes.
Under the Pooling and Servicing Agreement
and the Series 1997-1 Supplement, the
Seller and the Investor Certificateholders
will agree to treat the Investor Certifi-
cates as debt for federal, state, local,
foreign and other tax purposes. See "Cer-
tain Federal Income Tax Consequences" and
"State and Local Tax Consequences".
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
28
<PAGE>
"DOL"). If the Certificates are treated as
equity interests under ERISA, under regula-
tions issued by the DOL, the Trust's assets
would not be deemed "plan assets" (as de-
fined herein) of an employee benefit plan
holding the Class A Certificates if certain
conditions are met, including that the
Class A Certificates be held by at least
100 persons who are independent of the Is-
suer and of one another at the conclusion
of the offering. The Underwriters (as de-
fined herein) expect, although no assur-
ances can be given, that the Class A Cer-
tificates will be held by at least 100 per-
sons, and the Seller anticipates that the
other conditions of the regulations will be
met. In any event, persons contemplating
purchasing the Class A Certificates on be-
half of or with "plan assets" of any Bene-
fit Plan (as defined herein) 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,
including an individual retirement account
or Keogh plan, that is subject to ERISA or
Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code"), if such
Benefit Plan has certain relationships with
Household Bank, the Seller, the Servicer,
the Trustee, an underwriter or their re-
spective affiliates. See "ERISA Considera-
tions".
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 the benefit of
the Class A Certificateholders. See "De-
scription of the Investor Certificates--Re-
allocation of Cash Flows" and "Risk Fac-
tors--Rating of the Investor Certificates".
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
29
<PAGE>
based primarily on the value of the Receiv-
ables, the credit quality of the Servicer,
and the circumstances, as described herein,
in which the Collateral Amount may be
available for the benefit 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 withholding taxes
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.
30
<PAGE>
RISK FACTORS
Limited Liquidity. There currently is no market for the Investor
Certificates. To the extent permitted, the Underwriters currently intend to
make a market in the Investor Certificates, but the Underwriters are not under
any obligation to do so. 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.
The Federal Deposit Insurance Act ("FDIA"), as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, as amended
("FIRREA"), provides that such security interest should not be subject to
avoidance by the FDIC, as conservator or receiver for Household Bank.
Positions taken by the FDIC staff prior to the passage of FIRREA do not
suggest that the FDIC, as 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, however, the FDIC were to
assert a contrary position, such as by requiring the Trustee to establish its
right to those payments by submitting to and completing the administrative
claims procedure under the FDIA, or were the conservator or receiver to
request a stay of proceedings with respect to Household Bank as provided under
the FDIA, delays in payments on the Investor Certificates and possible
reductions in the amount of those payments could occur. In addition, the FDIC,
if appointed as conservator or receiver for Household Bank, has the power
under the FDIA to repudiate contracts, including secured contracts of
Household Bank. The FDIA provides that a claim for damages arising from the
repudiation of a contract is limited to "actual direct compensatory damages."
In the event the FDIC were to be appointed as conservator or receiver of
Household Bank and were to repudiate the Pooling and Servicing Agreement, then
the amount payable out of available collections on the Receivables to the
Investor Certificateholders could be lower than the outstanding principal and
accrued interest on the Investor Certificates.
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
31
<PAGE>
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, 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 Adjusted 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 would be
available to pay the Class B Certificateholders. See "Description of the
Investor Certificates--Amortization Event" 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".
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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 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 Accumulation Period
may commence. See "Description of the Investor Certificates--Amortization
Event". In addition, upon the occurrence of a Reserve Account Event (as
defined herein) during the Controlled Accumulation Period or any Early
Accumulation Period, an Early Amortization Period will commence.
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 Accumulation Period will be
dependent, in part, 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 Accumulation Period. In addition, the occurrence of
a Reserve Account Event would result in the occurrence of an Early
Amortization Period. Furthermore, there is no
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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 Accumulation 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 Accumulation Period as well as result
in decreased protection to Investor Certificateholders against defaults under
the Accounts. The occurrence of any Reserve Account Event during the Controlled
Accumulation Period or any Early Accumulation Period will cause the
commencement of an Early Amortization Period.
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 an 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 Accumulation Period, or, if a Reserve Account
Event occurs, 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
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lawsuit. This settlement by MasterCard and/or a final decision against or a
similar settlement by VISA could have adverse consequences for members of the
MasterCard or VISA associations, such as Household Bank.
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 Accumulation Period, or would result in the occurrence of an Early
Amortization Period if a Reserve Account Event occurs. 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 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
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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 Investor 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 Investor
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 and may decline
during the Controlled Accumulation Period and any Early Accumulation Period.
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 Adjusted Invested Amount may be reduced.
If the Class B Adjusted 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".
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. 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 Payment
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Date. The ratings also do not address the possibility of the occurrence of an
Amortization Event which, under certain circumstances as described herein,
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 Payment Date.
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. An Investor Certificateholder who complies
with the applicable identification or certification requirements of the IRS
should generally not be subject to United States withholding tax. If the law
were to change and, as a result thereof, United States withholding tax were
imposed on such payments even though the Investor Certificateholder complied
with the applicable identification or certification requirements, the Investor
Certificateholder would receive such payments net of such withholding tax, and
none of the Seller, Household Bank, the Trust, the Trustee, the Collateral
Interest Holder, the Servicer or any Subservicer would have any obligation to
gross up such payments to account for such withholding tax.
MASTER TRUST CONSIDERATIONS
Issuance of Additional Series. The Trust, as a master trust, previously has
issued ten Series, two of which have been retired, 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
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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 Two,
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 Two (due to
a higher certificate rate) will receive a proportionately larger reallocation
of Group Two Investor Finance Charge and Administrative Receivables. Such
issuance will reduce the amount of Group Two Investor Finance Charge and
Administrative Receivables which are reallocated to the existing Series in
Group Two. Furthermore, there is no assurance that, for any Series in a Group,
the Trust will issue any other Series in such Group. Accordingly, any
anticipated benefits of sharing or reallocation of collections of Receivables
may not be realized. 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 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
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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.
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.
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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.
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".
40
<PAGE>
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 one day after the date the account becomes delinquent and continues
with follow-up contacts of at least one time per week until the account is 59
days delinquent. In the event the collector is unable to establish telephone
contact with the cardholder, the collector is required to send a series of
collection letters to that person until the matter is resolved. 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. Except in limited circumstances, the current
policy of the Subservicer is to charge-off an account at the end of the month
in which that account becomes 180 days delinquent. 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 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.
PORTFOLIO EXPERIENCE
The following tables and the table under "Principal Payment Considerations"
set forth certain experience for each of the periods shown for the Portfolio.
The "Portfolio" includes all credit card accounts, including the Accounts,
generated by Household Bank or Household Bank, f.s.b. 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. Not all such accounts
have been designated for inclusion in the Trust. As of the close of business
on December 31, 1996, the Accounts constitute substantially all of the
Portfolio. Origination of Accounts with respect to "The GM CardSM" program
commenced in September 1992. Information for the Portfolio presented below
reflects performance of
41
<PAGE>
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 excludes GM Card Accounts originated by Household Bank (Nevada), N.A. The
general increase in personal bankruptcy filings in the United States has had an
impact on the charge-off experience in the Portfolio. Although the Servicer
believes the information on the Portfolio to be reliable, because various terms
of the accounts in the Portfolio and various policies (including, in certain
cases, charge-off policies) regarding the 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 Portfolio.
LOSS AND DELINQUENCY EXPERIENCE
The following tables set forth the loss and delinquency experience for the
Portfolio for each of the periods shown.
LOSS EXPERIENCE FOR THE PORTFOLIO(1)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables
Outstanding(2)........... $6,431,033 $6,047,865 $5,444,143 $3,188,019
Total Net Charge-offs(3).. $ 342,922(4) $ 276,288(4) $ 167,214 $ 39,794
Total Net Charge-offs as a
Percentage of Average
Receivables Outstanding.. 5.33% 4.57% 3.07% 1.25%
</TABLE>
- --------
(1) Substantially 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) Net charge-offs include charge-offs of principal and fees net of recoveries
during the periods.
(4) Recoveries for 1995 and 1996 relate only to the Accounts.
AVERAGE DELINQUENCIES AS A PERCENTAGE OF THE PORTFOLIO(1)(2)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
AVERAGE OF AVERAGE OF AVERAGE OF AVERAGE OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
NUMBER OF ------------------- ------------------- ------------------- -------------------
DAYS DELINQUENT PERCENT- DELINQUENT PERCENT- DELINQUENT PERCENT- DELINQUENT PERCENT-
DELINQUENT AMOUNT AGE(3) AMOUNT AGE(3) AMOUNT AGE(3) AMOUNT AGE(3)
- ------------------------ ---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5-29.................... $241,415 3.75% $218,297 3.61% $179,326 3.29% $ 95,374 2.99%
30-59................... 79,647 1.24% 65,048 1.08% 49,993 0.92% 22,586 0.71%
60-89................... 52,214 0.81% 42,406 0.70% 30,785 0.57% 13,166 0.41%
90-119.................. 40,443 0.63% 33,476 0.55% 24,452 0.45% 9,535 0.30%
120+.................... 61,002 0.95% 50,936 0.84% 39,507 0.73% 12,325 0.39%
-------- ----- -------- ----- -------- ----- -------- -----
Total $474,721 7.38% $410,163 6.78% $324,063 5.96% $152,986 4.80%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- --------
(1) Average delinquencies are the average of month end delinquent amounts.
(2) Substantially 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 the average of the monthly average receivables
balance.
42
<PAGE>
REVENUE EXPERIENCE
The revenues for the Portfolio from finance charges and fees billed to
cardholders are set forth in the following table for each of the periods
shown.
The historical revenue figures in the table includes 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 PORTFOLIO(1)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding
(2)............................... $6,431,033 $6,047,865 $5,444,143 $3,188,019
Total Finance Charges and Fees
Billed (3)........................ $ 977,360 $ 964,160 $ 816,264 $ 453,865
Total Finance Charges and Fees
Billed as a Percentage of Average
Receivables Outstanding........... 15.20% 15.94% 14.99% 14.24%
</TABLE>
- --------
(1) Substantially 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.
The revenues for the Portfolio shown in the table 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 Portfolio is lower than the finance charge
assessed on most of the nonpremium credit card accounts for such purchases,
although there is an annual membership fee on the premium credit card
accounts. The revenues related to finance charges depend in part upon the
collective preference of cardholders to use their credit cards as revolving
debt instruments for purchases and cash advances and paying off credit card
account balances over several months as opposed to convenience use, where the
cardholders prefer instead to pay off their entire balance each month, thereby
avoiding finance charges on purchases, and upon other services of which
cardholders choose to avail themselves and which are paid for by the use of
the card. Revenues related to finance charges and fees also depend on the
types of charges and fees assessed by Household Bank on the accounts in the
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
43
<PAGE>
Legal Aspects of the Receivables--Consumer Protection Laws" and "--Proposed
Legislation". 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 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 certain 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".
As of each date with respect to which Additional Accounts are designated,
Household Bank represents and warrants 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 represents and warrants 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--Representations and
Warranties" and "Description of the Bank Purchase Agreement--Representations
and Warranties". Because the Initial Accounts were designated as of the
Initial Cut-Off Date and subsequent Aggregate Addition Accounts have been and
may continue to 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.
44
<PAGE>
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, 1996, the Receivables pertaining
to the Accounts had an average principal balance of $1,386, and the Accounts
had an average credit limit of $6,416 and a weighted average age of
approximately 44 months. The average total Receivable balance as a percentage
of the average credit limit with respect to such Accounts was 21.9% as of the
close of business on December 31, 1996. Approximately 13.7%, 7.2%, 7.1%, 6.8%
and 5.8% of the Receivables as of the close of business on December 31, 1996
relate to cardholders having billing addresses in California, New York, Texas,
Michigan and Florida, respectively. As of the close of business on December
31, 1996, the Receivable balance of the nonpremium and premium Accounts as a
percentage of the total Receivable balance of the Accounts was approximately
77.1% and 22.9%, respectively.
As of the close of business on December 31, 1996, 4,778,288 Accounts
representing $6,537,838,927.88 or 96.1% of the total Receivables outstanding
were current or less than 30 days delinquent, and 66,240 Accounts representing
$265,717,995.42 or 3.9% 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 and 1994. 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, 1996 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.
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 or equal to
$1,000.00..................... 3,191,214 65.87% $ 478,179,938 7.03%
$1,000.01 to $2,000.00......... 495,389 10.23% 719,390,009 10.57%
$2,000.01 to $3,000.00......... 315,757 6.52% 788,506,091 11.59%
$3,000.01 to $4,000.00......... 231,560 4.78% 808,828,802 11.89%
$4,000.01 to $5,000.00......... 174,292 3.60% 784,620,794 11.53%
$5,000.01 to $6,000.00......... 122,321 2.52% 669,783,324 9.85%
$6,000.01 to $7,000.00......... 93,815 1.94% 610,438,428 8.97%
$7,000.01 to $8,000.00......... 72,584 1.50% 543,688,184 7.99%
$8,000.01 to $9,000.00......... 57,166 1.18% 486,347,859 7.15%
$9,000.01 to $10,000.00........ 53,382 1.10% 507,447,799 7.46%
Over $10,000.00................ 37,048 .76% 406,325,695 5.97%
--------- ------- -------------- -------
Total........................ 4,844,528 100.00% $6,803,556,923 100.00%
========= ======= ============== =======
</TABLE>
45
<PAGE>
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..................... 205,484 4.24% $ 55,840,154 0.82%
$1,000.01 to $2,000.00......... 135,421 2.80% 102,300,762 1.50%
$2,000.01 to $3,000.00......... 265,225 5.47% 250,667,143 3.68%
$3,000.01 to $4,000.00......... 235,660 4.86% 303,110,944 4.46%
$4,000.01 to $5,000.00......... 1,125,642 23.24% 638,731,481 9.39%
$5,000.01 to $6,000.00......... 731,383 15.10% 606,714,432 8.92%
$6,000.01 to $7,000.00......... 644,001 13.29% 776,713,224 11.41%
$7,000.01 to $8,000.00......... 381,191 7.87% 682,880,565 10.04%
$8,000.01 to $9,000.00......... 255,781 5.28% 696,011,755 10.23%
$9,000.01 to $10,000.00........ 442,442 9.13% 1,230,501,709 18.09%
Over $10,000.00................ 422,298 8.72% 1,460,084,754 21.46%
--------- ------- -------------- -------
Total........................ 4,844,528 100.00% $6,803,556,923 100.00%
========= ======= ============== =======
</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>
Less than 24 months............ 0 0.00% $ 0 0.00%
Over 24 months to 48 months.... 3,000,577 61.94% 4,079,912,977 59.97%
Over 48 months................. 1,843,951 38.06% 2,723,643,946 40.03%
--------- ------- -------------- -------
Total........................ 4,844,528 100.00% $6,803,566,923 100.00%
========= ======= ============== =======
Weighted Average Age (Months).. 44
</TABLE>
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.
46
<PAGE>
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. 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. 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 below) for the
billing cycle are aggregated. The daily balance for an Account (the "Daily
Balance") is computed as its beginning balance adjusted 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. The Daily Periodic Rate is 1/365 of the sum of
the Prime Rate plus (a) 10.4 percent for a nonpremium 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 Daily Periodic
Rate for nonpremium Accounts is generally .046% (corresponding to a 16.9%
annual percentage rate). The minimum Daily Periodic Rate for premium Accounts
with an average daily balance under $2,500 is generally .045% (corresponding
to a 16.4% annual percentage rate) while those with an average daily balance
of $2,500 or greater generally have a minimum Daily Periodic Rate of .037%
(corresponding to a 13.4% annual percentage rate). Household Bank has and may
again offer special marketing rates.
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 2.5% of the cash advance, with a
minimum fee of $2.50 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 $20 if the required minimum payment on the account
is not received on its due date shown
47
<PAGE>
on the monthly billing statement, (b) returned payment charges of $20 for each
time a payment on the account is returned unsatisfied by the bank or other
financial institution on which the payment was drawn, (c) overlimit charges of
$20 if the cardholder exceeds the credit limit and (d) 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.
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.
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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, 1996, the Servicer had approximately $21 billion in total
assets, approximately $18 billion in total liabilities and approximately $3
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 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 4,500 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, (including each of the Cash
Collateral Account, the Principal Funding Account and the Reserve 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 Principal Funding Account, the Reserve Account and 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
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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
Accounts, the Receivables of which are 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.
PRINCIPAL PAYMENT CONSIDERATIONS
Unless an Amortization Event has occurred and the Early Amortization Period
has commenced (See "Description of the Investor Certificates--Amortization
Event"), the Class A Certificateholders will not begin to receive payments of
principal until the Series 1997-1 Expected Final Payment Date. The Class B
Certificateholders will not begin to receive payments of principal until the
final principal payment, as described herein, on the Class A Certificates has
been made.
Unless an Early Accumulation Period or an Early Amortization Period shall
have commenced, on each Distribution Date during the Controlled Accumulation
Period, amounts equal to the least of (a) Available Investor Principal
Collections (as defined herein) on deposit in the Collection Account with
respect to such Distribution Date, (b) the Controlled Deposit Amount, which is
equal to the sum of the Controlled Accumulation Amount for such Distribution
Date and any deficit controlled accumulation amount arising from prior
Distribution Dates and (c) the sum of the Class A Adjusted Invested Amount and
the Class B Adjusted Invested Amount will be deposited in the Principal
Funding Account for the Investor Certificateholders to be held by the Trustee
until the aggregate amount on deposit in the Principal Funding Account equals
the sum of the Class A Invested Amount and the Class B Invested Amount. See
"Description of the Investor Certificates--Principal". Although it is
anticipated that collections of Principal Receivables will be available on
each Distribution Date during the Controlled Accumulation Period to make a
deposit of the Controlled Deposit Amount, no assurance can be given that this
will actually occur or that there will be a sufficient amount on deposit in
the Principal Funding Account to pay the Investor Certificateholders the Class
A Invested Amount and the Class B Invested Amount in full on the Series 1997-1
Expected Final Payment Date. Any amounts deposited into the Principal Funding
Account will not be considered as principal payments made to the Investor
Certificateholders.
If an Amortization Event, other than any of those specified in paragraphs
(c), (e), (h) or (i) under "Description of the Investor Certificates--
Amortization Event" herein, occurs during the Revolving Period or the
Controlled Accumulation Period, the Early Accumulation Period will commence
and on each Distribution Date with respect to the Early Accumulation Period,
an amount equal to the lesser of (a) the Available Investor Principal
Collections and (b) the sum of the Class A Adjusted Invested Amount and the
Class B Adjusted Invested Amount will generally be deposited in the Principal
Funding Account, until the amount on deposit therein equals the sum of the
Class A Invested Amount and the Class B Invested Amount. Such amounts
deposited in the Principal Funding Account during the Early Accumulation
Period will not be subject to any Controlled Deposit Amount.
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<PAGE>
In the event of the occurrence of any Amortization Event as specified in any
of paragraphs (c), (e), (h) or (i) under "Description of the Investor
Certificates--Amortization Event" and the commencement of the Early
Amortization Period any amount on deposit in the Principal Funding Account
will be distributed to the Investor Certificateholders on the Distribution
Date immediately following the commencement of the Early Amortization Period
and the Investor Certificateholders will be entitled to receive Available
Investor Principal Collections on each Distribution Date with respect to such
Early Amortization Period as described herein until the earlier to occur of
the Series 1997-1 Termination Date or the date on which the Class A Invested
Amount and the Class B Invested Amount have been paid in full. 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
Insolvency Event and the commencement of the Early Amortization Period as
described under "Description of the Investor Certificates--Amortization Event"
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 Accumulation Period and any Early Accumulation Period or
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".
The ability of the Investor Certificateholders to receive payments of
principal on the Series 1997-1 Expected Final Payment Date (i) depends upon
certain things, including the payment rates on the Receivables, the amount of
outstanding Receivables, delinquencies, charge-offs, new borrowings on the
Accounts, the potential issuance by the Trust of additional Series and the
availability of Trust Excess Principal Collections (as defined herein) and
(ii) may be adversely affected by the issuance of additional Series with
controlled amortization periods or controlled accumulation periods which
coincide in whole or in part with the Controlled Accumulation Period or the
occurrence of an amortization event with respect to any Series scheduled to be
in its revolving period during the Controlled Accumulation Period or any Early
Accumulation Period. 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, the terms of the Accounts (which are subject to change by
Household Bank) 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 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.--Portfolio Experience".
The Seller cannot predict, and no assurance can be given, as to the cardholder
monthly payment rates that will actually occur in any future period, as to the
actual rate of payment of principal of the Investor Certificates or whether
the terms of any subsequently issued Series might have an impact on the amount
or timing of any such payment of principal. See "Risk Factors--Generation of
Additional Receivables; Dependency on Cardholder Repayments" and "Description
of the Investor Certificates--Reallocation of Trust Excess Principal
Collections". There can be no assurance that collections of Principal
Receivables with respect to the Trust portfolio, and thus the rate at which
the Investor Certificateholders could expect to receive payments of principal
on their Series 1997-1 Certificates during any Early Amortization Period or
the rate at which the Principal Funding Account could be
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funded during the Controlled Accumulation Period or any Early Accumulation
Period, will be similar to the historical experience set forth in the following
table. As described under "Description of the Investor Certificates--
Principal", the Seller may shorten the Controlled Accumulation Period and, in
such event, there can be no assurance that there will be sufficient time to
accumulate all amounts necessary to pay the Class A Invested Amount and the
Class B Invested Amount on the Series 1997-1 Expected Final Payment Date. In
addition, the Trust, as a master trust, may issue additional Series from time
to time, and there can be no assurance that the terms of any such Series might
not have an impact on the timing or amount of payments received by the Investor
Certificateholders. Further, if the commencement of an Early Amortization
Period occurs, the average life and maturity of the Investor Certificates could
be significantly reduced or lengthened.
Due to the reasons set forth above, there can be no assurance that deposits
in the Principal Funding Account will be made on or prior to the Series 1997-1
Expected Final Payment Date in an amount equal to the sum of the Class A
Invested Amount and the Class B Invested Amount or that the actual number of
months elapsed from the date of issuance of the Investor Certificates to the
Series 1997-1 Expected Final Payment Date will equal the expected number of
months. See "Risk Factors--Generation of Additional Receivables; Dependency on
Cardholder Repayments".
CARDHOLDER MONTHLY PAYMENT RATES FOR THE PORTFOLIO(1)(2)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Lowest Month........................................ 21.64% 23.63% 24.80% 25.85%
Highest Month....................................... 27.22% 28.09% 34.00% 34.45%
Average Monthly Payment Rate (3).................... 24.48% 25.74% 27.64% 29.55%
</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) 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) Calculated as the average of the monthly payment rates for the period.
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<PAGE>
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 1/870,000 of the Class A
Interest and each $1,000 principal amount of Class B Certificates will
represent 1/47,500 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 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 April
15, 1997 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 Investor Certificates will be calculated on the basis of the actual number
of days in the related Interest Period and a 360-day year, but for purposes of
calculating the interest payable with respect to the first Interest Period,
interest will accrue from and including the Issuance Date to but excluding
April 15, 1997.
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<PAGE>
The Class A Certificate Rate from and including to and excluding
April 15, 1997 and with respect to each related Interest Period thereafter
will be at the rate of LIBOR plus % per annum. The Class B Certificate
Rate from and including to and excluding April 15, 1997 and with
respect to each related Interest Period thereafter will be at the rate of
LIBOR plus % per annum. For the purpose of calculating the rate for the
Investor 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
(or the second London business day prior to the Issuance Date in the case of
the first 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 earlier to occur of the Series 1997-1 Expected Final Payment Date and the
commencement of an Early Amortization Period. 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.
On each Distribution Date during the Revolving Period, unless an
Amortization Event shall have occurred or a reduction in the Required
Collateral Amount shall have 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 shall have
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.
During the Controlled Accumulation Period or any Early Accumulation Period
on or prior to the Series 1997-1 Expected Final Payment Date, collections of
Principal Receivables allocable to the Certificateholders' Interest, plus
certain other amounts will no longer be paid to the Seller as described above
but instead will, unless an Amortization Event shall have occurred and the
Early Amortization Period shall have commenced, be deposited in the Principal
Funding Account as described below and on the Series 1997-1 Expected Final
Payment Date such collections will be distributed from the Principal Funding
Account first to the Class A Certificateholders in an amount not to exceed the
Class A Invested Amount and, if there is any remaining amount then on deposit
in the Principal Funding Account, then to the Class B Certificateholders in an
amount not to exceed the Class B Invested Amount.
On each Distribution Date with respect to the Controlled Accumulation
Period, unless a reduction in the Required Collateral Amount shall have
occurred, the Trustee will, subject to certain limitations,
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<PAGE>
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, deposit collections of Principal Receivables
allocable to the Invested Amount in the Principal Funding Account in an amount
equal to the least of (a) Available Investor Principal Collections on deposit
in the Collection Account with respect to such Distribution Date, (b) the
Controlled Deposit Amount for such Distribution Date and (c) the sum of the
Class A Adjusted Invested Amount and the Class B Adjusted Invested Amount,
until the amount on deposit in the Principal Funding Account equals the sum of
the Class A Invested Amount and the Class B Invested Amount.
If an Amortization Event, other than any Amortization Event described in
paragraphs (c), (e), (h) or (i) herein under "Description of the Investor
Certificates--Amortization Event", occurs during the Controlled Accumulation
Period, the Early Accumulation Period will commence and on each Distribution
Date with respect to the Early Accumulation Period, unless a reduction in the
Required Collateral Amount shall have occurred, the Trustee 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, deposit collections of Principal
Receivables allocable to the Invested Amount in the Principal Funding Account
in an amount equal to the lesser of (a) the Available Investor Principal
Collections on deposit in the Collection Account with respect to such
Distribution Date and (b) the sum of the Class A Adjusted Invested Amount and
the Class B Adjusted Invested Amount, until the amount on deposit in the
Principal Funding Account equals the sum of the Class A Invested Amount and
the Class B Invested Amount. If an Early Amortization Period shall not have
commenced, amounts on deposit in the Principal Funding Account will be
distributed to the extent described above to the Investor Certificateholders
on the Series 1997-1 Expected Final Payment Date.
If any Amortization Event described in paragraphs (c), (e), (h) or (i)
herein under "Description of the Investor Certificates--Amortization Event"
shall have occurred during the Controlled Accumulation Period or any Early
Accumulation Period, the Early Amortization Period will commence and any
amount on deposit in the Principal Funding Account will be distributed on the
first Distribution Date with respect to such Early Amortization Period first
to the Class A Certificateholders in an amount not to exceed the Class A
Invested Amount and, if there is any remaining amount then on deposit in the
Principal Funding Account, to the Class B Certificateholders in an amount not
to exceed the Class B Invested Amount.
Unless an Amortization Event shall have occurred, the Controlled
Accumulation Period will commence at the close of business on the last
business day of August 2001; provided, however, that the date on which the
Controlled Accumulation Period actually commences may be delayed if the
Controlled Accumulation Period Length (as defined below) is less than six
months. Beginning on the Determination Date immediately preceding the August
2001 Distribution Date, and on each Determination Date thereafter until the
Controlled Accumulation Period actually commences, the Servicer will determine
the "Controlled Accumulation Period Length", which will be at least the number
of whole Due Periods expected to be required to fund the Principal Funding
Account in an amount at least equal to the sum of the initial Class A Invested
Amount and the initial Class B Invested Amount by the Series 1997-1 Expected
Final Payment Date, based on the amount of collections of Principal
Receivables expected to be available to the Investor Certificateholders;
provided, however, that the Controlled Accumulation Period Length will not be
less than one Due Period. If the Controlled Accumulation Period Length is less
than six months, the Controlled Accumulation Period may commence later than
the close of business on the last business day of August 2001, and the number
of months in the Controlled Accumulation Period will be equal to the
Controlled Accumulation Period Length; provided that, subject to the
conditions set forth herein, the Controlled Accumulation Period may be delayed
to no later than the close of business on the last business day of January
2002. The Controlled Accumulation Period will end upon the earliest to occur
of (x) the commencement of any
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<PAGE>
Early Accumulation Period or any Early Amortization Period, (y) the payment in
full of the Invested Amount and (z) the Series 1997-1 Termination Date.
The "Controlled Deposit Amount" shall mean, for any Distribution Date with
respect to the Controlled Accumulation Period, an amount equal to the sum of
the Controlled Accumulation Amount for such Distribution Date and any existing
deficit controlled accumulation amount arising from prior Distribution Dates.
The "Controlled Accumulation Amount" shall mean, for any Distribution Date
with respect to a Due Period during the Controlled Accumulation Period,
$152,916,667; provided, however, that if the Controlled Accumulation Period
Length is determined to be less than six months, the Controlled Accumulation
Amount for each Distribution Date with respect to the Controlled Accumulation
Period will be not greater than the product of (i) the excess of (a) the
product of the lowest monthly principal payment rate on the Accounts for the
three Due Periods preceding the date of such calculation (or such lower
principal payment rate as the Servicer may select) and the sum of the initial
invested amounts of all outstanding Series over (b) the sum of all
amortizations or accumulations of collections of Principal Receivables of all
Series which have a fixed controlled accumulation period or fixed controlled
amortization period and which are not scheduled to be in their revolving
periods and all Series which are in any early amortization periods and (ii) a
fraction, the numerator of which is equal to the Invested Amount as of the
last day of the Revolving Period and the denominator of which is equal to the
sum of the invested amounts as of the last day of the revolving periods of all
outstanding Series that have controlled accumulation periods or controlled
amortization periods the length of which may be altered in accordance with the
terms of the related Series Supplement and which Series are not scheduled to
be in their revolving periods; provided, further, that the sum of the
Controlled Accumulation Amounts for the period equal to such Controlled
Accumulation Period Length will not be less than the sum of the Class A
Invested Amount and the Class B Invested Amount.
Any collections of Principal Receivables allocable to Investor
Certificateholders during the Revolving Period or the Controlled Accumulation
Period or any Early Accumulation Period in excess of the amount, if any,
required to be deposited in the Principal Funding Account as described herein
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, deposits of the Controlled
Deposit Amount, to the extent collections of Principal Receivables allocable
to the Certificateholders' Interest are insufficient to deposit such amount,
may be made from such excess collections from other Series, if any. During the
Controlled Accumulation Period or any Early Accumulation 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".
During the Early Amortization Period, Available Investor Principal
Collections, in addition to distributions from the Principal Funding Account
as described above, 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 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
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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 Event", "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 Adjusted 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 Adjusted 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 Adjusted 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 Adjusted 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".
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 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'
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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 plus, for purposes of
allocating Collections of Principal Receivables to a Series, the Series
Required Seller Amount as of the last day of the immediately preceding Due
Period and the denominator of which is the Trust Adjusted Invested Amount,
plus, for purposes of allocating collections of Principal Receivables 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 by subtracting from such amount the difference
between (i) the initial Collateral Invested Amount and (ii) the sum of the
Collateral Invested Amount as of the last day of the Revolving Period plus
the aggregate unreimbursed Collateral Charge-Offs (as defined herein) after
such last day.
"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 Adjusted 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 Accumulation Period and any Early Accumulation Period or Early
Amortization Period, Series Allocable Principal Collections will be allocated
to the Certificateholders' Interest 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 accumulation or
amortization period. Collections of Principal Receivables allocated to the
Certificateholders' Interest and the Collateral Interest also include certain
collections of Series Allocable Miscellaneous Payments, Reallocated Investor
Finance Charge and Administrative Collections and Excess Finance Charge and
Administrative Collections treated as Available Investor Principal Collections
as described herein (See "--Distributions from the Collection Account;
Allocation of Funds" and "--Excess Finance Charge and Administrative
Collections").
"Class A Adjusted Invested Amount" for any date means an amount equal to
the Class A Invested Amount less an amount, not to exceed the Class A
Invested Amount, equal to the principal amount, if any, on deposit in the
Principal Funding Account.
"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 Adjusted Invested Amount" for any date means an amount equal to
the Class B Invested Amount less an amount, not to exceed the Class B
Invested Amount, equal to the principal amount, if any, on deposit in the
Principal Funding Account in excess of the Class A Invested Amount on 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
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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 Available Investor Principal
Collections, minus (iii) the aggregate amount of Collateral Charge-Offs 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 any Collateral Charge-Offs 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 Accumulation
Period and any Early Accumulation Period or 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 Adjusted Invested
Amount, the Class B Adjusted 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
Accumulation Period or any Early Accumulation Period or Early Amortization
Period, however, will generally not decline as a result of deposits in the
Principal Funding Account 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
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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 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 Accumulation Period or
any Early Accumulation 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 (as defined
herein) 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 an Early Amortization Period has commenced, on each
Distribution Date with respect to such Early Amortization Period and on the
Series 1997-1 Expected Final Payment Date with respect to the Controlled
Accumulation Period or any Early Accumulation Period 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 Adjusted 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).
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PRINCIPAL FUNDING ACCOUNT
The Trustee will establish and maintain with an Eligible Institution, in the
name of the Trustee, on behalf of the Trust and for the benefit of the Investor
Certificateholders, a segregated trust account (the "Principal Funding
Account"). During the Controlled Accumulation Period and any Early Accumulation
Period, collections of Principal Receivables and certain other amounts
allocable to the Certificateholder's Interest will be deposited in the
Principal Funding Account as described under "--Principal". Any amounts
deposited in the Principal Funding Amount will not be considered as principal
payments made to the Investor Certificateholders.
Unless an Early Amortization Period shall have commenced, all amounts on
deposit in the Principal Funding Account on any Distribution Date (after giving
effect to any deposits to, or withdrawals from, the Principal Funding Account
to be made on such Distribution Date) generally will be invested in any of the
following eligible investments which will automatically mature on or before the
following Distribution Date: (a) direct obligations of, or obligations fully
guaranteed as to timely payment by, the United States of America; (b) demand
deposits, time deposits or certificates of deposit of depository institutions
or trust companies and subject to supervision and examination by federal or
state banking or depository institution authorities; provided that at the time
of the Trust's investment or contractual commitment to invest therein, the
short-term debt rating of such depository institution or trust company shall be
in the highest rating category of the applicable Rating Agency; (c) commercial
paper having, at the time of the Trust's investment or contractual commitment
to invest therein, a rating in the highest rating category of the applicable
Rating Agency; (d) demand deposits, time deposits and 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; (e) bankers' acceptances issued by any depository institution or
trust company referred to in (b) above; (f) time deposits other than as
referred to in clause (e) above, with an entity the commercial paper of which
has a credit rating in the highest rating category of the applicable Rating
Agency or demand notes of Household Finance Corporation, for as long as the
commercial paper of Household Finance Corporation has, at the time of the
Trust's investment in such notes, a rating in the highest rating category of
the applicable Rating Agency; or (g) any other investment of a type or rating
that satisfies the Rating Agency Condition and the definition of "eligible
assets" as defined under Rule 3a-7(b)(1) of the Rules and Regulations
promulgated under the Investment Company Act of 1940. On each Distribution Date
in the month following the commencement of the Controlled Accumulation Period
or any Early Accumulation Period the interest and other investment income (net
of investment expenses and losses) earned on such investments (the "Principal
Funding Investment Proceeds") in an amount not to exceed the Covered Amount (as
defined herein) will be distributed to the Class A Certificateholders and the
Class B Certificateholders to the extent described herein in items (a) and (b)
under "--Distributions from the Collection Account; Allocation of Funds". Such
investment earnings will not be considered as part of any amount on deposit in
the Principal Funding Account. If such investments with respect to any such
Distribution Date yield less than the Class A Certificate Rate or the Class B
Certificate Rate, as applicable, the Principal Funding Investment Proceeds with
respect to such Distribution Date will be less than the Covered Amount for such
Distribution Date. Any such shortfall may be funded from other amounts on
deposit in the Collection Account and allocable to the Investor
Certificateholders to the extent described herein in items (a) and (b) under
"--Distributions from the Collection Account; Allocation of Funds" (including a
withdrawal from the Reserve Account, if necessary, as described below under "--
Reserve Account"). The amount of any deposit in the Reserve Account and
available to the Investor Certificateholders at any time will be limited and
there can be no assurance that sufficient funds will be available to fund any
such shortfall. Any surplus of Principal Funding Investment Proceeds will be
paid to the Seller on each Distribution Date. The "Covered Amount" shall mean
for any Distribution Date with respect to the Controlled Accumulation Period or
any Early Accumulation Period, an amount equal to the sum of (a) the product of
(i) a fraction the numerator of which is the actual number of days in the
related Interest Period and the denominator of which is 360, (ii) the Class A
Certificate Rate in effect with respect to such Interest Period and (iii)
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the amount deposited into the Principal Funding Account with respect to the
Class A Certificates during the Controlled Accumulation Period and any Early
Accumulation Period and (b) the product of (x) a fraction the numerator of
which is the actual number of days in the related Interest Period and the
denominator of which is 360, (y) the Class B Certificate Rate in effect with
respect to such Interest Period and (z) the amount deposited into the
Principal Funding Account with respect to the Class B Certificates during the
Controlled Accumulation Period and any Early Accumulation Period.
RESERVE ACCOUNT
The Trustee shall establish and maintain with an Eligible Institution, in
the name of the Trustee, on behalf of the Trust and for the benefit of the
Investor Certificateholders, a segregated trust account (the "Reserve
Account"). On each Distribution Date prior to the date on which the Reserve
Account terminates, Excess Finance Charge and Administrative Collections
allocable to Series 1997-1 (in the order of priority described herein under
"--Excess Finance Charge and Administrative Collections") will be deposited in
the Reserve Account in an amount up to the Required Reserve Amount (as defined
below). Provided that the Reserve Account has not terminated, any amount on
deposit in the Reserve Account on any Distribution Date (after giving effect
to any deposits to, or withdrawals from, the Reserve Account to be made on
such Distribution Date) will be invested to the following Distribution Date in
certain Eligible Investments, except that all references in such definition to
"rating satisfactory to the Rating Agency" will mean ratings of not less than
A-1 and P-1 for Reserve Account investments prior to the commencement of any
Early Accumulation Period or the Controlled Accumulation Period and which
Eligible Investments will mature on or before such following Distribution
Date. On each Distribution Date, all interest and earnings (net of losses and
investment expenses) accrued since the preceding Distribution Date on amounts
on deposit in the Reserve Account shall be retained in the Reserve Account to
the extent that the amount on deposit therein is less than the Required
Reserve Amount and the balance of such interest and earnings, if any, will be
distributed to the Seller. The "Required Reserve Amount" for any Distribution
Date will be equal to the product of (x) 0.30% of the sum of the Class A
Invested Amount and the Class B Invested Amount as of the preceding
Distribution Date (after giving effect to all changes therein on such date)
and (y) the number of Distribution Dates remaining from and excluding the
Distribution Date for which such calculation is being determined to and
including the Series 1997-1 Expected Final Payment Date divided by twelve or
any other greater amount designated by the Seller.
On each Distribution Date with respect to the Controlled Accumulation Period
or any Early Accumulation Period (on or before the payment in full of the sum
of the Class A Invested Amount and the Class B Invested Amount) on which the
Principal Funding Investment Proceeds are less than the Covered Amount and
prior to the first Distribution Date with respect to any Early Amortization
Period, a withdrawal will be made from the Reserve Account in an amount equal
to the lesser of the amount on deposit in the Reserve Account and the amount
by which the Covered Amount exceeds the Principal Funding Investment Proceeds
and distributed to the Investor Certificateholders in accordance with the
terms set forth herein under items (a) and (b) under "--Distributions from the
Collection Account; Allocation of Funds".
In the event that on any Determination Date with respect to the Controlled
Accumulation Period or any Early Accumulation Period, the amount required to
pay the Covered Amount, for the period from the next Distribution Date to the
second succeeding Distribution Date, exceeds the sum of (i) for the period
from the next Distribution Date to the second succeeding Distribution Date,
the projected Principal Funding Investment Proceeds plus the projected
reinvestment income on the funds on deposit in the Reserve Account and (ii)
the remaining balance in the Reserve Account after giving effect to
withdrawals to be made for the next Distribution Date (a "Reserve Account
Event"), then the Early Amortization Period will commence.
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The Reserve Account will be terminated following the earlier to occur of (a)
the termination of the Trust pursuant to the Pooling and Servicing Agreement,
(b) the Series 1997-1 Expected Final Payment Date and (c) the first
Distribution Date following the commencement of any Early Amortization Period.
Upon the termination of the Reserve Account, all amounts on deposit therein
(after giving effect to any withdrawal therefrom on such date as described
above) will be paid to the Seller.
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 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") (including any investment earnings available to be
treated as collections of Finance Charge and Administrative Receivables and the
amount, if any, of funds to be withdrawn from the Reserve Account as described
herein) 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 Adjusted 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 Adjusted Invested Amount shall thereafter be
reimbursed and the Class B Adjusted 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 Adjusted 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
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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 Adjusted 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 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" and "--Investor Charge-Offs".
If the Class B Adjusted Invested Amount is reduced to zero, the Class A
Adjusted 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
and Principal Funding Account with respect to each Distribution Date to make
the following distributions and deposits with respect to the Investor
Certificates for such Distribution Date:
(a) An amount equal to the sum of (A) the product of the Class A Invested
Percentage and Reallocated Investor Finance Charge and Administrative
Collections with respect to such Distribution Date and (B) with respect to
each Distribution Date during the Controlled Accumulation Period or any
Early Accumulation Period, the Class A Principal Funding Account Percentage
(as defined below) of any amount deposited in a subaccount of the
Collection Account designated therefor 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 Available
Investor Principal Collections;
(iii) an amount equal to the Servicing Fee for such Distribution Date
plus the amount of any Servicing Fee that was due but not paid on a
prior Distribution Date will be distributed to the Servicer (unless
such amount(s) has been previously netted against deposits to the
Collection Account); and
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(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 Adjusted Invested Amount as of the last day of the second
preceding Due Period and the denominator of which is the Adjusted Invested
Amount as of such last day.
"Class A Principal Funding Account Percentage" means, with respect to any
Distribution Date, a fraction, the numerator of which is equal to the
amount deposited into the Principal Funding Account with respect to the
Class A Certificates during the Controlled Accumulation Period and any
Early Accumulation Period and the denominator of which is equal to the
balance of any principal amount on deposit in the Principal Funding
Account.
(b) An amount equal to the sum of (A) the product of the Class B Invested
Percentage and Reallocated Investor Finance Charge and Administrative
Collections with respect to such Distribution Date and (B), with respect to
each Distribution Date during the Controlled Accumulation Period or any
Early Accumulation Period, the Class B Principal Funding Account Percentage
(as defined herein) of any amount deposited in a subaccount of the
Collection Account designated therefor 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 Payment 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".
The term "Class B Invested Percentage" means the percentage equivalent of
a fraction the numerator of which is the Class B Adjusted Invested Amount
as of the last day of the second preceding Due Period, and the denominator
of which is the Adjusted Invested Amount as of such last day.
"Class B Principal Funding Account Percentage" means, with respect to any
Distribution Date, a fraction, the numerator of which is equal to the
amount deposited into the Principal Funding Account with respect to the
Class B Certificates during the Controlled Accumulation Period and any
Early Accumulation Period and the denominator of which is equal to the
balance of any principal amount on deposit in the Principal Funding
Account.
(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
Accumulation Period or any Early Accumulation Period, an amount equal to
Available Investor Principal Collections with respect to such Distribution
Date will be deposited in the following priority:
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(i) for each Distribution Date with respect to the Controlled
Accumulation Period, an amount equal to the lesser of (A) the
Controlled Deposit Amount and (B) the sum of the Class A Adjusted
Invested Amount and the Class B Adjusted Invested Amount will be
deposited in the Principal Funding Account;
(ii) for any Distribution Date with respect to any Early Accumulation
Period, an amount equal to the sum of the Class A Adjusted Invested
Amount and the Class B Adjusted Invested Amount will be deposited in
the Principal Funding Account; and
(iii) for each Distribution Date with respect to the Controlled
Accumulation Period on or prior to the Distribution Date on which the
Class A Invested Amount and Class B Invested Amount are each paid in
full, unless an Amortization Event has occurred, after giving effect to
the Distributions in (d)(i) and (d)(ii) above, 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.
(e) For each Distribution Date with respect to 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 up to the Class A Adjusted Invested Amount shall be
distributed to the Class A Certificateholders; and
(ii) for each Distribution Date beginning on the Distribution Date on
which the Class A Adjusted Invested Amount is paid in full, an amount
up to the Class B Adjusted Invested Amount will be distributed to the
Class B Certificateholders.
(f) For each Distribution Date with respect to the Controlled
Accumulation Period or any Early Accumulation Period, any Principal Funding
Investment Proceeds in an amount not to exceed the Covered Amount, together
with any available investment earnings on any funds on deposit in the
Reserve Account and any amount available to be withdrawn from the Reserve
Account, in each case as described in "--Reserve Account", will be
deposited into the subaccount of the Collection Account designated therefor
for distribution to the Investor Certificateholders as set forth in
paragraphs (a) and (b) above.
"Available Investor Principal Collections" means the sum of (a) an amount
equal to (i) the Floating Allocation Percentage with respect to the
Revolving Period, or the Principal Allocation Percentage with respect to
the Controlled Accumulation Period, any Early Accumulation Period or any
Early Amortization Period, of Series Allocable Principal Collections
deposited into the Collection Account for the related Due Period (or any
partial Due Period which occurs as the first Due Period during any Early
Accumulation Period or any Early Amortization Period) minus (ii) the amount
of Subordinated Principal Collections allocable to the Class B Invested
Amount and the Collateral 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) certain Excess
Finance Charge and Administrative Collections and Reallocated Investor
Finance Charge and Administrative Collections as described above under "--
Reallocation of Cash Flows" plus (d) Trust Excess Principal Collections
allocated from other Series to the Investor Certificateholders as described
above under "--Reallocation of Trust Excess Principal Collections" plus (e)
subordinated principal collections reallocated from other Series.
(g) For each Distribution Date with respect to the Revolving Period and
the Controlled Accumulation Period in which a reduction in the Required
Collateral Amount has occurred, Available Investor Principal Collections
not deposited into the Principal Funding Account for such Distribution Date
will be applied to reduce the Collateral Amount to the Required Collateral
Amount.
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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:
(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 a portion of Available 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 a portion
of Available 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 and any interest thereon 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 a portion of Available
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 a portion of Available 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 (as defined herein)
for such Distribution Date will be treated as a portion of Available
Investor Principal Collections;
(i) during the Revolving Period and the Controlled Accumulation 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 a
portion of Available Investor 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;
(k) on each Distribution Date prior to the date on which the Reserve
Account terminates, an amount up to the excess, if any, of the Required
Reserve Amount over the amount on deposit in the Reserve Account shall be
deposited in the Reserve Account; and
(l) the balance, if any, after giving effect to the payments made
pursuant to subparagraphs (a) through (k) 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.
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REALLOCATIONS AMONG INVESTOR CERTIFICATES OF DIFFERENT SERIES
Group Two Investor Finance Charges. The Series offered hereby will be
included in Group Two. While Series 1997-1 will be the first Series issued in
Group Two, the Trust has previously issued other Series in other Groups.
Additional Series issued in the future may also be included in Group Two or
other Groups but there is no assurance that, for any Series in a Group
(including Group Two), the Trust will issue any other Series in such Group.
Accordingly, any anticipated benefits of sharing or reallocation of collections
of Receivables may not be realized. See "Annex I--Prior Issuance of Investor
Certificates."
The Servicer will calculate for each Due Period Group Two 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 Two in the following priority:
(i) Group Two Investor Monthly Interest;
(ii) Group Two Investor Default Amounts;
(iii) Group Two Investor Monthly Fees;
(iv) Group Two Investor Additional Amounts; and
(v) the balance pro rata among each Series in Group Two 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 Two
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 Two pro rata based on the claim that each Series has under
the applicable clause. This means, for example, that if the amount of Group Two
Investor Finance Charge and Administrative Collections is not sufficient to
cover Group Two Investor Monthly Interest, each Series in Group Two 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 Two Investor Finance Charge and Administrative
Collections allocated to the Certificateholders' Interest and Collateral
Interest for the Series offered hereby as described above, plus any collections
of Principal Receivables reallocated to this Series from a subordinated Series
to the extent that the Series 1997-1 Supplement provides for such collections
to be deemed collections of Investor Finance Charge and Administrative
Collections is referred to herein as "Reallocated Investor Finance Charge and
Administrative Collections".
"Group Two 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 Two, (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 Two 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
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such Distribution Date and (b) with respect to any other Series in Group
Two, 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 Two 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 Two.
"Group Two 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 Two, 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 Two 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 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 Collateral Rate
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 Two 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 Two. For illustrative purposes, the chart assumes that the
Trust has issued three Series in Group Two (Series 97-1, 97-2 and 97-3), which
it has not done, and that each such Series is in its Revolving Period. The
Investor Certificates will be the first Series in Group Two, and there is no
limit to the number of Series which may be included in Group Two or in any
other Group, although there can be no assurance that any other Series will be
included in Group Two or in any other Group. The Trust, however, has eight
series outstanding, five of which are in Group One. See "Annex I--Prior
Issuance of Investor Certificates."
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CREDIT CARD MASTER TRUST
FINANCE CHARGE COLLECTIONS
-----------------------------------------------
Series 1997-2 Series 1997-3
Series 1997-1
Series
Allocable
Finance Series Series
Allocable Allocable
Charge and Finance Finance
Administrative Charge and Charge and
Collections Administrative Administrative
Step 1 Collections Collections
(based upon the
Series (based upon the (based upon the
Allocation Series Series
Percentage) Allocation Allocation
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 Two
---- Investor Finance Charge and Administrative
Collections
----------------------------
---------------------------------
Step 4
Series 97-1 Series 97-2 Series 97-3
Investor Investor Investor
Monthly Monthly Monthly
Interest Interest Interest
----------------------------
---------------------------------
Series 97-1 Series 97-2 Series 97-3
Investor Investor Investor
Default Amounts Default Amounts Default Amounts
----------------------------
---------------------------------
Series 97-1 Series 97-2 Series 97-3
Investor Investor Investor
Monthly Fees Monthly Fees Monthly Fees
----------------------------
---------------------------------
Series 97-1 Series 97-2 Series 97-3
Investor Additional Amounts
Investor Additional Amounts
Investor Additional Amounts
----------------------------
---------------------------------
Series 97-1 Series 97-2 Series 97-3
Balance based Balance based Balance based
upon Invested upon Invested upon Invested
Amount Amount Amount
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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 Two Investor Finance Charges".
Investor Finance Charge and Administrative Collections for all Series in the
Group (or Group Two 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 Two Investor Finance Charge and Administrative
Collections are reallocated to each Series in Group Two 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 and Administrative 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
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deposited 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 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) $82,500,000 initially and (ii) thereafter
an amount equal to the greater of (a) 8.25% of the sum of the Class A Adjusted
Invested Amount, the Class B Adjusted Invested Amount and the Required
Collateral Amount in each case as of such Distribution Date after taking into
account distributions made on such date and (b) $30,000,000; 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, (3) the
Required Collateral Amount may be reduced at any time to a lesser amount if
the Rating Agency Condition is satisfied, (4) the Seller at its option may at
any time increase the Required Collateral Amount to a greater amount and (5)
if the amount on deposit in the Principal Funding Account is equal to the sum
of the initial Class A Invested Amount and the initial Class B Invested
Amount, the Required Collateral Amount will be zero.
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 or the Reserve 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. Except in limited circumstances, the current policy of the
Subservicer is to charge-off an account at the end of the month in which that
account becomes 180 days delinquent. Household Bank
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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
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".
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 Adjusted 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 Adjusted Invested Amount to be a
negative number, the Collateral Invested Amount and the Class B Adjusted
Invested Amount will be reduced to zero, and the Class A Adjusted Invested
Amount will be reduced by the amount by which the Collateral Invested Amount
and the Class B Adjusted 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 Adjusted 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
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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 Adjusted Invested Amount will be reduced
by the remainder of such reduction (a "Class B Investor Charge-Off"). The
Class B Adjusted 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 Adjusted 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
$50,000,000 (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;
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(d) any reduction of the average Series Adjusted Portfolio Yield
(averaged over any three consecutive Due Periods) to a rate below the
average Base Rate for such period;
(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;
(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 (as defined herein) 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 Class A Invested
Amount and Class B Invested Amount, and all interest accrued thereon, on or
before the Series 1997-1 Expected Final Payment Date;
(i) the occurrence of a Reserve Account Event; 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 Adjusted 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 Collateral Rate (weighted based on the Class A
Adjusted Invested Amount, the Class B Adjusted 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 and
the Early Accumulation Period 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 and, in the
case of the Amortization Events specified under clauses (d), (f) or (j), an
Early Accumulation Period will commence. The Early Amortization Period will
commence as of the first day of the Due Period in which an Amortization Event
as specified in paragraphs (c), (e), (h) or (i) 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 any such 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. Any amounts on deposit in either of the Principal
Funding Account or the Reserve Account at the commencement of the Early
Amortization Period will be distributed to the Investor Certificateholders or
the Seller, as applicable, on the first Distribution Date following such
commencement to the extent described herein under "Description of the Investor
Certificates--Principal", "--Distributions from the Collection Account;
Allocation of Funds" and""--Reserve Account". If, because of the occurrence of
one of the Amortization Events which triggers
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the commencement of the Early Amortization Period, the Early Amortization
Period begins prior to the Series 1997-1 Expected Final Payment Date, Investor
Certificateholders will begin receiving distributions of principal earlier
than they otherwise would have and such distributions will not be subject to
the Controlled Deposit Amount. As a result, the average life of the Investor
Certificates may be reduced or increased. The occurrence of an Amortization
Event other than those specified in paragraphs (c), (e), (h) or (i) above will
commence the Early Accumulation Period and will end the reinvestment of the
Certificateholders' Interest in new Receivables and apply available
collections of Principal Receivables to the purchase of certain eligible
investments as described herein. An Amortization Event that triggers the
commencement of an Early Accumulation Period includes some of the events that
constitute amortization events for other Series.
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 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, 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 Adjusted
Invested Amount and then the Class B Adjusted 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
Early 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.
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In the event that the Invested Amount for the Series offered hereby is
greater than zero on the August 2004 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 Adjusted
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
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 Accumulation Period and any Early Accumulation Period or Early
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
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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 A Adjusted
Invested Amount, the Class B Invested Amount, the Class B Adjusted 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 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 "Certain Federal Income Tax Consequences".
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").
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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 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 "Certain Federal Income Tax Consequences--Non-
U.S. Investor Certificateholders", "--Information Reporting and Backup
Withholding" and "Annex II: Global Clearance, Settlement and Tax Documentation
Procedures".
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
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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.
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 32 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
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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 "Certain Federal Income Tax Consequences--Non-U.S.
Investor Certificateholders", "--Information Reporting and Backup Withholding"
and "Annex II: Global Clearance, Settlement and Tax Documentation Procedures".
CEDEL or the Euroclear Operator, as the case may be, will take any other
action 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.
If the Investor Certificates are accepted for listing on the Luxembourg
Stock Exchange, a paying agent shall be maintained in respect of the Investor
Certificates in Luxembourg (the "Luxembourg Paying Agent") for so long as the
Investor Certificates are so listed. The Luxembourg Paying Agent shall act as
the transfer agent in Luxembourg should the Investor Certificates be exchanged
for Definitive Certificates.
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.
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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 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
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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. 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,
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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. 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.
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
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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.
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
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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 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
Portfolio as of the close of business on December 31, 1996, 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, 1996 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, 1996 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 Portfolio as of the
close of business on December 31, 1996.
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 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.
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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 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
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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.
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
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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 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
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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 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
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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.
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
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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 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
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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.
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
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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".
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.
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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% 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, 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 Event".
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".
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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 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 Accumulation Period
may commence, or if a Reserve Account Event were to occur, an Early
Amortization Period would commence. See "Risk Factors--Competition in the
Credit Card Industry" and "Description of the Investor Certificates--
Amortization Event".
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
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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".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of material federal income tax
consequences relating to the purchase, ownership and disposition of an Investor
Certificate offered hereunder. This discussion is based on current law, which
is subject to changes that could prospectively or retroactively modify or
adversely affect the tax consequences summarized below. The discussion does not
address all of the tax consequences relevant to a particular Investor
Certificateholder in light of that Investor Certificateholder's circumstances,
and some Investor Certificateholders may be subject to special tax rules and
limitations not discussed below. Each prospective Investor Certificateholder is
urged to consult its own tax adviser in determining the federal, state, local
and foreign income and any other tax consequences of the purchase, ownership
and disposition of an Investor Certificate.
For purposes of this discussion, "U.S. Person" means a citizen or resident of
the United States, a corporation or partnership organized in or under the laws
of the United States, any state thereof, or any political subdivision of either
(including the District of Columbia), or an estate or trust the income of which
is includible in gross income for U.S. federal income tax purposes regardless
of its source. The term "U.S. Investor Certificateholder" means any U.S. Person
and any other person providing appropriate documentation reflecting their
exempt status, to the extent that the income attributable to its interest in an
Investor Certificate is effectively connected with that person's conduct of a
U.S. trade or business.
TREATMENT OF THE INVESTOR CERTIFICATES AS DEBT
The Seller expresses in the Pooling and Servicing Agreement the intent that
for essentially all tax purposes, the Investor Certificates will be treated as
debt of the Seller secured by the Receivables. The Seller, by entering into the
Pooling and Servicing Agreement, and each Investor Certificateholder, by the
acceptance of an interest in an Investor Certificate, agree to treat the
Investor Certificates as debt of the Seller for such tax purposes. However, the
Pooling and Servicing Agreement generally refers to the transfer of Receivables
as a "sale," and because different criteria are used in determining the non-tax
accounting treatment of the transaction, the Seller will treat the Pooling and
Servicing Agreement for certain non-tax accounting purposes as causing a
transfer of an ownership interest in the Receivables and not as creating a debt
obligation.
A basic premise of federal income tax law is that the economic substance of a
transaction generally determines its tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its
economic substance. In appropriate circumstances, the courts have allowed
taxpayers as well as the Internal Revenue Service (the "IRS") to treat a
transaction in accordance with
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its economic substance as determined under federal income tax law, even though
the participants in the transaction have characterized it differently for non-
tax purposes.
The determination of whether the economic substance of a purchase of an
interest in property is instead a loan secured by the transferred property has
been made by the IRS and the courts on the basis of numerous factors designed
to determine whether the seller has relinquished (and the purchaser has
obtained) substantial incidents of ownership in the property. Among those
factors, the primary ones examined are whether the purchaser has the
opportunity to gain if the property increases in value, and has the risk of
loss if the property decreases in value. Orrick, Herrington & Sutcliffe LLP,
counsel to the Seller ("Special Counsel"), will deliver its opinion generally
to the effect that, under current law as in effect on the Issuance Date,
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 offered hereunder
will not constitute an ownership interest in the Receivables but will properly
be characterized as debt. Except where indicated to the contrary, the following
discussion assumes that the Investor Certificates offered hereunder are debt
for federal income tax purposes.
TREATMENT OF THE TRUST
General. The Pooling and Servicing Agreement permits the issuance of Investor
Certificates and certain other interests (including the Collateral Interest) in
the Trust, each of which may be treated for federal income tax purposes either
as debt or as equity interests in the Trust. If all of the Investor
Certificates and other interests (other than the Seller's Certificate) in the
Trust were characterized as debt, the Trust might be characterized as a
security arrangement for debt collateralized by the Receivables and issued
directly by the Seller (or other holder of the Seller's Certificate). Under
such a view, the Trust would be disregarded for federal income tax purposes.
Alternatively, if some of the Investor Certificates, or other interests (other
than the remaining interest in the Seller's Certificate) in the Trust were
characterized as equity, the Trust might be characterized as a separate entity
owning the Receivables, issuing its own debt, and jointly owned by the Seller
(or other holder of such interest in the Seller Certificate) and the other
holders of equity interests in the Trust. However, Special Counsel will deliver
its opinion generally to the effect that, under current law as in effect on the
Issuance Date, any such entity constituted by the Trust will not be an
association or publicly traded partnership taxable as a corporation.
Possible Treatment of the Trust as an Association, a Publicly Traded
Partnership or a non-Publicly Traded Partnership. Although, as described above,
Special Counsel will deliver its opinion that the Investor Certificates will
properly be treated as debt for federal income tax purposes and that the Trust
will not be treated as an association or publicly traded partnership taxable as
a corporation, such opinion will not bind the IRS and thus no assurance can be
given that such treatment will prevail. If the IRS were to contend successfully
that some or all of the Investor Certificates or any other interest in the
Trust (other than the Seller's interest in the Seller's Certificate), including
the Collateral Interest or any similar interest, were not debt obligations for
federal income tax purposes, all or a portion of the Trust could be classified
for federal income tax purposes as either an association or publicly traded
partnership taxable as a corporation, or possibly as a partnership not taxable
as a corporation. Because Special Counsel will deliver its opinion that the
Investor Certificates will be characterized as debt for federal income tax
purposes and because any holder of an interest in the Collateral Interest and
any similar interest will agree to treat that interest as debt for such
purposes, no attempt will be made to comply with any tax reporting requirements
that would apply as a result of such alternative characterizations.
If the Trust were treated in whole or in part as 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
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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 the arrangement created by the Pooling and Servicing Agreement were
treated in whole or in part as a publicly traded partnership or an association
taxable as a corporation, that entity would be subject to federal income tax at
corporate tax rates on its taxable income generated by ownership of the related
Receivables. That tax could result in reduced distributions to Investor
Certificateholders. No distributions from the Trust would be deductible in
computing the taxable income of the corporation, except to the extent that any
Investor Certificates were treated as debt of the corporation and distributions
to the related Investor Certificateholders were treated as payments of interest
thereon. In addition, distributions to Investor Certificateholders not treated
as holding debt would be dividend income to the extent of the current and
accumulated earnings and profits of the corporation (and Investor
Certificateholders may not be entitled to any dividends received deduction in
respect of such income).
If the Trust were, however, treated in whole or in part as a partnership
other than a publicly traded partnership taxable as a corporation, that
partnership would not be subject to federal income tax. Rather, each item of
income, gain, loss and deduction of the partnership generated through the
ownership of the related Receivables would be taken into account directly in
computing taxable income of the Seller (or the holder of the Seller's
Certificate) and any Investor Certificateholders and others treated as partners
in accordance with their respective partnership interests therein. The amounts
and timing of income reportable by any Investor Certificateholders treated as
partners would likely differ from that reportable by such Investor
Certificateholders had they been treated as owning debt. In addition, if the
Trust were treated in whole or in part as a partnership other than a publicly
traded partnership, income derived from the partnership by any Investor
Certificateholder that is a pension fund or other tax-exempt entity may be
treated as unrelated business taxable income. Partnership characterization also
may have adverse state and local income or franchise tax consequences for an
Investor Certificateholder. From time to time, legislation has been introduced
in Congress that would affect the treatment of any "large partnership," defined
as any partnership in which there are at least 250 partners in a taxable year.
Under such legislative proposals, among other things, the availability of
certain deductions to partners may be limited, and certain computations (such
as those relating to
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the level of allowable miscellaneous itemized deductions and the netting of
capital gains and losses) would be made at the partnership rather than the
partner level. No prediction can be made regarding whether any such legislation
will be enacted or, if so, what its ultimate effective date will be.
TAXATION OF INTEREST INCOME OF U.S. INVESTOR CERTIFICATEHOLDERS
General. Stated interest on a beneficial interest in an Investor Certificate
will be includible in gross income in accordance with a U.S. Investor
Certificateholder's method of accounting.
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. If the
Investor Certificates were issued with original issue discount, the provisions
of sections 1271 through 1273 and 1275 of the Code would apply to the Investor
Certificates. Under those provisions, a U.S. Investor Certificateholder
(including a cash basis holder) generally would be required to accrue the OID
on its interest in an Investor Certificate 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. In
general, an Investor Certificate will be treated as having OID to the extent
that its "'stated redemption price" exceeds its "issue price," if such excess
is more than a "de minimus" amount equal to 0.25 percent multiplied by the
weighted average life of the Investor Certificate (determined by taking into
account only the number of complete years following issuance until payment is
made for any partial principal payments). Under section 1272(a)(6) of the Code,
special provisions apply to debt instruments on which payments may be
accelerated due to prepayments of other obligations securing those debt
instruments. However, no regulations have been issued interpreting those
provisions, and the manner in which those provisions would apply to the
Investor Certificates is unclear. Additionally, the IRS could take the position
based on Treasury regulations that none of the interest payable on an Investor
Certificate is "unconditionally payable" and hence that all of such interest
should be included in the Investor Certificate's stated redemption price at
maturity. If sustained, such treatment should not significantly affect the tax
liability of most Investor Certificateholders, but prospective U.S. Investor
Certificateholders should consult their own tax advisers concerning the impact
to them in their particular circumstances.
Market Discount. A U.S. Investor Certificateholder who subsequently purchases
an interest in an Investor Certificate after the initial distribution thereof
at a discount that exceeds any unamortized OID may be subject to the "market
discount" rules of sections 1276 through 1278 of the Code. These rules provide,
in part, that gain on the sale or other disposition of an Investor Certificate
and partial principal payments on an Investor Certificate are treated as
ordinary income to the extent of accrued market discount. The market discount
rules also provide for deferral of interest deductions with respect to debt
incurred to purchase or carry an Investor Certificate that has market discount.
Market Premium. A U.S. Investor Certificateholder who purchases an interest
in an Investor Certificate at a premium may elect to offset the premium against
interest income over the remaining term of the Investor Certificate in
accordance with the provisions of section 171 of the Code.
SALE OR EXCHANGE OF INVESTOR CERTIFICATES
Upon a disposition of an interest in an Investor Certificate, a U.S. Investor
Certificateholder generally will recognize gain or loss equal to the difference
between the amount realized on the disposition and the U.S. Investor
Certificateholder's adjusted basis in its interest in the Investor Certificate.
The adjusted basis in the interest in the Investor Certificate will equal its
cost, increased by any OID or market discount includible in income with respect
to the interest in the Investor Certificate prior to its sale and reduced by
any principal payments previously received with respect to the interest in the
Investor Certificate and any amortized premium. Subject to the market discount
rules, gain or
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loss will be capital gain or loss if the interest in the Investor Certificate
was held as a capital asset. Capital losses generally may be used only to
offset capital gains.
NON-U.S. INVESTOR CERTIFICATEHOLDERS
In general, a non-U.S. Investor Certificateholder (an Investor
Certificateholder who is not a U.S. Person, and whose income attributable to
its interest in an Investor Certificate is not effectively connected with that
person's conduct of a United States trade or business) will not be subject to
United States federal income tax on interest (including OID) on a beneficial
interest in an Investor Certificate unless (i) the non-U.S. Investor
Certificateholder actually or constructively owns 10 percent or more of the
total combined voting power of all classes of stock of the Seller entitled to
vote (or of a profits or capital interest of the Trust if characterized as a
partnership or of stock in the Trust if treated as a corporation), (ii) the
non-U.S. Investor Certificateholder is a controlled foreign corporation that is
related to the Seller (or the Trust treated as a partnership) through stock
ownership, (iii) the non-U.S. Investor Certificateholder is a bank described in
Code Section 881(c)(3)(A), (iv) such interest is contingent interest described
in Code Section 871(h)(4), or (v) the non-U.S. Investor Certificateholder bears
certain relationships to any holder of either the Seller's Certificate other
than the Seller or any other interest in the Trust not properly characterized
as debt. To qualify for the exemption from taxation, the last U.S. Person in
the chain of payment prior to payment to a non-U.S. Investor Certificateholder
(the "Withholding Agent") must have received (in the year in which a payment of
interest or principal occurs or in either of the two preceding years) a
statement that (i) is signed by the non-U.S. Investor Certificateholder under
penalties of perjury, (ii) certifies that the non-U.S. Investor
Certificateholder is not a U.S. Person and (iii) provides the name and address
of the non-U.S. Investor Certificateholder. The statement may be made on a Form
W-8 or substantially similar substitute form, and the non-U.S. Investor
Certificateholder must inform the Withholding Agent of any change in the
information on the statement within 30 days of the change. If an Investor
Certificate is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide a signed
statement to the Withholding Agent. However, in that case, the signed statement
must be accompanied by a Form W-8 or substitute form provided by the non-U.S.
Investor Certificateholder to the organization or institution holding the
Investor Certificate on behalf of the non-U.S. Investor Certificateholder. The
United States Treasury Department is considering implementation of further
certification requirements aimed at determining whether the issuer of a debt
obligation is related to holders thereof.
Generally, any gain or income realized by a non-U.S. Investor
Certificateholder upon retirement or disposition of an interest in an Investor
Certificate will not be subject to United States federal income tax, provided
that (i) in the case of an Investor Certificateholder that is an individual,
such Investor Certificateholder is not present in the United States for 183
days or more during the taxable year in which such retirement or disposition
occurs and (ii) in the case of gain representing accrued interest (or OID), the
conditions described in the preceding paragraph for exemption from withholding
are satisfied. Certain exceptions may be applicable, and an individual non-U.S.
Investor Certificateholder should consult a tax adviser.
If an Investor Certificate were treated as an interest in a partnership, the
recharacterization could cause a non-U.S. Investor Certificateholder to be
treated as engaged in a trade or business in the United States. In that event,
the non-U.S. Investor Certificateholder would be required to file a federal
income tax return and, in general, would be subject to United States federal
income tax (including the branch profits tax) on its net income from the
partnership. Further, certain withholding obligations apply with respect to
income allocable or distributions made to a foreign partner. That withholding
may be at a rate as high as 39.6 percent under current United States federal
income tax law. If some or all of the Investor Certificates were treated as
stock in a corporation, any related dividend distributions to a non-
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U.S. Investor Certificateholder generally would be subject to withholding tax
at the prevailing rate (currently 30 percent), unless that rate were reduced by
an applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of United States federal income tax at the prevailing rate
(currently 31 percent) may apply to payments made in respect of an Investor
Certificate to a registered owner who is not an "exempt recipient" and who
fails to provide certain identifying information (such as the registered
owner's taxpayer identification number) in the manner required. Generally,
individuals are not exempt recipients whereas corporations and certain other
entities are exempt recipients. Payments made in respect of a U.S. Investor
Certificateholder must be reported to the IRS, unless the U.S. Investor
Certificateholder is an exempt recipient or otherwise establishes an exemption.
Compliance with the identification procedures (described in the preceding
section) would establish an exemption from backup withholding for a non-U.S.
Investor Certificateholder who is not an exempt recipient.
In addition, upon the sale of an Investor Certificate to (or through) a
"broker," the broker must withhold 31 percent of the entire purchase price,
unless either (i) the broker determines that the seller is a corporation or
other exempt recipient or (ii) the seller provides certain identifying
information in the required manner, and in the case of a non-U.S. Investor
Certificateholder certifies that the seller is a non-U.S. Investor
Certificateholder (and certain other conditions are met). Such a sale must also
be reported by the broker to the IRS, unless either (i) the broker determines
that the seller is an exempt recipient or (ii) the seller certifies its non-
United States status (and certain other conditions are met). Certification of
the registered owner's non-United States status normally would be made on Form
W-8 under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence. As defined by Treasury regulations, the term
"broker" includes all persons who stand ready to effect sales made by others in
the ordinary course of a trade or business, as well as brokers and dealers
registered as such under the laws of the United States or a state. These
requirements generally will apply to a United States office of a broker, and
the information reporting requirements generally will apply to a foreign office
of a United States broker as well as to a foreign office of a foreign broker
(i) that is a controlled foreign corporation within the meaning of section
957(a) of the Code or (ii) 50 percent or more of whose gross income from all
sources for the three year period ending with the close of its taxable year
preceding the payment (or for such part of the period that the foreign broker
has been in existence) was effectively connected with the conduct of a trade or
business within the United States.
Any amounts withheld under the backup withholding rules from a payment to an
Investor Certificateholder would be allowed as a refund or a credit against
such Investor Certificateholder's United States federal income tax, provided
that the required information is furnished to the IRS.
STATE AND LOCAL TAX CONSEQUENCES
General. State and local tax consequences to each Investor Certificateholder
will depend upon the provisions of the state and local tax laws to which the
Investor Certificateholder is subject. In general, an Investor
Certificateholder would be subject to the tax laws of a state or locality in
which it is a resident or doing business, or under whose laws it is organized;
additionally, some states' tax laws may purport to apply to an Investor
Certificateholder whose sole contact with the state arises from the purchase of
an Investor Certificate. 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
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they are already or may become subject to tax. Investor Certificateholders are
urged to consult their own tax advisors with respect to state and local 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 ownership interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation for federal income tax purposes, then the entity could be
subject 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.
If the Investor Certificates are instead treated for federal income tax
purposes as interests in a partnership other than a publicly traded partnership
taxable as a corporation, due to different Federal and California entity
classification rules the Trust could nonetheless be taxable as a corporation
pursuant to the California corporate franchise or income tax, possibly
resulting in reduced distributions to Investor Certificateholders. If the Trust
nevertheless were treated for California income or franchise tax purposes as a
partnership other than a publicly traded partnership taxable as a corporation,
an Investor Certificateholder not otherwise subject to taxation in California
could become subject to income, franchise or withholding taxes as a result of
its mere ownership of Investor Certificates.
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.
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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 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 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 or that an Investor
Certificateholder is otherwise taxable therein. If any such claims were made,
no assurances can be given as to whether the Investor Certificates would be
treated as indebtedness by any particular state or whether the Trust or any
Investor Certificateholder would be subject to tax by such state.
ERISA CONSIDERATIONS
Class A Certificates may be purchased by an employee benefit or other plan,
including an individual retirement account or Keogh 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 non-exempt prohibited
transaction under 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.
105
<PAGE>
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) 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 (the "Publicly-Offered
Securities Exemption") 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 anticipated that the Class A Certificates will meet the criteria of the
Publicly-Offered Securities Exemption 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
106
<PAGE>
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. The Underwriters will notify the Trustee as to whether the Class A
Certificates will be held by 100 separately named persons at the conclusion of
the offering and that the Underwriters reasonably believe that such persons are
independent of one another and the Seller. The Seller will not, however,
determine whether the 100-investor requirement of the Publicly-Offered
Securities Exemption is satisfied with respect to the Class A Certificates.
If the Class A Certificates fail to meet the criteria of the Publicly-Offered
Securities Exemption and the Trust's Assets are 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.
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 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 Section 4975 of 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 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
107
<PAGE>
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, 510 U.S. 86 (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.
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>
Credit Suisse First Boston Corporation...................... $217,500,000
Citibank Securities, Inc. .................................. $217,500,000
Morgan Stanley & Co. Incorporated........................... $217,500,000
UBS Securities, LLC ....................................... $217,500,000
------------
Total................................................. $870,000,000
============
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all $870,000,000
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:
108
<PAGE>
CLASS B CERTIFICATES
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- -----------
<S> <C>
Credit Suisse First Boston Corporation....................... $11,875,000
Citibank Securities, Inc..................................... $11,875,000
Morgan Stanley & Co. Incorporated............................ $11,875,000
UBS Securities, LLC.......................................... $11,875,000
-----------
Total.................................................. $47,500,000
===========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all $47,500,000
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 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.
Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short
109
<PAGE>
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the securities in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the securities originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the securities to be
higher than it would otherwise be in the absence of such transactions.
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.
ADDITIONAL INFORMATION
Application will be made to list the Investor Certificates on the Luxembourg
Stock Exchange. If the Investor Certificates are listed (i) the legal notice
relating to the issue of the Investor Certificates and copies of the respective
constitutional documents of the Trust and the Seller will be lodged with the
Chief Registrar of the District Court in Luxembourg ("Grettier en Chef du
Tribunal d'Arrondissement de et a Luxembourg"), where such documents may be
inspected and copies thereof obtained, and (ii) the Seller will undertake to
maintain a paying agent in Luxembourg so long as the Investor Certificates are
listed.
All consents, approvals, authorizations or other orders of all regulatory
authorities required by the Seller and the Trust under the laws of their
respective jurisdictions have been given for the issue of the Investor
Certificates and for the Trust and the Seller to undertake and perform their
respective obligations under the Pooling and Servicing Agreement and the
Investor Certificates.
The creation and issue of the Investor Certificates has been authorized by
resolutions of the Board of Directors of the Seller on April 29, 1993, July 23,
1993 and January 10, 1994.
The Trust and the Seller are not involved in any litigation, arbitration or
administrative proceedings relating to claims or amounts which are material in
the context of the issue of the Investor Certificates nor, so far as they are
aware, are any such litigation, arbitration or administration proceedings
pending or threatened.
Since December 31, 1996, there has been no material adverse change in the
financial position or prospects of the Seller.
The Investor Certificates have been accepted for clearance through Euroclear
and Cedel with a common code of . The ISIN (International Securities
Identification Number) for the Certificates is US .
Copies of the respective constitutional documents of the Seller and copies of
the Pooling and Servicing Agreement and the Series 1997-1 Supplement (which
sets out the terms and conditions of the Investor Certificates) and any notices
or reports prepared by the Servicer relating to the Trust may be inspected at,
or may be obtained from, so long as any of the Investor Certificates are listed
on the Luxembourg Stock Exchange, the Luxembourg Paying Agent during the
business hours of any business day.
110
<PAGE>
INDEX
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- ---------
<S> <C>
Accounts............................................................. 2, 6, 44
Additional Accounts.................................................. 8, 39
Adjusted Invested Amount............................................. 10
Administrative Receivables........................................... 8
Adverse Effect....................................................... 37, 86
Aggregate Addition................................................... 39
Aggregate Addition Account(s)........................................ 38
Amortization Event................................................... 75
Available Collateral Amount.......................................... 25
Available Investor Principal Collections............................. 67
Average Rate......................................................... 35
Bank Purchase Agreement.............................................. 7
Bankruptcy Code...................................................... 32
Base Rate............................................................ 76
Benefit Plans........................................................ 105
Cash Collateral Account.............................................. 5
Cede................................................................. 3
CEDEL................................................................ 15
CEDEL Participants................................................... 81
Certificateholders' Interest......................................... 5
Chase................................................................ 15
Citibank............................................................. 15
Class A Adjusted Invested Amount..................................... 10, 59
Class A Certificate(s)............................................... 1, 4
Class A Certificate Rate............................................. 4
Class A Certificateholders........................................... 2
Class A Interest..................................................... 5
Class A Interest Payment............................................. 15
Class A Invested Amount.............................................. 59
Class A Invested Percentage.......................................... 66
Class A Investor Charge-Off.......................................... 74
Class A Investor Default Amount...................................... 74
Class A Pool Factor.................................................. 79
Class A Principal Funding Account Percentage......................... 66
Class A Required Amount.............................................. 22, 64
Class B Adjusted Invested Amount..................................... 10, 59
Class B Certificate(s)............................................... 1, 4, 11
Class B Certificate Rate............................................. 4
Class B Certificateholders........................................... 2
Class B Interest..................................................... 5
Class B Interest Payment............................................. 15
Class B Invested Amount.............................................. 21, 59
Class B Invested Percentage.......................................... 66
Class B Investor Charge-Off.......................................... 75
Class B Investor Default Amount...................................... 74
Class B Pool Factor.................................................. 79
Class B Principal Funding Account Percentage......................... 66
Class B Required Amount.............................................. 23, 64
Code................................................................. 29
Collateral Agreement................................................. 26
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- ---------
<S> <C>
Collateral Amount.................................................... 6
Collateral Charge-Off................................................ 79
Collateral Default Amount............................................ 78
Collateral Interest.................................................. 6
Collateral Interest Holder........................................... 6
Collateral Invested Amount........................................... 6, 60
Collateral Invested Percentage....................................... 66
Collateral Monthly Interest.......................................... 68
Collateral Rate...................................................... 16
Collection Account................................................... 57
Commission........................................................... 2
Controlled Accumulation Period....................................... 17
Controlled Accumulation Period Length................................ 55
Controlled Accumulation Amount....................................... 18, 56
Controlled Deposit Amount............................................ 18, 56
Cooperative.......................................................... 81
Covered Amount....................................................... 62
Daily Balance........................................................ 47
Defaulted Amount..................................................... 73
Defaulted Receivables................................................ 11
Definitive Certificate(s)............................................ 15
Depositaries......................................................... 79
Depository........................................................... 53
Determination Date................................................... 27
Distribution Date.................................................... 2, 15
Distribution Date Statement.......................................... 79
DOL.................................................................. 29
DTC.................................................................. 3
Due Period........................................................... 11
Early Accumulation Period............................................ 19
Early Amortization Period............................................ 20
EDS.................................................................. 27
Eligible Account..................................................... 39
Eligible Institution................................................. 57
Eligible Investments................................................. 58
Eligible Receivable.................................................. 84
ERISA................................................................ 28, 105
ERISA Plan........................................................... 105
Euroclear............................................................ 15
Euroclear Operator................................................... 81
Euroclear Participants............................................... 81
Excess Finance Charge and Administrative Collections................. 64
Exchange Act......................................................... 3
Expected Final Payment Date..........................................
FDIA................................................................. 31
FDIC................................................................. 12
Finance Charge and Administrative Receivables........................ 8
Finance Charge Receivables........................................... 8
FIRREA............................................................... 31, 96
Floating Allocation Percentage....................................... 59
GM................................................................... 94
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- ---------
<S> <C>
Group................................................................ 6
Group A.............................................................. 14
Group B.............................................................. 14
Group C.............................................................. 14
Group One............................................................ 14
Group Two............................................................ 6
Group Two Investor Additional Amounts................................ 69
Group Two Investor Default Amount.................................... 69
Group Two Investor Finance Charge and Administrative Collections..... 70
Group Two Investor Monthly Fees...................................... 70
Group Two Investor Monthly Interest.................................. 70
Holders.............................................................. 83
Household Bank....................................................... 2, 4
Household International.............................................. 49
Indirect Participants................................................ 80
Ineligible Receivables............................................... 84
Initial Accounts..................................................... 7
Initial Cut-Off Date................................................. 2, 7
Initial Issuance Date................................................ 7
Insolvency Event..................................................... 32
Insolvency Proceeds.................................................. 77
Interchange.......................................................... 44
Interest Period...................................................... 15
Invested Amount...................................................... 17
Investor Certificate(s).............................................. 1, 4
Investor Certificateholders.......................................... 2
Investor Defaulted Amount............................................ 74
Investor Finance Charge and Administrative Collections............... 72
IRS.................................................................. 98
Issuance Date........................................................ 2
LIBOR................................................................ 54
Luxembourg Paying Agent.............................................. 82
MasterCard........................................................... 6
MasterCard International............................................. 6
NASD................................................................. 109
New Account.......................................................... 38
non-U.S. Investor Certificateholder.................................. 102
OID.................................................................. 101
Participants......................................................... 80
Participation Interests.............................................. 5
parties in interest.................................................. 106
Plan Asset Regulation................................................ 106
Pooling and Servicing Agreement...................................... 1
Portfolio............................................................ 41
Portfolio Yield...................................................... 35
Preferred Stock...................................................... 5
Prime Rate........................................................... 9
Principal Allocation Percentage...................................... 59
Principal Funding Account............................................ 5, 17, 62
Principal Funding Investment Proceeds................................ 62
Principal Receivables................................................ 8
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- ---------
<S> <C>
Principal Shortfalls................................................. 61
Publicly-Offered Securities Exemption................................ 106
Rating Agency........................................................ 32
Rating Agency Condition.............................................. 37
Reallocated Investor Finance Charge and Administrative Collections... 69
Receivables.......................................................... 1, 8
Record Date.......................................................... 53
Recoveries........................................................... 8
Regulations.......................................................... 100
Removal Notice....................................................... 87
Removed Accounts..................................................... 8
Required Collateral Amount........................................... 25, 73
Required Minimum Principal Balance................................... 87
Required Reserve Amount.............................................. 63
Reserve Account...................................................... 5, 63
Reserve Account Event................................................ 63
Revolving Period..................................................... 16
Securities Act....................................................... 2
Seller............................................................... 1, 4
Seller's Certificate................................................. 12
Seller's Interest.................................................... 5
Seller's Participation Amount........................................ 85
Seller's Percentage.................................................. 60
Series............................................................... 4
Series Adjusted Invested Amount...................................... 58
Series Adjusted Portfolio Yield...................................... 76
Series Allocable Defaulted Amount.................................... 58
Series Allocable Finance Charge and Administrative Collections....... 58
Series Allocable Miscellaneous Payments.............................. 58
Series Allocable Principal Collections............................... 58
Series Allocation Percentage......................................... 58
Series Enhancement................................................... 5
Series 1997-1 Cut-Off Date........................................... 16
Series 1997-1 Expected Final Payment Date............................ 17
Series 1997-1 Supplement............................................. 1
Series 1997-1 Termination Date....................................... 78
Series Required Seller Amount........................................ 58
Service Transfer..................................................... 89
Servicer............................................................. 1, 5
Servicer Default..................................................... 90
Servicer Report...................................................... 78
Servicing Fee........................................................ 78
Special Counsel...................................................... 99
Subordinated Principal Collections................................... 22
Subservicer.......................................................... 26
Supplement........................................................... 12
Supplemental Certificate............................................. 12
Termination Date..................................................... 77
Termination Notice................................................... 89
Terms and Conditions................................................. 82
The GM CardSM........................................................ 94
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE(S)
- ----- ---------
<S> <C>
Trust................................................................ 1, 4
Trust Adjusted Invested Amount....................................... 58
Trust Assets......................................................... 1, 5
Trust Excess Principal Collections................................... 56
Trustee.............................................................. 1, 5
UCC.................................................................. 31
Unallocated Principal Collections.................................... 61
Underwriters......................................................... 108
Underwriting Agreement............................................... 108
U.S. Investor Certificateholder...................................... 98
U.S. Person.......................................................... 98
VISA................................................................. 6
VISA USA, Inc. ...................................................... 6
Withholding Agent.................................................... 102
</TABLE>
115
<PAGE>
ANNEX I
PRIOR ISSUANCE OF INVESTOR CERTIFICATES
The Trust has previously issued 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. Of these, Series 1993-3 has been retired. 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 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)... $1,150,000,000
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 $1,000,000,000
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 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
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.
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1994-2
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.
I-2
<PAGE>
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 15, 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>
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Investor
Certificates, Series 1997-1 (the "Global Securities") will be available only
in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), CEDEL or
Euroclear. The Global Securities will be tradeable as conventional asset
backed instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations and conventional asset backed securities.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Global Securities will be effected on a delivery-against-
payment basis through the respective Depositaries of CEDEL and Euroclear (in
such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
CEDE & Co. as nominee of DTC. Investor Certificateholders' interests in the
Global Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result, CEDEL
and Euroclear will hold positions on behalf of their participants through
their respective Depositaries, which in turn will hold such positions in
accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional asset backed securities.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to conventional
asset backed securities.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
A-1
<PAGE>
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, on the basis of (i) the actual
number of days in such accrual period and a year assumed to consist of 360
days. For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary of the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL Participant's or Euroclear Participant's
account. The Global Securities credit will appear the next day (European time)
and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debit
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance the
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each CEDEL Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the Global Securities to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment date to and excluding the settlement
date on the basis of (i) the actual number of days in such accrual period and
a year assumed to consist of 360 days. For transactions settling on the 31st
of the month, payment will include interest accrued to and excluding the first
day of the following month. The payment will then be reflected in the account
of the CEDEL Participant or Euroclear Participant the following day, and
A-2
<PAGE>
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be
the preceding day, when settlement occurred in New York). Should the CEDEL
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities who is not a U.S. Person (as defined
below) generally will be subject to U.S. withholding tax at the prevailing
rate (currently 30%) that applies to payments of interest (including original
issue discount) on registered debt issued by U.S. Persons, unless (i) each
clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements and (ii) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons without effectively connected income can
obtain a complete exemption from the withholding tax by filing a signed Form
W-8 (Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners residing in a country
that has a tax treaty with the United States can obtain an exemption or
reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless
the filer alternatively files Form W-8. Form 1001 may be filed by the
beneficial owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from any applicable backup withholding tax by filing Form W-9
(Payer's Request for Taxpayer Identification Number and Certification).
A-3
<PAGE>
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" generally means (i) a citizen or resident of the
United States, (ii) a corporation or partnership organized in or under the
laws of the United States, any state thereof, or any political subdivision of
either (including the District of Columbia), or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes
regardless of its source.
Proposed Treasury Regulations were issued which, if adopted in final form,
could affect the tax documentation requirements described above. Prospective
investors are urged to consult their tax advisors with respect to the effect
the proposed regulations may have if adopted.
THIS SUMMARY DOES NOT DEAL WITH ALL ASPECTS OF UNITED STATES FEDERAL INCOME
TAX WITHHOLDING THAT MAY BE RELEVANT TO FOREIGN HOLDERS OF THE GLOBAL
SECURITIES. INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS FOR
SPECIFIC TAX ADVICE CONCERNING THEIR HOLDING AND DISPOSING OF THE GLOBAL
SECURITIES.
A-4
<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............................................................... 31
The Credit Card Business of Household Bank (SB), N.A....................... 39
The Accounts............................................................... 44
The Seller................................................................. 48
Household Bank (SB), N.A. ................................................. 48
The Servicer............................................................... 48
The Subservicer............................................................ 49
The Trust.................................................................. 49
Use of Proceeds............................................................ 50
Principal Payment Considerations........................................... 50
Description of the Investor Certificates................................... 53
The Pooling and Servicing Agreement Generally.............................. 83
Description of the Bank Purchase Agreement................................. 92
Certain Legal Aspects of the Receivables................................... 95
Certain Federal Income Tax Consequences.................................... 98
State and Local Tax Consequences........................................... 103
ERISA Considerations....................................................... 105
Underwriting............................................................... 108
Legal Matters.............................................................. 110
Additional Information..................................................... 110
Index...................................................................... 111
Annex I.................................................................... 1-1
Annex II................................................................... A-1
</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
$870,000,000
Floating Rate Class A
Credit Card
Participation Certificates
$47,500,000
Floating Rate Class B
Credit Card
Participation Certificates
HOUSEHOLD AFFINITY
FUNDING CORPORATION
SELLER
HOUSEHOLD FINANCE
CORPORATION
SERVICER
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
CITICORP SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
UBS SECURITIES
- -------------------------------------------------------------------------------
<PAGE>
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.............................................. $ 278,031*
Printing and Engraving........................................ 150,000
Trustee's Fees................................................ 35,000
Legal Fees and Expenses....................................... 100,000
Blue Sky Fees and Expenses.................................... 20,000
Accountants' Fees and Expenses................................ 44,000
Rating Agency Fees............................................ 345,000
Miscellaneous Fees............................................ 27,969
---------
Total....................................................... 1,000,000
=========
</TABLE>
- --------
* Actual
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") states and makes 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
<PAGE>
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 March 15, 1996, an amendment was
entered into with respect to the Series 1996-A Certificates such that the
maximum Class A Invested Amount was increased to $1,000,000,000 and the
maximum Class B Invested Amount was increased to $100,000,000. 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, the Series 1996-A Class A Certificates and the Series
1996-B Class A Certificates and Household Finance Corporation purchased the
Series 1993-B Class B Certificates, 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 $1,000,000,000 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
<PAGE>
(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
<TABLE>
<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.
</TABLE>
- --------
* Previously filed.
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
<PAGE>
(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 does hereby certify that it has duly caused this
Amendment to the 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
17th day of March, 1997.
Household Affinity Funding
Corporation as originator of the
Trust, Registrant
/s/ J. W. Saunders
By: _________________________________
J. W. Saunders, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-1 has been signed on the 17th day of
March, 1997 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ J. W. Saunders
- -------------------------------------------
J. W. Saunders President (Principal Executive Officer) and
Director
/s/ David A. Schoenholz
- -------------------------------------------
David A. Schoenholz Senior Vice President and Controller
(Principal Financial and Accounting
Officer)
/s/ B. B. Moss, Jr.
- -------------------------------------------
B. B. Moss, Jr. Senior Vice President, Treasurer and
Director
/s/ S. H. Smith
- -------------------------------------------
S. H. Smith Vice President, Assistant Treasurer and
Director
/s/ J. W. Blenke
- -------------------------------------------
J. W. Blenke Vice President, Secretary and Director
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
1 --Form of Underwriting Agreement for Investor Cer-
tificates.
3.1 --Certificate of Incorporation, as amended, of
Household Affinity Funding Corporation.
3.2 --By-laws of Household Affinity Funding Corpora-
tion.
4.1 --Amended and Restated Pooling and Servicing Agree-
ment, as amended.
4.2 --Form of Series 1997-1 Supplement.
5 --Opinion of John W. Blenke, Vice President--Corpo-
rate 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 be-
tween Household Bank, f.s.b. and Household Affin-
ity 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--Corpo-
rate Law of Household International, Inc. is in-
cluded 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.
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 1
HOUSEHOLD AFFINITY FUNDING CORPORATION
Household Affinity Credit Card Master Trust I
Series 1997-1
$[_________] Floating Rate Class A Credit Card Participation
Certificates
$[__________] Floating Rate Class B Credit Card Participation
Certificates
UNDERWRITING AGREEMENT
[______ __], 1997
Credit Suisse First Boston Corporation
[_________________________]
c/o Credit Suisse First Boston Corporation
11 Madison Avenue
New York, New York 10010
Dear Sirs:
Household Bank (SB), N.A. (the "Bank") has conveyed and proposes to
further convey, from time to time, the receivables (the "Receivables") that are
generated in a portfolio of certain consumer revolving credit card accounts and
other rights to Household Affinity Funding Corporation (the "Seller"), which has
conveyed and will convey the Receivables to the Household Affinity Credit Card
Master Trust I (the "Trust"), and the Seller proposes to cause the Trust to sell
to you and to the underwriters named in Schedule I hereto (the "Underwriters"),
for whom you are acting as representatives (the "Representatives"),
$[____________] Floating Rate Class A Credit Card Participation Certificates
(the "Class A Certificates") and $[___________] Floating Rate Class B Credit
Card Participation Certificates (the "Class B Certificates" and, together with
the Class A Certificates, the "Certificates") in the Trust. The Receivables
have been, and will from time to time be, conveyed to the Seller by the Bank
<PAGE>
pursuant to a Receivables Purchase Agreement, dated as of April 30, 1993 and as
amended as of June 1, 1993 (the "Receivables Purchase Agreement"), between
Household Bank, f.s.b. and the Seller. The rights and obligations of Household
Bank, f.s.b. under the Receivables Purchase Agreement were assigned to the Bank
by Household Bank, f.s.b., pursuant to an Assignment Agreement (the "Assignment
Agreement"), dated as of December 1, 1993, between the Bank and Household Bank,
f.s.b. The Receivables have been, and will from time to time be, conveyed by
the Seller to the Trust and the Certificates will be issued pursuant to the
Amended and Restated Pooling and Servicing Agreement, dated as of August 1, 1993
(as amended, the "Pooling and Servicing Agreement"), among the Seller, Household
Finance Corporation, as servicer ("HFC"), and The Bank of New York, as trustee
(the "Trustee"), and the Series 1997-1 Supplement to the Pooling and Servicing
Agreement, dated as of [____ __], 1997 (the "Supplement"), among the Seller, HFC
and the Trustee. The Bank, the Seller and HFC are direct or indirect
subsidiaries of Household International, Inc. ("Household"). HFC, the Bank and
the Seller are referred to collectively herein as the "Household Entities".
The Certificates will be sold pursuant to this Underwriting Agreement
(this "Agreement") and will represent undivided interests in certain assets of
the Trust (as hereinafter described).
Capitalized terms used herein without definition shall have the
meanings set forth in the Pooling and Servicing Agreement and the Supplement.
Section 1. Representations and Warranties of the Bank and the Seller.
(a) Each of the Bank and the Seller, each as to itself, represents
and warrants to, and agrees with, each Underwriter as set forth in this
Section 1(a). Certain terms used in this Section 1(a) are defined in the
second paragraph of subsection 1(a)(i) below.
(i) The Seller meets the requirements for use of Form S-1 under
the Securities Act of 1933, as amended (the "Act"), and has filed with
the Securities and Exchange Commission (the "Commission") a
registration statement (Registration No. 333-18913), including the
Preliminary Prospectus relating to the Certificates, on such Form S-1
for the registration under the Act of the Certificates. The Seller
may have filed one or more amendments thereto, including the related
Preliminary Prospectus, each of which has previously been furnished to
you. The Seller will next file with the Commission either, (A) prior
to the effectiveness of such registration statement, a further
amendment thereto (including the form of final prospectus) or, (B)
after effectiveness of such registration statement, a final prospectus
in accordance with Rules 430A and 424(b)(1) or (4). In the case of
clause (B), the Seller has included in such registration statement, as
amended at the Effective Date, all information (other than Rule 430A
Information) required by the Act and the rules thereunder to be
included in the prospectuses with respect to the Certificates and the
offering thereof. As filed, such amendment and form of final
prospectus, or such final prospectus, shall include all Rule 430A
Information and, except to the extent the Underwriters shall agree in
writing to a modification, shall be in all substantive
2
<PAGE>
respects in the form furnished to you prior to the Execution Time or,
to the extent not completed at the Execution Time, shall contain only
such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus which has previously
been furnished to you) as the Seller has advised you, prior to the
Execution Time, will be included or made therein.
The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "Effective Date" shall mean each date that the
Registration Statement and any post-effective amendment or amendments thereto
became or become effective under the Act. "Execution Time" shall mean the date
and time that this Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus referred to in
the preceding paragraph and any preliminary prospectus included in the
Registration Statement which, as of the Effective Date, omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Certificates that is first filed with the Commission pursuant to Rule 424(b) and
any prospectuses subsequently filed pursuant to Rule 424 or, if no filing
pursuant to Rule 424(b) is required, shall mean the form of final prospectus
included in the Registration Statement at the Effective Date. "Registration
Statement" shall mean the registration statement referred to in the preceding
paragraph and any registration statement required to be filed under the Act or
rules thereunder, including amendments, incorporated documents, exhibits and
financial statements, in the form in which it has or shall become effective and,
in the event that any post-effective amendment thereto becomes effective prior
to the Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended. Such term shall include Rule 430A Information deemed
to be included therein at the Effective Date as provided by Rule 430A. "Rule
424" and "Rule 430A" refer to such rules under the Act. "Rule 430A Information"
means information with respect to the Certificates and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A.
(ii) On the Effective Date, the Registration Statement did or
will comply in all material respects with the applicable requirements
of the Act and the rules thereunder; on the Effective Date and when
the Prospectus is first filed (if required) in accordance with Rule
424(b) and on the Closing Date, the Prospectus (and any supplements
thereto) will comply in all material respects with the applicable
requirements of the Act and the rules thereunder; on the Effective
Date, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date, the
Prospectus, if not filed pursuant to Rule 424(b), did not or will not,
and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that neither the Bank nor the
Seller makes any representations or warranties as to the information
contained in or omitted from the Registration Statement or the
Prospectus (or any supplements thereto) in reliance upon and in
conformity with information
3
<PAGE>
furnished in writing to the Bank or the Seller by or on behalf of any
Underwriter through the Representatives specifically for use in
connection with the preparation of the Registration Statement or the
Prospectus (or any supplements thereto).
(iii) The Bank is duly organized, validly existing and in good
standing as a national banking association under the laws of the
United States and the Seller is a corporation duly organized and
validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of the Bank and the Seller has
all requisite power and authority to own its properties and conduct
its business as presently conducted and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction which requires such qualification, except where failure
to have such requisite power and authority or to be so qualified would
not have a material adverse effect on the business or consolidated
financial condition of the Bank or the Seller.
(iv) Neither the Seller nor the Bank is in violation of its
charter or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it may be bound, or to
which any of the property or assets of the Seller or the Bank, as the
case may be, is subject, except where any such violation or default
would not have a material adverse effect on the transactions
contemplated by this Agreement.
(v) The execution, delivery and performance by the Seller of each
of this Agreement, the Receivables Purchase Agreement, the Pooling and
Servicing Agreement, the Supplement, the Collateral Agreement, and the
Depository Agreement, the issuance of the Certificates and the
consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary action or
proceedings and will not conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Seller
pursuant to, any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Seller is a party or by which
it may be bound, or to which any of the property or assets of the
Seller is subject, nor will such action result in any violation of the
provisions of the charter or by-laws of the Seller or any applicable
law, administrative regulation or administrative or court decree,
except where any such conflict, breach, default, encumbrance or
violation would not have a material adverse effect on the transactions
contemplated by this Agreement.
(vi) The execution, delivery and performance by the Bank of this
Agreement, the Receivables Purchase Agreement and the Assignment
Agreement, and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all
necessary action or proceedings and will not conflict with or
constitute a breach of, or default under, or result in the
4
<PAGE>
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Bank pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the
Bank is a party or by which it may be bound, or to which any of the
property or assets of the Bank is subject, nor will such action result
in any violation of the provisions of the charter or by-laws of the
Bank or any applicable law, administrative regulation or
administrative or court decree, except where any such conflict,
breach, default, encumbrance or violation would not have a material
adverse effect on the transactions contemplated by this Agreement.
(vii) This Agreement, the Receivables Purchase Agreement and the
Pooling and Servicing Agreement have been, and the Supplement and the
Collateral Agreement when executed and delivered as contemplated
hereby and thereby will have been, duly executed and delivered by the
Seller; and this Agreement, the Receivables Purchase Agreement and the
Pooling and Servicing Agreement constitute, and the Supplement and the
Collateral Agreement when executed and delivered as contemplated
herein will constitute, legal, valid and binding instruments
enforceable against the Seller in accordance with their respective
terms, subject as to enforceability (A) to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally and the rights and remedies of creditors
of thrifts, savings institutions or national banking associations, (B)
to general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and (C) with respect to
rights of indemnity under this Agreement or the Collateral Agreement,
to limitations of public policy under applicable securities laws.
(viii) This Agreement, the Receivables Purchase Agreement and
the Assignment Agreement have been, duly executed and delivered by the
Bank; and this Agreement, the Receivables Purchase Agreement and the
Assignment Agreement constitute legal, valid and binding instruments
enforceable against the Bank in accordance with their respective
terms, subject as to the enforceability (A) to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally and the rights and remedies of creditors
of thrifts, savings institutions or national banking associations, (B)
to general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and (C) with respect to
rights of indemnity under this Agreement, to limitations of public
policy under applicable securities law.
(ix) The Bank has authorized the conveyance of the Receivables to
the Seller; the Seller has authorized the conveyance of the
Receivables to the Trust; and the Seller has directed the Trust to
issue and sell the Certificates.
(x) The Bank will, upon request by the Representatives, provide
to the Representatives complete and correct copies of publicly
available portions of the Consolidated Reports of Condition and Income
of the Bank for the year ended December 31, 1996 as submitted to the
Comptroller of the Currency.
5
<PAGE>
Except as set forth or contemplated in the Registration Statement and
the Prospectus, there has been no material adverse change in the
consolidated condition (financial or otherwise) of the Bank and its
subsidiaries taken as a whole since December 31, 1996.
(xi) Any taxes, fees and other governmental charges in connection
with the execution, delivery and performance of this Agreement, the
Pooling and Servicing Agreement, the Supplement, the Receivables
Purchase Agreement, the Assignment Agreement, the Collateral Agreement
and the Certificates shall have been paid or will be paid by the
Seller at or prior to the Closing Date.
(xii) The Certificates have been duly and validly authorized,
and, when validly executed, authenticated, issued and delivered in
accordance with the Pooling and Servicing Agreement and the Supplement
and as provided herein will conform in all material respects to the
description thereof contained in the Prospectus and will be validly
issued and outstanding and entitled to the benefits of the Pooling and
Servicing Agreement and the Supplement.
(xiii) There are no legal or governmental proceedings pending,
or to the knowledge of the Bank or the Seller threatened, to which the
Bank or the Seller is a party or of which any property of any of them
is the subject, other than proceedings which are not reasonably
expected, individually or in the aggregate, to have a material adverse
effect on the shareholder's equity or consolidated financial position
of such person and its subsidiaries taken as a whole, or which would
have a material adverse effect upon the consummation of this
Agreement.
(xiv) Arthur Andersen LLP is an independent public accountant
with respect to the Bank and Seller.
(xv) No consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or
governmental agency or body of the United States is required for the
issue and sale of the Certificates, or the consummation by the Bank or
the Seller of the other transactions contemplated by this Agreement,
the Receivables Purchase Agreement, the Assignment Agreement, the
Pooling and Servicing Agreement, the Supplement, the Collateral
Agreement, or the Depository Agreement, except for (A) the
registration under the Act of the Certificates, (B) such consents,
approvals, authorizations, orders, registrations, qualifications,
licenses or permits as have been obtained or as may be required under
State securities or Blue Sky laws in connection with the purchase of
the Certificates and the subsequent distribution of the Certificates
by the Underwriters or (C) where the failure to obtain such consents,
approvals, authorizations, orders, registrations, filings,
qualifications, licenses or permits would not have a material adverse
effect on the business or consolidated financial condition of the Bank
and its subsidiaries taken as a whole or the Seller or the
transactions contemplated by such agreements.
6
<PAGE>
(xvi) Neither the Bank nor the Seller will conduct their
operations while any of the Certificates are outstanding in a manner
that would require the Seller or the Trust to be registered as an
"investment company" under the Investment Company Act of 1940, as
amended (the "1940 Act") as in effect on the date hereof.
(b) HFC represents and warrants to, and agrees with, each Underwriter
as set forth in this Section 1(b).
(i) HFC is a corporation duly organized and validly existing and
in good standing under the laws of its jurisdiction of incorporation.
HFC has all requisite power and authority to own its properties and
conduct its business as presently conducted and is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction which requires such qualification, except where the
failure to have such power and authority or to be so qualified would
not have a material adverse effect on the business or consolidated
financial condition of HFC and its subsidiaries taken as a whole.
(ii) HFC is not in violation of its restated articles of
incorporation or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which HFC is a party or by which it may be bound, or to
which any of the property or assets of HFC is subject except where any
such violation or default would not have a material adverse effect on
the transactions contemplated by this Agreement.
(iii) The execution, delivery and performance by HFC of this
Agreement, the Pooling and Servicing Agreement, the Supplement and the
Collateral Agreement, and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized
by all necessary action or proceedings and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of HFC pursuant to, any contract, indenture, mortgage, loan
agreement,note, lease or other instrument to which HFC is a party or
by which it may be bound, or to which any of the property or assets of
HFC is subject, nor will such action result in any violation of the
provisions of the charter or by-laws of HFC or any applicable law,
administrative regulation or administrative or court decree, except
where any such conflict, breach, default, encumbrance or violation
would not have a material adverse effect on the transactions
contemplated by this Agreement.
(iv) This Agreement and the Pooling and Servicing Agreement have
been, and the Supplement and the Collateral Agreement when executed
and delivered as contemplated hereby and thereby will have been, duly
executed and delivered by HFC; and this Agreement and the Pooling and
Servicing Agreement constitute, and the Supplement and the Collateral
Agreement when executed and
7
<PAGE>
delivered as contemplated herein will constitute, legal, valid and
binding instruments enforceable against HFC in accordance with their
respective terms, subject as to enforceability (A) to applicable
bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting creditors' rights generally, (B) to general principles
of equity (regardless of whether enforcement is sought in a proceeding
in equity or at law) and (C) with respect to rights of indemnity under
this Agreement or the Collateral Agreement, to limitations of public
policy under applicable securities laws.
(v) HFC will, upon request by the Representatives, provide to the
Representatives complete and correct copies of all reports filed by it
with the Commission pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), during 1996. Except as set forth in
or contemplated in such reports, there has been no material adverse
change in the consolidated financial condition of HFC and its
subsidiaries taken as a whole since the respective dates as of which
information is given in the Prospectus.
(vi) There are no legal or governmental proceedings pending, or
to the knowledge of HFC threatened, to which HFC is a party or of
which any of its property is the subject, other than proceedings which
are not reasonably expected, individually or in the aggregate, to have
a material adverse effect on the shareholder's equity or consolidated
financial position of HFC and its subsidiaries taken as a whole or
which would have a material adverse effect upon the consummation of
this Agreement.
(vii) No consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or
governmental agency or body of the United States is required for the
consummation by HFC of the transactions contemplated by this
Agreement, the Pooling and Servicing Agreement, the Supplement and the
Collateral Agreement, except for (A) the registration under the Act of
the Certificates, (B) such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses or permits as
have been obtained or as may be required under State securities or
Blue Sky laws in connection with the purchase of the Certificates and
the subsequent distribution of the Certificates by the Underwriters or
(C) where the failure to obtain such consents, approvals,
authorizations, orders, registrations, filings, qualifications,
licenses or permits would not have a material adverse effect on the
business or consolidated financial condition of HFC and its
subsidiaries taken as a whole or the transactions contemplated by such
agreements.
(viii) Arthur Andersen LLP is an independent public accountant
with respect to HFC.
(c) Any certificate signed by an officer on behalf of any of the
Household Entities and delivered to the Underwriters or counsel for the
Underwriters in connection with an offering of the Certificates shall be
deemed, and shall state that it is, a
8
<PAGE>
representation and warranty as to the matters covered thereby to each
person to whom the representations and warranties in this Section 1 are
made.
Section 2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
covenants, representations and warranties herein set forth, the Seller
agrees to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Seller the
Principal Amount of Class A Certificates set forth opposite such
Underwriter's name in Schedule I pursuant to the terms of this Agreement at
a purchase price equal to [____________]% of the aggregate Principal Amount
represented by the Class A Certificates.
(b) Subject to the terms and conditions and in reliance upon the
covenants, representations and warranties herein set forth, the Seller
agrees to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Seller the
Principal Amount of Class B Certificates set forth opposite such
Underwriter's name in Schedule I pursuant to the terms of this Agreement at
a purchase price equal to [_________]% of the aggregate Principal Amount
represented by the Class B Certificates.
Section 3. Delivery and Payment.
(a) Delivery of and payment for the Certificates to be purchased by
the Underwriters in accordance with this Agreement shall be made at 9:00
A.M. at the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth
Avenue, New York, New York 10103 on March [__], 1997 which date, time or
place may be postponed or changed by agreement between the Representatives
and the Seller (such date and time of delivery and payment for the
Certificates being herein referred to as the "Closing Date"). Delivery of
one or more global certificates representing the Certificates shall be made
to the accounts of the several Underwriters against payment by the several
Underwriters of the purchase price therefor, to or upon the order of the
Seller by one or more wire transfers in immediately available funds. The
global certificates to be so delivered shall be registered in the name of
Cede & Co., as nominee for The Depository Trust Company ("DTC"). The
interests of beneficial owners of the Certificates will be represented by
book entries on the records of DTC and participating members thereof.
Definitive Certificates representing the Certificates will be available
only under limited circumstances as described in the Pooling and Servicing
Agreement.
The Seller agrees to have copies of the global certificates or the
Definitive Certificates available for inspection, checking and packaging by
the Underwriters in New York, New York, not later than 1:00 p.m., New York
City time, on the business day prior to the Closing Date.
9
<PAGE>
Section 4. Offering by Underwriters.
(a) It is understood that the Underwriters propose to offer the
Certificates for sale to the public as set forth in the Prospectus.
(b) Each Underwriter severally agrees that if it is a foreign broker
dealer not eligible for membership in the National Association of
Securities Dealers, Inc. (the "NASD"), it will not effect any transaction
in the Certificates within the United States or induce or attempt to induce
the purchase of or sale of the Certificates within the United States,
except that it shall be permitted to make sales to the other Underwriters
or to its United States affiliates provided that such sales are made in
compliance with an exemption of certain foreign brokers or dealers under
Rule 15a-6 under the Exchange Act and in conformity with the NASD's Conduct
Rules as such Rules apply to non-NASD brokers or dealers.
(c) Each Underwriter severally represents and agrees that (i) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Certificates in, from or otherwise involving the United Kingdom; (ii) 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 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); (iii) 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 the Prospectus if that person is of a kind described either in Section
76(2) of the Financial Services Act 1986 or in Regulation 1.04 of the
Financial Services (Promotion of Unregulated Collective Investment Schemes)
Regulations 1991; and (iv) 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).
Section 5. Agreements. Each of the Household Entities, each as to
itself, covenants and agrees with the several Underwriters that:
(a) The Seller will use its best efforts to cause the Registration
Statement, and any amendment thereto, if not effective at the Execution
Time, to become effective. If the Registration Statement has become or
becomes effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Seller will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Underwriters of
such timely filing. The Seller will promptly advise the Representatives
(i) when the Registration Statement shall have become effective, (ii) when
any amendment thereof shall have become effective, (iii) of any request by
the Commission for any amendment or supplement of the Registration
Statement or the Prospectus or for any additional
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information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose, and (v) of
the receipt by the Seller of any notification with respect to the
suspension of the qualification of the Certificates for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Seller will not file any amendment of the Registration
Statement or supplement to the Prospectus to which the Representatives
reasonably object. The Seller will use its best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a Prospectus relating to the Certificates is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to
supplement such Prospectus to comply with the Act or the rules thereunder,
the Seller shall be required to notify the Representatives and upon the
Representatives' request to prepare and furnish without charge to each
Underwriter and to any dealer of Class B Certificates as many copies as
such Underwriter may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which shall correct such
statement or omission or effect such compliance.
(c) As soon as practicable, the Seller will make generally available
to Certificateholders and to the Representatives an earnings statement or
statements of the Trust which will satisfy the provisions of Section 11(a)
of the Act and Rule 158 under the Act.
(d) The Seller will furnish to the Representatives and counsel for the
Underwriters, without charge, copies of the Registration Statement
(including exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many copies of each
Preliminary Prospectus relating to the Certificates and the Prospectus and
any supplement thereto as the Underwriters may reasonably request.
(e) The Household Entities, jointly and severally, agree to pay all
expenses incidental to the performance of their obligations under this
Agreement, including without limitation (i) expenses of preparing, printing
and reproducing the Registration Statement, the Prospectus, this Agreement,
the Receivables Purchase Agreement, the Pooling and Servicing Agreement,
the Supplement, the Collateral Agreement, the Depository Agreement and the
Certificates, (ii) any fees charged by any rating agency for the rating of
the Certificates, (iii) any expenses (including reasonable fees and
disbursements of counsel not to exceed $20,000) incurred by the
Underwriters in connection with qualification of the Certificates for sale
under the laws of such jurisdictions as the Representatives designate, (iv)
the fees and expenses of (A) Arthur Andersen and (B) counsel to the
Collateral Interest Holder, (v) the fees and expenses of the Trustee and
any agent of the Trustee and the fees and disbursements of counsel for the
Trustee in
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connection with the Pooling and Servicing Agreement and the Certificates,
and (vi) the cost of delivering the Certificates to the offices of the
Underwriters, insured to the satisfaction of the Underwriters (it being
understood that, except as provided in this paragraph (e) and in Sections 7
and 8 hereof, the Underwriters will pay their own expenses, including the
expense of preparing, printing and reproducing this Agreement, any
agreement among underwriters, the fees and expenses of counsel for the
Underwriters, any transfer taxes on resale of any of the Certificates by
them and advertising expenses connected with any offers that the
Underwriters may make).
(f) The Seller will take all reasonable actions requested by the
Underwriters to arrange for the qualification of the Certificates for sale
under the laws of such jurisdictions within the United States or as
necessary to qualify for the Euroclear System or Cedel Bank, societe
anonyme and as the Representatives may designate, will maintain such
qualifications in effect so long as required for the distribution of the
Certificates.
(g) For so long as the Certificates are outstanding, the Seller shall
deliver to the Representatives by first-class mail and as soon as
practicable a copy of all reports and notices delivered to the Trustee or
the Certificateholders under the Pooling and Servicing Agreement or the
Supplement or to the Collateral Interest Holder under the Collateral
Agreement.
(h) For so long as the Certificates are outstanding, the Household
Entities will furnish to the Representatives (i) as soon as practicable
after the end of each fiscal year, all documents required to be distributed
to Certificateholders and (ii) as soon as practicable after filing, any
other information concerning the Household Entities filed with any
government or regulatory authority which is otherwise publicly available,
as the Representatives may reasonably request.
(i) To the extent, if any, that any rating provided with respect to
the Certificates set forth in Sections 6(j) and (k) hereof is conditional
upon the furnishing of documents reasonably available to the Household
Entities, the Household Entities shall furnish such documents.
Section 6. Conditions of Closing; Termination of Rights Under Section
2. The obligations of the Underwriters to purchase and pay for the
Certificates on the Closing Date shall be subject to the material accuracy of
the representations and warranties of the Household Entities contained herein as
of the Execution Time and as of the Closing Date, to the material accuracy of
the statements of the Household Entities made in any certificates delivered
pursuant to the provisions hereof, to the performance by the Household Entities
of their obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement shall have become effective not later than
12:00 Noon New York City time on the business day following the day on
which the public offering price was determined; if filing of the
Prospectus, or any supplement thereto, is required pursuant
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to Rule 424(b), the Prospectus shall have been filed in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened.
(b) Each of the Household Entities shall have delivered a certificate,
dated the Closing Date, signed by its President or any Vice President and
its principal financial or principal accounting officer or its Treasurer or
any Assistant Treasurer or its Secretary or any Assistant Secretary to the
effect that the signers of such certificate, on behalf of the named
Household Entity, have carefully examined this Agreement, the Receivables
Purchase Agreement, the Assignment Agreement, the Pooling and Servicing
Agreement, the Supplement, the Collateral Agreement, the Prospectus (and
any supplements thereto) and the Registration Statement, stating that:
(i) the representations and warranties of such Household Entity
in this Agreement are true and correct in all material respects at and
as of the date of such certificate as if made on and as of such date
(except to the extent they expressly relate to an earlier date);
(ii) such Household Entity has complied, in all material
respects, with all the agreements and satisfied, in all material
respects, all the conditions on its part to be performed or satisfied
at or prior to the date of such certificate;
(iii) nothing has come to the attention of such Household Entity
that would lead it to believe that the Registration Statement contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
(iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the knowledge of the signor,
threatened.
(c) John W. Blenke, Vice President - Corporate Law and Assistant
Secretary of Household, shall have delivered a favorable opinion with
respect to clauses (i) through (xiii) of this paragraph (c), and Orrick,
Herrington & Sutcliffe LLP, special counsel to the Household Entities,
shall have delivered a favorable opinion with respect to clauses (xiv)
through (xvi) of this paragraph (c) each opinion shall be dated the Closing
Date and satisfactory in form and substance to the Representatives and
counsel for the Underwriters, to the effect that:
(i) the Bank has been duly chartered as a national banking
association and is validly existing and in good standing under the
laws of the United States, is duly qualified to do business and is in
good standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or
conducts material business, and has full power and authority to own
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its properties, and to enter into and perform its obligations under
the Receivables Purchase Agreement and the Assignment Agreement,
except where failure to have such power and authority or to be so
qualified will not have a material adverse effect on the business or
consolidated financial condition of the Bank and its subsidiaries
taken as a whole;
(ii) each of HFC and the Seller is duly incorporated and validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation with corporate power and authority to
own its properties and to conduct its business, except where failure
to have such power and authority do not have a material adverse
effect, as the case may be, on the business or consolidated financial
condition of HFC and its subsidiaries, taken as a whole, or the
Seller, to enter into and perform its obligations under the
Underwriting Agreement, the Receivables Purchase Agreement, the
Collateral Agreement, the Depository Agreement, the Pooling and
Servicing Agreement and the Supplement and to consummate the
transactions contemplated hereby and thereby;
(iii) the Underwriting Agreement, the Receivables Purchase
Agreement, the Assignment Agreement, the Pooling and Servicing
Agreement, the Supplement, the Collateral Agreement and the Depository
Agreement have been duly authorized, executed and delivered by HFC,
the Bank or the Seller, as the case may be, and, when executed by the
Trustee and the Collateral Interest Holder, when required, constitute
the legal, valid and binding agreement of HFC, the Bank or the Seller,
as the case may be, enforceable in accordance with its terms subject,
as to enforceability (A) to applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors'
rights generally and the rights and remedies of creditors of thrifts,
savings institutions or national banking associations, (B) to general
principles of equity (regardless of whether enforcement is sought in a
proceedings in equity or at law) and (C) with respect to rights of
indemnity under the Underwriting Agreement or the Collateral
Agreement, to limitations of public policy under applicable securities
laws;
(iv) the Certificates have been duly created and, when executed
and authenticated in accordance with the terms of the Pooling and
Servicing Agreement and the Supplement and delivered to and paid for
by the Underwriters pursuant to this Agreement, will be validly issued
and outstanding, enforceable in accordance with their terms subject,
as to enforceability (A) to applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors'
rights generally and the rights and remedies of creditors of thrifts,
savings institutions or national banking associations and (B) to
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law);
(v) neither the execution nor the delivery of the Underwriting
Agreement, the Receivables Purchase Agreement, the Assignment
Agreement, the Collateral Agreement, the Depository Agreement, the
Pooling and Servicing
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Agreement or the Supplement nor the issuance or delivery of the
Certificates, nor the consummation of any of the transactions
contemplated herein or therein, nor the fulfillment of the terms of
the Certificates, the Underwriting Agreement, the Receivables Purchase
Agreement, the Assignment Agreement, the Collateral Agreement, the
Depository Agreement, the Pooling and Servicing Agreement or the
Supplement will conflict with or violate any term or provision of the
charter or by-laws of any of the applicable Household Entities, as the
case may be, or result in a breach or violation of, or default under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of any of the applicable
Household Entities pursuant to, any material statute currently
applicable to any of them or the Trust or any order or regulation
known to such counsel to be currently applicable to any of them or the
Trust of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Bank or the Seller or
the Trust, as the case may be, or the terms of any indenture or other
agreement or instrument known to such counsel to which any of the
applicable Household Entities or the Trust is a party or by which any
of them or any of their properties are bound, except where any such
conflict, breach, violation, default or encumbrance would not have a
material adverse effect on the transactions contemplated by this
Agreement;
(vi) to the best knowledge of such counsel, there is no pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator with respect
to the Underwriting Agreement, the Trust, the Certificates, the
Receivables Purchase Agreement, the Assignment Agreement, the
Collateral Agreement, the Depository Agreement, the Pooling and
Servicing Agreement or the Supplement or any of the transactions
contemplated herein or therein or with respect to the Household
Entities which, in the case of any such action, suit or proceeding
with respect to any of them, would have a material adverse effect on
the Certificateholders or the Trust or upon the ability of any of them
to perform their obligations under any of such agreements, and there
is no material contract, franchise or document relating to the Trust
or property conveyed to the Trust which is not disclosed in the
Registration Statement or Prospectus; and the statements included in
the Registration Statement, Preliminary Prospectus and Prospectus
describing statutes (other than those relating to tax and ERISA
matters and financial statements and other financial and statistical
information contained therein as to which such counsel need express no
opinion), legal proceedings, contracts and other documents fairly
summarize the matters therein described;
(vii) the Registration Statement has become effective under the
Act; any required filing of the Prospectus or any supplement thereto
pursuant to Rule 424 has been made in the manner and within the time
period required by Rule 424; to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued, no proceedings for that purpose have been instituted
or threatened; the Registration Statement and the Prospectus (and any
supplements thereto) (other than financial and statistical information
15
<PAGE>
contained therein as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable
requirements of the Act and the rules thereunder;
(viii) such counsel has no reason to believe that at any
Effective Date the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Preliminary Prospectus, as of its
date, or the Prospectus, as of its date, includes any untrue statement
of a material fact or omits to state a material fact necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading (other than financial and statistical
information contained therein as to which such counsel need express no
opinion), it being understood that such counsel expresses no opinion
with respect to the adequacy of disclosure to potential investors in
the Collateral Interest in the Trust;
(ix) no consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court, federal
or state governmental agency or regulatory body is required for any
Household Entity to consummate the transactions contemplated in the
Underwriting Agreement, the Collateral Agreement, the Depository
Agreement, the Receivables Purchase Agreement, the Assignment
Agreement, the Pooling and Servicing Agreement or the Supplement,
except (A) such consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses or permits as have
been made or obtained or as may be required under the State securities
or blue sky laws of any jurisdiction in connection with the purchase
of the Certificates by the Underwriters and the subsequent
distribution of the Certificates by the Underwriters or (B) where the
failure to have such consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses or permits would not
have a material adverse effect on the Trust's interests in the
Receivables or the transactions contemplated by such agreements;
(x) the Certificates, the Underwriting Agreement, the Receivables
Purchase Agreement, the Assignment Agreement, the Collateral
Agreement, the Pooling and Servicing Agreement and the Supplement
conform in all material respects to the descriptions thereof contained
in the Registration Statement and the Prospectus;
(xi) neither the Pooling and Servicing Agreement nor the
Supplement will be required to be qualified under the Trust Indenture
Act of 1939;
(xii) the statements in the Registration Statement under the
heading "Certain Legal Aspects of the Receivables" to the extent that
they constitute statements of matters of law or legal conclusions with
respect thereto, have been prepared or reviewed by such counsel or
attorneys under the control of such counsel and are correct in all
material respects;
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(xiii) the Trust is not required to be registered as an
"investment company" under the 1940 Act;
(xiv) the assignment of the Receivables, all documents and
instruments relating thereto and all proceeds thereof to the Seller
pursuant to the Receivables Purchase Agreement, and the subsequent
assignment of the Receivables, all documents and instruments relating
thereto and all proceeds thereof to the Trustee pursuant to the
Pooling and Servicing Agreement, either (A) vests in the Trustee all
right, title and interest of the Seller and the Bank in and to the
Receivables, free and clear of any liens, security interests or
encumbrances that have been perfected or are known to such counsel
except as specifically permitted pursuant to the Pooling and Servicing
Agreement and the Supplement or (B) in the event that a court were to
conclude that either of such assignments were not a sale pursuant to
the Receivables Purchase Agreement and the Pooling and Servicing
Agreement and the Supplement, as the case may be, the transactions
provided for by the Receivables Purchase Agreement and the Pooling and
Servicing Agreement and the Supplement, as the case may be, would
constitute a grant of a valid security interest and, together with the
filing of the financing statements in the States of California,
Illinois, Nevada and Virginia, create a first priority perfected
security interest within the meaning of Article 9 of the Uniform
Commercial Code in the Receivables, all documents and instruments
relating thereto and all proceeds thereof (in rendering such opinion,
counsel may take such exceptions as are appropriate and reasonably
acceptable under the circumstances);
(xv) No other filings or other actions, with respect to the
Trustee's interest in the Receivables, are necessary to perfect the
interest of the Trustee in the Receivables, and proceeds thereof,
against third parties, except that appropriate continuation statements
must be filed in accordance with the applicable state's requirements,
which is presently at least every five years; and
(xvi) the statements in the Registration Statement and
Prospectus under the headings "Certain Federal Income Tax
Consequences" and "State and Local Tax Consequences" accurately
describe the material Federal, state and local income tax consequences
to holders of the Certificates and the statements under the heading
"ERISA Considerations", to the extent that they constitute statements
of matters of law or legal conclusions with respect thereto, have been
prepared or reviewed by such counsel and accurately describe the
material consequences to holders of the Certificates under ERISA.
In rendering such opinion, counsel may rely (A) as to matters
involving the application of the law of any jurisdiction other than (i) with
respect to the opinion delivered by John W. Blenke, Vice President-Corporate Law
and Assistant Secretary of Household, the State of Illinois, the United States
Federal laws and the corporation law of the State of Delaware and (ii) with
respect to the opinion delivered by Orrick, Herrington & Sutcliffe LLP, the
State of New York, the United States Federal Laws and the corporation law of the
State of Delaware, to the extent deemed proper and stated in each such opinion,
upon the opinion of other counsel
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of good standing believed by each such counsel to be reliable and acceptable to
you and your counsel, and (B) as to matters of fact, to the extent deemed proper
and as stated therein, on certificates of responsible officers of the Trust,
Household Entities and public officials. References to the Prospectus in this
paragraph (c) include any supplements thereto.
(d) Orrick, Herrington & Sutcliffe LLP, as counsel for the
Underwriters, shall have delivered a favorable opinion dated the Closing
Date with respect to the validity of the Certificates, the Underwriting
Agreement, the Pooling and Servicing Agreement, the Supplement, the
Registration Statement, the Prospectus and such other related matters as
the Representatives may reasonably require and the Household Entities shall
have furnished to such counsel such documents as they reasonably request
for the purpose of enabling them to pass on such matters. In giving their
opinion, Orrick, Herrington & Sutcliffe LLP may rely (i) as to matters of
Illinois law upon the opinions of counsel delivered pursuant to subsection
(c) above, (ii) as to matters involving the application of laws of any
jurisdiction other than the State of New York, the United States Federal
laws or the corporation law of the State of Delaware, to the extent deemed
proper and specified in such opinion, upon the opinion of other counsel of
good standing believed to be reliable, and (iii) as to matters of fact, to
the extent deemed proper and as stated therein on certificates of
responsible officers of the Trust, Household Entities and public officials.
(e) The Collateral Agreement shall have been duly authorized, executed
and delivered by the Collateral Interest Holder; all fees then due and
payable to the Collateral Interest Holder shall have been paid in full at
or prior to the Closing Date, as the case may be.
(f) Counsel to the Collateral Interest Holder shall have delivered a
favorable opinion, dated the Closing Date, and satisfactory in form and
substance to the Representatives, counsel for the Underwriters, the
Household Entities and their counsel.
(g) At the Execution Time and at the Closing Date, Arthur Andersen LLP
shall have furnished to the Representatives a letter or letters, dated
respectively as of the date of this Agreement and the date of the Closing
Date, in form and substance satisfactory to the Representatives and counsel
for the Underwriters, confirming that they are certified independent public
accountants within the meaning of the Act, the Exchange Act and the rules
and regulations promulgated thereunder and stating in effect that they have
performed certain specified procedures as a result of which they determined
that certain information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical information
derived from the general accounting records of the Trust, the Bank and the
Seller) set forth in the Registration Statement and the Prospectus (and any
supplements thereto), agrees with the accounting records of the Trust, and
the Household Entities, excluding any questions of legal interpretation,
and (ii) they have performed certain specified procedures with respect to
the computer programs used to select the Eligible Accounts and to generate
information with respect to the Accounts set forth in the Registration
Statement and the Prospectus (and any supplements thereto).
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(h) The Representatives shall receive evidence satisfactory to them that,
on or before the Closing Date, UCC-1 financing statements are being or have
been filed in the offices of the Secretaries of State of the States of
California, Illinois, Nevada and Virginia (and such other states as may be
necessary or desirable pursuant to applicable state law) reflecting the
interest of the Trust in the Receivables and the proceeds thereof.
(i) Counsel to the Trustee shall have delivered a favorable opinion,
dated the Closing Date, and satisfactory in form and substance to the
Representatives and counsel for the Underwriters, the Household Entities
and their counsel, to the effect that:
(i) the Trustee has been duly incorporated and is validly
existing and in good standing as a corporation under the laws of the
State of New York, is duly qualified to do business in all
jurisdictions where the nature of its operations as contemplated by
the Pooling and Servicing Agreement, the Supplement and the Collateral
Agreement requires such qualifications, and has the power and
authority (corporate and other) to issue, and to take all action
required of it under, the Pooling and Servicing Agreement, the
Supplement and the Collateral Agreement;
(ii) the execution, delivery and performance by the Trustee of
the Pooling and Servicing Agreement, the Supplement and the Collateral
Agreement and the issuance of the Certificates by the Trustee have
been duly authorized by all necessary corporate action on the part of
the Trustee, and under present laws do not and will not contravene any
law or governmental regulation or order presently binding on the
Trustee or the charter or the by-laws of the Trustee or contravene any
provision of or constitute a default under any indenture, contract or
other instrument to which the Trustee is a party or by which the
Trustee is bound;
(iii) the execution, delivery and performance by the Trustee of
the Pooling and Servicing Agreement, the Supplement and the Collateral
Agreement and the issuance of the Certificates by the Trustee do not
require the consent or approval of, the giving of notice to, the
registration with, or the taking of any other action in respect of any
Federal, state or other governmental agency or authority which has not
previously been effected;
(iv) each of the Certificates has been duly authenticated and
delivered by the Trustee and each of the Certificates and the Pooling
and Servicing Agreement, the Supplement and the Collateral Agreement
constitute legal, valid and binding agreements of the Trustee,
enforceable against the Trustee in accordance with its terms (subject
to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally); and
(v) no approval, authorization or other action by, or filing
with, any governmental authority of the United States of America or
the State of New York having jurisdiction over the banking or trust
powers of the Trustee is required in
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connection with its execution and delivery of the Pooling and
Servicing Agreement, the Supplement and the Collateral Agreement or
the performance by the Trustee of the terms of the Pooling and
Servicing Agreement, the Supplement and the Collateral Agreement.
(j) The Class A Certificates shall be given the highest investment
grade rating by both Moody's Investors Service, Inc. ("Moody's"), and
Standard & Poor's Corporation ("S&P") and neither Moody's nor S&P shall
have placed the Class A Certificates under review with possible negative
implications.
(k) The Class B Certificates shall be rated at least "A" or its
equivalent by both Moody's and S&P and neither Moody's nor S&P shall have
placed the Class B Certificates under review with possible negative
implications.
(l) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not
have been any change, or any development involving a prospective change, in
or affecting the business or properties of the Trust or any of the
Household Entities other than as set forth or contemplated in the
Registration Statement or Prospectus, the effect of which, in any case
referred to above, is, in the judgment of the Representatives, so material
and adverse as to make it impractical or inadvisable to proceed with the
offering or the delivery of the Certificates as contemplated by the
Registration Statement and the Prospectus.
(m) All proceedings in connection with the transactions contemplated
by this Agreement and all documents incident hereto shall be reasonably
satisfactory in form and substance to the Representatives and counsel for
the Underwriters, and the Representatives and counsel for the Underwriters
shall have received such information, certificates and documents as the
Representatives or counsel for the Underwriters may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Representatives and the Underwriters
hereunder may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Trustee and
the Seller in writing or by telephone or telegraph confirmed in writing.
Section 7. Reimbursement of Expenses. If the sale of the
Certificates provided for herein is not consummated because any condition to the
Representatives' obligations set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Trustee or the Household
Entities to perform any agreement herein or comply with any provision hereof
other than by reason of a default by the Representatives or the Underwriters,
the Household Entities, jointly and severally, will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses
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(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Certificates.
Section 8. Indemnification and Contribution.
(a) As an inducement to the Underwriters to participate in the public
offering of the Certificates, the Seller and HFC, jointly and severally
(and the Bank with respect to any information that it has provided in
connection with the preparation of the Preliminary Prospectus or Prospectus
and, with respect to the breach of any of its representations and
warranties under Section 1 hereunder), agree to indemnify and hold harmless
each Underwriter and each person who controls any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act
against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or in any Preliminary Prospectus
or the Prospectus, or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and agrees to reimburse each such indemnified party,
as incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however that (i) the Household Entities will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information
furnished to the Household Entities by or on behalf of any Underwriter
through the Representatives specifically for use in connection with the
preparation thereof, and (ii) such indemnity with respect to any such
untrue statement or alleged untrue statement or omission or alleged
omission in the Prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) from whom the
person asserting any such loss, claim, damage or liability purchased the
Certificates which are the subject thereof if such person was not sent a
copy of the Prospectus (or the Prospectus as supplemented) at or prior to
the confirmation of the sale of such Certificates to such person in any
case where such delivery is required by the Act and the untrue statement or
omission of a material fact contained in any Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as supplemented). This
indemnity agreement will be in addition to any liability which the
Household Entities may otherwise have.
(b) Each Underwriter, severally, agrees to indemnify and hold harmless
each of the Household Entities, each of their directors, each of the
officers who signs the Registration Statement, and each person who controls
any Household Entity within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, to the same extent as the foregoing indemnities
from the Household Entities to each Underwriter, but only
21
<PAGE>
with reference to written information relating to such Underwriter
furnished to the Household Entities by or on behalf of such Underwriter
specifically for use in the preparation of the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any Underwriter may otherwise have. The Household Entities
acknowledge that the statements relating to the Underwriters set forth in
the last paragraph of the cover page, the second sentence under the heading
"Risk Factors - Limited Liquidity," and the statements under the heading
"Underwriting" in any Preliminary Prospectus and the Prospectus constitute
the only information furnished in writing by the Underwriters or on behalf
of the Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding
the indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right
to employ separate counsel (including local counsel), and the indemnifying
party shall bear the reasonable fees, costs and expenses of such separate
counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict
of interest, (ii) the actual or potential defendants in, or targets of, any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the relative
22
<PAGE>
benefits received by the Household Entities on the one hand and the
Underwriters on the other from the offering of the Certificates or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Household Entities on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Household Entities
on the one hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Household Entities bears to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Household Entities or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d).
The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this subsection
(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the Certificates underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion
to their respective underwriting obligations and not joint.
Section 9. Default by an Underwriter. If any one or more
Underwriters shall fail to purchase and pay for any of the Certificates agreed
to be purchased by such Underwriter or Underwriters hereunder on the Closing
Date and such failure to purchase shall constitute a default in the performance
of its or their obligations under this Agreement, the remaining Underwriters
shall be obligated severally to take up and pay for (in the respective
proportions which the amount of Certificates set forth opposite their names in
Schedule I with respect to the Closing Date hereto bears to the aggregate amount
of Certificates set forth opposite the names of all the remaining Underwriters)
the Certificates which the defaulting Underwriter or Underwriters agreed but
failed to purchase; provided, however, that in the event that the aggregate
amount of Certificates which the defaulting Underwriter or Underwriters agreed
but failed to purchase shall exceed 10% of the aggregate amount of Certificates
set forth in Schedule
23
<PAGE>
I hereto, the remaining Underwriters shall have the right to purchase all, but
shall not be under any obligation to purchase any, of the Certificates, and if
such nondefaulting Underwriters do not purchase all the Certificates, the
obligations will terminate without liability of any nondefaulting Underwriter,
the Trust, or any Household Entity. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding seven days, as the Underwriters shall determine
in order that the required changes in the Registration Statement and the
Prospectus or in any other documents or arrangements may be effected. Nothing
contained in this Agreement shall relieve any defaulting Underwriter of its
liability, if any, to the Seller, HFC, the Bank and any nondefaulting
Underwriter for damages occasioned by its default hereunder.
Section 10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Seller if after the Execution Time and prior to delivery of and payment
for the Certificates on the Closing Date, (i) trading in the Common Stock of
Household International, Inc. shall have been suspended by the Commission or the
New York Stock Exchange or trading in securities generally on the New York Stock
Exchange shall have been suspended or limited or minimum prices shall have been
established on such Exchange, (ii) a banking moratorium shall have been declared
by Federal or State of New York authorities or (iii) there shall have occurred
any outbreak or escalation of hostilities involving the United States of
America, declaration by the United States of a national emergency or war or the
occurrence of any other calamity or crisis the effect of which on the financial
markets of the United States is such as to make it, in the reasonable judgment
of the Representatives, impractical or inadvisable to proceed with the offering
or delivery of the Certificates as contemplated by the Prospectus.
Section 11. Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities and other
statements of the Household Entities or the officers of each of them and of the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters, the Household Entities or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Certificates. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
Section 12. Notices. All communications hereunder shall be in
writing and effective only on receipt, and, if sent to the Underwriters, will be
mailed, delivered or telegraphed and confirmed to the Representative at Credit
Suisse First Boston Corporation 11 Madison Avenue New York, New York 10010
Attention: Capital Markets Department; if sent to any Household Entity, will be
mailed, delivered or telegraphed and confirmed to them at 2700 Sanders Road,
Prospect Heights, Illinois 60070, attention of General Counsel; provided
however, that any notice to an Underwriter pursuant to Section 8 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
SECTION 13. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL
24
<PAGE>
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
Section 14. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers, directors and controlling persons referred to in Section 8 hereof, and
no other person will have any right or obligation hereunder.
Section 15. Counterparts. This Agreement may be executed by one or
more parties to this Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument.
Section 16. Miscellaneous. This agreement supersedes all prior
agreements and understandings relating to the subject matter hereof. Neither
this Agreement nor any term hereof may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought. The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
25
<PAGE>
If you are in agreement with the foregoing, please sign two
counterparts hereof and return one to each of the Bank and the Seller whereupon
this letter and your acceptance shall become a binding agreement among the
Household Entities and the several Underwriters.
Very truly yours,
HOUSEHOLD BANK (SB), N.A.
By_____________________________
Name:
Title:
HOUSEHOLD AFFINITY FUNDING
CORPORATION
By_____________________________
Name:
Title:
HOUSEHOLD FINANCE CORPORATION
By____________________________
Name:
Title:
The foregoing Agreement
is hereby confirmed and
accepted as of the date hereof.
Credit Suisse First Boston Corporation
[_________________________]
by Credit Suisse First Boston Corporation
By__________________________
Name:
Title:
For themselves and the other
several Underwriters named
in Schedule I to the
foregoing Agreement.
<PAGE>
Schedule I
----------
CLASS A CERTIFICATES
--------------------
Principal
Amount
---------
Credit Suisse First Boston Corporation $[_____________]
[____________________________________] $[_____________]
CLASS B CERTIFICATES
--------------------
Principal
Amount
---------
Credit Suisse First Boston Corporation $[_____________]
1
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
HOUSEHOLD AFFINITY FUNDING CORPORATION
FIRST. The name of the corporation is HOUSEHOLD AFFINITY FUNDING
CORPORATION (the "Corporation").
SECOND. Its registered office in the State of Delaware is located at 1209
Orange Street, City of Wilmington, County of New Castle, State of Delaware. The
name and address of its registered agent at such address is The Corporation
Trust Company.
THIRD. The nature of the business, or objects or purposes proposed to be
transacted, promoted or carried on are:
(a) to borrow money on a non-recourse basis in connection with
securitizations, to make deposits of money in bank accounts, to grant
security interests in such deposits for its own benefit or the benefit
of others and to purchase or otherwise acquire securities evidencing
ownership of, or other interests in, assets securitized by itself or
third parties.
(b) to acquire, hold, sell and pledge receivables arising from credit card
agreements ("Receivables") and/or participations in pools of assets
("Participation Interests") and to enter into agreements for the
servicing of such Receivables and Participation Interests.
(c) to enter into any agreement (including, without limitation, any
agreement creating a trust) providing for the authorization, issuance,
sale and delivery of certificates in connection with the Household
Affinity Credit Card Master Trust I ("Certificates"), secured or
supported by such Receivables or Participation Interests or
collections thereon.
(d) to hold, pledge or otherwise deal with any certificate representing a
residual interest or other ownership interest in such Receivables and
Participation Interests ("Seller Certificate") or any supplement
thereto.
(e) to invest proceeds from such Receivables and/or Participation
Interests, funds received in respect of any Seller Certificate, or any
supplement thereto, and any other income as determined by the
Corporation's board of directors, including investing in other
Receivables and/or Participation Interests.
(f) to engage in any lawful act or activity for which corporations may be
organized under the laws of the State
<PAGE>
of Delaware that are incidental to and necessary or convenient for the
accomplishment of the purposes stated in (a) through (e) above;
provided that the Corporation shall not engage in the business of
personal finance, consumer finance, sales finance, commercial finance,
banking or factoring.
FOURTH. The amount of the total authorized capital stock of the
Corporation is One Thousand One Dollars ($1,001.00) consisting of One Thousand
(1,000) shares of a class of common stock of the par value of One Dollar ($1.00)
designated as Common Stock and One Share (1) of a class of special voting
preferred stock of the par value of One Dollar ($1.00) designated as Class SV
Preferred Stock.
The holder of Common Stock shall be entitled to all of the rights and
privileges pertaining to common stock without any limitations, prohibitions,
restrictions, or qualifications under the General Corporation Law of the State
of Delaware.
The holder of the Class SV Preferred Stock shall be entitled to no rights
or privileges (including, but not limited to, no rights of the holder to receive
dividends) under the General Corporation Law of the State of Delaware except
that the holder shall be entitled to vote with respect to any matters to come
before the stock holders of the Corporation with respect to the consent of all
holders of the Class SV Preferred Stock required by Article Fourteenth hereof
and shall be entitled to receive only upon liquidation an amount equal to One
Dollar ($1.00), which is to be received prior to any distribution to holders of
Common Stock.
FIFTH. The name and post office address of the sole incorporator signing
the certificate of incorporation is as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Laurie S. Mattenson 2700 Sanders Road
Prospect Heights, IL 60070
SIXTH. The names and post office addresses of the first board of
directors, which shall be three in number, are as follows:
NAME POST OFFICE ADDRESS
---- -------------------
B. B. Moss, Jr. 2700 Sanders Road
Prospect Heights, IL 60070
J. W. Blenke 2700 Sanders Road
Prospect Heights, IL 60070
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<PAGE>
S. H. Smith 2700 Sanders Road
Prospect Heights, IL 60070
SEVENTH. The Corporation is to have perpetual existence.
EIGHTH. Provisions for the management of the business and for the conduct
of the affairs of this Corporation and provisions creating, defining, limiting
and regarding the powers of the Corporation, the directors and stockholders are
as follows:
(1) subject to the bylaws, if any, adopted by the stockholders, the
board of directors shall have the power to make, alter, amend or repeal the
bylaws of the Corporation.
(2) the board of directors shall have the power to make, adopt, alter,
amend and repeal the bylaws of this Corporation without the assent or vote
of the stockholders, including, without limitation, the power to fix, from
time to time, the number of directors which shall constitute the whole
board of directors of this Corporation subject to the right of the
stockholders to alter, amend and repeal the bylaws made by the board of
directors.
(3) Election of directors of this Corporation need not be by written
ballot unless the bylaws so provide.
(4) The directors in their discretion may submit any contract or act
for approval or ratification at any annual meeting of the stockholders or
at any meeting of the stockholders called for the purpose of considering
any such act or contract, and any contract or act that shall be approved or
be ratified by the vote of the holders of a majority of the stock of this
Corporation which is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be
there represented in person or by proxy) shall be as valid and as binding
upon this Corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of this Corporation, whether or
not the contract or act would otherwise be open to legal attack because of
directors' interest, or for any other reason.
(5) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the board of directors of this Corporation
are hereby expressly empowered to exercise all such powers and to do all
such acts and things as may be exercised or done by this Corporation;
subject, nevertheless, to the provisions of the statutes of the State of
Delaware and of the Certificate of Incorporation as they
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<PAGE>
may be amended, altered or changed from time to time and to any bylaws from
time to time made by the directors or stockholders; provided, however, that
no bylaw so made shall invalidate any prior act of the board of directors
which would have been valid if such bylaw had not been made.
(6) Whenever this Corporation shall be authorized to issue more than
one class of stock, the holders of the stock of any class which is not
otherwise entitled to voting power shall not be entitled to vote upon the
increase or decrease in the number of authorized shares of such class.
NINTH. To the fullest extent permitted by the General Corporation Law of
Delaware as the same exists or may hereafter be amended, a director of this
Corporation shall not be personally liable to this Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. If
the General Corporation Law of Delaware is amended after approval by the
stockholders of this provision to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of this Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of Delaware, as so amended. Any
repeal or modification of this Article NINTH by the stockholders of this
Corporation shall not adversely affect any right or protection of a director of
this Corporation existing at the time of such repeal or modification or with
respect to events occurring prior to such time.
TENTH. (A) This Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of this Corporation), by
reason of the fact that he/she is or was a director, officer, employee or agent
of this Corporation, or is or was serving at the request of this Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him/her in connection with such act, suit or proceeding if he/she
acted in good faith and in a manner he/she reasonably believed to be in or not
opposed to the best interests of this Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his/her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the
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<PAGE>
best interests of this Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his/her conduct was unlawful.
(B) This Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of this Corporation to procure a judgment in its favor
by reason of the fact that he/she is or was a director, officer, employee or
agent of this Corporation, or is or was serving at the request of this
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him/her in
connection with the defense or settlement of such action or suit if he/she acted
in good faith and in a manner he/she reasonably believed to be in or not opposed
to the best interests of this Corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to this Corporation unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper.
(C) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon the receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he/she is not entitled to be
indemnified by the Corporation as authorized in Section 145 of the Delaware
General Corporation Law. Such expenses incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(D) In addition to the right of indemnification provided for in this
Article TENTH, this Corporation shall, to the fullest and broadest extent
permitted by applicable law, including, without limitation, Section 145 of the
Delaware General Corporation Law as it may be amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
(E) The right of indemnification provided by this Article TENTH shall apply
as to action by any person in his or her official capacity and as to action in
another capacity while holding such office and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure
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<PAGE>
to the benefit of the heirs, executors and administrators of such a person.
(F) The right of indemnification provided by this Article TENTH shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his/her official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(G) The right of indemnification provided by this Article TENTH shall be
deemed to be a contract between this Corporation and each director, officer,
employee or agent of this Corporation who serves in such capacity, both as to
action in his/her official capacity and as to action in another capacity while
holding such office, at any time while this Article TENTH and the relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable law, if any, are in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
(H) Notwithstanding any provision of this Article TENTH to the contrary,
this Corporation may, but shall not be obligated to, purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of this Corporation, or is or was serving at the request of this
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him/her and incurred by him/her in any such capacity, or
arising out of his/her status as such, whether or not this Corporation would
have the power to indemnify him or her against such liability.
(I) For purposes of this Article TENTH, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries, and a person who acted in good faith and in a manner he/she
reasonably believed to be in the interest of the participants and beneficiaries
of an
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<PAGE>
employee benefit plan shall be deemed to have acted in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
TENTH.
ELEVENTH. [Reserved].
TWELFTH. This Corporation reserves the right to amend, alter, change or
repeal any provision contained in the articles of incorporation, in the manner
now or hereafter prescribed by statute, or by the certificate of incorporation,
and all rights conferred upon stockholders herein are granted subject to this
reservation.
THIRTEENTH. Notwithstanding any other provision of the Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation shall not, engage in any business or activity other
than as authorized by Article THIRD hereof for so long as the Certificates are
outstanding and shall not, without the unanimous consent of the Board of
Directors of the Corporation:
(a) institute proceedings to be adjudicated insolvent, or consent to the
institution of any bankruptcy or insolvency case or proceedings
against it, or file or consent to a petition under any applicable
federal or state law relating to bankruptcy, seeking the Corporation's
liquidation or reorganization or any other relief for the Corporation
as debtor, or consent to the appointment of a receiver, liquidator,
assignee, trustee, custodian or sequestrator (or other similar
official) of the Corporation or a substantial part of its property, or
make any assignment for the benefit of creditors, or admit in writing
its inability to pay its debts generally as they become due, or take
any corporate action in furtherance of any such action;
(b) dissolve or liquidate, in whole or in part;
(c) consolidate with or merge into any other entity or convey, transfer or
lease its properties and assets substantially as an entirety to any
entity, or permit any entity to merge into the Corporation or convey,
transfer or lease its properties and assets substantially as an
entirety to the Corporation;
(d) amend, alter, change or repeal Article THIRD or this Article
THIRTEENTH or Article FOURTEENTH.
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<PAGE>
(e) maintain separate corporate records and books of account, a separate
business office and a separate record of the minutes of the
Corporation.
FOURTEENTH. Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation shall not, without the unanimous consent of all of
the holders of the Class SV Preferred Stock of the Corporation, institute
proceedings to be adjudicated insolvent, or consent to the institution of any
bankruptcy or insolvency case or proceedings against it, or file or consent to a
petition under any applicable federal or state law relating to bankruptcy,
seeking the Corporation's liquidation or reorganization or any other relief for
the Corporation as debtor, or consent to the appointment of a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other similar
official) of the Corporation or a substantial part of its property, or make any
assignment for the benefit of creditors, or admit in writing its inability to
pay its debts generally as they become due, or take any corporate action in
furtherance of any such action. This Article Fourteenth may not be amended
without the consent of all the stockholders of the Corporation entitled to vote
on the matters contained in this Article Fourteenth.
-8-
<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a Corporation pursuant to the General Corporation Law of the State of
Delaware, do make and file this certificate of incorporation, hereby declaring
and certifying that the facts herein stated are true, and accordingly have
hereunto set my hand this twenty-seventh (27) day of April, 1993.
/s/ Laurie S. Mattenson
In the presence of:
/s/ John W. Blenke
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
(HOUSEHOLD AFFINITY FUNDING CORPORATION)
Household Affinity Funding Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That the Board of Directors of the Corporation by the unanimous
written consent of its members, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of the Corporation.
RESOLVED, that paragraph (d) of Article THIRD of the Certificate of
Incorporation be amended by deleting and restating such paragraph to read, in
its entirety, as follows:
(d) to hold, pledge or otherwise deal with any certificate
representing a residual interest or other ownership interest in such
Receivables and Participation Interests in connection with the Household
Affinity Credit Card Master Trust I ("Seller Certificate") or any
supplement thereto.
FURTHER RESOLVED, that paragraph (e) of Article THIRTEENTH of the
Certificate of Incorporation be amended by deleting and restating such paragraph
to read, in its entirety, as follows:
(e) fail to maintain separate corporate records and books of account,
a separate business office and a separate record of the minutes of the
Corporation.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provision of Section 228 of the General Corporation Law of
the State Delaware.
THIRD: That the aforesaid amendment of the Certificate of Incorporation,
set forth in Paragraph FIRST hereinabove, has been duly adopted in accordance
with the provision of Section 242 AND 228 of the General Corporation Law of the
State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by S. H. Smith, its Vice President, Assistant Treasurer and Director, and
by J. W. Blenke, its Vice President and Secretary, this 4th day of May, 1993.
HOUSEHOLD AFFINITY FUNDING CORPORATION
By: /s/ S H. Smith
Attest:
/s/ J. W. Blenke
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
HOUSEHOLD AFFINITY FUNDING CORPORATION, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"),
DOES HEREBY CERTIFY
FIRST: that the Board of Directors of said corporation by the unanimous
written consent of its members, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of the Corporation.
RESOLVED, that Article TENTH of the Certificate of Incorporation of
HOUSEHOLD AFFINITY FUNDING CORPORATION be amended by deleting and restating
such Article to read, in its entirety, as follows:
TENTH: Reserved.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the general Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, HOUSEHOLD AFFINITY FUNDING CORPORATION has caused this
certificate to be signed by J. W. Saunders, its President, and by J. W. Blenke,
its Secretary this 8th day of December, 1994.
HOUSEHOLD AFFINITY FUNDING CORPORATION
By: /s/ J. W. Saunders
-------------------------
J. W. Saunders, President
Attest
By /s/ J. W. Blenke
-----------------------
J. W. Blenke, Secretary
<PAGE>
Exhibit 3.2
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BYLAWS OF
HOUSEHOLD AFFINITY FUNDING CORPORATION
(as approved April 28, 1993)
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ARTICLE I.
DEFINITIONS, PLACES OF MEETINGS.
SECTION 1. Definitions. When used herein, "Board" shall mean the Board of
Directors of this Corporation, and "Chairman" shall mean Chairman of the Board
of Directors.
SECTION 2. Places of Meetings of Stockholders and Directors. Meetings of
stockholders and of the Board shall be held at such place, within or outside the
State of Delaware, as specified by the person or persons calling the meeting.
ARTICLE II.
STOCKHOLDERS MEETINGS.
SECTION 1. Annual Meetings of Stockholders. The annual meeting of
stockholders shall be held on the third Wednesday in September at 9:30 a.m.
unless the Board shall fix a different date or time.
SECTION 2. Special Meetings.
CALL. Special meetings of the stockholders may be called at any time by
the Chairman of the Board, the President, or one or more members of the Board of
Directors.
REQUISITES OF CALL. A call for a special meeting of stockholders shall be
in writing, filed with the Secretary, and shall specify the time and place of
holding such meeting and the purpose or purposes for which it is called.
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SECTION 3. Notice of Meetings. Written notice of a meeting of
stockholders setting forth the place, date, and hour of the meeting and the
purpose or purposes for which the meeting is called shall be mailed not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at the meeting.
SECTION 4. Quorum. At any meeting of stockholders, and except as
otherwise required by law, the Certificate of Incorporation, or the bylaws, the
holders of one-third of all the outstanding shares entitled to vote, present in
person or by proxy, shall constitute a quorum for the transaction of business,
and a majority vote of such quorum shall prevail, except with respect to the
election of directors in which case a plurality of the votes of such quorum
shall prevail. Where a separate vote by class or classes is required, and
except as otherwise provided by law, the Certificate of Incorporation, or the
bylaws, one-third of the outstanding shares of such class or classes, present in
person or by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter, and a majority vote of such quorum shall
prevail, except with respect to the election of directors in which case a
plurality of the votes of such quorum shall prevail.
If the stockholders necessary for a quorum shall fail to be present in
person or by proxy at the time and place fixed for any meeting, the holders of a
majority of the shares entitled to vote who are present in person or by proxy
may adjourn the meeting from time to time, until a quorum is present, and at any
such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the original meeting.
SECTION 5. Proxies. At each meeting of stockholders the proxies shall be
delivered to the Secretary and, unless otherwise required by law, all questions
touching the validity or sufficiency of the proxies shall be decided by the
Secretary.
SECTION 6. List of Stockholders. The Secretary shall prepare, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall be produced and kept at the
time and
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place of the meeting during the whole time thereof and may be inspected by any
stockholder present.
ARTICLE III.
BOARD OF DIRECTORS.
SECTION 1. General Powers. The business and affairs of this Corporation
shall be managed under the direction of the Board.
NUMBER. The number of directors shall be fixed from time to time by
resolution of the Board.
TENURE. The directors shall be elected at the annual meeting of
stockholders. Each director shall hold office until his successor is elected
and qualified or until his earlier resignation or removal.
VACANCIES. Unless otherwise provided by law, the Certificate of
Incorporation or the bylaws, vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office though less than a quorum.
Unless otherwise provided by law or the Certificate of Incorporation,
whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the provisions of the Certificate of
Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected, or if there is no remaining director elected by such class
or classes or series thereof, then by a majority of the remaining directors of
the entire Board.
SECTION 2. Annual Meetings of Board. The annual meeting of the Board
shall be held following the annual meeting of stockholders, or as soon
thereafter as practicable, and shall be a meeting of the directors elected at
such meeting of stockholders. No notice shall be required.
SECTION 3. Regular Meetings of Board. Regular meetings of the Board shall
be held at such times and places as the Board may fix. No notice shall be
required.
SECTION 4. Special Meetings of the Board. Special meetings of the Board
shall be held whenever called by the Chairman, the President, or any one or more
directors. At least twenty-four
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hours' written or oral notice of each special meeting shall be given to each
director. If mailed, notice must be deposited in the United States mail at
least seventy-two hours before the meeting.
SECTION 5. Quorum. Forty percent of the members of the Board shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board there is less than a quorum the majority of those present may adjourn
the meeting from time to time until a quorum is present. At any such adjourned
meeting, a quorum being present, any business may be transacted which might have
been transacted at the original meeting.
Except as otherwise provided by law, the Certificate of Incorporation, or
the bylaws, all actions of the Board shall be decided by vote of a majority of
those present.
SECTION 6. Committees. The Board may, by resolution passed by a majority
of the entire Board, designate one or more committees of directors which to the
extent provided in the resolution shall have and may execute powers and
authority of the Board in the management of the business and affairs of the
Corporation. A majority of the members of any such committee shall constitute a
quorum for the transaction of business by such committee, and except as
otherwise provided by law, the Certificate of Incorporation, or the bylaws, all
actions of such committee shall be decided by vote of a majority of those
present.
SECTION 7. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting (including the annual meeting of the Board) if all the members
of the Board or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
ARTICLE IV.
OFFICERS.
SECTION 1. Officers. The General Officers of the Corporation shall be a
President, such number of Vice Presidents as may be determined by the Board, a
Secretary and a Treasurer. The President shall be a director.
The Board or the President may from time to time designate, employ, or
appoint such other officers and assistant officers, agents, employees, counsel,
and attorneys at law or in fact as it
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<PAGE>
shall deem desirable for such periods and on such terms as it may deem
advisable, and such persons shall have such titles, only such power and
authority, and perform such duties as the Board or the President may determine.
SECTION 2. Duties of President. The President shall be the principal
executive officer and shall have general authority over the business and affairs
of the Corporation subject to the control and direction of the Board and, in
general, perform all other duties incident to the office of President and shall
perform such other duties as may be prescribed by the Board or the bylaws. In
the absence or inability of the Chairman of the Board to act, the President
shall also perform the duties of the Chairman at Board meetings.
SECTION 3. Duties of Vice Presidents. In the absence or inability to act
of the President, the senior of the Vice Presidents available at the time shall
perform the duties of the President. Each Vice President shall have such other
powers and perform such other duties as may be prescribed by the President or
the Board. The order of seniority among the Vice Presidents shall be as
designated from time to time in writing by the President of the Corporation and
filed with the Secretary.
SECTION 4. Duties of Secretary. The Secretary shall record the
proceedings of meetings of the stockholders and directors, give notices of
meetings, and shall, in general, perform all duties incident to the office of
Secretary and such other duties as may be prescribed by the Board.
SECTION 5. Duties of Treasurer. The Treasurer shall be the principal
financial officer and shall have custody of all funds, securities, evidences of
indebtedness, and other similar property of the Corporation, and shall, in
general, perform all duties incident to the office of Treasurer and such other
duties as may be prescribed by the Board.
ARTICLE V.
MISCELLANEOUS PROVISIONS.
SECTION 1. Waiver of Notice. Whenever notice is required to be given, a
written waiver thereof signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting,
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<PAGE>
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 2. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action; except that the
establishment of a record date for determination of stockholders entitled to
express consent to corporate action in writing without a meeting shall be
established pursuant to Article VI of the bylaws.
SECTION 3. Amendment of Bylaws. The bylaws may be amended at any time by
action of the Board.
ARTICLE VI.
CONSENTS TO CORPORATE ACTION.
SECTION 1. Action by Written Consent. Unless otherwise provided in the
Certificate of Incorporation, any action which is required to be or may be taken
at any annual or special meeting of stockholders of the Corporation, subject to
the provisions of Sections (2) and (3) of this Article VI, may be taken without
a meeting, without prior notice and without a vote if a consent in writing,
setting forth the action so taken, shall have been signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or to take such action at a meeting at which all shares
entitled to vote thereon were present and voted; provided, however, that prompt
notice of the taking of the corporate action without a meeting and by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 2. Determination of Record Date for Action by Written Consent.
The record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting shall be fixed by the Board of
Directors of the Corporation. Any stockholder seeking to have the stockholders
authorize or take corporate action by written consent without a meeting shall,
by written notice to the Secretary, request the Board of Directors to fix a
record date. Upon receipt of such a request, the Secretary shall, as promptly
as practicable, call a special meeting of the
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<PAGE>
Board of Directors to be held as promptly as practicable. At such meeting, the
Board of Directors shall fix a record date; that record date, however, shall not
be more than 10 days after the date upon which the resolution fixing the record
date is adopted by the Board nor more than 15 days from the date of the receipt
of the stockholder's request. Notice of the record date shall be published in
accordance with the rules and policies of any stock exchange on which securities
of the Corporation are then listed, if applicable. Should the Board fail to fix
a record date as provided for in this Section 2, then the record date shall be
the day on which the first written consent is duly delivered pursuant to
applicable state law, or, if prior action is required by the Board with respect
to such matter, the record date shall be at the close of business on the day on
which the Board adopts the resolution taking such action.
SECTION 3. Procedures for Written Consent. In the event of the delivery
to the Corporation of a written consent or consents purporting to represent the
requisite voting power to authorize or take corporate action and/or related
revocations, the Secretary of the Corporation shall provide for the safekeeping
of such consents and revocations. The Corporation shall promptly engage one or
more inspectors of elections for the purpose of promptly performing a
ministerial review of the validity of the consents and revocations. No action
by written consent without a meeting shall be effective until such inspectors
have completed their review, determined that the requisite number of valid and
unrevoked consents has been obtained to authorize or take the action specified
in the consents, and certified such determination for entry in the records of
the Corporation kept for the purpose of recording the proceedings of meetings of
stockholders.
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EXHIBIT 4.1
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HOUSEHOLD AFFINITY FUNDING CORPORATION,
Seller,
HOUSEHOLD FINANCE CORPORATION,
Servicer,
and
THE BANK OF NEW YORK,
Trustee
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of August 1, 1993
amending and restating in full the
Pooling and Servicing Agreement
Dated as of April 30, 1993
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions..................................... 1
Section 1.02. Other Definitional Provisions................... 22
ARTICLE II
CONVEYANCE OF RECEIVABLES
Section 2.01. Conveyance of Receivables....................... 23
Section 2.02. Acceptance by Trustee........................... 25
Section 2.03. Representations and Warranties of the Seller
Relating to the Seller........................ 25
Section 2.04. Representations and Warranties of the Seller
Relating to the Agreement and Any Supplement
and the Receivables........................... 27
Section 2.05. Reassignment of Ineligible Receivables.......... 29
Section 2.06. Reassignment of Certificateholders' Interest
in Trust Portfolio............................ 30
Section 2.07. Covenants of the Seller......................... 31
Section 2.08. Covenants of The Seller with respect to the
Bank Purchase Agreement....................... 33
Section 2.09. Addition of Accounts............................ 34
Section 2.10. Removal of Accounts and Participation
Interests..................................... 38
Section 2.11. Account Allocations............................. 39
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.01. Acceptance of Appointment and Other Matters
Relating to the Servicer...................... 40
Section 3.02. Servicing Compensation.......................... 42
Section 3.03. Representations, Warranties and Covenants of
the Servicer.................................. 42
Section 3.04. Reports and Records for the Trustee............. 45
Section 3.05. Annual Certificate of Servicer.................. 45
Section 3.06. Annual Servicing Report of Independent Public
Accountants; Copies of Reports Available...... 45
Section 3.07. Tax Treatment................................... 46
Section 3.08. Notices to Household Finance Corporation........ 46
Section 3.09. Adjustments..................................... 46
Section 3.10. Interchange; Recoveries......................... 47
</TABLE>
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ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
<TABLE>
<S> <C>
Section 4.01. Rights of Certificateholders.................... 48
Section 4.02. Establishment of Collection Account............. 48
Section 4.03. Collections and Allocations..................... 50
Section 4.04. Unallocated Principal Collections............... 51
Section 4.05. Discount or Premium Receivables................. 51
Section 4.06. Allocation of Trust Assets to Series or
Groups........................................ 52
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates................................ 53
Section 6.02. Authentication of Certificates.................. 54
Section 6.03. New Issuances................................... 54
Section 6.04. Registration of Transfer and Exchange of
Certificates.................................. 55
Section 6.05. Mutilated, Destroyed, Lost or Stolen
Certificates.................................. 57
Section 6.06. Persons Deemed Owners........................... 57
Section 6.07. Appointment of Paying Agent..................... 58
Section 6.08. Access to List of Registered
Certificateholders' Names and Addresses....... 59
Section 6.09. Authenticating Agent............................ 59
Section 6.10. Book-Entry Certificates......................... 60
Section 6.11. Notices to Clearing Agency...................... 61
Section 6.12. Definitive Certificates......................... 62
Section 6.13. Uncertificated Classes.......................... 61
ARTICLE VII
OTHER MATTERS RELATING TO THE SELLER
Section 7.01. Liability of the Seller......................... 62
Section 7.02. Merger or Consolidation of, or Assumption of
the Obligations of, the Seller................ 62
Section 7.03. Limitations on Liability of the Seller.......... 63
Section 7.04. Seller Indemnification of the Trust and
the Trustee..................................... 63
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
Section 8.01. Liability of the Servicer....................... 64
</TABLE>
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<TABLE>
<S> <C>
Section 8.02. Merger or Consolidation of, or Assumption of
the Obligations of, the Servicer............. 64
Section 8.03. Limitation on Liability of the Servicer and
Others....................................... 65
Section 8.04. Servicer Indemnification of the Trust and the
Trustee...................................... 65
Section 8.05. Resignation of the Servicer.................... 65
Section 8.06. Access to Certain Documentation and
Information Regarding the Receivables........ 66
Section 8.07. Delegation of Duties........................... 66
Section 8.08. Examination of Records......................... 66
ARTICLE IX
AMORTIZATION EVENTS
Section 9.01. Amortization Events............................ 67
Section 9.02. Additional Rights upon the Occurrence of
Certain Events............................... 68
ARTICLE X
SERVICER DEFAULTS
Section 10.01. Servicer Defaults............................. 69
Section 10.02. Trustee To Act; Appointment of Successor...... 71
Section 10.03. Notification to Certificateholders............ 73
ARTICLE XI
THE TRUSTEE
Section 11.01. Duties of Trustee............................. 73
Section 11.02. Certain Matters Affecting the Trustee......... 75
Section 11.03. Trustee Not Liable for Recitals in
Certificates................................ 77
Section 11.04. Trustee May Own Certificates.................. 77
Section 11.05. The Servicer To Pay Trustee's Fees and
Expenses.................................... 77
Section 11.06. Eligibility Requirements for Trustee.......... 78
Section 11.07. Resignation or Removal of Trustee............. 78
Section 11.08. Successor Trustee............................. 79
Section 11.09. Merger or Consolidation of Trustee............ 79
Section 11.10. Appointment of Co-Trustee or Separate
Trustee..................................... 80
Section 11.11. Tax Returns................................... 81
Section 11.12. Trustee May Enforce Claims Without
Possession of Certificates.................. 81
Section 11.13. Suits for Enforcement......................... 81
Section 11.14. Rights of Certificateholders To Direct
Trustee..................................... 82
Section 11.15. Representations and Warranties of Trustee..... 82
Section 11.16. Maintenance of Office or Agency............... 83
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XII
TERMINATION
Section 12.01. Termination of Trust........................... 83
Section 12.02. Final Distribution............................. 83
Section 12.03. Seller's Termination Rights.................... 85
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01. Amendment; Waiver of Past Defaults............. 85
Section 13.02. Protection of Right, Title and Interest to
Trust........................................ 87
Section 13.03. Limitation on Rights of Certificateholders..... 88
Section 13.04. Governing Law.................................. 89
Section 13.05. Notices; Payments.............................. 89
Section 13.06. Severability of Provisions..................... 90
Section 13.07. Certificates Nonassessable and Fully Paid...... 91
Section 13.08. Further Assurances............................. 91
Section 13.09. Nonpetition Covenant........................... 91
Section 13.10. No Waiver; Cumulative Remedies................. 91
Section 13.11. Counterparts................................... 91
Section 13.12. Third-Party Beneficiaries...................... 92
Section 13.13. Actions by Certificateholders.................. 92
Section 13.14 Limitation on Voting of Preferred Stock........ 92
Section 13.15. Merger and Integration......................... 92
Section 13.16. Headings....................................... 92
Section 13.17. Construction of Agreement...................... 92
EXHIBITS
Exhibit A Form of HAFC Seller Certificate
Exhibit B Form of Assignment of Receivables in
Additional Accounts
Exhibit C Form of Reassignment of Receivables in Removed
Accounts
Exhibit D Form of Annual Servicer's Certificate
Exhibit E-1 Form of Opinion of Counsel with respect to
Amendments
Exhibit E-2 Form of Opinion of Counsel with respect to
Accounts
Exhibit E-3 Form of Annual Opinion of Counsel
SCHEDULES
Schedule 1 List of Accounts [Deemed Incorporated]
</TABLE>
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<PAGE>
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT dated as of
August 1, 1993, among HOUSEHOLD AFFINITY FUNDING CORPORATION, a Delaware
corporation, as Seller; HOUSEHOLD FINANCE CORPORATION, a Delaware corporation,
as Servicer; and THE BANK OF NEW YORK, a New York banking corporation, as
Trustee. This Agreement amends and restates in full the Pooling and Servicing
Agreement, dated as of April 30, 1993, among the parties listed in the preceding
sentence.
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties, the Certificateholders
and any Series Enhancer (as defined below) to the extent provided herein and in
any Supplement:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings, and the
definitions of such terms are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such terms.
"Account" shall mean (a) each Initial Account, (b) each Additional
Account, (c) each Related Account, (d) any account originated as a replacement
of an Account in connection with the upgrade of such Account to premium status
(provided that such replacement account can be traced or identified by reference
to, or by way of, the applicable computer file or microfiche list previously
filed pursuant hereto), (e) each Transferred Account, (f) each surviving account
resulting from the combination, in accordance with the Credit Card Guidelines,
of two or more of the Accounts but shall exclude (g) any Account all the
Receivables in which are either: (i) after the Removal Date, removed by the
Seller pursuant to Section 2.10, (ii) reassigned to the Seller pursuant to
Section 2.05 or (iii) assigned and transferred to the Servicer pursuant to
Section 3.03.
"Act" shall mean the Securities Act of 1933, as amended.
"Addition Date" shall mean (a) with respect to Aggregate Addition
Accounts, the date from and after which such Aggregate Addition Accounts are to
be included as Accounts pursuant to Section 2.09(a) or (b), (b) with respect to
Participation Interests, the date from and after which such Participation
Interests are to be included as assets of the Trust pursuant to Section 2.09(a)
or (b), and (c) with respect to New
<PAGE>
Accounts, the first Distribution Date following the calendar month in which such
New Accounts are originated.
"Additional Account" shall mean each New Account and each Aggregate
Addition Account.
"Additional Cut-Off Date" shall mean (a) with respect to Aggregate
Addition Accounts or Participation Interests, the date specified as such in the
notice delivered with respect thereto pursuant to Section 2.09(c) and (b) with
respect to New Accounts, the later of the dates on which such New Accounts are
originated or designated pursuant to Section 2.09(d).
"Additional Seller" shall have the meaning specified in Section
2.09(g).
"Administrative Receivables" shall mean all amounts billed to the
Obligors on any Account in respect of administrative fees, late charges on
amounts charged for merchandise and services, credit insurance premiums and all
fees billed to the Obligors on the Accounts not otherwise allocated.
"Adverse Effect" shall mean, with respect to any action, that such
action will (a) result in the occurrence of an Amortization Event or (b)
materially adversely affect the amount or timing of distributions to be made to
the Investor Certificateholders of any Series or Class pursuant to this
Agreement and the related Supplement.
"Affiliate" shall mean, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" shall mean the
power to direct the management and policies of a Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Aggregate Addition" shall mean the designation of additional Eligible
Accounts, other than New Accounts, to be included as Accounts or of
Participation Interests to be included as Trust Assets pursuant to Section
2.09(a) or (b).
"Aggregate Addition Account" shall mean each revolving credit card
account established pursuant to a Credit Card Agreement, which account is
designated pursuant to Section 2.09(a) or (b) to be included as an Account and
is identified in the computer file or microfiche list delivered to the Trustee
by the Seller pursuant to Sections 2.01 and 2.09(h).
"Agreement" shall mean this Amended and Restated Pooling and Servicing
Agreement and all amendments hereof and
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supplements hereto, including, with respect to any Series or Class, the related
Supplement.
"Amortization Event" shall have the meaning specified in Section 9.01
and, with respect to any Series, shall also mean any Amortization Event
specified in the related Supplement.
"Applicants" shall have the meaning specified in Section 6.08.
"Appointment Date" shall have the meaning specified in Section
9.02(a).
"Assignment" shall have the meaning specified in Section 2.09(h).
"Authorized Newspaper" shall mean any newspaper or newspapers of
general circulation in the Borough of Manhattan, The City of New York, printed
in the English language (and, with respect to any Series or Class, any other
newspaper provided for in the applicable Supplement) and customarily published
on each business day at such place, whether or not published on Saturdays,
Sundays or holidays.
"Average Rate" shall mean, with respect to any Group, the percentage
equivalent of a decimal equal to the sum of the amounts for each outstanding
Series (or each Class within any Series consisting of more than one Class)
within such Group obtained by multiplying (a) the Certificate Rate (reduced to
take into account the payments made pursuant to any interest rate agreements)
for such Series or Class, by (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.
"Bank" shall mean Household Bank, f.s.b., a federal savings bank and
its successors or assigns under the Bank Purchase Agreement 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.
"Bank Purchase Agreement" shall mean the receivables purchase
agreement by and between the Bank and the Seller and dated as of April 30, 1993
and, in the event of a transfer of Accounts referred to in the definition of
"Bank" above, shall include a receivables purchase agreement between the
transferee of the Accounts and the Seller, substantially in the form of such
receivables purchase agreement dated as of April 30, 1993.
"Bearer Certificates" shall have the meaning specified in Section
6.01.
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"Book-Entry Certificates" shall mean beneficial interests in the
Investor Certificates, ownership and transfers of which shall be made through
book entries by a Clearing Agency as described in Section 6.10.
"Business Day" shall mean any day other than (a) a Saturday or Sunday
or (b) any other day on which national banking associations or state banking
institutions in New York, New York, Prospect Heights, Illinois, Wood Dale,
Illinois, Newport Beach, California, Salinas, California, or the State of Nevada
or any other State in which the principal executive offices of the Bank or any
Additional Seller are located, are authorized or obligated by law, executive
order or governmental decree to be closed or (c) for purposes of any particular
Series, any other day specified in the applicable Series Supplement.
"Cash Advance Fees" shall mean cash advance transaction fees and cash
advance late fees, if any, as specified in the Credit Card Agreement applicable
to each Account.
"Certificate" shall mean any one of the Investor Certificates or the
Seller Certificates.
"Certificate Owner" shall mean, with respect to a Book-Entry
Certificate, the Person who is the owner of such Book-Entry Certificate, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in accordance with the rules of such
Clearing Agency).
"Certificate Rate" shall mean, with respect to any Series or Class,
the certificate rate specified therefor in the related Supplement.
"Certificate Register" shall mean the register maintained pursuant to
Section 6.04, providing for the registration of the Registered Certificates and
transfers and exchanges thereof.
"Certificateholder" or "Holder" shall mean an Investor
Certificateholder or a Person in whose name the Seller Certificates are
registered.
"Certificateholders' Interest" shall have the meaning specified in
Section 4.01. For purposes of determining whether Holders of Investor
Certificates evidencing a specified percentage of the Certificateholders'
Interest have approved, consented or otherwise agreed to any action hereunder,
such determination shall be made based on the percentage of the Invested Amount
represented by such Investor Certificates.
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<PAGE>
"Class" shall mean, with respect to any Series, any one of the classes
of Investor Certificates of that Series.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended, and serving as clearing agency for a Series or Class of Book-Entry
Certificates.
"Clearing Agency Participant" shall mean a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" shall mean, with respect to any Series, the closing
date specified in the related Supplement.
"Collection Account" shall have the meaning specified in Section 4.02.
"Collections" shall mean all payments by or on behalf of Obligors
(including Insurance Proceeds) received in respect of the Receivables, in the
form of cash, checks, wire transfers, electronic transfers, ATM transfers or any
other form of payment in accordance with a Credit Card Agreement in effect from
time to time. As specified in any Participation Interest Supplement or Series
Supplement, Collections shall include amounts received with respect to
Participation Interests. All Recoveries with respect to Receivables previously
charged-off as uncollectible will be treated as Collections of Finance Charge
and Administrative Receivables. Collections of Finance Charge Receivables with
respect to any Due Period shall include a portion, determined pursuant to
subsection 2.08(d), of the Interchange paid or payable to the Bank through
VISA/1/ and MasterCard/*/ with respect to such Due Period.
"Corporate Trust Office" shall have the meaning specified in Section
11.16.
"Coupon" shall have the meaning specified in Section 6.01.
"Credit Card Agreement" shall mean, with respect to a revolving credit
card account, the agreements between the Bank or any Additional Seller, as the
case may be, and the Obligor governing the terms and conditions of such account,
as such agreements may be amended, modified or otherwise changed from
- ----------
/1/ "MasterCard" and "VISA" are registered trademarks of MasterCard
International Incorporated and of VISA U.S.A., Inc., respectively.
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<PAGE>
time to time and as distributed (including any amendments and revisions thereto)
to holders of such account.
"Credit Card Guidelines" shall mean the policies and procedures of the
Bank or any Additional Seller, as the case may be, as such policies and
procedures may be amended from time to time, (a) relating to the operation of
its credit card business, which generally are applicable to its entire portfolio
of revolving credit card accounts and are consistent with prudent practice,
including the policies and procedures for determining the creditworthiness of
credit card customers and the extension of credit to credit card customers, and
(b) relating to the maintenance of credit card accounts and collection of credit
card receivables.
"Date of Processing" shall mean, with respect to any transaction, the
date on which such transaction is first recorded on the Servicer's computer file
of revolving credit card accounts (without regard to the effective date of such
recordation).
"Defaulted Amount" shall mean, with respect to any Due Period, an
amount (which shall not be less than zero) equal to (a) the amount of Principal
Receivables which became Defaulted Receivables in such Due Period, minus (b) the
sum of (i) the amount of any Defaulted Receivables of which the Seller or the
Servicer became obligated to accept reassignment or assignment in accordance
with the terms of this Agreement during such Due Period 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; provided, however, that,
if an Insolvency Event occurs with respect to the Seller, the amount of such
Defaulted Receivables which are subject to reassignment to the Seller in
accordance with the terms of this Agreement shall not be added to the sum so
subtracted and, if any of the events described in Section 10.01(d) occur with
respect to the Servicer, the amount of such Defaulted Receivables which are
subject to reassignment or assignment to the Servicer in accordance with the
terms of this Agreement shall not be added to the sum so subtracted.
"Defaulted Receivables" shall mean, with respect to any Due Period,
all Principal Receivables which are charged off as uncollectible in such Due
Period. A Principal Receivable shall become a Defaulted Receivable on the day
on which such Principal Receivable is recorded as charged-off on the Servicer's
computer file of revolving credit card accounts in accordance with the Credit
Card Guidelines.
"Definitive Certificates" shall have the meaning specified in Section
6.10.
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"Deposit Date" shall mean each day on which the Servicer deposits
Collections in the Collection Account.
"Depository Agreement" shall mean, with respect to any Series or Class
of Book-Entry Certificates, the agreement among the Seller, the Trustee and the
Clearing Agency substantially in the form attached to the applicable Supplement.
"Determination Date" shall mean the earlier of the third Business Day
and the fifth calendar day (or if the fifth calendar day is not a Business Day,
then the preceding Business Day) preceding the fifteenth day of each calendar
month.
"Distribution Date" shall mean, with respect to any Series, the date
specified in the applicable Supplement.
"Document Delivery Date" shall have the meaning specified in Section
2.09(h).
"Due Period" shall mean, with respect to each Distribution Date, the
period beginning at the close of business on the last Business Day of the second
month preceding such Distribution Date and ending at the close of business on
the last Business Day of the month immediately preceding such Distribution Date.
"Duff & Phelps" shall mean Duff & Phelps Credit Rating Co. or its
successor.
"Early Amortization Period" shall mean, with respect to any Series,
the period beginning (x) on the first day of the Due Period in which an
Amortization Event is deemed to have occurred pursuant to Section 9.01 or the
applicable Supplement or (y) if the Servicer is required to make daily deposits
into the Collection Account pursuant to this Agreement, the day on which the
Amortization Event is deemed to have occurred pursuant to Section 9.01 or the
applicable Supplement and in each case ending upon the earlier to occur of (i)
the payment in full to the Investor Certificateholders of such Series of the
Invested Amount with respect to such Series and (ii) the earlier of the date the
Trust terminates pursuant to Section 12.01 or the Termination Date with respect
to such Series.
"Eligible Account" shall mean a revolving credit card account owned by
the Bank, in the case of the Initial Accounts, or the Bank or any Additional
Seller, in the case of Additional Accounts which, as of the Initial Cut-Off Date
with respect to an Initial Account or as of the Additional Cut-Off Date with
respect to an Additional Account meets the requirements of either clauses (i) or
(ii) below: (i) (a) is in existence and maintained by the Bank; (b) is payable
in United States dollars; (c) has a cardholder who has provided, as his most
recent billing address,
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<PAGE>
an address located in the United States or its territories or possessions; (d)
has a cardholder who has not been identified by the Bank in its computer files
as being involved in a voluntary or involuntary bankruptcy proceeding; (e) has
not been identified as an account with respect to which the related card has
been lost or stolen; (f) has not been sold or pledged to any other party except
for any transferee referred to in the definition of the Bank; (g) does not have
receivables which have been sold or pledged by the Bank to any other party; and
(h) with respect to the Initial Accounts, is an account in existence and
maintained by the Bank as of the Initial Cut-Off Date, or (ii) with respect to
Additional Accounts, the addition of such Accounts shall have satisfied the
Rating Agency Condition.
"Eligible Deposit Account" shall mean either (a) a segregated account
with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States or any one of the states thereof, including the District of
Columbia (or any domestic branch of a foreign bank), and acting as a trustee for
funds deposited in such account, so long as any of the unsecured, unguaranteed
senior debt securities of such depository institution shall have a credit rating
from each Rating Agency in one of its credit rating categories which signifies
investment grade.
"Eligible Institution" shall mean the Trustee or any other depository
institution organized under the laws of the United States or any one of the
states thereof, including the District of Columbia (or any domestic branch of a
foreign bank), which other depository at all times (a) is a member of the FDIC
and (b) has (i) a long-term unsecured debt rating acceptable to the Rating
Agency or (ii) a certificate of deposit rating acceptable to the Rating Agency.
Notwithstanding the previous sentence any institution the appointment of which
satisfies the Rating Agency Condition shall be considered an Eligible
Institution. If so qualified, the Servicer may be considered an Eligible
Institution for the purposes of this definition.
"Eligible Investments" shall mean negotiable instruments or securities
represented by instruments in bearer or registered form, or, in the case of
deposits described below, deposit accounts held in the name of the Trustee in
trust for the benefit of the Certificateholders, subject to the exclusive
custody and control of the Trustee and for which the Trustee has sole signature
authority, which evidence:
(a) direct obligations of, or obligations fully guaranteed as to
timely payment by, the United States of America;
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<PAGE>
(b) demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 365 days) of depository institutions or
trust companies incorporated under the laws of the United States of America
or any state thereof (or domestic branches of foreign banks) and subject to
supervision and examination by federal or state banking or depository
institution authorities; provided that at the time of the Trust's
investment or contractual commitment to invest therein, the short-term debt
rating of such depository institution or trust company shall be
satisfactory to the Rating Agency;
(c) commercial paper (having original or remaining maturities of no
more than 30 days) having, at the time of the Trust's investment or
contractual commitment to invest therein, a rating satisfactory to the
Rating Agency;
(d) investments in money market funds having, at the time of the
Trust's investment therein, a rating satisfactory to the Rating Agency;
(e) demand deposits, time deposits and certificates of deposit which
are fully insured by the FDIC having, at the time of the Trust's investment
therein, a rating satisfactory to the Rating Agency;
(f) bankers' acceptances (having original maturities of no more than
365 days) issued by any depository institution or trust company referred to
in (b) above;
(g) time deposits (having maturities not later than the succeeding
Distribution Date) other than as referred to in clause (e) above, with a
Person the commercial paper of which has a credit rating satisfactory to
the Rating Agency or notes which are payable on demand issued by Household
Finance Corporation, provided such notes will constitute Eligible
Investments only if the commercial paper of Household Finance Corporation
has, at the time of the Trust's investment in such notes, a rating
satisfactory to the Rating Agency; or
(h) any other investment of a type or rating that satisfies the Rating
Agency Condition.
"Eligible Receivable" shall mean each Receivable:
(a) which has arisen in an Eligible Account;
(b) which was created in compliance in all material respects with all
Requirements of Law applicable to the Bank (or the institution which owned
such Receivable at the time of its creation) and pursuant to a Credit Card
Agreement
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<PAGE>
which complies in all material respects with all Requirements of Law
applicable to the 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
and performance by the Bank or any Additional Seller, as the case may be,
of the Credit Card Agreement pursuant to which such Receivable was created,
have been duly obtained, effected or given and are in full force and
effect;
(d) as to which at the time of the transfer of such Receivable to the
Trust, the Seller or the Trust will have good and marketable title thereto
free and clear of all Liens arising prior to the transfer or arising at any
time;
(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 (including any 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 Obligor thereon enforceable against such Obligor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, affecting the enforcement of
creditors' rights in general and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at
law or in equity);
(g) which, at the time of transfer to the Trust, has not been waived
or modified except as permitted in accordance with the Credit Card
Guidelines and which waiver or modification is reflected in the Servicer's
computer file of revolving credit card accounts;
(h) which, at the time of transfer to the Trust, is not subject to any
right of rescission, setoff, counterclaim or any other defense (including
defenses arising out of violations of usury laws) of the Obligor, other
than defenses arising out of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights in general;
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<PAGE>
(i) as to which, at the time of transfer to the Trust, the Seller and
the Bank have satisfied all their obligations required to be satisfied by
such time;
(j) as to which, at the time of transfer to the Trust, neither the
Seller nor the Bank has taken any action which would impair, or omitted to
take any action the omission of which would impair, the rights of the Trust
or the Certificateholders therein; and
(k) which constitutes either an "account" or a "general intangible"
under and as defined in Article 9 of the UCC as then in effect in the State
of California or any other state where the filing of a financing statement
is required to perfect the Trust's interest in the Receivables and the
proceeds thereof.
"Eligible Servicer" shall mean the Trustee or an entity which, at the
time of its appointment as Servicer, (a) is servicing a portfolio of revolving
credit card accounts, (b) is legally qualified and has the capacity to service
the Accounts, (c) in the sole determination of the Trustee, which determination
shall be conclusive and binding, has demonstrated the ability to service
professionally and competently a portfolio of similar accounts in accordance
with high standards of skill and care, (d) is qualified to use the software that
is then being used to service the Accounts or obtains the right to use or has
its own software which is adequate to perform its duties under this Agreement
and (e) has a net worth of at least $50,000,000 as of the end of its most recent
fiscal quarter.
"Enhancement Agreement" shall mean any agreement, instrument or
document governing the terms of any Series Enhancement or pursuant to which any
Series Enhancement is issued or outstanding.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor.
"Finance Charge and Administrative Receivables" shall mean the Finance
Charge Receivables together with the Administrative Receivables.
"Finance Charge Receivables" shall mean all amounts billed to the
Obligors on any Account in respect of
(a) all finance charges, (b) Cash Advance Fees, (c) annual membership fees with
respect to the Accounts and (d) any other fees with respect to the Accounts
designated by the Seller by notice to the Trustee at any time and from time to
time to be
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included as Finance Charge Receivables. Finance Charge Receivables shall also
include (a) the interest portion of Participation Interests as shall be
determined pursuant to the applicable Participation Interest Supplement or
Series Supplement, (b) any amounts designated to be Finance Charge Receivables
pursuant to Section 4.05, (c) all Recoveries with respect to Finance Charge
Receivables previously charged off as uncollectible, and (d) with respect to any
Due Period, a portion, determined pursuant to Section 2.08(d), of the
Interchange paid or payable to the Bank or any Additional Seller with respect to
such Due Period.
"FIRREA" shall mean the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended.
"Fitch" shall mean Fitch Investors Service, Inc. or its successors.
"Governmental Authority" shall mean the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Group" shall mean, with respect to any Series, the group of Series,
if any, in which the related Supplement specifies such Series is to be included.
"HAFC Seller Certificate" shall mean the certificate executed by the
Household Affinity Funding Corporation and authenticated by or on behalf of the
Trustee, substantially in the form of Exhibit A.
"Household Finance Corporation" shall mean Household Finance
Corporation, a corporation incorporated under the laws of the State of Delaware.
"Household International, Inc." shall mean Household International,
Inc., a corporation incorporated under the laws of the State of Delaware.
"Ineligible Receivables" shall have the meaning specified in Section
2.05(a).
"Initial Account" shall mean each "MasterCard" and "VISA" account
established pursuant to a Credit Card Agreement between the Bank and any Person,
which account is identified in the computer file or microfiche list delivered to
the Trustee by the Seller pursuant to Section 2.01 on the Closing Date of the
initial Series issued hereunder.
"Initial Cut-Off Date" shall mean April 1, 1993.
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"Insolvency Event" shall have the meaning specified in Section
9.01(a).
"Insolvency Proceeds" shall have the meaning specified in Section
9.02(b).
"Insurance Proceeds" shall mean any amounts received pursuant to any
credit life insurance policies, credit disability or unemployment insurance
policies covering any Obligor with respect to Receivables under such Obligor's
Account.
"Intended Characterization" shall have the meaning specified in
Section 3.07.
"Interchange" shall mean interchange fees payable to the Bank or any
Additional Seller, in its capacity as credit card issuer, through VISA,
MasterCard or any other similar entity or organization with respect to any type
of revolving credit card accounts included as Accounts (except as otherwise
provided in the initial Assignment with respect to any such type of Accounts),
in connection with cardholder charges for goods and services.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended.
"Invested Amount" shall mean, with respect to any Series and for any
date, an amount equal to the invested amount specified in the related
Supplement.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Investor Certificateholder" shall mean the Person in whose name a
Registered Certificate is registered in the Certificate Register or the bearer
of any Bearer Certificate or Coupon.
"Investor Certificates" shall mean any certificated or uncertificated
interest in the Trust designated as, or deemed to be, an "Investor Certificate"
in the related Supplement.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, equity interest, encumbrance, lien (statutory
or other), preference, participation interest, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the UCC or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
however,
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that any assignment permitted by Sections 6.03(b) or 7.02 and the Lien created
by this Agreement shall not be deemed to constitute a Lien.
"MasterCard" shall mean MasterCard International Incorporated.
"Miscellaneous Payments" shall mean, with respect to any Due Period,
Unallocated Principal Collections on such Distribution Date available to be
treated as Miscellaneous Payments pursuant to Section 4.04.
"Moody's" shall mean Moody's Investors Service, Inc., or its
successor.
"New Account" shall mean each revolving credit card account
established pursuant to a Credit Card Agreement, which account is designated
pursuant to Section 2.09(d) to be included as an Account and is identified in
the computer file or microfiche list delivered to the Trustee by the Seller
pursuant to Sections 2.01 and 2.09(h).
"Obligor" shall mean, with respect to any Account, the Person or
Persons obligated to make payments with respect to such Account, including any
guarantor thereof, but excluding any merchant.
"Officer's Certificate" shall mean, unless otherwise specified in this
Agreement, a certificate delivered to the Trustee signed by the President, any
Vice President or the Treasurer of a Seller or the Servicer, as the case may be,
or by the President, any Vice President or the financial controller (or an
officer holding an office with equivalent or more senior responsibilities) of a
Successor Servicer.
"Opinion of Counsel" shall mean a written opinion of counsel, who may
be counsel for, or an employee of, the Person providing the opinion and who
shall be reasonably acceptable to the Trustee.
"Participation Interest Supplement" shall mean a Supplement entered
into pursuant to Section 2.09(a) in connection with the conveyance of
Participation Interests to the Trust.
"Participation Interests" shall have the meaning specified in Section
2.09(a).
"Paying Agent" shall mean any paying agent appointed pursuant to
Section 6.07.
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"Periodic Rate Finance Charges" shall have the meaning specified in
the Credit Card Agreement applicable to each Account for finance charges (due to
periodic rate) or any similar term.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
"Portfolio Yield" shall mean 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 Administrative Collections for all Series during
the immediately preceding Due Period calculated on a cash basis, after
subtracting therefrom the Series Allocable Defaulted Amounts for all Series with
respect to such Due Period and (b) the denominator of which is the total amount
of Principal Receivables as of the last day of the immediately preceding Due
Period.
"Preferred Stock" shall mean the preferred shares of the Seller,
designated as such, with a par value of $1.00 per share and a liquidation value
of $1.00 per share.
"Principal Receivables" shall mean amounts (other than such amounts,
including the amounts of any principal receivable discounts determined in
accordance with Section 4.05, which represent Finance Charge and Administrative
Receivables) billed to the Obligor on any Account in respect of (a) purchases of
goods or services, and (b) cash advances. Principal Receivables shall also
include (a) the principal portion of Participation Interests as shall be
determined pursuant to the applicable Participation Interest Supplement or
Series Supplement and (b) any amounts designated to be Principal Receivables
pursuant to Section 4.05. Any Principal Receivables which the Seller is unable
to transfer as provided in Section 2.11 shall not be included in calculating the
amount of Principal Receivables.
"Principal Shortfalls" shall have the meaning specified in Section
4.04.
"Principal Terms" shall mean, with respect to any Series, (i) the name
or designation; (ii) the initial principal amount (or method for calculating
such amount) (iii) the Certificate Rate (or method for the determination
thereof); (iv) the payment date or dates and the date or dates from which
interest shall accrue; (v) the method for allocating collections to Investor
Certificateholders; (vi) the designation of any Series Accounts and the terms
governing the operation of any such Series Accounts; (vii) the Servicing Fee;
(viii) the issuer and terms of any form of Series Enhancements with respect
thereto;
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(ix) the terms on which the Investor Certificates of such Series may be
exchanged for Investor Certificates of another Series, repurchased by the Seller
or remarketed to other investors; (x) the Termination Date; (xi) the number of
Classes of Investor Certificates of such Series and, if more than one Class, the
rights and priorities of each such Class; (xii) the extent to which the Investor
Certificates of such Series will be issuable in temporary or permanent global
form (and, in such case, the depositary for such global certificate or
certificates, the terms and conditions, if any, upon which such global
certificate may be exchanged, in whole or in part, for Definitive Certificates,
and the manner in which any interest payable on a temporary or global
certificate will be paid); (xiii) whether the Investor Certificates of such
Series may be issued in bearer form and any limitations imposed thereon; (xiv)
the priority of such Series with respect to any other Series; (xv) whether such
Series will be part of a Group; (xvi) the Distribution Date and (xvii) any other
terms of such Series.
"Rating Agency" shall mean, with respect to any outstanding Series or
Class, each rating agency, as specified in the applicable Supplement, selected
by the Seller to rate the Investor Certificates of such Series or Class.
"Rating Agency Condition" shall mean, with respect to any action, that
each Rating Agency shall have notified the Seller, the Servicer and the Trustee
in writing that such action will not result in a reduction or withdrawal of the
then existing rating of any outstanding Series or Class with respect to which it
is a Rating Agency.
"Reassignment" shall have the meaning specified in Section 2.10.
"Receivables" shall mean all amounts shown on the Servicer's records
as amounts payable by Obligors on any Account, from time to time, including
without limitation, amounts payable for Principal Receivables and Finance Charge
and Administrative Receivables. Receivables which become Defaulted Receivables
will cease to be included as Receivables as of the day on which they become
Defaulted Receivables.
"Record Date" shall mean, with respect to any Distribution Date, the
last day of the calendar month immediately preceding such Distribution Date
unless otherwise specified for a Series in the applicable Supplement.
"Recoveries" shall mean all amounts received (net of out-of-pocket
costs of collection) including Insurance Proceeds, with respect to Defaulted
Receivables, provided that for so long as such amounts cannot be traced to
specific receivables,
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including the Receivables, Recoveries shall mean such amounts allocated to the
Receivables as provided in subsection 3.10(b).
"Registered Certificateholder" shall mean the Holder of a Registered
Certificate.
"Registered Certificates" shall have the meaning specified in Section
6.01.
"Related Account" shall mean an Account with respect to which a new
credit account number has been issued by the Servicer or the applicable Seller
under circumstances resulting from a lost or stolen credit card and not
requiring standard application and credit evaluation procedures under the Credit
Card Guidelines.
"Removal Date" shall have the meaning specified in Section 2.10.
"Removed Accounts" shall have the meaning specified in Section 2.10.
"Required Minimum Principal Balance" shall mean, with respect to any
date, an amount equal to the sum of the initial Invested Amounts for all
outstanding Series on such date; plus the sum of the Series Required Seller
Amounts for each such Series.
"Requirements of Law" shall mean any law, treaty, rule or regulation,
or determination of an arbitrator or Governmental Authority, whether Federal,
state or local (including, without limitation, usury laws, the Federal Truth in
Lending Act and Regulation B and Regulation Z of the Board of Governors of the
Federal Reserve System), and, when used with respect to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person.
"Responsible Officer" shall mean, when used with respect to the
Trustee, any officer within the Corporate Trust Administration Department (or
any successor group) of the Trustee including any vice president, assistant vice
president, trust officer or any other officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers or to whom any corporate trust matter is referred at the
Corporate Trust Office because of such officer's knowledge of and familiarity
with the particular subject.
"Revolving Credit Agreement" shall mean the revolving credit agreement
by and between the Seller and the Bank, dated as of April 30, 1993 and any
substantially similar agreement between any lender and the Seller or any
Additional Seller.
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"Seller" shall mean Household Affinity Funding Corporation, a wholly
owned special purpose operating subsidiary of the Bank and incorporated in the
State of Delaware, or its successor under this Agreement and any Additional
Seller.
"Seller Certificates" shall mean, collectively, the HAFC Seller
Certificate and any outstanding Supplemental Certificates.
"Seller's Interest" shall have the meaning specified in Section 4.01.
"Seller's Participation Amount" shall mean at any time of
determination an amount equal to the total amount of Principal Receivables in
the Trust at such time minus the aggregate Invested Amounts for all outstanding
Series at such time.
"Series" shall mean any series of Investor Certificates established
pursuant to a Supplement.
"Series Account" shall mean any deposit, trust, escrow or similar
account maintained for the benefit of the Investor Certificateholders of any
Series or Class, as specified in any Supplement.
"Series Adjusted Invested Amount" shall mean, with respect to any
Series and for any Due Period, the initial Invested Amount of such Series after
subtracting therefrom the excess, if any, of the cumulative amount (calculated
in accordance with the terms of the related Supplement) of investor 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
investor charge-offs as of such last day.
"Series Allocable Defaulted Amount" shall mean, with respect to any
Series and for any Due Period, the product of the Series Allocation Percentage
and the Defaulted Amount with respect to such Due Period.
"Series Allocable Finance Charge and Administrative Collections" shall
mean, with respect to any Series and for any Due Period, the product of the
Series Allocation Percentage and the amount of Collections of Finance Charge and
Administrative Receivables deposited in the Collection Account for such Due
Period.
"Series Allocable Miscellaneous Payments" shall mean, with respect to
any Series and for any Due Period, the product of the Series Allocation
Percentage and the amount of Miscellaneous Payments for such Due Period.
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"Series Allocation Percentage" shall mean, 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 plus, for purposes of allocating
Principal Collections to a Series, the Series Required Seller Amount as of the
last day of the immediately preceding Due Period and the denominator of which is
the Trust Adjusted Invested Amount plus, for purposes of allocating Principal
Collections to a Series, the sum of all Series Required Seller Amounts as of
such last day.
"Series Allocable Principal Collections" shall mean, with respect to
any Series and for any Due Period, the product of the Series Allocation
Percentage and the amount of Collections of Principal Receivables deposited in
the Collection Account for such Due Period.
"Series Enhancement" shall mean the rights and benefits provided to
the Trust or the Investor Certificateholders of any Series or Class pursuant to
any letter of credit, surety bond, cash 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. The subordination of any Series or Class to another Series
or Class shall be deemed to be a Series Enhancement.
"Series Enhancer" shall mean the Person or Persons providing any
Series Enhancement, other than the Investor Certificateholders of any Series or
Class which is subordinated to another Series or Class.
"Series Issuance Date" shall mean, with respect to any Series, the
date on which the Investor Certificates of such Series are to be originally
issued in accordance with Section 6.03 and the related Supplement.
"Series Required Seller Amount" shall have the meaning, with respect
to any Series, as specified in the related Supplement.
"Service Transfer" shall have the meaning specified in Section 10.01.
"Servicer" shall mean Household Finance Corporation, in its capacity
as Servicer pursuant to this Agreement, and, after any Service Transfer, the
Successor Servicer.
"Servicer Default" shall have the meaning specified in Section 10.01.
"Servicing Fee" shall mean, with respect to any Series, the servicing
fee specified in the related Supplement.
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"Servicing Officer" shall mean any officer of the Servicer or an
attorney-in-fact of the Servicer who in either case is involved in, or
responsible for, the administration and servicing of the Receivables and whose
name appears on a list of servicing officers furnished to the Trustee by the
Servicer, as such list may from time to time be amended.
"Small Balances" shall have the meaning established in accordance with
the Credit Card Guidelines.
"Standard & Poor's" shall mean Standard & Poor's Corporation or its
successor.
"Successor Servicer" shall have the meaning specified in Section
10.02(a).
"Supplement" shall mean, with respect to any Series, a Supplement to
this Agreement, executed and delivered in connection with the original issuance
of the Investor Certificates of such Series pursuant to Section 6.03, and all
amendments thereof and supplements thereto.
"Supplemental Certificate" shall have the meaning specified in Section
6.03.
"Tax" or "Taxes" shall mean all taxes, charges, fees, levies or other
assessments including, without limitation, income, gross receipts, profits,
withholding, excise, property, sales, use, occupation and franchise taxes
(including, in each such case, any interest, penalties or additions attributable
to or imposed on or with respect to any such taxes, charges, fees or other
assessments) imposed by the United States, any state or political subdivision
thereof, any foreign government or any other jurisdiction or taxing authority.
"Tax Opinion" shall mean, with respect to any action, an Opinion of
Counsel to the effect that, for Federal, California and Illinois (so long as any
substantial servicing activities are conducted in such states) and any other
State where substantial servicing activities in respect of credit card accounts
are conducted by any Additional Seller (or the Bank, if there is a substantial
change from present servicing activities), state income and franchise tax
purposes, (a) such action will not adversely affect the tax characterization as
debt of the Investor Certificates of any outstanding Series or Class that were
characterized as debt at the time of their issuance, (b) following such action
the Trust will not be treated as an association (or publicly traded partnership)
taxable as a corporation and (c) unless otherwise provided in a Supplement, in
the case of Section 6.03(b)(vi), the Investor Certificates of the Series
established pursuant to such Supplement will properly be characterized as debt.
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"Termination Date" shall mean, with respect to any Series, the
termination date specified in the related Supplement.
"Termination Notice" shall have the meaning specified in Section
10.01.
"Termination Proceeds" shall have the meaning specified in Section
12.02(c).
"Transfer Agent and Registrar" shall have the meaning specified in
Section 6.04.
"Transfer Date" shall mean the Business Day immediately preceding each
Distribution Date.
"Transfer Restriction Event" shall have the meaning specified in
Section 2.11.
"Transferred Account" shall mean each account into which an Account
shall be transferred provided that (i) such transfer was made in accordance with
the Credit Card Guidelines and (ii) such account can be traced or identified as
an account into which an Account has been transferred.
"Trust" shall mean the Household Affinity Credit Card Master Trust I
created by this Agreement.
"Trust Adjusted Invested Amount" shall mean, with respect to any Due
Period, the aggregate Series Adjusted Invested Amounts for all outstanding
Series for such Due Period.
"Trust Assets" shall have the meaning specified in Section 2.01.
"Trust Excess Principal Collections" shall have the meaning specified
in the applicable Supplement.
"Trustee" shall mean The Bank of New York, a banking corporation
organized and existing under the laws of the State of New York, in its capacity
as trustee on behalf of the Trust, or its successor in interest, or any
successor trustee appointed as herein provided.
"UCC" shall mean the Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
"Unallocated Principal Colletions" shall have the meaning specified
in Section 4.04.
"VISA" shall mean VISA U.S.A., Inc.
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Section 1.02. Other Definitional Provisions.
(a) with respect to any Series, all terms used herein and not otherwise
defined herein shall have meanings ascribed to them in the related Supplement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles or regulatory
accounting principles, as applicable. To the extent that the definitions of
accounting terms in this Agreement or in any such certificate or other document
are inconsistent with the meanings of such terms under generally accepted
accounting principles or regulatory accounting principles in the United States,
the definitions contained in this Agreement or in any such certificate or other
document shall control.
(d) The agreements, representations and warranties of Household
Affinity Funding Corporation and Household Finance Corporation in this Agreement
in each of their respective capacities as Seller and Servicer shall be deemed to
be the agreements, representations and warranties of Household Affinity Funding
Corporation and Household Finance Corporation solely in each such capacity for
so long as Household Affinity Funding Corporation and Household Finance
Corporation act in each such capacity under this Agreement.
(e) Any reference to each Rating Agency shall only apply to any
specific rating agency if such rating agency is then rating any outstanding
Series.
(f) Unless otherwise specified, references to any amount as on
deposit or outstanding on any particular date shall mean such amount at the
close of business on such day.
(g) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; references to any Section,
Schedule or Exhibit are references to Sections, Schedules and Exhibits in or to
this Agreement unless otherwise specified; and the term "including" means
"including without limitation".
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ARTICLE II
CONVEYANCE OF RECEIVABLES
Section 2.01. Conveyance of Receivables. By execution of this
Agreement, the Seller does hereby sell, transfer, assign, set over and otherwise
convey to the Trustee, on behalf of the Trust, for the benefit of the
Certificateholders, all its right, title and interest in, to and under, without
recourse except as provided herein, the Receivables existing at the close of
business on the Initial Cut-Off Date, in the case of Receivables arising in the
Initial Accounts, and on each Additional Cut-Off Date, in the case of
Receivables arising in the Additional Accounts, and in each case thereafter
created from time to time until the termination of the Trust, all Interchange
and Recoveries allocable to the Trust as provided herein, all monies due or to
become due and all amounts received with respect thereto and all proceeds
(including "proceeds" as defined in the UCC of the State of California) thereof.
Such property, together with all monies on deposit in the Collection Account,
the Series Accounts, the Preferred Stock of the Seller issued in the name of The
Bank of New York, as Trustee of the Trust, any Series Enhancement and the right
to receive certain Interchange and Recoveries attributed to cardholder charges
for merchandise and services in the Accounts shall constitute the assets of the
Trust (the "Trust Assets"). The foregoing does not constitute and is not
intended to result in the creation or assumption by the Trust, the Trustee, any
Investor Certificateholder or any Series Enhancer of any obligation of the
Servicer, the Bank, the Seller, any Additional Seller or any other Person in
connection with the Accounts or the Receivables or under any agreement or
instrument relating thereto, including any obligation to Obligors, merchant
banks, merchants clearance systems, VISA, MasterCard or insurers. The foregoing
sale, transfer, assignment, set-over and conveyance to the Trust shall be made
to the Trustee, on behalf of the Trust, and each reference in this Agreement to
such sale, transfer, assignment, set-over and conveyance shall be construed
accordingly.
The Seller agrees to record and file, at its own expense, financing
statements (and continuation statements when applicable) with respect to the
Receivables now existing and hereafter created meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to perfect, and maintain the perfection of, the sale and assignment of the
Receivables to the Trust, and to deliver a file stamped copy of each such
financing statement or other evidence of such filing to the Trustee as soon as
practicable after the first Closing Date, in the case of Receivables arising in
the Initial Accounts, and (if any additional filing is so necessary) as soon as
practicable after the applicable Addition Date, in the case of Receivables
arising in Additional Accounts. The Trustee shall be
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under no obligation whatsoever to file such financing or continuation statements
or to make any other filing under the UCC in connection with such sale and
assignment.
The Seller further agrees, at its own expense, (a) on or prior to (x)
the first Closing Date, in the case of the Initial Accounts, (y) the applicable
Addition Date, in the case of Additional Accounts, and (z) the applicable
Removal Date, in the case of Removed Accounts, to indicate in the appropriate
computer files that Receivables created (or reassigned, in the case of Removed
Accounts) in connection with the Accounts have been conveyed to the Trust
pursuant to this Agreement for the benefit of the Certificateholders (or
conveyed to the Seller or its designee in accordance with Section 2.10, in the
case of Removed Accounts) by including (or deleting in the case of Removed
Accounts) in such computer files the code identifying each such Account and (b)
on or prior to (w) the first Closing Date, in the case of the Initial Accounts,
(x) the date that is five Business Days after the applicable Addition Date, in
the case of Aggregate Additions, (y) the date that is 90 days after the
applicable Addition Date, in the case of New Accounts, and (z) the date that is
five business days after the applicable Removal Date, in the case of Removed
Accounts, to deliver to the Trustee a computer file or microfiche list
containing a true and complete list of all such Accounts specifying for each
such Account, as of the Initial Cut-Off Date, in the case of the Initial
Accounts, the applicable Additional Cut-Off Date, in the case of Additional
Accounts, and the applicable Removal Date, in the case of Removed Accounts, its
account number and, other than in the case of New Accounts, the aggregate amount
outstanding in such Account and the aggregate amount of Principal Receivables
outstanding in such Account. Such file or list, as supplemented, from time to
time, to reflect Additional Accounts and Removed Accounts, shall be marked as
Schedule 1 to this Agreement and is hereby incorporated into and made a part of
this Agreement. The Seller further agrees not to alter the code referenced in
this paragraph with respect to any Account during the term of this Agreement
unless and until such Account becomes a Removed Account.
It is the intention of the parties hereto that the arrangements with
respect to the Receivables shall constitute a purchase and sale of such
Receivables and not a loan. In the event, however, that a court of competent
jurisdiction were to hold that the transactions evidenced hereby constitute a
loan and not a purchase and sale, it is the intention of the parties hereto that
this Agreement shall constitute a security agreement under applicable law, and
that the Seller shall be deemed to have granted to the Trust a first priority
perfected security interest in all of the Seller's right, title and interest in,
to and under the Receivables, and the other Trust Assets.
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Section 2.02. Acceptance by Trustee. (a) The Trustee hereby
acknowledges its acceptance on behalf of the Trust of all right, title and
interest to the property, now existing and hereafter created, conveyed to the
Trust pursuant to Section 2.01 and declares that it shall maintain such right,
title and interest, upon the trust herein set forth, for the benefit of all
Certificateholders. The Trustee further acknowledges that, prior to or
simultaneously with the execution and delivery of this Agreement, the Seller
delivered to the Trustee the computer file or microfiche list relating to the
Initial Accounts described in the penultimate paragraph of Section 2.01.
(b) The Trustee hereby agrees not to disclose to any Person any of
the account numbers or other information contained in the computer files or
microfiche lists marked as Schedule 1 delivered to the Trustee, from time to
time, except (i) to a Successor Servicer or as required by a Requirement of Law
applicable to the Trustee, (ii) in connection with the performance of the
Trustee's duties hereunder or (iii) in enforcing the rights of
Certificateholders. The Trustee agrees to take such measures as shall be
reasonably requested by the Seller to protect and maintain the security and
confidentiality of such information and, in connection therewith, shall allow
the Seller to inspect the Trustee's security and confidentiality arrangements
from time to time during business hours. The Trustee shall provide the Seller
with notice five Business Days prior to disclosure of any information of the
type described in this subsection 2.02(b).
(c) The Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement.
Section 2.03. Representations and Warranties of the Seller Relating
to the Seller. The Seller hereby represents and warrants to the Trust (and
agrees that the Trustee may rely on each such representation and warranty in
accepting the Receivables in trust and in authenticating the Certificates) as of
each Closing Date that:
(a) Organization and Good Standing. The Seller is a Delaware
corporation validly existing under the laws of the jurisdiction of its
organization or incorporation and has, in all material respects, full power
and authority to own its properties and conduct its business as presently
owned or conducted, and to execute, deliver and perform its obligations
under this Agreement and each Supplement and to execute and deliver to the
Trustee the Certificates.
(b) Due Qualification. The Seller is duly qualified to do business
and is in good standing as a foreign corporation and has obtained all
necessary licenses and
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approvals, in each jurisdiction in which failure to so qualify or to obtain
such licenses and approvals would (i) render any Credit Card Agreement
relating to an Account or any Receivable unenforceable by the Seller or the
Trust and (ii) have a material adverse effect on the Investor
Certificateholders.
(c) Due Authorization. The execution and delivery of this Agreement
and each Supplement by the Seller and the execution and delivery to the
Trustee of the Certificates and the consummation by the Seller of the
transactions provided for in this Agreement and each Supplement, have been
duly authorized by the Seller by all necessary corporate action on the part
of the Seller.
(d) No Conflict. The execution and delivery by the Seller of this
Agreement, each Supplement, and the Certificates, the performance of the
transactions contemplated by this Agreement and each Supplement and the
fulfillment of the terms hereof and thereof applicable to the Seller, will
not conflict with or violate any Requirements of Law applicable to the
Seller or conflict with, result in any breach of any of the material terms
and provisions of, or constitute (with or without notice or lapse of time
or both) a material default under, any indenture, contract, agreement,
mortgage, deed of trust or other instrument to which the Seller is a party
or by which it or its properties are bound.
(e) No Proceedings. There are no proceedings or investigations,
pending or, to the best knowledge of the Seller, threatened against the
Seller before any Governmental Authority (i) asserting the invalidity of
this Agreement, any Supplement or the Certificates, (ii) seeking to prevent
the issuance of any of the Certificates or the consummation of any of the
transactions contemplated by this Agreement, any Supplement or the
Certificates, (iii) seeking any determination or ruling that, in the
reasonable judgment of the Seller, would materially and adversely affect
the performance by the Seller of its obligations under this Agreement or
any Supplement, (iv) seeking any determination or ruling that would
materially and adversely affect the validity or enforceability of this
Agreement, any Supplement or the Certificates or (v) seeking to affect
adversely the income or franchise tax attributes of the Trust under the
United States Federal or any State income or franchise tax systems.
(f) All Consents. All authorizations, consents, orders or approvals
of or registrations or declarations with any Governmental Authority
required to be obtained, effected or given by the Seller in connection with
the execution and
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delivery by the Seller of this Agreement, each Supplement and the
Certificates and the performance of the transactions contemplated by this
Agreement and each Supplement by the Seller have been duly obtained,
effected or given and are in full force and effect.
Section 2.04. Representations and Warranties of the Seller Relating
to the Agreement and Any Supplement and the Receivables. (a) Representations
and Warranties. The Seller hereby represents and warrants to the Trust as of
each Closing Date and, with respect to Additional Accounts, as of the related
Addition Date that:
(i) this Agreement, each Supplement and, in the case of Additional
Accounts, the related Assignment, each constitutes a legal, valid and
binding obligation of the Seller enforceable against the Seller in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally from time to time in
effect or general principles of equity;
(ii) as of the first Closing Date and, as of the related Addition Date
with respect to Additional Accounts, Schedule 1 to this Agreement, as
supplemented to such date, is an accurate and complete listing in all
material respects of all the Accounts as of the Initial Cut-Off Date or
such Additional Cut-Off Date, as the case may be, and the information
contained therein with respect to the identity of such Accounts and the
Receivables existing thereunder is true and correct in all material
respects as of the Initial Cut-Off Date or such Additional Cut-Off Date, as
the case may be;
(iii) each Receivable has been conveyed to the Trust free and clear of
any Lien;
(iv) all authorizations, consents, orders or approvals of or
registrations or declarations with any Governmental Authority required to
be obtained, effected or given by the Seller in connection with the
conveyance of each Receivable to the Trust have been duly obtained,
effected or given and are in full force and effect;
(v) either this Agreement or, in the case of Additional Accounts, the
related Assignment constitutes a valid sale, transfer and assignment to the
Trust of all right, title and interest of the Seller in the Receivables and
the proceeds thereof and the Interchange payable pursuant to this Agreement
and the Recoveries payable pursuant to this Agreement and Recoveries
identified as
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relating to specific Defaulted Receivables, or, if this Agreement or, in
the case of Additional Accounts, the related Assignment does not constitute
a sale of such property, it constitutes a grant of a first priority
perfected "security interest" (as defined in the UCC) in such property to
the Trust, which, in the case of existing Receivables and the proceeds
thereof and said Interchange, is enforceable upon execution and delivery of
this Agreement, or, with respect to then existing Receivables in Additional
Accounts, as of the applicable Addition Date, and which will be enforceable
with respect to such Receivables hereafter and thereafter created and the
proceeds thereof upon such creation. Upon the filing of the financing
statements and, in the case of Receivables hereafter created and the
proceeds thereof, upon the creation thereof, the Trust shall have a first
priority perfected security or ownership interest in such property and
proceeds;
(vi) on the Initial Cut-Off Date, each Initial Account is an Eligible
Account and, on the applicable Additional Cut-Off Date, each related
Additional Account is an Eligible Account;
(vii) on the Initial Cut-Off Date, each Receivable then existing is an
Eligible Receivable and, on the applicable Additional Cut-Off Date, each
Receivable contained in the related Additional Accounts is an Eligible
Receivable;
(viii) as of the date of the creation of any new Receivable, such
Receivable is an Eligible Receivable; and
(ix) no selection procedures believed by the Seller to be materially
adverse to the interests of the Investor Certificateholders have been used
in selecting the Initial Accounts or the Additional Accounts from among any
pool of Accounts of a similar type.
(b) Notice of Breach. The representations and warranties set forth
in Section 2.03, this Section 2.04 and Section 2.09(f) shall survive the
transfers and assignments of the Receivables to the Trust and the issuance of
the Certificates. Upon discovery by the Seller, the Servicer or the Trustee of
a breach of any of the representations and warranties set forth in Section 2.03,
this Section 2.04 or Section 2.09(f), the party discovering such breach shall
give notice to the other parties and to each Series Enhancer within three
Business Days following such discovery, provided that the failure to give notice
within three Business Days does not preclude subsequent notice.
Section 2.05. Reassignment of Ineligible Receivables. (a)
Reassignment of Receivables. In the event (i) any
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representation or warranty contained in Section 2.04(a)(ii), (iii), (iv), (vi),
(vii) or (viii) is not true and correct in any material respect as of the date
specified therein with respect to any Receivable or the related Account and such
breach has a material adverse effect on the Certificateholders' Interest in any
Receivable (which determination shall be made without regard to whether funds
are then available pursuant to any Series Enhancement) unless cured within 60
days (or such longer period, not in excess of 120 days, as may be agreed to by
the Trustee and the Servicer) after the earlier to occur of the discovery
thereof by the Seller or receipt by the Seller of written notice thereof given
by the Trustee or the Servicer, or (ii) it is so provided in Section 2.07(a) or
2.09(d) (iii) with respect to any Receivables, then the Seller shall accept
reassignment of the Certificateholders' Interest in all Receivables in the
related Account ("Ineligible Receivables") on the terms and conditions set forth
in paragraph (b) below.
(b) Price of Reassignment. The Seller shall accept reassignment of
any Ineligible Receivables by directing the Servicer to deduct the portion of
such Ineligible Receivables reassigned to the Seller which are Principal
Receivables from the aggregate amount of Principal Receivables used to calculate
the Seller's Participation Amount and the Seller's Interest applicable to any
Series. In the event that, following the exclusion of such Principal
Receivables from the calculation of the Seller's Participation Amount, the
Seller's Participation Amount would be a negative number, not later than 1:00
P.M., New York City time, on the first Distribution Date following the Due
Period in which such reassignment obligation arises, the Seller shall 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 below
zero (up to the amount of such Principal Receivables). Any amount deposited
into the Collection Account in connection with the reassignment of an Ineligible
Receivable attributable to the principal portion of such Ineligible Receivable
shall be considered Collections of Principal Receivables and shall be applied in
accordance with Article IV and the terms of each Supplement.
Upon reassignment of Ineligible Receivables, the Trustee, on behalf of
the Trust, shall automatically and without further action be deemed to sell,
transfer, assign, set over and otherwise convey to the Seller or its designee,
without recourse, representation or warranty, all the right, title and interest
of the Trust in and to such Ineligible Receivables, all monies due or to become
due and all proceeds thereof and such reassigned Ineligible Receivables shall be
treated by the Trust as collected in full as of the date on which they were
transferred. The obligation of the Seller to accept reassignment of any
Ineligible Receivables, and to make the deposits, if any, required to be made to
the Collection Account as provided in this Section, shall
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constitute the sole remedy respecting the event giving rise to such obligation
available to Certificateholders (or the Trustee on behalf of the
Certificateholders) or any Series Enhancer. Notwithstanding any other
provision of this subsection 2.05(b), a reassignment of an Ineligible Receivable
in excess of the amount that would cause the Seller's Participation Amount to be
a negative number shall not occur if the Seller fails to make any deposit
required by this subsection 2.05(b) with respect to such Ineligible Receivable.
The Trustee shall execute such documents and instruments of transfer or
assignment and take such other actions as shall reasonably be requested by the
Seller to effect the conveyance of such Ineligible Receivables pursuant to this
subsection 2.05(b), but only upon receipt of an Officer's Certificate that
states that all conditions set forth in this Section 2.05 have been satisfied.
Section 2.06. Reassignment of Certificateholders' Interest in Trust
Portfolio. In the event any representation or warranty set forth in Section
2.03(a) or (c) or Section 2.04(a)(i) or (v) is not true and correct in any
material respect and such breach has a material adverse effect on the
Certificateholders' Interest in the Receivables or the availability of the
proceeds thereof to the Trust (which determination shall be made without regard
to whether funds are then available pursuant to any Series Enhancement), then
either the Trustee or the Holders of Investor Certificates evidencing not less
than 50% of the aggregate unpaid principal amount of all outstanding Investor
Certificates, by notice then given to the Seller and the Servicer (and to the
Trustee if given by the Investor Certificateholders), may direct the Seller to
accept a reassignment of the Certificateholders' Interest in the Receivables if
such breach and any material adverse effect caused by such breach is not cured
within 60 days of such notice (or within such longer period, not in excess of
120 days, as may be specified in such notice), and upon those conditions the
Seller shall be obligated to accept such reassignment on the terms set forth
below.
The Seller shall deposit in the Collection Account in immediately
available funds not later than 1:00 P.M., New York City time, on the first
Distribution Date following the Due Period in which such reassignment obligation
arises, in payment for such reassignment, an amount equal to the sum of the
amounts specified therefor with respect to each outstanding Series in the
related Supplement. Notwithstanding anything to the contrary in this Agreement,
such amounts shall be distributed to the Investor Certificateholders on such
Distribution Date in accordance with the terms of each Supplement. If the
Trustee or the Investor Certificateholders give notice directing the Seller to
accept a reassignment of the Certificateholders' Interest in the Receivables as
provided above, the obligation of the Seller to accept such reassignment
pursuant to this Section and to make the
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deposit required to be made to the Collection Account as provided in this
paragraph shall constitute the sole remedy respecting an event of the type
specified in the first sentence of this Section available to the
Certificateholders (or the Trustee on behalf of the Certificateholders) or any
Series Enhancer.
Section 2.07. Covenants of the Seller. The Seller hereby covenants
that:
(a) Receivables Not To Be Evidenced by Promissory Notes. Except in
connection with its enforcement or collection of an Account, the Seller
will take no action to cause any Receivable to be evidenced by any
instrument (as defined in the UCC) and if any Receivable is so evidenced it
shall be deemed to be an Ineligible Receivable in accordance with Section
2.05(a) and shall be reassigned to the Seller in accordance with Section
2.05(b).
(b) Security Interests. Except for the conveyances hereunder, the
Seller will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien on, any Receivable
or Participation Interest, whether now existing or hereafter created, or
any interest therein, and the Seller shall defend the right, title and
interest of the Trust in, to and under the Receivables, whether now
existing or hereafter created, against all claims of third parties claiming
through or under the Seller.
(c) Seller's Interest. Except for (i) the conveyances hereunder, in
connection with any transaction permitted by Section 7.02 and as provided
in Section 6.03 or (ii) conveyances with respect to which the Rating Agency
Condition shall have been satisfied, the Seller agrees not to transfer or
sell the HAFC Seller Certificate or any Supplemental Certificate and any
such attempted transfer or sale shall be void.
(d) Delivery of Collections or Recoveries. In the event that the
Seller receives Collections or Recoveries, the Seller agrees to pay the
Servicer all such Collections and Recoveries as soon as practicable after
receipt thereof.
(e) Notice of Liens. The Seller shall notify the Trustee and each
Series Enhancer promptly after becoming aware of any Lien on any Receivable
other than the conveyances hereunder.
(f) Amendment of the Certificate of Incorporation. The Seller will
not amend in any material respect its certificate of incorporation without
providing the Rating Agency with notice no later than the fifth Business
Day
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prior to such amendment (unless the right to such notice is waived by the
Rating Agency) and satisfying the Rating Agency Condition.
(g) Other Indebtedness. The Seller shall not incur any additional
debt, unless (i) such debt is incurred pursuant to the Revolving Credit
Agreement or (ii) the Rating Agency is provided with notice no later than
the fifth Business Day prior to the incurrence of such additional debt
(unless the right to such notice is waived by the Rating Agency) and either
(1) the Rating Agency Condition is satisfied or (2) (x) such debt (A) is
non-recourse against any assets of the Seller other than the assets pledged
to secure such additional debt, (B) does not constitute a claim against the
Seller in the event such assets are insufficient to pay additional debt,
(C) is fully subordinated to the Investor Certificates, (D) would not
result in an Adverse Effect, and (E) is with an Affiliate of the Seller and
(y) no Rating Agency has notified the Seller that incurring such additional
debt will result in a withdrawal or downgrade of any existing Series.
(h) Certain Matters Relating to Dividends. After the expiration of
the 180th day after the commencement of any material litigation to which
the Seller is a party and which has a reasonable chance of adversely
affecting the Receivables or the Seller's or the Certificateholders'
Interests therein, the Seller shall not pay any dividends or other
distributions to the Bank, other than interest in the ordinary course of
business, unless after giving effect to the payment of such dividends or
such other distributions, the Seller's capital shall not be less than the
amount claimed in such litigation.
Section 2.08. Covenants of The Seller with Respect to the Bank
Purchase Agreement. The Seller, in its capacity as purchaser of the Receivables
from the Bank, pursuant to the Bank Purchase Agreement hereby covenants that the
Seller will at all times enforce the covenants and agreements of the Bank in the
Bank Purchase Agreement, including, without limitation, covenants to the effect
set forth below only to the extent to which they are enforceable against the
Bank pursuant to the Bank Purchase Agreement:
(a) Periodic Rate Finance Charges. (i) Except (x) as otherwise
required by any Requirements of Law or (y) as is deemed by the Bank 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 with respect
to the credit card business or such program and only if the change giving
rise to such reduction with
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respect to a specific program is made applicable to substantially all of
the credit card accounts subject to such program, it shall not at any time
take any action which would have the effect of reducing the Portfolio Yield
to a level that could be reasonably expected to cause any Series to
experience any Amortization Event based on the insufficiency of the
Portfolio Yield or any similar test and (ii) except as otherwise required
by any Requirements of Law, it shall not take any action which would have
the effect of reducing the Portfolio Yield to be less than the highest
Average Rate for any Group.
(b) Credit Card Agreements and Guidelines. Subject to compliance with
all Requirements of Law and paragraph (a) above, the Bank may change the
terms and provisions of the Credit Card Agreements or the Credit Card
Guidelines in any respect (including the calculation of the amount or the
timing of charge-offs and the Periodic Rate Finance Charges to be assessed
thereon) only if the change made with respect to a specific program (for
purposes of this Trust, securitizations shall be deemed not to be a
program) is made applicable to substantially all of the Accounts subject to
such program. Notwithstanding the above, unless required by Requirements
of Law or as permitted by Section 2.08(a), the Bank will take no action
with respect to the Credit Card Agreements or the Credit Card Guidelines,
which, at the time of such action, the Bank reasonably believes will have a
material adverse effect on the Investor Certificateholders.
(c) MasterCard and VISA. The Bank shall, to the extent applicable to
Accounts owned or serviced by it, use its best efforts to remain, either
directly or indirectly, a member in good standing of the MasterCard system,
the VISA system and any other similar entity's or organization's system
relating to any other type of revolving credit card accounts included as
Accounts.
(d) Interchange. Not later than 1:00 P.M., New York City time, on
each Distribution Date, the Bank shall deposit into the Collection Account
in immediately available funds the amount of Interchange to be so included
as Collections of Finance Charge Receivables with respect to the preceding
Due Period.
The Seller further covenants that the Seller will not enter into any
amendments to the Bank Purchase Agreement unless the Rating Agency Condition has
been satisfied. In the event that any Additional Seller is the owner of any
Accounts, such Additional Seller agrees to perform the covenants and agreements
of the Bank set forth in clauses (a) through (d) of this Section 2.08 with
respect to such Accounts.
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Section 2.09. Addition of Accounts.
(a) Required Aggregate Additions. (i) If, as of the close of
business on the last Business Day of any calendar month, the total amount
of Principal Receivables is less than the Required Minimum Principal
Balance on such date, the Seller shall on or prior to the close of business
on the tenth Business Day of the next succeeding calendar month (the
"Required Designation Date"), designate additional Eligible Accounts to be
included as Accounts as of the Required Designation Date or any earlier
date in a sufficient amount such that, after giving effect to such
addition, the total amount of Principal Receivables as of the close of
business on the Addition Date is at least equal to the Required Minimum
Principal Balance on such date.
(ii) In lieu of, or in addition to, designating Additional Accounts
pursuant to clause (i) above, the Seller may, subject to the conditions
specified in paragraph (c) below, convey to the Trust participations
(including, without limitation, 100% participations) representing undivided
interests in a pool of assets primarily consisting of revolving credit card
receivables, consumer loan receivables (secured and unsecured), charge card
receivables, and any interests in any of the foregoing, including
securities representing or backed by such receivables, and other self-
liquidating financial assets including, without limitation, any "Eligible
Assets" as such term is defined in Rule 3a-7 under the Investment Company
Act of 1940, as amended (or any successor to such Rule) and collections
thereon ("Participation Interests"). The addition of Participation
Interests in the Trust pursuant to this paragraph (a) or paragraph (b)
below shall be effected by a Participation Interest Supplement, dated the
applicable Addition Date and entered into pursuant to Section 13.01(a).
(iii) Any Additional Accounts or Participation Interests designated to
be included as Accounts pursuant to clauses (i) or (ii) above may only be
so included if (x) Standard & Poor's shall have notified the Seller, the
Servicer and the Trustee in writing that such addition will not result in a
reduction or withdrawal of the then existing rating of any outstanding
Series or Class with respect to which Standard and Poor's is a Rating
Agency and (y) the applicable conditions specified in paragraph (c) below
have been satisfied.
(b) Permitted Aggregate Additions. The Seller may from time to time,
at its sole discretion, subject to the conditions specified in paragraph (c)
below, voluntarily designate additional Eligible Accounts to be included as
Accounts
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or Participation Interests to be included as Trust Assets, in either case as of
the applicable Additional Cut-Off Date.
(c) Conditions to Aggregate Additions. On the Addition Date with
respect to any Aggregate Addition Accounts or Participation Interests, the Trust
shall purchase the Receivables in such Additional Accounts (and such Additional
Accounts shall be deemed to be Accounts for purposes of this Agreement) or shall
purchase such Participation Interests as of the close of business on the
applicable Additional Cut-off Date, subject to the satisfaction of the following
conditions:
(i) on or before the eighth Business Day immediately preceding the
Addition Date, the Seller shall have given the Trustee, the Servicer and
each Rating Agency notice (unless such notice requirement is otherwise
waived) that the Aggregate Addition Accounts or Participation Interests
will be included and specifying the applicable Addition Date and Additional
Cut-Off Date;
(ii) the Aggregate Addition Accounts shall all be Eligible Accounts;
(iii) the Seller shall have delivered to the Trustee copies of UCC-1
financing statements covering such Aggregate Addition Accounts, if
necessary to perfect the Trust's interest in the Receivables arising
therein;
(iv) to the extent required by Section 4.03, the Seller shall have
deposited in the Collection Account all Collections with respect to such
Aggregate Addition Accounts since the Additional Cut-Off Date;
(v) as of each of the Additional Cut-Off Date and the Addition Date,
no Insolvency Event with respect to the Bank or the Seller shall have
occurred nor shall the transfer of the Receivables arising in the Aggregate
Addition Accounts or of the Participation Interests to the Trust have been
made in contemplation of the occurrence thereof;
(vi) solely with respect to Aggregate Additions designated pursuant to
Section 2.09(b), the Rating Agency Condition shall have been satisfied;
(vii) the Seller shall have delivered to the Trustee an Officer's
Certificate, dated the Addition Date, confirming, to the extent applicable,
the items set forth in clauses (ii) through (vi) above;
(viii) the addition of the Receivables arising in the Aggregate
Addition Accounts or of the Participation Interests to the Trust will not
result in an Adverse Effect
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and, in the case of Aggregate Additions, the Seller shall have delivered to
the Trustee an Officer's Certificate, dated the Addition Date, stating that
the Seller reasonably believes that the addition of the Receivables arising
in the Additional Accounts or of the Participation Interests to the Trust
will not have an Adverse Effect; and
(ix) the Seller shall have delivered to the Trustee and each Rating
Agency an Opinion of Counsel, dated the Addition Date, in accordance with
Section 13.02(d)(ii).
(d) New Accounts.
(i) The Seller may from time to time, at its sole discretion, subject
to and in compliance with the limitations specified in clause (ii) below
and the conditions specified in paragraph (e) below, voluntarily designate
newly originated Eligible Accounts to be included as New Accounts. For
purposes of this paragraph, 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 expressly provides
that such type of revolving credit card account is permitted to be
designated as a New Account.
(ii) Unless each Rating Agency otherwise consents, the number of New
Accounts designated with respect to any of the three consecutive Due
Periods commencing 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 (or the Initial
Cut-Off Date, in the case of 1993) 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 (or the Initial Cut-
Off Date, in the case of 1993).
(iii) The failure of the Seller to deliver semiannually an Opinion of
Counsel substantially in the form of Exhibit E-2 (or, if the Bank has a
long-term rating below "A" by Moody's or "A-1" by Standard & Poor's such
Opinion of Counsel shall be delivered quarterly and if the long-term rating
of the Bank is not in one of the generic categories of each Rating Agency
which signifies investment grade such Opinion of Counsel shall be delivered
monthly) with respect to the New Accounts included as Accounts shall result
in all Receivables arising in the New Accounts to which such failure
relates to be deemed to be Ineligible Receivables in accordance with
Section 2.05(a) and all such Receivables shall be reassigned to the Seller
in accordance with Section
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2.05(b). The opinion delivery requirement set forth in the immediately
preceding parenthetical may be modified provided that the Rating Agency
Condition is satisfied.
(e) Conditions to Addition of New Accounts. On the Addition Date with
respect to any New Accounts, the Trust shall purchase the Receivables in such
New Accounts (and such New Accounts shall be deemed to be Accounts for purposes
of this Agreement) as of the close of business on the applicable Additional Cut-
Off Date, subject to the satisfaction of the following conditions:
(i) the New Accounts shall all be Eligible Accounts;
(ii) the Seller shall have delivered to the Trustee copies of UCC-1
financing statements covering such New Accounts, if necessary to perfect
the Trust's interest in the Receivables arising therein;
(iii) to the extent required by Section 4.03, the Seller shall have
deposited in the Collection Account all Collections with respect to such
New Accounts since the Additional Cut-Off Date;
(iv) as of each of the Additional Cut-Off Date and the Addition Date,
no Insolvency Event with respect to the Bank or the Seller shall have
occurred nor shall the transfer of the Receivables arising in the New
Accounts to the Trust have been made in contemplation of the occurrence
thereof; and
(v) the addition of the Receivables arising in the New Accounts to
the Trust will not result in the occurrence of an Amortization Event.
(f) Representations and Warranties. The Seller hereby represents and
warrants to the Trust as of the related Addition Date as to the matters set
forth in paragraph (c) (v) and (viii) above and that, in the case of Additional
Accounts, the list delivered pursuant to paragraph (h) below is, as of the
applicable Additional Cut-Off Date, true and complete in all material respects.
(g) Additional Sellers. The Seller may designate Affiliates of the
Seller to be included as Sellers ("Additional Sellers") under this Agreement in
a supplement to this Agreement (which supplement shall be subject to Section
13.01 to the extent that it amends any of the terms of this Agreement) and each
Additional Seller shall be issued a Supplemental Certificate pursuant to Section
6.03(b) reflecting such Additional Seller's interest in the Seller's Interest;
provided, however, that prior
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to any such designation and issuance the conditions set forth in Section 6.03(b)
shall have been satisfied with respect thereto.
(h) Delivery of Documents. In the case of the designation of
Additional Accounts, the Seller shall deliver to the Trustee (i) the computer
file or microfiche list required to be delivered pursuant to Section 2.01 with
respect to such Additional Accounts on the date such file or list is required to
be delivered pursuant to Section 2.01 (the "Document Delivery Date") and (ii) a
duly executed, written Assignment (including an acceptance by the Trustee for
the benefit of the Certificateholders), substantially in the form of Exhibit B
(the "Assignment"), on the Document Delivery Date. In addition, in the case of
the designation of New Accounts, the Seller shall deliver to the Trustee on the
Document Delivery Date an Officer's Certificate confirming, to the extent
applicable, the items set forth in clauses (i) through (v) of Section 2.09(e)
above.
Section 2.10. Removal of Accounts and Participation Interests. On
any day of any Due Period the Seller shall have the right to require the
reassignment to it or its designee of all the Trust's right, title and interest
in, to and under the Receivables then existing and thereafter created, all
monies due or to become due and all amounts received with respect thereto and
all proceeds thereof in or with respect to the Accounts (the "Removed Accounts")
or Participation Interests (unless otherwise set forth in the applicable
Participation Interest Supplement or Series Supplement) designated by the Seller
upon satisfaction of the following conditions:
(i) on or before the eighth Business Day immediately preceding the
Removal Date, the Seller shall have given the Trustee, the Servicer, each Rating
Agency and each Series Enhancer notice (unless such notice requirement is
otherwise waived) of such removal and specifying the date for removal of the
Removed Accounts and Participation Interests (the "Removal Date");
(ii) on or prior to the date that is five Business Days after the
Removal Date, the Seller shall have amended Schedule 1 by delivering to the
Trustee a computer file or microfiche list containing a true and complete list
of the Removed Accounts specifying for each such Account, as of the date notice
of the Removal Date is given, its account number, the aggregate amount
outstanding in such Account and the aggregate amount of Principal Receivables
outstanding in such Account;
(iii) the Seller shall have represented and warranted as of the
Removal Date that the list of Removed Accounts delivered pursuant to paragraph
(ii) above, as of the Removal Date, is true and complete in all material
respects;
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(iv) the Rating Agency Condition shall have been satisfied with
respect to the removal of the Removed Accounts and Participation Interests;
(v) the Seller shall have delivered to the Trustee an Officer's
Certificate, dated the Removal Date, to the effect that the Seller reasonably
believes that (a) such removal will not have an Adverse Effect, (b) such removal
will not result in the occurrence of an Amortization Event, and (c) no selection
procedures believed by the Seller to be materially adverse to the interests of
the Investor Certificateholders have been used in removing Removed Accounts from
among any pool of Accounts of a similar type.
Upon satisfaction of the above conditions, the Trustee shall execute
and deliver to the Seller a written reassignment in substantially the form of
Exhibit C (the "Reassignment") and shall, without further action, be deemed to
sell, transfer, assign, set over and otherwise convey to the Seller or its
designee, effective as of the Removal Date, without recourse, representation or
warranty, all the right, title and interest of the Trust in and to the
Receivables arising in the Removed Accounts and Participation Interests, all
monies due and to become due and all amounts received with respect thereto and
all proceeds thereof. The Trustee may conclusively rely on the Officer's
Certificate delivered pursuant to this Section 2.10 and shall have no duty to
make inquiries with regard to the matters set forth therein and shall incur no
liability in so relying.
Section 2.11. Account Allocations. In the event that the Seller is
unable for any reason to transfer Receivables to the Trust in accordance with
the provisions of this Agreement, including by reason of the application of the
provisions of Section 9.02 or any order of any Governmental Authority (a
"Transfer Restriction Event"), then, in any such event, (a) the Seller and the
Servicer agree (except as prohibited by any such order) to allocate and pay to
the Trust, after the date of such inability, all Collections, including
Collections of Receivables transferred to the Trust prior to the occurrence of
such event, and all amounts which would have constituted Collections but for the
Seller's inability to transfer Receivables (up to an aggregate amount equal to
the amount of Receivables transferred to the Trust by the Seller in the Trust on
such date), (b) the Seller and the Servicer agree that such amounts will be
applied as Collections in accordance with Article IV and the terms of each
Supplement and (c) for so long as the allocation and application of all
Collections and all amounts that would have constituted Collections are made in
accordance with clauses (a) and (b) above, Principal Receivables and all amounts
which would have constituted Principal Receivables but for the Seller's
inability to transfer Receivables to the Trust which are written off as
uncollectible in accordance with this Agreement shall
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continue to be allocated in accordance with Article IV and the terms of each
Supplement. For the purpose of the immediately preceding sentence, the Seller
and the Servicer shall treat the first received Collections with respect to the
Accounts as allocable to the Trust until the Trust shall have been allocated and
paid Collections in an amount equal to the aggregate amount of Principal
Receivables in the Trust as of the date of the occurrence of such event. If the
Seller and the Servicer are unable pursuant to any Requirements of Law to
allocate Collections as described above, the Seller and the Servicer agree that,
after the occurrence of such event, payments on each Account with respect to the
principal balance of such Account shall be allocated first to the oldest
principal balance of such Account and shall have such payments applied as
Collections in accordance with Article IV and the terms of each Supplement. The
parties hereto agree that Finance Charge and Administrative Receivables,
whenever created, accrued in respect of Principal Receivables which have been
conveyed to the Trust shall continue to be a part of the Trust notwithstanding
any cessation of the transfer of additional Principal Receivables to the Trust
and Collections with respect thereto shall continue to be allocated and paid in
accordance with Article IV and the terms of each Supplement.
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.01. Acceptance of Appointment and Other Matters Relating to
the Servicer. (a) Household Finance Corporation agrees to act as the Servicer
under this Agreement and the Certificateholders by their acceptance of
Certificates consent to Household Finance Corporation acting as Servicer.
(b) As agent for the Seller and the Trust, the Servicer shall service
and administer the Receivables, shall collect and deposit into the Collection
Account payments due under the Receivables and shall charge-off as uncollectible
Receivables, all in accordance with its customary and usual servicing procedures
for servicing credit card receivables comparable to the Receivables and in
accordance with the Credit Card Guidelines. As agent for the Seller and the
Trust, the Servicer shall have full power and authority, acting alone or through
any party properly designated by it hereunder, to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable. Without limiting the generality of the foregoing and subject to
Section 10.01, the Servicer or its designee is hereby authorized and empowered
unless such power is revoked by the Trustee on account of the occurrence of a
Servicer Default pursuant to Section
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10.01, (i) to instruct the Trustee to make withdrawals and payments from the
Collection Account and any Series Account, as set forth in this Agreement or any
Supplement, (ii) to take any action required or permitted under any Series
Enhancement, as set forth in this Agreement or any Supplement, (iii) to execute
and deliver, on behalf of the Trust for the benefit of the Certificateholders,
any and all instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with respect to the
Receivables and, after the delinquency of any Receivable and to the extent
permitted under and in compliance with applicable Requirements of Law, to
commence enforcement proceedings with respect to such Receivables and (iv) to
make any filings, reports, notices, applications and registrations with, and to
seek any consents or authorizations from, the Securities and Exchange Commission
and any state securities authority on behalf of the Trust as may be necessary or
advisable to comply with any Federal or state securities or reporting
requirements or other laws or regulations. The Trustee shall furnish the
Servicer with any documents necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties hereunder.
(c) The Servicer shall not, and no Successor Servicer shall, be
obligated to use separate servicing procedures, offices, employees or accounts
for servicing the Receivables from the procedures, offices, employees and
accounts used by the Servicer or such Successor Servicer, as the case may be, in
connection with servicing other credit card receivables.
(d) The Servicer shall comply with and perform its servicing
obligations with respect to the Accounts and Receivables in accordance with the
Credit Card Agreements relating to the Accounts and the Credit Card Guidelines
and all applicable rules and regulations of VISA, MasterCard and any other
similar entity or organization relating to any other type of revolving credit
card accounts included as Accounts, except insofar as any failure to so comply
or perform would not materially and adversely affect the Trust or the Investor
Certificateholders.
(e) The Servicer shall pay out of its own funds, without
reimbursement, all expenses incurred in connection with the Trust and the
servicing activities hereunder including expenses related to enforcement of the
Receivables, fees and disbursements of the Trustee (including the reasonable
fees and expenses of its counsel) and independent accountants and all other fees
and expenses, including the costs of filing UCC continuation statements and the
costs and expenses relating to obtaining and maintaining the listing of any
Investor Certificates on any stock exchange, that are not expressly stated in
this Agreement to be payable by the Trust or the Seller (other than Federal,
state, local and foreign income and franchise taxes, if any, or any interest or
penalties with respect thereto, assessed on the Trust).
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Section 3.02. Servicing Compensation. As full compensation for its
servicing activities hereunder and as reimbursement for any expense incurred by
it in connection therewith, the Servicer shall be entitled to receive the
Servicing Fee specified in any Supplement.
Section 3.03. Representations, Warranties and Covenants of the
Servicer. Household Finance Corporation, as initial Servicer, hereby makes, and
any Successor Servicer by its appointment hereunder shall make, with respect to
itself, on each Closing Date (and on the date of any such appointment), the
following representations, warranties and covenants on which the Trustee shall
be deemed to have relied in accepting the Receivables in trust and in
authenticating the Certificates:
(a) Organization and Good Standing. The Servicer is a national
banking association or corporation validly existing under the applicable law of
the jurisdiction of its organization or incorporation and has, in all material
respects, full power and authority to own its properties and conduct its credit
card servicing business as presently owned or conducted, and to execute, deliver
and perform its obligations under this Agreement and each Supplement.
(b) Due Qualification. The Servicer is duly qualified to do business
and is in good standing as a foreign corporation (or is exempt from such
requirements) and has obtained all necessary licenses and approvals in each
jurisdiction in which the servicing of the Receivables as required by this
Agreement requires such qualification except where the failure to so qualify or
obtain licenses or approvals would not have a material adverse effect on its
ability to perform its obligations as Servicer under this Agreement.
(c) Due Authorization. The execution, delivery, and performance of
this Agreement and each Supplement, and the other agreements and instruments
executed or to be executed by the Servicer as contemplated hereby, have been
duly authorized by the Servicer by all necessary action on the part of the
Servicer.
(d) Binding Obligation. This Agreement and each Supplement
constitutes a legal, valid and binding obligation of the Servicer, enforceable
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally from time to time in effect or by
general principles of equity.
(e) No Conflict. The execution and delivery of this Agreement and
each Supplement by the Servicer, and the performance of the transactions
contemplated by this Agreement and each Supplement and the fulfillment of the
terms hereof and thereof applicable to the Servicer, will not conflict with,
violate or result in any breach of any of the material terms and
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provisions of, or constitute (with or without notice or lapse of time or both) a
material default under, any indenture, contract, agreement, mortgage, deed of
trust or other instrument to which the Servicer is a party or by which it or its
properties are bound.
(f) No Violation. The execution and delivery of this Agreement and
each Supplement by the Servicer, the performance of the transactions
contemplated by this Agreement and each Supplement and the fulfillment of the
terms hereof and thereof applicable to the Servicer will not conflict with or
violate any Requirements of Law applicable to the Servicer.
(g) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Servicer, threatened against the
Servicer before any Governmental Authority seeking to prevent the consummation
of any of the transactions contemplated by this Agreement or any Supplement or
seeking any determination or ruling that, in the reasonable judgment of the
Servicer, would materially and adversely affect the performance by the Servicer
of its obligations under this Agreement or any Supplement.
(h) Compliance with Requirements of Law. The Servicer shall duly
satisfy all obligations on its part to be fulfilled under or in connection with
each Receivable and the related Account, will maintain in effect all
qualifications required under Requirements of Law in order to service properly
each Receivable and the related Account and will comply in all material respects
with all other Requirements of Law in connection with servicing each Receivable
and the related Account the failure to comply with which would have a material
adverse effect on the Investor Certificateholders.
(i) No Rescission or Cancellation. The Servicer shall not permit any
rescission or cancellation of any Receivable except in accordance with the
Credit Card Guidelines or as ordered by a court of competent jurisdiction or
other Governmental Authority.
(j) Protection of Certificateholders' Rights. The Servicer shall take
no action which, nor omit to take any action the omission of which, would impair
the rights of Certificateholders in any Receivable or the related Account, nor
shall it reschedule, revise or defer payments due on any Receivable except in
accordance with the Credit Card Guidelines.
(k) Receivables Not To Be Evidenced by Promissory Notes. Except in
connection with its enforcement or collection of an Account, the Servicer will
take no action to cause any Receivable to be evidenced by any instrument (as
defined in the UCC) and if any Receivable is so evidenced it shall be reassigned
or assigned to the Servicer as provided in this Section.
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(l) All Consents. All authorizations, consents, orders or approvals
of or registrations or declarations with any Governmental Authority required to
be obtained, effected or given by the Servicer in connection with the execution
and delivery of this Agreement and each Supplement by the Servicer and the
performance of the transactions contemplated by this Agreement and each
Supplement by the Servicer, have been duly obtained, effected or given and are
in full force and effect.
In the event (x) any of the representations, warranties or covenants
of the Servicer contained in subsection 3.03 (h), (i) or (j) with respect to any
Receivable or the related Account is breached, and such breach has a material
adverse effect on the Certificateholders' Interest in such Receivable (which
determination shall be made without regard to whether funds are then available
to any Investor Certificateholders pursuant to any Series Enhancement) and is
not cured within 60 days (or such longer period, not in excess of 150 days, as
may be agreed to by the Trustee and the Seller) of the earlier to occur of the
discovery of such event by the Servicer, or receipt by the Servicer of notice of
such event given by the Trustee or the Seller, or (y) as provided in subsection
3.03(k) with respect to any Receivable, all Receivables in the Account or
Accounts to which such event relates shall be assigned and transferred to the
Servicer on the terms and conditions set forth below.
The Servicer shall effect such assignment by making a deposit into the
Collection Account in immediately available funds on the Transfer Date following
the Due Period in which such assignment obligation arises in an amount equal to
the amount of such Receivables.
Upon each such reassignment or assignment to the Servicer, the
Trustee, on behalf of the Trust, shall automatically and without further action
be deemed to sell, transfer, assign, set over and otherwise convey to the
Servicer, without recourse, representation or warranty, all right, title and
interest of the Trust in and to such Receivables, all monies due or to become
due and all amounts received with respect thereto and all proceeds thereof. The
Trustee shall execute such documents and instruments of transfer or assignment
and take such other actions as shall be reasonably requested by the Servicer to
effect the conveyance of any such Receivables pursuant to this Section but only
upon receipt of an Officer's Certificate of the Servicer that states that all
conditions set forth in this section have been satisfied. The obligation of the
Servicer to accept reassignment or assignment of such Receivables, and to make
the deposits, if any, required to be made to the Collection Account as provided
in the preceding paragraph, shall constitute the sole remedy respecting the
event giving rise to such obligation available to Certificateholders (or the
Trustee on behalf of Certificateholders) or any Series Enhancer, except as
provided in Section 8.04.
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Section 3.04. Reports and Records for the Trustee. (a) Daily
Records. On each Business Day, the Servicer shall make or cause to be made
available at the office of the Servicer for inspection by the Trustee upon
request a record setting forth (i) the Collections in respect of Principal
Receivables and in respect of Finance Charge and Administrative Receivables
processed by the Servicer on the second preceding Business Day in respect of
each Account and (ii) the amount of Receivables as of the close of business on
the second preceding Business Day in each Account. The Servicer shall, at all
times, maintain its computer files with respect to the Accounts in such a manner
so that the Accounts may be specifically identified and shall make available to
the Trustee at the office of the Servicer on any Business Day any computer
programs necessary to make such identification. The Trustee shall enter into
such confidentiality agreements as the Servicer shall deem necessary to protect
its interests.
(b) Monthly Servicer's Certificate. Not later than the second
Business Day preceding each Distribution Date, the Servicer shall, with respect
to each outstanding Series, deliver to the Trustee and each Rating Agency a
certificate of a Servicing Officer in substantially the form set forth in the
related Supplement.
Section 3.05. Annual Certificate of Servicer. The Servicer shall
deliver to the Trustee and each Rating Agency on or before March 31 of each
calendar year, beginning with March 31, 1994, an Officer's Certificate
substantially in the form of Exhibit D.
Section 3.06. Annual Servicing Report of Independent Public
Accountants; Copies of Reports Available. (a) On or before March 31 of each
calendar year, beginning with March 31, 1994, the Servicer shall cause a firm of
nationally recognized independent public accountants (who may also render other
services to the Servicer or the Seller) to furnish a report (addressed to the
Trustee) to the Trustee, the Servicer and each Rating Agency to the effect that
they have examined certain documents and records relating to the servicing of
Accounts under this Agreement and each Supplement, compared the information
contained in the Servicer's certificates delivered pursuant to Section 3.04(b)
during the period covered by such report with such documents and records and
that, on the basis of such examination, such accountants are of the opinion that
the servicing has been conducted in compliance with the terms and conditions as
set forth in Articles III and Article IV and Section 8.08 of this Agreement and
the applicable provisions of each Supplement, except for such exceptions as they
believe to be immaterial and such other exceptions as shall be set forth in such
statement.
(b) On or before March 31 of each calendar year, beginning with March
31, 1994, the Servicer shall cause a firm of
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nationally recognized independent public accountants (who may also render other
services to the Servicer or Seller) to furnish a report to the Trustee, the
Servicer and each Rating Agency to the effect that they have compared the
mathematical calculations of each amount set forth in the Servicer's
certificates delivered pursuant to Section 3.04(b) during the period covered by
such report with the Servicer's computer reports which were the source of such
amounts and that on the basis of such comparison, such accountants are of the
opinion that such amounts are in agreement, except for such exceptions as they
believe to be immaterial and such other exceptions as shall be set forth in such
statement.
(c) A copy of each certificate and report provided pursuant to
Section 3.04(b), 3.05 or 3.06 may be obtained by any Investor Certificateholder
or Certificate Owner by a request in writing to the Trustee addressed to the
Corporate Trust Office.
Section 3.07. Tax Treatment. Unless otherwise provided in a
Supplement, it is the intention of the Seller and the Investor
Certificateholders that, with respect to all Taxes, the Investor Certificates
will be treated as indebtedness of the Seller to the Investor Certificateholders
secured by the Receivables (the "Intended Characterization"). The Seller, by
entering into this Agreement, and each Investor Certificateholder, by the
acceptance of its Investor Certificate, agree to report such transactions for
the purposes of all Taxes in a manner consistent with the Intended
Characterization.
Section 3.08. Notices to Household Finance Corporation. In the event
that Household Finance Corporation is no longer acting as Servicer, any
Successor Servicer shall deliver or make available to Household Finance
Corporation each certificate and report required to be provided thereafter
pursuant to Section 3.04(b), 3.05 and 3.06.
Section 3.09. Adjustments. (a) If the Servicer adjusts downward the
amount of any Receivable because of a rebate, refund, unauthorized charge or
billing error to a cardholder, because such Receivable was created in respect of
merchandise which was refused or returned by a cardholder, or because the
Servicer charges off as uncollectible Small Balances, or if the Servicer
otherwise adjusts downward the amount of any Receivable without receiving
Collections therefor or charging off such amount as uncollectible, then, in any
such case, the amount of Principal Receivables used to calculate the Seller's
Participation Amount and the Seller's Interest will be reduced by the amount of
the adjustment. Similarly, the amount of Principal Receivables used to
calculate the Seller's Participation Amount and the Seller's Interest will be
reduced by the amount of any Receivable which was discovered as having been
created through a fraudulent or counterfeit charge or with respect to which the
covenant contained in Section 2.07(b) was breached. Any adjustment required
pursuant to either of the two preceding
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sentences shall be made on or prior to the end of the Due Period in which such
adjustment obligation arises. In the event that, following the exclusion of
such Principal Receivables from the calculation of the Seller's Participation
Amount, the Seller's Participation Amount would be a negative number, not later
than 1:00 P.M., New York City time, on the Distribution Date following the Due
Period in which such adjustment obligation arises, the Seller shall 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 below
zero (up to the amount of such Principal Receivables). Any amount deposited
into the Collection Account in connection with the adjustment of a Receivable
shall be considered Collections of Principal Receivables and shall be applied in
accordance with Article IV and the terms of each Supplement.
(b) If (i) the Servicer makes a deposit into the Collection Account
in respect of a Collection of a Receivable and such Collection was received by
the Servicer in the form of a check which is not honored for any reason or (ii)
the Servicer makes a mistake with respect to the amount of any Collection and
deposits an amount that is less than or more than the actual amount of such
Collection, the Servicer shall appropriately adjust the amount subsequently
deposited into the Collection Account to reflect such dishonored check or
mistake. Any Receivable in respect of which a dishonored check is received
shall be deemed not to have been paid. Notwithstanding the first two sentences
of this paragraph, adjustments made pursuant to this paragraph shall not require
any change in any report previously delivered pursuant to Section 3.04(a).
Section 3.10. Interchange; Recoveries. (a) If at any time the
Servicer cannot identify the amount of Interchange to be included as Collections
of Finance Charge Receivables with respect to the preceding Due Period, then the
Servicer shall reasonably estimate on or prior to each Determination Date the
amount of Interchange which shall be attributable to Accounts. In such event,
the Servicer shall notify the Bank of such amount prior to 1:00 p.m., New York
City time, on the applicable Distribution Date.
(b) If at any time the Servicer cannot identify the Recoveries which
relate to specific Defaulted Receivables, then the Servicer shall reasonably
estimate, on or prior to each Determination Date, the amount of Recoveries to be
attributed to Accounts.
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ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.01. Rights of Certificateholders. The Investor
Certificates shall represent fractional undivided interests in the Trust, which,
with respect to each Series, shall consist of the right to receive, to the
extent necessary to make the required payments with respect to the Investor
Certificates of such Series at the times and in the amounts specified in the
related Supplement, the portion of Collections allocable to Investor
Certificateholders of such Series pursuant to this Agreement and such
Supplement, funds on deposit in the Collection Account allocable to
Certificateholders of such Series pursuant to this Agreement and such
Supplement, funds on deposit in any related Series Account and funds available
pursuant to any related Series Enhancement (collectively, with respect to all
Series, the "Certificateholders' Interest"), it being understood that the
Investor Certificates of any Series or Class shall not represent any interest in
any Series Account or Series Enhancement for the benefit of any other Series or
Class. The Seller's Certificates shall represent the ownership interest in the
remainder of the Trust Assets not allocated pursuant to this Agreement or any
Supplement to the Certificateholders' Interest, including the right to receive
Collections with respect to the Receivables and other amounts at the times and
in the amounts specified in any Supplement to be paid to the Seller on behalf of
all holders of the Seller's Certificates (the "Seller's Interest"); provided,
however, that the Seller's Certificates shall not represent any interest in the
Collection Account, any Series Account or any Series Enhancement, except as
specifically provided in this Agreement or any Supplement.
Section 4.02. Establishment of Collection Account. The Servicer, for
the benefit of the Certificateholders, shall establish and maintain in the name
of the Trustee, on behalf of the Trust, an Eligible Deposit Account bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Certificateholders (the "Collection Account"). The Trustee shall
possess all right, title and interest in all funds on deposit from time to time
in the Collection Account and in all proceeds thereof for the benefit of the
Certificateholders.
The Collection Account shall be under the sole dominion and control of the
Trustee for the benefit of the Certificateholders. Except as expressly provided
in this Agreement, the Servicer agrees that it shall have no right of setoff or
banker's lien against, and no right to otherwise deduct from, any funds held in
the Collection Account for any amount owed to it by the Trustee, the Trust, any
Certificateholder or any Series Enhancer. If, at any time, the Collection
Account ceases to be an Eligible Deposit Account, the Trustee (or the Servicer
on its behalf) shall within 10 Business Days (or such longer period, not to
exceed 30
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calendar days, as to which each Rating Agency may consent) establish a new
Collection Account meeting the conditions specified above, transfer any cash
and/or any investments to such new Collection Account and from the date such new
Collection Account is established, it shall be the "Collection Account".
Pursuant to the authority granted to the Servicer in subsection 3.01(b), the
Servicer shall have the power, revocable by the Trustee, to make withdrawals and
payments from the Collection Account and to instruct the Trustee to make
withdrawals and payments from the Collection Account for the purposes of
carrying out the Servicer's or the Trustee's duties hereunder. The Servicer
shall reduce deposits into the Collection Account payable by the Seller on any
Deposit Date to the extent the Seller is entitled to receive funds from the
Collection Account on such Deposit Date, but only to the extent such reduction
would not reduce the Seller's Participation Amount to an amount less than zero.
Funds on deposit in the Collection Account (other than investment
earnings and amounts deposited pursuant to Sections 2.06, 9.02, 10.01 or 12.02)
shall at the direction of the Servicer be invested by the Trustee in Eligible
Investments selected by the Servicer. All such Eligible Investments shall be
held by the Trustee for the benefit of the Certificateholders. Investments of
funds representing Collections collected during any Due Period shall be invested
in Eligible Investments that will mature so that such funds will be available at
the close of business on each monthly Transfer Date following such Due Period in
amounts sufficient to the extent of such funds to make the required
distributions on the following Distribution Date. Until all Series of
Certificates have been paid in full, the Trustee shall not liquidate such
Eligible Investments prior to their scheduled maturity, unless the Rating Agency
Condition shall have been satisfied. Funds deposited in the Collection Account
on a Transfer Date with respect to the next following Distribution Date are not
required to be invested overnight. On each Distribution Date, all interest and
other investment earnings (net of losses and investment expenses) on funds on
deposit in the Collection Account shall be paid to the Seller, except as
otherwise specified in any Supplement. The Trustee shall bear no responsibility
or liability for any losses resulting from investment or reinvestment of any
funds in accordance with this Section 4.02.
Section 4.03. Collections and Allocations.
(a) The Servicer will apply or will instruct the Trustee to apply all funds on
deposit in the Collection Account as described in this Article IV and in each
Supplement. Except as otherwise provided below, the Servicer shall deposit
Collections into the Collection Account as promptly as possible after the Date
of Processing of such Collections, but in no event later than the second
Business Day following the Date of Processing. Subject to the express terms of
any Supplement, but notwithstanding anything else in this Agreement to the
contrary, for so long as Household
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Finance Corporation remains the Servicer and maintains a commercial paper rating
of not less than A-1 by Standard and Poor's and P-1 by Moody's (or such other
rating below A-1 or P-1, as the case may be, which is satisfactory to each
Rating Agency), and for five Business Days following any reduction of any such
rating, the Servicer need not make the daily deposits of Collections into the
Collection Account as provided in the preceding sentence, but may make a single
deposit in the Collection Account in immediately available funds not later than
1:00 P.M., New York City time, on each Distribution Date. Subject to the first
proviso in Section 4.04, but notwithstanding anything else in this Agreement to
the contrary, with respect to any Due Period, whether the Servicer is required
to make deposits of Collections pursuant to the first or the second preceding
sentence, (i) the Servicer will only be required to deposit Collections into the
Collection Account up to the aggregate amount of Collections required to be
deposited into any Series Account or, without duplication, distributed on or
prior to the related Distribution Date to Investor Certificateholders or to any
Series Enhancer pursuant to the terms of any Supplement or Enhancement Agreement
and (ii) if at any time prior to such Distribution Date the amount of
Collections deposited in the Collection Account exceeds the amount required to
be deposited pursuant to clause (i) above, the Servicer will be permitted to
withdraw the excess from the Collection Account. The Servicer may pay amounts
due to the Seller on the following Deposit Date directly to the Seller and shall
not be required to deposit such amounts in the Collection Account. Subject to
the second preceding sentence, the Servicer may retain its Servicing Fee with
respect to a Series and shall not be required to deposit it in the Collection
Account.
(b) Collections of Finance Charge and Administrative Receivables and
Principal Receivables and Defaulted Receivables and Miscellaneous Payments will
be allocated to each Series on the basis of the Series Allocable Finance Charge
and Administrative Collections of such Series, Series Allocable Principal
Collections, Series Allocable Defaulted Amount and Series Allocable
Miscellaneous Payments and amounts so allocated to any Series will not, except
as specified in the related Supplement, be available to the Investor
Certificateholders of any other Series. Allocations thereof between the
Certificateholders' Interest and the Seller's Interest, among the Series and
among the Classes in any Series, shall be set forth in the related Supplement or
Supplements. On each Determination Date, after the amounts of all allocations
have been determined (i) with respect to all outstanding Series and (ii) as
provided for in any applicable Supplement, the Servicer may, with the consent of
the Seller, allocate any excess Collections which would otherwise be payable to
the Seller at its discretion to one or more of the outstanding Series subject to
the following conditions:
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(i) on or before the fifth Business Day immediately preceding such
allocation, the Servicer shall have given the Trustee and each Rating
Agency notice of such allocation;
(ii) the Rating Agency Condition shall have been satisfied with
respect to such allocation; and
(iii) the Servicer shall have delivered to the Trustee an Officer's
Certificate, dated the date of such allocation, to the effect that the
Servicer reasonably believes that such allocation will not have an Adverse
Effect.
Section 4.04. Unallocated Principal Collections. On each
Determination Date, (a) the Servicer shall allocate Trust Excess Principal
Collections (as described below) to each Series as set forth in the related
Supplement and (b) the Servicer shall withdraw from the Collection Account and
pay to the Seller (i) an amount equal to the excess, if any, of (x) the
aggregate amount for all outstanding Series of Collections of Principal
Receivables which the related Supplements specify are to be treated as "Trust
Excess Principal Collections" for such Distribution Date over (y) the aggregate
amount for all outstanding Series which the related Supplements specify are
"Principal Shortfalls" for such Distribution Date and, without duplication, and
(ii) the aggregate amount for all outstanding Series of that portion of Series
Allocable Principal Collections which the related Supplements specify are to be
allocated and paid to the Seller with respect to such Distribution Date;
provided, however, that, in the case of clauses (i) and (ii), such amounts shall
be paid to the Seller only if the Seller's Participation Amount as of such
Determination Date (determined after giving effect to any Principal Receivables
transferred to the Trust on such date) exceeds zero. The amount required to be
held in the Collection Account as a result of the proviso in the preceding
sentence ("Unallocated Principal Collections") shall be paid to the Seller at
the time the Seller's Participation Amount exceeds zero; provided, however, that
any Unallocated Principal Collections on deposit in the Collection Account at
any time during which any Series is in its accumulation period, amortization
period or Early Amortization Period shall be deemed to be "Miscellaneous
Payments" and shall be allocated and distributed in accordance with Section 4.03
and the terms of each Supplement.
Section 4.05. Discount or Premium Receivables. The Seller may
designate a fixed percentage of the amount of Receivables arising in the
Accounts on and after the date of such designation (a) that would otherwise be
treated as Principal Receivables to be treated as Finance Charge Receivables or
(b) that would otherwise 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) the
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Seller shall have delivered to the Trustee an Officer's Certificate, dated the
date of such designation, to the effect that the Seller reasonably believes such
designation will not have an Adverse Effect and (ii) the Rating Agency Condition
is satisfied.
Section 4.06. Allocation of Trust Assets to Series or Groups. To the
extent so provided in the Supplement for any Series or in an amendment to the
Pooling and Servicing Agreement executed pursuant to 13.01(a), Receivables
conveyed to the Trust pursuant to Section 2.01 and Receivables or Participation
Interests conveyed to the Trust pursuant to Section 2.09 or any Participation
Interest Supplement, and all Collections received with respect to such
Receivables or Participation Interests, may be allocated in whole or in part to
one or more Series or Groups as may be provided in such Supplement or amendment,
provided, however, that any such allocation shall be effective only upon
satisfaction of the following conditions:
(i) on or before the fifth Business Day immediately preceding such
allocation, the Servicer shall have given the Trustee and each Rating
Agency written notice of such allocation;
(ii) the Rating Agency Condition shall have been satisfied with
respect to such allocation; and
(iii) the Servicer shall have delivered to the Trustee an Officer's
Certificate, dated the date of such allocation, to the effect that the
Servicer reasonably believes that such allocation will not have an Adverse
Effect.
Any such Supplement or amendment may provide that (i) such allocation
to one or more particular Series or Groups may terminate upon the occurrence of
certain events specified therein and (ii) that upon the occurrence of any such
event, such assets and any Collections with respect thereto, shall be
reallocated to other Series or Groups or to all Series, all as shall be provided
in such Supplement or amendment.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
Distributions shall be made to, and reports shall be provided to,
Certificateholders as set forth in the applicable Supplement. The identity of
the Certificateholders with respect to distributions and reports shall be
determined according to the immediately preceding Record Date.
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ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates. The Investor Certificates of any
Series or Class shall be issued in fully registered form ((including, without
limitation, any uncertificated Series or Class which is registered in the
Certificate Register) the "Registered Certificates") unless the applicable
Supplement provides, in accordance with then applicable laws, that such
Certificates be issued in bearer form ("Bearer Certificates") with attached
interest coupons and a special coupon (collectively the "Coupons"). Such
Registered Certificates or Bearer Certificates, as the case may be, shall be
substantially in the form of the exhibits with respect thereto attached to the
applicable Supplement. The HAFC Seller Certificate will be issued in registered
form, substantially in the form of Exhibit A, and shall upon issue, be executed
and delivered by the Seller to the Trustee for authentication and redelivery as
provided in Section 6.02. If specified in any Supplement, the Investor
Certificates of any Series or Class shall be issued upon initial issuance as a
single certificate evidencing the aggregate original principal amount of such
Series or Class as described in Section 6.10. The HAFC Seller Certificate shall
be a single certificate and shall initially represent the entire Seller's
Interest. Each Certificate shall be executed by manual or facsimile signature
on behalf of the Seller by its President or any Vice President or by any
attorney-in-fact duly authorized to execute such Certificate on behalf of any
such officer. Certificates bearing the manual or facsimile signature of an
individual who was, at the time when such signature was affixed, authorized to
sign on behalf of the Seller shall not be rendered invalid, notwithstanding that
such individual ceased to be so authorized prior to the authentication and
delivery of such Certificates or does not hold such office at the date of such
Certificates. No Certificates shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on such Certificate
a certificate of authentication substantially in the form provided for herein
executed by or on behalf of the Trustee by the manual signature of a duly
authorized signatory, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. Bearer Certificates shall be dated the
Series Issuance Date. All Registered Certificates and Seller's Certificates
shall be dated the date of their authentication.
Section 6.02. Authentication of Certificates. The Trustee shall
authenticate and deliver the Investor Certificates of each Series and Class that
are issued upon original issuance to or upon the order of the Seller against
payment to the Seller of the purchase price therefor. The Trustee shall
authenticate and deliver the HAFC Seller Certificate to the Seller
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simultaneously with its delivery of the Investor Certificates of the first
Series to be issued hereunder.
Section 6.03. New Issuances. (a) The Seller may from time to time
direct the Trustee, on behalf of the Trust, to issue one or more new Series of
Investor Certificates. The Investor Certificates of all outstanding Series
shall be equally and ratably entitled as provided herein to the benefits of this
Agreement without preference, priority or distinction, all in accordance with
the terms and provisions of this Agreement and the applicable Supplement except,
with respect to any Series or Class, as provided in the related Supplement.
(b) Upon satisfaction of the conditions set forth in clauses (i)
through (vii) below on or before the Series Issuance Date relating to any new
Series, the parties hereto will execute and deliver a Supplement which will
specify the Principal Terms of such new Series. The Trustee shall execute the
Supplement and the Seller shall execute the Investor Certificates of such Series
and deliver such Investor Certificates to the Trustee for authentication. In
connection with the issuance of a new Series of Investor Certificates or at any
other time, the Seller may surrender the Seller Certificate to the Trustee in
exchange for a newly issued Seller Certificate and a second certificate (a
"Supplemental Certificate"), the terms of which shall be defined in a supplement
to this Agreement (which supplement shall be subject to Section 13.01 to the
extent that it amends any of the terms of this Agreement); to be delivered to or
upon the order of the Seller (or the holder of a Supplemental Certificate, in
the case of the transfer and exchange thereof):
(i) on or before the eighth Business Day immediately preceding the
Series Issuance Date or Seller Certificate transfer and exchange, as the
case may be, the Seller shall have given the Trustee, the Servicer and each
Rating Agency notice (unless such notice requirement is otherwise waived)
of such issuance and the Series Issuance Date or such Seller Certificate
transfer and exchange, as the case may be;
(ii) the Seller shall have delivered to the Trustee the related
Supplement, in form satisfactory to the Trustee, executed by each party
hereto other than the Trustee;
(iii) the Seller shall have delivered to the Trustee any related
Enhancement Agreement executed by each of the parties thereto, other than
the Trustee;
(iv) the Rating Agency Condition shall have been satisfied with
respect to such issuance or such Seller Certificate transfer and exchange,
as the case may be;
(v) such issuance or transfer and exchange, as the case may be, will
not result in any Adverse Effect and the Seller shall have delivered to the
Trustee an Officer's
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Certificate, dated the Series Issuance Date or the date of such transfer
and exchange, as the case may be, to the effect that the Seller reasonably
believes that such issuance or such transfer and exchange, as the case may
be, will not have an Adverse Effect;
(vi) the Seller shall have delivered to the Trustee and each Rating
Agency a Tax Opinion, dated the Series Issuance Date or the date of such
transfer and exchange, as the case may be, with respect to such issuance or
transfer and exchange, respectively; and
(vii) the balances of the Principal Receivables in the Trust as of the
end of the next preceding Due Period shall not be less than the Required
Minimum Principal Balance as of the Series Issuance Date or the date of
such transfer and exchange, as the case may be, and after giving effect to
such issuance or such transfer and exchange, respectively.
Section 6.04. Registration of Transfer and Exchange of Certificates.
(a) The Trustee shall cause to be kept at the office or agency to be maintained
in accordance with the provisions of Section 11.16 a register (the "Certificate
Register") in which, subject to such reasonable regulations as it may prescribe,
a transfer agent and registrar (which may be the Trustee) (the "Transfer Agent
and Registrar") shall provide for the registration of the Registered
Certificates and of transfers and exchanges of the Registered Certificates as
herein provided. The Transfer Agent and Registrar shall initially be The Bank
of New York.
The Trustee may revoke such appointment and remove The Bank of New
York as Transfer Agent and Registrar if the Trustee determines in its sole
discretion that The Bank of New York failed to perform its obligations under
this Agreement in any material respect. The Bank of New York shall be permitted
to resign as Transfer Agent and Registrar upon 30 days' notice to the Seller,
the Trustee and the Servicer; provided, however, that such resignation shall not
be effective and The Bank of New York shall continue to perform its duties as
Transfer Agent and Registrar until the Trustee has appointed a successor
Transfer Agent and Registrar reasonably acceptable to the Seller.
Upon surrender for registration of transfer of any Registered
Certificate at any office or agency of the Transfer Agent and Registrar
maintained for such purpose, one or more new Registered Certificates (of the
same Series and Class) in authorized denominations of like aggregate fractional
undivided interests in the Certificateholders' Interest shall be executed,
authenticated and delivered, in the name of the designated transferee or
transferees.
At the option of a Registered Certificateholder, Registered
Certificates (of the same Series and Class) may be
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exchanged for other Registered Certificates of authorized denominations of like
aggregate fractional undivided interests in the Certificateholders' Interest,
upon surrender of the Registered Certificates to be exchanged at any such office
or agency; Registered Certificates, including Registered Certificates received
in exchange for Bearer Certificates, may not be exchanged for Bearer
Certificates. At the option of the Holder of a Bearer Certificate, subject to
applicable laws and regulations, Bearer Certificates may be exchanged for other
Bearer Certificates or Registered Certificates (of the same Series and Class) of
authorized denominations of like aggregate fractional undivided interests in the
Certificateholders' Interest, upon surrender of the Bearer Certificates to be
exchanged at an office or agency of the Transfer Agent and Registrar located
outside the United States. Each Bearer Certificate surrendered pursuant to this
Section shall have attached thereto all unmatured Coupons; provided that any
Bearer Certificate, so surrendered after the close of business on the Record
Date preceding the relevant payment date or distribution date after the expected
final payment date need not have attached the Coupon relating to such payment
date or distribution date (in each case, as specified in the applicable
Supplement).
The preceding provisions of this Section notwithstanding, the Trustee
or the Transfer Agent and Registrar, as the case may be, shall not be required
to register the transfer of or exchange any Certificate for a period of 15 days
preceding the due date for any payment with respect to the Certificate.
Whenever any Investor Certificates are so surrendered for exchange,
the Seller shall execute, the Trustee shall authenticate and the Transfer Agent
and Registrar shall deliver (in the case of Bearer Certificates, outside the
United States) the Investor Certificates which the Investor Certificateholder
making the exchange is entitled to receive. Every Investor Certificate
presented or surrendered for registration of transfer or exchange shall be
accompanied by a written instrument of transfer in a form satisfactory to the
Trustee or the Transfer Agent and Registrar duly executed by the Investor
Certificateholder or the attorney-in-fact thereof duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Investor Certificates, but the Transfer Agent and Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any such transfer or exchange.
All Investor Certificates (together with any Coupons) surrendered for
registration of transfer and exchange or for payment shall be canceled and
disposed of in a manner satisfactory to the Trustee.
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The Seller shall execute and deliver to the Trustee Bearer
Certificates and Registered Certificates in such amounts and at such times as
are necessary to enable the Trustee to fulfill its responsibilities under this
Agreement, each Supplement and the Certificates.
(b) The Transfer Agent and Registrar will maintain at its expense in
the Borough of Manhattan, The City of New York, an office or agency where
Investor Certificates may be surrendered for registration of transfer or
exchange.
Section 6.05. Mutilated, Destroyed, Lost or Stolen Certificates. If
(a) any mutilated Certificate (together, in the case of Bearer Certificates,
with all unmatured Coupons (if any) appertaining thereto) is surrendered to the
Transfer Agent and Registrar, or the Transfer Agent and Registrar receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate and (b) there is delivered to the Transfer Agent and Registrar and
the Trustee such security or indemnity as may be required by them to save each
of them harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Seller shall
execute, the Trustee shall authenticate and the Transfer Agent and Registrar
shall deliver (in the case of Bearer Certificates, outside the United States),
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and aggregate fractional undivided
interest. In connection with the issuance of any new Certificate under this
Section, the Trustee or the Transfer Agent and Registrar may require the payment
by the Certificateholder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and Transfer Agent and
Registrar) connected therewith. Any duplicate Certificate issued pursuant to
this Section shall constitute complete and indefeasible evidence of ownership in
the Trust, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
Section 6.06. Persons Deemed Owners. The Trustee, the Paying Agent,
the Transfer Agent and Registrar and any agent of any of them may (a) prior to
due presentation of a Registered Certificate for registration of transfer, treat
the Person in whose name any Registered Certificate is registered as the owner
of such Registered Certificate for the purpose of receiving distributions
pursuant to the terms of the applicable Supplement and for all other purposes
whatsoever, and (b) treat the bearer of a Bearer Certificate or Coupon as the
owner of such Bearer Certificate or Coupon for the purpose of receiving
distributions pursuant to the terms of the applicable Supplement and for all
other purposes whatsoever; and, in any such case, neither the Trustee, the
Paying Agent, the Transfer Agent and Registrar nor any agent of any of them
shall be affected by any notice to the contrary. Notwithstanding the foregoing,
in determining whether
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the Holders of the requisite Investor Certificates have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Certificates owned by any of the Seller, the Servicer, any other holder of a
Seller's Certificate or any Affiliate thereof, shall be disregarded and deemed
not to be outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Certificates which the Trustee knows to be so
owned shall be so disregarded. Certificates so owned which have been pledged in
good faith shall not be disregarded and may be regarded as outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Certificates and that the pledgee is not the Seller,
the Servicer, any other holder of a Seller's Certificate or any Affiliate
thereof. None of the Seller, the Servicer, the Trustee, the Registrar or the
Paying Agent will have any responsibility or liability for any of the records
relating to or on account of beneficial ownership in Book-Entry Certificates or
for maintaining, supervising or reviewing records relating thereto.
Section 6.07. Appointment of Paying Agent. The Paying Agent shall
make distributions to Investor Certificateholders from the Collection Account or
applicable Series Account pursuant to the provisions of the applicable
Supplement and shall report the amounts of such distributions to the Trustee.
Any Paying Agent shall have the revocable power to withdraw funds from the
Collection Account or applicable Series Account for the purpose of making the
distributions referred to above. The Trustee may revoke such power and remove
the Paying Agent if the Trustee determines in its sole discretion that the
Paying Agent shall have failed to perform its obligations under this Agreement
or any Supplement in any material respect. The Paying Agent shall initially be
The Bank of New York. In the event that The Bank of New York shall no longer be
the Paying Agent, the Trustee shall appoint a successor to act as Paying Agent.
The Trustee shall act as Paying Agent until a successor is appointed. The
Trustee shall cause each successor or additional Paying Agent to execute and
deliver to the Trustee an instrument in which such successor or additional
Paying Agent shall agree with the Trustee that it will hold all sums, if any,
held by it for payment to the Investor Certificateholders in trust for the
benefit of the Investor Certificateholders entitled thereto until such sums
shall be paid to such Investor Certificateholders. The Paying Agent shall
return all unclaimed funds to the Trustee and upon removal shall also return all
funds in its possession to the Trustee. The provisions of Sections 11.01,
11.02, 11.03 and 11.05 shall apply to the Trustee also in its role as Paying
Agent, for so long as the Trustee shall act as Paying Agent.
Section 6.08. Access to List of Registered Certificateholders' Names
and Addresses. The Trustee will furnish or cause to be furnished by the
Transfer Agent and
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Registrar to the Servicer or the Paying Agent, within five Business Days after
receipt by the Trustee of a request therefor, a list in such form as the
Servicer or the Paying Agent may reasonably require, of the names and addresses
of the Registered Certificateholders. If any Holder or group of Holders of
Investor Certificates of any Series or all outstanding Series, as the case may
be, evidencing not less than 10% of the aggregate unpaid principal amount of
such Series or all outstanding Series, as applicable (the "Applicants"), apply
to the Trustee, and such application states that the Applicants desire to
communicate with other Investor Certificateholders with respect to their rights
under this Agreement or any Supplement or under the Investor Certificates and is
accompanied by a copy of the communication which such Applicants propose to
transmit, then the Trustee, after having been adequately indemnified by such
Applicants for its costs and expenses, shall afford or shall cause the Transfer
Agent and Registrar to afford such Applicants access during normal business
hours to the most recent list of Registered Certificateholders of such Series or
all outstanding Series, as applicable, held by the Trustee, within five Business
Days after the receipt of such application. Such list shall be as of a date no
more than 45 days prior to the date of receipt of such Applicants' request.
With respect to any Series of Registered Certificates, every
Registered Certificateholder, by receiving and holding a Registered Certificate,
agrees with the Trustee that neither the Trustee, the Transfer Agent and
Registrar, nor any of their respective agents, shall be held accountable by
reason of the disclosure of any such information as to the names and addresses
of the Registered Certificateholders hereunder, regardless of the sources from
which such information was derived.
Section 6.09. Authenticating Agent. (a) The Trustee may appoint one
or more authenticating agents with respect to the Certificates which shall be
authorized to act on behalf of the Trustee in authenticating the Certificates in
connection with the issuance, delivery, registration of transfer, exchange or
repayment of the Certificates. Whenever reference is made in this Agreement to
the authentication of Certificates by the Trustee or the Trustee's certificate
of authentication, such reference shall be deemed to include authentication on
behalf of the Trustee by an authenticating agent and certificate of
authentication executed on behalf of the Trustee by an authenticating agent.
Each authenticating agent must be acceptable to the Seller and the Servicer.
(b) Any institution succeeding to the corporate agency business of an
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any power or any further act on the part of the Trustee
or such authenticating agent. An authenticating agent may at any time resign by
giving notice of resignation to the Trustee and to the Seller. The Trustee may
at any time terminate the agency of an
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authenticating agent by giving notice of termination to such authenticating
agent and to the Seller. Upon receiving such a notice of resignation or upon
such a termination, or in case at any time an authenticating agent shall cease
to be acceptable to the Trustee or the Seller, the Trustee promptly may appoint
a successor authenticating agent. Any successor authenticating agent upon
acceptance of its appointment hereunder shall become vested with all the rights,
powers and duties of its predecessor hereunder, with like effect as if
originally named as an authenticating agent. No successor authenticating agent
shall be appointed unless acceptable to the Trustee and the Seller. The Seller
agrees to pay to each authenticating agent from time to time reasonable
compensation for its services under this Section. The provisions of Sections
11.01, 11.02 and 11.03 shall be applicable to any authenticating agent.
(c) Pursuant to an appointment made under this Section, the
Certificates may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the Certificates described in the Pooling and Servicing
Agreement.
____________________________
____________________________
as Authenticating Agent
for the Trustee,
By _________________________
Authorized Officer
Section 6.10. Book-Entry Certificates. Unless otherwise specified in
the related Supplement for any Series or Class, the Investor Certificates, upon
original issuance, shall be issued in the form of one or more master Investor
Certificates representing the Book-Entry Certificates, to be delivered to the
Clearing Agency, by, or on behalf of, the Seller. The Investor Certificates
shall initially be registered on the Certificate Register in the name of the
Clearing Agency or its nominee, and no Certificate Owner will receive a
definitive certificate representing such Certificate Owner's interest in the
Investor Certificates, except as provided in Section 6.12. Unless and until
definitive, fully registered Investor Certificates ("Definitive Certificates")
have been issued to the applicable Certificate Owners pursuant to Section 6.12
or as otherwise specified in any such Supplement:
(a) the provisions of this Section shall be in full force and
effect;
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(b) the Seller, the Servicer and the Trustee may deal with the
Clearing Agency and the Clearing Agency Participants for all purposes
(including the making of distributions) as the authorized representatives
of the respective Certificate Owners;
(c) to the extent that the provisions of this Section conflict
with any other provisions of this Agreement, the provisions of this Section
shall control; and
(d) the rights of the respective Certificate Owners shall be
exercised only through the Clearing Agency and the Clearing Agency
Participants and shall be limited to those established by law and
agreements between such Certificate Owners and the Clearing Agency and/or
the Clearing Agency Participants. Pursuant to the Depository Agreement,
unless and until Definitive Certificates are issued pursuant to Section
6.12, the Clearing Agency will make book-entry transfers among the Clearing
Agency Participants and receive and transmit distributions of principal and
interest on the related Investor Certificates to such Clearing Agency
Participants.
For purposes of any provision of this Agreement requiring or
permitting actions with the consent of, or at the direction of, Investor
Certificateholders evidencing a specified percentage of the aggregate unpaid
principal amount of Investor Certificates, such direction or consent may be
given by Certificate Owners (acting through the Clearing Agency and the Clearing
Agency Participants) owning Investor Certificates evidencing the requisite
percentage of principal amount of Investor Certificates.
Section 6.11. Notices to Clearing Agency. Whenever any notice or
other communication is required to be given to Investor Certificateholders of
any Series or Class with respect to which Book-Entry Certificates have been
issued, unless and until Definitive Certificates shall have been issued to the
related Certificate Owners, the Trustee shall give all such notices and
communications to the applicable Clearing Agency.
Section 6.12. Definitive Certificates. If Book-Entry Certificates
have been issued with respect to any Series or Class and (a) the Seller advises
the Trustee that the Clearing Agency is no longer willing or able to discharge
properly its responsibilities under the Depository Agreement with respect to
such Series or Class and the Trustee or the Seller is unable to locate a
qualified successor, (b) the Seller, at its option, advises the Trustee that it
elects to terminate the book-entry system with respect to such Series or Class
through the Clearing Agency or (c) after the occurrence of a Servicer Default,
Certificate Owners of such Series or Class evidencing not less
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than 50% of the aggregate unpaid principal amount of such Series or Class advise
the Trustee and the Clearing Agency through the Clearing Agency Participants
that the continuation of a book-entry system with respect to the Investor
Certificates of such Series or Class through the Clearing Agency is no longer in
the best interests of the Certificate Owners with respect to such Certificates,
then the Trustee shall notify all Certificate Owners of such Certificates,
through the Clearing Agency, of the occurrence of any such event and of the
availability of Definitive Certificates to Certificate Owners requesting the
same. Upon surrender to the Trustee of any such Certificates by the Clearing
Agency, accompanied by registration instructions from the Clearing Agency for
registration, the Trustee shall authenticate and deliver such Definitive
Certificates. Neither the Seller nor the Trustee shall be liable for any delay
in delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of such
Definitive Certificates all references herein to obligations imposed upon or to
be performed by the Clearing Agency shall be deemed to be imposed upon and
performed by the Trustee, to the extent applicable with respect to such
Definitive Certificates and the Trustee shall recognize the Holders of such
Definitive Certificates as Investor Certificateholders hereunder.
Section 6.13. Uncertificated Classes. Notwithstanding anything to
the contrary contained in this Article VI or in Article XII, unless otherwise
specified in any Supplement any provisions contained in this Article VI and in
Article XII relating to the registration form, execution, authentication,
delivery, presentation, cancellation and surrender of Certificates shall not be
applicable to any uncertificated Certificates.
ARTICLE VII
OTHER MATTERS RELATING TO THE SELLER
Section 7.01. Liability of the Seller. The Seller shall be liable
for all obligations, covenants, representations and warranties of the Seller
arising under or related to this Agreement or any Supplement. Except as
provided in the preceding sentence, the Seller shall be liable only to the
extent of the obligations specifically undertaken by it in its capacity as
Seller.
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Seller. (a) The Seller shall not dissolve, liquidate,
consolidate with or merge into any other corporation or convey, transfer or sell
its properties and assets substantially as an entirety to any Person unless:
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(i) (x) the corporation formed by such consolidation or into which the
Seller is merged or the Person which acquires by conveyance, transfer or
sale the properties and assets of the Seller substantially as an entirety
shall be, if the Seller is not the surviving entity, organized and existing
under the laws of the United States of America or any State or the District
of Columbia, and shall be a savings and loan association, a national
banking association, a bank or other entity which is not subject to Title
11 of the United States Code or is a special purpose corporation whose
powers and activities are limited to the performance of the Seller's
obligations under this Agreement and any Supplement and, if the Seller is
not the surviving entity, shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the performance of every covenant and
obligation of the Seller hereunder; and (y) the Seller or the surviving
entity, as the case may be, has delivered to the Trustee (with a copy to
the Rating Agency) an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger, conveyance, transfer or sale and
such supplemental agreement comply with this Section, that such
supplemental agreement is a valid and binding obligation of such surviving
entity enforceable against such surviving entity in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally from time to time in effect or
general principles of equity, and that all conditions precedent herein
provided for relating to such transaction have been complied with; and
(ii) the Rating Agency Condition shall have been satisfied with
respect to such consolidation, merger, conveyance or transfer.
(b) Except as permitted by Section 2.07(c), the obligations, rights
or any part thereof of the Seller hereunder shall not be assignable nor shall
any Person succeed to such obligations or rights of the Seller hereunder except
(i) for conveyances, mergers, consolidations, assumptions, sales or transfers in
accordance with the provisions of the foregoing paragraph and (ii) conveyances,
mergers, consolidations, assumptions, sales or transfers to other entities (1)
which the Seller and the Servicer determine will not result in an Adverse
Effect, (2) which meet the requirements of clause (ii) of the preceding
paragraph and (3) for which such purchaser, transferee, pledgee or entity shall
expressly assume, in an agreement supplemental hereto, executed and delivered to
the Trustee in writing in form satisfactory to the Trustee, the performance of
every covenant and obligation of the Seller thereby conveyed.
Section 7.03. Limitations on Liability of the Seller. Subject to
Section 7.01, neither the Seller nor any of the
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directors, officers, employees or agents of the Seller acting in such capacities
shall be under any liability to the Trust, the Trustee, the Certificateholders,
any Series Enhancer or any other Person for any action taken or for refraining
from the taking of any action in good faith in such capacities pursuant to this
Agreement; provided, however, that this provision shall not protect the Seller
or any such person against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations and duties
hereunder. The Seller and any director, officer, employee or agent of the
Seller may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person (other than the Seller) respecting any
matters arising hereunder.
Section 7.04. Seller Indemnification of the Trust and the Trustee.
The Seller shall indemnify and hold harmless the Trust and the Trustee from and
against any loss, liability, expense, damage or injury suffered or sustained by
reason of (a) any acts or omissions of the Seller with respect to the Trust
pursuant to this Agreement or (b) the administration by the Trustee of the Trust
(in the case of clause (a) or (b), other than such as may arise from the
negligence or wilful misconduct of the Trustee), including any judgment, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any action, proceeding or claim. Indemnification
pursuant to this Section shall not be payable from the Trust Assets.
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
Section 8.01. Liability of the Servicer. The Servicer shall be
liable under this Article only to the extent of the obligations specifically
undertaken by the Servicer in its capacity as Servicer.
Section 8.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. The Servicer shall not consolidate with or merge
into any other corporation or convey, transfer or sell its properties and assets
substantially as an entirety to any Person, unless:
(a) (i) the corporation formed by such consolidation or into which
the Servicer is merged or the Person which acquires by conveyance, transfer
or sale the properties and assets of the Servicer substantially as an
entirety shall be, if the Servicer is not the surviving entity, a
corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, and, if the Servicer is
not the surviving entity, such corporation shall expressly assume, by an
agreement
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supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the performance of every covenant and
obligation of the Servicer hereunder;
(ii) the Servicer has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger, conveyance, transfer or sale comply with this Section and that all
conditions precedent herein provided for relating to such transaction have
been complied with;
(b) the Rating Agency Condition shall have been satisfied with
respect to such assignment and succession; and
(c) the corporation formed by such consolidation or into which
the Servicer is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Servicer substantially as an
entirety shall be an Eligible Servicer.
Section 8.03. Limitation on Liability of the Servicer and Others.
Except as provided in Section 8.04 and Section 11.05, neither the Servicer nor
any of the directors, officers, employees or agents of the Servicer in its
capacity as Servicer shall be under any liability to the Trust, the Trustee, the
Certificateholders, any Series Enhancer or any other person for any action taken
or for refraining from the taking of any action in good faith in its capacity as
Servicer pursuant to this Agreement; provided, however, that this provision
shall not protect the Servicer or any such Person against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder. The Servicer and any director, officer,
employee or agent of the Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person (other than the
Servicer) respecting any matters arising hereunder. The Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its duties as Servicer in accordance with this Agreement and
which in its reasonable judgment may involve it in any expense or liability.
The Servicer may, in its sole discretion, undertake any such legal action which
it may deem necessary or desirable for the benefit of the Certificateholders
with respect to this Agreement and the rights and duties of the parties hereto
and the interests of the Certificateholders hereunder.
Section 8.04. Servicer Indemnification of the Trust and the Trustee.
The Servicer shall indemnify and hold harmless the Trust and the Trustee from
and against any loss, liability, expense, damage or injury suffered or sustained
by reason of (a) any acts or omissions of the Servicer with respect to the Trust
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pursuant to this Agreement or (b) the administration by the Trustee of the Trust
(in the case of clause (a) or (b), other than such as may arise from the
negligence or wilful misconduct of the Trustee), including any judgment, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any action, proceeding or claim. Indemnification
pursuant to this Section shall not be payable from the Trust Assets.
Section 8.05. Resignation of the Servicer. The Servicer shall not
resign from the obligations and duties hereby imposed on it except (a) upon
determination that (i) the performance of its duties hereunder is no longer
permissible under applicable law and (ii) there is no reasonable action which
the Servicer could take to make the performance of its duties hereunder
permissible under applicable law or (b) upon the assumption, by an agreement
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, of the obligations and duties of the Servicer hereunder by any
of its Affiliates that is a direct or indirect wholly owned subsidiary of
Household International, Inc. or by any other entity the appointment of which
shall have satisfied the Rating Agency Condition and, in either case, qualifies
as an Eligible Servicer. Any determination permitting the resignation of the
Servicer shall be evidenced as to clause (a) above by an Opinion of Counsel to
such effect delivered to the Trustee. No resignation shall become effective
until the Trustee or a Successor Servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with Section
10.02 hereof. If within 120 days of the date of the determination that the
Servicer may no longer act as Servicer under clause (a) above the Trustee is
unable to appoint a Successor Servicer, the Trustee shall serve as Successor
Servicer. Notwithstanding the foregoing, the Trustee shall, if it is legally
unable so to act, petition a court of competent jurisdiction to appoint any
established institution qualifying as an Eligible Servicer as the Successor
Servicer hereunder. The Trustee shall give prompt notice to each Rating Agency
and each Series Enhancer upon the appointment of a Successor Servicer.
Section 8.06. Access to Certain Documentation and Information
Regarding the Receivables. The Servicer shall provide to the Trustee access to
the documentation regarding the Accounts and the Receivables in such cases where
the Trustee is required in connection with the enforcement of the rights of
Certificateholders or by applicable statutes or regulations to review such
documentation, such access being afforded without charge but only (a) upon
reasonable request, (b) during normal business hours, (c) subject to the
Servicer's normal security and confidentiality procedures and (d) at reasonably
accessible offices in the continental United States designated by the Servicer.
Nothing in this Section shall derogate from the obligation of the Seller, the
Trustee and the Servicer to observe any applicable law prohibiting disclosure of
information
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regarding the Obligors and the failure of the Servicer to provide access as
provided in this Section as a result of such obligation shall not constitute a
breach of this Section.
Section 8.07. Delegation of Duties. In the ordinary course of
business, the Servicer may at any time delegate its duties hereunder with
respect to the Accounts and the Receivables to any Person that agrees to conduct
such duties in accordance with the Credit Card Guidelines and this Agreement.
Such delegation shall not relieve the Servicer of its liability and
responsibility with respect to such duties, and shall not constitute a
resignation within the meaning of Section 8.05.
Section 8.08. Examination of Records. The Seller and the Servicer
shall indicate generally in their computer files or other records that the
Receivables arising in the Accounts have been conveyed to the Trustee, on behalf
of the Trust, pursuant to this Agreement for the benefit of the
Certificateholders. The Seller and the Servicer shall, prior to the sale or
transfer to a third party of any receivable held in its custody, examine its
computer records and other records to determine that such receivable is not a
Receivable.
ARTICLE IX
AMORTIZATION EVENTS
Section 9.01. Amortization Events. If any one of the following
events shall occur:
(a) the Seller, the Bank or any Additional Seller shall consent to the
appointment of a conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Seller, the Bank or any Additional Seller or
of or relating to all or substantially all of each such entity's respective
property, or a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator,
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of each such entity's respective affairs, shall have been entered
against the Seller, the Bank or any Additional Seller; or the Seller, the Bank
or any Additional Seller shall admit in writing its respective inability to pay
its debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its respective creditors or voluntarily suspend payment of its
respective obligations (any such act or occurrence being an "Insolvency Event");
or
(b) with respect to any Series, any Amortization Event set forth in
the related Supplement;
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then, subject to applicable law, in the case of any event described in
paragraph (a), an Amortization Event shall occur with respect to all outstanding
Series without any notice or other action on the part of the Trustee or the
Certificateholders immediately upon the occurrence of such event and in the case
of any event described in paragraph (b), such Amortization Event shall be an
Amortization Event only for such Series and the applicable Supplement shall set
forth provisions which shall govern each such Amortization Event set forth
therein.
The Trustee, upon learning of any Amortization Event, shall promptly
notify each Rating Agency.
Section 9.02. Additional Rights upon the Occurrence of Certain
Events. (a) If an Insolvency Event occurs with respect to the Seller, the
Seller shall on the day any such Insolvency Event (the "Appointment Date"),
immediately cease to transfer Principal Receivables to the Trust and shall
promptly give notice to the Trustee thereof. Notwithstanding any cessation of
the transfer to the Trust of additional Principal Receivables, Principal
Receivables transferred to the Trust prior to the occurrence of such Insolvency
Event and Collections in respect of such Principal Receivables and Finance
Charge and Administrative Receivables whenever created, accrued in respect of
such Principal Receivables, shall continue to be a part of the Trust. Within 15
days of the Appointment Date, the Trustee shall (i) publish a notice in an
Authorized Newspaper that an Insolvency Event has occurred and that the Trustee
intends to sell, dispose of or otherwise liquidate the Receivables on
commercially reasonable terms and in a commercially reasonable manner and (ii)
give notice to Certificateholders describing the provisions of this Section and
requesting instructions from such Holders. Unless (x) the Trustee shall have
received instructions within 90 days from the date notice pursuant to clause (i)
above is first published from Holders of Investor Certificates evidencing more
than 50% of the aggregate unpaid principal amount of each Series to the effect
that such Investor Certificateholders disapprove of the liquidation of the
Receivables or (y) the Trustee shall have received instructions in accordance
with any Supplement that the Trustee shall not proceed with such liquidation,
the Trustee shall promptly sell, dispose of or otherwise liquidate the
Receivables in a commercially reasonable manner and on commercially reasonable
terms, which shall include the solicitation of competitive bids. The Trustee may
obtain a prior determination from any such conservator, receiver or liquidator
that the terms and manner of any proposed sale, disposition or liquidation are
commercially reasonable. The provisions of Sections 9.01 and 9.02 shall not be
deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of the
Receivables pursuant to paragraph (a) ("Insolvency Proceeds") shall be
immediately deposited in the Collection Account. The Trustee shall determine
conclusively the
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amount of the Insolvency Proceeds which are deemed to be Finance Charge and
Administrative Receivables and Principal Receivables. Proceeds shall be
allocated to Finance Charge and Administrative Receivables and Principal
Receivables in the same proportion as the amount of Finance Charge and
Administrative Receivables and Principal Receivables bear to one another on the
prior Determination Date. The Insolvency Proceeds shall be allocated and
distributed to Investor Certificateholders in accordance with the terms of each
Supplement and the Trust shall terminate immediately thereafter.
ARTICLE X
SERVICER DEFAULTS
Section 10.01. Servicer Defaults. If any one of the following events
(a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or to give notice to the Trustee to make such
payment, transfer or deposit on or before the date occurring five Business Days
after the date such payment, transfer or deposit or such instruction or notice
is required to be made or given, as the case may be, under the terms of this
Agreement or any Supplement;
(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 set forth
in this Agreement or any Supplement which has an Adverse Effect and which
continues unremedied for a period of 60 days after the date on which notice of
such failure, requiring the same to be remedied, shall have been given to the
Servicer by the Trustee, or to the Servicer and the Trustee by Holders of
Investor Certificates evidencing not less than 10% of the aggregate unpaid
principal amount of all Investor Certificates (or, with respect to any such
failure that does not relate to all Series, 10% of the aggregate unpaid
principal amount of all Series to which such failure relates); or the Servicer
shall assign or delegate its duties under this Agreement, except as permitted by
Sections 8.02 and 8.07;
(c) any representation, warranty or certification made by the Servicer
in this Agreement or any Supplement or in any certificate delivered pursuant to
this Agreement or any Supplement shall prove to have been incorrect when made,
which has an Adverse Effect on the rights of the Investor Certificateholders of
any Series (which determination shall be made without regard to whether funds
are then available pursuant to any Series Enhancement) and which material
adverse effect continues for a period of 60 days after the date on which notice
thereof, requiring the same to be remedied, shall have been given to the
Servicer by the Trustee, or to the Servicer and the
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Trustee by the Holders of Investor Certificates evidencing not less than 10% of
the aggregate unpaid principal amount of all Investor Certificates (or, with
respect to any such representation, warranty or certification that does not
relate to all Series, 10% of the aggregate unpaid principal amount of all Series
to which such representation, warranty or certification relates); or
(d) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the Servicer or
of or relating to all or substantially all its property, or a decree or order of
a court or agency or supervisory authority having jurisdiction in the premises
for the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or the winding-up or liquidation of its affairs, shall have
been entered against the Servicer and such decree or order shall have remained
in force undischarged or unstayed for a period of 60 days; or the Servicer shall
admit in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable insolvency or reorganization
statute, make any assignment for the benefit of its creditors or voluntarily
suspend payment of its obligations;
then, in the event of any Servicer Default, so long as the Servicer Default
shall not have been remedied, either the Trustee, or the Holders of Investor
Certificates evidencing more than 50% of the aggregate unpaid principal amount
of all Investor Certificates, by notice then given to the Servicer (and to the
Trustee and any Series Enhancer if given by the Investor Certificateholders) (a
"Termination Notice"), may terminate all but not less than all the rights and
obligations of the Servicer as Servicer under this Agreement and in and to the
Receivables and the proceeds thereof; provided, however, if within 60 days of
receipt of a Termination Notice the Trustee does not receive any bids from
Eligible Servicers in accordance with Section 10.02(c) to act as a Successor
Servicer and receives an Officer's Certificate of 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. The Seller shall notify the Trustee prior to
the Record Date for the Distribution Date of the purchase if it is exercising
such right of first refusal. If the Seller exercises such right of first
refusal, the Seller shall deposit the purchase price into the Collection Account
not later than 1:00 P.M., New York City
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time, on such Distribution Date in immediately available funds. The purchase
price shall be allocated and distributed to Investor Certificateholders in
accordance with the terms of each Supplement.
After receipt by the Servicer of a Termination Notice, and on the date
that a Successor Servicer is appointed by the Trustee pursuant to Section 10.02,
all authority and power of the Servicer under this Agreement shall pass to and
be vested in the Successor Servicer (a "Service Transfer"); and, without
limitation, the Trustee is hereby authorized and empowered (upon the failure of
the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, all documents and other instruments upon the
failure of the Servicer to execute or deliver such documents or instruments, and
to do and accomplish all other acts or things necessary or appropriate to effect
the purposes of such Service Transfer. The Servicer agrees to cooperate with
the Trustee and such Successor Servicer in effecting the termination of the
responsibilities and rights of the Servicer to conduct servicing hereunder,
including the transfer to such Successor Servicer of all authority of the
Servicer to service the Receivables provided for under this Agreement, including
all authority over all Collections which shall on the date of transfer be held
by the Servicer for deposit, or which have been deposited by the Servicer, in
the Collection Account, or which shall thereafter be received with respect to
the Receivables, and in assisting the Successor Servicer. The Servicer shall
within 20 Business Days transfer its electronic records relating to the
Receivables to the Successor Servicer in such electronic form as the Successor
Servicer may reasonably request and shall promptly transfer to the Successor
Servicer all other records, correspondence and documents necessary for the
continued servicing of the Receivables in the manner and at such times as the
Successor Servicer shall reasonably request. To the extent that compliance with
this Section shall require the Servicer to disclose to the Successor Servicer
information of any kind which the Servicer deems to be confidential, the
Successor Servicer shall be required to enter into such customary licensing and
confidentiality agreements as the Servicer shall deem necessary to protect its
interest.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in paragraph (a) above for a period of 10 Business Days after the
applicable grace period or under paragraph (b) or (c) above for a period of 60
Business Days after the applicable grace period, shall 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 the public enemy, acts of declared or undeclared war, public
disorder, rebellion or sabotage, epidemics, landslides, lightning, fire,
hurricanes, earthquakes, floods or similar causes. The preceding sentence shall
not relieve the Servicer from using its best efforts to perform its obligations
in a timely manner in accordance with the
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terms of this Agreement and the Servicer shall provide the Trustee, the Seller
and any Series Enhancer with an Officer's Certificate giving prompt notice of
such failure or delay by it, together with a description of its efforts so to
perform its obligations.
Section 10.02. Trustee To Act; Appointment of Successor. (a) On and
after the receipt by the Servicer of a Termination Notice pursuant to Section
10.01, the Servicer shall continue to perform all servicing functions under this
Agreement until the date specified in the Termination Notice or otherwise
specified by the Trustee or until a date mutually agreed upon by the Servicer
and Trustee. The Trustee shall as promptly as possible after the giving of a
Termination Notice appoint an Eligible Servicer as a successor servicer (the
"Successor Servicer"), and such Successor Servicer shall accept its appointment
by a written assumption in a form acceptable to the Trustee. In the event that
a Successor Servicer has not been appointed or has not accepted its appointment
at the time when the Servicer ceases to act as Servicer, the Trustee without
further action shall automatically be appointed the Successor Servicer. The
Trustee may delegate any of its servicing obligations to an Affiliate or agent
in accordance with Sections 3.01(b) and 8.07. Notwithstanding the foregoing,
the Trustee shall, if it is legally unable so to act, petition a court of
competent jurisdiction to appoint any established institution qualifying as an
Eligible Servicer as the Successor Servicer hereunder. The Trustee shall give
prompt notice to each Rating Agency and each Series Enhancer upon the
appointment of a Successor Servicer.
(b) Upon its appointment, the Successor Servicer shall be the
successor in all respects to the Servicer with respect to servicing functions
under this Agreement and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Servicer by the terms and
provisions hereof, and all references in this Agreement to the Servicer shall be
deemed to refer to the Successor Servicer.
Notwithstanding the foregoing, any provision of this Agreement which
requires the Servicer to make a deposit into the Collection Account not later
than 1:00 P.M., New York City time, on a Distribution Date shall be deemed to
require a Successor Servicer to make such deposit into the Collection Account on
the Transfer Date immediately preceding such Distribution Date.
(c) In connection with any Termination Notice, the Trustee will
review any bids which it obtains from Eligible Servicers and shall be permitted
to appoint any Eligible Servicer submitting such a bid as a Successor Servicer
for servicing compensation not in excess of the aggregate Servicing Fees for all
Series plus the sum of the amounts with respect to each Series and with respect
to each Distribution Date equal to any Collections of Finance Charge and
Administrative Receivables
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allocable to Investor Certificateholders of such Series which are payable to the
Seller after payment of all amounts owing to the Investor Certificateholders of
such Series with respect to such Distribution Date or required to be deposited
in the applicable Series Accounts with respect to such Distribution Date and any
amounts required to be paid to any Series Enhancer for such Series with respect
to such Distribution Date pursuant to the terms of any Enhancement Agreement;
provided, however, that the Seller shall be responsible for payment of the
Seller's portion of such aggregate Servicing Fees and all other amounts in
excess of such aggregate Servicing Fees. Each holder of any of the Seller's
Certificates agrees that, if Household Finance Corporation (or any Successor
Servicer) is terminated as Servicer hereunder, the portion of the Collections in
respect of Finance Charge and Administrative Receivables that the Seller is
entitled to receive pursuant to this Agreement or any Supplement shall be
reduced by an amount sufficient to pay the Seller's share of the compensation of
the Successor Servicer.
(d) All authority and power granted to the Successor Servicer under
this Agreement shall automatically cease and terminate upon termination of the
Trust pursuant to Section 12.01, and shall pass to and be vested in the Seller
and, without limitation, the Seller is hereby authorized and empowered to
execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or
otherwise, all documents and other instruments, and to do and accomplish all
other acts or things necessary or appropriate to effect the purposes of such
transfer of servicing rights. The Successor Servicer agrees to cooperate with
the Seller in effecting the termination of the responsibilities and rights of
the Successor Servicer to conduct servicing of the Receivables. The Successor
Servicer shall transfer its electronic records relating to the Receivables to
Household Finance Corporation or its designee in such electronic form as it may
reasonably request and shall transfer all other records, correspondence and
documents to it in the manner and at such times as it shall reasonably request.
To the extent that compliance with this Section shall require the Successor
Servicer to disclose to Household Finance Corporation information of any kind
which the Successor Servicer deems to be confidential, Household Finance
Corporation shall be required to enter into such customary licensing and
confidentiality agreements as the Successor Servicer shall deem necessary to
protect its interests.
Section 10.03. Notification to Certificateholders. Within two
Business Days after the Servicer becomes aware of any Servicer Default, the
Servicer shall give notice thereof to the Trustee, each Rating Agency and each
Series Enhancer and the Trustee shall give notice to the Investor
Certificateholders. Upon any termination or appointment of a Successor Servicer
pursuant to this Article, the Trustee shall give prompt notice thereof to the
Investor Certificateholders.
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ARTICLE XI
THE TRUSTEE
Section 11.01. Duties of Trustee. (a) The Trustee, prior to the
occurrence of a Servicer Default of which it has actual knowledge and after the
curing of all Servicer Defaults which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this Agreement
and no implied covenants by the Trustee shall be read into this Agreement. If a
Servicer Default to the actual knowledge of the Trustee has occurred (which has
not been cured or waived) the Trustee shall exercise such of the rights and
powers vested in it by this Agreement and use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) In the absence of bad faith or recklessness on its part, the
Trustee may conclusively rely, as to the truth of the statements and correctness
of the opinions expressed therein, upon all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee pursuant to this Agreement. The Trustee, upon receipt of all
resolutions, certificates, statements, opinions, reports, documents, orders or
other instruments furnished to the Trustee which are specifically required to be
furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they substantially conform to the requirements of this
Agreement. The Trustee shall give prompt notice to the Investor
Certificateholders of any material lack of conformity of any such instrument to
the applicable requirements of this Agreement discovered by the Trustee which
would entitle a specified percentage of Investor Certificateholders to take any
action pursuant to this Agreement.
(c) Subject to paragraph (a) no provision of this Agreement shall be
construed to relieve the Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct; provided,
however, that:
(i) the Trustee shall not be liable for an error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining
the pertinent facts;
(ii) the Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in accordance with the
direction of the Holders of Investor Certificates evidencing more than 50%
of the aggregate unpaid principal amount of all Investor Certificates (or,
with respect to any such action that does not relate to all Series, 50% of
the aggregate unpaid principal amount of the Investor Certificates of all
Series
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to which such action relates) relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement; and
(iii) the Trustee shall not be charged with knowledge of any failure by
the Servicer to comply with the obligations of the Servicer referred to in
clauses (a) or (b) of Section 10.01 unless a Responsible Officer of the
Trustee obtains actual knowledge of such failure or the Trustee receives
notice of such failure from the Servicer or any Holders of Investor
Certificates evidencing not less than 10% of the aggregate unpaid principal
amount of all Investor Certificates (or, with respect to any such failure
that does not relate to all Series, 10% of the aggregate unpaid principal
amount of the Investors Certificates of all Series to which such failure
relates).
(d) The Trustee shall not be required to expend or risk its own funds
or otherwise incur financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
obligations of the Servicer under this Agreement except during such time, if
any, as the Trustee shall be the successor to, and be vested with the rights,
duties, powers and privileges of, the Servicer in accordance with the terms of
this Agreement.
(e) Except for actions expressly authorized by this Agreement, the
Trustee shall take no actions reasonably likely to impair the interests of the
Trust in any Receivable now existing or hereafter created or to impair the value
of any Receivable now existing or hereafter created.
(f) Except as expressly provided in this Agreement, the Trustee shall
have no power to vary the corpus of the Trust including by (i) accepting any
substitute obligation for a Receivable initially assigned to the Trust under
Section 2.01 or 2.09, (ii) adding any other investment, obligation or security
to the Trust or (iii) withdrawing from the Trust any Receivables.
(g) In the event that the Paying Agent or the Transfer Agent and
Registrar shall fail to perform any obligation, duty or agreement in the manner
or on the day required to be performed by the Paying Agent or the Transfer Agent
and Registrar, as the case may be, under this Agreement, the Trustee shall be
obligated promptly upon its knowledge thereof to perform such obligation, duty
or agreement in the manner so required.
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Section 11.02. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 11.01:
(a) the Trustee may rely on and shall be protected in acting on, or
in refraining from acting in accord with, any resolution, certificate,
statement, instrument, Officer's Certificate, opinion, report, notice, request,
consent, order, appraisal, approval, bond or other paper or document believed by
it to be genuine and to have been signed or presented to it pursuant to this
Agreement by the proper party or parties;
(b) the Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any action
taken or suffered or omitted by it hereunder in good faith and in accordance
with such Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation hereunder or in relation hereto, at the request, order or
direction of any of the Certificateholders, pursuant to the provisions of this
Agreement, unless such Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby; provided, however, that nothing
contained herein shall relieve the Trustee of the obligations, upon the
occurrence of a Servicer Default (which has not been cured or waived) to
exercise such of the rights and powers vested in it by this Agreement, and to
use the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;
(d) the Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement;
(e) the Trustee shall not be bound to make any investigation into the
facts of matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, approval, bond or
other paper or document believed by it to be genuine, unless requested in
writing so to do by Holders of Investor Certificates evidencing more than 25% of
the aggregate unpaid principal amount of all Investor Certificates (or, with
respect to any such matters that do not relate to all Series, 25% of the
aggregate unpaid principal amount of the Investor Certificates of all Series to
which such matters relate); provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses, or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to it by
the terms of this Agreement, the Trustee may require
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reasonable indemnity against such cost, expense, or liability as a condition to
so proceeding.
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian, and the Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent, attorney or custodian
appointed with due care by it hereunder; and
(g) except as may be required by Section 11.01(a), the Trustee shall
not be required to make any initial or periodic examination of any documents or
records related to the Receivables or the Accounts for the purpose of
establishing the presence or absence of defects, the compliance by the Seller
with its representations and warranties or for any other purpose;
(h) whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 11.02;
(i) the Trustee shall have no liability with respect to the acts or
omissions of the Servicer (except and to the extent the Servicer is the
Trustee), including, acts or omissions in connection with the servicing,
management or administration of Receivables; calculations made by the Servicer
whether or not reported to the Trustee; and deposits into or withdrawals from
any Accounts or funds established pursuant to the terms of this Agreement; and
(j) in the event that the Trustee is also acting as Paying Agent or
Transfer Agent and Registrar hereunder, the rights and protections afforded to
the Trustee pursuant to this Article XI shall also be afforded to such Paying
Agent, Transfer Agent and Registrar.
Section 11.03. Trustee Not Liable for Recitals in Certificates. The
Trustee assumes no responsibility for the correctness of the recitals contained
herein and in the Certificates (other than the certificate of authentication on
the Certificates). Except as set forth in Section 11.15, the Trustee makes no
representations as to the validity or sufficiency of this Agreement or any
Supplement or of the Certificates (other than the certificate of authentication
on the Certificates) or of any Receivable or related document or as to the
perfection or priority of any security interest therein or as to the efficacy of
the Trust. The Trustee shall not be accountable for the use or application by
the Seller of any of the Certificates or of the proceeds of such Certificates,
or for the use or application of any funds paid to the Seller in respect of the
Receivables or deposited in or withdrawn from the Collection Account, any Series
Accounts or any other accounts hereafter established to
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effectuate the transactions contemplated by this Agreement and in accordance
with the terms of this Agreement.
Section 11.04. Trustee May Own Certificates. Subject to any
restrictions that may otherwise be imposed by Section 406 of ERISA or Section
4975(e) of the Internal Revenue Code, the Trustee in its individual or any other
capacity may become the owner or pledgee of Investor Certificates with the same
rights as it would have if it were not the Trustee.
Section 11.05. The Servicer To Pay Trustee's Fees and Expenses. The
Servicer covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to receive, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by it in the execution of the trust
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee, and the Servicer will pay or reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Agreement or any Enhancement Agreement (including the reasonable fees and
expenses of its agents, any co-trustee and counsel) except any such expense,
disbursement or advance as may arise from its negligence or bad faith and except
as provided in the following sentence. If the Trustee is appointed Successor
Servicer pursuant to Section 10.02, the provision of this Section shall not
apply to expenses, disbursements and advances made or incurred by the Trustee in
its capacity as Successor Servicer, which shall be paid out of the Servicing
Fee. The Servicer's covenant to pay the expenses, disbursements and advances
provided for in this Section shall survive the termination of this Agreement.
Section 11.06. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a corporation organized and doing business under
the laws of the United States or any State thereof authorized under such laws to
exercise corporate trust powers, have a net worth of at least $50,000,000, be
subject to supervision or examination by Federal or State authority and maintain
any credit or deposit rating required by any Rating Agency (which shall be Baa3,
in the case of Moody's unless otherwise notified, and BBB- in the case of
Standard & Poor's unless otherwise notified) or any higher credit or deposit
rating required in connection with the issuance of a particular Series. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the
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Trustee shall resign immediately in the manner and with the effect specified in
Section 11.07.
Section 11.07. Resignation or Removal of Trustee.
(a) The Trustee may at any time resign and be discharged from the trust hereby
created by giving written notice thereof to the Seller and the Servicer. Upon
receiving such notice of resignation, the Seller shall promptly appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed and
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 11.06 and shall fail to resign after
request therefor by the Servicer, or if at any time the Trustee shall be legally
unable to act, or shall be adjudged a bankrupt or insolvent, or if a receiver of
the Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, then the Servicer may
remove the Trustee and promptly appoint a successor trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee.
(c) Any resignation or removal of the Trustee and appointment of
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 11.08.
Section 11.08. Successor Trustee. (a) Any successor trustee
appointed as provided in Section 11.07 shall execute, acknowledge and deliver to
the Seller, to the Servicer and to its predecessor Trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor hereunder, with
like effect as if originally named as Trustee herein. The predecessor Trustee
shall deliver, at the expense of the Servicer, to the successor trustee all
documents or copies thereof and statements held by it hereunder; and the Seller
and the predecessor Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly vesting
and confirming in the successor trustee all such rights, powers, duties and
obligations.
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(b) No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 11.06.
(c) Notwithstanding any other provisions herein, the appointment of a
Successor Trustee shall not be effective unless the Rating Agency Condition
shall have been satisfied.
(d) Upon acceptance of appointment by a successor trustee as provided
in this Section, such successor trustee shall
provide notice of such succession hereunder to all Certificate-
holders and the Servicer shall provide such notice to each Rating Agency and
each Series Enhancer.
Section 11.09. Merger or Consolidation of Trustee. Any Person into
which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided such corporation shall be eligible under the
provisions of Section 11.06, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 11.10. Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust may at the time be located, the Trustee shall have the power and
may execute and deliver all instruments to appoint one or more persons to act as
a co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Certificateholders, such title to the Trust, or any
part thereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 11.06 and no
notice to Certificateholders of the appointment of any co-trustee or separate
trustee shall be required under Section 11.08.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not
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authorized to act separately without the Trustee joining in such act)
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder or
as Successor Servicer) the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion
thereof in any such jurisdiction) shall be exercised and performed singly
by such separate trustee or co-trustee, but solely at the direction of the
Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall
be deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Trustee. Every such instrument shall be filed with the Trustee and a copy
thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 11.11. Tax Returns. In the event the Trust shall be required
to file tax returns, the Servicer shall prepare or shall cause to be prepared
such tax returns and shall provide such tax returns to the Trustee for signature
at least five days before such tax returns are due to be filed. The Servicer,
in accordance with the terms of each Supplement, shall also prepare or shall
cause to be prepared all tax information required by law to be distributed to
Investor Certificateholders and shall deliver such information to the Trustee at
least five days prior to the date it is required by law to be distributed to
Investor
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Certificateholders. The Trustee, upon request, will furnish the Servicer with
all such information known to the Trustee as may be reasonably required in
connection with the preparation of all tax returns of the Trust, and shall, upon
request, execute such returns.
Section 11.12. Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee. Any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Certificateholders in respect of which such judgment has
been obtained.
Section 11.13. Suits for Enforcement. (a) If a Servicer Default
shall occur and be continuing, the Trustee, in its discretion may, subject to
the provisions of Sections 11.01 and 11.14, proceed to protect and enforce its
rights and the rights of the Certificateholders under this Agreement by suit,
action or proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or in aid
of the execution of any power granted in this Agreement or for the enforcement
of any other legal, equitable or other remedy as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of the rights of
the Trustee or the Certificateholders.
(b) Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Certificateholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Investor Certificates or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Certificateholder in any such
proceeding.
Section 11.14. Rights of Certificateholders To Direct Trustee.
Except as otherwise provided in the applicable Supplement, holders of Investor
Certificates evidencing more than 50% of the aggregate unpaid principal amount
of all Investor Certificates (or, with respect to any remedy, trust or power
that does not relate to all Series, 50% of the aggregate unpaid principal amount
of the Investor Certificates of all Series to which such remedy, trust or power
relates) shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee; provided, however, that, subject to
Section 11.01, the Trustee shall have the right to decline to follow any such
direction if the Trustee after
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being advised by counsel determines that the action so directed may not lawfully
be taken, or if the Trustee in good faith shall, by a Responsible Officer or
Responsible Officers of the Trustee, determine that the proceedings so directed
would be illegal or involve it in personal liability or be unduly prejudicial to
the rights of Investor Certificateholders not parties to such direction; and
provided further that nothing in this Agreement shall impair the right of the
Trustee to take any action deemed proper by the Trustee and which is not
inconsistent with such direction of the Investor Certificateholders.
Section 11.15. Representations and Warranties of Trustee. The
Trustee represents and warrants that:
(i) the Trustee is a trust company organized, existing and in good
standing under the laws of the State of New York;
(ii) the Trustee has full power, authority and right to execute,
deliver and perform this Agreement and each Supplement, and has taken all
necessary action to authorize the execution, delivery and performance by it
of this Agreement and each Supplement; and
(iii) this Agreement and each Supplement has been duly executed and
delivered by the Trustee.
Section 11.16. Maintenance of Office or Agency. The Trustee will
maintain at its expense an office or agency (the "Corporate Trust Office") where
notices and demands to or upon the Trustee in respect of the Certificates and
this Agreement may be served in the Borough of Manhattan, The City of New York.
The Trustee initially appoints 101 Barclay Street, Floor 21W, New York, New York
10286 as such office and will give prompt notice to the Servicer and to Investor
Certificateholders of any change in the location of the Certificate Register or
any such office or agency.
ARTICLE XII
TERMINATION
Section 12.01. Termination of Trust. The Trust and the respective
obligations and responsibilities of the Seller, the Servicer and the Trustee
created hereby (other than the obligation of the Trustee to make payments to
Investor Certificateholders as hereinafter set forth) shall terminate, except
with respect to the duties described in Sections 8.04 and 12.02(b), upon the
earlier of (i) April 30, 2014, (ii) at the option of the Seller, the day
following the Distribution Date on which the Invested Amount for each Series is
zero and (iii) the time provided in Section 9.02(b).
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Section 12.02. Final Distribution. (a) The Servicer shall give the
Trustee at least 30 days prior notice of the Distribution Date on which the
Investor Certificateholders of any Series or Class may surrender their Investor
Certificates for payment of the final distribution on and cancellation of such
Investor Certificates (or, in the event of a final distribution resulting from
the application of Section 2.06, 9.02 or 10.01, notice of such Distribution Date
promptly after Servicer has determined that a final distribution will occur, if
such determination is made less than 30 days prior to such Distribution Date).
Such notice shall be accompanied by an Officer's Certificate setting forth the
information specified in Section 3.05 covering the period during the then-
current calendar year through the date of such notice. Not later than the fifth
day of the month in which the final distribution in respect of such Series or
Class is payable to Investor Certificateholders, the Trustee shall provide
notice to Investor Certificateholders of such Series or Class specifying (i) the
date upon which final payment of such Series or Class will be made upon
presentation and surrender of Investor Certificates of such Series or Class at
the office or offices therein designated, (ii) the amount of any such final
payment and (iii) that the Record Date otherwise applicable to such payment date
is not applicable, payments being made only upon presentation and surrender of
such Investor Certificates at the office or offices therein specified (which, in
the case of Bearer Certificates, shall be outside the United States). The
Trustee shall give such notice to the Transfer Agent and Registrar and the
Paying Agent at the time such notice is given to Investor Certificateholders.
(b) Notwithstanding a final distribution to the Investor
Certificateholders of any Series or Class (or the termination of the Trust),
except as otherwise provided in this paragraph, all funds then on deposit in the
Collection Account and any Series Account allocated to such Investor
Certificateholders shall continue to be held in trust for the benefit of such
Investor Certificateholders and the Paying Agent or the Trustee shall pay such
funds to such Investor Certificateholders upon surrender of their Investor
Certificates, if certificated (and any excess shall be paid in accordance with
the terms of any Enhancement Agreement). In the event that all such Investor
Certificateholders shall not surrender their Investor Certificates for
cancellation within six months after the date specified in the notice from the
Trustee described in paragraph (a), the Trustee shall give a second notice to
the remaining such Investor Certificateholders to surrender their Investor
Certificates for cancellation and receive the final distribution with respect
thereto (which surrender and payment, in the case of Bearer Certificates, shall
be outside the United States). If within one year after the second notice all
such Investor Certificates shall not have been surrendered for cancellation, the
Trustee may take appropriate steps, or may appoint an agent to take appropriate
steps, to contact the remaining such Investor Certificateholders concerning
surrender
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of their Investor Certificates, and the cost thereof shall be paid out of the
funds in the Collection Account or any Series Account held for the benefit of
such Investor Certificateholders. The Trustee and the Paying Agent shall pay to
the Seller any monies held by them for the payment of principal or interest that
remains unclaimed for two years. After payment to the Seller, Investor
Certificateholders entitled to the money must look to the Seller for payment as
general creditors unless an applicable abandoned property law designates another
Person.
(c) In the event that the Invested Amount with respect to any Series
is greater than zero on its Termination Date (after giving effect to deposits
and distributions otherwise to be made on such Termination Date) the Trustee
will sell or cause to be sold on such Termination Date an amount of Principal
Receivables (or interests therein) equal to 100% of the Invested Amount with
respect to such Series on such Termination Date plus related Finance Charge and
Administrative Receivables (after giving effect to such deposits and
distributions; provided, however, that in no event shall such amount exceed the
Series Allocation Percentage of Receivables with respect to such Series on such
Termination Date). The proceeds (the "Termination Proceeds") from such sale
shall be immediately deposited into the Collection Account for such Series. The
Termination Proceeds shall be allocated and distributed to Investor
Certificateholders of such Series in accordance with the terms of the applicable
Supplement.
Section 12.03. Seller's Termination Rights. Upon the termination of
the Trust pursuant to Section 12.01 and the surrender of the Seller's
Certificates, the Trustee shall sell, assign and convey to the Seller or its
designee, without recourse, representation or warranty, all right, title and
interest of the Trust in the Receivables, whether then existing or thereafter
created, all monies due or to become due and all amounts received with respect
thereto (including all moneys then held in the Collection Account or any Series
Account) and all proceeds thereof, except for amounts held by the Trustee
pursuant to Section 12.02(b). The Trustee shall execute and deliver such
instruments of transfer and assignment, in each case without recourse, as shall
be reasonably requested by the Seller to vest in the Seller or its designee all
right, title and interest which the Trust had in the Receivables.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01. Amendment; Waiver of Past Defaults. (a) This
Agreement or any Supplement may be amended from time to time (including in
connection with the issuance of a Supplemental Certificate, conveyance of a
Participation Interest, allocation of assets pursuant to Section 4.06, or to
change the definition of Due Period, Determination Date or Distribution Date) by
the
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Servicer, the Seller and the Trustee, by a written instrument signed by each of
them, without the consent of any of the Certificateholders, provided that an
Opinion of Counsel for the Seller is addressed and delivered to the Trustee,
dated the date of any such amendment, to the effect that the conditions
precedent to any such amendment have been satisfied and the Seller shall have
delivered to the Trustee an Officer's Certificate, dated the date of any such
Amendment, stating that the Seller reasonably believes that such amendment will
not have an Adverse Effect. The designation of Additional Sellers pursuant to
Section 2.09(g) shall be subject to this Section 13.01 only to the extent that
the supplement to this Agreement providing for such designation amends any of
the terms of this Agreement.
(b) This Agreement or any Supplement may also be amended from time to
time (including in connection with the issuance of a Supplemental Certificate)
by the Servicer, the Seller and the Trustee, with the consent of the Holders of
Investor Certificates evidencing not less than 66-2/3% of the aggregate unpaid
principal amount of the Investor Certificates 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 this Agreement or any Supplement
or of modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall (i) reduce in any manner the amount of or
delay the timing of any distributions to (changes in Amortization Events which
decrease the likelihood of the occurrence thereof shall not be considered delays
in the timing of distributions for purposes of this clause) be made to Investor
Certificateholders or deposits of amounts to be so distributed or the amount
available under any Series Enhancement without the consent of each affected
Certificateholder, (ii) change the definition of or the manner of calculating
the interest of any Investor Certificateholder without the consent of each
affected Investor Certificateholder, (iii) reduce the aforesaid percentage
required to consent to any such amendment without the consent of each Investor
Certificateholder or (iv) adversely affect the rating of any Series or Class by
each Rating Agency without the consent of the Holders of Investor Certificates
of such Series or Class evidencing not less than 66-2/3% of the aggregate unpaid
principal amount of the Investor Certificates of such Series or Class.
(c) Promptly after the execution of any such amendment or consent
(other than an amendment pursuant to paragraph (a)), the Trustee shall furnish
notification of the substance of such amendment to each Investor
Certificateholder, and the Servicer shall furnish notification of the substance
of such amendment to each Rating Agency and each Series Enhancer.
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(d) It shall not be necessary for the consent of Investor
Certificateholders under this Section to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Investor Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
(e) Notwithstanding anything in this Section to the contrary, no
amendment may be made to this Agreement or any Supplement which would adversely
affect in any material respect the interests of any Series Enhancer without the
consent of such Series Enhancer.
(f) Any Supplement executed in accordance with the provisions of
Section 6.03 shall not be considered an amendment to this Agreement for the
purposes of this Section.
(g) The Holders of Investor Certificates evidencing more than 66-2/3%
of the aggregate unpaid principal amount of the Investor Certificates of each
Series, or, with respect to any Series with two or more Classes, of each Class
(or, with respect to any default that does not relate to all Series, 66-2/3% of
the aggregate unpaid principal amount of the Investor Certificates of each
Series to which such default relates or, with respect to any such Series with
two or more classes, of each Class) may, on behalf of all Certificateholders,
waive any default by the Seller or the Servicer in the performance of their
obligations hereunder and its consequences, except the failure to make any
distributions required to be made to Investor Certificateholders or to make any
required deposits of any amounts to be so distributed. Upon any such waiver of
a past default, such default shall cease to exist, and any default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon except to the extent expressly so waived.
(h) The Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Trustee's rights, duties or immunities under
this Agreement or otherwise. In connection with the execution of any amendment
hereunder, the Trustee shall be entitled to receive the Opinion described in
Section 13.02(d).
Section 13.02. Protection of Right, Title and Interest to Trust. (a)
The Servicer shall cause this Agreement, all amendments and supplements hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the Certificateholders' and the Trustee's right,
title and interest to the Trust to be promptly recorded, registered and filed,
and at all times to be kept recorded, registered and filed, all in such manner
and in such places as may be required
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by law fully to preserve and protect the right, title and interest of the
Certificateholders and the Trustee hereunder to all property comprising the
Trust. The Servicer shall deliver to the Trustee file-stamped copies of, or
filing receipts for, any document recorded, registered or filed as provided
above, as soon as available following such recording, registration or filing.
The Seller shall cooperate fully with the Servicer in connection with the
obligations set forth above and will execute any and all documents reasonably
required to fulfill the intent of this paragraph.
(b) Within 30 days after the Seller makes any change in its name,
identity or corporate structure which would make any financing statement or
continuation statement filed in accordance with paragraph (a) seriously
misleading within the meaning of Section 9-402(7) (or any comparable provision)
of the UCC, the Seller shall give the Trustee notice of any such change and
shall file such financing statements or amendments as may be necessary to
continue the perfection of the Trust's security interest in the Receivables and
the proceeds thereof.
(c) The Seller and the Servicer shall give the Trustee prompt notice
of any relocation of any office from which it services Receivables or keeps
records concerning the Receivables or of its principal executive office and
whether, as a result of such relocation, the applicable provisions of the UCC
would require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and shall file such
financing statements or amendments as may be necessary to perfect or to continue
the perfection of the Trust's security interest in the Receivables and the
proceeds thereof. The Seller and the Servicer shall at all times maintain each
office from which it services Receivables and its principal executive offices
within the United States.
(d) The Servicer shall deliver to the Trustee (i) upon the execution
and delivery of each amendment of this Agreement or any Supplement, an Opinion
of Counsel to the effect specified in Exhibit E-1; (ii) on each date specified
in Section 2.09(c)(ix) with respect to Aggregate Additions to be designated as
Accounts, an Opinion of Counsel substantially in the form of Exhibit E-2, (iii)
semiannually, with respect to any New Accounts included as Accounts, an Opinion
of Counsel substantially in the form of Exhibit E-2, (iv) on each Addition Date
on which any Participation Interests are to be included in the Trust pursuant to
Section 2.09(a) or (b), an Opinion of Counsel covering the same substantive
legal issues addressed by Exhibits E-1 and E-2 but conformed to the extent
appropriate to relate to Participation Interests; and (v) on or before March 31
of each year, beginning with March 31, 1994, an Opinion of Counsel substantially
in the form of Exhibit E-3.
Section 13.03. Limitation on Rights of Certificateholders. (a) The
death or incapacity of any
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Certificateholder shall not operate to terminate this Agreement or the Trust,
nor shall such death or incapacity entitle such Certificateholders' legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties
hereto or any of them.
(b) No Investor Certificateholder shall have any right to vote
(except as expressly provided in this Agreement) or in any manner otherwise
control the operation and management of the Trust, or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Certificates, be construed so as to constitute the Investor
Certificateholders from time to time as partners or members of an association,
nor shall any Investor Certificateholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
(c) No Investor Certificateholder shall have any right by virtue of
any provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Investor Certificateholder previously shall have made, and unless the Holders of
Investor Certificates evidencing more than 50% of the aggregate unpaid principal
amount of all Investor Certificates (or, with respect to any such action, suit
or proceeding that does not relate to all Series, 50% of the aggregate unpaid
principal amount of the Investor Certificates of all Series to which such
action, suit or proceeding relates) shall have made, a request to the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Trustee, for 60 days after such request and offer of indemnity,
shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Investor Certificateholder with every other Investor Certificateholder and
the Trustee, that no one or more Investor Certificateholders shall have any
right in any manner whatever by virtue or by availing itself or themselves of
any provisions of this Agreement to affect, disturb or prejudice the rights of
the holders of any other of the Investor Certificates, or to obtain or seek to
obtain priority over or preference to any other such Investor Certificateholder,
or to enforce any right under this Agreement, except in the manner herein
provided and for the equal, ratable and common benefit of all Investor
Certificateholders except as otherwise expressly provided in this Agreement.
For the protection and enforcement of the provisions of this Section, each and
every Investor Certificateholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
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Section 13.04. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 13.05. Notices; Payments. (a) All demands, notices,
instructions, directions and communications (collectively, "Notices") under this
Agreement shall be in writing and shall be deemed to have been duly given if
personally delivered at, mailed by registered mail, return receipt requested, or
sent by facsimile transmission (i) in the case of the Seller, to Household
Affinity Funding Corporation at 2960 Meade Avenue, Las Vegas, Nevada 89102,
Attention: General Counsel (facsimile no. (702) 222-4096) (ii) in the case of
the Bank, to Household Bank f.s.b. at 1441 Schilling Place, Salinas, California
93901, Attention: General Counsel (facsimile no. (408) 755-6612), (iii) in the
case of the Servicer, to Household Finance Corporation, at 2700 Sanders Road,
Prospect Heights, Illinois 60070, Attention: Vice President, Asset
Securitization (facsimile no. (708) 205-7457), with copies to Household Credit
Services, Inc. at 1441 Schilling Place, Salinas, California 93901, Attention:
General Counsel (facsimile no. (408) 755-2921) and to Household International,
Inc. at 2700 Sanders Road, Prospect Heights, Illinois 60070, Attention: General
Counsel's Office, Securities and Funding Unit (facsimile no. (708) 205-7457),
(iv) in the case of the Trustee, the Paying Agent or Transfer Agent and
Registrar, to The Bank of New York at 101 Barclay Street, Floor 21W, New York,
New York 10286, (v) in the case of Moody's, to 99 Church Street, New York, New
York 10007, Attention: ABS Monitoring Department 4th Floor (facsimile no. 212-
553-4600), (vi) in the case of Standard & Poor's, to 26 Broadway, New York, New
York 10004, Attention: Asset Backed Group, 15th Floor (facsimile no. 212-412-
0323), (vii) in the case of Duff & Phelps, to 55 East Monroe Street, Chicago,
Illinois 60603, Attention: Structured Finance Department (facsimile no. (312)
263-2650), (viii) in the case of Fitch, to One State Street Plaza, New York, New
York, Attention: Structured Finance Department (facsimile no. (212) 480-4438),
and (ix) to any other Person as specified in any Supplement; or, as to each
party, at such other address or facsimile number as shall be designated by such
party in a written notice to each other party.
(b) Any Notice required or permitted to be given to a Holder of
Registered Certificates shall be given by first-class mail, postage prepaid, at
the address of such Holder as shown in the Certificate Register. No Notice
shall be required to be mailed to a Holder of Bearer Certificates or Coupons but
shall be given as provided below. Any Notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Investor Certificateholder receives such Notice. In
addition, (a) if and so long as any Series or Class is listed on the Luxembourg
Stock Exchange and such Exchange shall so require, any Notice to
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Investor Certificateholders shall be published in an Authorized Newspaper of
general circulation in Luxembourg within the time period prescribed in this
Agreement and (b) in the case of any Series or Class with respect to which any
Bearer Certificates are outstanding, any Notice required or permitted to be
given to Investor Certificateholders of such Series or Class shall be published
in an Authorized Newspaper within the time period prescribed in this Agreement.
Section 13.06. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such provisions shall be deemed
severable from the remaining provisions of this Agreement and shall in no way
affect the validity or enforceability of the remaining provisions or of the
Certificates or the rights of the Certificateholders.
Section 13.07. Certificates Nonassessable and Fully Paid. It is the
intention of the parties to this Agreement that the Certificateholders shall not
be personally liable for obligations of the Trust, that the interests in the
Trust represented by the Certificates shall be nonassessable for any losses or
expenses of the Trust or for any reason whatsoever and that the Certificates
upon authentication and delivery thereof by the Trustee pursuant to Section 6.02
are and shall be deemed fully paid.
Section 13.08. Further Assurances. The Seller and the Servicer agree
to do and perform, from time to time, any and all acts and to execute any and
all further instruments required or reasonably requested by the Trustee more
fully to effect the purposes of this Agreement, including the execution of any
financing statements or continuation statements relating to the Receivables for
filing under the provisions of the UCC of any applicable jurisdiction.
Section 13.09. Nonpetition Covenant. Notwithstanding any prior
termination of this Agreement, the Investor Certificateholders, the Servicer,
the Trustee, the Seller, the Paying Agent, the Authenticating Agent, the
Transfer Agent, the Registrar, the Series Enhancers and each holder of a
Supplemental Certificate shall not, prior to the date which is one year and one
day after the termination of this Agreement with respect to the Trust or the
Seller, acquiesce, petition or otherwise invoke or cause the Trust or the Seller
to invoke the process of any Governmental Authority for the purpose of
commencing or sustaining a case against the Trust or the Seller under any
Federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Trust or the Seller or any substantial part of its property or ordering
the winding-up or liquidation of the affairs of the Trust or the Seller.
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<PAGE>
Section 13.10. No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Trustee or the
Certificateholders, any right, remedy, power or privilege under this Agreement
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege under this Agreement preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges provided under this
Agreement are cumulative and not exhaustive of any rights, remedies, powers and
privileges provided by law.
Section 13.11. Counterparts. This Agreement may be executed in two
or more counterparts (and by different parties on separate counterparts), each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
Section 13.12. Third-Party Beneficiaries. This Agreement will inure
to the benefit of and be binding upon the parties hereto, the
Certificateholders, any Series Enhancer and their respective successors and
permitted assigns. Except as otherwise expressly provided in this Agreement, no
other Person will have any right or obligation hereunder.
Section 13.13. Actions by Certificateholders. (a) Wherever in this
Agreement a provision is made that an action may be taken or a Notice given by
Certificateholders, such action or Notice may be taken or given by any
Certificateholder, unless such provision requires a specific percentage of
Certificateholders.
(b) Any Notice, request, authorization, direction, consent, waiver or
other act by the Holder of a Certificate shall bind such Holder and every
subsequent Holder of such Certificate and of any Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done or omitted to be done by the Trustee or the Servicer in
reliance thereon, whether or not notation of such action is made upon such
Certificate.
Section 13.14 Limitation on Voting of Preferred Stock. The Trustee
shall hold the Preferred Stock of the Seller in trust, for the benefit of the
Certificateholders and shall vote such stock only pursuant to the written
instructions of Certificateholders holding more than 50% of the Aggregate
Invested Amount of all Series of Certificates then outstanding. The Preferred
Stock shall be non-transferable except pursuant to the written instructions of
Certificateholders holding 100% of the Aggregate Invested Amount of all Series
of Certificates then outstanding and the Rating Agency Condition has been
satisfied.
Section 13.15. Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth
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<PAGE>
the entire understanding of the parties relating to the subject matter hereof,
and all prior understandings, written or oral, are superseded by this Agreement.
This Agreement may not be modified, amended, waived or supplemented except as
provided herein.
Section 13.16. Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
Section 13.17. Construction of Agreement. The Seller hereby grants
to the Trustee a security interest in all of the Seller's right, title and
interest in, to and under the Receivables now existing and hereafter created,
all monies due or to become due and all amounts received with respect thereto
and all "proceeds" thereof and any other Trust Assets, to secure all the
Seller's and Servicer's obligations hereunder, including the Seller's obligation
to sell or transfer Receivables hereafter created to the Trust. This Agreement
shall constitute a security agreement under applicable law.
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<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have
caused this Agreement to be duly executed by their respective officers as of the
day and year first above written.
HOUSEHOLD AFFINITY FUNDING
CORPORATION, Seller,
By /s/ Steven H. Smith
-----------------------------
Title:
HOUSEHOLD FINANCE CORPORATION,
Servicer,
By /s/ B.B Moss, Jr.
-----------------------------
Title:
THE BANK OF NEW YORK, Trustee,
By /s/ Todd N. Niemy
-----------------------------
Title:
-94-
<PAGE>
EXHIBIT A
FORM OF HAFC SELLER CERTIFICATE
THIS HAFC SELLER CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. NEITHER THIS HAFC SELLER CERTIFICATE NOR
ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF SUCH ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
SUCH REGISTRATION PROVISIONS.
THIS HAFC SELLER CERTIFICATE IS NOT PERMITTED TO BE TRANSFERRED,
ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH
THE TERMS OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
No. R- One Unit
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
HAFC SELLER CERTIFICATE
THIS CERTIFICATE REPRESENTS AN INTEREST
IN CERTAIN ASSETS OF THE
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
Evidencing an interest in a trust, the corpus of which consists primarily of
receivables generated from time to time in the ordinary course of business in a
portfolio of revolving credit card accounts by Household Bank, f.s.b. (the
"Bank").
(Not an interest in or obligation of the Bank, the Seller
or any affiliate thereof)
This certifies that HOUSEHOLD AFFINITY FUNDING CORPORATION (the
"Seller"), is the registered owner of a fractional interest in the assets of a
trust (the "Trust") not allocated to the Certificateholders' Interest or the
interest of any holder of a Supplemental Certificate pursuant to the Pooling and
Servicing Agreement dated as of April 30, 1993 (as amended and supplemented, the
"Agreement"), by and among the Seller, Household Finance Corporation, as
Servicer, and The Bank of New York, as trustee (the "Trustee"). The corpus of
the Trust consists of (i) a portfolio of all receivables (the "Receivables")
existing in the revolving credit card accounts identified under the Agreement
from time to time (the "Accounts"), (ii) all Receivables generated under the
Accounts from time to time thereafter, (iii) funds collected or to be collected
from cardholders in respect of the Receivables, (iv) all funds which are from
time to time on deposit in the Collection Account and in the Series Accounts,
(v) the benefits of any Series Enhancements issued and to be issued by Series
Enhancers with respect to one or more Series of Investor Certificates and (vi)
all
<PAGE>
other assets and interests constituting the Trust. Although a summary of
certain provisions of the Agreement is set forth below, this Certificate does
not purport to summarize the Agreement and reference is made to the Agreement
for information with respect to the interests, rights, benefits, obligations,
proceeds and duties evidenced hereby and the rights, duties and obligations of
the Trustee. A copy of the Agreement may be requested from the Trustee by
writing to the Trustee at the Corporate Trust Office. To the extent not defined
herein, the capitalized terms used herein have the meanings ascribed to them in
the Agreement.
This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement, as amended and
supplemented from time to time, the Seller by virtue of the acceptance hereof
assents and is bound.
The Receivables consist of Principal Receivables which arise generally
from the purchase of merchandise and services and amounts advanced to
cardholders as cash advances and Finance Charge and Administrative Receivables
which arise generally from Periodic Rate Finance Charges, Cash Advance Fees,
Late Payment Fees and annual membership fees with respect to the Accounts.
This Certificate is the HAFC Seller Certificate, which represents part
of the Seller's interest in certain assets of the Trust, which includes the
right to receive a portion of the Collections and other amounts at the times and
in the amounts specified in the Agreement. The aggregate interest represented
by the HAFC Seller Certificate at any time in the Receivables in the Trust shall
not exceed the Seller's Interest at such time. In addition to the HAFC Seller
Certificate, (i) Investor Certificates will be issued to investors pursuant to
the Agreement, which will represent the Certificateholders' Interest, and (ii)
Supplemental Certificates may be issued pursuant to the Agreement, which will
represent that portion of the Seller's Interest not allocated to the Seller.
This HAFC Seller Certificate shall not represent any interest in the Collection
Account, the Series Accounts or any Series Enhancements, except as expressly
provided in the Agreement.
The Seller has entered into the Agreement, and this Certificate is
issued, with the intention that, for Federal, state and local income and
franchise tax purposes only, the Investor Certificates will qualify as
indebtedness of the Seller secured by the Receivables. The Seller, by entering
into the Agreement and by the acceptance of this Certificate, agrees to treat
the Investor Certificates for Federal, state and local income and franchise tax
purposes as indebtedness of the Seller.
Subject to certain conditions and exceptions specified in the
Agreement, the obligations created by the Agreement and the Trust created
thereby shall terminate upon the earlier of (i) April 30, 2014, (ii) at the
option of the Seller, the day following the Distribution Date on which the
Invested Amount for each Series is
2
<PAGE>
zero and (iii) the time provided in Section 9.02(b) of the Agreement.
Unless the certificate of authentication hereon has been executed by
or on behalf of the Trustee, by manual or facsimile signature, this Certificate
shall not be entitled to any benefit under the Agreement or be valid for any
purpose.
IN WITNESS WHEREOF, the Seller has caused this Certificate to be duly
executed.
HOUSEHOLD AFFINITY FUNDING
CORPORATION
By:___________________________________
Name:
Title:
Dated: May 5, 1993
3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the HAFC Seller Certificate described in the within-mentioned
Agreement.
THE BANK OF NEW YORK, as Trustee,
By:_______________________________
Authorized Officer
4
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT OF RECEIVABLES IN ADDITIONAL ACCOUNTS
(As required by Section 2.09(c) of
the Pooling and Servicing Agreement)
ASSIGNMENT No. _____ OF RECEIVABLES IN ADDITIONAL ACCOUNTS dated as of
__________/*/, by and among HOUSEHOLD AFFINITY FUNDING CORPORATION (the
"Seller"), HOUSEHOLD FINANCE CORPORATION, as Servicer (the "Servicer"), and THE
BANK OF NEW YORK, as Trustee (the "Trustee"), pursuant to the Pooling and
Servicing Agreement, dated as of April 30, 1993 (the "Agreement"), by and among
the Seller, the Servicer and the Trustee.
W I T N E S S E T H:
-------------------
WHEREAS, the Seller, the Servicer and the Trustee are parties to the
Agreement;
WHEREAS, pursuant to the Agreement, the Seller wishes to designate
Additional Accounts to be included as Accounts and to convey the Receivables of
such Additional Accounts, whether now existing or hereafter created, to the
Household Affinity Credit Card Master Trust I (the "Trust") as part of the
corpus of the Trust; and
WHEREAS, the Trustee is willing to accept such designation and
conveyance subject to the terms and conditions hereof;
NOW, THEREFORE, the Seller, the Servicer and the Trustee hereby agree
as follows:
1. Defined Terms. All capitalized terms used herein shall have the
meanings ascribed to them in the Agreement unless otherwise defined herein.
"Addition Date" shall mean, with respect to the Additional Accounts
designated hereby, __________.
"Additional Cut-Off Date" shall mean, with respect to the Additional
Accounts designated hereby, __________.
2. Designation of Additional Accounts. The Seller hereby delivers
herewith a computer file or microfiche list containing a true and complete
schedule identifying all such Additional Accounts specifying for each such
Account, as of the
- ----------------------
/*/To be dated as of the applicable Addition Date.
<PAGE>
Additional Cut-Off Date, its account number, the aggregate amount outstanding in
such Account and the aggregate amount of Principal Receivables outstanding in
such Account, which computer file or microfiche list shall supplement Schedule 1
to the Agreement.
3. Conveyance of Receivables.
(a) The Seller does hereby sell, transfer, assign, set over and
otherwise convey to the Trustee, on behalf of the Trust, for the benefit of the
Certificateholders, all its right, title and interest in, to and under the
Receivables of such Additional Accounts existing at the close of business on the
Additional Cut-Off Date and thereafter created from time to time until the
termination of the Trust, all Recoveries and Interchange with respect thereto
allocable to the Trust pursuant to the Agreement, all monies due or to become
due and all amounts received with respect thereto and all proceeds (including
"proceeds" as defined in the UCC as in effect in the state of California)
thereof. The foregoing does not constitute and is not intended to result in the
creation or assumption by the Trust, the Trustee, any Investor Certificateholder
or any Series Enhancer of any obligation of the Servicer, the Seller or any
other Person in connection with the Accounts, the Receivables or under any
agreement or instrument relating thereto, including any obligation to Obligors,
merchant banks, merchants clearance systems, VISA, MasterCard or insurers.
(b) In connection with such sale, the Seller agrees to record and
file, at its own expense, financing statements (and continuation statements when
applicable) with respect to the Receivables now existing and hereafter created
meeting the requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect, and maintain perfection of, the sale
and assignment of the Receivables to the Trust, and to deliver a file-stamped
copy of each such financing statement or other evidence of such filing to the
Trustee on or prior to the Addition Date. The Trustee shall be under no
obligation whatsoever to file such financing or continuation statements or to
make any other filing under the UCC in connection with such sale and assignment.
(c) In connection with such sale, the Seller further agrees, at its
own expense, on or prior to the date of this Assignment, to indicate in the
appropriate computer files that Receivables created in connection with the
Additional Accounts designated hereby have been conveyed to the Trust pursuant
to the Agreement and this Assignment for the benefit of the Certificateholders.
4. Acceptance by Trustee. Subject to the satisfaction of the
conditions set forth in Section 6 of this Assignment, the Trustee hereby
acknowledges its acceptance on behalf of the Trust of all right, title and
interest to the property, now existing and hereafter created, conveyed to the
Trust pursuant to Section 3(a) of this Assignment, and declares that it shall
maintain such right,
2
<PAGE>
title and interest, upon the trust set forth in the Agreement for the benefit of
all Certificateholders. The Trustee further acknowledges that, prior to or
simultaneously with the execution and delivery of this Assignment, the Seller
delivered to the Trustee the computer file or microfiche list described in
Section 2 of this Assignment.
5. Representations and Warranties of the Sellers. The Seller hereby
represents and warrants to the Trustee, on behalf of the Trust, as of the
Addition Date that:
(a) Legal, Valid and Binding Obligation. This Assignment constitutes
a legal, valid and binding obligation of such Seller enforceable against such
Seller in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally from time to time in
effect or general principles of equity;
(b) Eligibility of Accounts. Each Additional Account designated
hereby is an Eligible Account;
(c) Insolvency. As of the Additional Cut-Off Date and the Addition
Date, no Insolvency Event with respect to the Seller has occurred and the
transfer of the Receivables arising in the Additional Accounts to the Trust has
not been made in contemplation of the occurrence thereof;
(d) Adverse Effect. The addition of the Receivables arising in the
Additional Accounts will not result in the occurrence of an Amortization Event;
(e) Security Interest. This Assignment constitutes a valid sale,
transfer and assignment to the Trust of all right, title and interest of such
Seller in the Receivables now existing or hereafter created, all Recoveries and
Interchange with respect thereto allocable to the Trust pursuant to the
Agreement, all monies due or to become due and all amounts received with respect
thereto and the "proceeds" (including "proceeds" as defined in the UCC as in
effect in the state of California) thereof, relating thereto or, if this
Assignment does not constitute a sale of such property, it constitutes a grant
of a first priority perfected "security interest" (as defined in the UCC as in
effect in the state of California) in such property to the Trust, which, in the
case of existing Receivables and the proceeds thereof, is enforceable upon
execution and delivery of this Assignment, and which will be enforceable with
respect to such Receivables hereafter created and the proceeds thereof upon such
creation. Upon the filing of the financing statements described in Section 3 of
this Assignment and, in the case of the Receivables hereafter created and the
proceeds thereof, upon the creation thereof, the Trust shall have a first
priority perfected security or ownership interest in such property;
3
<PAGE>
(f) No Conflict. The execution and delivery by the Seller of this
Assignment, the performance of the transactions contemplated by this Assignment
and the fulfillment of the terms hereof applicable to the Seller, will not
conflict with or violate any Requirements of Law applicable to the Seller or
conflict with, result in any breach of any of the material terms and provisions
of, or constitute (with or without notice or lapse of time or both) a material
default under, any indenture, contract, agreement, mortgage, deed of trust or
other instrument to which the Seller is a party or by which it or its properties
are bound;
(g) No Proceedings. There are no proceedings or investigations,
pending or, to the best knowledge of the Seller, threatened against the Seller
before any Governmental Authority (i) asserting the invalidity of this
Assignment, (ii) seeking to prevent the consummation of any of the transactions
contemplated by this Assignment, (iii) seeking any determination or ruling that,
in the reasonable judgment of the Seller, would materially and adversely affect
the performance by such Seller of its obligations under this Assignment or (iv)
seeking any determination or ruling that would materially and adversely affect
the validity or enforceability of this Assignment; and
(h) All Consents. All authorizations, consents, orders or approvals
of or registrations or declarations with any Governmental Authority required to
be obtained, effected or given by the Seller in connection with the execution
and delivery of this Assignment by such Seller and the performance of the
transactions contemplated by this Assignment by such Seller have been duly
obtained, effected or given and are in full force and effect.
6. Conditions Precedent. The acceptance of the Trustee set forth in
Section 4 of this Assignment is subject to the satisfaction, on or prior to the
Addition Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Seller in Section 5 of this Assignment shall be true and
correct as of the date of this Assignment and as of the Addition Date.
(b) Agreement. Each of the conditions set forth in Section 2.09(c)
of the Agreement applicable to the designation of the Additional Accounts to be
designated hereby shall have been satisfied and each of the covenants set forth
in Section 2.09(h) of the Agreement applicable to the designation of Additional
Accounts to be designated hereby shall have been fulfilled.
7. Ratification of Agreement. The Agreement is in all respects
ratified and confirmed and the Agreement as supplemented by this Assignment
shall be read, taken and construed as one and the same instrument.
4
<PAGE>
8. Counterparts. This Assignment may be executed in two or more
counterparts, and by different parties on separate counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
9. GOVERNING LAW. THIS ASSIGNMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
5
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have
caused this Assignment to be duly executed by their respective officers as of
the day and year first above written.
HOUSEHOLD FINANCE CORPORATION,
Servicer
By: _______________________________
Name:
Title:
HOUSEHOLD AFFINITY FUNDING
CORPORATION, Seller
By: _______________________________
Name:
Title:
THE BANK OF NEW YORK, Trustee
By: _______________________________
Name:
Title:
6
<PAGE>
EXHIBIT C
FORM OF REASSIGNMENT OF RECEIVABLES IN REMOVED ACCOUNTS
(As required by Section 2.10 of
the Pooling and Servicing Agreement)
REASSIGNMENT No. __________ OF RECEIVABLES dated as of
____________/1/, by and among HOUSEHOLD AFFINITY FUNDING CORPORATION (the
"Seller"), HOUSEHOLD FINANCE CORPORATION, as Servicer (the "Servicer"), and THE
BANK OF NEW YORK, as Trustee (the "Trustee"), pursuant to the Pooling and
Servicing Agreement, dated as of April 30, 1993 (the "Agreement"), by and among
the Seller, the Servicer and the Trustee.
W I T N E S S E T H:
-------------------
WHEREAS the Seller, the Servicer and the Trustee are parties to the
Agreement;
WHEREAS pursuant to the Agreement, the Seller wishes to remove all
Receivables from certain designated Accounts of the Seller (the "Removed
Accounts") and to cause the Trustee to reconvey the Receivables of such Removed
Accounts, whether now existing or hereafter created, from the Trust to the
Seller; and
WHEREAS the Trustee is willing to accept such designation and to
reconvey the Receivables in the Removed Accounts subject to the terms and
conditions hereof;
NOW, THEREFORE, the Seller, the Servicer and the Trustee hereby agree
as follows:
1. Defined Terms. All terms defined in the Agreement and used
herein shall have such defined meanings when used herein, unless otherwise
defined herein.
"Removal Date" shall mean, with respect to the Removed Accounts
designated hereby, _______________.
2. Designation of Removed Accounts. The Seller shall deliver
herewith to the Trustee a computer file or microfiche list containing a true and
complete schedule identifying all Accounts the Receivables of which are being
removed from the Trust, specifying for each such Account, as of the Removal
Notice Date, its account number, the aggregate amount outstanding in such
Account and the aggregate amount of Principal Receivables in such Account, which
computer file or microfiche list shall supplement Schedule 1 to the Agreement.
- -------------------------
/1/ To be dated as of the Removal Date.
<PAGE>
3. Conveyance of Receivables. (a) The Trustee does hereby transfer,
assign, set over and otherwise convey to the Seller, without recourse, on and
after the Removal Date, all right, title and interest of the Trust in, to and
under the Receivables existing at the close of business on the Removal Date and
thereafter created from time to time in the Removed Accounts designated hereby,
all monies due or to become due and all amounts received with respect thereto
and all proceeds thereof [but excluding all Recoveries relating thereto].
(b) In connection with such transfer, the Trustee agrees to execute
and deliver to the Seller on or prior to the date this Reassignment is
delivered, such termination statements with respect to the Receivables now
existing at the close of business on the Removal Date and thereafter created
from time to time in the Removed Accounts reassigned hereby (which may be a
single termination statement with respect to all such Receivables) evidencing
the release by the Trust of its interest in the Receivables in the Removed
Accounts, and meeting the requirements of applicable state law, in such manner
and such jurisdictions as are necessary to terminate such interest. The Seller
shall record and file such termination statements.
4. Acceptance by Trustee. The Trustee hereby acknowledges that,
prior to or simultaneously with the execution and delivery of this Reassignment,
the Seller delivered to the Trustee the computer file or microfiche list
described in Section 2 of this Reassignment.
5. Representations and Warranties of the Sellers. The Seller hereby
represents and warrants to the Trustee, on behalf of the Trust, as of the
Removal Date:
(a) Legal, Valid and Binding Obligation. This Reassignment
constitutes a legal, valid and binding obligation of the Seller enforceable
against the Seller, in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally from time to time in
effect.
(b) Adverse Effect. The removal of the Removed Accounts will not
result in the occurrence of an Amortization Event.
6. Conditions Precedent. The removal of the Removed Accounts is
subject to the satisfaction on or prior to the Removal Date, of the following
conditions precedent:
Officer's Certificate. The Seller shall have delivered to the Trustee
an Officer's Certificate certifying that (i) as of the Removal Date, all
requirements set forth in Section 2.10 of the Agreement for designating Removed
Accounts and reconveying the Receivables of such Removed Accounts, whether
existing at the close of business on the Removal Date or thereafter created from
time to
2
<PAGE>
time have been satisfied, and (ii) each of the representations and warranties
made by the Seller in Section 5 hereof is true and correct as of the Removal
Date. The Trustee may conclusively rely on such Officer's Certificate, shall
have no duty to make inquiries with regard to the matters set forth therein and
shall incur no liability in so relying.
7. Ratification of Agreement. The Agreement is in all respects
ratified and confirmed and the Agreement as supplemented by this Reassignment
shall be read, taken and construed as one and the same instrument.
8. Counterparts. This Reassignment may be executed in two or more
counterparts, and by different parties on separate counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
9. GOVERNING LAW. THIS REASSIGNMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
3
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have
caused this Reassignment to be duly executed by their respective officers as of
the day and year first above written.
HOUSEHOLD FINANCE CORPORATION,
Servicer
by: __________________________________
Title:
HOUSEHOLD AFFINITY FUNDING
CORPORATION, Seller
by: __________________________________
Title:
THE BANK OF NEW YORK, Trustee
by: __________________________________
Title:
4
<PAGE>
EXHIBIT D
FORM OF ANNUAL SERVICER'S CERTIFICATE
(To be delivered on or before March 31 of
each calendar year beginning with March 31, 1994,
pursuant to section 3.05 of the Pooling and
Servicing Agreement referred to below)
HOUSEHOLD FINANCE CORPORATION
----------------------------------------
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
----------------------------------------
The undersigned, a duly authorized representative of Household Finance
Corporation, as Servicer (the "Servicer"), pursuant to the Pooling and Servicing
Agreement, dated as of April 30, 1993 (as amended and supplemented, the
"Agreement"), by and among the Servicer, Household Affinity Funding Corporation
(the "Seller") and The Bank of New York, as Trustee (the "Trustee"), does hereby
certify that:
1. The Servicer is, as of the date hereof, the Servicer under
the Agreement. Capitalized terms used in this Certificate have their
respective meanings as set forth in the Agreement.
2. The undersigned is a servicing Officer who is duly authorized
pursuant to the Agreement to execute and deliver this Certificate to the
Trustee.
3. A review of the activities of the Servicer during the
calendar year ended December 31, 199_, and of its performance under the
Agreement was conducted under my supervision.
4. Based on such review, the Servicer has, to the best of my
knowledge, performed in all material respects its obligations under the
Agreement throughout such year and no default in the performance of such
obligations has occurred or is continuing except as set forth in paragraph
5 below.
5. The following is a description of each default in the
performance of the Servicer's obligations under the provisions of the
Agreement known to me to have been made by the Servicer during the year
ended December 31, 199_, which sets forth in detail (i) the nature of each
such default, (ii) the action taken by the Servicer, if any, to remedy each
such
<PAGE>
default and (iii) the current status of each such default: [If applicable,
insert "None."]
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
this ___ day of ______________.
HOUSEHOLD FINANCE CORPORATION,
as Servicer
By: ___________________________________
Name:
Title:
2
<PAGE>
EXHIBIT E-1
PROVISIONS TO BE INCLUDED IN
OPINION OF COUNSEL
WITH RESPECT TO AMENDMENTS
TO THE POOLING AND SERVICING AGREEMENT
TO BE DELIVERED PURSUANT TO
SUBSECTION 13.02(d)(i)
--------------------------------------
(i) The amendment to the Pooling and Servicing Agreement, attached
hereto as Schedule 1 (the "Amendment"), has been duly authorized, executed and
delivered by the Seller constitutes the legal, valid and binding agreement of
the Seller, and enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
from time to time in effect.
(ii) The Amendment has been entered into in accordance with the terms
and provisions of Section 13.01 of the Pooling and Servicing Agreement.
(iii) The Amendment will not adversely affect in any material respect
the interests of the Investor Certificateholders of any Series of Certificates.
[Include clause (iii) only in the case of amendments effected pursuant to
subsection 13.01(a) of the Pooling and Servicing Agreement.]
E-1-1
<PAGE>
EXHIBIT E-2
PROVISIONS TO BE INCLUDED IN
OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO
SUBSECTIONS 2.09(c) (ix) and (d)(iii) and 13.02(d)(ii) and (iii)
----------------------------------------------------------------
The opinions set forth below may be subject to all the qualifications,
assumptions, limitations and exceptions taken or made in the opinions of counsel
to the Seller delivered on the Closing Date. Unless otherwise indicated, all
capitalized terms used herein shall have the meanings ascribed to them in the
Pooling and Servicing Agreement and in the Assignment.
1. The Trustee has a valid perfected first priority security interest
with respect to the Bank's right, title and interest in and to the
Receivables arising in [the Additional Accounts] [New Accounts
designated since [date]].
E-2-1
<PAGE>
EXHIBIT E-3
PROVISIONS TO BE INCLUDED IN
ANNUAL OPINION OF COUNSEL
DELIVERED PURSUANT TO
SUBSECTION 13.02(d)(v)
--------------------------------------
The opinions set forth below may be subject to all the qualifications,
assumptions, limitations and exceptions taken or made in the opinions of counsel
to the Seller delivered on the Closing Date. Unless otherwise indicated, all
capitalized terms used herein shall have the meanings ascribed to them in the
Pooling and Servicing Agreement and in the Assignment.
1. The Trustee has a valid perfected first priority security interest
with respect to the Bank's right, title and interest in and to the
Receivables transferred to the Trust.
E-3-1
<PAGE>
SCHEDULE 1
List of Accounts
----------------
[Original list delivered to Trustee]
<PAGE>
Amendment to Amended and Restated
Pooling and Servicing Agreement
This AMENDMENT TO AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
dated as of April 12, 1995 (this "Amendment") is among Household Affinity
Funding Corporation, a Delaware corporation, as Seller, Household Finance
Corporation, a Delaware corporation, as Servicer and THE BANK OF NEW YORK, a New
York banking corporation, as Trustee. This Amendment amends the Amended and
Restated Pooling and Servicing Agreement dated as of August 1, 1993 (the
"Pooling and Servicing Agreement") among the parties listed in the preceding
sentence.
RECITALS
The parties hereto are parties to the Pooling and Servicing Agreement. All
capitalized terms not otherwise defined herein shall have the meanings assigned
such terms in the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement permits pursuant to Section 13.01(a)
thereof amendments without the consent of any Certificateholders to the extent
that such amendment does not have an Adverse Effect.
The parties hereto desire to amend the definition of Business Day to
correct an error and render such definition consistent with prospectuses
delivered to such Certificateholders.
The Seller believes that the amendment to such definition meets the
expectations of Certificateholders and, therefore, will not have an Adverse
Effect.
The parties hereto also desire to permit the return of Defaulted
Receivables to the Seller in order to facilitate servicing and increase
Recoveries.
The Seller believes that this amendment will benefit Certificateholders and
will not have an Adverse Effect.
Now, therefore, in consideration of the mutual agreements herein contained,
each party hereto agrees as follows for the benefit of the other parties, the
Certificateholders and any Series Enhancer to the extent provided herein and in
any supplement.
AMENDMENT
SECTION 1: Amendment
Section 1.01 of the Pooling and Servicing Agreement is hereby amended by
deleting the definition of "Business Day" and inserting in lieu thereof the
following:
<PAGE>
"Business Day" shall mean any day other than (a) a Saturday or Sunday
or (b) any other day on which national banking associations or state
banking institutions in New York, New York, Prospect Heights, Illinois,
Wood Dale, Illinois, Newport Beach, California, Salinas, California, or the
State of Nevada or any other State in which the principal executive offices
of the Bank or any Additional Seller are located, are authorized or
obligated by law, executive order or governmental decree to be closed or
(c) for purposes of any particular Series, any other day specified in the
applicable Series Supplement; provided that with respect to any date
designated for determination of a rate based upon the London interbank
market, "Business Day" shall mean any day other than any day on which
banking institutions in London, England are authorized or obligated by law,
executive order or government decree to be closed.
Section 2.10 of the Pooling and Servicing Agreement is hereby amended by
adding new paragraph (vi) after the current text of Section 2.10.
(vi) Servicer and/or Seller may at any time on behalf of the Trust
sell all Receivables in an Account if all such Receivables are Defaulted
Receivables and the Bank has terminated its credit line to the obligor
thereof to any third party free and clear of any claim or interest in the
Trust to such Receivables provided that the price the Servicer or Seller
shall receive from such third party shall be deemed a Recovery and shall be
applied as provided herein. The Trust's rights to any Recoveries shall be
limited to the receipt of the purchase price. Upon such sale, the Trust
shall automatically and without further action or consideration be deemed
to transfer, set over and otherwise convey to the Servicer or Seller with
respect to such Account, without recourse, representation or warranty, all
right, title and interest of the Trust in and to the Receivables in such
Account, including all monies due or to become due with respect thereto,
all proceeds thereof and any Insurance Proceeds relating thereto.
SECTION 2: Miscellaneous
-------------
(a) Counterparts. This Amendment may be executed in two or more
counterparts, and by different parties on separate counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
(b) Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have caused
this Amendment to be duly executed by their respective officers as of the day
and year first written above.
HOUSEHOLD FINANCE CORPORATION
--------------------------------------
Name:
Title:
HOUSEHOLD AFFINITY FUNDING CORPORATION
--------------------------------------
Name:
Title:
THE BANK OF NEW YORK
--------------------------------------
Name:
Title:
<PAGE> Exhibit 4.2
- --------------------------------------------------------------------------------
HOUSEHOLD AFFINITY FUNDING CORPORATION
Seller,
HOUSEHOLD FINANCE CORPORATION
Servicer,
and
THE BANK OF NEW YORK,
Trustee
on behalf of the Certificateholders
---------------------------------------------
SERIES 1997-1 SUPPLEMENT
Dated as of March 1, 1997
to the
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of August 1, 1993
---------------------------------------------
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
Series 1997-1
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<C> <S> <C>
SECTION 1. Designation..................................................... 1
SECTION 2. Definitions..................................................... 2
SECTION 3. Servicing Compensation.......................................... 20
SECTION 4. Article IV of Agreement......................................... 21
Section 4.07. Allocations.............................................. 21
Section 4.08. Determination of Monthly Interest........................ 21
Section 4.09. Determination of Monthly Principal....................... 23
Section 4.10. Coverage of Required Amounts............................. 25
Section 4.11. Application of Available Funds on
Deposit in the Collection Account and
the Principal Funding Account............................ 25
Section 4.12. Investor Charge-Offs..................................... 28
Section 4.13. Excess Finance Charge and Administrative
Collections.............................................. 30
Section 4.14. Establishment of Series 1997-1 Cash
Collateral Account....................................... 32
Section 4.15. Subordinated Principal Collections....................... 33
Section 4.16. Reallocated Investor Finance Charge and
Administrative Collections............................... 34
Section 4.17. Series 1997-1 Excess Principal
Collections.............................................. 35
Section 4.18 Exchange of Investor Certificates for
Seller Interest.......................................... 36
SECTION 4.19 Principal Funding Account................................ 37
SECTION 4.20 Reserve Account.......................................... 38
SECTION 5. Distributions................................................... 39
SECTION 6. Statements to Certificateholders................................ 41
SECTION 7. Additional Amortization Events.................................. 42
SECTION 8. Optional Repurchase............................................. 43
SECTION 9. Sale of Certificateholders' Interest pursuant
to Section 2.06 or 10.01 of the Agreement....................... 43
SECTION 10. Distributions pursuant to Sections 8 or 9 of
this Series Supplement and Section 2.06,
10.01 or 12.02(c) of the Agreement.............................. 44
i
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 11. Distribution of Proceeds of Sale, Disposition or Liquidation of
the Receivables pursuant to Section 9.02 of the Agreement...... 45
SECTION 12. Section 9.02 of the Agreement; Rights of the Collateral
Interest Holder................................................ 46
SECTION 13. Clearing Agency................................................ 47
SECTION 14. Delivery of the Class A Certificates and the Class B
Certificates................................................... 47
SECTION 15. Ratification of Agreement...................................... 47
SECTION 16. Counterparts.................................................... 47
SECTION 17. Governing Law.................................................. 47
SECTION 18. Forms of Certificates and Monthly Servicer's Certificate....... 47
SECTION 19. Definition of Tax Opinion and of Required Minimum Principal
Balance for Purposes of Series 1997-1.......................... 48
SECTION 20. ERISA Restrictions............................................. 48
EXHIBITS
Exhibit A-1 Form of 1997-1 Class A Certificate
Exhibit A-2 Form of 1997-1 Class B Certificate
Exhibit B Form of 1997-1 Monthly Servicer's Certificate
</TABLE>
ii
<PAGE>
Series 1997-1 SUPPLEMENT, dated as of March 1, 1997 (the "Series
Supplement") by and among Household Affinity Funding Corporation, a Delaware
corporation, as seller (the "Seller"), Household Finance Corporation, a Delaware
corporation, as servicer (the "Servicer"), and The Bank of New York, a New York
banking corporation (together with its successor in trust thereunder as provided
in the Pooling and Servicing Agreement referred to below, the "Trustee"), as
trustee under the Amended and Restated Pooling and Servicing Agreement, by and
among the Seller, the Servicer and the Trustee dated as of August 1, 1993 (as
amended to the date hereof, the "Agreement").
RECITALS
Section 6.03 of the Agreement provides, among other things, that the
Seller and the Trustee may at any time and from time to time enter into a
supplement to the Agreement for the purpose of authorizing the issuance by the
Trustee to the Seller for execution and redelivery to the Trustee for
authentication one or more Series of Investor Certificates. The Seller has
tendered the notice of issuance required by subsection 6.03(b)(i) of the
Agreement and hereby enters into this Series Supplement with the Servicer and
the Trustee as required by such Section 6.03 to provide for the issuance,
authentication and delivery of the Class A and Class B Certificates, Series
1997-1 and to specify the Principal Terms thereof. In the event that any term
or provision contained herein shall conflict with or be inconsistent with any
term or provision contained in the Agreement, the terms and provisions of this
Series Supplement shall govern.
SECTION 1. Designation.
(a) There is hereby created a Series of Investor Certificates to be
issued pursuant to the Agreement and this Series Supplement designated as
"Household Affinity Credit Card Master Trust I, Series 1997-1". The Series
1997-1 Certificates shall be issued in two certificated Classes, the first of
which shall be known as the "Floating Rate Class A Credit Card Participation
Certificates, Series 1997-1", and the second of which shall be known as the
"Floating Rate Class B Credit Card Participation Certificates, Series 1997-1".
In addition, there is hereby created a third Class of uncertificated interests
in the Trust which, except as expressly provided herein, shall be deemed to be
"Investor Certificates" for all purposes under the Agreement and this Series
Supplement and which shall be known as the "Collateral Interest, Series 1997-1".
The Collateral Interest Holder shall be deemed to be the Series Enhancer for all
purposes under the Agreement and this Series Supplement.
(b) The Series 1997-1 Certificates shall be included in Group Two and
shall be deemed to be "Investor Certificates" for all
<PAGE>
purposes under the Agreement and this Series Supplement. Notwithstanding any
provision in the Agreement or in this Series Supplement, the first Distribution
Date with respect to Series 1997-1 shall be the April 1997 Distribution Date.
(c) Except as expressly provided herein, the provisions of Article VI
and Article XII of the Agreement relating to the registration, authentication,
delivery, presentation, cancellation and surrender of Registered Certificates
shall not be applicable to the Collateral Interest, and in no event shall clause
(c) of the definition of "Tax Opinion" set forth in Section 19 hereof be
operative with respect to the Collateral Interest.
SECTION 2. Definitions.
(a) Whenever used in this Series Supplement and when used in the
Agreement with respect to the Series 1997-1 Certificates, the following words
and phrases shall have the following meanings, and the definitions of such terms
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such terms.
"Additional Interest" shall mean, at any time of determination, the
sum of Class A Additional Interest, Class B Additional Interest and Collateral
Additional Interest.
"Adjusted Invested Amount" shall mean, with respect to any date of
determination, an amount equal to the Invested Amount, less the Principal
Funding Account Balance on such date of determination.
"Agreement" shall mean, for purposes of this Supplement, the Amended
and Restated Pooling and Servicing Agreement, dated as of August 1, 1993, as
amended and as may be further amended from time to time, by and among the
Seller, the Servicer and the Trustee (without regard to this Supplement or
supplements for other Series).
"Allocable Servicing Fee" shall have the meaning specified in Section
3.
"Available Collateral Amount" shall mean, with respect to any date of
determination, the lesser of (a) the sum of the amount on deposit in the Cash
Collateral Account and the Collateral Invested Amount and (b) the Required
Collateral Amount.
"Available Investor Principal Collections" shall mean, with respect to
any Distribution Date, the sum of (a) an amount equal to (i) the Floating
Allocation Percentage with respect to the Revolving Period, or the Principal
Allocation Percentage with respect to the Controlled Accumulation Period, any
Early Accumulation Period or any Early Amortization Period, of Series
2
<PAGE>
Allocable Principal Collections deposited into the Collection Account for the
related Due Period (or any partial Due Period which occurs as the first Due
Period during any Early Accumulation Period or any Early Amortization Period),
minus (ii) the amount of Subordinated Principal Collections allocable to the
Class B Invested Amount and the Collateral Invested Amount with respect to such
Distribution Date which is required to fund any deficiency pursuant to
subsection 4.15(a) for such Distribution Date, plus (b) Series Allocable
Miscellaneous Payments on deposit in the Collection Account for such
Distribution Date, plus (c) Series 1997-1 Excess Principal Collections on
deposit in the Collection Account for such Distribution Date, plus (d)
Subordinated Series Reallocated Principal Collections on deposit in the
Collection Account for such Distribution Date, plus (e) the amount, if any, of
Reallocated Investor Finance Charge and Administrative Collections to be
distributed pursuant to Section 4.11(a)(ii) on such Distribution Date and plus
(f) the amount, if any, of Excess Finance Charge and Administrative Collections
to be distributed pursuant to Sections 4.13(b), (d) or (e) on such Distribution
Date.
"Available Reserve Account Amount" shall mean, with respect to any
Distribution Date, the lesser of (a) the amount on deposit in the Reserve
Account on such date (after taking into account any interest and earnings
retained in the Reserve Account pursuant to subsection 4.20(b) on such date and
(b) the Required Reserve Account Amount.
"Base Rate" shall mean 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 Adjusted Invested Amount, the Class B Adjusted
Invested Amount and the Collateral Invested Amount as of the last day of the
preceding Due Period) plus 2.00% per annum.
"Cash Collateral Account" shall have the meaning set forth in Section
4.14.
"Class A Additional Interest" shall have the meaning specified in
subsection 4.08(a).
"Class A Adjusted Invested Amount" shall mean, with respect to any
date of determination, an amount equal to the Class A Invested Amount less the
Principal Funding Account Balance (but not in excess of the Class A Invested
Amount) on such date.
"Class A Certificate Rate" shall mean, from March [__], 1997 to and
excluding April 15, 1997, [_____]% per annum and for any Interest Period
thereafter, a per annum rate equal to LIBOR (as defined herein) plus [____]%.
"Class A Certificateholder" shall mean the Person in whose name a
Class A Certificate is registered in the Certificate Register.
3
<PAGE>
"Class A Certificateholders' Interest" shall mean the portion of the
Certificateholders' Interest evidenced by the Class A Certificates.
"Class A Certificates" shall mean any one of the Certificates executed
by the Seller and authenticated by or on behalf of the Trustee, substantially in
the form of Exhibit A-1.
"Class A Initial Invested Amount" shall mean the aggregate initial
principal amount of the Class A Certificates, which is $870,000,000.
"Class A Interest Shortfall" shall have the meaning specified in
subsection 4.08(a).
"Class A Invested Amount" shall mean, when used with respect to any
date, an amount equal to (a) the Class A Initial Invested Amount, minus (b) the
amount of principal payments made to Class A Certificateholders prior to such
date, minus (c) the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs over Class A Investor Charge-Offs reimbursed pursuant to subsection
4.12(a) prior to such date and minus (d) the amount of any reduction in the
Class A Invested Amount pursuant to Section 4.18 prior to such date.
"Class A Invested Percentage" shall mean, with respect to any
Distribution Date, the percentage equivalent (which percentage shall never
exceed 100%) of a fraction, the numerator of which is the Class A Adjusted
Invested Amount as of the last day of the second preceding Due Period and the
denominator of which is the Adjusted Invested Amount as of such last day.
"Class A Investor Charge-Offs" shall have the meaning specified in
subsection 4.12(a).
"Class A Investor Default Amount" shall mean, with respect to each
Distribution Date, an amount equal to the product of the Investor Defaulted
Amount for the immediately preceding Due Period and the Class A Invested
Percentage for such Distribution Date.
"Class A Monthly Interest" shall mean the monthly interest
distributable in respect of the Class A Certificates as calculated in accordance
with subsection 4.08(a).
"Class A Monthly Principal" shall mean the monthly principal
distributable in respect of the Class A Certificates as calculated in accordance
with subsection 4.09(a).
"Class A Pool Factor" shall mean, with respect to any Record Date, a
number carried out to eight decimals representing the ratio of the Class A
Invested Amount as of such Record Date (determined after taking into account any
increases or decreases in
4
<PAGE>
the Class A Invested Amount which will occur on the following Distribution Date)
to the Class A Initial Invested Amount.
"Class A Principal Funding Account Percentage" shall mean with respect
to any Distribution Date, the percentage equivalent of a fraction, the numerator
of which is the sum of all deposits of Class A Monthly Principal deposited into
the Principal Funding Account pursuant to subsection 4.11(d)(i) and the
denominator of which is the Principal Funding Account Balance as of such date.
"Class A Required Amount" shall have the meaning specified in
subsection 4.10(a).
"Class B Additional Interest" shall have the meaning specified in
subsection 4.08(b).
"Class B Adjusted Invested Amount" shall mean an amount equal to the
Class B Invested Amount less the positive difference, if any, between the
Principal Funding Account Balance and the Class A Invested Amount on such date.
"Class B Certificate Rate" shall mean from March [__], 1997 to and
excluding April 15, 1997, [ ]% per annum and for any Interest Period
thereafter, a per annum rate equal to LIBOR (as defined herein) plus [ ]%.
"Class B Certificateholder" shall mean the Person in whose name a
Class B Certificate is registered in the Certificate Register.
"Class B Certificateholders' Interest" shall mean the portion of the
Certificateholders' Interest evidenced by the Class B Certificates.
"Class B Certificates" shall mean any one of the Certificates executed
by the Seller and authenticated by or on behalf of the Trustee, substantially in
the form of Exhibit A-2.
"Class B Initial Invested Amount" shall mean the aggregate initial
principal amount of the Class B Certificates, which is $47,500,000.
"Class B Interest Shortfall" shall have the meaning specified in
subsection 4.08(b).
"Class B Invested Amount" shall mean, when used with respect to any
date, an amount equal to (a) the Class B Initial Invested Amount, minus (b) the
amount of principal payments made to Class B Certificateholders prior to such
date, minus (c) the aggregate amount of Class B Investor Charge-Offs for all
prior Distribution Dates, minus (d) the amount of Subordinated Principal
Collections allocated on all prior Distribution Dates pursuant to Section 4.15
(excluding any Subordinated Principal Collections allocable to the Collateral
Invested Amount), minus (e) an amount
5
<PAGE>
equal to the amount by which the Class B Invested Amount has been reduced on all
prior Distribution Dates pursuant to subsection 4.12(a), plus (f) the sum of (A)
the aggregate amount of any Series Allocable Miscellaneous Payments allocated on
all prior Distribution Dates pursuant to subsection 4.12(b) and (B) the amount
of Excess Finance Charge and Administrative Collections allocated and available
on all prior Distribution Dates pursuant to subsection 4.13(e) and any
withdrawals from the Cash Collateral Account applied in accordance with such
subsection on such dates, for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (c), (d) and (e), and minus (g) the amount of
any reduction in the Class B Invested Amount pursuant to Section 4.18 prior to
such date.
"Class B Invested Percentage" shall mean, with respect to any
Distribution Date, the percentage equivalent (which percentage shall never
exceed 100%) of a fraction, the numerator of which is the Class B Adjusted
Invested Amount as of the last day of the second preceding Due Period and the
denominator of which is the Adjusted Invested Amount as of such last day.
"Class B Investor Charge-Offs" shall have the meaning specified in
subsection 4.12(b).
"Class B Investor Default Amount" shall mean, with respect to each
Distribution Date, an amount equal to the product of the Investor Defaulted
Amount for the immediately preceding Due Period and the Class B Invested
Percentage for such Distribution Date.
"Class B Monthly Interest" shall mean the monthly interest
distributable in respect of the Class B Certificates as calculated in accordance
with subsection 4.08(b).
"Class B Monthly Principal" shall mean the monthly principal
distributable in respect of the Class B Certificates as calculated in accordance
with subsection 4.09(b).
"Class B Pool Factor" shall mean, with respect to any Record Date, a
number carried out to eight decimals representing the ratio of the Class B
Invested Amount as of such Record Date (determined after taking into account any
increases or decreases in the Class B Invested Amount which will occur on the
following Distribution Date) to the Class B Initial Invested Amount.
"Class B Principal Commencement Date" shall mean the first date on
which principal is actually distributed to Class B Certificateholders.
"Class B Principal Funding Account Percentage" shall mean with respect
to any Distribution Date, the percentage equivalent of a fraction, the numerator
of which is the sum of all deposits of Class B Monthly Principal deposited into
the Principal Funding
6
<PAGE>
Account pursuant to subsection 4.11(d)(ii) and the denominator of which is the
Principal Funding Account Balance as of such date.
"Class B Required Amount" shall have the meaning specified in
subsection 4.10(b).
"Collateral Additional Interest" shall have the meaning specified in
subsection 4.08(c).
"Collateral Agreement" shall mean the agreement among the Seller, the
Servicer, the Trustee and the Collateral Interest Holder, dated as of March
[__], 1997, as amended from time to time.
"Collateral Amount" shall mean, for any date of determination, the sum
of (a) the Collateral Invested Amount and (b) the aggregate amount of funds on
deposit in the Cash Collateral Account, in each case on such date.
"Collateral Cash Surplus" shall mean, as of any date of determination,
the lesser of (a) the Collateral Surplus and (b) the amount on deposit in the
Cash Collateral Account.
"Collateral Charge-Offs" shall have the meaning specified in Section
4.12(c).
"Collateral Default Amount" shall mean, with respect to any
Distribution Date, the product of the Investor Defaulted Amount for the related
Due Period and the Collateral Invested Percentage.
"Collateral Initial Invested Amount" shall mean $82,500,000.
"Collateral Interest" shall mean a fractional undivided interest in
the Trust which shall consist of the right to receive, to the extent necessary
to make the required payments to the Collateral Interest Holder under this
Series Supplement, the portion of Collections allocable thereto under the
Agreement and this Series Supplement, funds on deposit in the Collection Account
allocable thereto pursuant to the Agreement and this Series Supplement and,
subject to the rights of the Investor Certificateholders with respect thereto,
funds on deposit in the Cash Collateral Account.
"Collateral Interest Holder" shall mean the entity so designated in
the Collateral Agreement.
"Collateral Interest Shortfall" shall have the meaning specified in
Section 4.08(c).
"Collateral Invested Amount" shall mean, when used with respect to any
date, an amount equal to (a) the Collateral Initial Invested Amount, minus (b)
the aggregate amount of deposits made to the Cash Collateral Account pursuant to
Sections 4.11(c) or 4.11(d)(iii) and (vi) prior to such date, minus (c) the
aggregate
7
<PAGE>
amount of Collateral Charge-Offs for all prior Distribution Dates pursuant to
Section 4.12(c), minus (d) the aggregate amount of Subordinated Principal
Collections allocated on all prior Distribution Dates pursuant to Section 4.15
allocable to the Collateral Invested Amount minus (e) an amount equal to the
amount by which the Collateral Invested Amount has been reduced on all prior
Distribution Dates pursuant to Sections 4.12(a) and (b), plus (f) the sum of (A)
the Series Allocable Miscellaneous Payments allocated and available on all prior
Distribution Dates pursuant to Section 4.12(c) and (B) the amount of Excess
Finance Charge and Administrative Collections allocated and available on all
prior Distribution Dates pursuant to Section 4.13(i), for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and (e),
and minus (g) the amount of any reduction resulting from a cancellation of any
portion of the Collateral Interest pursuant to Section 4.18; provided, however,
that the Collateral Invested Amount may not be reduced below zero.
"Collateral Invested Percentage" shall mean, with respect to any
Distribution Date, the percentage equivalent (which percentage shall never
exceed 100%) 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 Adjusted Invested Amount as of such last day.
"Collateral Monthly Interest" shall mean the monthly interest
distributable in respect of the Collateral Invested Amount as calculated in
accordance with subsection 4.08(c).
"Collateral Monthly Principal" shall mean the monthly principal
distributable in respect of the Collateral Invested Amount as calculated in
accordance with subsection 4.09(c).
"Collateral Rate" shall mean, for any Interest Period, a per annum
rate equal to LIBOR for such Interest Period plus 1%.
"Collateral Surplus" shall mean, with respect to any Distribution
Date, the excess, if any, of (a) the amount on deposit in the Cash Collateral
Account plus the Collateral Invested Amount over (b) the greater of (x) the
Required Collateral Amount or (y) at any time the Class B Invested Amount is
greater than zero and as long as an Early Amortization Period is not in effect,
at the option of the Seller (as evidenced by written instructions to the
Servicer and the Trustee), such higher amount as the Seller shall specify, from
time to time, in such instructions.
"Collection Subaccount" shall mean the Collection Account subaccount
designated for the deposit of funds pursuant to subsections 4.19(b), 4.20(b) and
4.20(d).
"Controlled Accumulation Amount" shall mean, for any Distribution Date
with respect to the Controlled Accumulation Period, $[__________]; provided,
however, that, if the commencement of the Controlled Accumulation Period is
modified pursuant to
8
<PAGE>
Section 4.11(f), (a) the Controlled Accumulation Amount shall mean the amount
specified in accordance with such Section on the date on which the Controlled
Accumulation Period has most recently been modified, (b) the Controlled
Accumulation Amount for each Due Period shall be no greater than the Controlled
Accumulation Period Amount for such Due Period and (c) the sum of the Controlled
Accumulation Amounts for all Due Periods during the modified Controlled
Accumulation Period shall not be less than the the sum of the Class A Initial
Invested Amount plus the Class B Initial Invested Amount.
"Controlled Accumulation Period" shall mean, unless an Amortization
Event shall have occurred prior thereto, the period commencing at the close of
business on the last Business Day of September 2001, or such later date as is
determined in accordance with subsection 4.11(f) and ending on the first to
occur of (a) the commencement of the Early Amortization Period, (b) the payment
in full of the Invested Amount and (c) the Series 1997-1 Termination Date.
"Controlled Accumulation Period Amount" shall mean, for each Due
Period, the product of (a) Expected Monthly Principal for such Due Period and
(b) a fraction, the numerator of which is equal to the Invested Amount as of the
last day of the Revolving Period, and the denominator of which is equal to the
sum of the Invested Amount as of the the last day of the Revolving Period plus
the Invested Amounts (as defined in the related Supplements) of all other Series
which have a variable Controlled Accumulation Period Length (as defined in the
related Supplements) and are not scheduled to be in their Revolving Period as of
such Due Period.
"Controlled Accumulation Period Length" has the meaning specified in
subsection 4.11(f)
"Controlled Deposit Amount" shall mean, for any Distribution Date with
respect to the Controlled Accumulation Period, an amount equal to the sum of the
Controlled Accumulation Amount for such Distribution Date and any Deficit
Controlled Accumulation Amount for the immediately preceding Distribution Date.
"Covered Amount" shall mean, for any Distribution Date with respect to
the Controlled Accumulation Period and any Early Accumulation Period, an amount
equal to the sum of (i) the product of (x) a fraction, the numerator of which is
the actual number of days in the related Interest Period and the denominator of
which is 360, (y) the Class A Certificate Rate in effect during such Interest
Period, and (z) the Class A Principal Funding Account Percentage of funds
available in the Principal Funding Account, if any, as of the preceding
Distribution Date and (ii) the product of (x) a fraction, the numerator of which
is the actual number of days in the related Interest Period and the denominator
of which is 360, (y) the Class B Certificate Rate in effect during such Interest
Period, and (z) the Class B Principal Funding Account Percentage of
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funds available in the Principal Funding Account, if any, as of the preceding
Distribution Date.
"Cumulative Excess Interest Amount" shall mean, with respect to any
Distribution Date, an amount equal to the sum of (a) the Excess Interest Amount
with respect to such Distribution Date and (b) the aggregate Excess Interest
Amounts with respect to prior Distribution Dates which have not been distributed
to the Class B Certificateholders pursuant to subsection 4.13(c) or Section
4.14; provided, however, that with respect to the first Distribution Date, the
Cumulative Excess Interest Amount shall be equal to zero.
"Deficit Controlled Accumulation Amount" shall mean (a) on the first
Distribution Date with respect to the Controlled Accumulation Period, the
excess, if any, of the Controlled Accumulation Amount for such Distribution Date
over the amount deposited in the Principal Funding Account on such Distribution
Date and (b) on each subsequent Distribution Date with respect to the Controlled
Accumulation Period, the excess, if any, of the Controlled Deposit Amount for
such subsequent Distribution Date over the amount deposited in the Principal
Funding Account on such subsequent Distribution Date.
"Distribution Date" shall mean, with respect to Series 1997-1, the
fifteenth day of each calendar month, or if such fifteenth day is not a Business
Day, the next succeeding Business Day, provided that the first Distribution Date
shall be April 15, 1997.
"Early Accumulation Period" shall mean, the period commencing at the
close of business on the Business Day immediately preceding the day on which an
Amortization Event is deemed to have occurred pursuant to clauses (a), (b), (d),
(e), (f) or (i) of Section 7 of this Supplement and continuing to the earlier of
(a) the commencement of the Early Amortization Period and (b) the Series 1997-1
Expected Final Payment Date.
"Early Amortization Period" shall mean the period commencing on the
earlier of (a) if an Amortization Event has occurred pursuant to subsection
9.01(a) of the Agreement or clauses (c), (g) or (h) of Section 7 of this
Supplement, the close of business on the last Business Day of the Revolving
Period determined pursuant to clause (y) or (z), as applicable, of the
definition of Revolving Period in this Section 2, and (b) the termination of the
Early Accumulation Period pursuant to subsection 4.20(e) of this Supplement, and
ending, in either case, on the earlier to occur of (a) the Series 1997-1
Termination Date, (b) the termination of the Trust pursuant to Section 12.01 of
the Agreement and (c) the date the Invested Amount is reduced to zero.
"Eligible Investments" shall mean with respect to funds allocable to
Series 1997-1 in the Collection Account, the Principal Funding Account and the
Reserve Account, "Eligible Investments" as defined in the Agreement, except that
all references in such
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definition to "rating satisfactory to the Rating Agency" shall mean ratings of
not less than A-1+ (or A-1 in the case of Reserve Account investments prior to
the commencement of an Early Accumulation Period or a Controlled Accumulation
Period) and P-1 (whichever is applicable).
"Eligible Institution" shall mean with respect to the Cash Collateral
Account and funds allocable to Series 1997-1 in the Collection Account, any
"Eligible Institution" as defined in the Agreement, except that all references
in such definition to "rating satisfactory to the Rating Agency" shall mean long
term ratings of not less than AAA or Aaa (whichever is applicable) or short-term
unsecured debt ratings of at least A-1+ and P-1 (whichever is applicable),
except that no such rating shall be required of an institution which maintains
such Account or such funds as a fully segregated trust account or subaccount
with the corporate 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.
"Excess Finance Charge and Administrative Collections" shall mean,
with respect to any Distribution Date, the sum of the amounts, if any, specified
pursuant to subsections 4.11(a)(iv), 4.11(b)(ii) and an amount equal to the
product of (x) Reallocated Investor Finance Charge and Administrative
Collections with respect to such Distribution Date and (y) the Collateral
Invested Percentage with respect to such Distribution Date.
"Excess Interest Amount" shall mean, with respect to any Distribution
Date, an amount equal to one-twelfth of the product of (a) the outstanding
principal balance of the Class B Certificates as of the preceding Distribution
Date (computed by subtracting from the Class B Initial Invested Amount the
aggregate amount of distributions of Class B Monthly Principal made to the Class
B Certificateholders on or before such preceding Distribution Date) minus the
Class B Invested Amount as of such preceding Distribution Date (after giving
effect to any increase or decrease in the Class B Invested Amount on such
preceding Distribution Date) and (b) the Class B Certificate Rate; provided,
however, that with respect to the first Distribution Date, the Excess Interest
Amount shall be equal to zero.
"Excess Principal Funding Investment Proceeds" shall mean, with
respect to each Distribution Date relating to the Controlled Accumulation Period
or any Early Accumulation Period, the amount, if any, by which the Principal
Funding Investment Proceeds for such Distribution Date exceed the Covered Amount
determined on such Distribution Date.
"Expected Monthly Principal" shall be equal to the excess of (a) the
product of (i) the lowest of the monthly principal payment rates (determined by
dividing Collections of Principal Receivables during a calendar month by the
amount of Principal Receivables in the Trust as of the last day of the preceding
month,
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adjusted for additions and removals occurring after such last day), expressed as
a decimal, for the 3 calendar months preceding the date of such calculation (or
such lower principal payment rate as the Servicer may select) and (ii) the sum
of the Initial Invested Amounts (as defined in their respective related
Supplements) of all outstanding Series, over (b) the sum of, without
duplication, (i) all Series which have a fixed Accumulation Period Length (as
defind in the respective related Supplements) and which are either amortizing or
accumulating principal and (ii) all Collections of Principal Receivables
accounted for in clause (a) above which are projected by the Servicer to be
allocable to any other Series then in an Early Amortization Period or an Early
Accumulation Peroid (as such terms are defined in the related Supplement).
"Floating Allocation Percentage" shall mean, with respect to any Due
Period, the percentage equivalent of a fraction, the numerator of which is the
Adjusted Invested Amount as of the last day of the immediately preceding Due
Period and the denominator of which is the product of (a) the total amount of
Principal Receivables in the Trust as of the last day of such immediately
preceding Due Period and (b) the Series 1997-1 Allocation Percentage with
respect to the Due Period in respect of which the Floating Allocation Percentage
is being determined; provided, however, that, with respect to the first Due
Period, the Floating Allocation Percentage shall mean the percentage equivalent
of a fraction, the numerator of which is the Initial Invested Amount and the
denominator of which is the product of (x) the total amount of Principal
Receivables in the Trust on the Series Cut-Off Date and (y) the Series 1997-1
Allocation Percentage with respect to the Series Cut-Off Date; provided further
that, with respect to any Due Period in which an Aggregate Addition occurs or a
removal of Accounts pursuant to Section 2.10 of the Agreement occurs, the amount
referred to in clause (a) shall be the average of the amount of Principal
Receivables in the Trust on the date on which such Aggregate Addition or removal
of Accounts occurs (after giving effect thereto) and the last day of the
immediately preceding Due Period.
"Group Two" shall mean Series 1997-1 and each other Series specified
in the related Supplement to be included in Group Two.
"Group Two Investor Additional Amounts" shall mean, with respect to
any Distribution Date, the sum of (a) Series 1997-1 Additional Amounts for such
Distribution Date and (b) for all other Series included in Group Two, the sum of
(i) the aggregate net amount by which the Invested Amounts of such Series have
been reduced as a result of investor charge-offs, subordination of principal
collections and funding the investor default amounts in respect of any Class or
Series Enhancement interests of such Series as of such Distribution Date and
(ii) if the applicable Supplements so provide, the aggregate unpaid amount of
interest at the applicable certificate rates that has accrued on the amounts
described in the preceding clause (i) for such Distribution Date.
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"Group Two Investor Default Amount" shall mean, with respect to any
Distribution Date, the sum of (a) the Investor Defaulted Amount for such
Distribution Date and (b) the aggregate amount of the investor default amounts
for all other Series included in Group Two for such Distribution Date.
"Group Two Investor Finance Charge and Administrative Collections"
shall mean, with respect to any Distribution Date, the sum of (a) Investor
Finance Charge and Administrative Collections for such Distribution Date and (b)
the aggregate amount of the investor finance charge and administrative
collections for all other Series included in Group Two for such Distribution
Date.
"Group Two Investor Monthly Fees" shall mean with respect to any
Distribution Date, the sum of (a) Series 1997-1 Monthly Fees for such
Distribution Date and (b) the aggregate amount of the servicing fees, investor
fees, fees payable to any Series Enhancer and any other similar fees, which are
payable out of reallocated investor finance charge collections pursuant to the
related Supplements, for all other Series included in Group Two for such
Distribution Date.
"Group Two Investor Monthly Interest" shall mean, with respect to any
Distribution Date, the sum of (a) Series 1997-1 Monthly Interest for such
Distribution Date 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 included in Group Two for such Distribution
Date.
"Initial Invested Amount" shall mean the sum of the Class A Initial
Invested Amount, the Class B Initial Invested Amount and the Collateral Initial
Invested Amount.
"Interest Period" shall mean, with respect to any Distribution Date,
the period from and including the Distribution Date immediately preceding such
Distribution Date (or, in the case of the first Distribution Date, from and
including the Issuance Date) to but excluding such Distribution Date.
"Invested Amount" shall mean, when used with respect to any date, an
amount equal to the sum of (a) the Class A Invested Amount as of such date, (b)
the Class B Invested Amount as of such date and (c) the Collateral Invested
Amount as of such date.
"Investor Charge-Offs" shall mean, when used with respect to any Due
Period, the Class A Investor Charge-Offs for such Due Period, the Class B
Investor Charge-Offs for such Due Period and the Collateral Charge-Offs for such
Due Period.
"Investor Defaulted Amount" shall mean, with respect to any Due
Period, an amount equal to the product of (a) the Series 1997-1 Allocation
Percentage with respect to such Due Period, (b) the Floating Allocation
Percentage with respect to such Due Period and (c) the Defaulted Amount with
respect to such Due Period.
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"Investor Finance Charge and Administrative Collections" shall mean,
with respect to any Distribution Date, an amount equal to the product of (a) the
Floating Allocation Percentage for the related Due Period and (b) Series 1997-1
Allocable Finance Charge and Administrative Collections deposited in the
Collection Account for the related Due Period.
"Issuance Date" shall mean March [__], 1997.
"LIBOR" shall mean for the Interest Period from March [__], 1997 to
and excluding April 15, 1997 and for any subsequent Interest Period, 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 related
LIBOR Determination Date. 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 the Reference Banks 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 the 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.
"LIBOR Determination Date" shall mean the second London business day
prior to the commencement of an Interest Period.
"Optional Repurchase Amount" shall mean, with respect to any
Distribution Date, after giving effect to any deposits and distributions
otherwise to be made on such Distribution Date, the sum of (i) the sum of the
Class A Invested Amount and the Class B Invested Amount on such Distribution
Date, plus (ii) accrued and unpaid interest on the unpaid principal balance of
the Class A Certificates and Class B Certificates through the day preceding such
Distribution Date, plus (iii) the amount of Additional Interest, if any, for
such Distribution Date and any Additional Interest previously due but not
distributed to Class A Certificateholders and Class B Certificateholders, as
applicable, on a prior Distribution Date.
"PFA Eligible Invesetments" shall mean negotiable instruments or
securities represented by instruments in bearer or registered form, or, in the
case of deposits described below, deposit accounts held in the name of the
Trustee in trust for the benefit of the Certificateholders, subject to the
exclusive custody and control of the Trustee and for which the Trustee has sole
signature authority, which evidence:
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(a) direct obligations of, or obligations fully guaranteed as to
timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 365 days) of depository institutions or
trust companies incorporated under the laws of the United States of America
or any state thereof (or domestic branches of foreign banks) and subject to
supervision and examination by federal or state banking or depository
institution authorities; provided that at the time of the Trust's
investment or contractual commitment to invest therein, the short-term debt
rating of such depository institution or trust company shall be
satisfactory to the Rating Agency;
(c) commercial paper (having original or remaining maturities of no
more than 30 days) having, at the time of the Trust's investment or
contractual commitment to invest therein, a rating satisfactory to the
Rating Agency;
(d) demand deposits, time deposits and certificates of deposit which
are fully insured by the FDIC having, at the time of the Trust's investment
therein, a rating satisfactory to the Rating Agency;
(e) bankers' acceptances (having original maturities of no more than
365 days) issued by any depository institution or trust company referred to
in (b) above;
(f) time deposits (having maturities not later than the succeeding
Distribution Date) other than as referred to in clause (e) above, with a
Person the commercial paper of which has a credit rating satisfactory to
the Rating Agency or notes which are payable on demand issued by Household
Finance Corporation, provided such notes will constitute Eligible
Investments only if the commercial paper of Household Finance Corporation
has, at the time of the Trust's investment in such notes, a rating
satisfactory to the Rating Agency; or
(g) any other investment of a type or rating that satisfies the Rating
Agency Condition and the definition of "eligible assets" as defined under
Rule 3a-7(b)(1) of the Rules and Regulations promulgated under the
Investment Company Act of 1940.
"Principal Allocation Percentage" shall mean, with respect to any Due
Period, the percentage equivalent (which percentage shall never exceed 100%) of
a fraction, the numerator of which is the Series Adjusted Invested Amount as of
the last day of the Revolving Period and the denominator of which is 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 1997-1 Allocation
Percentage with respect to the Due Period
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in respect of which the Principal Allocation Percentage is being determined;
provided, however, that with respect to any Due Period in which an Aggregate
Addition occurs or a removal of Accounts pursuant to Section 2.10 of the
Agreement occurs, the amount referred to in clause (a) shall be the average of
the amount of Principal Receivables in the Trust on the date on which such
Aggregate Addition or removal of Accounts occurs (after giving effect thereto)
and the last day of the immediately preceding Due Period. If, with respect to
any Due Period, the Principal Funding Account Balance is equal to the sum of the
Class A Initial Invested Amount and the Class B Initial Invested Amount, the
Principal Allocation Percentage shall be zero. For purposes of this definition,
Series Adjusted Invested Amount shall be computed during the Controlled
Accumulation Period or any Early Accumulation Period or any Early Amortization
Period by subtracting from such amount the difference between (a) the Initial
Collateral Invested Amount and (b) the sum of the Collateral Invested Amount
determined as of the close of business on the last day of the Revolving Period
plus an amount equal to the aggregate unreimbursed Collateral Charge-Offs as of
such last day.
"Principal Funding Account" shall have the meaning specified in
subsection 4.19(a).
"Principal Funding Account Balance" shall mean, with respect to any
date of determination during the Controlled Accumulation Period or any Early
Accumulation Period, the principal amount, if any, on deposit in the Principal
Funding Account on such date of determination.
"Principal Funding Investment Proceeds" shall mean, with respect to
each Distribution Date, the investment earnings on funds in the Principal
Funding Account (net of investment expenses and losses) for the period from and
including the immediately preceding Distribution Date to but excluding such
Distribution Date.
"Principal Funding Investment Shortfall" shall mean, with respect to
each Distribution Date during the Controlled Accumulation Period or any Early
Accumulation Period, the amount, if any, by which the Principal Funding
Investment Proceeds are less than the Covered Amount.
"Rating Agency" shall mean Moody's and Standard & Poor's.
"Reallocated Investor Finance Charge and Administrative Collections"
shall mean that portion of Group Two Investor Finance Charge and Administrative
Collections allocated to Series 1997-1 pursuant to Section 4.16 plus any
Collections of Finance Charge and Administrative Receivables allocable to any
Series expressly subordinated to Series 1997-1 which are available for
application pursuant to Sections 4.11 and 4.13.
"Reassignment Amount" shall mean, with respect to any Distribution
Date, after giving effect to any deposits and
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distributions otherwise to be made on such Distribution Date, the sum of (i) the
Adjusted Invested Amount on such Distribution Date, plus (ii) accrued and unpaid
interest on the unpaid principal balance of the Class A Certificates and Class B
Certificates through the day preceding such Distribution Date, plus (iii) the
amount of Additional Interest, if any, for such Distribution Date and any
Additional Interest previously due but not distributed to Investor Certificate-
holders on a prior Distribution Date, plus (iv) accrued and unpaid interest on
the unpaid balance of the Collateral Invested Amount.
"Reference Banks" shall mean four major banks in the London interbank
market selected by the Servicer.
"Required Collateral Amount" shall mean $82,500,000 initially and as
of any Distribution Date thereafter an amount equal to the greatest of (x)(i)
[_______]% of the Class A Adjusted Invested Amount minus (ii) the Class B
Adjusted Invested Amount, (y) [__]% of the unpaid principal amount of the Class
B Certificates and (z) [__]% of the Adjusted Invested Amount, in each case after
taking into account distributions to be made on such Distribution Date; provided
that (i) if there are any withdrawals from the Cash Collateral Account pursuant
to subsection 4.14(b), any reductions in the Collateral Invested Amount pursuant
to clauses (c), (d), or (e) of the definition of such amount, or an Amortization
Event has occurred, the Required Collateral Amount for any Distribution Date
shall equal the amount of such requirement immediately preceding such
withdrawal, reduction or Amortization Event, (ii) in no event shall the Required
Collateral Amount exceed the aggregate outstanding principal amount of the Class
A Certificates and the Class B Certificates on any such date, (iii) the Required
Collateral Amount may be reduced at any time to a lesser amount if (X) the
Rating Agency Condition is satisfied and (Y) an Officer's Certificate of the
Seller has been delivered to the effect that in the reasonable belief of the
Seller, such reduction will not result in the occurrence of an Amortization
Event, (iv) the Seller, in its sole discretion may increase the Required
Collateral Amount at any time to a greater amount and (v) if the Principal
Funding Account Balance is equal to the sum of the Class A Initial Invested
Amount and the Class B Initial Invested Amount, the Required Collateral Amount
shall be zero.
"Required Reserve Account Amount" shall mean an amount equal to the
product of (a) 0.30% of the sum of the Class A Invested Amount and the Class B
Invested Amount as of the preceding Distribution Date (after giving effect to
all changes therein on such date) and (b) the number of Distribution Dates
remaining from and excluding the Distribution Date on which such calculation is
being determined to and including the Series 1997-1 Expected Final Payment Date
divided by 12; provided that the Seller, in its sole discretion may increase the
Required Reserve Account Amount at any time to a greater amount.
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"Reserve Account" shall have the meaning specified in Section 4.20(a).
"Reserve Account Surplus" shall mean, as of any date of determination,
the amount, if any, by which the amount on deposit in the Reserve Account
exceeds the Required Reserve Account Amount.
"Reserve Draw Amount" shall have the meaning specified in Section
4.20(c).
"Revolving Period" shall mean the period beginning on the close of
business on the Series Cut-Off Date and ending on the earlier of (x) the day on
which the Controlled Accumulation Period commences, (y) if on the day on which
an Amortization Event is deemed to have occurred, the Servicer pursuant to
subsection 4.03(a) of the Agreement need not make daily deposits into or
withdrawals from the Collection Account, the close of business on the Business
Day immediately preceding the first day of the Due Period in which an
Amortization Event is deemed to have occurred pursuant to Section 9.01 of the
Agreement or Section 7 hereof, and (z) otherwise, at the close of business on
the Business Day immediately preceding the day on which an Amortization Event is
deemed to have occurred pursuant to Section 9.01 of the Agreement or Section 7
hereof.
"Seller's Percentage" shall mean 100% minus (a) the Floating
Allocation Percentage, when used at any time with respect to Finance Charge and
Administrative Receivables and Defaulted Receivables, (b) the Floating
Allocation Percentage, when used with respect to Principal Receivables during
the Revolving Period and (c) the Principal Allocation Percentage, when used with
respect to Principal Receivables during the Controlled Accumulation Period and
any Early Accumulation Period or Early Amortization Period.
"Series Adjusted Portfolio Yield" shall mean with respect to Series
1997-1 and, with respect to any Due Period, the annualized percentage equivalent
of a fraction (a) 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 (b) the denominator of
which is the Invested Amount as of the last day of the immediately preceding Due
Period.
"Series Cut-Off Date" shall mean the close of business on February 28,
1997.
"Series 1997-1" or "Series 1997-1 Certificates" shall mean the Series
of Investor Certificates, the terms of which are specified in this Series
Supplement.
"Series 1997-1 Additional Amounts" shall mean, with respect to any
Distribution Date, the sum of the amounts determined
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pursuant to Sections 4.13(b), (c)(ii), (e) and (i) for such Distribution Date.
"Series 1997-1 Allocable Finance Charge and Administrative
Collections" shall mean the Series Allocable Finance Charge and Administrative
Collections with respect to Series 1997-1.
"Series 1997-1 Allocation Percentage" shall mean the Series Allocation
Percentage with respect to Series 1997-1.
"Series 1997-1 Certificateholders" shall mean the Holders of Series
1997-1 Certificates.
"Series 1997-1 Certificateholders' Interest" shall mean the Class A
Certificateholders' Interest, the Class B Certificateholders' Interest and the
Collateral Interest.
"Series 1997-1 Excess Principal Collections" shall mean that portion
of "Trust Excess Principal Collections" for all Series (as defined in the
respective Supplements) allocated to Series 1997-1 pursuant to Section 4.17.
"Series 1997-1 Expected Final Payment Date" shall mean the April 2002
Distribution Date.
"Series 1997-1 Monthly Fees" shall mean, with respect to any
Distribution Date, the amount determined pursuant to Section 4.11(a)(iii).
"Series 1997-1 Monthly Interest" shall mean the amounts determined
pursuant to Sections 4.08(a), (b) and (c); provided, however, that for purposes
of Section 4.16 the amount determined pursuant to subsection 4.08(c) shall be
determined based on the lesser of the Collateral Rate and 11% per annum.
"Series 1997-1 Principal Shortfall" shall have the meaning specified
in Section 4.17.
"Series 1997-1 Termination Date" shall mean the earlier of the
[_____________] Distribution Date and the date the Trust is terminated pursuant
to Section 12.01 of the Agreement.
"Series Required Seller Amount" shall mean an amount equal to 7% of
the Initial Invested Amount.
"Servicing Fee" shall have the meaning specified in Section 3.
"Servicing Fee Rate" shall mean 2%.
"Subordinated Principal Collections" shall mean, with respect to each
Distribution Date, the product of (a) the Floating Allocation Percentage, with
respect to the Revolving Period, or the
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Principal Allocation Percentage, with respect to the Controlled Accumulation
Period and any Early Accumulation Period or Early Amortization Period, of Series
Allocable Principal Collections deposited in the Collection Account for the
related Due Period (or any partial Due Period which occurs as the first Due
Period during any Early Accumulation Period or Early Amortization Period) and
(b) the sum of the Class B Invested Percentage and the Collateral Invested
Percentage for such Distribution Date.
"Subordinated Series" shall mean any Series which, pursuant to the
terms of the related Supplement, is subordinated in any manner to the Series
1997-1 Certificates.
"Subordinated Series Reallocated Principal Collections" shall mean,
with respect to any Distribution Date, that portion of Collections of Principal
Receivables allocable to a Subordinated Series which, pursuant to the terms of
the related Supplement, are to be reallocated to Series 1997-1 and treated as a
portion of Available Investor Principal Collections for such Distribution Date.
"Tax Opinion" shall have the meaning specified in Section 19.
"Telerate Page 3750" shall mean the display page so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Termination Proceeds" shall mean any Termination Proceeds arising out
of a sale of Receivables (or interests therein) pursuant to subsection 12.02(c)
of the Agreement with respect to Series 1997-1.
"Trust Excess Principal Collections" shall mean, with respect to
Series 1997-1, the amounts so specified in subsection 4.11(c) or 4.11(d)(iii) or
(vi) and, with respect to all other Series, shall mean the amount specified in
the related Supplement.
(b) All capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to them in the Agreement.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Series Supplement shall refer to this Series Supplement
as a whole and not to any particular provision of this Series Supplement;
references herein to any Article, Section or Exhibit are references to Articles,
Sections and Exhibits in or to this Series Supplement unless otherwise
specified; and the term "including" means "including without limitation".
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SECTION 3. Servicing Compensation.
----------------------
The monthly servicing fee (the "Servicing Fee") shall be payable to
the Servicer, in arrears, on each Distribution Date in respect of any Due Period
(or portion thereof) occurring prior to the earlier of the first Distribution
Date following the Series 1997-1 Termination Date and the first Distribution
Date on which the Invested Amount is zero, in an amount equal to one-twelfth of
the product of (a) the Servicing Fee Rate, (b) the amount of Principal
Receivables as of the last day of the Due Period second preceding such
Distribution Date (or, if an Aggregate Addition occurs or a removal of Accounts
pursuant to Section 2.10 of the Agreement occurs in the Due Period preceding
such Distribution Date, the weighted average amount of Principal Receivables in
the Trust on the date on which such Aggregate Addition or removal of Accounts
occurs (after giving effect thereto) and the last day of such second preceding
Due Period) and (c) the Series 1997-1 Allocation Percentage for the Due Period
preceding such Distribution Date; provided, however, with respect to the first
Distribution Date, the Servicing Fee shall be an amount equal to the product of
(a) the Servicing Fee Rate, (b) the amount of Principal Receivables in the Trust
as of [March] 1, 1997, (c) the Series 1997-1 Allocation Percentage for the Due
Period preceding such Distribution Date and (d) a fraction the numerator of
which is 30 and the denominator of which is 360. The portion of the Servicing
Fee payable from Reallocated Investor Finance Charge and Administrative
Collections with respect to any Distribution Date (the "Allocable Servicing
Fee") shall be equal to one-twelfth of the product of (a) the Servicing Fee Rate
(such rate to be reduced with respect to any Distribution Date by the amount by
which the product of 12 and Interchange received during the preceding Due Period
as a percentage of the total amount of Principal Receivables at the end of such
Due Period is less than 1.25%) and (b) the Adjusted Invested Amount as of the
last day of the Due Period second preceding such Distribution Date; provided,
however, with respect to the first Distribution Date, the Allocable Servicing
Fee shall be equal to the product of (a) the Servicing Fee Rate (such rate to be
reduced with respect to any Distribution Date by the amount by which the product
of 12 and Interchange received during the preceding Due Period as a percentage
of the total amount of Principal Receivables is less than 1.25%), (b) the
Initial Invested Amount and (c) a fraction the numerator of which is 30 and the
denominator of which is 360. The remainder of the Servicing Fee shall be paid
directly by the Seller and in no event shall the Trust, the Trustee or the
Series 1997-1 Certificateholders be liable for the share of the Servicing Fee to
be paid directly by the Seller. The Allocable Servicing Fee shall be payable to
the Servicer solely to the extent amounts are available for distribution
pursuant to subsection 4.11(a)(iii) and subsection 4.13(g), as the case may be.
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SECTION 4. Article IV of Agreement.
-----------------------
Sections 4.01 through 4.06 of the Agreement shall be read in their
entirety as provided in the Agreement. Article IV of the Agreement (except for
Sections 4.01 through 4.06 thereof) shall, with respect to the Series 1997-1
Certificates, be read in its entirety as follows:
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.07. Allocations. (a) Allocations. Collections of Finance
Charge and Administrative Receivables and Principal Receivables, Defaulted
Receivables and Miscellaneous Payments allocated to Series 1997-1 pursuant to
Article IV of the Agreement (and, as described herein, Collections of Finance
Charge and Administrative Receivables reallocated from other Series in Group
Two) shall be allocated and distributed or reallocated as set forth in this
Article.
(b) Payments to the Seller. The Servicer shall on Deposit Dates
withdraw from the Collection Account and pay to the Seller the following
amounts:
(i) an amount equal to the Seller's Percentage for the related
Due Period of Series 1997-1 Allocable Finance Charge and
Administrative Collections to the extent such amount is deposited in
the Collection Account; and
(ii) an amount equal to the Seller's Percentage for the related
Due Period of Series Allocable Principal Collections deposited in the
Collection Account, if the Seller's Participation Amount (determined
after giving effect to any Principal Receivables transferred to the
Trust on such Deposit Date) exceeds zero.
The withdrawals to be made from the Collection Account pursuant to
this Section 4.07(b) do not apply to deposits into the Collection Account that
do not represent Collections, including payment of the purchase price for the
Certificateholders' Interest pursuant to Section 2.06 or 10.01 of the Agreement,
payment of the purchase price for the Series 1997-1 Certificateholders' Interest
pursuant to Section 8 of this Series Supplement and proceeds from the sale,
disposition or liquidation of Receivables pursuant to Section 9.02 or 12.02 of
the Agreement.
Section 4.08. Determination of Monthly Interest. (a) The amount of
monthly interest ("Class A Monthly Interest") distributable from the Collection
Account with respect to the Class A Certificates on any Distribution Date shall
be an amount equal to the product of (i) the Class A Certificate Rate in effect
with respect to the applicable
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Interest Period, (ii) the outstanding principal balance of the Class A
Certificates as of the close of business on the preceding Distribution Date
(after giving effect to all distributions on such date) and (iii) a fraction the
numerator of which is the actual number of days in the Interest Period ending
immediately prior to such Distribution Date and the denominator of which is 360;
provided that with respect to the first Distribution Date after the Due Period
in which the Series 1997-1 Issuance Date occurs, Class A Monthly Interest shall
be an amount equal to $[____________].
On the Determination Date preceding each Distribution Date, the
Servicer shall determine an amount (the "Class A Interest Shortfall") equal to
(x) the aggregate Class A Monthly Interest for the Interest Period applicable to
such Distribution Date minus (y) the amount which will be on deposit in the
Collection Account and allocable to the Class A Certificates on such
Distribution Date. If the Class A Interest Shortfall with respect to any
Distribution Date is greater than zero, on each subsequent Distribution Date
until such Class A Interest Shortfall is fully paid, an additional amount
("Class A Additional Interest") shall be payable as provided herein with respect
to the Class A Certificates on each Distribution Date following such
Distribution Date, to and including the Distribution Date on which the Class A
Interest Shortfall is paid to the Class A Certificateholders, equal to the
product of (i) the Class A Certificate Rate in effect with respect to the
applicable period, (ii) such Class A Interest Shortfall (or the portion thereof
which has not been paid to Class A Certificateholders) and (iii) a fraction the
numerator of which is the actual number of days in the Interest Period ending
immediately prior to such Distribution Date and the denominator of which is 360.
Notwithstanding anything to the contrary herein, Class A Additional Interest
shall be payable or distributed to Class A Certificateholders only to the extent
permitted by applicable law.
(b) The amount of monthly interest ("Class B Monthly Interest")
distributable from the Collection Account with respect to the Class B
Certificates on any Distribution Date shall be an amount equal to the product of
(i) the Class B Certificate Rate in effect with respect to the applicable
Interest Period, (ii) the Class B Invested Amount as of the close of business on
the preceding Distribution Date (after giving effect to all distributions on
such date) and (iii) a fraction the numerator of which is the actual number of
days in the Interest Period ending immediately prior to such Distribution Date
and the denominator of which is 360; provided, that with respect to the first
Distribution Date after the Due Period in which the Series 1997-1 Issuance Date
occurs, Class B Monthly Interest shall be an amount equal to $[___________].
On the Determination Date preceding each Distribution Date, the
Servicer shall determine an amount (the "Class B Interest Shortfall") equal to
(x) the aggregate Class B Monthly Interest for the Interest Period applicable to
such Distribution Date minus (y) the amount which will be on deposit in the
Collection Account and allocable to the Class B Certificates on such
Distribution Date. If the Class B Interest Shortfall with respect to any
Distribution Date is greater than zero, on each subsequent Distribution Date
until such Class B Interest Shortfall is fully paid, an additional amount
("Class B Additional
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Interest") shall be payable as provided herein with respect to the Class B
Certificates on each Distribution Date following such Distribution Date to and
including the Distribution Date on which such Class B Interest Shortfall is paid
to Class B Certificateholders equal to the product of (i) the Class B
Certificate Rate in effect with respect to the applicable Interest Period, (ii)
such Class B Interest Shortfall (or the portion thereof which has not been paid
to Class B Certificateholders) and (iii) a fraction the numerator of which is
the actual number of days in the Interest Period ending immediately prior to
such Distribution Date and the denominator of which is 360. Notwithstanding
anything to the contrary herein, Class B Additional Interest shall be payable or
distributed to Class B Certificateholders only to the extent permitted by
applicable law.
(c) The amount of monthly interest ("Collateral Monthly Interest")
distributable from the Collection Account with respect to the Collateral
Invested Amount on any Distribution Date shall be an amount equal to the product
of (i) the Collateral Rate in effect with respect to the applicable Interest
Period, (ii) the Collateral Invested Amount as of the close of business on the
preceding Distribution Date (after giving effect to any increase or decrease in
the Collateral Invested Amount on such preceding Distribution Date), provided
that in the case of the first Distribution Date such Collateral Invested Amount
shall be determined as of the close of business on the Issuance Date and (iii) a
fraction the numerator of which is the actual number of days in the Interest
Period ending immediately prior to such Distribution Date and the denominator of
which is 360.
On the Determination Date preceding each Distribution Date, the
Servicer shall determine an amount (the "Collateral Interest Shortfall") equal
to (x) the aggregate Collateral Monthly Interest for the Interest Period
applicable to such Distribution Date minus (y) the amount which will be on
deposit in the Collection Account and allocable to the Collateral Invested
Amount on such Distribution Date. If the Collateral Interest Shortfall with
respect to any Distribution Date is greater than zero, on each subsequent
Distribution Date until such Collateral Interest Shortfall is fully paid, an
additional amount ("Collateral Additional Interest") shall be payable as
provided herein with respect to the Collateral Invested Amount on each
Distribution Date following such Distribution Date, to and including the
Distribution Date on which such Collateral Interest Shortfall is paid to the
Collateral Interest Holder, equal to the product of (i) the Collateral Rate in
effect with respect to the applicable Interest Period, (ii) such Collateral
Interest Shortfall (or the portion thereof which has not been paid to the
Collateral Interest Holder) and (iii) a fraction the numerator of which is the
actual number of days in the Interest Period ending immediately prior to such
Distribution Date and the denominator of which is 360. Notwithstanding anything
to the contrary herein, Collateral Additional Interest shall be payable or
distributed to the Collateral Interest Holder only to the extent permitted by
applicable law.
Section 4.09. Determination of Monthly Principal. (a) The amount of
monthly principal ("Class A Monthly Principal") distributable from the
Collection Account with respect to the Class A Certificates on each Distribution
Date beginning with the earlier to occur of the first
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Distribution Date with respect to any Early Accumulation Period or Early
Amortization Period or the Controlled Accumulation Period, shall be equal to the
Available Investor Principal Collections on deposit in the Collection Account
with respect to such Distribution Date; provided, however, that for each
Distribution Date with respect to the Controlled Accumulation Period, Class A
Monthly Principal shall not exceed the Controlled Deposit Amount; and provided
further that with respect to any Distribution Date Class A Monthly Principal
shall not exceed the Class A Adjusted Invested Amount.
(b) The amount of monthly principal ("Class B Monthly Principal")
distributable from the Collection Account with respect to the Class B
Certificates on each Distribution Date (i) during the Controlled Accumulation
Period, beginning with the Distribution Date on which the Class A Invested
Amount is paid in full, (ii) during the Early Accumulation Period, beginning
with the Distribution Date on which funds on deposit in the Principal Funding
Account (after any deposits to be made on such date) equal the Class A Invested
Amount, and (iii) during the Early Amortization Period beginning with the
Distribution Date on which the Class A Invested Amount will be paid in full
shall be an amount equal to the Available Investor Principal Collections on
deposit in the Collection Account with respect to such Distribution Date (minus
the portion of such Available Investor Principal Collections applied to Class A
Monthly Principal on such Distribution Date); provided, however, that for each
Distribution Date with respect to the Controlled Accumulation Period, Class B
Monthly Principal shall not exceed the Controlled Deposit Amount less the Class
A Monthly Principal for such Distribution Date; and provided further that with
respect to any Distribution Date, Class B Monthly Principal shall not exceed the
lesser of the applicable Class B Adjusted Invested Amount and the outstanding
principal amount of the Class B Certificates.
(c) The amount, if any, of monthly principal ("Collateral Monthly
Principal") distributable from the Collection Account with respect to the
Collateral Invested Amount on each Distribution Date:
(i) [reserved]
(ii) on any Distribution Date prior to the Distribution Date on
which the Class A Invested Amount and the Class B Invested Amount are paid
in full, shall be an amount equal to the lesser of (A) Available Investor
Principal Collections not applied to Class A or Class B Monthly Principal
on such Distribution Date and (B) the difference between (x) the Collateral
Surplus on such Distribution Date and (y) the Collateral Cash Surplus, if
any, computed without reference to distributions under this subsection;
(iii) beginning with the Distribution Date on which the Class A
Invested Amount and Class B Invested Amount are paid in full, shall be an
amount equal to the Available Investor Principal Collections with respect
to such Distribution Date (minus the portion of such Available Investor
Principal Collections applied to Class A and Class B Monthly Principal on
such Distribution Date); and
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(iv) beginning on any Distribution Date, in addition to the
amount, if any, set forth in items (i) through (iii) above, at the option
of the Seller (as evidenced by written instructions to the Servicer and
Trustee), and after receipt by the Servicer and the Trustee of a written
determination by the Rating Agency that such action will not result in a
reduction or withdrawal of the then current ratings of the Class A
Certificates and the Class B Certificates, shall be an amount established
by the Seller and consistent with any restrictions set forth in the
determination of the Rating Agency;
provided, however, with respect to any Distribution Date, Collateral Monthly
Principal shall not exceed the Collateral Invested Amount and, with respect to
any Distribution Date with respect to the Revolving Period, the Controlled
Accumulation Period and any Early Accumulation Period, Collateral Monthly
Principal shall be zero except to the extent otherwise specified in, or pursuant
to, clauses (ii), (iii) and (iv) above.
Section 4.10. Coverage of Required Amounts. (a) With respect to
each Distribution Date, the Servicer shall determine the amount (the "Class A
Required Amount"), if any, by which (a) the sum of (i) Class A Monthly Interest
for such Distribution Date, (ii) any Class A Monthly Interest previously due but
not paid to the Class A Certificateholders, (iii) Class A Additional Interest,
if any, for such Distribution Date, (iv) the Class A Investor Default Amount, if
any, and (v) if Household Finance Corporation is not the Servicer, the Allocable
Servicing Fee for the preceding Due Period exceeds (b) the product of (i)
Reallocated Investor Finance Charge and Administrative Collections for such
Distribution Date plus any other funds available to the Trust to cover the
amounts referred to in clauses (i) through (v) above and (ii) the Class A
Invested Percentage for such Distribution Date. In the event that the Class A
Required Amount for such Distribution Date is greater than zero, the Servicer
shall give written notice to the Trustee of such positive Class A Required
Amount on the date of computation (but no later than 11:00 a.m. two days prior
to the Distribution Date).
(b) With respect to each Distribution Date, the Servicer shall
determine the amount (the "Class B Required Amount"), if any, by which (a) the
sum of (i) Class B Monthly Interest for such Distribution Date, (ii) any Class B
Monthly Interest previously due but not paid to the Class B Certificateholders,
(iii) Class B Additional Interest, if any, for such Distribution Date, (iv) the
Class B Investor Default Amount, if any, and (v) the Cumulative Excess Interest
Amount for such Distribution Date exceeds (b) the amounts available therefor
pursuant to subsections 4.11(b)(i) and 4.13(c) and (d) plus any other funds
available to the Trust to cover the amounts referred to in clauses (i) through
(v) above. In the event that the Class B Required Amount for such Distribution
Date is greater than zero, the Servicer shall give written notice to the Trustee
of such positive Class B Required Amount on the date of computation (but no
later than 11:00 a.m. two days prior to the Distribution Date).
Section 4.11. Application of Available Funds on Deposit in the
Collection Account and the Principal Funding Account. With respect to Series
1997-1, on each Distribution Date the Servicer shall provide
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written directions to the Trustee to apply Series Allocable Finance Charge and
Administrative Collections (other than the portion thereof reallocated to other
Series in Group Two), Collections of Finance Charge and Administrative
Receivables reallocated to Series 1997-1 from other Series and Available
Investor Principal Collections on deposit in the Collection Account, the
Collection Subaccount and the Principal Funding Account with respect to such
Distribution Date in the following manner:
(a) An amount equal to the sum of (A) the product of (x) Reallocated
Investor Finance Charge and Administrative Collections with respect to such
Distribution Date plus any other funds available to the Trust for
application pursuant to this clause and (y) the Class A Invested Percentage
and (B) the Class A Principal Funding Account Percentage of funds available
in the Collection Subaccount will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for such
Distribution Date, plus the amount of any Class A Monthly Interest
previously due but not distributed to the Class A Certificateholders
on a prior Distribution Date, plus the amount of any Class A
Additional Interest for such Distribution Date shall be held on
deposit by the Servicer or the Trustee in the Collection Account for
distribution to the Class A Certificateholders;
(ii) an amount equal to the Class A Investor Default Amount for
such Distribution Date shall be treated as a portion of Available
Investor Principal Collections for such Distribution Date;
(iii) an amount equal to the Allocable Servicing Fee for such
date (to the extent such amount has not been netted from deposits made
in the related Due Period) plus any previously unpaid Allocable
Servicing Fee (but only with respect to the then current Servicer)
shall be paid to the Servicer; and
(iv) the balance, if any, shall constitute Excess Finance Charge
and Administrative Collections and shall be allocated and distributed
as set forth in Section 4.13.
(b) An amount equal to the sum of (A) the product of (x) Reallocated
Investor Finance Charge and Administrative Collections with respect to such
Distribution Date plus any other funds available to the Trust for
application pursuant to this clause and (y) the Class B Invested Percentage
and (B) the Class B Principal Funding Account Percentage of funds available
in the Collection Subaccount will be distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for such
Distribution Date, plus the amount of any Class B Monthly Interest
previously due but not distributed to the Class B Certificateholders
on a prior Distribution Date, plus the amount of any Class B
Additional Interest for such Distribution Date, shall be set aside by
the Servicer or the Trustee for distribution to the Class B
Certificateholders; and
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(ii) the balance, if any, shall constitute Excess Finance Charge
and Administrative Collections and shall be allocated and distributed
as set forth in Section 4.13.
(c) On each Distribution Date with respect to the Revolving Period,
(i) an amount equal to Available Investor Principal Collections deposited in the
Collection Account for the related Due Period shall be withdrawn therefrom and
deposited in the Cash Collateral Account to the extent of Collateral Monthly
Principal with respect to such Distribution Date and, to the extent not required
for such purpose, shall be treated as Trust Excess Principal Collections and
applied in accordance with Section 4.04 of the Agreement.
(d) On each Distribution Date with respect to the Controlled
Accumulation Period or any Early Accumulation Period or Early Amortization
Period, an amount equal to Available Investor Principal Collections deposited in
the Collection Account for the related Due Period will be distributed in the
following priority:
(i) an amount equal to the Class A Monthly Principal for such
Distribution Date shall be (A) during the Controlled Accumulation
Period and any Early Accumulation Period, deposited into the Principal
Funding Account and (B) during any Early Amortization Period, held on
deposit by the Servicer or the Trustee in the Collection Account for
distribution to Class A Certificateholders;
(ii) an amount equal to the Class B Monthly Principal for such
Distribution Date shall be (A) during the Controlled Accumulation
Period and any Early Accumulation Period, deposited into the Principal
Funding Account and (B) during any Early Amortization Period, held on
deposit by the Servicer or the Trustee in the Collection Account for
distribution to Class B Certificateholders;
(iii) for each Distribution Date with respect to the Controlled
Accumulation Period prior to the Distribution Date on which the Class
A Invested Amount and the Class B Invested Amount are each paid in
full, unless an Amortization Event has occurred, after giving effect
to the distributions referred to in clauses (i) and (ii) above, an
amount equal to the balance, if any, of such Available Investor
Principal Collections then on deposit in the Collection Account shall
be deposited in the Cash Collateral Account in an amount equal to
Collateral Monthly Principal with respect to such Distribution Date,
and any amount not required for such purpose shall be treated as Trust
Excess Principal Collections and applied in accordance with Section
4.04 of the Agreement;
(iv) [reserved]
(v) [reserved]
(vi) for each Distribution Date beginning with the
Distribution Date on which the Class A Invested Amount and the Class B
Invested Amount are paid in full an amount equal to
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the balance, if any, of such Available Investor Principal Collections
shall, to the extent of Collateral Monthly Principal, be deposited in
the Cash Collateral Account, and any remaining Collections shall be
treated as Trust Excess Principal Collections and applied in
accordance with Section 4.04 of the Agreement.
(e) On the earliest to occur of (i) the first Distribution Date with
respect to any Early Amortization Period and (ii) the Series 1997-1 Expected
Final Payment Date, and on each Distribution Date thereafter, the Trustee,
acting in accordance with instructions from the Servicer, shall pay in
accordance with Section 5.01 the amount on deposit in the Principal Funding
Account on such Date in the following priority:
(i) for any Distribution Date following the commencement of the Early
Amortization Period and on the Series 1997-1 Expected Final Payment Date,
an amount equal to the lesser of such amount on deposit in the Principal
Funding Account and the Class A Invested Amount shall be paid to the Class
A Certificateholders; and
(ii) for each Distribution Date following commencement of the Early
Amortization Period and on the Series 1997-1 Expected Final Payment Date,
after giving effect to the distributions referred to in clause (i) above,
an amount equal to the lesser of such amount on deposit in the Principal
Funding Account and the Class B Invested Amount shall be paid to the Class
B Certificateholders.
(f) The Controlled Accumulation Period is scheduled to commence at the
close of business on [______ __, ____]; provided, however, that, if the
Controlled Accumulation Period Length (determined as described below) is less
than [ ] months, the date on which the Controlled Accumulation Period actually
commences may be delayed to the first Business Day of the month that is the
number of whole months prior to the Series 1997-1 Expected Final Payment Date at
least equal to the Controlled Accumulation Period Length and, as a result, the
number of Due Periods in the Controlled Accumulation Period will at least equal
the Controlled Accumulation Period Length. On the Determination Date immediately
preceding the [_____ ____] Distribution Date, and each Determination Date
thereafter until the Controlled Accumulation Period begins, the Servicer will
determine a "Controlled Accumulation Period Length" which will equal at least
the number of months such that the Controlled Accumulation Period Amount for the
Due Periods ending on the Series 1997-1 Expected Final Payment Date, when
aggregated with the Controlled Accumulation Period Amounts for each preceding
Due Period, shall equal or exceed the sum of the Class A Initial Invested Amount
and the Class B Initial Invested Amount; provided, however, that the Controlled
Accumulation Period Length will not be determined to be less than one month. Any
notice by the Servicer electing to modify the commencement of the Controlled
Accumulation Period pursuant to this subsection (f) shall specify (i) the
Controlled Accumulation Period Length, (ii) the commencement date of the
Controlled Accumulation Period and (iii) the Controlled Accumulation Amount with
respect to each Monthly Period.
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Section 4.12. Investor Charge-Offs. (a) If on any Distribution Date
the Class A Required Amount for such Distribution Date will exceed the sum of
(x) the amount of Subordinated Principal Collections, (y) the amount of Excess
Finance Charge and Administrative Collections with respect to such Distribution
Date and (z) any amount to be withdrawn from the Cash Collateral Account
pursuant to subsection 4.14(b) with respect to such Distribution Date, the Class
B Invested Amount and the Collateral Invested Amount and the invested amount of
any other Series or Class that is expressly subordinated to the Series 1997-1
Certificateholders shall be reduced by the amount of such excess, but not more
than the Class A Investor Default Amount for such Distribution Date. The Class B
Invested Amount shall only be reduced after any Collateral Invested Amount (and
any such other subordinated invested amount) has been reduced to zero. In the
event that such reduction would cause the sum of the Class B Invested Amount and
the Collateral Invested Amount (and any such other subordinated invested amount)
to be a negative number, such Class B Invested Amount and Collateral Invested
Amount (and any such other subordinated invested amount) shall be reduced to
zero, and the Class A Invested Amount will be reduced by the amount by which the
Class B Invested Amount and Collateral Invested Amount (and any such other
subordinated 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"). Class A Investor Charge-Offs shall thereafter be
reimbursed and the Class A Invested Amount increased (but not by an amount in
excess of the aggregate Class A Investor Charge-Offs) on any Distribution Date
by the sum of (i) Series Allocable Miscellaneous Payments with respect to such
Distribution Date and (ii) the amount of Excess Finance Charge and
Administrative Collections allocated and available for that purpose pursuant to
Section 4.13(b) and any withdrawals from the Cash Collateral Account applied in
accordance with such Section.
(b) If on any Distribution Date, the Class B Required Amount, if any,
for such Distribution Date will exceed the amount to be withdrawn from the Cash
Collateral Account pursuant to subsection 4.14(b) which is remaining after
application pursuant to subsection 4.12(a) and the sum of the Collateral
Invested Amount and any Subordinated Principal Collections allocable to the
Collateral Invested Amount as described in clause (a) above which are not
required to be reallocated for the benefit of the Class A Certificates on such
Distribution Date, then the Class B Invested Amount and the Collateral Invested
Amount and the invested amount of any other Series or Class that is expressly
subordinated to the Series 1997-1 Certificateholders shall be reduced by the
aggregate amount of such excess, but not more than the Class B Investor Default
Amount for such Distribution Date (a "Class B Investor Charge-Off"). The Class B
Invested Amount shall only be reduced after the Collateral Invested Amount (and
any such other subordinated invested amount) has been reduced to zero. Class B
Investor Charge-Offs shall thereafter be reimbursed and the Class B Invested
Amount increased (but not by an amount in excess of the aggregate Class B
Investor Charge-Offs) on any Distribution Date by the sum of (i) Series
Allocable Miscellaneous Payments with respect to such Distribution Date to the
extent that such amount is not required to reimburse Class A Investor Charge-
Offs pursuant to subsection 4.12(a) and (ii) the amount of Excess Finance Charge
and Administrative
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Collections allocated for that purpose pursuant to subsection 4.13(e) and any
withdrawals from the Cash Collateral Account applied in accordance with such
subsection.
(c) If on any Distribution Date the Collateral Default Amount for
such Distribution Date will exceed the amount of Excess Finance Charge and
Administrative Collections with respect to the immediately preceding Due Period
which are allocated and available pursuant to Section 4.13(h), then the
Collateral Invested Amount (and any such other subordinated invested amount)
shall be reduced by the amount of such excess, (a "Collateral Charge-Off").
Collateral Charge-Offs shall thereafter be reimbursed and the Collateral
Invested Amount increased (but not by an amount in excess of the aggregate
Collateral Charge-Offs) on any Distribution Date by the sum of (i) Series
Allocable Miscellaneous Payments with respect to such Distribution Date not
required to be applied pursuant to subsections 4.12(a) or (b) above and (ii) the
amount of Excess Finance Charge and Administrative Collections allocated for
that purpose pursuant to subsection 4.13(i).
(c-1) The Collateral Invested Amount shall only be reduced, in the
case of subsections 4.12(a), (b) and (c), after any other Series Enhancement
expressly subordinated to the Collateral Invested Amount or the invested amount
of any other Series or Class expressly subordinated to the Collateral Invested
Amount has been reduced to zero.
(d) Notwithstanding any other provision of this Series Supplement,
the Invested Amount of any Class, including the Collateral Invested Amount,
shall never be reduced below zero.
Section 4.13. Excess Finance Charge and Administrative Collections.
On each Distribution Date the Servicer shall by written instructions cause the
Trustee to apply the Excess Finance Charge and Administrative Collections with
respect to such Distribution Date in the following priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to such Distribution Date shall be distributed to fund any
deficiency pursuant to subsections 4.11(a)(i) and (ii) and, during any
period in which Household Finance Corporation or an Affiliate thereof
is no longer the Servicer, 4.11(a)(iii); provided that in the event
the Class A Required Amount for such Distribution Date exceeds the
amount of such Excess Finance Charge and Administrative Collections,
such Excess Finance Charge and Administrative Collections shall be
applied to pay amounts due with respect to such Distribution Date
pursuant to subsections 4.11(a)(i), (ii) and, during any period in
which Household Finance Corporation or an Affiliate is no longer the
Servicer, (iii) in that order;
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed as provided in
subsection 4.12(a) (after giving effect to the allocation on such
Distribution Date of any amount for that purpose pursuant to
subsection 4.12(a)(i)) shall be treated as
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a portion of Available Investor Principal Collections with respect to
such Distribution Date;
(c) an amount equal to the sum of (i) any Class B Monthly
Interest due but not available from the Class B Invested Percentage of
Reallocated Investor Finance Charge and Administrative Collections on
such Distribution Date or not distributed to the Class B
Certificateholders on a prior Distribution Date, (ii) the Cumulative
Excess Interest Amount for such Distribution Date and (iii) the amount
of any Class B Additional Interest previously due but not distributed
to the Class B Certificateholders on such Distribution Date or a prior
Distribution Date, shall be deposited with the Paying Agent for
distribution to such Class B Certificateholders;
(d) an amount equal to the Class B Investor Default Amount for
such Distribution Date shall be treated as a portion of Available
Investor Principal Collections with respect to such Distribution Date;
(e) an amount equal to the aggregate amount by which the Class B
Invested Amount has been reduced pursuant to clauses (c), (d) and (e)
of the definition of "Class B Invested Amount" (but not including such
reductions which have been previously reimbursed) shall be treated as
a portion of Available Investor Principal Collections with respect to
such Distribution Date;
(f) an amount equal to Collateral Monthly Interest 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 applied in
accordance with the Collateral Agreement;
(g) an amount equal to the unpaid Allocable Servicing Fee (to the
extent not paid pursuant to clause (a) above) for the preceding Due
Periods shall be paid to the Servicer;
(h) an amount equal to the Collateral Default Amount for such
Distribution Date shall be treated as a portion of Available Investor
Principal Collections with respect to such Distribution Date;
(i) for each Distribution Date with respect to the Revolving
Period and the Controlled Accumulation Period, an amount equal to the
aggregate amount by which the Collateral Invested Amount has been
reduced pursuant to clauses (c), (d) and (e) of the definition of
"Collateral Invested Amount" (but not including such reductions which
have been previously reimbursed) shall be treated as a portion of
Available Investor Principal Collections with respect to such
Distribution Date;
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(j) an amount equal to the excess of the Required Collateral
Amount over the Available Collateral Amount (without giving effect to
any deposit made on such date hereunder) shall be deposited in the
Cash Collateral Account;
(k) on each Distribution Date prior to the date on which the
Reserve Account terminates as described in Section 4.20(g), an amount
up to the Required Reserve Account Amount less the Available Reserve
Account Amount shall be deposited into the Reserve Account; and
(l) the balance, if any, after giving effect to the payments made
pursuant to subparagraphs (a) through (k) above shall be applied in
accordance with the Collateral Agreement.
Section 4.14. Establishment of Series 1997-1 Cash Collateral Account.
(a) The Servicer, for the benefit of the Series 1997-1 Certificateholders shall
establish and maintain or cause to be established and maintained in the name of
the Trustee, on behalf of the Trust, a Cash Collateral Account with respect to
Series 1997-1 (the "Cash Collateral Account") which shall be an Eligible Deposit
Account, bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Series 1997-1 Certificateholders. The
Trustee shall possess all right, title and interest in all funds on deposit from
time to time in the Cash Collateral Account and in all proceeds thereof. The
Cash Collateral Account shall be under the sole dominion and control of the
Trustee for the benefit of the Series 1997-1 Certificateholders, as provided
herein, and the Collateral Interest Holder. The interest of any Collateral
Interest Holder in the Cash Collateral Account shall be subject to the interest
of the Series 1997-1 Certificateholders as provided herein and in the Collateral
Agreement. If, at any time, the Cash Collateral Account ceases to be an Eligible
Deposit Account, the Trustee (or the Servicer on its behalf) shall within 20
Business Days establish a new Cash Collateral Account with respect to Series
1997-1 which shall be an Eligible Deposit Account, and shall transfer any cash
and/or any investments to such new Cash Collateral Account and from the date
such new Cash Collateral Account is established, it shall be the Cash Collateral
Account for Series 1997-1. The Trustee at the written direction of the Servicer
(or the Servicer on the Trustee's behalf) shall make withdrawals from such
Account from time to time for the purposes set forth in this Section.
Withdrawals shall be made in the priority set forth below and the Available
Collateral Amount will be reduced by the amount of each related withdrawal as
provided in the definition thereof set forth in Section 2 hereof. No Collateral
Interest Holder shall be entitled to reimbursement for any withdrawals, interest
or fees with respect to any Cash Collateral Account except as specifically
provided herein and in the Collateral Agreement.
Funds on deposit in any Cash Collateral Account shall be invested at
the written direction of the Servicer (or the Collateral Interest Holder, as
provided in the Collateral Agreement) by the Trustee in Eligible Investments;
provided, however, that references in the definition of "Eligible Investments"
to "rating satisfactory to the Rating Agency" shall be modified to require
ratings of not less than A-1+ and P-1 (whichever is applicable) from the
applicable Rating Agency.
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All such investments shall be held by the Trustee for the benefit of the Series
1997-1 Certificateholders and the Collateral Interest Holder, as their interests
may appear, provided that on each Distribution Date, the Trustee shall (upon the
written instruction of the Servicer and in accordance with the information set
forth in the Monthly Servicer's Certificate pursuant to subsection 3.04(b) of
the Agreement) apply all interest and other investment earnings (net of losses
and investment expenses) and the Collateral Cash Surplus, if any, in accordance
with the Collateral Agreement. Funds on deposit in the Cash Collateral Account
shall be invested in accordance with the Collateral Agreement and in investments
having maturities such that such funds will be available not later than 10:00
A.M. New York City time on the succeeding Distribution Date. No cash collateral
investment shall be disposed of prior to its maturity. On each Distribution
Date, all interest and earnings (net of losses and investment expenses) accrued
since the preceding Distribution Date on funds on deposit in the Cash Collateral
Account shall be paid by the Trustee upon written instruction of the Servicer
and applied in accordance with the Collateral Agreement. For purposes of
determining the availability of funds or the balances in the Cash Collateral
Account for any reason under this Agreement, all investment earnings on such
funds shall be deemed not to be available or on deposit. The Seller shall report
such earnings as its income for tax purposes and the Servicer shall prepare, or
cause to be prepared, all tax returns and any other information, returns or
reports, if any, that need to be filed on behalf of the Seller with respect to
earnings on the Cash Collateral Account.
(b) On each Determination Date, the Servicer shall determine the
amount by which the amounts specified in clauses (a) through (e) of Section 4.13
with respect to the following Distribution Date exceed the amount of Excess
Finance Charge and Administrative Collections with respect to such Distribution
Date. In the event that for any Distribution Date, such amount is greater than
zero, the Servicer shall give written notice to the Trustee and the Collateral
Interest Holder of such amount on the date of computation. Not more than two
Business Days prior to such Distribution Date, the Trustee (or the Servicer on
its behalf) shall give the Collateral Interest Holder notice of such amount and
not later than 10:00 a.m. on the Distribution Date, withdraw such amount from
the Cash Collateral Account (but not in excess of the Available Collateral
Amount) for application in accordance with (and subject to the priorities set
forth in) Section 4.13.
(c) In the event that the Collateral Cash Surplus on any Distribution
Date, after giving effect to all deposits and withdrawals from the Cash
Collateral Account pursuant to Section 4.14 and Section 4.13 on such
Distribution Date, is greater than zero, the Servicer shall cause the Trustee to
withdraw from the Cash Collateral Account and pay in accordance with the
Collateral Agreement, an amount equal to the lesser of, the amount then on
deposit in the Cash Collateral Account and the Collateral Cash Surplus.
Section 4.15. Subordinated Principal Collections. On each Distribution
Date, the Servicer shall by written instructions cause the Trustee to apply
Subordinated Principal Collections (applying all such Collections with respect
to the Collateral Invested Amount prior to applying any such Collections with
respect to the Class B Invested
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Amount and applying no such Collections with respect to the Class B Invested
Amount pursuant to clause (b) below) with respect to such Distribution Date to
make the following distributions in the following priority:
(a) an amount equal to the excess, if any, of (i) the Class A
Required Amount, if any, with respect to such Distribution Date over
(ii) the sum of the amount of Excess Finance Charge and Administrative
Collections with respect to such Distribution Date and any amount to
be withdrawn from the Cash Collateral Account pursuant to subsection
4.14(b) shall be distributed to fund any deficiency pursuant to
subsections 4.11(a)(i), (ii) and, during any period in which Household
Finance Corporation or any Affiliate is not the Servicer, 4.11(a)(iii)
in that order;
(b) an amount equal to the excess, if any, of (i) the Class B
Required Amount, if any, with respect to such Distribution Date over
(ii) the amount of Excess Finance Charge and Administrative
Collections with respect to such Distribution Date and any amount to
be withdrawn from the Cash Collateral Account pursuant to subsection
4.14(b) remaining, in each case, after the application of such monies
pursuant to clause (a) above shall be distributed to fund any
deficiency pursuant to subsections 4.11(b)(i), 4.13(c) and 4.13(d) in
that order; and
(c) the balance, if any, shall be treated as a portion of
Available Investor Principal Collections with respect to such
Distribution Date to be applied in accordance with subsections 4.11(c)
or (d), as applicable.
Section 4.16. Reallocated Investor Finance Charge and Administrative
Collections. (a) That portion of Group Two Investor Finance Charge and
Administrative Collections for any Distribution Date equal to the amount of
Reallocated Investor Finance Charge and Administrative Collections for such
Distribution Date will be allocated to Series 1997-1 and will be distributed as
set forth in this Series Supplement.
(b) Reallocated Investor Finance Charge and Administrative Collections,
with respect to any Distribution Date shall equal the sum of (i) the aggregate
amount of Series 1997-1 Monthly Interest, Investor Defaulted Amount, Series
1997-1 Monthly Fees and Series 1997-1 Additional Amounts for such Distribution
Date and (ii) that portion of excess Group Two Investor Finance Charge and
Administrative Collections to be included in Reallocated Investor Finance Charge
and Administrative Collections pursuant to subsection (c) hereof; provided,
however, that if the amount of Group Two Investor Finance Charge and
Administrative Collections for such Distribution Date is less than the sum of
(w) Group Two Investor Monthly Interest, (x) Group Two Investor Default Amount,
(y) Group Two Investor Monthly Fees and (z) Group Two Investor Additional
Amounts, then Reallocated Investor Finance Charge and Administrative Collections
shall equal the sum of the following amounts for such Distribution Date:
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(A) The product of (I) Group Two Investor Finance Charge and
Administrative Collections (up to the amount of Group Two Investor Monthly
Interest) and (II) a fraction, the numerator of which is Series 1997-1
Monthly Interest and the denominator of which is Group Two Investor Monthly
Interest;
(B) the product of (I) Group Two Investor Finance Charge and
Administrative Collections less the amount of Group Two Investor Monthly
Interest (up to the Group Two Investor Default Amount) and (II) a fraction,
the numerator of which is the Investor Defaulted Amount and the denominator
of which is the Group Two Investor Default Amount;
(C) the product of (I) Group Two Investor Finance Charge and
Administrative Collections less the amount of Group Two Investor Monthly
Interest and the Group Two Investor Default Amount (up to Group Two
Investor Monthly Fees) and (II) a fraction, the numerator of which is
Series 1997-1 Monthly Fees and the denominator of which is Group Two
Investor Monthly Fees; and
(D) the product of (I) Group Two Investor Finance Charge and
Administrative Collections less the sum of (i) Group Two Investor Monthly
Interest, (ii) the Group Two Investor Default Amount and (iii) Group Two
Investor Monthly Fees and (II) a fraction, the numerator of which is Series
1997-1 Additional Amounts and the denominator of which is Group Two
Investor Additional Amounts.
(c) If the amount of Group Two Investor Finance Charge and
Administrative Collections for such Distribution Date exceeds the sum of (i)
Group Two Investor Monthly Interest, (ii) Group Two Investor Default Amount,
(iii) Group Two Investor Monthly Fees and (iv) Group Two Investor Additional
Amounts, then Reallocated Investor Finance Charge and Administrative Collections
for such Distribution Date shall include an amount equal to the product of (x)
the amount of such excess and (y) a fraction, the numerator of which is the
Invested Amount as of the last day of the second preceding Due Period and the
denominator of which is the sum of such Invested Amount and the aggregate
invested amounts for all other Series included in Group Two as of such last day.
Section 4.17. Series 1997-1 Excess Principal Collections. (a) That
portion of Trust Excess Principal Collections for all Series for any
Distribution Date equal to the amount of Series 1997-1 Excess Principal
Collections for such Distribution Date will be allocated to Series 1997-1 and
will be distributed as set forth in this Series Supplement.
(b) Series 1997-1 Excess Principal Collections, for any Distribution
Date with respect to the Controlled Accumulation Period or any Early
Accumulation Period or Early Amortization Period, shall mean an amount equal to
the Series 1997-1 Principal Shortfall for such Distribution Date; provided,
however, that if the aggregate amount of Trust Excess Principal Collections for
all Series for such Distribution Date is less than the aggregate amount of
Principal Shortfalls for all Series for such Distribution Date, then Series
1997-1 Excess Principal Collections for such Distribution Date shall equal the
product of (x) Trust Excess Principal Collections for all Series all for such
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Distribution Date and (y) a fraction, the numerator of which is the Series 1997-
1 Principal Shortfall for such Distribution Date and the denominator of which is
the aggregate amount of Principal Shortfalls for all Series for such
Distribution Date. The Series 1997-1 Principal Shortfall for any Distribution
Date shall equal the excess of (i) (x) for any Distribution Date prior to the
date on which the Class A and Class B Certificates are paid in full with respect
to the Controlled Accumulation Period, the Controlled Deposit Amount plus the
amount calculated pursuant to subsection 4.09(c)(ii)(B) and after such date, the
Collateral Invested Amount, (y) for any Distribution Date with respect to any
Early Accumulation Period, the Adjusted Invested Amount or (z) for any
Distribution Date with respect to any Early Amortization Period, the Invested
Amount, over (ii) Available Investor Principal Collections, excluding from the
amount described in this clause (ii) any portion thereof attributable to Series
1997-1 Excess Principal Collections.
(c) The Seller may direct (by written instructions to the Servicer and
the Trustee) that Collections of Principal Receivables allocable to the Invested
Amount of any Series or Class, which either the Agreement or the Supplement for
any Series provides are payable to the Seller, shall be reallocated to any other
Series or Class. Such Collections shall be treated as Collections of Principal
Receivables allocable to the Series or Class to which they are reallocated for
all purposes of the Agreement and the applicable Supplement.
Collections of Principal Receivables subject to reallocation pursuant
to this subsection may include, without limitation, Collections of Principal
Receivables allocable to the uncertificated Series Enhancement invested amount
of any other Series which either the Agreement or the Supplement for any Series
provides are payable to the Seller.
The Trustee, at the direction of the Servicer, shall apply such
Collections of Principal Receivables in accordance with such instructions.
Section 4.18 Exchange of Investor Certificates for Seller Interest. If
the Seller purchases Series 1997-1 Certificates from Series 1997-1
Certificateholders and becomes a Series 1997-1 Certificateholder, the Seller
may, on any Distribution Date (after giving effect to all required allocations
and payments on such Distribution Date), cancel such purchased Series 1997-1
Certificates by delivering a written request to the Trustee to do so, provided,
however, that the Seller may only cancel Class A and Class B Certificates it has
purchased during the Revolving Period and if the Rating Agency Condition has
been satisfied. The Seller may in connection with such cancellation purchase a
portion of the Collateral Interest from the Collateral Interest Holder and may
(but shall not be required to) cancel such portion of the Collateral Interest,
provided that the reduction in the Collateral Invested Amount resulting from
such cancellation may not result in the Collateral Invested Amount being less
than the Required Collateral Amount. As a result of any cancellation of Series
1997-1 Certificates pursuant to this Section, (a) the Invested Amount shall be
reduced by (i) the aggregate principal amount of such purchased Series 1997-1
Certificates and (ii) the reduction in the Collateral Interest
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and (b) the Seller's Interest shall be increased in an amount equal to such
reduction in the Invested Amount.
Section 4.19 Principal Funding Account.
(a) The Trustee shall establish and maintain with an Eligible
Institution, in the name of the Trustee, on behalf of the Trust, for the benefit
of the Investor Certificateholders, a segregated trust account with the
corporate trust department of such Eligible Institution (the "Principal Funding
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Investor Certificateholders. The
Trustee shall possess all right, title and interest in all funds on deposit from
time to time in the Principal Funding Account and in all proceeds thereof. The
Principal Funding Account shall be under the sole dominion and control of the
Trustee for the benefit of the Investor Certificateholders. If at any time the
institution holding the Principal Funding Account ceases to be an Eligible
Institution, the Seller shall notify the Trustee, and the Trustee upon being
notified (or the Servicer on its behalf) shall, within 10 Business Days,
establish a new Principal Funding Account meeting the conditions specified above
with an Eligible Institution, and shall transfer any cash or any investments to
such new Principal Funding Account. The Trustee, at the direction of the
Servicer, shall (i) make withdrawals from the Principal Funding Account from
time to time, in the amounts and for the purposes set forth in this Supplement,
and (ii) on each Distribution Date (from and after the commencement of the
Controlled Accumulation Period or the Early Accumulation Period) prior to
termination of the Principal Funding Account make a deposit into the Principal
Funding Account in the amount specified in, and otherwise in accordance with,
subsection 4.11(d). Amounts deposited into the Principal Funding Account shall
not be considered principal payments made to Certificateholders.
(b) Funds on deposit in the Principal Funding Account shall be
invested at the direction of the Servicer by the Trustee in PFA Eligible
Investments. Funds on deposit in the Principal Funding Account on any
Distribution Date, after giving effect to any withdrawals from the Principal
Funding Account on such Distribution Date, shall be invested in such investments
that will automatically mature so that such funds will be available for
withdrawal on or prior to the following Distribution Date. The Trustee shall
maintain for the benefit of the Investor Certificateholders possession of the
negotiable instruments or securities, if any, evidencing such investments. No
PFA Eligible Investment shall be disposed of prior to its maturity.
On the Distribution Date occurring in the month following the
commencement of the Controlled Accumulation Period or the Early Accumulation
Period and on each Distribution Date thereafter with respect to the Controlled
Accumulation Period or the Early Accumulation Period, the Trustee, acting at the
Servicer's direction given on or before such Distribution Date, shall transfer
from the Principal Funding Account to the Collection Subaccount the Principal
Funding Investment Proceeds on deposit in the Principal Funding Account in an
amount not to exceed the Covered Amount, for application in accordance with
subsections 4.11(a) and 4.11(b).
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Any Excess Principal Funding Investment Proceeds shall be paid to the
Seller on each Distribution Date. An amount equal to any Principal Funding
Investment Shortfall will be deposited in the Collection Subaccount on each
Distribution Date from the Reserve Account to the extent funds are available
pursuant to subsection 4.20(d). Principal Funding Investment Proceeds
(including reinvested interest) shall not be considered part of the amounts on
deposit in the Principal Funding Account for purposes of this Supplement.
Section 4.20 Reserve Account.
(a) The Trustee shall establish and maintain with an Eligible
Institution, in the name of the Trust, on behalf of the Trust, for the benefit
of the Investor Certificateholders, a segregated trust account with the
corporate trust department of such Eligible Institution (the "Reserve Account"),
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Investor Certificateholders. The Trustee shall
possess all right, title and interest in all funds on deposit from time to time
in the Reserve Account and in all proceeds thereof. The Reserve Account shall
be under the sole dominion and control of the Trustee for the benefit of the
Investor Certificateholders. If at any time the institution holding the Reserve
Account ceases to be an Eligible Institution, the Seller shall notify the
Trustee, and the Trustee upon being notified (or the Servicer on its behalf)
shall, within 10 Business Days, establish a new Reserve Account meeting the
conditions specified above with an Eligible Institution, and shall transfer any
cash or any investments to such new Reserve Account.
(b) Funds on deposit in the Reserve Account shall be invested at the
direction of the Servicer by the Trustee in Eligible Investments. Funds on
deposit in the Reserve Account on any Distribution Date, after giving effect to
any withdrawals from the Reserve Account on such Distribution Date, shall be
invested in such investments that will mature so that such funds will be
available for withdrawal on or prior to the following Distribution Date. The
Trustee shall maintain for the benefit of the Investor Certificateholders
possession of the negotiable instruments or securities, if any, evidencing such
Eligible Investments. No Eligible Investment shall be disposed of prior to its
maturity. On each Distribution Date, all interest and earnings (net of losses
and investment expenses) accrued since the preceding Distribution Date on funds
on deposit in the Reserve Account shall be retained in the Reserve Account to
the extent that the Available Reserve Account Amount is less than the Required
Reserve Account Amount, and the balance, if any, shall be deposited into the
Collection Subaccount for application in accordance with subsections 4.11(a) and
4.11(b) on such Distribution Date. For purposes of determining the availability
of funds or the balance in the Reserve Account for any reason under this
Supplement, except as otherwise provided in the preceding sentence, investment
earnings on such funds shall be deemed not to be available or on deposit.
(c) On or before each Distribution Date with respect to the
Controlled Accumulation Period or any Early Accumulation Period prior to the
payment in full of the Class B Invested Amount and prior to the
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first Distribution Date with respect to any Early Amortization Period, the
Servicer shall calculate the "Reserve Draw Amount" which shall be equal to the
Principal Funding Investment Shortfall with respect to each Distribution Date
with respect to the Controlled Accumulation Period or any Early Accumulation
Period or the first Distribution Date with respect to any Early Amortization
Period.
(d) In the event that for any Distribution Date the Reserve Draw
Amount is greater than zero, the Reserve Draw Amount, up to the Available
Reserve Account Amount, shall be withdrawn from the Reserve Account on such
Distribution Date by the Trustee (acting in accordance with the instructions of
the Servicer), deposited into the Collection Subaccount for application in
accordance with subsections 4.11(a) and 4.11(b) on such Distribution Date.
(e) If on any Determination Date during the Controlled Accumulation
Period or any Early Accumulation Period, (i) the amount required to pay
interest, for the period from the next Distribution Date to the second
succeeding Distribution Date, to the Class A Certificateholders and the Class B
Certificateholders at the Class A Certificate Rate and the Class B Certificate
Rate, respectively, based on LIBOR, as determined on such Determination Date,
exceeds (ii) the sum of (A) for the period from the next Distribution Date to
the second succeeding Distribution Date, the projected Principal Funding
Investment Proceeds plus the projected reinvestment income on the funds on
deposit in the Reserve Account and (B) the remaining balance in the Reserve
Account after giving effect to withdrawals to be made for the next Distribution
Date, then the Early Accumulation Period will terminate and the Early
Amortization Period will commence.
(f) In the event that the Reserve Account Surplus on any Distribution
Date, after giving effect to all deposits to and withdrawals from the Reserve
Account with respect to such Distribution Date, is greater than zero, the
Trustee, acting in accordance with the instructions of the Servicer, shall
withdraw from the Reserve Account, and pay to the Seller, an amount equal to
such Reserve Account Surplus.
(g) Upon the earlier to occur of (i) the termination of the Trust
pursuant to Article XII of the Agreement, (ii) the first Distribution Date
following the commencement of any Early Amortization Period and (iii) the Series
1997-1 Expected Final Payment Date (after taking into account all distributions
to be made on such date), the Trustee, acting in accordance with the
instructions of the Servicer, after the prior payment of all amounts owing to
the Series 1997-1 Certificateholders that are payable from the Reserve Account
as provided herein, shall withdraw from the Reserve Account and pay to the
Seller, all amounts, if any, on deposit in the Reserve Account and the Reserve
Account shall be deemed to have terminated for purposes of this Supplement.
SECTION 5. Distributions.
(a) On each Distribution Date, the Paying Agent shall distribute to
each Class A Certificateholder of record on the Record Date for such
Distribution Date (other than as provided in Section 12.02
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of the Agreement respecting a final distribution) such Certificateholder's pro
rata share (based on the aggregate fractional undivided interests represented by
Class A Certificates held by such Certificateholder) of the amounts on deposit
in the Collection Account pursuant to subsection 4.11(a).
(b) On each Distribution Date with respect to any Early Amortization
Period, the Paying Agent shall distribute to each Class A Certificateholder of
record on the Record Date for such Distribution Date (other than as provided in
Section 12.02 of the Agreement respecting a final distribution) such
Certificateholder's pro rata share (based on the aggregate fractional undivided
interests represented by Class A Certificates held by such Certificateholder) of
the amounts on deposit in the Collection Account with respect to principal of
the Class A Certificates pursuant to subsection 4.11(d)(i).
(c) On each Distribution Date, the Paying Agent shall distribute to
each Class B Certificateholder of record on the Record Date for such
Distribution Date (other than as provided in Section 12.02 of the Agreement
respecting a final distribution) such Certificateholder's pro rata share (based
on the aggregate fractional undivided interests represented by Class B
Certificates held by such Certificateholder) of the amounts on deposit in the
Collection Account pursuant to subsections 4.11(b) and 4.13(c).
(d) On each Distribution Date with respect to any Early Amortization
Period, beginning on the Distribution Date on which the Class A Invested Amount
is paid in full, the Paying Agent shall distribute to each Class B
Certificateholder of record on the Record Date for such Distribution Date (other
than as provided in Section 12.02 of the Agreement respecting a final
distribution) such Certificateholder's pro rata share (based on the aggregate
fractional undivided interests represented by Class B Certificates held by such
Certificateholder) of the amounts on deposit in the Collection Account with
respect to principal of the Class B Certificates pursuant to subsection
4.11(d)(ii).
(e) On the Series 1997-1 Expected Final Payment Date, the Paying
Agent shall distribute to each Class A Certificateholder of record on the
related Record Date (other than as provided in Section 12.02 of the Agreement
respecting a final distribution) such Class A Certificateholder's pro rata share
of the amounts on deposit in the Principal Funding Account or otherwise held by
the Paying Agent that are allocated and available on such date to pay principal
of the Class A Certificates pursuant to subsection 4.11(e)(i) up to a maximum
amount on any such date equal to the Class A Invested Amount on such date.
(f) On the Series 1997-1 Expected Final Payment Date and after giving
effect to the distribution referred to in subsection 5(e) above, the Paying
Agent shall distribute to each Class B Certificateholder of record on the
related Record Date (other than as provided in Section 12.02 of the Agreement
respecting a final distribution) such Class B Certificateholder's pro rata share
of the amounts on deposit in the Principal Funding Account or otherwise held by
the Paying Agent that are allocated and available on such date to pay principal
of the Class B Certificates pursuant to subsection 4.11(e)(ii)
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up to a maximum amount on any such date equal to the Class B Invested Amount on
such date.
(g) Except as provided in Section 12.02 of the Agreement with respect
to a final distribution, distributions to Investor Certificateholders hereunder
shall be made by check mailed to each Certificateholder at such
Certificateholder's address appearing in the Certificate Register without
presentation or surrender of any Investor Certificate or the making of any
notation thereon; provided, however, that with respect to Investor Certificates
registered in the name of a Clearing Agency, such distributions shall be made to
such Clearing Agency in immediately available funds.
SECTION 6. Statements to Certificateholders.
(a) On each Distribution Date, the Paying Agent, on behalf of the
Trustee, shall forward to each Class A Certificateholder and the Rating Agency a
statement substantially in the form of Exhibit B prepared by the Servicer
setting forth certain information relating to the Trust and the Class A
Certificates.
(b) On each Distribution Date, the Paying Agent, on behalf of the
Trustee, shall forward to each Class B Certificateholder and the Rating Agency a
statement substantially in the form of Exhibit B prepared by the Servicer
setting forth certain information relating to the Trust and the Class B
Certificates.
(c) On or before January 31 of each calendar year, beginning January
31, 1998, the Paying Agent, on behalf of the Trustee, shall furnish or cause to
be furnished to each Person who at any time during the preceding calendar year
was an Investor Certificateholder, a statement prepared by the Servicer
containing the information which is required to be contained in the statement to
Class A Certificateholders or Class B Certificateholders, as set forth in
subsection (a) or (b) above, as the case may be, aggregated for such preceding
calendar year or the applicable portion thereof (the initial statement shall
cover the period beginning on the Issuance Date and ending on December 31, 1997)
during which such Person was an Investor Certificateholder, together with other
information as is required to be provided by an issuer of indebtedness under the
Internal Revenue Code and such other customary information as is necessary to
enable the Investor Certificateholders to prepare their tax returns. Such
obligation of the Servicer shall be deemed to have been satisfied to the extent
that substantially comparable information shall be provided by the Paying Agent
pursuant to any requirements of the Internal Revenue Code as from time to time
in effect.
(d) The form of 1997-1 Monthly Servicer's Certificate set forth at
Exhibit B hereto may be modified as the Servicer may determine to be necessary
or desirable; provided, however, that no such modification shall serve to
exclude information required by this Section 6. The Servicer shall, upon making
such determination, deliver to the Trustee and the Rating Agency an Officer's
Certificate to which shall be annexed the form of Exhibit B, as so changed.
Upon the delivery of such Officer's Certificate to the Trustee, Exhibit B, as so
changed, shall
42
<PAGE>
for all purposes of this Agreement constitute Exhibit B. The Trustee may
conclusively rely upon such Officer's Certificate as to such change conforming
to the requirements of this Agreement.
SECTION 7. Additional Amortization Events. If any one of the following shall
occur:
(a) failure on the part of the Seller (i) to make any payment or
deposit required by the terms of the Agreement or this Series Supplement on
or before the date occurring five Business Days after the date such payment
or deposit is required to be made herein or therein, or (ii) duly to
observe or perform any other covenants or agreements of the Seller set
forth in the Agreement or this Series Supplement, which failure has a
material adverse affect on the Series 1997-1 Certificateholders and which
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Seller by the Trustee, or to the Seller and the
Trustee by a Series 1997-1 Certificateholder;
(b) any representation or warranty made by the Seller in the Agreement
or the Series Supplement or any information to identify the Accounts
required to be delivered by the Seller pursuant to Section 2.01 or 2.09 of
the Agreement (i) shall prove to have been incorrect in any material
respect when made or when delivered, which continues to be incorrect in any
material respect for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been
given to the Seller by the Trustee, or to the Seller and the Trustee by a
Series 1997-1 Certificateholder, and (ii) as a result of such incorrectness
the interests of the Series 1997-1 Certificateholders are materially and
adversely affected; provided, however, that neither an Early Accumulation
Event or an Early Amortization Event shall be deemed to have occurred under
this subsection 7(b) if the Seller has repurchased the related Receivables
or all such Receivables, if applicable, during such period in accordance
with the provisions of the Agreement;
(c) the Trust becomes subject to regulation by the Securities and
Exchange Commission as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(d) a failure by the Seller to convey Receivables in Additional
Accounts to the Trust within five Business Days after the day on which it
is required to convey such Receivables pursuant to subsection 2.09(a) of
the Agreement;
(e) a Servicer Default shall occur which has a material adverse effect
on the Series 1997-1 Certificateholders (determined without regard to the
availability of moneys in the Cash Collateral Account);
(f) the average Series Adjusted Portfolio Yield for any three
consecutive Due Periods is reduced to a rate below the average Base Rate
for such period;
43
<PAGE>
(g) 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 Series 1997-1
Expected Final Payment Date;
(h) the occurrence of the Reserve Account event described in Section
4.20(e); or
(i) the Seller is unable for any reason to transfer Receivables to the
Trust in accordance with the Agreement.
then, in the case of any event described in subparagraph (a), (b) or (e) above
after the applicable grace period, if any, set forth in such subparagraphs,
either the Trustee or the Series 1997-1 Certificateholders evidencing more than
50% of the aggregate unpaid principal amount of the Series 1997-1 Certificates
by notice then given in writing to the Seller and the Servicer (and to the
Trustee if given by the Series 1997-1 Certificateholders) may declare that an
Amortization Event has occurred as of the date of such notice, and, in the case
of any event described in subparagraphs (c), (d), (f), (g), (h) or (i) above
subject to applicable law, an Amortization Event shall occur without any notice
or other action on the part of the Trustee or the Investor Certificateholders
(except as otherwise provided in any such subparagraph), immediately upon the
occurrence of such event.
SECTION 8. Optional Repurchase.
On the Distribution Date occurring on or after the date on which the
Invested Amount is reduced to $50,000,000 or less, the Seller shall have the
option to purchase the Class A Certificateholders' Interest and Class B
Certificateholders' Interest, at a purchase price equal to the Optional
Repurchase Amount. Such purchased portion of the Certificateholders' Interest
shall thereafter be deemed to be part of the Seller's Interest. The Seller
shall give the Servicer, the Rating Agency and the Trustee at least 30 days
prior written notice of the date on which the Seller intends to exercise such
option to purchase. Not later than 10:00 A.M., New York City time, on such
Distribution Date the Seller shall deposit the Optional Repurchase Amount into
the Collection Account in immediately available funds. Such purchase option is
subject to payment in full of the Optional Repurchase Amount. The Optional
Repurchase Amount shall be distributed as set forth in Section 10 hereof.
SECTION 9. Sale of Certificateholders' Interest pursuant to Section 2.06 or
10.01 of the Agreement.
(a) The amount to be paid by the Seller with respect to Series 1997-1
in connection with a repurchase of the Certificateholders' Interest pursuant to
Section 2.06 of the Agreement shall equal the Reassignment Amount for the first
Distribution Date following the Due Period in which the reassignment obligation
arises under the Agreement.
(b) The amount to be paid by the Seller with respect to Series 1997-1
in connection with a repurchase of the Certificateholders'
44
<PAGE>
Interest pursuant to Section 10.01 of the Agreement shall equal the sum of (x)
the Reassignment Amount for the Distribution Date of such repurchase and (y) the
sum of (A) the excess, if any, of (I) a price equivalent to the average of bids
quoted on the Record Date preceding the date of repurchase or, if not a Business
Day, on the next succeeding Business Day by at least two recognized dealers
selected by the Trustee (which may be selected from the list attached as
Schedule 1), for the purchase by such dealers of a security which is similar to
the Class A Certificates with a remaining maturity approximately equal to the
remaining maturity of the Class A Certificates and rated by each Rating Agency
in the rating category originally assigned to the Class A Certificates over (II)
the portion of the Reassignment Amount attributable to the Class A Certificates
and (B) the excess, if any, of (I) a price equivalent to the average of bids
quoted on such Record Date, or if not a Business Day, on the next succeeding
Business Day by at least two recognized dealers selected by the Trustee (which
may be selected from the list attached as Schedule 1), for the purchase by such
dealers of a security which is similar to the Class B Certificates with a
remaining maturity approximately equal to the remaining maturity of the Class B
Certificates and rated by each Rating Agency in the rating category originally
assigned to the Class B Certificates over (II) the portion of the Reassignment
Amount attributable to the Class B Certificates.
SECTION 10. Distributions pursuant to Sections 8 or 9 of this Series Supplement
-------------------------------------------------------------------
and Section 2.06, 10.01 or 12.02(c) of the Agreement.
----------------------------------------------------
(a) With respect to the Optional Repurchase Amount deposited into the
Collection Account pursuant to Section 8, the Reassignment Amount deposited into
the Collection Account pursuant to Section 9 or any Termination Proceeds
deposited into the Collection Account pursuant to Section 12.02(c) of the
Agreement, the Trustee shall, not later than 1:00 P.M., New York City time, on
the date of deposit, make deposits of the following amounts (in the priority set
forth below and, in each case, after giving effect to any deposits and
distributions otherwise to be made on such date) in immediately available funds
as follows: (i) the Class A Invested Amount on such date and the amount of
accrued and unpaid interest on the unpaid balance of the Class A Certificates,
plus the amount of Class A Additional Interest previously due but not paid on
any prior Distribution Date, will be deposited into the Collection Account for
distribution to Class A Certificateholders, (ii) the Class B Invested Amount on
such date and the amount of accrued and unpaid interest on the unpaid balance of
the Class B Certificates, plus the amount of Class B Additional Interest, if
any, for such Distribution Date and any Class B Interest, if any, for such
Distribution Date and any Class B Additional Interest previously due but not
paid on a prior Distribution Date, will be deposited into the Collection Account
for distribution to Class B Certificateholders and (iii) the Collateral Invested
Amount on such date and the amount of accrued and unpaid interest on the
Collateral Invested Amount (including any unpaid Collateral Additional Interest)
will be applied in accordance with the Collateral Agreement. Notwithstanding
anything to the contrary contained in this Series Supplement or the Agreement,
the amount of any excess determined pursuant to subsection 9(b)(y)(A) hereof
shall be
45
<PAGE>
distributed to the Class A Certificateholders and the amount of any excess
determined pursuant to subsection 9(b)(y)(B) hereof shall be distributed to the
Class B Certificateholders. The remainder of any Termination Proceeds shall be
applied in accordance with the Collateral Agreement.
(b) Notwithstanding anything to the contrary in this Series
Supplement or the Agreement, the entire amount deposited in the Collection
Account pursuant to Section 8 or subsections 9(a) or (b) and 10(a) hereof and
all other amounts on deposit therein for distribution to the Series 1997-1
Certificateholders shall be distributed in full to the Series 1997-1
Certificateholders on such date and shall be deemed to be a final distribution
pursuant to Section 12.02 of the Agreement.
SECTION 11. Distribution of Proceeds of Sale, Disposition or Liquidation of the
-------------------------------------------------------------------
Receivables pursuant to Section 9.02 of the Agreement.
-----------------------------------------------------
(a) Not later than 1:00 p.m., New York City time, on the Distribution
Date following the date on which the Insolvency Proceeds are deposited into the
Collection Account pursuant to Section 9.02(b) of the Agreement, the Trustee
shall (in the following priority and, in each case, after giving effect to any
deposits and distributions otherwise to be made on such Distribution Date) (i)
deduct an amount equal to the Class A Adjusted Invested Amount on such
Distribution Date from the portion of the Insolvency Proceeds allocated to
Series Allocable Principal Collections and deposit such amount in the Collection
Account for distribution to Class A Certificateholders, provided that the amount
of such deposit shall not exceed the product of (x) the portion of the
Insolvency Proceeds allocated to Series Allocable Principal Collections and (y)
the Principal Allocation Percentage with respect to the related Due Period, (ii)
deduct an amount equal to the Class B Adjusted Invested Amount on such
Distribution Date from the portion of the Insolvency Proceeds allocated to
Series Allocable Principal Collections and deposit such amount in the Collection
Account for distribution to Class B Certificateholders, provided that the amount
of such deposit shall not exceed (x) the product of the portion of the
Insolvency Proceeds allocated to Series Allocable Principal Collections and the
Principal Allocation Percentage with respect to such Due Period, minus (y) the
amount deposited into the Collection Account pursuant to clause (a)(i) of this
sentence and (iii), after applying amounts pursuant to clauses (i) and (ii),
deduct an amount equal to the Collateral Invested Amount on such Distribution
Date from such Proceeds and apply such amount in accordance with the Collateral
Agreement. The remainder of the portion of the Insolvency Proceeds allocated to
Series Allocable Principal Collections shall be allocated to the Sellers'
Interest and shall be released to the Seller on such Distribution Date.
(b) Not later than 1:00 P.M., New York City time, on such
Distribution Date, the Trustee shall (in the following priority and, in each
case, after giving effect to any deposits and distributions otherwise to be made
on such Distribution Date) (i) deduct an amount equal to the sum of (w) Class A
Monthly Interest for such Distribution Date, (x) any Class A Monthly Interest
previously due but not paid on a prior Distribution Date and (y) the amount of
Class A Additional
46
<PAGE>
Interest, if any, for such Distribution Date and any Class A Additional Interest
previously due but not paid on a prior Distribution Date, from the portion of
the Insolvency Proceeds allocated to Series 1997-1 Allocable Finance Charge and
Administrative Collections and deposit such amount in the Collection Account for
distribution to Class A Certificateholders, provided that the amount of such
deposit shall not exceed the product of (x) the portion of the Insolvency
Proceeds allocated to Series 1997-1 Allocable Finance Charge and Administrative
Collections, (y) the Floating Allocation Percentage with respect to such Due
Period and (z) a fraction, the numerator of which is the Class A Invested Amount
with respect to such Distribution Date and the denominator of which is the
Adjusted Invested Amount with respect to such Distribution Date and (ii) deduct
an amount equal to the sum of (v) Class B Monthly Interest for such Distribution
Date, (w) any Class B Monthly Interest previously due but not paid on a prior
Distribution Date, (x) the Cumulative Excess Interest Amount with respect to
such Distribution Date and (y) the amount of Class B Additional Interest, if
any, for such Distribution Date and any Class B Additional Interest previously
due but not paid on a prior Distribution Date from the portion of the Insolvency
Proceeds allocated to Series 1997-1 Allocable Finance Charge and Administrative
Collections and deposit such amount into the Collection Account for distribution
to Class B Certificateholders, provided that the amount of such deposit shall
not exceed the product of (x) the portion of the Insolvency Proceeds allocated
to Series 1997-1 Allocable Finance Charge and Administrative Collections, (y)
the Floating Allocation Percentage with respect to such Due Period and (z) a
fraction, the numerator of which is the Class B Invested Amount with respect to
such Distribution Date and the denominator of which is the Adjusted Invested
Amount with respect to such Distribution Date. The remainder of the Insolvency
Proceeds allocated to Allocable Finance Charge and Administrative Collections
shall be released to the Collateral Interest Holder for application by the
Collateral Interest Holder in accordance with the provisions of the Collateral
Agreement.
(c) Notwithstanding anything to the contrary in this Series
Supplement or the Agreement, the entire amount deposited in the Collection
Account pursuant to this Section 11 and all other amounts on deposit therein for
distribution for the Series 1997-1 Certificateholders shall be distributed in
full to the Series 1997-1 Certificateholders on the Distribution Date on which
funds are deposited pursuant to this Section (or, if not so deposited on a
Distribution Date, on the immediately following Distribution Date) and shall be
deemed to be a final distribution pursuant to Section 12.02 of the Agreement.
SECTION 12. Section 9.02 of the Agreement; Rights of the Collateral Interest
----------------------------------------------------------------
Holder.
------
(a) If the Trustee shall have received instructions within 90 days
from the date notice pursuant to clause (i) of subsection 9.02(a) of the
Agreement is first published, from the Collateral Interest Holder to the effect
that the Collateral Interest Holder objects to the liquidation of the
Receivables, the Trustee shall not proceed with such liquidation.
47
<PAGE>
(b) All payments to the Collateral Interest Holder required by this
Series Supplement shall be made no later than 1:00 p.m. on the date such payment
is required to be made.
SECTION 13. Clearing Agency.
The Clearing Agency with respect to the Class A Certificates and Class
B Certificates shall initially be The Depository Trust Company.
SECTION 14. Delivery of the Class A Certificates and the Class B Certificates.
The Trustee shall deliver the Class A and Class B Certificates to the
Seller when authenticated in accordance with Section 6.02 of the Agreement. The
Trustee shall register the Collateral Interest in the Certificate Register in
the manner set forth in the Collateral Agreement.
SECTION 15. Ratification of Agreement.
As supplemented by this Supplement, the Agreement is in all respects
ratified and confirmed and the Agreement, as so supplemented by this Supplement
shall be read, taken and construed as one and the same instrument.
SECTION 16. Counterparts.
This Supplement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but all of which shall
together constitute but one and the same instrument.
SECTION 17. Governing Law.
THIS SUPPLEMENT SHALL BE CONSTRUED AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS.
SECTION 18. Forms of Certificates and Monthly Servicer's
Certificate.
The Class A Certificates, Class B Certificates and Monthly Servicer's
Certificate with respect to Series 1997-1 shall be in substantially the
respective forms attached as exhibits hereto. The Servicer may add to the
Monthly Servicer's Certificate such additional information with respect to the
Collateral Agreement as the Servicer shall determine to be appropriate (or as
required under the Collateral Agreement).
48
<PAGE>
SECTION 19. Definition of Tax Opinion and of Required Minimum Principal
Balance for Purposes of Series 1997-1
(a) For purposes of this Series Supplement, the definition of Tax
Opinion contained in Section 1.01 of the Agreement shall be as follows:
"Tax Opinion" shall mean, with respect to any action, an Opinion of
Counsel to the effect that, for Federal income tax purposes: (a) such
action will not adversely affect the tax characterization as debt of the
Investor Certificates of any outstanding Series or Class that were
characterized as debt at the time of their issuance, (b) following such
action the Trust will not be treated as an association (or publicly traded
partnership) taxable as a corporation and (c) unless otherwise provided in
a Supplement, in the case of Section 6.03(b)(vi) of the Agreement, the
Investor Certificates of the Series established pursuant to such Supplement
will properly be characterized as debt.
(b) For purposes of this Series Supplement, at such time as the
Invested Amounts of all Series issued by the Trust prior to Series 1997-1 have
been reduced to zero, the definition of Required Minimum Principal Balance
contained in Section 1.01 of the Agreement shall be as follows:
"Required Minimum Principal Balance" shall mean, with respect to any
date, an amount equal to the sum of the adjusted invested amounts (or, if
there is no adjusted invested amount with respect to any particular Series,
then the invested amount for such Series) for all outstanding Series on
such date; plus the sum of the Series Required Seller Amounts for each
Series.
SECTION 20. ERISA Restrictions.
Registration of transfers of any Class B Certificate containing the
legend set forth on the Class B Certificate attached hereto as Exhibit A-2 shall
be effected only if such transfer is made to a Person that certifies to the
Transfer Agent in writing that it is not an employee benefit plan, trust or
account, including an individual retirement account, that is subject to ERISA or
that is described in Section 4975(e)(1) of the Code or an entity whose
underlying assets include plan assets by reason of a plan's investment in such
entity (each a "Benefit Plan"). By accepting 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 and is not purchasing a Class B Certificate on
behalf of a Benefit Plan. By acquiring any interest in a Book-Entry Certificate
representing a Class B Certificate, a Certificate Owner shall be deemed to have
represented and warranted that it is not a Benefit Plan and is not purchasing a
Class B Certificate on behalf of a Benefit Plan.
49
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have
caused this Series Supplement to be fully executed by their respective officers
as of the day and year first above written.
HOUSEHOLD AFFINITY
FUNDING CORPORATION
Seller
By_________________________
Name:
Title:
HOUSEHOLD FINANCE CORPORATION,
Servicer
By_________________________
Name:
Title:
THE BANK OF NEW YORK
Trustee
By_________________________
Name:
Title:
<PAGE>
EXHIBIT A-1
-----------
FORM OF CLASS A CERTIFICATE
---------------------------
REGISTERED $___________*
No. R-A CUSIP No.
--- ----------
UNLESS THIS CLASS A CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS
MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES 1997-1
FLOATING RATE CLASS A CREDIT CARD PARTICIPATION CERTIFICATE
SERIES 1997-1 EXPECTED FINAL PAYMENT DATE:
The _________ Distribution Date
Each $1,000 minimum denomination represents a 1/_______
undivided interest in the Series 1997-1
Class A Invested Amount in the
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
Evidencing an undivided interest in a trust, the corpus of which consists
primarily of receivables generated from time to time in the ordinary course of
business in a portfolio of revolving credit card accounts provided by
HOUSEHOLD AFFINITY FUNDING CORPORATION
(Not an interest in or obligation of
Household Affinity Funding Corporation
or any affiliate thereof)
______________
*Denominations of $1,000 and integral multiples of $1,000 in excess thereof.
<PAGE>
This certifies that CEDE & CO. (the "Class A Certificateholder") is the
registered owner of a fractional undivided interest in certain assets of a trust
(the "Trust") created pursuant to an Amended and Restated Pooling and Servicing
Agreement, dated as of August 1, 1993, as amended and as may be further amended
from time to time (the "Agreement"), as supplemented by the Series 1997-1
Supplement dated as of March 1, 1997 (the "Series Supplement"), by and among
Household Affinity Funding Corporation, as Seller (the "Seller"), Household
Finance Corporation, as Servicer, and The Bank of New York, as trustee (the
"Trustee"). The corpus of the Trust includes (i) a portfolio of all receivables
(the "Receivables") existing in the revolving credit card accounts identified
under the Agreement from time to time (the "Accounts"), (ii) all Receivables
generated under the Accounts from time to time thereafter, (iii) funds collected
or to be collected from cardholders in respect of the Receivables, (iv) all
funds which are from time to time on deposit in certain accounts held in the
name of the Trustee and for the benefit of the Certificateholders, and (v) all
other assets and interests constituting the Trust, including certain monies
constituting Interchange and Recoveries allocated to the Trust pursuant to the
Agreement and the Series Supplement. Although a summary of certain provisions of
the Agreement and the Series Supplement is set forth below and in the Summary of
Terms and Conditions attached hereto and made a part hereof, this Class A
Certificate does not purport to summarize the Agreement and the Series
Supplement and reference is made to the Agreement and the Series Supplement for
information with respect to the interests, rights, benefits, obligations,
proceeds and duties evidenced hereby and the rights, duties and obligations of
the Trustee. A copy of the Agreement and the Series Supplement (without
schedules) may be requested from the Trustee by writing to the Trustee at 101
Barclay Street, Floor 21W, New York, New York 10286, Attention: Corporate Trust
Trustee Administration. To the extent not defined herein, the capitalized terms
used herein have the meanings ascribed to them in the Agreement or the Series
Supplement, as applicable.
This Class A Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement and the Series Supplement, to which
Agreement and Series Supplement, as may be amended from time to time, the Class
A Certificateholder by virtue of the acceptance hereof assents and is bound.
Unless otherwise specified in the applicable Supplement, it is the intent
of the Seller and the Investor Certificateholders that, with respect to all
Taxes, the Investor Certificates will evidence debt secured by the Receivables.
The Seller and the Class A Certificateholder, by the acceptance of this Class A
Certificate, agree to treat this Class A Certificate for the purpose of all
Taxes as debt.
Interest will accrue on the unpaid principal amount of this Class A
Certificate from its date of issuance to and excluding _____ __, 1997 at the
rate of _____% per annum and with respect to each Due Period thereafter, at the
rate of ____% above LIBOR.
In general, payments of principal with respect to the Class A Certificates
are limited to the unpaid Class A Invested Amount, which may be less than the
unpaid principal balance of the Class A Certificates pursuant to the terms of
the Agreement and the Series Supplement. The Series 1997-1 Expected Final
Payment Date is the
A-1-2
<PAGE>
_________ Distribution Date, but principal with respect to the Class A
Certificates may be paid earlier or later under certain limited circumstances
described in the Agreement and the Series Supplement. If for one or more months
during the Controlled Accumulation Period there are not sufficient funds to pay
the Controlled Deposit Amount, then to the extent that excess funds are not
available on subsequent Distribution Dates with respect to the Controlled
Accumulation Period to make up for such shortfalls, the final payment of
principal of the Class A Certificates will occur later than the Scheduled Final
Payment Date. If the principal of the Class A Certificates and the Class B
Certificates have not been paid in full prior to the ________ Distribution Date,
the Trustee will sell or cause to be sold on such Termination Date Principal
Receivables (or interests therein) (and the related Finance Charge and
Administrative Receivables) in an amount equal to 100% of the Invested Amount as
of such Termination Date, subject to certain limitations, and shall immediately
deposit the Termination Proceeds allocable to the Series 1997-1
Certificateholders' Interest in the Collection Account. The Termination Proceeds
shall be allocated and distributed to the Class A Certificateholders, the Class
B Certificateholders and the Collateral Interest Holder in accordance with the
Series Supplement.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee, by manual or facsimile signature, this Class A
Certificate shall not be entitled to any benefit under the Agreement or the
Series Supplement, or be valid for any purpose.
A-1-3
<PAGE>
IN WITNESS WHEREOF, the Seller has caused this Class A Certificate to be
duly executed.
HOUSEHOLD AFFINITY FUNDING CORPORATION
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated: _______ __, 1997
A-1-4
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates
described in the within-mentioned Amended and Restated
Pooling and Servicing Agreement and Series Supplement.
THE BANK OF NEW YORK, as Trustee
By:_____________________________
Authorized Signatory
<PAGE>
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES 1997-1
FLOATING RATE CLASS A CREDIT CARD PARTICIPATION CERTIFICATE
Summary of Terms and Conditions
The Receivables consist of Principal Receivables which arise generally from
the purchase of merchandise and services and amounts advanced to cardholders as
cash advances, Finance Charge Receivables which arise from all Finance Charges,
Cash Advance Fees and annual membership fees with respect to the Accounts and
Administrative Receivables which consist of administrative fees, late charges on
amounts charged for merchandise and services and premiums paid with respect to
credit life insurance and other types of insurance and all other fees billed to
the Obligors on the Accounts. Collections of Finance Charge Receivables include
a portion, determined pursuant to the Agreement, of the Interchange paid or
payable to Household Bank (SB), N.A. (the "Bank") through VISA USA, Inc. and
MasterCard International Incorporated. All Recoveries with respect to
Receivables previously charged off as uncollectible will be treated as
Collections of Finance Charge and Administrative Receivables. This Class A
Certificate is one of a series of Class A Certificates titled Household Affinity
Credit Card Master Trust I, Series 1997-1 Floating Rate Class A Credit Card
Participation Certificates (the "Class A Certificates"), each of which
represents a fractional undivided Interest in certain assets of the Trust. The
Trust's assets are allocated in part to the Investor Certificateholders of all
outstanding Series (the "Certificateholders' Interest") with the remainder
allocated to the Seller. The aggregate interest represented by the Class A
Certificates at any time in the Principal Receivables in the Trust shall not
exceed an amount equal to the Class A Invested Amount at such time. The Class A
Initial Invested Amount is $___________. The Class A Invested Amount on any date
will be an amount equal to (a) $___________ minus (b) the aggregate amount of
principal payments paid to Class A Certificateholders prior to such date, minus
(c) the excess, if any, of the aggregate amount of Class A Investor Charge-Offs
over Class A Investor Charge-Offs reimbursed pursuant to Section 4.12(a) of the
Series Supplement prior to such date and minus (d) the amount of any reduction
in the Class A Invested Amount pursuant to Section 4.18 of the Series Supplement
prior to such date. In addition to the Class A Certificates, $__________
aggregate principal amount of Class B Certificates entitled Household Affinity
Credit Card Master Trust I, Series 1997-1 Floating Rate Class B Credit Card
Participation Certificates (the "Class B Certificates") will be issued. Also, a
Seller Certificate has been issued to the Seller pursuant to the Agreement which
will represent the Seller's Interest in the Trust. Subject to the terms and
conditions of the Agreement, the Seller may from time to time direct the
Trustee, on behalf of the Trust, to issue one or more new Series of Investor
Certificates, which will represent fractional undivided interests in certain of
the Trust Assets.
Interest will accrue on the Class A Certificates at the Class A Certificate
Rate and, except as otherwise provided in the Series Supplement, be distributed
monthly to Class A Certificateholders, commencing _____ __, 1997, and on the
15th day of each month thereafter, or if such day is not a business day, on the
next succeeding business
<PAGE>
day (each, a "Distribution Date") in an amount equal to the product of (i) the
unpaid principal amount of the Class A Certificates, (ii) the Class A
Certificate Rate and a fraction, the numerator of which is the actual number of
days in the Interest Period and the denominator is 360. Interest for any
Distribution Date will accrue from and including the preceding Distribution Date
except in the case of the first Distribution Date on which will be payable
accrued interest from and including the Issuance Date to and excluding _________
__, 1997.
On each Distribution Date, the Paying Agent shall distribute to each Class
A Certificateholder of record on the last day of the preceding calendar month
(each a "Record Date") such Class A Certificateholder's pro rata share (based on
the aggregate fractional undivided interest represented by the Class A
Certificates held by such Investor Certificateholder) of such amounts as are
payable to the Class A Certificateholders pursuant to the Agreement and Series
Supplement. The amount to be distributed on each Distribution Date to the Holder
of this Class A Certificate will be equal to the product of the aggregate
fractional undivided interest represented by this Class A Certificate and the
aggregate of all payments to be made to Class A Certificateholders on such
payment date. Distributions with respect to this Class A Certificate will be
made by the Paying Agent by check mailed to the address of the Class A
Certificateholder of record appearing in the Certificate Register without the
presentation or surrender of this Class A Certificate or the making of any
notation thereon (except for the final distribution in respect of this Class A
Certificate) except that with respect to Class A Certificates registered in the
name of Cede & Co., the nominee for The Depository Trust Company, distributions
will be made in the form of immediately available funds. Final payment of this
Class A Certificate will be made only upon presentation and surrender of this
Class A Certificate at the office or agency specified in the notice of final
distribution delivered by the Trustee to the Class A Certificateholders in
accordance with the Agreement.
On the Distribution Date occurring on or after the date on which the
Invested Amount is reduced to $__________ or less, the Seller will have the
option to purchase the Class A Certificateholders' Interest and Class B
Certificateholders' Interest in the Trust. The purchase price (determined after
giving effect to any payment of principal and interest on such Distribution
Date) for the Class A Certificates and the Class B Certificates 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 balance of the Class A
Certificates and Class B Certificates through the day immediately prior to the
date of such purchase, plus the amount of Additional Interest, if any, for such
Distribution Date and any Additional Interest previously due but not distributed
to the Class A Certificateholders and the Class B Certificateholders, as
applicable, on a prior Distribution Date.
This Class A Certificate does not represent an obligation of, or an
interest in, the Seller, the Servicer or any affiliate of any of them and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality. This Class A Certificate is limited in
right of payment to certain Collections representing the Receivables (and
certain other amounts)
2
<PAGE>
all as more specifically set forth hereinabove and in the Agreement and the
Series Supplement.
The Agreement and the Series Supplement may be amended by the Seller, the
Servicer and the Trustee, without Certificateholder consent. No such Amendment,
however, may adversely affect in any material respect the interests of the
Investor Certificateholders. The Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Trustee's rights, duties or
immunities under the Agreement or otherwise.
The Agreement and the Series Supplement may be amended by the Seller, the
Servicer and the Trustee with the consent of the Holders of Investor
Certificates evidencing not less than 66-2/3% of the aggregate unpaid principal
amount of the Investor Certificates of all adversely affected Series for which
the Seller has not delivered an Officer's Certificate stating that there is no
Adverse Affect, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Agreement or any Supplement
or of modifying in any manner the rights of Investor Certificateholders;
provided, however, that no such amendment shall (a) reduce in any manner the
amount of, or delay the timing of, distributions to Investor Certificateholders
without the consent of each Class A Certificateholder; (b)(i) change the
definition of or the manner of calculating the interest of any Investor
Certificateholder without the consent of each affected Investor
Certificateholder or (ii) reduce the aforesaid percentage required to consent to
any such amendment, in either case without the consent of each Investor
Certificateholder; or (c) adversely affect the rating of the Class A
Certificates or the Class B Certificates by the Rating Agency without the
consent of the Class A Certificateholders or Class B Certificateholders
evidencing not less than 66-2/3% of the aggregate unpaid principal amount of the
Class A Certificates or the Class B Certificates, respectively. Any such
amendment and any such consent by the holder of the Class A Certificate shall be
conclusive and binding on such Class A Certificateholder and upon all future
holders of this Class A Certificate and of any Class A Certificate issued in
exchange hereof or in lieu hereof whether or not notation thereof is made upon
this Class A Certificate. The Seller or the Trustee shall establish a record
date for determining the Investor Certificateholders who may give such consent.
The Class A Certificates are issuable only in minimum denominations of
$l,000 and integral multiples of $l,000 in excess thereof. The transfer of this
Class A Certificate shall be registered in the Certificate Register upon
surrender of this Class A Certificate for registration of transfer at any office
or agency maintained by the Transfer Agent and Registrar accompanied by a
written instrument of transfer, in a form satisfactory to the Trustee or the
Transfer Agent and Registrar, duly executed by the Class A Certificateholder or
such Class A Certificateholder's attorney, and duly authorized in writing with
such signature guaranteed, and thereupon one or more new Class A Certificates of
authorized denominations and for the same aggregate Fractional Undivided
Interest will be issued to the designated transferee or transferees.
As provided in the Agreement and subject to certain limitations therein set
forth, Class A Certificates are exchangeable for new Class
3
<PAGE>
A Certificates evidencing like aggregate fractional undivided interests as
requested by the Class A Certificateholder surrendering such Class A
Certificates. No service charge may be imposed for any such exchange but the
Servicer or Transfer Agent and Registrar may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith.
The Seller, the Servicer, the Trustee, the Paying Agent and the Transfer
Agent and Registrar and any agent of any of them, may treat the person in whose
name this Class A Certificate is registered as the owner hereof for all
purposes, and neither the Servicer nor the Seller, the Trustee, the Paying
Agent, the Transfer Agent and Registrar, nor any agent of any of them, shall be
affected by notice to the contrary except in certain circumstances described in
the Agreement.
THIS CLASS A CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
4
<PAGE>
ASSIGNMENT
Social Security or other identifying number of assignee
____________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
---------------------------------------------------------
- -------------------------------------------------------------
(name and address of assignee )
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints _______________________ attorney, to transfer said
certificate on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:________________
(1) A Non U.S. Person as Note: The signature(s)to
defined in the Internal this Assignment must
Revenue Code of 1986, as correspond with the
amended must certify to the name(s) as written on
Trustee in writing as to the face of the within
its Non U.S. Person status certificate in every
and such further particular without
information as may be alteration or
required under the Code or enlargement or any
reasonably requested by the change whatsoever
Trustee
<PAGE>
EXHIBIT A-2
-----------
FORM OF CLASS B CERTIFICATE
---------------------------
REGISTERED $__________*
No. R-B__ CUSIP NO. _________
THIS CLASS B CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT
OF A BENEFIT PLAN (AS DEFINED BELOW).
UNLESS THIS CLASS B CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS
MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES 1997-1
FLOATING RATE CLASS B CREDIT CARD PARTICIPATION CERTIFICATE
SERIES 1997-1 EXPECTED FINAL PAYMENT DATE:
The ___________ Distribution Date
Each $1,000 minimum denomination represents a 1/______
undivided interest in the Series 1997-1
Class B Invested Amount in the
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
Evidencing an undivided interest in a trust, the corpus of which consists
primarily of receivables generated from time to time in the ordinary course of
business in a portfolio of revolving credit card accounts provided by
HOUSEHOLD AFFINITY FUNDING CORPORATION
(Not an interest in or obligation of
Household Affinity Funding Corporation
or any affiliate thereof)
__________
*Denominations of $1,000 and integral multiples of $1,000 in excess thereof.
<PAGE>
This certifies that CEDE & CO. (the "Class B Certificateholder"), is the
registered owner of a fractional undivided interest in certain assets of a trust
(the "Trust") created pursuant to an Amended and Restated Pooling and Servicing
Agreement, dated as of August 1, 1993, as amended and as may be further amended
from time to time (the "Agreement"), as supplemented by the Series 1997-1
Supplement, dated as of March 1, 1997 (the "Series Supplement"), by and among
Household Affinity Funding Corporation, as Seller (the "Seller"), Household
Finance Corporation, as Servicer, and The Bank of New York, as trustee (the
"Trustee"). The corpus of the Trust includes (i) a portfolio of all receivables
(the "Receivables") existing in the revolving credit card accounts identified
under the Agreement from time to time (the "Accounts"), (ii) all receivables
generated under the Accounts from time to time thereafter, (iii) funds collected
or to be collected from cardholders in respect of the Receivables, (iv) all
funds which are from time to time on deposit in certain accounts held in the
name of the Trustee for the benefit of Certificateholders, and (v) all other
assets and interests constituting the Trust, including certain monies
constituting Interchange and Recoveries allocated to the Trust pursuant to the
Agreement and the Series Supplement. Although a summary of certain provisions of
the Agreement and the Series Supplement is set forth below and in the Summary of
Terms and Conditions attached hereto and made a part hereof, this Class B
Certificate does not purport to summarize the Agreement and the Series
Supplement and reference is made to the Agreement and the Series Supplement for
information with respect to the interests, rights, benefits, obligations,
proceeds and duties evidenced hereby and the rights, duties and obligations of
the Trustee. A copy of the Agreement and the Series Supplement (without
schedules) may be requested from the Trustee by writing to the Trustee at 101
Barclay Street, Floor 21W, New York, New York 10286, Attention: Corporate Trust
Trustee Administration. To the extent not defined herein, the capitalized terms
used herein have the meanings ascribed to them in the Agreement or the Series
Supplement as applicable.
This Class B Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement and the Series Supplement, to which
Agreement and Series Supplement, as may be amended from time to time, the Class
B Certificateholder by virtue of the acceptance hereof assents and is bound.
Unless otherwise specified in the applicable Supplement, it is the intent
of the Seller and the Investor Certificateholders that, with respect to all
Taxes, the Investor Certificates will evidence debt secured by the Receivables.
The Seller and the Class B Certificateholder, by the acceptance of this Class B
Certificate, agree to treat this Class B Certificate for purposes of all Taxes
as debt.
Interest will accrue on the unpaid principal amount of this Class B
Certificate from its date of issuance to and excluding _____, __, 1997 at the
rate of ___% per annum and with respect to each Due Period thereafter, at the
rate of ___% above LIBOR.
In general, payments of principal with respect to the Class B Certificates
are limited to the unpaid Class B Invested Amount, which may be less than the
unpaid principal balance of the Class B Certificates pursuant to the terms of
the Agreement and the Series Supplement. The Series 1997-1 Expected Final
Payment Date is the
A-2-2
<PAGE>
_____________ Distribution Date, but principal with respect to the Class B
Certificates may be paid earlier or later under certain limited circumstances
described in the Agreement and the Series Supplement.
Principal payments with respect to the Class B Certificates will not
commence until the Class A Invested Amount is paid in full. In addition, the
final payment of principal of the Class B Certificates will occur later than the
___________ Distribution Date if Collections of Receivables allocable to pay
principal of the Class B Certificates and the Collateral Invested Amount are
insufficient to pay the Class B Invested Amount on or prior to such Distribution
Date. If the principal of the Class A Certificates and the Class B Certificates
has not been paid in full prior to the __________ Distribution Date, the Trustee
will sell or cause to be sold on such Termination Date Principal Receivables (or
interests therein) (and the related Finance Charge and Administrative
Receivables) in an amount equal to 100% of the Invested Amount as of such
Termination Date, subject to certain limitations, and shall immediately deposit
the Termination Proceeds allocable to the Series 1997-1 Certificateholders'
Interest in the Collection Account. The Termination Proceeds shall be allocated
and distributed to the Class A Certificateholders, the Class B
Certificateholders and the Collateral Interest Holder in accordance with the
Series Supplement.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee, by manual or facsimile signature, this Class B
Certificate shall not be entitled to any benefit under the Agreement or the
Series Supplement, or be valid for any purpose.
A-2-3
<PAGE>
IN WITNESS WHEREOF, the Seller has caused this Class B Certificate to be
duly executed.
HOUSEHOLD AFFINITY FUNDING CORPORATION
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
Dated: ____________, 1997
A-2-4
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates
described in the within-mentioned Amended and Restated
Pooling and Servicing Agreement and Series Supplement.
THE BANK OF NEW YORK, as Trustee
By:_____________________________
Authorized Signatory
<PAGE>
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES 1997-1
FLOATING RATE CLASS B CREDIT CARD PARTICIPATION CERTIFICATE
Summary of Terms and Conditions
The Receivables consist of Principal Receivables which arise generally from
the purchase of merchandise and services and amounts advanced to cardholders as
cash advances, Finance Charge Receivables which arise from all Finance Charges,
Cash Advance Fees and annual membership fees with respect to the Accounts and
Administrative Receivables which consist of administrative fees, late charges on
amounts charged for merchandise and services and premiums paid with respect to
credit life insurance and other types of insurance and all other fees billed to
the Obligors on the Accounts. Collections of Finance Charge Receivables include
a portion, determined pursuant to the Agreement, of the Interchange paid or
payable to Household Bank (SB), N.A. (the "Bank") through VISA USA, Inc. and
MasterCard International, Incorporated. All Recoveries with respect to
Receivables previously charged-off as uncollectible will be treated as
Collections of Finance Charge and Administrative Receivables. This Class B
Certificate is one of a series of Class B Certificates titled Household Affinity
Credit Card Master Trust I, Series 1997-1 Floating Rate Class B Credit Card
Participation Certificates (the "Class B Certificates"), each of which
represents a fractional undivided interest in certain assets of the Trust. The
Trust's assets are allocated in part to the Investor Certificateholders (the
"Certificateholders' Interest") with the remainder allocated to the Seller. The
aggregate interest represented by the Class B Certificates at any time in the
Principal Receivables in the Trust shall not exceed an amount equal to the Class
B Invested Amount at such time. The Class B Initial Invested Amount is
$__________. The Class B Invested Amount on any date will be an amount equal to
(a) $__________ minus (b) the amount of principal payments made to Class B
Certificateholders prior to such date minus (c) the aggregate amount of Class B
Investor Charge-Offs for all prior Distribution Dates, minus (d) the amount of
Subordinated Principal Collections allocated on all prior Distribution Dates
calculated pursuant to Section 4.15 of the Series Supplement (excluding any
Subordinated Principal Collections allocable to the Collateral Invested Amount),
minus (e) an amount equal to the amount by which the Class B Invested Amount has
been reduced on all prior Distribution Dates pursuant to subsection 4.12(a) of
the Series Supplement, plus (f) the sum of (A) the aggregate amount of any
Series Allocable Miscellaneous Payments allocated on all prior Distribution
Dates pursuant to subsection 4.12(b) of the Series Supplement and (B) the amount
of Excess Finance Charge and Administrative Collections allocated and available
on all prior Distribution Dates pursuant to subsection 4.13(e) of the Series
Supplement and any withdrawals from the Cash Collateral Account applied in
accordance with such subsection for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (c), (d) and (e) of the Series Supplement and
minus (g) the amount of any reduction in the Class B Invested Amount pursuant to
Section 4.18 of the Series Supplement prior to such date. In addition to the
Class B Certificates, $___________ aggregate principal amount of Class A
Certificates entitled Household Affinity Credit Card Master
<PAGE>
Trust I, Series 1997-1 Floating Rate Class A Credit Card Participation
Certificates (the "Class A Certificates") will be issued. Also, a Seller
Certificate has been issued to the Seller pursuant to the Agreement which will
represent the Seller's interest in the Trust.
Subject to the terms and conditions of the Agreement, the Seller may from
time to time direct the Trustee, on behalf of the Trust, to issue one or more
new Series of Investor Certificates, which will represent fractional undivided
interests in certain of the Trust Assets.
Interest will accrue on the Class B Certificates at the Class B Certificate
Rate and, except as otherwise provided in the Series Supplement, be distributed
monthly to Class B Certificateholders, commencing ______ __, 1997, and on the
15th day of each month thereafter, or if such day is not a business day, on the
next succeeding business day (each, a "Distribution Date") in an amount equal to
one-twelfth of the product of the Class B Certificate Rate and the Class B
Invested Amount. Interest for any Distribution Date will accrue from and
including the preceding Distribution Date except in the case of the first
Distribution Date on which will be payable accrued interest from and including
the Issuance Date to and excluding _________ __, 1997.
On each Distribution Date, the Paying Agent shall distribute to each Class
B Certificateholder of record on the last day of the preceding calendar month
(each a "Record Date") such Class B Certificateholder's pro rata share (based on
the aggregate fractional undivided interest represented by the Class B
Certificates held by such Investor Certificateholder) of such amounts as are
payable to the Class B Certificateholders pursuant to the Agreement and the
Series Supplement. The amount to be distributed on each payment date to the
Holder of this Class B Certificate will be equal to the product of the aggregate
fractional undivided interest represented by this Class B Certificate and the
aggregate of all payments to be made to Class B Certificateholders on such
Distribution Date. Distributions with respect to this Class B Certificate will
be made by the Paying Agent by check mailed to the address of the Class B
Certificateholder of record appearing in the Certificate Register without the
presentation or surrender of this Class B Certificate or the making of any
notation thereon (except for the final distribution in respect of this Class B
Certificate) except that with respect to Class B Certificates registered in the
name of Cede & Co., the nominee for The Depository Trust Company, distributions
will be made in the form of immediately available funds. Final payment of this
Class B Certificate will be made only upon presentation and surrender of this
Class B Certificate at the office or agency specified in the notice of final
distribution delivered by the Trustee to the Class B Certificateholders in
accordance with the Agreement.
On the Distribution Date occurring on or after the date on which the
Invested Amount is reduced to $__________ or less, the Seller will have the
option to purchase the Class A Certificateholders' Interest and the Class B
Certificateholders' Interest in the Trust. The purchase price (determined after
giving effect to any payment of principal and interest on such Distribution
Date) the Class A Certificates and the Class B Certificates will be equal to the
Class A Invested Amount and the Class B Invested Amount, plus accrued and unpaid
interest on the unpaid principal balance of the Class A Certificates and Class B
2
<PAGE>
Certificates through the day immediately prior to the date of such purchase,
plus the amount of Additional Interest, if any, for such Distribution Date and
any Additional Interest previously due but not distributed to the Class A
Certificateholders and the Class B Certificateholders, as applicable, on a prior
Distribution Date.
This Class B Certificate does not represent an obligation of, or an
interest in, the Seller, the Servicer or any affiliate of any of them and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality. This Class B Certificate is limited in
right of payment to certain Collections representing the Receivables (and
certain other amounts) all as more specifically set forth hereinabove and in the
Agreement.
The Agreement and the Series Supplement may be amended by the Seller, the
Servicer and the Trustee, without Certificateholder consent. No such amendment,
however, may, in the reasonable belief of the Seller, adversely effect in any
material respect the interests of the Investor Certificateholders. The Trustee
may, but shall not be obligated to, enter into any such amendment which affects
the Trustee's rights, duties or immunities under the Agreement or otherwise.
The Agreement and the Series Supplement may be amended by the Seller, the
Servicer and the Trustee with the consent of the Holders of Investor
Certificates evidencing not less than 66-2/3% of the aggregate unpaid principal
amount of the Investor Certificates of all adversely affected Series for which
the Seller has not delivered an Officer's Certificate stating that there is no
Adverse Affect, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Agreement or any Supplement
or of modifying in any manner the rights of Investor Certificateholders;
provided, however, that no such amendment shall (a) reduce in any manner the
amount of, or delay the timing of, distributions without the consent of each
affected Certificateholder; (b) (i) change the definition of or the manner of
calculating the interest of any Investor Certificateholder without the consent
of each affected Investor Certificateholder or (ii) reduce the aforesaid
percentage required to consent to any such amendment, in either case without the
consent of each Investor Certificateholder; or (c) adversely affect the rating
of the Class A Certificates or the Class B Certificates by the Rating Agency
without the consent of the Class A Certificateholders or Class B
Certificateholders evidencing not less than 66-2/3% of the aggregate unpaid
principal amount of the Class A Certificates or the Class B Certificates,
respectively. Any such amendment and any such consent by the holder of this
Class B Certificate shall be conclusive and binding on such Class B
Certificateholder and upon all future holders of this Class B Certificate and of
any Class B Certificate issued in exchange hereof or in lieu hereof whether or
not notation thereof is made upon this Class B Certificate. The Seller or the
Trustee shall establish a record date for determining the Investor
Certificateholders who may give such consent.
The Class B Certificates are issuable only in minimum denominations of
$1,000 and integral multiples of $l,000 ln excess thereof. The transfer of this
Class B Certificate shall be registered in the Certificate Register upon
surrender of this Class B Certificate for registration of transfer at any office
or agency maintained by the Transfer Agent and Registrar accompanied by a
written instrument of
3
<PAGE>
transfer, in a form satisfactory to the Trustee or the Transfer Agent and
Registrar, duly executed by the Class B Certificateholder or such Class B
Certificateholder's attorney, and duly authorized in writing with such signature
guaranteed, and thereupon one or more new Class B Certificates of authorized
denominations and for the same aggregate fractional undivided interest will be
issued to the designated transferee or transferees.
The Class B Certificates may not be acquired by or for the account of any
employee benefit plan, trust or account, including an individual retirement
account, that is subject to the Employee Retirement Income Security Act of 1974,
as amended, or that is described in Section 4975(e)(1) of the Internal Revenue
Code of 1986, as amended, or an entity whose underlying assets include plan
assets by reason of a plan's investment in such entity (each a "Benefit Plan").
By accepting and holding this Class B Certificate, the holder hereof shall be
deemed to have represented and warranted that it is not a Benefit Plan. By
acquiring any interest in this Class B Certificate, the applicable
Certificateholder or holders shall be deemed to have represented and warranted
that it is or they are not Benefit Plans.
As provided in the Agreement and subject to the limitations therein set
forth, Class B Certificates are exchangeable for new Class B Certificates
evidencing like aggregate fractional undivided interests as requested by the
Class B Certificateholder surrendering such Class B Certificates. No service
charge may be imposed for any such exchange but the Servicer or Transfer Agent
and Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
The Seller, the Servicer, the Trustee, the Paying Agent and the Transfer
Agent and Registrar and any agent of any of them, may treat the person in whose
name this Class B Certificate is registered as the owner hereof for all
purposes, and neither the Servicer nor the Seller, the Trustee, the Paying
Agent, the Transfer Agent and Registrar, nor any agent of any of them, shall be
affected by notice to the contrary except in certain circumstances described in
the Agreement.
THIS CLASS B CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
4
<PAGE>
ASSIGNMENT
Social Security or other identifying number of assignee
____________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________________________________________
____________________________________________________________
(name and address of assignee )
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints _______________________ attorney, to transfer said
certificate on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:________________
(1) A Non U.S. Person as Note: The signature(s)to
defined in the Internal this Assignment must
Revenue Code of 1986, as correspond with the
amended must certify to the name(s) as written on
Trustee in writing as to the face of the within
its Non U.S. Person status certificate in every
and such further particular without
information as may be alteration or
required under the Code or enlargement or any
reasonably requested by the change whatsoever
Trustee
5
<PAGE>
EXHIBIT B
---------
FORM OF MONTHLY SERVICER'S CERTIFICATE
(To be delivered pursuant to subsection 3.04(b)
of the Amended and Restated Pooling and Servicing
Agreement not later than the second Business
Day preceding each Distribution Date)
HOUSEHOLD FINANCE CORPORATION
HOUSEHOLD AFFINITY FUNDING CORPORATION
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
Class A and Class B Certificates, Series 1997-1
___________________________________
The undersigned, a duly authorized representative of Household Finance
Corporation, as Servicer (the "Servicer"), pursuant to the Amended and Restated
Pooling and Servicing Agreement, dated as of August 1, 1993 (the "Pooling and
Servicing Agreement"), by and among Household Affinity Funding Corporation, as
Seller, the Servicer, and The Bank of New York, as Trustee, does hereby certify
with respect to the information set forth below as follows:
1. Capitalized terms used in this Certificate shall have the
respective meanings set forth in the Pooling and Servicing
Agreement.
2. Household Finance Corporation is, as of the date hereof, the
Servicer under the Pooling and Servicing Agreement.
3. The undersigned is a Servicing Officer.
4. This Certificate relates to the Distribution Date occurring
on _________________.
5. Trust Information.
(a) The aggregate amount of Collections processed for the Due
Period preceding such Distribution Date was equal to......... $_______
(b) The aggregate amount of such Collections with respect to
Principal Receivables for the Due Period preceding such
Distribution Date was equal to............................... $_______
(c) The aggregate amount of such Collections with respect to
Finance Charge and Administrative Receivables for the Due
Period preceding such Distribution Date was equal to......... $_______
<PAGE>
<TABLE>
<C> <S> <C>
(d) The Defaulted Amount for the preceding Due Period is......... $_______
(e) The total amount of Principal Receivables as of the last day
of the immediately preceding Due Period is................... $_______
(f) The Portfolio Yield for such Distribution Date............... ______%
(g) The total amount of Principal Receivables in the Trust at the
beginning of the preceding Due Period is equal to............ $_______
(h) The average amount of Principal Receivables in the Trust
during the preceding Due Period (the sum of the amounts in
clause (e) and the amount in clause (g) divided by 2) is
equal to..................................................... $_______
(i) The total amount of Finance Charge Receivables in the Trust
as of the last day of the immediately preceding Due Period is $_______
(j) The aggregate outstanding balance of the Accounts which were
delinquent by 36 days to 65 days as of the close of business
on the last day of the calendar month preceding such
Distribution Date was equal to............................... $_______
(k) The aggregate outstanding balance of the Accounts which were
delinquent by 66 days or more as of the close of business on
the last day of the calendar month preceding such
Distribution Date was equal to............................... $_______
(l) The aggregate amount of Trust Excess Principal Collections
for such Distribution Date is................................ $_______
(m) The aggregate amount of Principal Shortfalls for such
Distribution Date is......................................... $_______
6. Group Two Information
---------------------
(a) The Average Rate for Group Two (the weighted average
Certificate Rate reduced to take into account any payments
made pursuant to interest rate agreements) is equal to....... ______%
(b) Group Two Total Investor Collections is equal to............. $_______
(c) Group Two Investor Principal Collections is equal to......... $_______
(d) Group Two Investor Finance Charge and Administrative
Collections equal to......................................... $_______
(e) Group Two Investor Additional Amounts is equal to............ $_______
</TABLE>
2
<PAGE>
<TABLE>
<C> <S> <C>
(f) Group Two Investor Default Amount is equal to................ $_______
(g) Group Two Investor Monthly Fees is equal to.................. $_______
(h) Group Two Investor Monthly Interest is equal to.............. $_______
7. Series 1997-1 Information
-------------------------
(a) The Series Adjusted Portfolio Yield for the Due Period
preceding such Distribution Date was equal to................ ______%
(b) The Series 1997-1 Allocation Percentage with respect to the
Due Period preceding such Distribution Date was equal to..... ______%
(c) The Floating Allocation Percentage for the Due Period
preceding such Distribution Date was equal to................ ______%
(d) The aggregate amount of Reallocated Finance Charge and
Administrative Collections for the Due Period preceding such
Distribution Date was equal to............................... $_______
(e) The Floating Allocation Percentage of Series Allocable
Finance Charge and Administrative Collections for the Due
Period preceding such Distribution Date is equal to.......... ______%
(f) Class A Invested Amount ..................................... $_______
(g) The Class A Invested Percentage with respect to the Due
Period preceding such Distribution Date was equal to......... ______%
(h) The Class A Invested Percentage of the amount set forth in
Item 7(d) above was equal to................................. ______%
(i) The amount of Class A Monthly Interest for such Distribution
Date is equal to............................................. $_______
(j) The amount of any Class A Monthly Interest previously due but
not distributed on a prior Distribution Date is equal to..... $_______
(k) The amount of Class A Additional Interest for such
Distribution Date is equal to................................ $_______
(l) The amount of any Class A Additional Interest previously due
but not distributed on a prior Distribution Date is equal to. $_______
(m) The Class A Investor Default Amount for such Distribution
Date is equal to............................................. $_______
(n) The Allocable Servicing Fee for such Distribution Date is
equal to..................................................... $_______
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
(o) The Class A Required Amount, if any, with respect to such
Distribution Date is equal to................................ $_______
(p) Class B Invested Amount...................................... $_______
(q) The Class B Invested Percentage for the Due Period preceding
such Distribution Date was equal to.......................... ______%
(r) The Class B Invested Percentage of the amount set forth in
Item 7(d) above is equal to.................................. ______%
(s) The amount of Class B Monthly Interest for such Distribution
Date is equal to............................................. $_______
(t) The amount of any Class B Monthly Interest previously due but
not distributed on a prior Distribution Date is equal to..... $_______
(u) The amount of Class B Additional Interest for such
Distribution Date is equal to................................ $_______
(v) The amount of any Class B Additional Interest previously
due but not distributed on a prior Distribution Date is
equal to..................................................... $_______
(w) Class B Investor Default Amount for such Distribution Date
is equal to.................................................. $_______
(x) The amount of Reallocated Finance Charge and Administrative
Collections to be distributed to the Collateral Interest
Holder with respect to such Distribution Date is equal to.... $_______
(y) The Series 1997-1 Principal Shortfall for such Distribution
Date is equal to............................................. $_______
(z) The Series 1997-1 Excess Principal Collections is equal to... $_______
(aa) The amount of Excess Finance Charge and Administrative
Collections with respect to such Distribution Date is
equal to..................................................... $_______
(bb) The amount of Excess Finance Charge and Administrative
Collections referred to in Item 7(aa) will be available to
be distributed on such Distribution Date to fund or reimburse
the following items:
(i) to fund the Class A Required Amount, if
any, with respect to such Distribution Date.................. $_______
(ii) to reimburse Class A Investor Charge-
Offs......................................................... $_______
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
(iii) to pay current or overdue Class B Monthly
Interest, Class B Additional Interest or the Cumulative
Excess Interest Amount....................................... $_______
(iv) to fund the Class B Investor Default Amount with
respect to such Distribution Date............................ $_______
(v) to reimburse certain previous reductions in the
Class B Invested Amount...................................... $_______
(vi) to pay any portion of the Allocable Servicing
Fee not paid pursuant to clause (i) above.................... $_______
(vii) to make any required deposit in the Collateral
Account...................................................... $_______
(cc) The amount of Subordinated Principal Collections with
respect to such Distribution Date is equal to................ $_______
(dd) The amount, if any, of Miscellaneous Payments with respect
to such Distribution Date is equal to........................ $_______
(ee) The Principal Allocation Percentage is equal to.............. ______%
(ff) The total amount to be distributed to Class A Certificate-
holders on such Distribution Date in payment of principal
is equal to.................................................. $_______
(gg) The total amount to be distributed to Class B Certificate-
holders on such Distribution Date in payment of principal
is equal to.................................................. $_______
(hh) The amount of Class A Investor Charge-Offs for such
Distribution Date is equal to................................ $_______
(ii) The total amount of reimbursements of Class A Investor
Charge-Offs for such Distribution Date is equal to........... $_______
(jj) The amount of Class B Investor Charge-Offs and other
reductions in the Class B Invested Amount for such
Distribution Date is equal to................................ $_______
(kk) The total amount of reimbursements of Class B Investor
Charge-Offs for such Distribution Date is equal to........... $_______
(ll) The Class A Invested Amount at the close of business on
such Distribution Date (after giving effect to all payments
and adjustments on such Distribution Date) will be equal to.. $_______
(mm) The Class B Invested Amount at the close of business on such
Distribution Date (after giving
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
effect to all payments and adjustments on such Distribution
Date) will be equal to....................................... $_______
(nn) The Available Collateral Amount as of the close of business
on the preceding Distribution Date (after giving effect to
any withdrawal from the Collateral Account) was equal to..... $_______
(oo) The Required Collateral Amount as of the close of business
on such Distribution Date, after giving effect to any
withdrawal from the Collateral Account and payments to
the Collateral Interest Holder on such Distribution Date,
will be equal to............................................. $_______
(pp) The ratio of the Required Collateral Amount to the Class B
Invested Amount as of the close of business on such
Distribution Date, after giving effect to any withdrawal
from the Collateral Account and payments to the Collateral
Interest Holder on such Distribution Date, will be equal to.. ______%
(qq) The Cumulative Excess Interest Amount as of the close of
business on such Distribution Date, after giving effect to
any payments of interest to Class B Certificateholders on
such Distribution Date, will be equal to..................... $_______
8. Total amount to be on deposit in the Collection Account
(after giving effect to allocations required to be made
pursuant to the terms of all other Series now outstanding)
prior to making the required distributions on such
Distribution Date is equal to................................ $_______
9. The total amount to be distributed from the Collection
Account to the Seller on such Distribution Date (after
taking into consideration the amounts which have been
netted with respect to all Series against deposits to
the Collection Account) is equal to.......................... $_______
10. Total amount to be distributed from the Collection Account
to the Servicer in respect of the unpaid Allocable
Servicing Fee for the preceding Due Period on such
Distribution Date (after taking into consideration the
amounts which have been netted with respect to this Series
against deposits to the Collection Account) is equal to...... $_______
11. The Class A Adjusted Invested Amount......................... $_______
12. The Class B Adjusted Invested Amount......................... $_______
13. The Controlled Accumulation Amount........................... $_______
14. The Controlled Deposit Amount................................ $_______
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
15. The Deficit Controlled Accumulation Amount................... $_______
16. The Principal Funding Account Balance........................ $_______
17. The Principal Funding Investment Shortfall................... $_______
18. The Required Reserve Account Amount.......................... $_______
19. The Reserve Account Balance.................................. $_______
20. As of the date hereof, to the best knowledge of the
undersigned, (a) the Servicer has performed in all material
respects all its obligations under the Pooling and Servicing
Agreement through the Due Period preceding such Distribution
Date or, if there has been a default in the performance of any
such obligation, set forth in detail the (i) nature of such
default, (ii) the action taken by the Seller and Servicer, if
any, to remedy such default and (iii) the current status of
each such default; if applicable, insert "None".
21. As of the date hereof, to the best knowledge of the
undersigned, no Amortization Event has been deemed to have
occurred on or prior to such Distribution Date.
22. As of the date hereof, to the best knowledge of the
undersigned, no Lien has been placed on any of the
Receivables other than pursuant to the Pooling and Servicing
Agreement (or, if there is a Lien, such Lien consists of
_______________).
23. The amount specified to be deposited into and withdrawn from
the Collection Account, as well as the amounts specified to
be paid to the Seller, the Servicer, the Interest Holder and
the Certificateholders are all in accordance with the
requirements of the Pooling and Servicing Agreement.
</TABLE>
7
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Certificate this ____ day of ______________, 199_.
HOUSEHOLD FINANCE CORPORATION
as Servicer,
By:
--------------------------
Name:
Title:
8
<PAGE>
[HOUSEHOLD LOGO]
Exhibit 5
March 17, 1997
Household Affinity Funding Corporation
1111 Town Center Drive
Las Vegas, NV 89134
Gentlemen:
I am the Vice President and Assistant Secretary of Household International,
Inc., indirectly the owner of all of the issued and outstanding common stock of
Household Affinity Funding Corporation, the originator of the Household Affinity
Credit Card Master Trust I (the "Trust"). I refer to the Registration Statement
No. 333-18913, as amended, on Form S-1 (the "Registration Statement") filed with
the Securities and Exchange Commission ("Commission") pursuant to the Securities
Act of 1933, as amended (the "Act"), pertaining to the Certificates (as herein
defined.) Terms used herein that are not defined herein shall have the meanings
ascribed thereto in the Pooling and Servicing Agreement (as defined below).
The Registration Statement relates to a financing program which involves the
sale by Household Bank (SB), N.A. (the "Bank") to Household Affinity Funding
Corporation and the transfer by Household Affinity Funding Corporation (the
"Seller") to the Trust of MasterCard credit card receivables (the "Receivables")
originated by the Bank or its affiliates, in exchange for certificates
representing an undivided interest in the assets of the Trust, including the
Receivables. The "Certificates" offered by the Registration Statement shall
arise in one Series under the Pooling and Servicing Agreement (as defined below)
and shall be the Class A Credit Card Participation Certificates, Series 1997-1
(the "97-1 Class A Certificates"), the Class B Credit Card Participation
Certificates, Series 1997-1 (the "97-1 Class B Certificates"), to be issued by
the Trust. The Trust was created pursuant to the Pooling and Servicing
<PAGE>
Household Affinity Funding Corporation
Page 2
Agreement dated as of April 30, 1993, as amended and restated as of August 1,
1993 (as further amended on April 12, 1995, the "Pooling and Servicing
Agreement") among the Seller, Household Finance Corporation ("HFC"), as
Servicer, and The Bank of New York, as Trustee, incorporated as an Exhibit to
the Registration Statement.
I, or attorneys under my supervision, am familiar with the proceedings to date
with respect to the proposed offering and sale to the public of the Certificates
and have examined such records, documents and matters of law and satisfied
myself as to such matters of fact as I have considered relevant for the purposes
of this opinion.
Based on the foregoing, it is my opinion that when:
1) the Registration Statement shall have been declared effective by
the Commission under the Act,
2) the Supplement to the Pooling and Servicing Agreement pertaining
to the Certificates (the "Series 1997-1 Supplement") shall be duly executed
and delivered by the parties thereto,
3) the Certificates shall have been duly issued by the Seller and
authenticated by the Trustee in accordance with the Pooling and Servicing
Agreement and the Series 1997-1 Supplement and delivered by the Seller in
accordance with the Underwriting Agreement among HFC, the Seller, the Bank
and the Underwriters named therein (the "Underwriting Agreement"), and
4) the Seller shall have received the agreed purchase price for the
Certificates in accordance with the Underwriting Agreement,
the Certificates will be fully paid and non-assessable, validly issued and
outstanding and will be entitled to the benefits of the Pooling and Servicing
Agreement and the Series 1997-1 Supplement to the Pooling and Servicing
Agreement.
I do not find it necessary for the purposes of this opinion, and accordingly
do not purport to cover herein, the application of the "Blue Sky" or securities
laws of the various states to sales of the Certificates.
<PAGE>
Household Affinity Funding Corporation
Page 3
I hereby consent to the use of my name and my opinion in the Prospectus filed
pursuant to Rule 430A or 424 of Regulation C of the Act, in connection with the
Registration Statement, including any references to my opinions set forth in the
documents incorporated by reference therein, and to the filing of this consent
as an exhibit to the Registration Statement. In giving such consent I do not
admit that I am in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ John W. Blenke
John W. Blenke
JWB:jmh
<PAGE>
EXHIBIT 8
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 Fifth Avenue
New York, New York 10103
March 17, 1997
Household Affinity Funding Corporation
1111 Town Center Drive
Las Vegas, Nevada 89134
Re: Household Affinity Credit Card Master Trust I
---------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Household Affinity Funding Corporation, a
Delaware corporation, (the "Seller"), in connection with the preparation of the
Registration Statement on Form S-1 (the "Registration Statement"), which has
been filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Act"), for the registration under the Act of Class A
Credit Card Participation Certificates and Class B Credit Card Participation
Certificates (the "Certificates") representing an undivided interest in the
Household Affinity Credit Card Master Trust I (the "Trust"). The Certificates
are to be issued pursuant to the Amended and Restated Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement"), dated as of August 1, 1993
and as amended as of April 12, 1995, as supplemented by a Supplement to the
Pooling and Servicing Agreement among the Seller, Household Finance Corporation,
as servicer and the Bank of New York, as trustee substantially in the form filed
as exhibits 4.1 and 4.2, respectively, to the Registration Statement.
We hereby confirm that the statements set forth in the prospectus relating
to the Certificates (the "Prospectus") forming a part of the Registration
Statement under the headings "Prospectus Summary-Tax Status," "Certain Federal
Income Tax Consequences" and "State and Local Tax Consequences," as well as the
statements set forth under the heading "Certain U.S. Federal Income Tax
Documentation Requirements" in Annex II to the Prospectus, to the extent
that they constitute matters of law or legal conclusions with respect thereto,
are correct in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the reference to Orrick, Herrington
& Sutcliffe LLP under the captions "Legal Matters" and "Certain Federal Income
Tax Consequences-Treatment of the Investor Certificates as Debt" in the
Prospectus. In giving such consent, we do not admit that we are "experts,"
within the meaning of the term used in the Act or the rules and regulations of
the Securities and Exchange Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
EXECUTION COPY EXHIBIT 10.1
- --------------------------------------------------------------------------------
HOUSEHOLD AFFINITY FUNDING CORPORATION
and
HOUSEHOLD BANK, f.s.b.
- --------------------------------------------------------------------------------
RECEIVABLES PURCHASE AGREEMENT
Dated as of April 30, 1993
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
DEFINITIONS............................................................... 1
Section 1.1. Definitions............................................ 1
Section 1.2. Other Definitional Provisions.......................... 4
ARTICLE II
PURCHASE AND CONVEYANCE OF RECEIVABLES.................................... 4
Section 2.1. Purchase............................................... 4
Section 2.2. Addition of Aggregate Addition Accounts................ 5
Section 2.3. Addition of New Accounts............................... 6
ARTICLE III
CONSIDERATION AND PAYMENT................................................. 6
Section 3.1. Purchase Price......................................... 6
Section 3.2. Adjustments to Purchase Price.......................... 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES............................................ 7
Section 4.1. Bank's Representations and Warranties
Relating to the Bank................................... 7
Section 4.2. Representations and Warranties of the Bank Relating
to the Agreement and the Receivables................... 9
Section 4.3. Representations and Warranties of Funding.............. 11
ARTICLE V
COVENANTS................................................................. 12
Section 5.1. Bank Covenants......................................... 12
ARTICLE VI
REPURCHASE OBLIGATION..................................................... 14
Section 6.1. Reassignment of Ineligible Receivables................. 14
Section 6.2. Reassignment of Certificateholders' Interest in
Trust Portfolio........................................ 15
-i-
<PAGE>
Page
----
ARTICLE VII
CONDITIONS PRECEDENT..................................................... 16
Section 7.1. Conditions to Funding's Obligations Regarding
Initial Receivables................................... 16
Section 7.2. Conditions to Funding's Obligations Regarding
Additional Receivables................................ 16
Section 7.3. Conditions Precedent to the Bank's Obligations........ 17
ARTICLE VIII
TERM AND PURCHASE TERMINATION............................................ 18
Section 8.1. Term.................................................. 18
Section 8.2. Purchase Termination.................................. 18
ARTICLE IX
MISCELLANEOUS PROVISIONS................................................. 18
Section 9.1. Amendment............................................. 18
Section 9.2. GOVERNING LAW......................................... 19
Section 9.3. Notices............................................... 19
Section 9.4. Severability of Provisions............................ 19
Section 9.5. Assignment............................................ 19
Section 9.6. Acknowledgment and Agreement of the Bank.............. 20
Section 9.7. Further Assurances.................................... 20
Section 9.8. No Waiver; Cumulative Remedies........................ 20
Section 9.9. Counterparts.......................................... 21
Section 9.10. Binding Effect; Third-Party Beneficiaries............. 21
Section 9.11. Merger and Integration................................ 21
Section 9.12. Headings.............................................. 21
Section 9.13. Schedules and Exhibits................................ 21
Section 9.14. Survival of Representatives and Warranties............ 21
EXHIBITS
--------
Exhibit A Form of Supplemental Conveyance
SCHEDULES
---------
Schedule 1 List of Accounts
-ii-
<PAGE>
RECEIVABLES PURCHASE AGREEMENT, dated as of April 30, 1993, by and between
HOUSEHOLD BANK, f.s.b. a federal savings bank (the "Bank "), and HOUSEHOLD
AFFINITY FUNDING CORPORATION, a Delaware corporation and a subsidiary of the
Bank ("Funding").
W I T N E S S E T H:
WHEREAS, Funding desires to purchase from time to time certain Receivables
(hereinafter defined) due or to become due to the Bank under certain credit card
accounts of the Bank;
WHEREAS, the Bank desires to sell from time to time and assign certain
Receivables to Funding upon the terms and conditions hereinafter set forth;
WHEREAS, it is contemplated that the Receivables purchased hereunder will
be transferred by Funding to the Trust (hereinafter defined) in connection with
the issuance of certain Certificates (hereinafter defined); and
WHEREAS, the Bank agrees that all covenants and agreements made by the Bank
herein with respect to the Accounts (hereinafter defined) and Receivables shall
also be for the benefit of the Trustee (hereinafter defined) and all holders of
the Certificates.
NOW, THEREFORE, it is hereby agreed by and between Funding and the Bank as
follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1. Definitions. All capitalized terms used herein or in any
certificate, document, or Conveyance Paper made or delivered pursuant hereto,
and not defined herein or therein, shall have the meaning ascribed thereto in
the Pooling and Servicing Agreement; in addition, the following words and
phrases shall have the following meanings:
"Account" shall mean (a) each MasterCard/1/ and VISA/1/ account
established pursuant to a Credit Card Agreement between the Bank and any Person,
which account is identified in the computer file or microfiche list delivered
pursuant to Section 2.01 of the Pooling and Servicing Agreement, (b) each
Additional Account, (c) each Related Account, (d) any account originated as a
replacement of an Account in connection with the upgrade of such Account to
premium status (provided that such a replacement account can be traced or
identified by reference to, or by way of, the applicable computer file or
microfiche list previously filed pursuant
- ----------
/1/ MasterCard and VISA are registered trademarks of MasterCard International
Incorporated and of VISA USA, Inc., respectively.
<PAGE>
hereto), (e) each account into which an Account shall be transferred (a
"Transferred Account") provided that (i) such transfer was made in accordance
with the Credit Card Guidelines and (ii) such account can be traced or
identified as an account into which an Account has been transferred, and (f)
each surviving account resulting from the combination, in accordance with the
Credit Card Guidelines, of two or more of the Accounts but shall exclude (g) any
Account all the Receivables in which are either: (i) after the Removal Date,
removed by Funding pursuant to Section 2.10 of the Pooling and Servicing
Agreement, (ii) reassigned to Funding pursuant to Section 2.05 of the Pooling
and Servicing Agreement or (iii) assigned and transferred to the Servicer
pursuant to Section 3.03 of the Pooling and Servicing Agreement.
"Addition Date" shall mean (a) with respect to Aggregate Addition Accounts,
the date from and after which such Aggregate Addition Accounts are to be
included as Accounts pursuant to Section 2.09(a) or (b) of the Pooling and
Servicing Agreement, (b) with respect to Participation Interests, the date from
and after which such Participation Interests are to be included as assets of the
Trust pursuant to Section 2.09(a) or (b) of the Pooling and Servicing Agreement,
and (c) with respect to New Accounts, the first Distribution Date following the
calendar month in which such New Accounts are originated.
"Addition Notice Date" shall have the meaning specified in Section 2.2 of
this Agreement.
"Agreement" shall mean this Receivables Purchase Agreement and all
amendments hereof and supplements hereto.
"Appointment Date" shall have the meaning specified in Section 8.2.
"Bank" shall mean Household Bank, f.s.b., a federal savings bank or its
successor and/or any transferee of the Accounts from such bank or any other
originator of accounts which enters into a receivables purchase agreement with
Funding.
"Closing Date" shall mean May 5, 1993.
"Conveyance" shall have the meaning specified in Section 2.1(a).
"Conveyance Papers" shall have the meaning specified in Section 4.1(c).
"Credit Adjustment" shall have the meaning specified in Section 3.2
"Dissolution Event" shall have the meaning specified in Section 8.2.
2
<PAGE>
"Funding" shall mean Household Affinity Funding Corporation, a Delaware
corporation.
"Initial Account" shall mean any Account in existence on the Closing
Date.
"Initial Cut-Off Date" shall mean the close of business on April 1,
1993.
"Interchange" shall mean interchange fees payable to the Bank, in its
capacity as credit card issuer, through VISA USA, Inc. and MasterCard
International Incorporated or any other similar entity or organization with
respect to any other type of revolving credit card accounts included as Accounts
(except as otherwise provided in the initial Assignment with respect to any such
other type of Accounts), in connection with cardholder charges for goods and
services.
"New Principal Receivables" shall have the meaning set forth in Section
3.1.
"Pooling and Servicing Agreement" shall mean the Pooling and Servicing
Agreement, dated as of April 30, 1993, among Household Finance Corporation, as
Servicer, Funding, as Seller and the Trustee, and all amendments and supplements
thereto.
"Portfolio Reassignment Price" shall mean the portion of the amount payable
by Funding to the Trustee pursuant to Section 2.06 of the Pooling and Servicing
Agreement.
"Purchase Price" shall have the meaning set forth in Section 3.1.
"Purchased Assets" shall have the meaning set forth in Section 2.1.
"Receivables" shall mean, including when used in other defined terms
herein, Receivables as defined in the Pooling and Servicing Agreement existing
or created after the Initial Cut-Off Date in respect of the Initial Accounts or
the Additional Cut-off Date in respect of Additional Accounts.
"Repurchase Price" shall have the meaning set forth in Section 6.1.
"Supplemental Conveyance" shall have the meaning set forth in Section
2.2.
"Trust" shall mean the trust created by the Pooling and Servicing
Agreement.
"Trustee" shall mean The Bank of New York, a New York banking corporation,
the institution executing the Pooling and Servicing Agreement as, and acting in
the capacity of,
3
<PAGE>
Trustee thereunder, or its successor in interest, or any successor trustee
appointed as provided in the Pooling and Servicing Agreement.
Section 1.2. Other Definitional Provisions. (a) All terms defined in this
Agreement shall have the defined meanings when used in any certificate, other
documents, or Conveyance Paper made or delivered pursuant hereto unless
otherwise defined herein.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement or any Conveyance Paper shall refer to this
Agreement as a whole and not to any particular provision of this Agreement; and
Section, Subsection, Schedule and Exhibit references contained in this Agreement
are references to Sections, Subsections, Schedules and Exhibits in or to this
Agreement unless otherwise specified.
(c) All determinations of the principal or finance charge balance of
Receivables, and of any collections thereof, shall be made in accordance with
the Pooling and Servicing Agreement and all applicable Supplements.
ARTICLE II
PURCHASE AND CONVEYANCE OF RECEIVABLES
--------------------------------------
Section 2.1. Purchase. (a) By execution of this Agreement, the Bank does
hereby sell, transfer, assign, set over and otherwise convey to Funding
(collectively, the "Conveyance "), without recourse all of its right, title and
interest in, to and under (i) the Receivables now existing and hereafter created
from time to time but prior to the termination of this Agreement pursuant to
Article VIII hereof and all monies due and or to become due and all amounts
received with respect thereto and all proceeds (including, without limitation,
"proceeds" as defined in the UCC as in effect in the State of California)
thereof and all Recoveries allocable to the Accounts and all Recoveries which
are identified as relating to specific Defaulted Receivables and (ii) the right
to receive Interchange and Recoveries allocable to the Accounts (the "Purchased
Assets").
(b) In connection with such Conveyance, the Bank agrees (i) to record and
file, at its own expense, any financing statements (and continuation statements
with respect to such financing statements when applicable) with respect to the
Receivables now existing and hereafter created, meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to perfect, and maintain perfection of, the Conveyance of such Purchased Assets
from the Bank to Funding on and after the Closing Date, (ii) that such financing
statements shall name the Bank, as seller, and Funding, as purchaser, of the
4
<PAGE>
Receivables and (iii) to deliver a file-stamped copy of such financing
statements or other evidence of such filings (excluding such continuation
statements, which shall be delivered as filed) to Funding (or to the Trustee, if
Funding so directs) as soon as is practicable after filing.
(c) In connection with such Conveyance, the Bank further agrees that it
will, at its own expense, on or prior to the Closing Date (i) indicate in its
computer files or microfiche lists that Receivables created in connection with
the Initial Accounts have been conveyed to Funding in accordance with this
Agreement and have been conveyed by Funding to the Trustee pursuant to the
Pooling and Servicing Agreement for the benefit of the Certificateholders by
including (or deleting, in the case of Removed Accounts) in such computer files
and microfiche lists the code identifying each such Account and (ii) deliver to
Funding (or to the Trustee, if Funding so directs) a computer file or microfiche
list containing a true and complete list of all such Initial Accounts specifying
for each such Account, as of the Initial Cut-Off Date (A) its account number (B)
the aggregate amount outstanding in such Account and (C) the aggregate amount of
Principal Receivables in such Initial Account. Such computer files or microfiche
lists, as supplemented from time to time to reflect Additional Accounts or
Removed Accounts, shall be marked as Schedule 1 to this Agreement, shall be
delivered to Funding (or to the Trustee, if so directed by Funding) and marked
as proprietary and confidential, and is hereby incorporated into and made a part
of this Agreement. The Bank further agrees not to alter the code referenced in
clause (i) of this paragraph with respect to any Account during the term of this
Agreement unless and until such Account becomes a Removed Account.
(d) The parties hereto intend that the conveyance of the Bank's right,
title and interest in and to the Receivables shall constitute a sale, conveying
good title free and clear of any liens, claims, encumbrances or rights of others
from the Bank to Funding and that the Receivables shall not be part of the
Bank's estate in the event of the insolvency of the Bank or a conservatorship,
receivership or similar event with respect to the Bank. It is the intention of
the parties hereto that the arrangements with respect to the Receivables shall
constitute a purchase and sale of such Receivables and not a loan. In the event,
however, that a court of competent jurisdiction were to hold that the
transactions evidenced hereby constitute a loan and not a purchase and sale, it
is the intention of the parties hereto that this Agreement shall constitute a
security agreement under applicable law, and that the Bank shall be deemed to
have granted to Funding a first priority perfected security interest in all of
the Bank's right, title and interest in, to and under the Receivables and other
Purchased Assets.
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Section 2.2. Addition of Aggregate Addition Accounts. (a) If, from time to
time, Funding becomes obligated to require the Bank to designate Aggregate
Addition Accounts pursuant to Section 2.09(a) of the Pooling and Servicing
Agreement, then Funding shall give the Bank written notice thereof on or before
the eighth Business Day (the "Addition Notice Date") prior to the Addition Date
therefor, and the Bank shall on or before the Addition Date, designate
sufficient Eligible Accounts to be included as Additional Accounts so that after
the inclusion thereof Funding will be in compliance with the requirements of
said Section 2.09. Additionally, subject to Section 2.09(b) and (c) of the
Pooling and Servicing Agreement, from time to time Eligible Accounts may be
designated to be included as Aggregate Addition Accounts, upon the mutual
agreement of Funding and the Bank. In either event, the Bank shall have sole
responsibility for selecting the Aggregate Addition Accounts and shall on or
prior to the Addition Date therefor execute and deliver to Funding a written
assignment from the Bank to Funding in substantially the form of Exhibit A (the
"Supplemental Conveyance"). The Bank shall take all actions necessary to comply,
or to enable Funding to comply, with the requirements of Section 2.09 of the
Pooling and Servicing Agreement and shall perform with respect to the
Receivables in such Aggregate Addition Accounts all actions specified in Section
2.09(c) of the Pooling and Servicing Agreement.
Section 2.3. Addition of New Accounts. Upon the mutual agreement of
Funding and the Bank, subject to compliance by the Seller with the conditions
specified in Sections 2.09(d) and (e) of the Pooling and Servicing Agreement,
the Bank may designate newly originated Eligible Accounts to be included as New
Accounts. Upon such designation, such New Accounts shall be deemed to be
Accounts hereunder. The Bank shall take all actions necessary to comply, or to
enable Funding to comply, with the requirements of Section 2.09 of the Pooling
and Servicing Agreement and shall cooperate with Funding to enable it to perform
with respect to the Receivables in such New Accounts all actions specified in
Section 2.09(d) and (e) of the Pooling and Servicing Agreement.
ARTICLE III
CONSIDERATION AND PAYMENT
-------------------------
Section 3.1. Purchase Price. The "Purchase Price" for the Receivables
which came into existence on or prior to the Closing Date conveyed to Funding
under this Agreement shall be payable on the Closing Date and shall be an amount
equal to 100% of Principal Receivables plus present value of anticipated excess
spread, including Interchange computed by taking into account factors such as
historical losses (and discounted to take into account any uncertainty
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as to future performance matching historical performance), servicing fees,
delinquencies and pay-down rates, yield and such other factors as may be
mutually agreed between the Bank and Funding. This computation of initial
purchase price should assume no reinvestment in new Receivables. The Purchase
Price for the Receivables (including Receivables in Additional Accounts) to be
conveyed to Funding under this Agreement which come into existence after the
Closing Date, shall be payable on the Distribution Date following the Due Period
during which such Receivables are conveyed by the Bank to Funding in an amount
equal to the aggregate amount of the Principal Receivables so conveyed (the "New
Principal Receivables") plus the present value of Collections of Finance Charge
and Administration Receivables estimated to be received (and discounted to take
into account any uncertainty as to future performance matching historical
performance) with respect to such New Principal Receivables computed by taking
into account factors such as anticipated charge-offs (including charge-offs of
Principal Receivables which shall be deemed to reduce such Collections), pay-
down rates, servicing fees and delinquencies.
Section 3.2. Adjustments to Purchase Price. The Purchase Price shall be
adjusted on each Distribution Date (a "Credit Adjustment") with respect to any
Receivable previously conveyed to Funding by the Bank which has since been
reversed by the Bank or the Servicer because of a rebate, refund, unauthorized
charge or billing error to a cardholder, because such Receivable was created in
respect of merchandise which was refused or returned by a cardholder, or due to
the occurrence of any other event referred to in Section 3.09 of the Pooling and
Servicing Agreement. The amount of such adjustment equals (x) the reduction in
the principal balance of such Receivable resulting from the occurrence of such
event multiplied by (y) the quotient (expressed as a percentage) of (i) the
Purchase Price payable on such Payment Date computed in accordance with Section
3.1 divided by (ii) the Principal Receivables paid for on such date pursuant to
such Section. In the event that an adjustment pursuant to this Section 3.2
causes the Purchase Price to be a negative number, the Bank agrees that, not
later than 1:00 p.m. New York City time on such Distribution Date, the Bank
shall pay to Funding, by making a deposit into the Collection Account in same-
day funds, an amount equal to the amount by which the Purchase Price minus the
Credit Adjustment would be reduced below zero.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1. Bank's Representations and Warranties Relating to the Bank.
The Bank hereby represents and warrants to, and agrees with, Funding as of
the Closing
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Date and on each Addition Date, that:
(a) Organization and Good Standing. The Bank is a federal savings bank duly
organized and validly existing in good standing under the laws of the United
States of America and has, in all material respects, full power and authority to
own its properties and conduct its business as such properties are presently
owned and such business is presently conducted, and to execute, deliver and
perform its obligations under this Agreement.
(b) Due Qualification. The Bank is duly qualified to do business and is in
good standing as a foreign corporation (or is exempt from such requirements) and
has obtained all necessary licenses and approvals, in each jurisdiction in which
failure to so qualify or to obtain such licenses and approvals would (i) render
any Credit Card Agreement relating to an Account or any Receivable unenforceable
by the Bank, Funding or the Trust and (ii) have a material adverse effect on the
Investor Certificateholders.
(c) Due Authorization. The execution, delivery and performance of this
Agreement and any other document or instrument delivered pursuant hereto (such
other documents or instruments, collectively, the "Conveyance Papers") and the
consummation of the transactions provided for in this Agreement or any other
Conveyance Papers have been duly authorized by all necessary corporate action on
the part of the Bank and this Agreement will remain from the time of its
execution, an official record of the Bank.
(d) No Conflict. The execution and delivery of this Agreement and the
Conveyance Papers by the Bank, the performance of the transactions contemplated
by this Agreement and the Conveyance Papers, and the fulfillment of the terms of
this Agreement and the Conveyance Papers applicable to the Bank will not
conflict with, violate or result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or both) a
material default under, any indenture, contract, agreement, mortgage, deed of
trust, or other instrument to which the Bank is a party or by which it or any of
its properties are bound.
(e) No Violation. The execution, delivery and performance of this Agreement
and the Conveyance Papers by the Bank and the fulfillment of the terms
contemplated herein and therein applicable to the Bank will not conflict with or
violate any Requirements of Law applicable to the Bank.
(f) No Proceedings. There are no proceedings or investigations pending or,
to the best knowledge of the Bank, threatened against the Bank, before any
court, regulatory body, administrative agency or other tribunal or
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governmental instrumentality (i) asserting the invalidity of this Agreement or
the Conveyance Papers, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or the Conveyance Papers, (iii)
seeking any determination or ruling that, in the reasonable judgment of the
Bank, would materially and adversely affect the performance by the Bank of its
obligations under this Agreement or the Conveyance Papers, (iv) seeking any
determination or ruling that would materially and adversely affect the validity
or enforceability of this Agreement or the Conveyance Papers or (v) seeking to
affect adversely the income tax attributes of the Trust under United States
Federal, New York, California or Illinois income tax systems.
(g) All Consents. All authorizations, consents, orders or approvals of or
registrations or declarations with any Governmental Authority required to be
obtained, effected or given by the Bank in connection with the execution and
delivery by the Bank of this Agreement or the Conveyance Papers and the
performance of the transactions contemplated by this Agreement or the Conveyance
Papers by the Bank have been duly obtained, effected or given and are in full
force and effect.
The representations and warranties set forth in this Section 4.1 shall
survive the transfer and assignment of the Receivables to Funding. Upon
discovery by the Bank or Funding of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
written notice to the other party within three Business Days following such
discovery.
Section 4.2. Representations and Warranties of the Bank Relating
to the Agreement and the Receivables.
(a) Representations and Warranties. The Bank hereby represents and warrants
to Funding as of the date of this Agreement, as of the Closing Date and, with
respect to Additional Accounts, as of the related Addition Date that:
(i) this Agreement and, in the case of Additional Accounts, the
related Supplemental Conveyance, each constitutes a valid and binding
obligation of the Bank enforceable against the Bank in accordance with its
terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (b)
the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought, and (c)
in addition to the exceptions set forth in (a) above, the Financial
Institutions Reform,
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Recovery and Enforcement Act or other laws relating to or affecting the
enforcement of creditors' rights, or by the rights of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, the Resolution
Trust Corporation or creditors of federal savings banks;
(ii) as of the Initial Cut-Off Date, and as of the related Addition
Date with respect to Additional Accounts, Schedule 1 to this Agreement, as
supplemented to such date, is an accurate and complete listing in all
material respects of all the Accounts as of the Initial Cut-Off Date or
such Additional Cut-Off Date, as the case may be, and the information
contained therein supplied by the Bank with respect to the identity of such
Accounts and the Receivables existing thereunder is true and correct in all
material respects as of the Initial Cut-Off Date or such applicable
Additional Cut-Off Date, as the case may be, and as of the Initial Cut-Off
Date, the aggregate amount of Receivables in all the Initial Accounts was
$665,481,467.16 of which $661,490,254.59 were Principal Receivables;
(iii) each Receivable has been conveyed to Funding free and clear of
any Lien;
(iv) with respect to each Receivable, all consents, orders, approvals
or authorizations of or registrations or declarations with any Governmental
Authority required to be obtained, effected or given by the Bank in
connection with the conveyance of such Receivable to Funding have been duly
obtained, effected or given and are in full force and effect;
(v) either this Agreement or, in the case of Additional Accounts, the
related Assignment constitutes a valid sale, transfer and assignment to
Funding of all right, title and interest of the Bank in the Receivables and
the proceeds thereof and the Interchange payable pursuant to this Agreement
and the Recoveries payable pursuant to this Agreement and Recoveries
identified as relating to specific Defaulted Receivables, or, if this
Agreement or, in the case of Additional Accounts, the related Assignment
does not constitute a sale of such property, it constitutes a grant of a
first priority perfected "security interest" (as defined in the UCC) in
such property to Funding, which, in the case of existing Receivables and
the proceeds thereof and said Interchange, is enforceable upon execution
and delivery of this Agreement, or, with respect to then existing
Receivables in Additional Accounts, as of the applicable Addition Date, and
which will be enforceable with respect to such Receivables hereafter and
thereafter created and the proceeds thereof upon such creation. Upon the
filing of the financing statements and, in the case of Receivables
hereafter created and the proceeds
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thereof, upon the creation thereof, Funding shall have a first priority
perfected security or ownership interest in such property and proceeds;
(vi) on the Initial Cut-Off Date, each Account is an Eligible Account
and, in the case of Additional Accounts, on the Additional Cut-Off Date
with respect thereto, each such Additional Account is an Eligible Account;
(vii) on the Initial Cut-Off Date, each Receivable then existing is an
Eligible Receivable, and in the case of Additional Accounts, on the
applicable Additional Cut-Off Date, each Receivable generated thereunder is
an Eligible Receivable;
(viii) as of the date of the creation of any new Receivable, such
Receivable is an Eligible Receivable; and
(ix) no selection procedures believed by the Bank to be materially
adverse to the interests of Funding or the Investor Certificateholders have
been used in selecting the Accounts from among any pool of Accounts of a
similar type.
(b) Notice of Breach. The representations and warranties set forth in this
Section 4.2 shall survive the transfer and assignment of the Receivables to
Funding. Upon discovery by either the Bank or Funding of a breach of any of the
representations and warranties set forth in this Section 4.2, the party
discovering such breach shall give written notice to the other party within
three Business Days following such discovery; provided that the failure to give
notice within three Business Days does not preclude subsequent notice. The Bank
hereby acknowledges that Funding intends to rely on the representations
hereunder in connection with representations made by Funding to secured parties,
assignees or subsequent transferees including but not limited to transfers made
by Funding to the Trust pursuant to the Pooling and Servicing Agreement.
Section 4.3. Representations and Warranties of Funding. As of the Closing
Date, Funding hereby represents and warrants to, and agrees with, the Bank that:
(a) Organization and Good Standing. Funding is a corporation duly organized
and validly existing under the laws of the State of Delaware and has, in all
material respects, full power and authority to own its properties and conduct
its business as such properties are presently owned and such business is
presently conducted and to execute, deliver and perform its obligations under
this Agreement and the Conveyance Papers.
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(b) Due Authorization. The execution and delivery of this Agreement and the
Conveyance Papers and the consummation of the transactions provided for in this
Agreement and the Conveyance Papers have been duly authorized by Funding by all
necessary corporate action on the part of Funding.
(c) No Conflict. The execution and delivery of this Agreement and the
Conveyance Papers, the performance of the transactions contemplated by this
Agreement and the Conveyance Papers, and the fulfillment of the terms hereof and
thereof, will not conflict with, result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse of time
or both) a material default under, any indenture, contract, agreement, mortgage,
deed of trust or other instrument to which Funding is a party or by which it or
its properties is bound.
(d) No Violation. The execution, delivery and performance of this Agreement
and the Conveyance Papers by Funding and the fulfillment of the terms
contemplated herein and therein applicable to Funding will not conflict with or
violate any Requirements of Law applicable to Funding.
(e) No Proceeding. There are no proceedings or investigations pending or,
to the best knowledge of Funding, threatened against Funding, before any court,
regulatory body, administrative agency, or other tribunal or governmental
instrumentality (i) asserting the invalidity of this Agreement or the Conveyance
Papers, (ii) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or the Conveyance Papers, (iii) seeking any
determination or ruling that, in the reasonable judgment of Funding, would
materially and adversely affect the performance by Funding of its obligations
under this Agreement or the Conveyance Papers or (iv) seeking any determination
or ruling that would materially and adversely affect the validity or
enforceability of this Agreement or the Conveyance Papers.
(f) All Consents. All authorizations, consents, orders or approvals of or
registrations or declarations with any Governmental Authority required to be
obtained, effected or given by Funding in connection with the execution and
delivery by Funding of this Agreement and the Conveyance Papers and the
performance of the transactions contemplated by this Agreement and the
Conveyance Papers or the fulfillment of the terms of this Agreement and the
Conveyance Papers by Funding have been duly obtained, effected or given and are
in full force and effect.
The representations and warranties set forth in this Article IV shall
survive the Conveyance of the Receivables to Funding and termination of the
rights and obligations of
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Funding and the Bank under this Agreement. Upon discovery by Funding or the Bank
of a breach of any of the foregoing representations and warranties, the party
discovering such breach shall give prompt written notice to the other party.
ARTICLE V
COVENANTS
---------
Section 5.1. Bank Covenants. The Bank hereby covenants and agrees with
Funding as follows:
(a) Receivables Not To Be Evidenced by Promissory Notes. The Bank will take
no action to cause any Receivable to be evidenced by any instrument (as defined
in the UCC) except in connection with the enforcement or collection undertaken
with regard to the related Account in which event such Receivable shall be an
Ineligible Receivable in accordance with Section 6.1(a) and shall be reassigned
to the Bank in accordance with Section 6.1(b).
(b) Security Interests. Except for the conveyances hereunder or as
otherwise provided herein, the Bank will not sell, pledge, assign or transfer to
any other Person, or take any other action inconsistent with Funding's ownership
of the Receivables or grant, create, incur, assume or suffer to exist any Lien
on any Receivable, whether now existing or hereafter created, or any interest
therein, and the Bank shall not claim any ownership interest in the Receivables
and shall defend the right, title and interest of Funding in, to and under the
Receivables, whether now existing or hereafter created, against all claims of
third parties claiming through or under the Bank.
(c) Bank's Interest. Except for the conveyances hereunder and in connection
with any transaction permitted pursuant to Section 9.5, the Bank hereby agrees
not to transfer, assign, exchange or otherwise convey or pledge, hypothecate or
otherwise grant a security interest in the Accounts and any such attempted
transfer, assignment, exchange, conveyance, pledge, hypothecation or grant shall
be void.
(d) Account Allocations. In the event that the Bank is unable for any
reason to transfer Receivables to Funding in accordance with the provisions of
this Agreement (including, without limitation, by reason of the application of
the provisions of Section 8 or any Governmental Authority having regulatory
authority over the Bank or any court of competent jurisdiction ordering that the
Bank not transfer any additional Principal Receivables to Funding) then, in any
such event, the Bank agrees (except as prohibited by any such order) to allocate
and pay to Funding, after the date of such inability, all amounts in the manner
by which Funding will
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allocate and pay to the Trust after such inability by Funding pursuant to
Section 2.11 of the Pooling and Servicing Agreement.
(e) Delivery of Collections or Recoveries. In the event that the Bank
receives Collections or Recoveries, the Bank agrees to pay to Funding (or to the
Servicer if Funding so directs) all such Collections and Recoveries to the
extent such amounts are payable to Funding as soon as practicable after receipt
thereof.
(f) Notice of Liens. The Bank shall notify Funding promptly after becoming
aware of any Lien on any Receivable other than the conveyances hereunder.
(g) Periodic Rate Finance Charges. (i) Except (x) as otherwise required by
any Requirements of Law or (y) as is deemed by the Bank to be necessary in order
for the 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
the Bank of the nature of the competition with respect to 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, the Bank shall not at any time
take any action which would have the effect of reducing the Portfolio Yield to a
level that could be reasonably expected to cause any Series to experience any
Amortization Event based on the insufficiency of the Portfolio Yield or any
similar test and (ii) except as otherwise required by any Requirements of Law,
the Bank shall not take any action which would have the effect of reducing the
Portfolio Yield to less than the highest Average Rate for any Group.
(h) Credit Card Agreements and Guidelines. Subject to compliance with all
Requirements of Law, and paragraph (g) above, the Bank may change the terms and
provisions of the Credit Card Agreements or the Credit Card Guidelines in any
respect (including the calculation of the amount or the timing of charge-offs
and the Periodic Rate Finance Charges to be assessed thereon) only if the change
made with respect to a specific program is made applicable to substantially all
of the credit card accounts subject to such program. Notwithstanding the above,
unless required by Requirements of Law or as permitted by Section 5.19(g), the
Bank will take no action with respect to the Credit Card Agreements or the
Credit Card Guidelines, which, at the time of such action, the Bank reasonably
believes will have a material adverse effect on the Investor Certificateholders.
(i) MasterCard International and VISA USA. The Bank shall, to the extent
applicable to Accounts owned or serviced by it, use its best efforts to remain,
either directly or indirectly, a member in good standing of the
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MasterCard System, the VISA system and any other similar entity's or
organization's system relating to any other type of revolving credit card
accounts included as Accounts.
(j) Interchange. Not later than 1:00 p.m., New York City time, on the
Distribution Date, the Bank shall deposit into the Collection Account, in same-
day funds, (i) the amount of Interchange to be included as Collections of
Finance Charge Receivables with respect to the preceding Due Period or (ii) if
at any time the Servicer cannot identify the amount of such Interchange, the
amount reasonably estimated and notified to the Bank by the Servicer as the
amount of such Interchange.
(k) Documentation of Transfer. The Bank shall undertake to file the
documents which would be necessary to perfect and maintain the transfer of the
security interest in and to the Purchased Assets.
(l) Approval of Official Records. The Bank shall cause this Agreement to be
duly approved by the Bank's Board of Directors, and the Bank shall maintain the
Agreement as a part of the official records of the Bank for the term of the
Agreement.
ARTICLE VI
REPURCHASE OBLIGATION
---------------------
Section 6.1. Reassignment of Ineligible Receivables.
(a) In the event any representation or warranty under Section 4.2(a) (ii),
(iii), (iv), (vi), (vii) or (viii) is not true and correct in any material
respect as of the date specified therein with respect to any Receivable or the
related Account and as a result of such breach Funding is required to accept
reassignment of Ineligible Receivables previously sold by the Bank to Funding
pursuant to Section 2.05(a) of the Pooling and Servicing Agreement, the Bank
shall accept reassignment of Funding's interest in such Ineligible Receivables
on the terms and conditions set forth in Section 6.1(b).
(b) The Bank shall accept reassignment of any Ineligible Receivables
previously sold by the Bank to Funding from Funding on or prior to the end of
the Due Period in which such reassignment obligation arises, and shall pay for
such reassigned Ineligible Receivables by treating such Ineligible Receivables
as if they were subject to a reversal of the entire unpaid principal balance
thereof plus accrued and unpaid finance charges at the annual percentage rate
applicable to such Receivables from the last date billed through the end of such
Due Period and by adjusting the purchase price of future Receivables purchased
as provided in
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Section 3.2 (the "Repurchase Price"). Upon reassignment of such Ineligible
Receivables, Funding shall automatically and without further action be deemed to
sell, transfer, assign, set-over and otherwise convey to the Bank, without
recourse, representation or warranty, all the right, title and interest of
Funding in and to such Ineligible Receivables, all monies due or to become due
with respect thereto and all proceeds thereof; and such reassigned Ineligible
Receivables shall be treated by Funding as collected in full as of the date on
which they were transferred. Funding shall execute such documents and
instruments of transfer or assignment and take such other actions as shall
reasonably be requested by the Bank to effect the conveyance of such Ineligible
Receivables pursuant to this subsection.
Section 6.2. Reassignment of Certificateholders' Interest in Trust
Portfolio. In the event any representation or warranty set forth in Section
4.1(a)or(c) or Section 4.2 (a)(i) or (a)(v) is not true and correct in any
material respect and as a result of such breach Funding is required to accept a
reassignment of the Certificateholders' Interest in the Receivables previously
sold by the Bank to Funding pursuant to Section 2.06 of the Pooling and
Servicing Agreement, the Bank shall be obligated to accept a reassignment of
Funding's interest in such Receivables on the terms set forth below.
The Bank shall pay to Funding by depositing in the Collection Account in
same-day funds, not later than 1:00 p.m. New York City time, on the Distribution
Date following the Due Period in which such reassignment obligation arises, in
payment for such reassignment, an amount equal to the Portfolio Reassignment
Price.
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
Section 7.1. Conditions to Funding's Obligations Regarding Initial
Receivables. The obligations of Funding to purchase the Receivables in the
Initial Accounts on the Closing Date shall be subject to the satisfaction of the
following conditions:
(a) All representations and warranties of the Bank contained in this
Agreement shall be true and correct on the Closing Date with the same
effect as though such representations and warranties had been made on such
date;
(b) All information concerning the Initial Accounts provided to
Funding shall be true and correct as of the Initial Cut-off Date in all
material respects;
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(c) The Bank shall have (i) delivered to Funding (or to the Trustee,
if Funding so directs) a computer file or microfiche list containing a true
and complete list of all Initial Accounts identified by account number and
by the Receivables balance as of the Initial Cut-Off Date and (ii)
substantially performed all other obligations required to be performed by
the provisions of this Agreement;
(d) The Bank shall have recorded and filed, at its expense, any
financing statement with respect to the Receivables (other than Receivables
in Additional Accounts) now existing and hereafter created for the transfer
of accounts (as defined in Section 9-106 of the UCC) meeting the
requirements of applicable state law in such manner and in such
jurisdiction as would be necessary to perfect the sale of the Receivables
from the Bank to Funding, and shall deliver a file-stamped copy of such
financing statements or other evidence of such filings to Funding;
(e) On or before the Closing Date, Funding and the Trustee shall have
entered into the Pooling and Servicing Agreement and the closing under the
Pooling and Servicing Agreement shall take place simultaneously with the
initial closing hereunder; and
(f) All the corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Funding, and Funding shall have
received from the Bank copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as Funding may reasonably have requested.
Section 7.2. Conditions to Funding's Obligations Regarding Additional
Receivables. The obligations of Funding to purchase any Receivable created on or
after the Closing Date shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of the Bank contained in this
Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date;
(b) All information (concerning any Account to which such Receivables
relate) provided or to be provided to Funding shall be true and correct in
all material respects;
(c) The Bank shall have indicated in its computer files or microfiche
list that such Receivables
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(created in respect of any Account to which such Receivables relate) have
been sold to Funding in accordance with this Agreement and transferred to
the Trust pursuant to the Pooling and Servicing Agreement for the benefit
of the Certificateholders; and
(d) The Bank shall have recorded and filed, at its expense, any
financing statement with respect to such Receivables in any Additional
Accounts in connection with the transfer of accounts (as defined in Section
9-106 of the UCC) meeting the requirements of applicable state law in such
manner and in such jurisdictions as would be necessary to perfect the sale
of such Receivables from the Bank to Funding, and shall deliver a file-
stamped copy of such financing statements or other evidence of such filings
to Funding.
Section 7.3. Conditions Precedent to the Bank's Obligations. The
obligations of the Bank to sell on any date Receivables shall be subject to
the satisfaction of the following conditions:
(a) All representations and warranties of Funding contained in this
Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date;
(b) Payment or provision for payment of the Purchase Price in
accordance with the provision of Section 3.1 and 3.2 hereof shall have been
made; and
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Bank, and the Bank shall have
received from Funding copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Bank may reasonably have requested.
ARTICLE VIII
TERM AND PURCHASE TERMINATION
-----------------------------
Section 8.1. Term. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue until the termination of the
Trust as provided in Article XII of the Pooling and Servicing Agreement.
Section 8.2. Purchase Termination. If the Bank voluntarily goes into
liquidation or consents to the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
18
<PAGE>
liabilities or similar proceeding of or relating to the Bank or of or relating
to all or substantially all its property, or a decree or order of a court or
agency or supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceeding, or for the winding-up or liquidation of its affairs, shall have been
entered against the Bank; or the Bank shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations (such
voluntary liquidation, appointment, entering of such decree, admission, filing,
making or suspension, a "Dissolution Event"), the Bank shall on the day of such
appointment, voluntary liquidation, entering of such decree, admission, filing,
making or suspension, as the case may be (the "Appointment Date"), immediately
cease to transfer Principal Receivables to Funding and shall promptly give
notice to Funding and the Trustee of such Dissolution Event. Notwithstanding any
cessation of the transfer to Funding of additional Principal Receivables,
Principal Receivables transferred to Funding prior to the occurrence of such
Dissolution Event and Collections in respect of such Principal Receivables and
Finance Charge and Administrative Receivables whenever created, accrued in
respect of such Principal Receivables, shall continue to be property of Funding
available for transfer by Funding to the Trust pursuant to the Pooling and
Servicing Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
Section 9.1. Amendment. This Agreement and any Conveyance Papers and the
rights and obligations of the parties hereunder may not be changed orally, but
only by an instrument in writing signed by Funding and the Bank in accordance
with this Section 9.1. This Agreement and any Conveyance Papers may be amended
from time to time by Funding and the Bank (i) to cure any ambiguity, (ii) to
correct or supplement any provisions herein which may be inconsistent with any
other provisions herein or in any such other Conveyance Papers, (iii) to add any
other provisions with respect to matters or questions arising under this
Agreement or any Conveyance Papers which shall not be inconsistent with the
provisions of this Agreement or any Conveyance Papers, (iv) to change or modify
the Purchase Price (v) to change, modify, delete or add any other obligation of
the Bank or Funding and (vi) to provide for the transfer by the Bank or Funding
of its interest in and to all or part of the Accounts in accordance with the
provisions of the Pooling and Servicing Agreement (if such transfer is for less
than all of
19
<PAGE>
the Accounts, the respective rights, duties and obligations of Funding, the Bank
and the Servicer will be determined at the time of such transfer); provided
however, that no amendment pursuant to clause (v) of this Section 9.1 shall be
effective unless the Bank and Funding have been notified in writing that the
Rating Agency Condition has been satisfied; provided, further, that such action
shall not (as evidenced by an Opinion of Counsel delivered to the Trustee)
adversely affect in any material respect the interests of the Trustee or the
Certificateholders, unless the Trustee shall consent thereto. Any reconveyance
executed in accordance with the provisions hereof shall not be considered to be
an amendment to this Agreement. A copy of any amendment to this Agreement shall
be sent to the Rating Agency.
SECTION 9.2. GOVERNING LAW. THIS AGREEMENT AND THE CONVEYANCE PAPERS SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
Section 9.3. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to (a) in
the case of the Bank, Household Bank, f.s.b., 1441 Schilling Place, Salinas,
California 93901, Attention: General Counsel (facsimile no.(408) 755-6612), (b)
in the case of Funding, Household Affinity Funding Corporation, 2960 Meade
Avenue, Las Vegas, Nevada 89102, Attention: General Counsel (facsimile no. (702)
222-4096); or, as to each party, at such other address as shall be designated by
such party in a written notice to each other party .
Section 9.4. Severability of Provisions. If any one or more of the
covenants, agreements, provisions, or terms of this Agreement or Conveyance
Paper shall for any reason whatsoever be held invalid, then such covenants,
agreements, provisions, or terms shall be deemed severable from the remaining
covenants, agreements, provisions, and terms of this Agreement or any Conveyance
Paper and shall in no way affect the validity or enforceability of the other
provisions of this Agreement or of any Conveyance Paper.
Section 9.5. Assignment. Notwithstanding anything to the contrary
contained herein, other than Funding's assignment of its rights, title, and
interests in, to, and under this Agreement to the Trustee for the benefit of the
Certificateholders as contemplated by the Pooling and Servicing Agreement and
Section 9.6 hereof, the Accounts, this Agreement and all other Conveyance Papers
may not be assigned by the parties hereto, provided, however, that the Bank
shall have the right to assign its rights, title and
20
<PAGE>
interests, in to and under the Accounts and this Agreement to (i) any successor
by merger assuming this Agreement (ii) to any affiliate owned directly or
indirectly by Household International, Inc. which assumes the obligations of
this Agreement or (iii) to any entity provided that the Rating Agency has
advised Funding and the Bank that the Rating Agency Condition has been
satisfied.
Section 9.6. Acknowledgment and Agreement of the Bank. By execution below,
the Bank expressly acknowledges and agrees that all of Funding's right, title,
and interest in, to, and under this Agreement, including, without limitation,
all of Funding's right, title, and interest in and to the Receivables purchased
pursuant to this Agreement, shall be assigned by Funding to the Trustee for the
benefit of the Certificateholders, and the Bank consents to such assignment.
Additionally, the Bank agrees for the benefit of the Trustee that any amounts
payable by the Bank to Funding hereunder which are to be paid by Funding to the
Trustee for the benefit of the Certificateholders shall be paid by the Bank, on
behalf of Funding, directly to the Trustee. Any payment required to be made on
or before a specified date in same-day funds may be made on the prior business
day in next-day funds.
Section 9.7. Further Assurances. Funding and the Bank agree to do and
perform, from time to time, any and all acts and to execute any and all further
instruments required or reasonably requested by the other party more fully to
effect the purposes of this Agreement and the Conveyance Papers, including,
without limitation, the execution of any financing statements or continuation
statements or equivlaent documents relating to the Receivables for filing under
the provisions of the UCC or other law of any applicable jurisdiction.
Section 9.8. No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of Funding or the Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exhaustive of any rights, remedies,
powers and privileges provided by law.
Section 9.9. Counterparts. This Agreement and all Conveyance Papers may be
executed in two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of which together
shall constitute one and the same instrument.
21
<PAGE>
Section 9.10. Binding Effect; Third-Party Beneficiaries. This Agreement
and the Conveyance Papers will inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. The
Trustee shall be considered a third-party beneficiary of this Agreement.
Section 9.11. Merger and Integration. Except as specifically stated
otherwise herein, this Agreement and the Conveyance Papers set forth the entire
understanding of the parties relating to the subject matter hereof, and all
prior understandings, written or oral, are superseded by this Agreement and the
Conveyance Papers. This Agreement and the Conveyance Papers may not be modified,
amended, waived or supplemented except as provided herein.
Section 9.12. Headings. The headings are for purposes of reference only
and shall not otherwise affect the meaning or interpretation of any provision
hereof.
Section 9.13. Schedules and Exhibits. The schedules and exhibits attached
hereto and referred to herein shall constitute a part of this Agreement and are
incorporated into this Agreement for all purposes.
Section 9.14. Survival of Representations and Warranties. All
representations, warranties and agreements contained in this Agreement or
contained in any Assignment, shall remain operative and in full force and effect
and shall survive conveyance of the Receivables by Funding to the Trustee
pursuant to the Pooling and Servicing Agreement.
IN WITNESS WHEREOF, Funding and the Bank have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
HOUSEHOLD BANK, f.s.b.
By: /s/ B. B. Moss, Jr.
------------------------------
Title /s/ Treasurer
HOUSEHOLD AFFINITY FUNDING CORPORATION
By: /s/ Steve H. Smith
--------------------------------
Title /s/ Vice President & Asst.
Treasurer
22
<PAGE>
EXHIBIT A
---------
FORM OF SUPPLEMENTAL CONVEYANCE
(As required by Section 2.2 of
the Receivables Purchase Agreement)
SUPPLEMENTAL CONVEYANCE No. ___, dated as of ___________________, 19____,
by and between HOUSEHOLD BANK, f.s.b., as Seller (the "Bank"), and HOUSEHOLD
AFFINITY FUNDING CORPORATION,("Funding"),pursuant to the Receivables Purchase
Agreement referred to below.
W I T N E S S E T H :
WHEREAS, the Bank and Funding are parties to a Receivables Purchase
Agreement, dated as of April 30, 1993 (hereinafter as such agreement may have
been, or may from time to time be, amended, supplemented or otherwise modified,
the "Receivables Purchase Agreement");
WHEREAS, pursuant to the Receivables Purchase Agreement, the Bank wishes to
designate Aggregate Addition Accounts to be included as Accounts and the Bank
wishes to convey the Receivables of such Aggregate Addition Accounts, whether
now existing or hereafter created, to Funding pursuant to the Receivables
Purchase Agreement (as each such term is defined in the Receivables Purchase
Agreement); and
WHEREAS, Funding is willing to accept such designation and conveyance
subject to the terms and conditions hereof.
NOW THEREFORE, the Bank and Funding hereby agree as follows:
1. Defined Terms. All capitalized terms used herein shall have the
meanings ascribed to them in the Receivables Purchase Agreement unless otherwise
defined herein.
"Addition Date" shall mean, with respect to the Aggregate Addition
Accounts designated hereby, , 19 .
2. Designation of Aggregate Addition Accounts. The Bank delivers herewith
a computer file or microfiche list containing a true and complete schedule
identifying all such Aggregate Addition Accounts and specifying for each such
Account, as of the Additional Cut-Off Date, its account number, the aggregate
amount outstanding in such Account and the aggregate amount of Principal
Receivables in such Account. Such computer file, microfiche list or other
documentation shall be as of the date of this Assignment incorporated into and
made part of this Assignment and is marked as Schedule 1 to this Assignment.
<PAGE>
3. Conveyance of Receivables.
(a) The Bank does hereby sell, transfer, assign, set over and otherwise
convey to Funding, without recourse, all its right, title and interest in, to
and under the Receivables generated by such Aggregate Addition Accounts, now
existing and hereafter created, all monies due or to become due and all amounts
received with respect thereto and all "proceeds" (including, without limitation,
"proceeds" as defined in Article 9 of the UCC as in effect in the State of
California) thereof. The foregoing sale, transfer, assignment, set-over and
conveyance does not constitute and is not intended to result in a creation or an
assumption by Funding of any obligation of the Servicer, the Bank or any other
Person in connection with the Accounts, the Receivables or under any agreement
or instrument relating thereto, including, without limitation, any obligation to
any Obligers, merchant banks, merchants clearance systems, VISA USA, Inc.,
MasterCard International Incorporated or insurers.
(b) In connection with such sale, the Bank agrees to record and file, at
its own expense, one or more financing statements (and continuation statements
with respect to such financing statements when applicable) with respect to the
Receivables, now existing and hereafter created, for the sale of accounts
meeting the requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect the sale and assignment of the
Receivables to Funding, and to deliver a file-stamped copy of such financing
statement or other evidence of such filing to Funding.
(c) In connection with such sale, the Bank further agrees, at its own
expense, on or prior to the date of this Supplemental Conveyance, to indicate in
the appropriate computer files or microfiche list that all Receivables created
in connection with the Aggregate Addition Accounts designated hereby have been
conveyed to Funding pursuant to this Assignment.
4. Acceptance by Funding. Subject to the satisfaction of the conditions
set forth in Section 6 of this Supplemental Conveyance, Funding hereby
acknowledges its acceptance of all right, title and interest to the property,
now existing and hereafter created, conveyed to Funding pursuant to Section 3(a)
of this Assignment, and declares that it shall maintain such right, title and
interest. Funding further acknowledges that, prior to or simultaneously with the
execution and delivery of this Assignment, the Bank delivered to Funding (or to
the Trustee if Funding has so directed) the computer file or microfiche list
described in Section 2 of this Assignment.
-A2-
<PAGE>
5. Representations and Warranties of the Bank. The Bank hereby
represents and warrants to Funding as of the date of this Supplemental
Conveyance and as of the Addition Date that:
(a) Legal, Valid and Binding Obligation. This Supplemental Conveyance
constitutes a legal, valid and binding obligation of the Bank enforceable
against the Bank in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally from time to time in
effect or general principals of equity;
(b) Eligibility of Accounts. Each Aggregate Addition Account designated
hereby is an Eligible Account;
(c) Selection Procedures. (i) No selection procedure believed by the Bank
to be adverse to the interests of Funding or the Investor Certificateholders was
utilized in selecting the Aggregate Addition Accounts; (ii) the selection
procedures used in selecting the Aggregate Addition Accounts designated hereby
are substantially the same as the selection procedures used in selecting the
Initial Accounts identified in the computer file or microfiche list delivered
pursuant to Section 2.1(c) of the Receivables Purchase Agreement;
(d) Insolvency. The Bank is not insolvent and, after giving effect to the
conveyance set forth in Section 3 of this Supplemental Conveyance, will not be
insolvent;
(e) Sale of Receivables. This Supplemental Conveyance constitutes a valid
sale, transfer and assignment to Funding of all right, title and interest of the
Bank in the Receivables now existing or hereafter created, all monies due or to
become due and all amounts received with respect thereto and the "proceeds"
(including, without limitation, "proceeds" as defined in Article 9 of the UCC)
thereof, relating thereto;
(f) No Conflict. The execution and delivery of this Supplemental
Conveyance, the performance of the transactions contemplated by this
Supplemental Conveyance and the fulfillment of terms hereof, will not conflict
with, result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a material default
under, any indenture, contract, agreement, mortgage, deed of trust or other
instrument to which the Bank is a party or by which it or its properties are
bound;
(g) No Violation. The execution and delivery of this Supplemental
Conveyance by the Bank, the performance of the transactions contemplated by this
Supplemental
-A3-
<PAGE>
Conveyance and the fulfillment of the terms hereof applicable to the Bank will
not conflict with or violate any Requirements of Law applicable to the Bank;
(h) No Proceedings. There are no proceedings or investigations, pending or,
to the best knowledge of the Bank, threatened against the Bank before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality (i) asserting the invalidity of this Supplemental Conveyance,
(ii) seeking to prevent the consummation of any of the transactions contemplated
by this Supplemental Conveyance, (iii) seeking any determination or ruling that,
in the reasonable judgment of the Bank, would materially and adversely affect
the performance by the Bank of its obligations under this Supplemental
Conveyance or (iv) seeking any determination or ruling that would materially and
adversely affect the validity or enforceability of this Supplemental Conveyance;
and
(i) All Consents. All authorizations, consents, orders or approvals of any
court or other governmental authority required to be obtained by the Bank in
connection with the execution and delivery of this Supplemental Conveyance by
the Bank and the performance of the transactions contemplated by this
Supplemental Conveyance by the Bank, have been obtained.
6. Conditions Precedent. The acceptance of Funding set forth in Section 4
of this Supplemental Conveyance is subject to the satisfaction, on or prior to
the Addition Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Bank in Section 5 of this Supplemental Conveyance
shall be true and correct as of the date of this Supplemental Conveyance
and as of the Addition Date
(b) Officer's Certificate. The Bank shall have delivered to Funding an
Officer's Certificate confirming that (i) the Aggregate Addition Accounts
shall be Eligible Accounts and (ii) (A) no selection procedures believed by
the Bank or Funding to be materially adverse to the interests of the
Investor Certificateholders shall have been used in selecting the Aggregate
Addition Accounts; (B) the selection procedures used in selecting the
Aggregate Addition Accounts shall be substantially the same as the
selection procedures used in selecting the original Accounts identified in
the computer file or microfiche list delivered pursuant to Section 2.01 of
the Pooling and Servicing Agreement; (C) the list of Aggregate Addition
Accounts, as of the Additional Cut-Off Date, is a true and complete
schedule identifying all such Aggregate Addition Accounts and specifies for
each such
-A4-
<PAGE>
Account, as of the Additional Cut-Off Date, its account number, the
aggregate amount outstanding in such Account and the aggregate amount of
Principal Receivables in such Account.
(c) Additional Information. The Bank shall have delivered to Funding
such information as was reasonably requested by Funding to satisfy itself
as to the accuracy of the representation and warranty set forth in Section
5(d) of this Supplemental Conveyance.
7. Ratification of the Receivables Purchase Agreement. The Receivables
Purchase Agreement is hereby ratified, and all references to the "Receivables
Purchase Agreement", to "this Agreement" and "herein" shall be deemed from and
after the Addition Date to be a reference to the Receivables Purchase Agreement
as supplemented by this Supplemental Conveyance. Except as expressly amended
hereby, all the representations, warranties, terms, covenants and conditions of
the Receivables Purchase Agreement shall remain unamended and shall continue to
be, and shall remain, in full force and effect in accordance with its terms and
except as expressly provided herein shall not constitute or be deemed to
constitute a waiver of compliance with or consent to non-compliance with any
term or provision of the Receivables Purchase Agreement.
8. Counterparts. This Supplemental Conveyance may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Supplemental
Conveyance to be duly executed and delivered by their respective duly authorized
officers on the day and the year first above written.
HOUSEHOLD AFFINITY FUNDING CORPORATION
By: _____________________________________
Name:
Title:
HOUSEHOLD BANK, f.s.b.
By: _____________________________________
Name:
Title:
-A5-
<PAGE>
Schedule 1
----------
LIST OF ACCOUNTS
DEEMED INCORPORATED BY REFERENCE
<PAGE>
Schedule 1 to
Supplemental
Conveyance
Aggregate Addition Accounts
---------------------------
<PAGE>
AMENDMENT NO. 1
TO
RECEIVABLES PURCHASE AGREEMENT DATED APRIL 30, 1993
BETWEEN
HOUSEHOLD BANK, f.s.b.
AND
HOUSEHOLD AFFINITY FUNDING CORPORATION
<PAGE>
AMENDMENT NO. 1 TO RECEIVABLES PURCHASE AGREEMENT
-------------------------------------------------
AMENDMENT NO. 1 made as of the 1st day of June, 1993 between HOUSEHOLD
BANK, f.s.b., a federal savings bank (the "Bank") and HOUSEHOLD AFFINITY FUNDING
CORPORATION, a Delaware corporation and a subsidiary of the Bank ("Funding").
W I T N E S S E T H:
-------------------
WHEREAS, the Bank and Funding have entered into a Receivables Purchase
Agreement, dated as of April 30, 1993 (the "RPA", and as amended from time to
time hereafter, including by this Amendment No. 1, the "Amended RPA");
WHEREAS, capitalized terms used herein (and not otherwise defined herein)
shall have the respective meanings ascribed thereto in the RPA;
WHEREAS, the parties hereto desire to amend the RPA in certain respects;
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants stated herein below, the parties hereto agree as follows:
1. Amendment to RPA.
Section 9.1. of the RPA is deleted in its entirety and replaced by the
following:
Section 9.1. Amendment. This Agreement and any Conveyance Papers and
the rights and obligations of the parties hereunder or thereunder may
not be changed orally, but only by an instrument in writing signed by
Funding and the Bank in accordance with this Section 9.1. This
Agreement and any Conveyance Papers may be amended from time to time
by Funding and the Bank, providing that Funding provides to the Bank
(a) an Officer's Certificate to the effect that Funding reasonably
believes that such amendment will not have an Adverse Effect and (b)
an Opinion of Counsel addressed and delivered to the Bank, dated the
date of such amendment, to the effect that the conditions precedent to
any such amendment have been satisfied.
<PAGE>
2. Miscellaneous.
All references in the RPA to "the Receivables Purchase Agreement", "this
Agreement", "herein", "hereby" or "hereof" shall refer to the Amended RPA.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed on the date first above written.
HOUSEHOLD BANK, f.s.b.
By: /s/ B. B. Moss, Jr.
--------------------------------------
Name: B. B. Moss, Jr.
Title: Treasurer
HOUSEHOLD AFFINITY FUNDING
CORPORATION
By: /s/ Steven H. Smith
--------------------------------------
Name: Steven H. Smith
Title: Vice President
2
<PAGE>
Exhibit 10.2
ASSIGNMENT AGREEMENT
--------------------
THIS ASSIGNMENT AGREEMENT (the "Agreement") is made as of the 1st day of
December, 1993 between Household Bank, f.s.b. (the "Assignor") and Household
Bank (SB), National Association (the "Assignee").
BACKGROUND
----------
A. Any capitalized terms used herein which are not defined herein and
which are defined in the Receivables Purchase Agreement (as defined below) shall
have the meanings ascribed to them in the Receivables Purchase Agreement.
B. Pursuant to the terms and conditions of the Receivables Purchase
Agreement dated as of April 30, 1993 (as amended by Amendment No. 1 thereto on
June 1, 1993, the "RPA") between Household Affinity Funding Corporation
("Funding") and the Assignor, Assignor has agreed, among other things, to sell
certain Receivables from time to time to Funding and that such Receivables will
be transferred by Funding to the Trust.
C. Assignor hereby desires to transfer to Assignee and Assignee hereby
desires to acquire from Assignor all of Assignors interest in the RPA in
accordance with the terms set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual premises herein contained and
other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, Assignor and Assignee covenant and agree as
follows:
Section 1: ASSIGNMENT
----------------------
(a) Assignor hereby grants, bargains, sells, assigns, transfers and sets
over all of its interests in and rights under the RPA and delegates all of its
obligations under the RPA to Assignee as of the date hereof, and Assignee hereby
purchases and takes an assignment of all of such interests and rights and hereby
assumes all of Assignor's risks, duties, obligations and liabilities as the
"Bank" under the RPA as of the date hereof. Effective as of the date hereof, the
Assignee shall be deemed to be the "Bank" under the RPA.
(b) The relationship between the Assignor and Assignee is and shall be that
of a purchaser and seller of a property interest and not a creditor-debtor or
other similar relationship.
(c) The sale and assignment set forth herein shall be without recourse by
the Assignee to the Assignor of any nature whatsoever on account of any Person
failing to remit any payment due under his/her Account pursuant to the terms of
the applicable Credit Card
<PAGE>
Agreements. The Assignor shall hereby be released from all of its obligations
under the RPA which arise on or after the date hereof.
Section 2: REPRESENTATIONS AND WARRANTIES
------------------------------------------
(a) The Assignor hereby represents and warrants to the Assignee as follows:
(i) This Agreement has been duly authorized, executed and delivered by
it and constitutes the valid and binding obligation of the Assignor,
enforceable against the Assignor in accordance with its terms except
as such enforcement may be subject to (A) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, (B) the remedy of
specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought and (C)
limitations imposed by the Financial Institutions Reform, Recovery and
Enforcement Act or other laws relating to or affecting the enforcement
of creditors' rights, or by the rights of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, the Resolution
Trust Corporation or creditors of federal savings banks.
(ii) The execution and delivery of this Agreement do not conflict
with, violate or result in any breach of any of the material terms and
provisions of, or constitute a material default under, any indenture,
contract, agreement or other instrument to which the Assignor is a
party.
(b) The Assignee hereby represents and warrants to the Assignor as follows:
(i) The Assignee is a national banking association organized and
existing under the laws of the United States of America.
(ii) This Agreement has been duly authorized, executed and delivered
by the Assignee and constitutes the valid and binding obligation of
the Assignee enforceable against the Assignee in accordance with its
terms, except that such enforcement may be subject to (A) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, (B) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought and (C) limitations imposed by the Financial Institutions
Reform, Recovery and Enforcement Act or
<PAGE>
other laws relating to or affecting the enforcement of creditors'
rights, or by the rights of the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation, the Resolution Trust
Corporation, the Office of the Comptroller of the Currency or
creditors of national banking associations.
(iii) The Assignee is an affiliate of the Assignor and is owned
directly or indirectly by Household International, Inc.
Section 3: COVENANTS
---------------------
(a) As of the date hereof, the Assignee shall assume all of the
obligations, risks and liabilities of the "Bank" under the terms and provisions
of the RPA, and the Assignee hereby expressly confirms all of such obligations,
risks and liabilities and acknowledges, agrees and consents to the terms and
provisions of the RPA (including, without limitation, (i) the obligation to make
the representations and warranties required by Sections 4.1 and 4.2 of the RPA
for each Addition Date occurring on or after the date hereof; provided that the
representations contained in Section 4.1(a) shall be deemed to be modified as of
the date hereof in order that the Assignee shall represent that it is a national
banking association in lieu of a federal savings bank).
(b) The Assignee acknowledges that (i) it has performed and will continue
to perform its own analysis and its own investigation of the risks involved in
the transactions contemplated hereby and to enter into this Agreement and it has
not and will not rely on the Assignor with respect thereto, (ii) it has reviewed
the terms of the Amended and Restated Pooling and Servicing Agreement dated as
of August 1, 1993 among Household Affinity Funding Corporation, Household
Finance Corporation and The Bank of New York, and (iii) the Assignor has not
made and shall not at any time be deemed to make any representation or warranty,
express or implied, with respect to or have any responsibility with respect to
the Credit Card Agreements.
(c) From and after the date hereof, the Assignor shall promptly remit to
the Assignee, or to any Person as directed by the Assignee (including the
Trustee), all payments that it may receive on or after the date hereof in
connection with the Accounts and the right to receive Interchange and Recoveries
allocable to the Accounts.
Section 4: MISCELLANEOUS
-------------------------
(a) This Agreement shall be governed by and construed in accordance with
the laws (without regard to conflict of laws principles) of the State of
Illinois.
(b) The provisions of this Agreement shall be binding upon and inure to the
benefit of the Assignor and the Assignee and each
<PAGE>
of their respective successors and assigns; provided, however, that the parties
hereto may assign their interest herein only in accordance with the provisions
of the RPA.
(c) This Agreement may not be amended, supplemented or modified except by
an instrument in writing signed by the Assignor and Assignee. No failure or
delay on the part of either party in exercising any right hereunder shall
operate as a waiver of, or impair, any such right. No single or partial exercise
of any such right shall preclude any other or further exercise thereof or the
exercise of any other rights. No waiver of any such right shall be deemed a
waiver of any other right hereunder.
(d) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
(e) Each party hereto shall execute and deliver all such other instruments
and documents as may be reasonably requested by the other party in order to
fully carry out the intent and accomplish the purposes of the documents and the
transactions referred to herein.
IN WITNESS WHEREOF, the foregoing Agreement has been duly executed by the
parties hereto on the date first above written.
HOUSEHOLD BANK, f.s.b
By: /s/ B.B. Moss, Jr.
-------------------------------------
Name: B. B. Moss, Jr.
Title: Treasurer
HOUSEHOLD BANK (SB),
NATIONAL ASSOCIATION
By: /s/ J. W. Saunders
-------------------------------------
Name: J. W. Saunders
Title: President
The undersigned hereby acknowledges, consents and agrees to the Assignment
Agreement described above as of this 1st day of December, 1993.
HOUSEHOLD AFFINITY FUNDING CORPORATION
By: /s/ S. H. Smith
-------------------------------------
Name: S. H. Smith
Title: Vice President and Assistant
Treasurer
