<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1998
REGISTRATION NO. 333-51551
================================================================================
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)
<TABLE>
<S> <C> <C>
NEW YORK 6799 NOT APPLICABLE
(STATE OR ORGANIZATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
CODE NUMBER)
</TABLE>
HOUSEHOLD AFFINITY FUNDING CORPORATION
(REGISTRANT AND ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
<TABLE>
<S> <C> <C>
DELAWARE 6799 88-0300291
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
CODE NUMBER)
</TABLE>
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.
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
HOUSEHOLD BANK (SB), N.A.
2700 SANDERS ROAD
PROSPECT HEIGHTS, ILLINOIS 60070
EDWARD M. DESEAR, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
---------------------------
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>
====================================================================================================================
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER CERTIFICATE OFFERING PRICE REGISTRATION FEE*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Certificates.... $1,000,000 100% $1,000,000 $295.00
- --------------------------------------------------------------------------------------------------------------------
Class B Certificates.... $1,000,000 100% $1,000,000 $295.00
====================================================================================================================
</TABLE>
*This 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> 2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
NAME AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
---------------------------- ---------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Front Cover of Registration Statement;
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 Factors 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
Registered............................... Prospectus Summary; The Accounts; The
Trust; Principal Payment Considerations;
Description of the Investor Certificates
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant............................... The Credit Card Business of Household Bank
(SB), N.A.; The Seller, The Servicer, The
Subservicer; The Trust
12. Disclosure of Commission Position on
Indemnification of Securities Act
Liabilities.............................. *
</TABLE>
- -------------------------
* Not Applicable.
<PAGE> 3
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.
SUBJECT TO COMPLETION DATED JUNE 24, 1998
PRELIMINARY PROSPECTUS
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
ISSUER
SERIES 1998-1
$ % Class A Credit Card Participation Certificates
$ % Class B Credit Card Participation Certificates
HOUSEHOLD AFFINITY FUNDING CORPORATION
SELLER
HOUSEHOLD FINANCE CORPORATION
SERVICER
-------------------------
The % Class A Credit Card Participation Certificates, Series 1998-1 (the "Class
A Certificates") and the % Class B Credit Card Participation Certificates,
Series 1998-1 (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, October
20, 1997 and June , 1998 (collectively, the "Pooling and Servicing Agreement")
and as supplemented by a Supplement to the Pooling and Servicing Agreement dated
as of (the "Series 1998-1 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 26 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
$ .
The Investor Certificates are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify any order without
notice. It is expected that delivery of the Investor Certificates will be made
in book-entry form through the facilities of The Depository Trust Company, Cedel
Bank societe anonyme and the Euroclear System on or about .
The date of this Prospectus is , .
<PAGE> 4
(Continued from previous page)
on the Class A Certificates from and including to and excluding
and with respect to each Interest Period (as defined herein)
thereafter at the rate of % per annum. Interest will accrue on the Class B
Certificates from and including to and excluding and with
respect to each Interest Period thereafter at the rate of % per annum. 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 $ and the Cash Collateral Account (as
defined herein) which will have a beginning balance of zero. See "Description of
the Investor Certificates -- Subordination" and "-- Description of the Cash
Collateral Account". Only the Class A Certificates and the Class B Certificates
and not the Collateral Interest (as defined herein) are being offered hereby.
Interest with respect to each class of Investor Certificates will accrue
from (the "Issuance Date") and is payable monthly on the fifteenth day
of each month, or if such day is not a business day, the next succeeding
business day (each, a "Distribution Date"), commencing on the
Distribution Date. Principal payments with respect to the Class A Certificates
and the Class B Certificates are scheduled to be made on the
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.
2
<PAGE> 5
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 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 1998-1 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 -- 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."
DEFINED TERMS USED IN THIS PROSPECTUS
A listing of the pages where defined terms used herein are defined is found
in the "Index of Terms" which begins on page 101 hereof.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus.
TITLE OF SECURITIES........... $ % Class A Credit Card Participation
Certificates, Series 1998-1 (the "Class A
Certificates").
$ % Class B Credit Card Participation
Certificates, Series 1998-1 (the "Class B
Certificates"; and together with the Class A
Certificates, the "Investor Certificates").
ISSUER........................ Household Affinity Credit Card Master Trust I
(the "Trust"). The Trust, as a master trust,
previously has issued fourteen series of
investor certificates (each, a "Series"), three
of which have been retired, and is expected to
issue additional Series from time to time. The
Trust is expected to continue as a trust after
the Series 1998-1 Termination 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
receivables in accounts subject to the Trust
are charged-off or removed. See "The Trust",
"Risk Factors -- Issuance of Additional Series"
and "-- Addition of Trust Assets", "The Pooling
and Servicing Agreement -- Additions of
Accounts or Participation Interests" and "--
Removal of Accounts".
CLASS A CERTIFICATE RATE...... % per annum (the "Class A Certificate Rate").
CLASS B CERTIFICATE RATE...... % per annum (the "Class B Certificate Rate").
HOUSEHOLD BANK................ Household Bank (SB), N.A. ("Household Bank"), a
national banking association and an affiliate
of the Servicer, is the owner of the Accounts
from which the Receivables arise.
SELLER........................ Household Affinity Funding Corporation (the
"Seller"), a corporation organized under the
laws of the State of Delaware and a special
purpose subsidiary of Household Bank, is the
seller of the Receivables and originator of the
Trust.
SERVICER...................... Household Finance Corporation (the "Servicer"),
a Delaware corporation.
TRUSTEE....................... The Bank of New York (the "Trustee"), a New
York banking corporation.
TRUST ASSETS.................. The assets of the Trust (the "Trust Assets")
consist primarily of the Receivables arising
under the Accounts (as defined herein),
including the proceeds thereof, monies on
deposit in certain accounts of the Trust for
the benefit of investor certificateholders,
including the Special Funding Account (as
defined herein), and also including any funds
deposited in any of three account(s) (the "Cash
Collateral Account," 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
4
<PAGE> 7
Series Enhancement for the benefit of a Series
or class of investor certificateholders will
not be available to the investor
certificateholders of any other Series or
class), certain rights of the Seller to receive
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 Series 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
Series or class. The subordination of any
Series or class of investor certificates to
another Series or class of investor
certificates shall be deemed to be a Series
Enhancement. "Participation Interests" means
participations representing undivided interests
in a pool of assets primarily consisting of
revolving credit card receivables, consumer
loan receivables, charge card receivables and
other self-liquidating financial assets.
The Trust Assets will be allocated among the
Class A Certificateholders (the "Class A
Interest") and the Class B Certificateholders
(the "Class B Interest"; the Class A Interest
and the Class B Interest are collectively
referred to herein as the "Certificateholders'
Interest"), the interests of the Seller (the
"Seller's Interest"), and the investor
certificateholders of other Series and may be
allocated to any Series Enhancement all as
described below. An undivided interest in the
Trust Assets (the "Collateral Invested
Amount"), in the initial amount of $ of
Principal Receivables (such amount represents
% of the sum of the original Class A Invested
Amount (as defined herein), the original Class
B Invested Amount (as defined herein) and the
original Collateral Invested Amount)
constitutes the Series Enhancement for the
Investor Certificates. The provider of such
Series Enhancement is the "Collateral Interest
Holder". Trust Assets will be allocated to the
interests of the Collateral Interest Holder
(the "Collateral Interest") in an amount equal
to the sum of the Collateral Invested Amount
and the amount, if any, on deposit in the Cash
Collateral Account (the "Collateral Amount").
To the extent provided in any Supplement (as
defined herein), or in an amendment to the
Pooling and Servicing Agreement, all or a
portion of the Receivables or Participation
Interests conveyed to the Trust and all
collections received with respect thereto may
be allocated to one or more Series or groups of
Series (each a "Group") as long as the Rating
Agency Condition (as defined herein) shall have
been satisfied with respect to such allocation
and the Servicer shall have delivered an
officer's certificate to the Trustee to the
effect that the Servicer reasonably believes
such allocation will not have an Adverse Effect
(as defined herein). The Investor Certificates
are part of the first Series in a group of
Series ("Group Three"). To the extent described
herein, Receivables, Participation Interests
and all collections received with respect to
the Investor Certificates may be allocated to
other Series in Group
5
<PAGE> 8
Three. While other Series may be issued in
Group Three, there can be no assurance that any
other Series will actually be issued in Group
Three.
THE ACCOUNTS.................. The Accounts consist of selected nonpremium and
premium, 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 Eligible
Account (as defined herein), but do not include
any Removed Accounts (as defined herein). The
Accounts are not being sold or transferred to
the Trust and will continue to be controlled
and held by Household Bank (or an affiliate
thereof) unless transferred as described
herein. See "The Credit Card Business of
Household Bank (SB), N.A. -- General"; "-- The
Accounts"; "Description of the Bank Purchase
Agreement -- Transfer of Accounts".
Household Bank, f.s.b. and the Seller entered
into a receivables purchase agreement dated as
of April 30, 1993, as amended (together 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 Receivables arising in the Accounts whether
such Receivables are then existing or
thereafter created and Household Bank is
obligated to sell to the Seller the Receivables
arising in Additional Accounts (as defined
herein) from time to time. In addition,
Household Bank has assigned to the Seller its
rights to Recoveries and Interchange allocable
to the Accounts. See "Description 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 Servicing
Agreement. The initial transfer of Receivables
occurred on May 5, 1993 (the "Initial Issuance
Date").
The Seller has conveyed to the Trust
Receivables 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 thereafter 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 included in Aggregate
Additions (as defined herein) in accordance
with the provisions of the Pooling and
- ---------------
* VISA and MasterCard are registered trademarks of VISA USA, Inc. and MasterCard
International Incorporated, respectively.
6
<PAGE> 9
Servicing Agreement. In addition, pursuant to
the Pooling and Servicing Agreement, the Seller
expects (subject to certain limitations and
conditions), and in some circumstances will be
obligated, to have more Additional Accounts
designated, the Receivables of which will be
included in the Trust or, in lieu thereof or in
addition thereto, to include Participation
Interests in the Trust. 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 Accounts, whether
such Receivables are then existing or
thereafter created. The addition to the Trust
of Receivables in Aggregate Additions or
Participation Interests will be subject to
certain conditions, including, among others,
that (a) unless such addition is a required
addition, such addition will not result in the
failure to satisfy the Rating Agency Condition
and (b) the Seller shall have delivered to the
Trustee a certificate of an authorized officer
to the effect that, in the reasonable belief of
the Seller, such addition will not have an
Adverse Effect. The Seller will also have the
right, in certain circumstances, to remove from
the Trust all Receivables of certain Accounts
(the "Removed Accounts"). The Seller has
removed Receivables from certain Removed
Accounts in accordance with the provisions of
the Pooling and Servicing Agreement. See "The
Pooling and Servicing Agreement -- 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, the interest portion of any
Participation Interests as determined pursuant
to the applicable Supplement and all interest
or other investment earnings (net of losses and
investment expenses) on funds on deposit, if
any, in the Special Funding Account (the
"Finance Charge Receivables"), (b) all
administrative fees and late charges on amounts
charged for merchandise and services, credit
insurance premiums and all other fees or
charges billed to cardholders on the Accounts
(the "Administrative Receivables"; and together
with the Finance Charge Receivables, the
"Finance Charge and Administrative
Receivables") and (c) all amounts charged by
cardholders for merchandise and services,
amounts advanced to cardholders as cash
advances and the principal portion of any
Participation Interests as determined pursuant
to the applicable Supplement (the "Principal
Receivables"). Recoveries attributed to
charged-off Receivables (the "Recoveries") will
be treated as collections of Finance Charge and
Administrative Receivables. In addition,
certain Interchange attributed to cardholder
charges for merchandise and services in the
Accounts will be treated as collections of
Finance Charge and Administrative Receivables.
See "The Credit Card Business of Household Bank
(SB), N.A. -- Interchange".
The aggregate amount of Receivables pertaining
to the Accounts as of the close of business on
March 31, 1998 was $ , of which
$ were Principal Receivables and
$ were Finance Charge and
Administrative Receivables (which amounts
include past due Receivables). All new
Receivables arising in the Accounts during the
term of the Trust will automatically be sold by
7
<PAGE> 10
Household Bank to the Seller and then
transferred by the Seller to the Trust.
Accordingly, the amount of Receivables will
fluctuate 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
assessed on the Accounts will generally be 10.4
percentage points over the highest prime rate
as published in The Wall Street Journal on the
fourth Thursday of the month preceding that
month in which the billing period ends (the
"Prime Rate"). The annual percentage rate
depends on whether the Account 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 percentage 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
annual percentage rate is 16.4% and for premium
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
March 31, 1998, the Receivable balance of the
nonpremium and premium Accounts as a percentage
of the total Receivable balance of the Accounts
was approximately % and %, respectively.
From time to time, Household Bank has and may
offer special rates to customers for various
purposes and periods or may change rates
generally as permitted in the Receivables
Purchase Agreement.
THE INVESTOR CERTIFICATES..... The Investor Certificates will be available for
purchase in minimum denominations of $1,000 and
in integral multiples thereof. Except in
certain limited circumstances as described
herein under "Description of the Investor
Certificates -- Definitive Investor
Certificates", the Investor Certificates will
only be available in book-entry form.
The aggregate principal amount of the Class A
Invested Amount and the Class B Invested Amount
will, except as otherwise provided herein,
remain fixed at $ and
$ , respectively. During the
Controlled Accumulation Period (as defined
herein), for the purpose of allocating
collections of Finance Charge and
Administrative 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 reduced, 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 exceeds the Class A Invested Amount (as
so reduced, the "Class B Adjusted Invested
Amount" and, together with the Class A Adjusted
Invested Amount and the Collateral
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<PAGE> 11
Invested Amount, the "Adjusted Invested
Amount"). The principal amount of the Seller'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' Interest, 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
Household Bank has the right to assign and
transfer the Accounts and assign its
obligations under the Bank Purchase Agreement
at any time, in whole or in part, provided
certain conditions are satisfied. See "The
Pooling and Servicing Agreement -- Transfer of
Seller's Interest"; "Description of the Bank
Purchase Agreement -- Transfer of Accounts".
The Class A Certificates will evidence
undivided interests in the Trust Assets
allocated to the Class A Interest and will
represent the right to receive from such assets
funds up to (but not in excess of) the amounts
required to make payments of interest on the
Class A Certificates on each Distribution Date
at the per annum rate equal to the Class A
Certificate Rate, calculated on the basis of a
360-day year of twelve 30-day months, and
payments of principal on each Distribution Date
during any Early Amortization Period (as
defined herein) or on the Series 1998-1
Expected Final Payment Date (as defined herein)
with respect to the 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
uncollectible during a Due Period (the
"Defaulted 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 business on the last
business day of the second month preceding a
Distribution Date and ending at the close of
business on the last business day of the month
immediately preceding such Distribution Date.
See "Description of the Investor Certificates
-- Investor Charge-Offs".
The Class B Certificates (which are
subordinated to the Class A Certificates to the
extent provided herein and, during any period
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 described 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
applicable, the Servicing Fee is paid in full,
funds up to (but not in excess of) the amounts
required to make payments of interest 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 a
360-day year of twelve 30-day months, and
payments of principal on each Distribution Date
with respect to the Class B
9
<PAGE> 12
Certificates during any Early Amortization
Period or on the Series 1998-1 Expected Final
Payment Date with respect to the Controlled
Accumulation Period or any Early Accumulation
Period, to the extent described under
"Description of the Investor Certificates --
Principal" and "Principal Payment
Considerations" herein. The Class B Invested
Amount may be less than the aggregate unpaid
principal amount of the Class B Certificates in
certain circumstances as more fully described
herein.
The certificateholders' interest of any Series,
including the Class A Interest and the Class B
Interest, will each include the right to
receive (but only to the extent needed to make
required payments under the Pooling and
Servicing Agreement and the related Supplement
and subject to any reallocation of such amounts
if the related Supplement so provides) varying
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 investor certificates, the
Trust Assets allocable to the
certificateholders' interest of such Series
will be further allocated among each class
within such Series. See "Risk Factors",
"Description of the Investor Certificates --
Allocation of Collections; Deposits in
Collection Account" and "-- Reallocation of
Cash Flows", and "-- Reallocations Among
Investor Certificates of Different Series".
The Investor Certificates represent beneficial
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 affiliate thereof.
None of the Investor Certificates, the investor
certificates of any other Series, the Accounts
or the Receivables are insured or guaranteed by
the Federal Deposit Insurance Corporation (the
"FDIC") or any other governmental agency or
instrumentality.
ISSUANCE OF ADDITIONAL
SERIES........................ The Pooling and Servicing Agreement authorizes
the Trustee to issue three types of
certificates: (i) one or more Series of
investor certificates, (ii) a certificate
evidencing 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 Interest 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 Certificate". 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
reduction 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 registered under the
Securities Act or exempt from registration
10
<PAGE> 13
thereunder, directly or through one or more
underwriters or placement 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
certificates of each Series will have expected
final payment dates, revolving periods and
periods during which the principal amount of
such investor certificates is accumulated in a
principal funding account or paid to holders of
such investor certificates which differ from
those for the Investor Certificates, although
it is expected 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 Series not included in
Group Three may have entirely different methods
for calculating the amount and timing of
principal and interest distributions to
investor certificateholders and the Series
Enhancements of such Series and may utilize
other methods for determining the portion of
collections of Receivables allocable to such
investor certificateholders and Series
Enhancements. See "Risk Factors -- Issuance of
Additional Series".
A new Series may only be issued upon
satisfaction 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 officer to the
effect that, in the reasonable belief of the
Seller, such issuance will not have an Adverse
Effect. See "Risk Factors -- 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 Receivables and
Finance Charge and Administrative Receivables
and the Defaulted Receivables with respect to
such Due Period based on the initial amount of
Principal Receivables allocated to such Series
(or such lesser amount as may be specified in
the Supplement for any Series) less
unreimbursed investor charge-offs. See
"Description of the Investor Certificates --
Allocations". Subject to reallocation among
Series in a Group, such amounts allocated to
each Series are then further allocated within
each Series to the investor certificateholders,
any Series Enhancement and the Seller pursuant
to the terms of the related Supplement.
REALLOCATIONS AMONG SERIES IN
A 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 collections of
Receivables and other amounts or obligations
among the Series in the Group. Collections of
Finance Charge and Administrative Receivables
allocable to each Series in Group Three will be
aggregated and made available for required
payments for all Series in Group Three.
Consequently, the issuance of new Series in
Group Three may have the effect of reducing or
increasing the amount of collections of Finance
Charge and Administrative Receivables allocable
to the Investor Certifi
11
<PAGE> 14
cates. 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 Three. See also "Risk
Factors -- Issuance of Additional Series".
REALLOCATION OF EXCESS
PRINCIPAL COLLECTIONS......... To the extent that collections of Principal
Receivables and other amounts that are
allocated 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 collections
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 "Description of the
Investor Certificates -- Reallocation of Trust
Excess Principal Collections".
PREVIOUSLY ISSUED SERIES...... Two Series of investor certificates in a Group
("Group A") have previously been issued, one of
which has since been retired. One Series of
investor certificates in a Group ("Group B"),
one Series of investor certificates in a Group
("Group C"), one Series of investor
certificates in a group ("Group D"), one Series
of investor certificates in a group ("Group E")
and one Series of investor certificates in a
group ("Group F") have also previously been
issued. In addition, six Series of investor
certificates have been previously issued in a
Group ("Group One"), two of which have since
been retired and one Series of investor
certificates have been issued in a Group
("Group Two"). 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, Group D, Group E, Group F,
Group One or Group Two but will be a part of
Group Three and will be the first Series to be
issued in Group Three. See also "Risk Factors
-- Issuance of Additional Series", "--
Allocations" and "Description of the Investor
Certificates -- Reallocations Among Investor
Certificates of Different Series".
REGISTRATION OF INVESTOR
CERTIFICATES.................. The Investor Certificates will initially be
represented by one or more Investor
Certificates of each class registered in the
name of Cede, as the nominee of DTC. No person
acquiring an interest in the Investor
Certificates 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")
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<PAGE> 15
(in Europe). Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. Crossmarket
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
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 depositaries of CEDEL
and Euroclear, respectively. See "Description
of the Investor Certificates -- Book-Entry
Registration".
INTEREST...................... Interest will accrue on the unpaid principal
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", respectively), as the case may be,
with respect to such Interest Period and,
except as otherwise provided herein, be
distributed to Investor Certificateholders on
the 15th day of every month, or if such day is
not a business day, on the next succeeding
business day (each, a "Distribution Date")
commencing on the Distribution Date.
Interest for any Distribution Date will accrue
from and including the preceding Distribution
Date to but excluding such Distribution Date
(an "Interest Period"), and interest owing on
the Class A Certificates and the Class B
Certificates will be calculated on the basis of
a 360-day year of twelve 30-day months and
interest owing on 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 Period,
interest will accrue from and including the
Issuance Date to, but excluding, .
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 together 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 the
London interbank offered quotations rate for
one month United States Dollar Deposits
("LIBOR") plus 1% (the "Collateral Rate"). See
"Description of the Investor
Certificates -- General" and "-- Distributions
from the Collection Account; Allocation of
Funds".
REVOLVING PERIOD.............. No principal will be paid to the Class A
Certificateholders until the earlier to occur
of the Series 1998-1 Expected Final Payment
Date and the commencement of the Early
Amortization Period. Principal payments to the
Class B Certificateholders will not occur until
the final principal payment has been made to
the Class A Certificateholders. For each Due
Period in the period commencing at the close of
business on (the "Series 1998-1
Cut-Off Date") and ending on the earlier of the
commencement of the Controlled Accumulation
Period, any Early Accumulation 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
otherwise allocable to the Investor
Certificates and the Collateral Invested Amount
(other than any Subordinated Principal Collec-
13
<PAGE> 16
tions that are used to pay the Class A Required
Amount or the Class B Required Amount) will,
unless a reduction in the Required Collateral
Amount has occurred, generally be allocated and
paid to the Seller to purchase additional
Receivables, deposited in the Special Funding
Account or reallocated for payment of principal
to investors in other Series. See "Principal
Payment Considerations" and "Description of the
Investor Certificates -- Principal". The Due
Period for the Investor Certificates with
respect to the first Distribution Date will
commence on the Series 1998-1 Cut-Off Date and
will end at the close of business on the last
business day of the month immediately preceding
the first Distribution Date. See "Description
of the Investor Certificates -- Reallocation of
Cash Flows' and "-- Amortization Event" for a
discussion of the events which might lead to
the termination of the Revolving Period prior
to its scheduled ending date. Unless an
Amortization Event shall have occurred, the
Revolving Period will end and the Controlled
Accumulation Period will commence at the close
of business on the last business day of
; provided, that, subject to the
conditions set forth under "Description of the
Investor Certificates -- Principal" herein, the
day on which the Revolving Period ends and the
Controlled Accumulation Period begins may be
delayed to no later than the close of business
on the last business day of .
PRINCIPAL PAYMENTS;
CONTROLLED ACCUMULATION
PERIOD...................... Unless an Amortization Event shall have
occurred and an Early Amortization Period shall
have commenced, the final payment with respect
to the Investor Certificates is scheduled to be
made on the Distribution Date (the "Series
1998-1 Expected Final Payment Date"). Unless
and until an Amortization Event shall have
occurred and an Early Accumulation Period or
Early Amortization Period shall have commenced,
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
; provided, that, subject to the
conditions set forth under "Description of the
Investor Certificates -- Principal" herein, the
day on which the Revolving Period ends and the
Controlled Accumulation Period begins may be
delayed to no later than the close of business
on the last business day of . 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 Invested Amount, the Class B
Invested Amount and the Collateral Invested
Amount (collectively, the "Invested Amount")
and (z) the Series 1998-1 Termination Date (as
defined herein). During the Controlled
Accumulation Period, collections of Principal
Receivables and certain other amounts allocable
to the Certificateholders' Interest will
generally be deposited on each Distribution
Date in a segregated trust account established
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
14
<PAGE> 17
Amount and the Class B Invested Amount. Any
amounts deposited into the Principal Funding
Account will not be considered as principal
payments made to the Investor
Certificateholders. Unless an Early
Amortization Period shall have commenced, the
amount on deposit in the Principal Funding
Account will be distributed to the Investor
Certificateholders on the Series 1998-1
Expected Final Payment Date to the extent
described herein. The maximum amount to be
deposited in the Principal Funding Account
during the Controlled Accumulation 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
Considerations' herein. For each Distribution
Date with respect to a Due Period during the
Controlled Accumulation Period, the "Controlled
Accumulation Amount" shall mean $ ;
except that, if the commencement of the
Controlled Accumulation Period is delayed as
described herein, the Controlled Accumulation
Amount for each Distribution Date with respect
to a Due Period during the Controlled
Accumulation Period will be determined as
described under "Description of the Investor
Certificates -- Principal. If collections of
Principal Receivables allocable to the
Certificateholders' 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 and amounts, if any, on deposit in the
Special Funding Account that are allocable to
the Investor Certificateholders. If a reduction
in the Required Collateral Amount has occurred
during the Controlled Accumulation Period,
collections in excess of the Controlled
Accumulation Amount will be applied to reduce
the Collateral Amount to such Required
Collateral Amount. During the Controlled
Accumulation Period, until the final principal
payment is made 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 Class B Required
Amount and collections used to make payments
with respect to reductions in the Required
Collateral Amount) will generally be paid to
the Seller or deposited, under certain
circumstances at the Seller's election, to the
Special Funding Account to maintain the
Collateral Invested Amount at its required
level. See "Description of the Investor
Certificates -- Principal" and "-- Special
Funding Account" 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 deposit therein will be
available for distribution to the Investor
Certificateholders on the Series 1998-1
Expected Final Payment Date, no assurance can
be given that any funds will be so deposited or
that the amount of funds so deposited will be
sufficient to make the anticipated distribution
in full to the Investor Certificateholders on
the Series
15
<PAGE> 18
1998-1 Expected Final Payment Date. See
"Principal Payment Considerations". See also
"Description of the Investor Certificates --
Amortization Event" for a description of the
events which might lead to the commencement of
an Early Accumulation Period or Early
Amortization Period.
During the Controlled Accumulation Period all
funds on deposit in the Principal Funding
Account will be invested in certain eligible
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 herein. See "Description of
the Investor Certificates -- Principal Funding
Account" and "-- 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. No assurance can be given,
however, that any investment earnings 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 commencement
of any Early Amortization Period and the Series
1998-1 Expected Final Payment Date (the "Early
Accumulation Period"), 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 commenced, the
amount on deposit in the Principal Funding
Account will be distributed to the Investor
Certificateholders on the Series 1998-1
Expected Final Payment Date to the extent
described herein. See "Description of the
Investor Certificates -- Principal". In
addition, on the first Distribution Date
following commencement of an early accumulation
period for any outstanding Series, any amounts
on deposit in the Special Funding Account will
be released therefrom and available for
distribution as Trust Excess Principal
Collections (as defined herein) to investor
certificateholders of such Series. See
"Description of the Investor
Certificates -- Special Funding Account." 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 Principal Funding Account and
that the amount on deposit therein will be
available for distribution to the Investor
Certificateholders on the Series 1998-1
Expected Final
16
<PAGE> 19
Payment Date, no assurance can be given that
any funds will be so deposited or that the
amount of funds so deposited will be sufficient
to make the anticipated distribution in full to
the Investor Certificateholders on the Series
1998-1 Expected Final Payment Date. See
"Principal Payment Considerations". See also
"Description of the Investor
Certificates -- Amortization 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 eligible
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 herein. See "Description of
the Investor Certificates -- Principal Funding
Account" and "-- 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. No assurance can be given,
however, that any investment earnings 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
circumstances, the day on which such an
Amortization 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 1998-1 Termination Date or the date on
which the Trust has otherwise terminated (the
"Early Amortization Period"), the Principal
Allocation Percentage (as defined herein) of
collections of Principal Receivables and
certain other amounts allocable to the Investor
Certificates (other than any Subordinated
Principal Collections that are used to pay the
Class A Required Amount or the Class B Required
Amount) will no longer be paid to the Seller,
accumulated or otherwise reallocated 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 addition,
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
Distribution Date following the commencement of
such Early Amortization Period while any
amounts on deposit in the Special Funding
Account will be released and available for
distribution to the Investor Certificateholders
to the extent described herein under
"Description of the Investor
Certificates -- Special Funding Account".
During the Early Amortization Period,
collections of Principal Receivables allocable
to the Collateral Invested Amount will be
deposited into the Cash Collateral Account and
held for the benefit of the
17
<PAGE> 20
Investor Certificateholders to the extent set
forth herein. See "Principal Payment
Considerations".
SPECIAL FUNDING ACCOUNT....... The Seller, at its election, may at any time
that the Seller's Participation Amount (as
defined herein) is greater than zero, other
than during an early amortization period or
early accumulation period of any Series
outstanding at such time, deposit Trust Excess
Principal Collections which would otherwise be
payable to the Seller into the Special Funding
Account. Amounts deposited in the Special
Funding Account may be treated as Principal
Receivables for purposes of avoiding or
delaying the occurrence of an amortization
event of any Series then outstanding which
would otherwise occur if the Seller were
required to designate Additional Accounts and
did not have sufficient Eligible Accounts for
such purpose. Amounts deposited in the Special
Funding Account may be withdrawn and
distributed to the Seller at any time, so long
as the Seller's Participation Amount is greater
than the Series Required Seller Amount (as
defined herein) after such withdrawal;
provided, that no Series is then in an early
accumulation period or early amortization
period. If an early accumulation period or
early amortization period commences with
respect to any Series, any funds in the Special
Funding Account will be released and treated as
Trust Excess Principal Collections to the
extent needed to cover principal payments due
to or for the benefit of such Series as
described under "Description of the Investor
Certificates -- Special Funding Account" and
"Principal Payment Considerations".
SUBORDINATION; ADDITIONAL
AMOUNTS AVAILABLE TO
INVESTOR
CERTIFICATEHOLDERS.......... The fractional undivided interest in the Trust
Assets allocable to the Class B Certificates
(the "Class B Invested Amount) and the
Collateral Amount will be subordinated to the
extent necessary to fund certain payments with
respect to the Class A Certificates and the
Servicing Fee during any period in which
Household Finance Corporation 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
respect to the Class B Certificates.
If collections of Finance Charge and
Administrative Receivables allocable to the
Class A Interest for any Due Period are
insufficient 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 Servicing
Agreement and the Series 1998-1 Supplement
(with interest thereon), the Class A Investor
Default Amount (as defined herein), the
Servicing Fee and any overdue Servicing Fee
during any period in which Household Finance
Corporation or an affiliate is no longer the
Servicer, on the related Distribution Date for
such Due Period (such insufficiency being the
"Class A Required Amount"), Excess Finance
Charge and Administrative Collections (as
defined herein) will be applied to fund the
Class A Required Amount. If Excess Finance
Charge and Administrative Collections available
with respect to such Due Period are less than
the Class A Required Amount, any amounts on
deposit in the Cash Collateral Account shall be
withdrawn to
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<PAGE> 21
pay the Class A Required Amount and if the
amount available to be withdrawn is less than
the Class A Required Amount, Subordinated
Principal Collections allocable first to the
Collateral Invested Amount and then the Class B
Adjusted Invested Amount for such Due Period
will then be used to fund the remaining Class A
Required Amount. "Subordinated Principal
Collections" shall mean, with respect to each
Distribution Date, the product of (a) with
respect to any Due Period during the Revolving
Period, the Floating Allocation Percentage of
Series Allocable Principal Collections (each,
as defined herein) allocated to the Investor
Certificates and the Collateral Invested Amount
for such Due Period and with respect to any Due
Period during the Controlled Accumulation
Period, any Early Accumulation Period or any
Early Amortization Period, the Principal
Allocation Percentage of Series Allocable
Principal Collections allocated to the Investor
Certificates and the Collateral Invested Amount
for such Due Period multiplied by (b) a
fraction the 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 Subordinated
Principal Collections 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 for such Distribution
Date) by the amount of such remaining
insufficiency 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 Certificates.
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 (as defined herein) will be reduced.
See "Description of the Investor Certificates
-- 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 amount, if
any, of Excess Finance Charge and
Administrative Collections allocable and
available for that purpose, the Series
Allocable Miscellaneous Payments (as defined
herein) to the extent not used to reimburse the
Class A Adjusted Invested Amount and
withdrawals from the Cash Collateral Account
available for such purpose. See "Description of
the Investor Certificates -- Subordination",
"-- Excess Finance
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<PAGE> 22
Charge and Administrative Collections" and "--
Description of the Cash Collateral Account."
If the Class B Adjusted Invested Amount is
reduced to zero, the Class A Adjusted Invested
Amount will be reduced if there is any
remaining unpaid Class A Required Amount for
any Due Period, but not in excess of the Class
A Investor Default Amount for such Due Period,
and the Class A Certificateholders will bear
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
Administrative Receivables allocable to the
Class B Interest for any Due Period, together
with Excess Finance Charge and Administrative
Collections not required to pay the Class A
Required Amount, are insufficient to pay
interest on the unpaid principal 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
1998-1 Supplement (with interest thereon), plus
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"), monies, if any, in
the Cash Collateral Account not required to pay
the Class A Required Amount will be withdrawn
and applied to fund the Class B Required
Amount. If such monies available with respect
to such Due Period 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 any such amount available to be withdrawn
from the Cash Collateral Account and
Subordinated Principal Collections allocable 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 reduced (but not in
excess of the Class B Investor 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 Collections and
Series Allocable Miscellaneous Payments for
such Distribution Date allocated 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 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".
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<PAGE> 23
In the event of a reduction of the Class A
Adjusted Invested Amount, the Class B Adjusted
Invested Amount or the Collateral Amount, the
amount available to fund payments with respect
to the Class A Certificates and the Class B
Certificates will be decreased. See
"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 Interest 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 Principal Receivables to decrease the
Collateral Invested Amount, (ii) to the extent
collections of Principal Receivables allocable
to the Collateral Invested Amount are required
to be deposited therein and (iii) to the extent
collections of Excess Finance Charge and
Administrative Receivables are required to be
deposited therein as described below. See
"Description of the Investor Certificates --
Description of the Cash Collateral Account".
To the extent set forth herein, withdrawals
will be made from the Cash Collateral Account
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 Enhancement
available to the Investor Certificateholders
(the "Available Collateral Amount") will equal
the lesser of (i) the Collateral Amount and
(ii) the Required Collateral Amount. The
"Required Collateral Amount" with respect to
any Distribution Date for the Investor
Certificates means (i) $ initially
and (ii) thereafter an amount equal to the
greater of (a) % 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) $ ;
provided, however, (1) that if certain
withdrawals are made from the Cash Collateral
Account, certain reductions in the Collateral
Amount occur 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 any amount on deposit in the
Principal Funding Account is equal to the sum
of the initial Class A Invested Amount and the
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<PAGE> 24
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 will be
reallocated to increase the Collateral Invested
Amount or deposited into the Cash Collateral
Account to the extent 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 deposited
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 Agreement"). See "Description
of the Investor Certificates -- Excess Finance
Charge and Administrative Collections".
If on any Distribution Date, the Collateral
Amount exceeds the Required Collateral Amount,
such excess will be applied in accordance 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 Distribution 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 Collateral Amount, and increasing the
Seller's Interest.
SERVICING..................... The Servicer, acting through Household Credit
Services, Inc., a Delaware corporation (the
"Subservicer"), will be responsible for
servicing, managing and making collections on
the Receivables. The Servicer is required to
deposit into the Collection Account all
collections of Receivables received by it no
later than the second business day after the
processing of any such collections, unless
Household Finance Corporation 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 applicable Rating Agency (as defined
herein) in which case the Servicer may make a
single deposit into the Collection Account on
each Distribution Date. Currently, Household
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 processing
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 Sub-
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<PAGE> 25
servicer shall be solely responsible for all
costs and expenses relating to this engagement.
On or about the earlier of the third business
day and the fifth calendar day preceding the
fifteenth day of each calendar month (a
"Determination Date"), the Servicer will
calculate the amount of collections of
Receivables received with respect to the
related Due Period to be allocated 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
Collateral Invested Amount, as described
herein.
In certain limited circumstances Household
Finance Corporation may resign or be removed 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 successor Servicer. References
to the "Servicer" include Household Finance
Corporation or any such successor Servicer.
Household Finance 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 Servicing Fee, the
servicing fee allocable to the Seller's
Interest and certain other amounts as described
herein as servicing compensation from the
Trust. See "Description of the Investor
Certificates -- Servicing Compensation and
Payment of Expenses".
MANDATORY REASSIGNMENT AND
TRANSFER OF CERTAIN
RECEIVABLES................. The Seller will make certain representations
and warranties in the Pooling and Servicing
Agreement with respect to the Accounts and the
Receivables and the Servicer will make certain
representations and warranties in the Pooling
and Servicing Agreement in its capacity as
Servicer. If the Seller or the Servicer
breaches certain representations and warranties
with respect to any Receivable and such breach
remains uncured for a specified period after
the Seller or the Servicer becomes aware or
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 respect to any Receivable and such
noncompliance 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 material
adverse effect on the certificateholders'
interest therein, such certificateholders'
interest may be reassigned to the Seller or
assigned to the Servicer, as the case may be.
In the event of a transfer of servicing
obligations to a successor Servicer, such
successor Servicer, rather than Household
Finance Corporation,
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<PAGE> 26
would be responsible for any failure to comply
with the Servicer's covenants and warranties
arising thereafter.
TAX STATUS.................... Orrick, Herrington & Sutcliffe LLP, special
counsel to the Seller ("Special Counsel"), is
of the opinion that under existing law the
Investor Certificates will be characterized as
debt for federal income tax purposes. Under the
Pooling and Servicing Agreement and the Series
1998-1 Supplement, the Seller and the Investor
Certificateholders will agree to treat the
Investor Certificates as debt for federal,
state, local, foreign and other tax purposes.
See "Federal Income Tax Consequences" and
"State and Local Tax Consequences".
ERISA CONSIDERATIONS.......... The purchase and holding of Class A
Certificates by most employee benefit plans is
subject to the fiduciary responsibility rules
of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), including its
"prohibited transaction" rules. The application
of ERISA's prohibited transaction rules to such
investment depends upon whether for ERISA
purposes the Class A Certificates are
considered debt of the Seller or equity
interests in the Trust and upon the
availability of prohibited transaction class
exemptions issued by the United States
Department of Labor (the "DOL"). If the
Certificates are treated as equity interests
under ERISA, under regulations issued by the
DOL, the Trust's assets would not be deemed
"plan assets" (as defined herein) of an
employee benefit plan holding the Class A
Certificates if certain conditions are met,
including that the Class A Certificates be held
by at least 100 persons who are independent of
the Issuer and of one another at the conclusion
of the offering. The Underwriters (as defined
herein) expect, although no assurances can be
given, that the Class A Certificates will be
held by at least 100 persons, and the Seller
anticipates that the other conditions of the
regulations will be met. In any event, persons
contemplating purchasing the Class A
Certificates on behalf of or with "plan assets"
of any Benefit Plan (as defined herein) should
consult their counsel before making a purchase.
See "ERISA Considerations".
The Class A Certificates may not be acquired 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 respective affiliates. See "ERISA
Considerations".
The Class B Certificates may not be purchased
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
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<PAGE> 27
Receivables, the credit quality 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 "Description of the
Investor Certificates -- Reallocation of Cash
Flows" and "Risk Factors -- 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 based
primarily on the value of the Receivables, 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 imposition
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 particular purpose. The ratings may be
subject to revision or withdrawal at any time
by the assigning Rating Agency. Each rating
should be evaluated independently of any other
rating. See "Risk Factors -- Rating of the
Investor Certificates".
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<PAGE> 28
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. 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".
BANKRUPTCY RISKS. 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 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.
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<PAGE> 29
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, 1995-1 and 1997-1 may instruct the Trustee not to
sell the Receivables. The credit enhancer for Series 1998-1 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
even though such laws do not prohibit the Seller from filing a voluntary
petition thereunder.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of investor certificateholders, including the Class A
Certificateholders, in the Receivables if such laws result in any Receivables
being written off as uncollectible and the total of the Defaulted Receivables
exceeds funds available in the Cash Collateral Account, the Collateral Invested
Amount and the Class B Invested Amount. Application of such laws would also
affect the interests of the Class B Certificateholders in the Receivables if
such laws result in any Receivables being written off as uncollectible when
there are insufficient amounts remaining in the Cash Collateral Account or to be
reallocated from the Collateral Invested Amount. See "Description of the
Investor Certificates -- Defaulted Receivables; Rebates and Fraudulent Charges".
CONSUMER PROTECTION LAWS. The Accounts and Receivables are subject to
numerous Federal and state consumer protection laws which impose requirements on
the solicitation, making, enforcement and collection of consumer loans. Such
laws, as well as any new laws or rulings which may be adopted (including, but
not limited to, federal or state interest rate caps on credit cards), may
adversely affect the Servicer's ability to collect on the Receivables or
maintain the required level of periodic finance charges, annual membership fees
and other fees. In addition, failure by the Servicer to comply with such
requirements could adversely affect the Servicer's ability to enforce the
Accounts or Receivables.
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<PAGE> 30
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 -- 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 -- Representations and Warranties" and "--
Servicer Covenants" and "Certain Legal Aspects of the Receivables -- Consumer
Protection Laws".
GENERATION OF ADDITIONAL RECEIVABLES. The Receivables may be paid at any
time and there is no assurance that there will be additional Receivables created
in the Accounts or that Receivables will be added to the Trust from additional
Accounts designated to the Trust. 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. 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.
DEPENDENCY ON CARDHOLDER REPAYMENTS. There is no assurance that any
particular pattern of cardholder payments will occur. Furthermore, there is no
assurance that the repayment history of Receivables generated under cardholder
agreements which are part of a program where rebates on certain purchases are
offered to cardholders in connection with their usage of such cards, will not be
affected by any change in the amount or other terms of such rebates that may be
offered from time to time. The amount or other terms of any such rebates may
generally be changed at any time. While none of the Seller, Household Bank, the
Servicer or the Subservicer are able to determine, and have no basis to predict,
how cardholders may react to such changes, those changes may affect the
continuation of the generation of Receivables. See "-- Affinity Programs". The
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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. 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 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. 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
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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 conveyed
to the Trust, plus the amount of any funds on deposit in the Special Funding
Account, in each case, 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.
DECREASE IN FINANCE CHARGES. There can be no assurances that changes in
applicable law, changes in the marketplace or prudent business practice might
not result in a determination by Household Bank to decrease customer finance
charges or otherwise take actions which would change other Account terms. Under
certain circumstances, the Seller will have the right and may be required from
time to time to require Household Bank to designate Receivables from time to
time existing in Additional Accounts or Participation Interests for inclusion in
the Trust. However, such Additional Accounts or Participation Interests may not
be of the same credit quality or have the same characteristics as the Accounts,
the Receivables of which have been conveyed to the Trust. See "The Pooling and
Servicing Agreement -- Additions of Accounts or Participation Interests".
BASIS RISK. The Accounts will have finance charges set at a variable rate
above the Prime Rate. 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 and certain of its affiliates known as the "The GM Card(SM)". 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".
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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 1998-1 Expected Final
Payment 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 1998-1 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".
ISSUANCE OF ADDITIONAL SERIES. The Trust, as a master trust, previously has
issued fourteen Series, three 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 related 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
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(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"). Despite the requirement that the Rating Agency Condition be satisfied
in connection with the issuance of a new Series, there can be no assurance,
however, that the principal terms 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 Three, 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 Three (due to a higher certificate rate) will
receive a proportionately larger reallocation of Group Three Investor Finance
Charge and Administrative Receivables. Such issuance will reduce the amount of
Group Three Investor Finance Charge and Administrative Receivables which are
reallocated to the existing Series in Group Three. 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
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included in any Aggregate Addition if the assignment related to such Aggregate
Addition provides that such type of revolving credit card account is permitted
to be designated as a New Account. Unless each applicable Rating Agency
otherwise consents, the number of New Accounts designated with respect to any of
the three consecutive Due Periods beginning in January, April, July and October
of each calendar year shall not exceed 15% of the number of Accounts as of the
first day of the calendar year during which such Due Periods commence and the
number of New Accounts designated during any such calendar year shall not exceed
20% of the number of Accounts as of the first day of such calendar year. The
Seller shall deliver to the Trustee, at least semi-annually, an opinion of
counsel with respect to the New Accounts included as Accounts confirming the
validity and perfection of each transfer of such New Accounts. If such opinion
of counsel with respect to any New Accounts is not so received, all Receivables
arising in the New Accounts to which such failure relates will be removed from
the Trust. The Seller will designate New Accounts subject to the following
conditions, among others: (a) the New Accounts shall all be Eligible Accounts;
(b) such conveyance will not result in the occurrence of an Amortization Event;
and (c) such conveyance shall not have been made in contemplation of an
Insolvency Event with respect to the Seller or Household Bank. New Accounts and
Aggregate Addition Accounts are collectively referred to herein as "Additional
Accounts".
Any Participation Interests to be included as Trust Assets or any Eligible
Accounts, other than New Accounts, to be included as Accounts, are collectively
referred to herein as an "Aggregate Addition". "Eligible Account" means a
revolving credit card account owned by Household Bank and its successors and
assigns and/or any transferee of the Accounts from such bank or any other
originator of Accounts which enters into a receivables purchase agreement with
the Seller or any additional Seller which, as of the respective date of
designation, is in existence and maintained by Household Bank or such
successors, transferees or originator, is payable in United States dollars, has
a cardholder whose address is in the United States or its territories or
possessions, has a cardholder who has not been identified as being involved in
any voluntary or involuntary bankruptcy proceeding, has not been identified as
an account with respect to which the related card has been lost or stolen, has
not been sold or pledged to any other party except for any transferee referred
to above, does not have receivables which have been sold or pledged to any other
party; and with respect to Additional Accounts, certain other accounts which
shall have satisfied the Rating Agency Condition.
ALLOCATIONS. To the extent provided in any Supplement, or any amendment to the
Pooling and Servicing Agreement, portions of the Receivables or Participation
Interests conveyed to the Trust and all collections received with respect
thereto may be allocated to one or more Series or Groups as long as the Rating
Agency Condition shall have been satisfied with respect to such allocation and
the Servicer shall have delivered an officer's certificate to the Trustee to the
effect that the Servicer reasonably believes such allocation will not have an
Adverse Effect.
THE CREDIT CARD BUSINESS OF HOUSEHOLD BANK (SB), N.A.
GENERAL
Pursuant to the Bank Purchase Agreement, Household Bank (or Household Bank,
f.s.b., as its predecessor in interest under the Bank Purchase Agreement) has
transferred and Household Bank will transfer to the Seller, and the Seller in
turn has transferred and will transfer to the Trust pursuant to the Pooling and
Servicing Agreement, the Receivables which have or will be generated from
transactions made by holders of certain VISA and MasterCard credit card
accounts. Accounts are serviced by Household Credit Services, Inc. primarily
from its facilities in Salinas, California, Las Vegas, Nevada and Chesapeake,
Virginia.
All accounts are scored each month with a behavioral scoring system that
predicts the likelihood of serious future delinquency based on the account's
previous history. Household Bank uses behavioral scoring to manage credit lines,
authorizations, collections and card reissuance.
The VISA and MasterCard credit card accounts held or to be held by
Household Bank are or will be principally generated through: (i) the mailing of
preapproved applications directly to prospective cardholders
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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 Card(SM)" program and originated by Household Bank or
its affiliates, Household Bank, f.s.b. and Household Bank (Nevada), National
Association ("HBNV"). In May 1998, HBNV sold certain accounts it had generated
under "The GM Card(SM)" program to Household Bank. The Accounts were issued by
Household Bank or such affiliates in accordance with the underwriting criteria
as explained below.
New account originations under "The GM Card(SM)" program 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 and such affiliates, 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 and such affiliates established credit
quality standards. The credit quality standards of HBNV pertaining to the
accounts it sold to Household Bank are substantially the same as those of
Household Bank. 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 such as overall indebtedness levels of the applicant and the
ratio of income to such indebtedness 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 and HBNV offer 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 -- Issuance of Additional Series" and "-- Addition of Trust Assets".
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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
Card(SM)" 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 Household Bank 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 Card(SM)", [excluding GM Card Accounts converted from other credit card
accounts] and including the GM Card Accounts acquired by Household Bank from
HBNV, 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 March 31,
1998, the Accounts constitute substantially all of the Portfolio. Origination of
Accounts with respect to "The GM Card(SM)" program commenced in September 1992.
Information for the Portfolio presented below reflects performance of all GM
Card Accounts, [excluding GM Card Accounts converted from other credit card
accounts,] of Household Bank or an affiliate during the periods indicated. 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
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<PAGE> 38
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. In addition, because the Accounts
that were acquired by Household Bank from HBNV consisted only of current
Accounts that were less than 30 days delinquent, the results shown in the
following table may not be indicative of future performance.
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>
THREE MONTHS YEARS ENDED DECEMBER 31,
ENDED MARCH 31, ----------------------------------------
1998 1997 1996 1995
--------------- ---- ---- ----
<S> <C> <C> <C> <C>
Average Receivables Outstanding(2).... $ $ $6,431,033 $6,047,865
Total Net Charge-offs(3).............. $ $ $ 342,922(4) $ 276,288(4)
Total Net Charge-offs as a Percentage
of Average Receivables
Outstanding......................... % % 5.33% 4.57%
</TABLE>
- -------------------------
(1) Substantially all information for "The GM Card(SM)" 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.
(5)
AVERAGE DELINQUENCIES AS A PERCENTAGE OF THE PORTFOLIO(1)(2)
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
AVERAGE OF AVERAGE OF AVERAGE OF AVERAGE OF
THREE MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- ----------------------- ----------------------- -----------------------
NUMBER OF DAYS DELINQUENT PERCENTAGE DELINQUENT PERCENTAGE DELINQUENT PERCENTAGE DELINQUENT PERCENTAGE
DELINQUENT AMOUNT (3) AMOUNT (3) AMOUNT (3) AMOUNT (3)
- -------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5-29................... $ % $ % $241,415 3.75% $218,297 3.61%
30-59.................. % % 79,647 1.24% 65,048 1.08%
60-89.................. % % 52,214 0.81% 42,406 0.70%
90-119................. % % 40,443 0.63% 33,476 0.55%
120+................... % % 61,002 0.95% 50,936 0.84%
-------- ----- -------- ----- -------- ----- -------- -----
Total.................. $ % $ % $474,721 7.38% $410,163 6.78%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- -------------------------
(1) Average delinquencies are the average of month end delinquent amounts.
(2) Substantially all information for "The GM Card(SM)" 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.
(4)
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<PAGE> 39
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>
THREE MONTHS YEARS ENDED DECEMBER 31,
ENDED ------------------------------------
MARCH 31, 1998 1997 1996 1995
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
Average Receivables Outstanding(2).......... $ $ $6,431,033 $6,047,865
Total Finance Charges and Fees Billed(3).... $ $ $ 977,360 $ 964,160
Total Finance Charges and Fees Billed as a
Percentage of Average Receivables
Outstanding............................... % % 15.20% 15.94%
</TABLE>
- -------------------------
(1) Substantially all information for "The GM Card(SM)" Accounts was derived
from reports prepared by a servicer that is not affiliated with Household
Bank or the Servicer.
(2) Calculated as the average of the average monthly beginning and average
monthly ending receivables balance.
(3) Excludes revenue attributable to Interchange and is net of finance charges
accrued on charged-off accounts.
(4)
The 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 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 "Risk Factors -- Ability of Household Bank to Change
Terms of Accounts", "Certain Legal Aspects of the Receivables -- Consumer
Protection Laws", "-- Proposed Legislation", "The Pooling and Servicing
Agreement -- Collection and Other Servicing Procedures" and "Description of the
Bank Purchase Agreement -- Certain Covenants". Neither the Servicer
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<PAGE> 40
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 Card(SM)" program which meet the eligibility criteria set forth in the
Pooling and Servicing Agreement.
Pursuant to the Pooling and Servicing Agreement, the Seller has the right
(subject to certain limitations and conditions) to require Household Bank 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
Trust all Receivables of such Additional Accounts, whether such Receivables are
then existing or thereafter created. Household Bank is obligated pursuant to the
Bank Purchase Agreement to designate such qualifying accounts and to convey the
Receivables thereunder, whether such Receivables are then existing or thereafter
created, to the Seller for the Seller's conveyance thereof to the Trust pursuant
to the Pooling and Servicing Agreement. In addition, the Seller will be
obligated under certain circumstances to require Household Bank to designate
Additional Accounts the Receivables of which, whether then existing or
thereafter created, will be conveyed to the Trust. 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 -- 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 -- 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.
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
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<PAGE> 41
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 March 31, 1998, the Receivables pertaining
to the Accounts had an average principal balance of $ , and the Accounts
had an average credit limit of $ and a weighted average age of
approximately months. The average total Receivable balance as a percentage of
the average credit limit with respect to such Accounts was % as of the
close of business on March 31, 1998. Approximately %, %, %,
% and % of the Receivables as of the close of business on March 31,
1998 relate to cardholders having billing addresses in [California, New York,
Texas, Michigan and Florida], respectively. As of the close of business on March
31, 1998, the Receivable balance of the nonpremium and premium Accounts as a
percentage of the total Receivable balance of the Accounts was approximately
% and %, respectively.
As of the close of business on March 31, 1998, Accounts
representing $ or % of the total Receivables outstanding were
current or less than 30 days delinquent, and Accounts representing
$ or % of the total Receivables outstanding were greater than
29 days delinquent as reflected on the Subservicer's collection system. The
Receivables currently in the Trust were generated under Accounts that were
originated in 1992 through 1997. 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 March 31, 1998 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............... % $ %
$1,000.01 to $2,000.00........................ % %
$2,000.01 to $3,000.00........................ % %
$3,000.01 to $4,000.00........................ % %
$4,000.01 to $5,000.00........................ % %
$5,000.01 to $6,000.00........................ % %
$6,000.01 to $7,000.00........................ % %
$7,000.01 to $8,000.00........................ % %
$8,000.01 to $9,000.00........................ % %
$9,000.01 to $10,000.00....................... % %
Over $10,000.00............................... % %
--------- ------- -------------- -------
Total.................................... 100.00% $ 100.00%
========= ======= ============== =======
</TABLE>
39
<PAGE> 42
COMPOSITION OF ACCOUNTS BY CREDIT LIMIT
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
CREDIT LIMIT ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Less than or equal to $1,000.00............... % $ %
$1,000.01 to $2,000.00........................ % %
$2,000.01 to $3,000.00........................ % %
$3,000.01 to $4,000.00........................ % %
$4,000.01 to $5,000.00........................ % %
$5,000.01 to $6,000.00........................ % %
$6,000.01 to $7,000.00........................ % %
$7,000.01 to $8,000.00........................ % %
$8,000.01 to $9,000.00........................ % %
$9,000.01 to $10,000.00....................... % %
Over $10,000.00............................... % %
--------- ------- -------------- -------
Total.................................... 100.00% $ 100.00%
========= ======= ============== =======
</TABLE>
COMPOSITION OF ACCOUNTS BY AGE
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
AGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
--- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Less than 24 months........................... % $ %
Over 24 months to 48 months................... % %
Over 48 months................................ % %
--------- ------- -------------- -------
Total.................................... 100.00% $ 100.00%
========= ======= ============== =======
Weighted Average Age (Months).................
</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.
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
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<PAGE> 43
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 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.
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<PAGE> 44
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 transactions described herein and
other transactions entered into in connection with the Trust and any activities
incidental to and necessary or convenient for the accomplishment of such
purposes. Neither 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, auto finance loans and
unsecured loans, including MasterCard, VISA and private label credit cards to
consumers in the United States. The business also includes purchasing loans of a
similar nature from other lenders. Loans are made through branch lending
offices, direct marketing and telemarketing as well as through dealer networks
and retail stores.
In conjunction with its consumer finance operations and where applicable
laws permit, the Servicer makes available to customers credit life, credit
accident, health and disability insurance. Such insurance is generally directly
written by or reinsured with Household Life Insurance Company or its affiliates.
As of March 31, 1998, the Servicer had approximately $ billion in total
assets, approximately $ billion in total liabilities and approximately $
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
42
<PAGE> 45
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 the Special Funding
Account, (and also 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
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 -- 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 -- 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.
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<PAGE> 46
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 1998-1 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 1998-1 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.
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
1998-1 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 1998-1 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
44
<PAGE> 47
Accounts, the potential issuance by the Trust of additional Series and the
availability of Trust Excess Principal Collections 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" and "-- 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 1998-1 Certificates during any
Early Amortization Period or the rate at which the Principal Funding Account or
Special Funding Account could be funded during the Controlled Accumulation
Period or the rate at which the Principal Funding Account could be funded during
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 1998-1 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 any
deposits will be made in the Special Funding Account, that deposits in the
Principal Funding Account will be made on or prior to the Series 1998-1 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 1998-1 Expected
Final Payment Date will equal the expected number of months. See "Risk Factors
- -- Generation of Additional Receivables" and "-- Dependency on Cardholder
Repayments".
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<PAGE> 48
CARDHOLDER MONTHLY PAYMENT RATES FOR THE PORTFOLIO(1)(2)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, ------------------------------
1998 1997 1996 1995
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Lowest Month........................................ % % 21.64% 23.63%
Highest Month....................................... % % 27.22% 28.09%
Average Monthly Payment Rate(3)..................... % % 24.48% 25.74%
</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 Card(SM)" 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> 49
DESCRIPTION OF THE INVESTOR CERTIFICATES
GENERAL
The Investor Certificates will be issued pursuant to the Pooling and
Servicing Agreement and the Series 1998-1 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 1998-1 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 1998-1 Supplement
and is qualified in its entirety by reference to the Pooling and Servicing
Agreement and the Series 1998-1 Supplement.
The Class A Certificates and the Class B Certificates will evidence
undivided beneficial interests in the Trust Assets allocated to the Class A
Interest and the Class B Interest, respectively, representing the right to
receive from such Trust Assets funds up to (but not in excess of) the amounts
required to make payments of interest and principal in the manner described
below.
The Investor Certificates will initially be represented by one or more
Class A Certificates and one or more Class B Certificates registered in the name
of the nominee of DTC (together with any successor depository selected by the
Seller, the "Depository"), except as set forth below. The Investor Certificates
will be available for purchase in minimum denominations of $1,000 and integral
multiples thereof in book-entry form. Each $1,000 principal amount of Class A
Certificates will represent of the Class A Interest and each $1,000
principal amount of Class B Certificates will represent of the Class B
Interest. The Seller has been informed by DTC that DTC's nominee will be Cede.
Accordingly, Cede is expected to be the holder of record of the Class A
Certificates and the Class B Certificates. No Investor Certificateholder will be
entitled to receive a Definitive Certificate representing such person's interest
in the Investor Certificates. Unless and until Definitive Certificates are
issued under the limited circumstances described herein, all references herein
to actions by Class A Certificateholders and/or Class B Certificateholders shall
refer to actions taken by DTC upon instructions from its Participants (as
defined herein), and all references herein to distributions, notices, reports
and statements to Class A or Class B Certificateholders shall refer to
distributions, notices, reports and statements to Cede, as the registered holder
of the Class A Certificates and/or Class B Certificates, for distribution to the
beneficial owners of the Class A Certificates and/or Class B Certificates in
accordance with DTC procedures. See "-- Book-Entry Registration" and "--
Definitive Investor Certificates".
Payments of interest and principal will be made on each related
Distribution Date to the Investor Certificateholders in whose names the Class A
Certificates and the Class B Certificates, as the case may be, were registered
on the last day of the calendar month preceding such Distribution Date, unless
otherwise specified in a Supplement (each, a "Record Date").
INTEREST
Interest will accrue on the unpaid principal amount of the Class A
Certificates and the Class B Certificates during each Interest Period at the
Class A Certificate Rate and the Class B Certificate Rate, respectively. Except
as otherwise provided herein, interest will be distributed to the Investor
Certificateholders monthly on each Distribution Date commencing
and on each Distribution Date thereafter in an amount equal
to the product of the applicable Class A or Class B Certificate Rate and with
respect to the Class A Certificates the applicable unpaid principal amount and
with respect to the Class B Certificates, the Class B Invested Amount. Interest
for the Class A Certificates and the Class B Certificates will be calculated on
the basis of a 360-day year of twelve 30-day months, but for purposes of
calculating the interest payable with respect to the first Interest Period,
interest will accrue from and including the Issuance Date to but excluding
.
The Class A Certificate Rate from and including to and
excluding and with respect to each related Interest Period
thereafter will be at % per annum. The Class B Certificate Rate from and
including to and excluding and with respect to
each related Interest Period thereafter will be at % per annum. For the
purpose of calculating the rate for the
47
<PAGE> 50
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 1998-1 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 or,
under certain circumstances at the Seller's option, be deposited in the Special
Funding Account as described under "-- Special Funding Account". 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 1998-1 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. In addition, the Seller may, under certain
circumstances during the Controlled Accumulation Period, deposit collections of
Principal Receivables in an amount equal to the excess, if any, of the amount of
such collections deposited in the Principal Funding Account in the Special
Funding Account to the extent described under "-- Special Funding Account". On
the Series 1998-1 Expected Final Payment Date any amounts on deposit in the
Principal Funding Account will be distributed 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. In addition, the Seller may, under certain
circumstances, deposit such collections in the Special Funding Account as
described under "-- Special Funding Account".
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, 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
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<PAGE> 51
(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 1998-1 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 ; 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 months.
Beginning on the Determination Date immediately preceding the
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 1998-1 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 Due
Period. If the Controlled Accumulation Period Length is less than months,
the Controlled Accumulation Period may commence later than the close of business
on the last business day of , 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 . 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 Invested Amount
and (z) the Series 1998-1 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, $ ;
provided, however, that if the Controlled Accumulation Period Length is
determined to be less than months, the Controlled Accumulation Amount for
each Distribution Date with respect to the Controlled Accumulation Period will
be not greater
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<PAGE> 52
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, paid to the Seller as described under "-- Reallocation of Trust
Excess Principal Collections" or, under certain circumstances at the Seller's
option, be deposited in the Special Funding Account as described under "--
Special Funding Account". 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 or Special Funding Account as described below, 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 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
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<PAGE> 53
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' 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"). The Seller does not intend to invest in any Eligible Investment
that would cause the Trust to become an "investment company" within the meaning
of the Investment Company Act of 1940. 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.
SPECIAL FUNDING ACCOUNT
If, on any date, the Seller's Participation Amount is greater than zero but
less than or equal to the Series Required Seller Amount, the Servicer may elect,
provided that no Series is then in an early accumulation period or early
amortization period, not to distribute to the holders of the Seller's
Certificate any collections of
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Trust Excess Principal Collections allocable to a Series or a Group that
otherwise would be distributed to such holders, but may deposit such funds in an
account with an Eligible Institution established and maintained by the Servicer
for the benefit of the Certificateholders of each Series, in the name of the
Trustee, on behalf of the Trust, and bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the
Certificateholders of each Series (the "Special Funding Account"). Funds on
deposit in the Special Funding Account may be withdrawn and paid to the holders
of the Seller's Certificate at any time or paid to other Series on any
Distribution Date to the extent that, after giving effect to such payment, the
Seller's Participation Amount exceeds the Series Required Seller Amount for all
outstanding Series on such date; provided, however, that if an early
accumulation period or early amortization period commences with respect to any
Series, any funds on deposit in the Special Funding Account will be released
therefrom and deposited into the Collection Account and treated as Trust Excess
Principal Collections to the extent needed to make principal payments due to or
for the benefit of the Certificateholders of such Series. Funds on deposit in
the Special Funding Account will be invested by the Trustee, at the direction of
the Servicer, in Eligible Investments. No assurance can be given, however, that
any funds will be deposited in the Special Funding Account. Any earnings (net of
losses and investment expenses) earned on amounts on deposit in the Special
Funding Account during any Due Period will be withdrawn from the Special Funding
Account and treated as collections of Finance Charge and Administrative
Receivables with respect to such Due Period. No assurance can be given, however,
that any investment earnings will be earned.
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, or such lesser amount as may be provided in the
Supplement for such Series. 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.
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"Series Required Seller Amount" means an amount equal to a designated
percentage of the initial invested amount for such Series; for Series
1998-1 equal to 7% of the 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.
Series 1998-1 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,
including any amounts on deposit in the Special Funding Account (other than the
portion constituting Finance Charge and Administrative Receivables) 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 sum of (i) the total amount
of Principal Receivables in the Trust as of the last day of the immediately
preceding Due Period, plus (ii) the amount, if any, on deposit in the Special
Funding Account (other than the portion constituting Finance Charge and
Administrative Receivables) 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
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been reduced to fund the Class A Investor Default Amount on all prior
Distribution Dates as described under "-- Investor Charge-Offs", and plus
(vi) the sum of (A) the aggregate amount of Series Allocable Miscellaneous
Payments allocated and available on all prior Distribution Dates to fund
the Class B Investor Default Amount and (B) the aggregate amount of Excess
Finance Charge and Administrative Collections and certain other amounts
allocated and available on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (iii), (iv)
and (v).
"Collateral Invested Amount" means an amount equal to (i) the initial
Collateral Invested Amount, minus (ii) the aggregate amount of deposits
made to the Cash Collateral Account from 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 Interest
Payment (plus any additional interest accrued on such overdue Class A Interest
Payment and Class B
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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 generally 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 1998-1 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 1998-1 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 or,
under certain circumstances at the Seller's option, deposited in the Special
Funding Account, 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 Account 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) 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
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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 1998-1 (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) % 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 1998-1 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.
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 1998-1 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
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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 "-- Subordination". 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 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
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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
(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
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<PAGE> 62
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:
(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
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(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.
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
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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.
REALLOCATIONS AMONG INVESTOR CERTIFICATES OF DIFFERENT SERIES
Group Three Investor Finance Charges. The Series offered hereby will be
included in Group Three. While Series 1998-1 will be the first Series issued in
Group Three, the Trust has previously issued other Series in other Groups.
Additional Series issued in the future may also be included in Group Three or
other Groups but there is no assurance that, for any Series in a Group
(including Group Three), 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 Three 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 Three in the following priority:
(i) Group Three Investor Monthly Interest;
(ii) Group Three Investor Default Amounts;
(iii) Group Three Investor Monthly Fees;
(iv) Group Three Investor Additional Amounts; and
(v) the balance pro rata among each Series in Group Three 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
Three 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 Three pro rata based on the claim that each Series has under
the applicable clause. This means, for example, that if the amount of Group
Three Investor Finance Charge and Administrative Collections is not sufficient
to cover Group Three Investor Monthly Interest, each Series in
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Group Three 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 Three 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 1998-1 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 Three 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 Three, (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 Three Investor Default Amount" means for any Distribution Date
the sum of (a) with respect to the Investor Certificates and the Collateral
Invested Amount, the product of Series Allocable Defaulted Amount for such
Distribution Date and the Floating Allocation Percentage for such
Distribution Date and (b) with respect to any other Series in Group Three,
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 Three 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 Three.
"Group Three 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 Three, 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 Three 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 Three 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 Three. For illustrative purposes, the chart assumes that the Trust has
issued three Series in Group Three (Series 98-1, 98-2 and 98-3), 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 Three, and there is no limit to
the number of Series which may be included in Group Three or in any
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other Group, although there can be no assurance that any other Series will be
included in Group Three or in any other Group. The Trust, however, has eleven
series outstanding, four of which are in Group One and one of which is in Group
Two. See "Annex I -- Prior Issuance of Investor Certificates."
CREDIT CARD MASTER TRUST
FINANCE CHARGE COLLECTIONS
-----------------------------------------------------------
Series 1998-1 Series 1998-2 Series 1998-3
Series Series Series
Allocable Allocable Allocable
Finance Finance Finance
Charge and Charge and Charge and
Administrative Administrative Administrative
Collections Collections Collections
Step 1
(based upon the (based upon the (based upon the
Series Series Series
Allocation Allocation Allocation
Percentage) Percentage) Percentage)
------------ ------------ --------------
Investor Investor Investor
Finance Finance Finance
Charge and Charge and Charge and
Administrative Administrative Administrative
Collections Collections Collections
(based (based (based
upon the upon the upon the
Floating Floating Floating
Allocation Allocation Allocation
Percentage) Percentage) Percentage)
Step 2
Seller's Seller's Seller's
Finance Finance Finance
Charges Charges Charges
---------------------------------------------------
Step 3
Group Three
Investor Finance Charge and Administrative
Collections
-------------------------
-------------------------
Step 4
Series 98-1 Series 98-2 Series 98-3
Investor Investor Investor
Monthly Monthly Monthly
Interest Interest Interest
-------------------------
-------------------------
Series 98-1 Series 98-2 Series 98-3
Investor Investor Investor
Default Amounts Default Amounts Default Amounts
-------------------------
-------------------------
Series 98-1 Series 98-2 Series 98-3
Investor Investor Investor
Monthly Fees Monthly Fees Monthly Fees
-------------------------
-------------------------
Series 98-1 Series 98-2 Series 98-3
Investor Additional Amounts
Investor Additional Amounts
Investor Additional Amounts
----------------------------------
Series 98-1 Series 98-2 Series 98-3
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
1998-1 Allocations" and see also "-- Reallocations Among Investor Certificates
of Different Series -- Group Three Investor Finance Charges".
Investor Finance Charge and Administrative Collections for all Series in
the Group (or Group Three 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 Three Investor Finance Charge and
Administrative Collections are reallocated to each Series in Group Three 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 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
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"-- 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 1998-1 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) $ initially and (ii) thereafter an
amount equal to the greater of (a) % 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) $ ; 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 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.
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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, (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" and (iii)
withdrawals from the Cash Collateral Account available for such purpose [as
described under "-- Description of the Cash Collateral Account"].
If on any Distribution Date, the Class B Required Amount, if any, for such
Distribution Date exceeds the amount of Excess Finance Charge and Administrative
Collections which are allocated and available to fund such amount as described
under "-- Excess Finance Charge and Administrative Collections", funds available
in the Cash Collateral Account and Subordinated Principal Collections allocable
to the Collateral Invested Amount (to the extent not used to pay the Class A
Required Amount), then the Collateral Invested Amount shall be reduced by the
aggregate amount of such excess but not more than the Class B Investor Default
Amount for such Distribution Date. In the event that such reduction would cause
the Collateral Invested Amount to be a negative number, the Collateral Invested
Amount will be reduced to zero, and the Class B 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), (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" and (iii)
withdrawals from the Cash Collateral Account available for such purpose [as
described under "-- Description of the Cash Collateral Account"].
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OPTIONAL REPURCHASE
On the Distribution Date occurring on or after the date that the sum of the
Class A Invested Amount and the Class B Invested Amount is reduced to
$ (5% of the initial outstanding aggregate principal amount of the
Class A Certificates, the Class B Certificates and the Collateral Interest) or
less, the Seller will have the option to repurchase the Certificateholders'
Interest. The purchase price will be equal to the sum of the Class A Invested
Amount and the Class B Invested Amount plus accrued and unpaid interest on the
unpaid principal amount of the Class A Certificates and the Class B Certificates
(and accrued and unpaid interest with respect to interest amounts that were due
but not paid on such Distribution Date or any prior Distribution Date) through
the day preceding such Distribution Date at the Class A Certificate Rate and the
Class B Certificate Rate, respectively. Such proceeds will be allocated first to
pay amounts due to the Class A Certificateholders and secondly, to pay amounts
due to the Class B Certificateholders. Following any such repurchase, the
Receivables will be assigned to the Seller and the Class A Certificateholders
and the Class B Certificateholders will have no further rights with respect
thereto. In the event that the Seller fails for any reason to deposit the
aggregate purchase price for such Receivables, the Trust will continue to hold
the Receivables and payments will continue to be made to the Class A and Class B
Certificateholders as described herein.
AMORTIZATION EVENT
An "Amortization Event" refers to any of the following events:
(a) failure on the part of the Seller (i) to make any payment or
deposit required under the Pooling and Servicing Agreement and Series
1998-1 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 1998-1 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 1998-1 Supplement or any information
required to be given by the Seller to the Trustee to identify the Accounts
proves to have been incorrect in any material respect when made and which
continues to be incorrect in any material respect for a period of 60 days
after written notice and as a result of which the interests of the Investor
Certificateholders are materially and adversely affected, provided,
however, that an Amortization Event shall not be deemed to occur thereunder
if the Seller has repurchased the related Receivables or all such
Receivables, if applicable, during such period in accordance with the
provisions of the Pooling and Servicing Agreement and such Supplement;
(c) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Seller, any additional Seller or Household
Bank;
(d) any reduction of the 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 or make deposits to the Special Funding Account so as
to increase the Principal Receivables in the Trust or increase the deposits
in the Special Funding Account so as to maintain 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 1998-1 Expected Final Payment Date;
(i) the occurrence of a Reserve Account Event; or
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(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". Any amounts on deposit in the
Special Funding Account at the commencement of the Early Amortization Period or
Early Accumulation Period allocable to the Investor Certificateholders will be
withdrawn from the Special Funding Account and made available for distribution
to the Investor Certificateholders to the extent described under "Description of
the Investor Certificates -- Special Funding Account." If, because of the
occurrence of one of the Amortization Events which triggers the commencement of
the Early Amortization Period, the Early Amortization Period begins prior to the
Series 1998-1 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
while the occurrence of an early amortization period or early accumulation
period for any other Series may also end the reinvestment of the
Certificateholders' Interest in new Receivables to the extent described under
"Description of the Investor Certificates -- Principal" and "-- Special Funding
Account." 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.
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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, 1995-1 and 1997-1 may
object and prevent such sale (unless a receiver orders a sale despite such
objection). The credit enhancer for Series 1998-1 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.
In the event that the Invested Amount for the Series offered hereby is
greater than zero on the Distribution Date (the "Series 1998-1
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
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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 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
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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 "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").
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
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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
"Federal Income Tax Consequences -- Non-U.S. Investor Certificateholders" and
"--Information Reporting and Backup Withholding".
Investor Certificateholders that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Investor Certificates may do so only through Participants
and Indirect Participants. In addition, Investor Certificateholders will receive
all distributions of principal and interest on the Investor Certificates from
the Trustee through DTC and its Participants. Under a book-entry format,
Investor Certificateholders will receive payments after the related Distribution
Date, as the case may be, because, while payments are required to be forwarded
to Cede, as nominee for DTC, on each such date, DTC will forward such payments
to its Participants which thereafter will be required to forward them to
Indirect Participants or holders of beneficial interests in the Investor
Certificates. It is anticipated that the only "Class A Certificateholder" and
"Class B Certificateholder" will be Cede, as nominee of DTC, and that holders of
beneficial interests in the Class A Certificates or the Class B Certificates
will not be recognized by the Trustee as Class A Certificateholders or Class B
Certificateholders, respectively, under the Pooling and Servicing Agreement.
Holders of beneficial interests in the Class A Certificates and Class B
Certificates will only be permitted to exercise the rights of Class A
Certificateholders or Class B Certificateholders, respectively, under the
Pooling and Servicing Agreement indirectly through DTC and its Participants who
in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Investor Certificates and is
required to receive and transmit distributions of principal of and interest on
the Investor Certificates. Participants and Indirect Participants with which
holders of beneficial interests in the Investor Certificates have accounts
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of these respective holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Investor Certificates to pledge Investor
Certificates to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Investor Certificates, may be
limited due to the lack of a Definitive Certificate for such Investor
Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Class A Certificateholder or Class B Certificateholder under the
Pooling and Servicing Agreement and the Series 1998-1 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
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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 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 "Federal Income Tax Consequences -- Non-U.S. Investor
Certificateholders" and "-- Information Reporting and Backup Withholding". 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 1998-1 Supplement on behalf of a CEDEL
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect such actions on
its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Investor Certificates among participants of
DTC, CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE INVESTOR CERTIFICATES
Definitive Certificates will be issued to Class A Certificateholders or
Class B Certificateholders, as the case may be, rather than to DTC or its
nominee, only if (i) the Seller advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as Depository
with respect to the Class A Certificates or Class B Certificates, as the case
may be, and the Trustee or the Seller is unable to locate a qualified successor,
(ii) the Seller, at its option, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of a Servicer Default, certificate
owners evidencing not less than 50% of the
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aggregate unpaid principal amount of the Investor Certificates, advise the
Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of certificate owners with respect to the Investor Certificates, as
the case may be.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Investor Certificates and
instructions for reregistration, the Trustee will issue the Investor
Certificates in the form of Definitive Certificates, and thereafter the Trustee
will recognize the holders of such Definitive Certificates as Class A
Certificateholders or Class B Certificateholders, as the case may be, under the
Pooling and Servicing Agreement and the Series 1998-1 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 1998-1
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
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 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
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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". The
Seller has removed Receivables from certain Accounts in accordance with the
provisions of the Pooling and Servicing Agreement.
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, 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
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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 difference between (a) the sum of (i) the total aggregate amount of
Principal Receivables in the Trust at such time and (ii) the amount, if any, on
deposit in the Special Funding Account (other than the portion constituting
Finance Charge and Administrative Receivables) (the "Special Funding Amount") at
such time and (b) 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 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
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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 pay any such reassignment price 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 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 amount
equal to (a) the sum of the Series Adjusted Invested Amounts for all outstanding
Series plus the sum of the Series Required Seller Amount for all outstanding
Series minus (b) the Special Funding Amount.
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 March 31, 1998, 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 March 31, 1998 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 March 31, 1998 or may have been acquired from another credit card issuer or
entity who had different credit criteria. Consequently, the performance of such
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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
March 31, 1998.
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.
The Seller has removed Receivables from certain Removed Accounts in accordance
with the terms and provisions of the Pooling and Servicing Agreement.
INDEMNIFICATION
The Pooling and Servicing Agreement provides that the Servicer will
indemnify the Trust and the Trustee from and against any loss, liability,
expense, damage or injury suffered or sustained arising out of certain of the
Servicer's actions or omissions with respect to the Trust pursuant to the
Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that neither the Seller nor
the Servicer or any of their directors, officers, employees or agents will be
under any other liability to the Trust, the Trustee, the investor
certificateholders or any other person for any action taken, or for refraining
from taking any action, in good faith pursuant to the Pooling and Servicing
Agreement. However, neither the Seller nor the Servicer will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence of the Seller, the Servicer or any
such person in the performance of their duties or by reason of reckless
disregard of their obligations and duties thereunder.
In addition, the Pooling and Servicing Agreement provides that the Servicer
is not under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its servicing responsibilities under the Pooling and
Servicing Agreement. The Servicer may, in its sole discretion, undertake any
such legal action which it may deem necessary or desirable for the benefit of
Investor Certificateholders with respect to the Pooling and Servicing Agreement
and the rights and duties of the parties thereto and the interests of the
Investor Certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
responsible for servicing, collecting, enforcing and administering the
Receivables in accordance with customary and usual procedures for servicing
credit card receivables, but in any event at least comparable with the policies
and procedures and the degree of skill and care applied or exercised with
respect to any other credit card receivables it, or its affiliates, service.
Pursuant to the Bank Purchase Agreement, except as otherwise required by
any requirement of law or as is deemed by Household Bank (or any successor to
Household Bank under such agreement) to be necessary in order for it to maintain
its credit card business or a program operated by such credit card business on a
competitive basis based on a good faith assessment by it of the nature of the
competition in the credit card business or such program and only if the change
giving rise to such reduction with respect to a specific
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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 in accordance
with the policies and procedures of Household Bank relating to the operations of
its credit card business or as ordered by a court of competent jurisdiction or
other governmental authority; (c) do nothing to impair the rights of the
investor certificateholders in the Receivables or the related Accounts; and (d)
not reschedule, revise or defer payments due on the Receivables except in
accordance with its guidelines for servicing receivables.
Under the terms of the Pooling and Servicing Agreement, all Receivables in
an Account will be assigned and transferred to the Servicer and such Account
will no longer be included as an Account if the Servicer discovers, or receives
written notice from the Trustee, that any covenant of the Servicer set forth
above has not been complied with in all material respects and such noncompliance
has not been cured within 60 days (or such longer period as may be agreed to by
the Trustee and the Seller) thereafter and has a material adverse effect on the
certificateholders' interest in such Receivable. Such assignment and transfer
will be made when the Servicer deposits an amount equal to the amount of such
Receivable in the Collection Account on the business day preceding the
Distribution Date following the Due Period during which such obligation arises.
This transfer and assignment to the Servicer constitutes the sole remedy
available to the investor certificateholders if such covenant or warranty of the
Servicer is not satisfied and the Trust's interest in any such assigned
Receivables will be automatically assigned to the Servicer.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except (i) upon determination that the
performance of such duties is no longer permissible under applicable law or (ii)
if such obligations and duties are assumed by any affiliate of the Servicer that
is a wholly owned subsidiary of Household International or by any other entity
that has satisfied the Rating Agency Condition.
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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 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,
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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 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
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Class A Certificate without the consent of each Class A Certificateholder, (b)
reduce in any manner the amount of, or delay the timing of, deposits or
distributions on any Class B Certificate, (c) (i) change the definition or the
manner of calculating the Certificateholders' Interest, the Class A Interest or
the Class B Interest or (ii) reduce the aforesaid percentage of the aggregate
unpaid principal amount of the Investor Certificates the holders of which are
required to consent to any such amendment, in each case without the consent of
each Investor Certificateholder or (d) adversely affect the rating of the Class
A Certificates or the Class B Certificates by the Rating Agency without the
consent of the holders of Class A Certificates or Class B Certificates
evidencing not less than 66 2/3% of the aggregate unpaid principal amount of the
Class A Certificates or the Class B Certificates, respectively. Promptly
following the execution of any amendment to the Pooling and Servicing Agreement
(other than an amendment described in the preceding paragraph), the Trustee will
furnish written notice of the substance of such amendment to each investor
certificateholder. For purposes of this paragraph, references to the Investor
Certificates will include the Collateral Interest. Notwithstanding the
foregoing, any Supplement executed in connection with the issuance of one or
more new Series of investor certificates will not be considered an amendment to
the Pooling and Servicing Agreement. Any designation of additional Sellers in
accordance with the terms of the Pooling and Servicing Agreement will also not
be considered an amendment of the Pooling and Servicing Agreement unless the
Supplement designating such additional Seller expressly amends the Pooling and
Servicing Agreement.
LIST OF INVESTOR CERTIFICATEHOLDERS
At such time, if any, as Definitive Certificates have been issued, upon
written request of any Holder or Holders of investor certificates of any Series
or of all outstanding Series of record holding investor certificates evidencing
not less than 10% of the aggregate unpaid principal amount of the investor
certificates, the Trustee will afford such Holder or Holders of investor
certificates access during business hours to the current list of investor
certificateholders of such Series or of all outstanding Series, as the case may
be, for purposes of communicating with other Holders of investor certificates
with respect to their rights under the Pooling and Servicing Agreement. See
"Description of the Investor Certificates -- Book-Entry Registration" and "--
Definitive Investor Certificates".
The Pooling and Servicing Agreement will not provide for any annual or
other meetings of investor certificateholders.
THE TRUSTEE
The Bank of New York will act as trustee under the Pooling and Servicing
Agreement. The Corporate Trust Department of The Bank of New York is located at
101 Barclay Street, Floor 21W, New York, New York 10286. The Seller, Household
Bank, the Servicer and their respective affiliates may from time to time enter
into normal banking and trustee relationships with the Trustee and its
affiliates. The Trustee, the Seller, Household Bank, the Servicer and any of
their respective affiliates may hold investor certificates in their own names;
however, any investor certificates so held shall not be entitled to participate
in any decisions made or instructions given to the Trustee by the investor
certificateholders as a group. In addition, for purposes of meeting the legal
requirements of certain local jurisdictions, the Trustee shall have the power to
appoint a co-trustee or separate trustees of all or any part of the Trust. In
the event of such appointment, all rights, powers, duties and obligations shall
be conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or, in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee, who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
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
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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 by reference to the Bank Purchase Agreement, a form
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part and which is incorporated by reference herein.
SALE OF RECEIVABLES
Pursuant to the Bank Purchase Agreement, Household Bank has sold to the
Seller all its right, title and interest in and to (i) all of the Receivables in
the Accounts and all of the Receivables thereafter created in such Accounts and
(ii) the Receivables in each Additional Account added from time to time to the
Accounts as of the date of such addition, whether such Receivables shall then be
existing or shall thereafter be created. The purchase price of the Purchased
Receivables will not be less than the principal amount thereof as of the time of
sale plus the present value of anticipated excess spread.
In connection with such sale of the Receivables to the Seller, Household
Bank has or will indicate in its computer files that the Receivables have been
sold to the Seller by Household Bank and that such Receivables have been sold or
transferred by the Seller to the Trust. In addition, Household Bank has or will
provide to the Seller a computer file or a microfiche list containing a true and
complete list showing each Account, identified by account number and by total
outstanding balance on the applicable Series date of designation or addition
date for Additional Accounts, as the case may be. The records and agreements
relating to the Accounts and Receivables are not segregated by Household Bank
from other documents and agreements relating to other credit card accounts and
receivables and are not stamped or marked to reflect the sale or transfer of the
Receivables to the Seller, but the computer records of Household Bank are or
will be marked to evidence such sale or transfer. Household Bank, as
debtor/seller has filed a UCC financing statement meeting the requirements of
applicable state law and in each of the jurisdictions in which the books and
records relating to the Accounts are maintained with respect to the Receivables
in the Initial Accounts and Household Bank has filed and will similarly file
with respect to the Receivables in Additional Accounts. See "Risk Factors --
Characteristics as a Sale" "-- Bankruptcy Risks" and "Certain Legal Aspects of
the Receivables".
Pursuant to the Bank Purchase Agreement, Household Bank will, if the Seller
is required to cause Household Bank to designate Additional Accounts under the
Pooling and Servicing Agreement, designate Additional Accounts to be included as
Accounts under the Bank Purchase Agreement. Household Bank and the Seller may
also agree from time to time to designate Additional Accounts under the Bank
Purchase Agreement. See "The Pooling and Servicing Agreement -- 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
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respect to Additional Accounts was a Receivable eligible to be included in the
Trust. In the event of a breach of any representation and warranty set forth in
the Pooling and Servicing Agreement which results in the requirement that the
Seller accept retransfer of each Ineligible Receivable, then Household Bank
shall repurchase such Ineligible Receivable from the Seller on the date of such
retransfer. The purchase price for such Ineligible Receivables shall be the
principal amount thereof plus applicable finance charges.
Household Bank also represents and warrants to the Seller that, among other
things, as of the Issuance Date (a) the Bank Purchase Agreement constitutes a
valid and binding obligation of Household Bank and (b) the Bank Purchase
Agreement constitutes either a valid sale to the Seller of all right, title and
interest of Household Bank in and to the Receivables, thereafter created in the
Accounts and in the proceeds thereof or constitutes a grant of a security
interest in the Receivables. If the breach of any of the representations and
warranties described in this paragraph results in the obligation of the Seller
under the Pooling and Servicing Agreement to accept retransfer of the
Receivables, Household Bank will repurchase the Receivables retransferred to the
Seller for an amount of cash equal to the amount of cash the Seller is required
to deposit under the Pooling and Servicing Agreement in connection with such
retransfer.
CERTAIN COVENANTS
In the Bank Purchase Agreement, Household Bank may change the terms and
provisions of cardmember agreements relating to the Accounts in any respect
(including, without limitation, the calculation of the amount, or the timing, of
charge-offs), so long as any such changes made with respect to a specific
program are made applicable to substantially all of the credit card accounts
subject to such program.
Household Bank also covenants that, except as required by law or as
Household Bank shall deem necessary in order for Household Bank to maintain its
credit card business or a program operated by such credit card business on a
competitive basis based on a good faith assessment by Household Bank of the
nature of its competition with respect to its credit card business or such
program, Household Bank will not take any action which will have the effect of
reducing the Portfolio Yield to a level that could reasonably be expected to
cause any Series to experience an amortization event based on the insufficiency
of the Portfolio Yield and, except as required by law, take any action that
would have the effect of reducing the Portfolio Yield to less than the highest
Average Rate for any Group.
Household Bank also agrees, for the benefit of the Trust, that any amounts
payable by Household Bank to the Seller pursuant to the Bank Purchase Agreement
that are to be paid by the Seller to the Trustee for the benefit of the Investor
Certificateholders will be paid by Household Bank, on behalf of the Seller,
directly to the Trustee. The Seller has agreed in the Pooling and Servicing
Agreement to enforce the covenants and agreements of Household Bank in the Bank
Purchase Agreement.
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 (or an affiliate thereof) known as "The GM Card(SM)". Such
agreement contemplates and provides for securitization transactions of
receivables generated by "The GM Card(SM)".
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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 existing as of such date and assigned its obligations under the Bank
Purchase Agreement to Household Bank without the approval of any Rating Agency
in accordance with the terms of the Bank Purchase Agreement and Pooling and
Servicing Agreement.
TERMINATION
The Bank Purchase Agreement will terminate immediately after the Trust
terminates. In addition, if a conservator or receiver is appointed for Household
Bank or certain other liquidation events occur, Household Bank will immediately
cease to sell or transfer Receivables to the Seller and promptly give notice of
such event to the Seller and to the Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Household Bank will sell the Receivables to the Seller and the Seller, in
turn, will transfer all Receivables to the Trust. Household Bank and the Seller
will represent and warrant that its respective transfers constitute valid sales
and assignments of all of its respective right, title and interest in and to the
Receivables, except for the interest of the Seller as holder of the Seller's
Interest, and if the assignment by the Seller to the Trust does not constitute a
sale of the Receivables, it constitutes a grant of a security interest to the
Trust in and to the Receivables. The Seller will also represent and warrant
that, if the transfer of Receivables by the Seller to the Trust is deemed to
create a security interest under the UCC, there will exist a valid, subsisting
and enforceable first priority perfected security interest in the Receivables,
in existence at the time of the formation of the Trust or at the date of
addition of any Additional Accounts, as the case may be, in favor of the Trust
and a valid, subsisting and enforceable first priority perfected security
interest in the Receivables created thereafter in favor of the Trust on and
after their creation, in each case until termination of the Trust. For a
discussion of the Trust's rights arising from these representations and
warranties not being satisfied, see "The Pooling and Servicing Agreement --
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, 1995-1 and 1997-1 may object and
prevent such sale. The credit enhancer for Series 1998-1 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".
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.
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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 --
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 -- 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 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 -- Representations and
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Warranties" and "-- Servicer Covenants" and "Certain Legal Aspects of the
Receivables -- Consumer Protection Laws".
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 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"), is of the opinion 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.
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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 is of the
opinion 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 is of the 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 does 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 is of the 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
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.
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If the arrangement created by the Pooling and Servicing Agreement were
treated in whole or in part as a publicly traded partnership 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 n 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. Further, if the Trust were treated in whole or in
part as a partnership and the number of holders of interests in the publicly
offered Investor Certificates and other interests in the Trust treated as
partners equaled or exceeded 100, the Seller may cause the Trust to elect to be
an "electing large partnership." The consequence of such election to investors
could include the determination of certain tax items at the partnership level
and the disallowance of otherwise allowable deductions. No representation is
made as to whether any such election will be made.
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.
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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 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, under currently applicable
procedures 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 recently issued final Treasury regulations
which will revise some of the foregoing procedures whereby a non-U.S. Investor
Certificateholder may establish an exemption from withholding generally
beginning January 1, 2000; non-U.S. Certificateholders should consult their tax
advisers concerning the impact to them, if any, of such revised procedures.
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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-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.
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Recently issued final Treasury regulations will revise some of the
foregoing information reporting and backup withholding procedures generally
beginning January 1, 2000; Investor Certificateholders should consult their tax
advisers concerning the impact to them, if any, of such revised procedures.
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 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.
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Assuming the Investor Certificates are treated as indebtedness for Federal
income tax purposes, this treatment will apply for Nevada tax purposes. Pursuant
to this treatment, Investor Certificateholders not otherwise subject to Nevada
tax would not become subject to tax in Nevada because of their ownership of the
Investor Certificates.
If the Investor Certificates are instead treated as ownership interests in
an association taxable as a corporation or a "publicly traded partnership"
taxable as a corporation or other entity having property or personnel in Nevada,
then such entity may be subject to Nevada taxes. Such taxes could result in
reduced distributions to Investor Certificateholders. An Investor
Certificateholder, however, not otherwise subject to tax in Nevada would not
become subject to Nevada taxes as a result of its mere ownership of such an
interest.
Virginia. Some of the activities to be undertaken by the Subservicer in
servicing and collecting the Receivables will also take place in Virginia. The
Virginia Income Tax Act imposes a tax on corporations and partners of
partnerships 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.
95
<PAGE> 98
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.
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.
96
<PAGE> 99
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 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 companies considering the purchase of Investor
Certificates should also consult their own counsel as to the application of the
decision by the United
97
<PAGE> 100
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>
$
--------
Total.................................................. $
========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all
$ aggregate principal amount of the Class A Certificates offered
hereby if any Class A Certificates are purchased. In the event of default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
purchase commitment of all of the Underwriters may be terminated. The Seller has
been advised by the Underwriters that the several Underwriters propose initially
to offer the Investor Certificates to the public at the public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Class A Certificates. The Underwriters may allow and such dealers may reallow to
other dealers a concession not in excess of % of such principal amount.
After the initial public offering, the public offering price may be changed.
98
<PAGE> 101
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Seller has agreed to cause the Trust to sell, and each of the
Underwriters have severally agreed to purchase, the principal amount of Class B
Certificates set forth opposite its name:
CLASS B CERTIFICATES
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ---------
<S> <C>
$
--------
Total.................................................. $
========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all
$ aggregate principal amount of the Class B Certificates offered
hereby if any Class B Certificates are purchased. In the event of default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
purchase commitment of all of the Underwriters may be terminated. The Seller has
been advised by the Underwriters that the 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.
99
<PAGE> 102
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 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.
100
<PAGE> 103
INDEX OF TERMS
<TABLE>
<CAPTION>
TERMS PAGE(S)
----- -------
<S> <C>
Accounts.................................................... 2, 6, 38
Additional Accounts......................................... 7, 34
Adjusted Invested Amount.................................... 9
Administrative Receivables.................................. 7
Adverse Effect.............................................. 32, 78
Aggregate Addition.......................................... 33
Aggregate Addition Account(s)............................... 32
Amortization Event.......................................... 68
Available Collateral Amount................................. 21
Available Investor Principal Collections.................... 61
Average Rate................................................ 30
Bank Purchase Agreement..................................... 6
Bankruptcy Code............................................. 27
Base Rate................................................... 69
Benefit Plans............................................... 96
Cash Collateral Account..................................... 4
Cede........................................................ 3
CEDEL....................................................... 12
CEDEL Participants.......................................... 73
Certificateholders' Interest................................ 5
Chase....................................................... 13
Citibank.................................................... 13
Class A Adjusted Invested Amount............................ 8, 53
Class A Certificate(s)...................................... 1, 4
Class A Certificate Rate.................................... 4
Class A Certificateholders.................................. 2
Class A Interest............................................ 5
Class A Interest Payment.................................... 13
Class A Invested Amount..................................... 53
Class A Invested Percentage................................. 59
Class A Investor Charge-Off................................. 67
Class A Investor Default Amount............................. 66
Class A Pool Factor......................................... 72
Class A Principal Funding Account Percentage................ 59
Class A Required Amount..................................... 18, 57
Class B Adjusted Invested Amount............................ 8, 53
Class B Certificate(s)...................................... 1, 4, 9
Class B Certificate Rate.................................... 4
Class B Certificateholders.................................. 2
Class B Interest............................................ 5
Class B Interest Payment.................................... 13
Class B Invested Amount..................................... 18, 53
Class B Invested Percentage................................. 60
Class B Investor Charge-Off................................. 67
Class B Investor Default Amount............................. 66
Class B Pool Factor......................................... 72
Class B Principal Funding Account Percentage................ 60
Class B Required Amount..................................... 20, 58
Code........................................................ 24
Collateral Agreement........................................ 22
Collateral Amount........................................... 5
Collateral Charge-Off....................................... 71
</TABLE>
101
<PAGE> 104
<TABLE>
<CAPTION>
TERMS PAGE(S)
----- -------
<S> <C>
Collateral Default Amount................................... 71
Collateral Interest......................................... 5
Collateral Interest Holder.................................. 5
Collateral Invested Amount.................................. 5, 54
Collateral Invested Percentage.............................. 60
Collateral Monthly Interest................................. 62
Collateral Rate............................................. 13
Collection Account.......................................... 51
Commission.................................................. 3
Controlled Accumulation Period.............................. 14
Controlled Accumulation Period Length....................... 49
Controlled Accumulation Amount.............................. 15, 49
Controlled Deposit Amount................................... 15, 49
Cooperative................................................. 74
Covered Amount.............................................. 56
Daily Balance............................................... 41
Defaulted Amount............................................ 66
Defaulted Receivables....................................... 9
Definitive Certificate(s)................................... 12
Depositaries................................................ 72
Depository.................................................. 47
Determination Date.......................................... 23
Distribution Date........................................... 2, 13
Distribution Date Statement................................. 71
DOL......................................................... 24
DTC......................................................... 3
Due Period.................................................. 9
Early Accumulation Period................................... 16
Early Amortization Period................................... 17
EDS......................................................... 22
Eligible Account............................................ 33
Eligible Institution........................................ 51
Eligible Investments........................................ 51
Eligible Receivable......................................... 76
ERISA....................................................... 24, 96
ERISA Plan.................................................. 96
Euroclear................................................... 12
Euroclear Operator.......................................... 74
Euroclear Participants...................................... 74
Excess Finance Charge and Administrative Collections........ 58
Exchange Act................................................ 3
FDIA........................................................ 26
FDIC........................................................ 10
Finance Charge and Administrative Receivables............... 7
Finance Charge Receivables.................................. 7
FIRREA...................................................... 26, 87
Floating Allocation Percentage.............................. 53
GM.......................................................... 85
Group....................................................... 5
Group A..................................................... 12
Group B..................................................... 12
Group C..................................................... 12
Group D..................................................... 12
Group E..................................................... 12
</TABLE>
102
<PAGE> 105
<TABLE>
<CAPTION>
TERMS PAGE(S)
----- -------
<S> <C>
Group F..................................................... 12
Group One................................................... 12
Group Two................................................... 12
Group Three................................................. 5
Group Three Investor Additional Amounts..................... 63
Group Three Investor Default Amount......................... 63
Group Three Investor Finance Charge and Administrative
Collections............................................... 63
Group Three Investor Monthly Fees........................... 63
Group Three Investor Monthly Interest....................... 63
HBNV........................................................ 34
Holders..................................................... 75
Household Bank.............................................. 2, 4
Household International..................................... 42
Indirect Participants....................................... 72
Ineligible Receivables...................................... 76
Initial Accounts............................................ 6
Initial Cut-Off Date........................................ 2, 6
Initial Issuance Date....................................... 6
Insolvency Event............................................ 26
Insolvency Proceeds......................................... 70
Interchange................................................. 38
Interest Period............................................. 13
Invested Amount............................................. 14
Investor Certificate(s)..................................... 1, 4
Investor Certificateholders................................. 2
Investor Defaulted Amount................................... 66
Investor Finance Charge and Administrative Collections...... 65
IRS......................................................... 89
Issuance Date............................................... 2
LIBOR....................................................... 48
MasterCard.................................................. 6
MasterCard International.................................... 6
NASD........................................................ 99
New Account................................................. 32
non-U.S. Investor Certificateholder......................... 92
OID......................................................... 91
Participants................................................ 72
Participation Interests..................................... 5
parties in interest......................................... 96
Plan Asset Regulation....................................... 96
Pooling and Servicing Agreement............................. 1
Portfolio................................................... 34
Portfolio Yield............................................. 30
Preferred Stock............................................. 5
Prime Rate.................................................. 8
Principal Allocation Percentage............................. 53
Principal Funding Account................................... 4, 14, 56
Principal Funding Investment Proceeds....................... 56
Principal Receivables....................................... 7
Principal Shortfalls........................................ 55
Publicly-Offered Securities Exemption....................... 96
Rating Agency............................................... 27
Rating Agency Condition..................................... 31
Reallocated Investor Finance Charge and Administrative
Collections............................................... 63
</TABLE>
103
<PAGE> 106
<TABLE>
<CAPTION>
TERMS PAGE(S)
----- -------
<S> <C>
Receivables................................................. 2, 7
Record Date................................................. 47
Recoveries.................................................. 7
Regulations................................................. 90
Removal Notice.............................................. 79
Removed Accounts............................................ 7
Required Collateral Amount.................................. 21, 66
Required Minimum Principal Balance.......................... 78
Required Reserve Amount..................................... 57
Reserve Account............................................. 4, 57
Reserve Account Event....................................... 57
Revolving Period............................................ 13
Securities Act.............................................. 3
Seller...................................................... 1, 4
Seller's Certificate........................................ 10
Seller's Interest........................................... 5
Seller's Participation Amount............................... 77
Seller's Percentage......................................... 54
Series...................................................... 4
Series Adjusted Invested Amount............................. 52
Series Adjusted Portfolio Yield............................. 69
Series Allocable Defaulted Amount........................... 52
Series Allocable Finance Charge and Administrative
Collections............................................... 52
Series Allocable Miscellaneous Payments..................... 52
Series Allocable Principal Collections...................... 52
Series Allocation Percentage................................ 52
Series Enhancement.......................................... 5
Series 1998-1 Cut-Off Date.................................. 13
Series 1998-1 Expected Final Payment Date................... 14
Series 1998-1 Supplement.................................... 1
Series 1998-1 Termination Date.............................. 70
Series Required Seller Amount............................... 53
Service Transfer............................................ 81
Servicer.................................................... 1, 4
Servicer Default............................................ 81
Servicer Report............................................. 71
Servicing Fee............................................... 70
Special Counsel............................................. 24, 89
Special Funding Account..................................... 52
Special Funding Amount...................................... 77
Subordinated Principal Collections.......................... 19
Subservicer................................................. 22
Supplement.................................................. 10
Supplemental Certificate.................................... 10
Termination Date............................................ 70
Termination Notice.......................................... 81
Terms and Conditions........................................ 74
The GM Card(SM)............................................. 85
Trust....................................................... 1, 4
Trust Adjusted Invested Amount.............................. 53
Trust Assets................................................ 2, 4
</TABLE>
104
<PAGE> 107
<TABLE>
<CAPTION>
TERMS PAGE(S)
----- -------
<S> <C>
Trust Excess Principal Collections.......................... 50
Trustee..................................................... 1, 4
UCC......................................................... 26
Unallocated Principal Collections........................... 55
Underwriters................................................ 98
Underwriting Agreement...................................... 98
U.S. Investor Certificateholder............................. 89
U.S. Person................................................. 89
VISA........................................................ 6
VISA USA, Inc............................................... 6
Withholding Agent........................................... 92
</TABLE>
105
<PAGE> 108
ANNEX I
PRIOR ISSUANCE OF INVESTOR CERTIFICATES
The Trust has previously issued fourteen series in eight 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 Variable Funding Credit Card Participation Certificates, Series 1997-A
were issued in Group D. Class A and Class B Variable Funding Credit Card
Participation Certificates, Series 1997-B were issued in Group E. Class A and
Class B Variable Funding Credit Card Participation Certificates, Series 1998-A
were issued in Group F. 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
and Series 1994-2 have been retired. Class A and Class B Credit Card
Participation Certificates, Series 1997-1 were issued in Group Two. 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 1995-1 and Series 1997-1, 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
</TABLE>
GROUP B
CLASS A AND CLASS B VARIABLE FUNDING CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1996-A
<TABLE>
<S> <C>
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
</TABLE>
GROUP C
CLASS A AND CLASS B VARIABLE FUNDING CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1996-B
<TABLE>
<S> <C>
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> 109
GROUP D
CLASS A AND CLASS B VARIABLE FUNDING CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1997-A
<TABLE>
<S> <C>
Class A Invested Amount.................................... Up to a maximum of $1,000,000,000
Class B Invested Amount.................................... Up to a maximum of $89,919,000
Class A Certificate Rate................................... Floating Rate
Class B Certificate Rate................................... Floating Rate
Series Issuance Date....................................... June 25, 1997
</TABLE>
GROUP E
CLASS A AND CLASS B VARIABLE FUNDING CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1997-B
<TABLE>
<S> <C>
Class A Invested Amount.................................... Up to a maximum of $1,000,000,000
Class B Invested Amount.................................... Up to a maximum of $89,919,000
Class A Certificate Rate................................... Floating Rate
Class B Certificate Rate................................... Floating Rate
Series Issuance Date....................................... December 5, 1997
</TABLE>
GROUP F
CLASS A AND CLASS B VARIABLE FUNDING CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1998-A
<TABLE>
<S> <C>
Class A Invested Amount.................................... Up to a maximum of $500,000,000
Class B Invested Amount.................................... Up to a maximum of $44,960,000
Class A Certificate Rate................................... Floating Rate
Class B Certificate Rate................................... Floating Rate
Series Issuance Date....................................... March 25, 1998
</TABLE>
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
</TABLE>
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
<TABLE>
<S> <C>
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>
I-2
<PAGE> 110
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
</TABLE>
The above Series 1994-1 certificates were supported by a collateral
interest in the receivables which on the Series Issuance Date had an invested
amount of $100,000,000.
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.
GROUP TWO
CLASS A AND CLASS B CREDIT CARD PARTICIPATION CERTIFICATES,
SERIES 1997-1
<TABLE>
<S> <C>
Class A Invested Amount................................... $870,000,000
Class B Invested Amount................................... $47,500,000
Class A Certificate Rate.................................. One-month LIBOR plus 0.10%
Class B Certificate Rate.................................. One-month LIBOR plus 0.28%
Series Issuance Date...................................... March 27, 1997
</TABLE>
The above Series 1997-1 certificates were supported by a collateral
interest in the receivables which on the Series Issuance Date had an invested
amount of $82,500,000.
I-3
<PAGE> 111
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION 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 AFFAIRS
OF THE SELLER OR THE SERVICER OR ANY AFFILIATE THEREOF OR THE RECEIVABLES OR THE
ACCOUNTS SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE 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 SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION 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................... 3
Reports to Investor
Certificateholders.................... 3
Defined Terms Used in this Prospectus... 3
Prospectus Summary...................... 4
Risk Factors............................ 26
The Credit Card Business of Household
Bank (SB), N.A. ...................... 33
The Accounts............................ 38
The Seller.............................. 42
Household Bank (SB), N.A. .............. 42
The Servicer............................ 42
The Subservicer......................... 42
The Trust............................... 43
Use of Proceeds......................... 43
Principal Payment Considerations........ 44
Description of the Investor
Certificates.......................... 47
The Pooling and Servicing Agreement..... 75
Description of the Bank Purchase
Agreement............................. 83
Certain Legal Aspects of the
Receivables........................... 86
Federal Income Tax Consequences......... 89
State and Local Tax Consequences........ 94
ERISA Considerations.................... 96
Underwriting............................ 98
Legal Matters........................... 100
Index of Terms.......................... 101
Annex I................................. I-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 PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
HOUSEHOLD AFFINITY
CREDIT CARD MASTER
TRUST I
ISSUER
SERIES 1998-1
$
% Class A
Credit Card
Participation Certificates
$
% Class B
Credit Card
Participation Certificates
HOUSEHOLD AFFINITY
FUNDING CORPORATION
SELLER
HOUSEHOLD FINANCE
CORPORATION
SERVICER
PROSPECTUS
- ------------------------------------------------------
<PAGE> 112
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............................................ $ *
Printing and Engraving......................................
Trustee's Fees..............................................
Legal Fees and Expenses.....................................
Blue Sky Fees and Expenses..................................
Accountants' Fees and Expenses..............................
Rating Agency Fees..........................................
Miscellaneous Fees..........................................
----
Total.....................................................
====
</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") state and make mandatory the indemnification expressly authorized under
the General Corporation Law of Delaware, in the absence of other indemnification
by contract, votes of stockholders or otherwise except that the bylaw makes no
distinction between litigation brought by third parties and litigation brought
by HFC as regards the required standard of conduct imposed upon the individual
in order to be entitled to indemnification. The standard applicable in all cases
(excepting indemnification in connection with the successful defense of any
proceeding or matter therein, which is mandatory under the General Corporation
Law of Delaware without reference to any such standard) is that the individual
shall have acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the applicable company and with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. Further, the bylaw would protect directors,
officers and employees and agents against any and all expenses and liability
with respect to actions brought against them by or in the right of HFC if the
required standard of conduct is met.
Article VII of the Certificate of Incorporation of Household International,
Inc., a Delaware Corporation, provides for indemnification to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware for
directors, officers and employees of Household International, Inc. and also to
persons who are serving at the request of Household International, Inc. as
directors, officers or employees of other corporations (including subsidiaries
such as Household Bank and the Seller). Household International, Inc. has also
purchased liability policies which indemnify the Seller's officers and directors
against loss arising from claims by reason of their legal liability for acts as
officers and directors, subject to limitations and conditions as set forth in
the policies.
II-1
<PAGE> 113
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 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
$1,000,000,000 and a maximum Class B Invested Amount of $98,902,000. On November
21, 1997, the Series 1996-A was amended so that the maximum Class A Invested
Amount was $1,700,000,000 and the maximum Class B Invested Amount was
$168,200,000. 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. On June 25,
1997, Floating Rate Class A and Class B Variable Funding Credit Card
Participation Certificates, Series 1997-A (the "Series 1997-A Certificates")
were sold with a maximum Class A Invested Amount of $1,000,000,000 and a maximum
Class B Invested Amount of $89,919,000. On December 5, 1997, Floating Rate Class
A and Class B Variable Funding Credit Card Participation Certificates, Series
1997-B (the "Series 1997-B Certificates") were sold with a maximum Class A
Invested Amount of $1,000,000,000 and a maximum Class B Invested Amount of
$89,919,000. On March 25, 1998, Floating Rate Class A and Class B Variable
Funding Credit Card Participation Certificates, Series 1998-A (the "Series
1998-A Certificates") were sold with a maximum Class A Invested Amount of
$500,000,000 and a maximum Class B Invested Amount of $44,960,000. On March 27,
1997 the Series 1997-1 Collateral Invested Amount was sold with an initial
invested amount of $82,500,000. The aforementioned Series 1993-B Certificates,
Series 1996-A Certificates, Series 1996 -B Certificates, Series 1997-A
Certificates, Series 1997-B Certificates, Series 1998-A Certificates and the
Series 1995-1 and Series 1997-1 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, Series 1996-B,
Series 1997-A, Series 1997-B Certificates or Series 1998-A Certificates.
Multi-seller/commercial paper conduit programs purchased the Series 1993-B Class
A and Class B Certificates, the Series 1996-A Class A Certificates, the Series
1996-B Class A Certificates, the Series 1997-A Class A Certificates, the Series
1997-B Class A Certificates and the Series 1998-A Class A Certificates and
Household Finance Corporation purchased the Series 1996-A Class B Certificate,
the Series 1996-B Class B Certificate, the Series 1997-A Class B Certificate,
the Series 1997-B Class B Certificate and the Series 1998-A Class B Certificate.
The Collateral Invested Amounts were purchased by banks, Household Affinity
Funding Corporation and Household Finance 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
II-2
<PAGE> 114
$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. Upon
utilization of the Series 1997-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 $89,919,000 for all Class B Certificates
purchased from the Trust for such Series. Upon utilization of the Series 1997-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
$89,919,000 for all Class B Certificates purchased from the Trust for such
Series. Upon utilization of the Series 1998-A Certificates, such certificates
will be offered at par up to a maximum aggregate offering price of $500,000,000
for all Class A Certificates of such Series and $44,960,000 for all Class B
Certificates purchased from the Trust for such Series. The Series 1995-1 and
Series 1997-1 Collateral Invested Amounts were sold at par. There were no
underwriting discounts or commissions.
(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.
II-3
<PAGE> 115
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> <C>
1 -- Form of Underwriting Agreement for Investor Certificates.
3.1 -- Certificate of Incorporation, as amended, of Household
Affinity Funding Corporation (incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form S-1 of
Household Affinity Funding Corporation, No. 333-18913).
3.2 -- By-laws of Household Affinity Funding Corporation
(incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-1 of Household Affinity
Funding Corporation, No. 333-18913).
4.1 -- Amended and Restated Pooling and Servicing Agreement, as
amended as of April 12, 1995 (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-1 of
Household Affinity Funding Corporation, No. 333-18913).
4.2 -- Second Amendment to the Amended and Restated Pooling and
Servicing Agreement dated as of October 20, 1997.
4.3 -- Third Amendment to the Amended and Restated Pooling and
Servicing Agreement dated as of , 1998.
4.4 -- Form of Series 1998-1 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 (incorporated by reference to Exhibit 10.1 to
the Registration Statement on Form S-1 of Household Affinity
Funding Corporation, No. 333-18913).
10.2 -- Assignment Agreement dated as of December 1, 1993 between
Household Bank, f.s.b. and Household Bank (SB), N.A
(incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-1 of Household Affinity
Funding Corporation, No. 333-18913).
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
II-4
<PAGE> 116
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.
(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-5
<PAGE> 117
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 24th
day of June, 1998.
HOUSEHOLD AFFINITY FUNDING
CORPORATION
As Originator of the Trust and as
Registrant
By: /s/ M. H. MORGAN
------------------------------------
M. H. Morgan, President
HOUSEHOLD AFFINITY CREDIT CARD
MASTER TRUST I
As Co-Registrant
By: HOUSEHOLD AFFINITY FUNDING
CORPORATION
As Originator of the Trust
By: /s/ M. H. MORGAN
------------------------------------
M. H. Morgan, 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 24th day of
June, 1998 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ M. H. MORGAN President (Principal Executive Officer) and
--------------------------------------- Director
M. H. Morgan
/s/ S. L. MCDONALD Senior Vice President and Controller (Principal
--------------------------------------- Accounting Officer)
S. L. McDonald
/s/ B. B. MOSS, JR. Senior Vice President, Treasurer and Director
--------------------------------------- (Principal
B. B. Moss, Jr. Financial Officer)
/s/ S. H. SMITH Vice President, Assistant Treasurer and Director
---------------------------------------
S. H. Smith
/s/ J. W. BLENKE Vice President, Secretary and Director
---------------------------------------
J. W. Blenke
</TABLE>
II-6
<PAGE> 1
FORM OF UNDERWRITING AGREEMENT
EXHIBIT 1
HOUSEHOLD AFFINITY FUNDING CORPORATION
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES [ ]
$[ ] [Floating Rate] [ %] Class A Credit Card Participation
Certificates
$[ ] [Floating Rate] [ %] Class B Credit Card Participation
Certificates
UNDERWRITING AGREEMENT
[____________]
[Underwriter]
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 pursuant to a Receivables Purchase Agreement, dated as
of [ ] and as amended as of [ ] (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 [ ], between the Bank and
<PAGE> 2
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 [ ]
(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 [ ] Supplement to the Pooling and Servicing
Agreement, dated as of [ ] (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) The Bank and the Seller, jointly and severally, represent
and warrant to, and agree 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. [ ]),
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 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
2
<PAGE> 3
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
the Bank and the Seller make no 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
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).
3
<PAGE> 4
(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, 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 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
4
<PAGE> 5
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 [ ] as submitted to the Comptroller of the
Currency. Except as set forth or contemplated in the
Registration Statement and the Prospectus, there has been no
material adverse change in the condition (financial or
otherwise) of the Bank since [ ].
5
<PAGE> 6
(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 & Co. 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.
(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
6
<PAGE> 7
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 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)
7
<PAGE> 8
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 [ ]95. 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.
(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 & Co. 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 representation and
warranty as to the matters covered thereby to each person to whom the
representations and warranties in this Section 1 are made.
8
<PAGE> 9
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 99.653125% 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 99.434375% 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 the offices of [ ] at 9:00 a.m., [ ] on [ ] 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.
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<PAGE> 10
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 Rules of Fair Practice of the NASD 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. The Household Entities, jointly and
severally, covenant and agree with the several Underwriters that:
10
<PAGE> 11
(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 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, signed 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
11
<PAGE> 12
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) Dewey
Ballantine as special counsel for the Household Entities, (B) Arthur
Andersen and (C) Kutak Rock as 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
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 societe
anonyme and as the Representatives may designate, will maintain such
qualifications in effect so long as required for the distribution of
the Certificates and will arrange for the determination of the legality
of the Certificates for purchase by institutional investors.
(g) For so long as the Certificates are outstanding, the
Seller (i) 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, and (ii) as promptly as available but in no
event later than each Record Date, shall give notice by telecopy, to
the Representatives of the Class A Pool Factor and Class B Pool Factor
for such Record Date.
(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 Section 6(l) hereof is
conditional upon the furnishing of documents reasonably available to
the Household Entities, the Household Entities shall furnish such
documents.
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<PAGE> 13
(j) The Household Entities confirm as of the date hereof that
the Household Entities and all affiliates thereof are in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An
Act Relating to Disclosure of Doing Business with Cuba, and the
Household Entities further agree that if any Household Entity or any
affiliate thereof commence in the engaging of business with the
government of Cuba or with any person or affiliate located in Cuba
after the date the Registration Statement becomes or has become
effective with the Securities and Exchange Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported in the Prospectus, if
any, concerning any Household Entity's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the
Household Entities will provide the Department notice of such business
or change, as appropriate, in a form acceptable to the Department.
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 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);
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<PAGE> 14
(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, Assistant General Counsel of Household,
shall have delivered a favorable opinion with respect to clauses (i)
through (xiii) of this paragraph (c), and Dewey Ballantine, special
counsel to the Household Entities, shall have delivered a favorable
opinion with respect to clauses (xiv) through (xvi) of this paragraph
(c) (except that, portions of the opinion provided for in clause (xvi)
concerning the tax laws of the State of Nevada shall be provided for by
such other counsel as is acceptable to the Underwriters), 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 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
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<PAGE> 15
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 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
the Household Entities, 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 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 the
Household Entities or the Trust is a party or by which any of
15
<PAGE> 16
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),
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 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,
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<PAGE> 17
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;
(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
17
<PAGE> 18
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 heading "Tax Matters" 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.
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<PAGE> 19
In rendering such opinion, counsel may rely (A) as to matters
involving the application of the law of any jurisdiction other than the State of
Illinois, the corporate law of the State of Delaware and the United States
Federal laws, to the extent deemed proper and stated in such opinion, upon the
opinion of other counsel of good standing believed by 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, 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
may rely (i) as to matters of California, Illinois, Nevada, Virginia
and Delaware law (other than Delaware corporation 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; and the
Collateral Agreement shall conform in all material respects to the
respective descriptions thereof in the Registration Statement and the
Prospectus.
(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 & Co. 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)
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<PAGE> 20
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).
(h) The Representatives shall receive evidence satisfactory to
them that, on or before the Closing Date, UCC-1 financing statements
are being 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
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<PAGE> 21
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
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, 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.
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<PAGE> 22
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 (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 untrue statement
or 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
22
<PAGE> 23
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 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 "Special Considerations - 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, and you confirm that such statements are correct.
(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
23
<PAGE> 24
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 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
24
<PAGE> 25
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 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, State of New York or State of California authorities or (iii) there
shall have occurred any outbreak or escalation of hostilities, 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 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 Trust, 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 or the Trust, 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
25
<PAGE> 26
to the Representative at [ ], [ ]Attention: Registration 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 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.
26
<PAGE> 27
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.
[Underwriter]
by [Underwriter]
By__________________________
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing Agreement.
<PAGE> 28
Schedule I
CLASS A CERTIFICATES
Principal
Amount
------
[Underwriter]. $[ ]
[Underwriter] $[ ]
$[ ].00
_______________________
CLASS B CERTIFICATES
Principal
Amount
------
[Underwriter] $[
[Underwriter] $[ ]
$[ ].00
_______________________
<PAGE> 1
Exhibit 4.2
SECOND AMENDMENT TO THE AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
This SECOND AMENDMENT TO THE AMENDED AND RESTATED POOLING AND
SERVICING AGREEMENT, dated as of October 20, 1997 (this "Amendment"), is among
Household Affinity Funding Corporation, a Delaware corporation ("HAFC"),
Household Finance Corporation, a Delaware corporation (the "Servicer") and The
Bank of New York, a New York banking corporation (the "Trustee"). This Amendment
amends the Amended and Restated Pooling and Servicing Agreement, dated as of
August 1, 1993, as previously amended by the Amendment to Amended and Restated
Pooling and Servicing Agreement, dated as of April 12, 1995 (as amended, the
"Pooling and Servicing Agreement"), and as supplemented by the Series 1993-1
Supplement, dated as of September 1, 1993, the Series 1993-2 Supplement, dated
as of November 1, 1993, the Series 1994-1 Supplement, dated as of March 1, 1994,
the Series 1994-2 Supplement, dated as of September 1, 1994, the Series 1995-1
Supplement, dated as of March 1, 1995, and the Series 1997-1 Supplement, dated
as of March 1, 1997 (collectively, the "Supplements"), each such Supplement, as
amended by the First Amendment to the Series Supplements, dated as of October
20, 1997, each by and among HAFC, the Servicer and the Trustee.
RECITALS
1. Pursuant to Section 13.01(a) of the Pooling and Servicing
Agreement, HAFC has delivered to the Trustee an Officer's Certificate, dated the
date of this Amendment, stating that HAFC reasonably believes that this
Amendment will not have an Adverse Effect.
2. The parties to the Pooling and Servicing Agreement have
satisfied all conditions precedent contained in the Pooling and Servicing
Agreement. All capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Pooling and Servicing Agreement.
3. Now, therefore, in consideration of the mutual agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, each party hereto agrees as follows:
<PAGE> 2
AMENDMENTS
1. Section 1.01 of the Pooling and Servicing Agreement is
hereby amended by deleting the definition of "Required Minimum Principal
Balance" and inserting in lieu thereof the following:
"Required Minimum Principal Balance" shall mean, with respect
to any date the sum of the Series Adjusted Invested Amounts for each Series
outstanding on such date plus the sum of the Series Required Seller Amounts for
each such Series.
2. Section 1.01 of the Pooling and Servicing Agreement is
hereby amended by deleting the definition of "Series Adjusted Invested Amount"
and inserting in lieu thereof the following:
"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, or such lesser amount as may be
provided in the Supplement for such Series.
MISCELLANEOUS
1. Effective Date. This Amendment shall be effective upon the
execution hereof by the parties hereto.
2. 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 together shall constitute one and the
same instrument.
3. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS
CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
2
<PAGE> 3
IN WITNESS WHEREOF, HAFC, the Servicer and the Trustee have
caused this Amendment to be duly executed and delivered by their respective duly
authorized officers as of the day and year first written above.
HOUSEHOLD AFFINITY FUNDING
CORPORATION
/s/ Steve H. Smith
---------------------------------------------
Name: Steve H. Smith
Title: Vice President and Assistant Treasurer
HOUSEHOLD FINANCE CORPORATION
/s/ Barney B. Moss, Jr.
---------------------------------------------
Name: Barney B. Moss, Jr.
Title: Vice President and Treasurer
THE BANK OF NEW YORK
/s/ Reyne A. Macadaeg
---------------------------------------------
Name: Reyne A. Macadaeg
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 4.4
FORM OF SERIES 1998-1 SUPPLEMENT
HOUSEHOLD AFFINITY FUNDING CORPORATION
Seller,
HOUSEHOLD FINANCE CORPORATION
Servicer,
and
THE BANK OF NEW YORK,
Trustee
on behalf of the Certificateholders
SERIES 1998-1 SUPPLEMENT
Dated as of July 1, 1998
to the
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of August 1, 1993
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
Series 1998-1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. Designation....................................................................................1
SECTION 2. Definitions....................................................................................2
SECTION 3. Servicing Compensation........................................................................19
SECTION 4. Article IV of Agreement.......................................................................19
Section 4.07. Allocations..........................................................................20
Section 4.08. Determination of Monthly Interest....................................................20
Section 4.09. Determination of Monthly Principal...................................................22
Section 4.10. Coverage of Required Amounts.........................................................24
Section 4.11. Application of Available Funds on Deposit in the Collection Account, the
Principal Funding Account and the Collection Subaccount..............................24
Section 4.12. Investor Charge-Offs.................................................................27
Section 4.13. Excess Finance Charge and Administrative Collections.................................29
Section 4.14. Establishment of Series 1998-1 Cash Collateral Account...............................30
Section 4.15. Subordinated Principal Collections...................................................32
Section 4.16. Reallocated Investor Finance Charge and Administrative Collections...................33
Section 4.17. Series 1998-1 Excess Principal Collections...........................................34
Section 4.18. Exchange of Investor Certificates for Seller Interest................................35
Section 4.19. Principal Funding Account............................................................35
Section 4.20. Reserve Account......................................................................36
SECTION 5. Distributions.................................................................................38
SECTION 6. Statements to Certificateholders..............................................................39
SECTION 7. Additional Amortization Events................................................................40
SECTION 8. Optional Repurchase...........................................................................42
SECTION 9. Sale of Certificateholders' Interest pursuant to Section 2....................................42
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............................................................42
SECTION 11. Distribution of Proceeds of Sale, Disposition or Liquidation of the Receivables
pursuant to Section 9.02 of the Agreement.....................................................43
SECTION 12. Section 9.02 of the Agreement; Rights of the Collateral Interest Holder.......................45
SECTION 13. Clearing Agency...............................................................................45
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 14. Delivery of the Class A Certificates and the Class B Certificates.............................45
SECTION 15. Ratification of Agreement.....................................................................45
SECTION 16. Counterparts..................................................................................45
SECTION 17. Governing Law.................................................................................46
SECTION 18. Forms of Certificates and Monthly Servicer's Certificate......................................46
SECTION 19. Definition of Tax Opinion for Purposes of Series 1998-1.......................................46
SECTION 20. ERISA Restrictions............................................................................46
</TABLE>
EXHIBITS
Exhibit A-1 Form of 1998-1 Class A Certificate
Exhibit A-2 Form of 1998-1 Class B Certificate
Exhibit B Form of 1998-1 Monthly Servicer's Certificate
-ii-
<PAGE> 4
Series 1998-1 SUPPLEMENT, dated as of July 1, 1998 (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
1998-1 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 1998-1". The Series
1998-1 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 1998-1", and the second of which shall be known as the
"Floating Rate Class B Credit Card Participation Certificates, Series 1998-1".
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 1998-1".
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 1998-1 Certificates shall be included in Group Three
and shall be deemed to be "Investor Certificates" for all 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 1998-1 shall be the [____________], 1998 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,
<PAGE> 5
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 1998-1 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 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 1998-1
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
2
<PAGE> 6
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 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.
"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 and including
[___________], 1998 to and excluding [___________], 1998, 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.
"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 $[____________].
"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.
3
<PAGE> 7
"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 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 and including
[___________], 1998 to and excluding [__________], 1998, 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.
4
<PAGE> 8
"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 $[____________].
"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 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.
5
<PAGE> 9
"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 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 July
[__], 1998, 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 $[____________].
"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 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
6
<PAGE> 10
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 Required Collateral
Amount; provided, however that 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), the Collateral Surplus shall be 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 any Due Period during the Controlled Accumulation Period,
$[____________]; provided, however, that, if the commencement of the Controlled
Accumulation Period is modified pursuant to 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 and (b) the sum of the Controlled Accumulation Amounts
for all Due Periods during the modified Controlled Accumulation Period shall not
be less than the sum of the Class A Invested Amount plus the Class B 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 [____________], 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 or Early
Accumulation
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<PAGE> 11
Period, (b) the payment in full of the Invested Amount and (c) the
Series 1998-1 Termination Date; provided however, that the commencement of the
Controlled Accumulation Period may be delayed to no later than the close of
business on the last Business Day of [____________].
"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 last day of the Revolving Period plus 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 Supplements and are not scheduled to be in their respective revolving
periods 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 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.
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<PAGE> 12
"Distribution Date" shall mean, with respect to Series 1998-1, 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 [____________], 1998.
"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 1998-1
Expected Final Payment Date.
"Early Amortization Period" shall mean, 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 period commencing on the close of
business on the earlier of (x) if on the day on which such 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 such Amortization Event is deemed to have
occurred, and (y) otherwise, at the close of business on the Business Day
immediately preceding the day on which such Amortization Event is deemed to have
occurred and ending, in either case, on the earlier to occur of (a) the Series
1998-1 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 1998-1 in the Collection Account and the Reserve Account, "Eligible
Investments" as defined in the Agreement, except that all references in such
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, the Principal Funding Account, the Reserve Account and funds
allocable to Series 1998-1 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.
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<PAGE> 13
"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 monthly principal payment rate (determined by dividing
Collections of Principal Receivables during a related Due Period by the amount
of Principal Receivables in the Trust as of the last day of the preceding Due
Period, adjusted for additions and removals occurring after such last day),
expressed as a decimal, for the 3 Due Periods preceding the date of such
calculation (or such lower principal payment rate as the Servicer may select)
and (ii) the sum of (X) the Initial Invested Amounts (as defined in their
respective related Supplements) of all outstanding Series which are not Variable
Funding Series and (Y) the Invested Amounts (as defined in their respective
related Supplements) of all outstanding Variable Funding Series, over (b) the
sum of, without duplication, (i) the allocations of Collections of Principal
Receivables required for all Series which have controlled accumulation periods
or controlled amortization periods, the length of which may not be altered in
accordance with the terms of their related Supplements, and which are either
amortizing or accumulating principal at such time and (ii) all Collections of
Principal Receivables accounted for in clause (a) above which are then being
allocated to any other Series then in an Early Amortization Period or an Early
Accumulation Period (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 plus the amount on deposit in the Special
Funding Account (other than the portion constituting Finance Charge and
Administrative Receivables), as of the last day of such immediately preceding
Due Period and (b) the Series 1998-1 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 1998-1
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
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<PAGE> 14
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 Three" shall mean Series 1998-1 and each other Series
specified in the related Supplement to be included in Group Three.
"Group Three Investor Additional Amounts" shall mean, with respect
to any Distribution Date, the sum of (a) Series 1998-1 Additional Amounts for
such Distribution Date and (b) for all other Series included in Group Three, 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.
"Group Three 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 Three for such Distribution Date.
"Group Three 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 Three for such Distribution
Date.
"Group Three Investor Monthly Fees" shall mean with respect to any
Distribution Date, the sum of (a) Series 1998-1 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 Three for such
Distribution Date.
"Group Three Investor Monthly Interest" shall mean, with respect to
any Distribution Date, the sum of (a) Series 1998-1 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 Three 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.
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<PAGE> 15
"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 1998-1 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.
"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 1998-1
Allocable Finance Charge and Administrative Collections deposited in the
Collection Account for the related Due Period.
"Issuance Date" shall mean July [__], 1998.
"LIBOR" shall mean for the Interest Period from [____________], 1998
to and excluding [____________], 1998 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 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
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<PAGE> 16
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;
(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 in the highest rating category of the Rating Agency;
(c) commercial paper (having original or remaining maturities of no
more than 31 days) having, at the time of the Trust's investment or
contractual commitment to invest therein, a rating in the highest rating
category of 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 in the highest rating category of 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 in the highest
rating category of the Rating Agency or notes which are payable on demand
issued by Household Finance Corporation, provided such notes will
constitute PFA 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 in the highest rating category of 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 plus the amount on deposit in
the Special Funding Account (other than the portion constituting Finance Charge
and Administrative Receivables)
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<PAGE> 17
on such last day and (b) the Series 1998-1 Allocation Percentage with respect
to the Due Period 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 the sum of (a) that portion of Group Three Investor Finance Charge
and Administrative Collections allocated to Series 1998-1 pursuant to Section
4.16, (b) any Collections of Finance Charge and Administrative Receivables
allocable to any Series expressly subordinated to Series 1998-1 which are
available for application pursuant to Sections 4.11 and 4.13 and (c) any
Collections of Principal Receivables allocable to any such Series to the extent
the Supplement for such Series provides for such Collections to be deemed
Collections of Finance Charge and Administrative Receivables available for
application pursuant to such Sections.
"Reassignment 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 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
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<PAGE> 18
and any Additional Interest previously due but not distributed to Investor
Certificateholders 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 $[____________] initially
and as of any Distribution Date thereafter an amount equal to the greater of (x)
[__]% 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
(y) $[____________]; 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) [___]% 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 1998-1 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.
"Reserve Account" shall have the meaning specified in Section
4.20(a).
"Reserve Account Event" shall have the meaning specified in Section
4.20(e).
"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
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<PAGE> 19
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, any
Early Accumulation Period or any Early Amortization Period.
"Series Adjusted Invested Amount" shall mean, with respect to any
Due Period:
(a) during the Revolving Period, the Invested Amount as of the
last day of the immediately preceding Due Period;
(b) during the Controlled Accumulation Period, the amount
specified in clause (a) above as of the close of business on the
last day of the Revolving Period less Investor Charge-Offs over any
reimbursed Investor Charge-Offs thereafter; provided, however, that
on any date, at the option of the Seller (the exercise of such
option to be evidenced by written instructions from the Seller to
the Servicer and the Trustee), such amount may be reduced below the
amount specified for the previous Due Period to an amount not less
than the greater of (i) the Adjusted Invested Amount as of the last
day of the immediately preceding Due Period (less any amounts
deposited into the Principal Funding Account since the last day of
the immediately preceding Due Period) and (ii) an amount that, if
used as the numerator of the Principal Allocation Percentage for the
remainder of the Controlled Accumulation Period would assure that
Available Investor Principal Collections for this series plus the
product of the aggregate amount of the Trust Excess Principal
Collections for all Series during each Due Period times a fraction
the numerator of which is the Invested Amount of such Series and the
denominator of which is the aggregate Invested Amount of all Series
not scheduled to be in their Revolving Period during such Due Period
would equal at least 125% of the applicable Controlled Accumulation
Amount for such Due Period for so long as the Invested Amount is
greater than zero, assuming for this purpose that (A) the payment
rate with respect to Collections of Principal Receivables remains
constant at the level of the immediately preceding Due Period, (B)
the total amount of Principal Receivables and the outstanding
principal amount of any Participation Interests theretofore conveyed
to and in the Trust remains constant at the level existing on the
date of such reduction, (C) no Amortization Event with respect to
any Series will subsequently occur and (D) no additional Series
(other than any Series being issued on the date of such reduction)
will be subsequently issued; provided, however, that any such
reduction of the Invested Amount pursuant to clause (ii) above shall
be subject to the
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<PAGE> 20
receipt by the Trustee of an Officer's Certificate of the Seller to
the effect that the Seller does not expect that, after giving effect
to such reduction of the Invested Amount, the Available Investor
Principal Collections for this series and the aggregate amount of
the Trust Excess Principal Collections for all Series reallocated to
this series for any Monthly Period would be less than the Controlled
Accumulation Amount; and
(c) during any Early Amortization Period or Early Accumulation
Period, the Invested Amount as of the last day of the Revolving
Period less Investor Charge-Offs over any reimbursed Investor
Charge-Offs thereafter or, if less, the amount last determined
pursuant to clause (b) above during the Controlled Accumulation
Period.
"Series Adjusted Portfolio Yield" shall mean with respect to Series
1998-1 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 Adjusted Invested Amount as of the last day of the immediately
preceding Due Period.
"Series Cut-Off Date" shall mean the close of business on
[____________], 1998.
"Series 1998-1" or "Series 1998-1 Certificates" shall mean the
Series of Investor Certificates, the terms of which are specified in this Series
Supplement.
"Series 1998-1 Additional Amounts" shall mean, with respect to any
Distribution Date, the sum of the amounts determined pursuant to clauses (b),
(c)(ii), (e) and (i) of Section 4.13 for such Distribution Date.
"Series 1998-1 Allocable Finance Charge and Administrative
Collections" shall mean the Series Allocable Finance Charge and Administrative
Collections with respect to Series 1998-1.
"Series 1998-1 Allocation Percentage" shall mean the Series
Allocation Percentage with respect to Series 1998-1.
"Series 1998-1 Certificateholders" shall mean the Holders of Series
1998-1 Certificates.
"Series 1998-1 Certificateholders' Interest" shall mean the Class A
Certificateholders' Interest, the Class B Certificateholders' Interest and the
Collateral Interest.
"Series 1998-1 Excess Principal Collections" shall mean that portion
of "Trust Excess Principal Collections" for all Series (as defined in the
respective Supplements) allocated to Series 1998-1 pursuant to Section 4.17.
"Series 1998-1 Expected Final Payment Date" shall mean the March
2002 Distribution Date.
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"Series 1998-1 Monthly Fees" shall mean, with respect to any
Distribution Date, the amount determined pursuant to Section 4.11(a)(iii).
"Series 1998-1 Monthly Interest" shall mean the amounts determined
pursuant to Sections 4.08(a), (b) and (c).
"Series 1998-1 Principal Shortfall" shall have the meaning specified
in Section 4.17.
"Series 1998-1 Termination Date" shall mean the earlier of the
August 2004 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 Series Adjusted Invested Amount as of the date of determination provided,
however, that the Series Required Seller Amount may be adjusted by the Seller
upon (a) the satisfaction of the Rating Agency Condition and (b) the delivery to
the Trustee by the Seller of a Tax Opinion.
"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 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
1998-1 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 1998-1 and treated as a
portion of Available Investor Principal Collections for such Distribution Date
and are not deemed to be Collections of Finance Charge and Administrative
Receivables pursuant to clause (c) of the definition of Reallocated Investor
Finance Charge and Administrative Collections.
"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 1998-1.
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"Trust Excess Principal Collections" shall mean, with respect to
Series 1998-1, 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.
"Variable Funding Series" shall mean any Series, the invested amount
of which may be increased or decreased subject to the satisfaction of certain
conditions specified in the Supplement related to such Series.
(a) All capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to them in the Agreement.
(b) 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".
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 1998-1 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 1998-1 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 the Series Cut-Off Date, (c) the Series 1998-1 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
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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 1998-1
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.
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 1998-1
Certificates, be read in its entirety as follows:
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.07. Allocations. Allocations. Collections of Finance
Charge and Administrative Receivables and Principal Receivables, Defaulted
Receivables and Miscellaneous Payments allocated to Series 1998-1 pursuant to
Article IV of the Agreement (and, as described herein, Collections of Finance
Charge and Administrative Receivables reallocated from other Series in Group
Three) 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 1998-1 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 1998-1 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.
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Section 4.08. Determination of Monthly Interest. 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 the Class A Certificate Rate in effect with
respect to the applicable Interest Period, 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 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 1998-1 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 1998-1 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 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
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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. 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 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.
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(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
(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
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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. 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 Class A Monthly Interest for
such Distribution Date, any Class A Monthly Interest previously due but not paid
to the Class A Certificateholders, Class A Additional Interest, if any, for such
Distribution Date, the Class A Investor Default Amount, if any, and if Household
Finance Corporation is not the Servicer, the Allocable Servicing Fee for the
preceding Due Period exceeds the product of 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 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).
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, the Principal Funding Account and the Collection Subaccount.
With respect to Series 1998-1, on each Distribution Date the Servicer shall
provide 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 Three), Collections of Finance Charge and
Administrative Receivables reallocated to Series 1998-1 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
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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
(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,
an amount equal to Available Investor Principal Collections deposited in the
Collection Account for the
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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 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
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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 1998-1 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 1998-1 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 1998-1 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 the last Business Day of ___________; provided,
however, that, if the Controlled Accumulation Period Length (determined as
described below) is less than __ Due Periods, the date on which the Controlled
Accumulation Period actually commences may be delayed to the first Business Day
of the Due Period that is the number of whole Due Periods prior to the Series
1998-1 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, any Early Accumulation Period or any Early Amortization
Period begins, the Servicer will determine a "Controlled Accumulation Period
Length" which will equal at least the number of Due Periods such that the
Controlled Accumulation Period Amount for the Due Period immediately preceding
the Series 1998-1 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 Due Period. If the
Servicer elects to modify the commencement of the Controlled Accumulation Period
pursuant to this subsection (f) , the Servicer shall specify in the Monthly
Servicer's Certificate (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. 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 1998-1
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 1998-1 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 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.
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(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 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
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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;
(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;
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(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 1998-1 Cash Collateral
Account. The Servicer, for the benefit of the Series 1998-1 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 1998-1 (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 1998-1
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 1998-1
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 1998-1 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 1998-1 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 1998-1. 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. All such investments shall be held by the Trustee for
the benefit of the Series 1998-1 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
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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 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)
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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 Three 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 1998-1 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 1998-1 Monthly Interest, Investor Defaulted
Amount, Series 1998-1 Monthly Fees and Series 1998-1 Additional Amounts for such
Distribution Date and (ii) that portion of excess Group Three 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 Three Investor Finance Charge and
Administrative Collections for such Distribution Date is less than the sum of
(w) Group Three Investor Monthly Interest, (x) Group Three Investor Default
Amount, (y) Group Three Investor Monthly Fees and (z) Group Three Investor
Additional Amounts, then Reallocated Investor Finance Charge and Administrative
Collections shall equal the sum of the following amounts for such Distribution
Date:
(A) The product of (I) Group Three Investor Finance Charge and
Administrative Collections (up to the amount of Group Three Investor
Monthly Interest) and (II) a fraction, the numerator of which is Series
1998-1 Monthly Interest and the denominator of which is Group Three
Investor Monthly Interest;
(B) the product of (I) Group Three Investor Finance Charge and
Administrative Collections less the amount of Group Three Investor Monthly
Interest (up to the Group Three Investor Default Amount) and (II) a
fraction, the numerator of which is the Investor Defaulted Amount and the
denominator of which is the Group Three Investor Default Amount;
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(C) the product of (I) Group Three Investor Finance Charge and
Administrative Collections less the amount of Group Three Investor Monthly
Interest and the Group Three Investor Default Amount (up to Group Three
Investor Monthly Fees) and (II) a fraction, the numerator of which is
Series 1998-1 Monthly Fees and the denominator of which is Group Three
Investor Monthly Fees; and
(D) the product of (I) Group Three Investor Finance Charge and
Administrative Collections less the sum of (i) Group Three Investor
Monthly Interest, (ii) the Group Three Investor Default Amount and (iii)
Group Three Investor Monthly Fees and (II) a fraction, the numerator of
which is Series 1998-1 Additional Amounts and the denominator of which is
Group Three Investor Additional Amounts.
(c) If the amount of Group Three Investor Finance Charge and
Administrative Collections for such Distribution Date exceeds the sum of (i)
Group Three Investor Monthly Interest, (ii) Group Three Investor Default Amount,
(iii) Group Three Investor Monthly Fees and (iv) Group Three 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 Three as of such last
day.
Section 4.17. Series 1998-1 Excess Principal Collections. (a) That
portion of Trust Excess Principal Collections for all Series for any
Distribution Date equal to the amount of Series 1998-1 Excess Principal
Collections for such Distribution Date will be allocated to Series 1998-1 and
will be distributed as set forth in this Series Supplement.
(b) Series 1998-1 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 1998-1 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
1998-1 Excess Principal Collections for such Distribution Date shall equal the
product of (x) Trust Excess Principal Collections for all Series all for such
Distribution Date and (y) a fraction, the numerator of which is the Series
1998-1 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 1998-1 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,
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excluding from the amount described in this clause (ii) any portion thereof
attributable to Series 1998-1 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 1998-1 Certificates from Series 1998-1
Certificateholders and becomes a Series 1998-1 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 1998-1
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
1998-1 Certificates pursuant to this Section, (a) the Invested Amount shall be
reduced by (i) the aggregate principal amount of such purchased Series 1998-1
Certificates and (ii) the reduction in the Collateral Interest 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
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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 in an amount not to exceed the Covered Amount, for
application in accordance with subsections 4.11(a) and 4.11(b).
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
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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 of such interest and earnings, if any,
shall be distributed to the Seller 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 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) and 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 LIBOR Determination Date during the Controlled
Accumulation Period or any Early Accumulation Period, (i) the amount required to
pay the Covered Amount, for the period from the next Distribution Date to the
second succeeding Distribution 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
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Distribution Date (a "Reserve Account Event"), then the Controlled Accumulation
Period or any 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
1998-1 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 1998-1 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 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).
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<PAGE> 42
(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 1998-1 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 1998-1 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) 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
39
<PAGE> 43
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 [_____________],
1998) 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 1998-1 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 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 1998-1 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 1998-1 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
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<PAGE> 44
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 1998-1 Certificateholder, and (ii) as a result of such
incorrectness the interests of the Series 1998-1 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 or make deposits in the Special Funding Account
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;
provided that such requirement to convey Receivables or make deposits
shall be determined solely for purposes of this clause (d), by including
the amount then on deposit in the Special Funding Account in determining
the amount of Principal Receivables in the Trust as if such amounts were
Principal Receivables;
(e) a Servicer Default shall occur which has a material adverse
effect on the Series 1998-1 Certificateholders (determined without regard
to the availability of moneys in the Cash Collateral Account);
(f) the average Series Adjusted Portfolio Yield (averaged over any
three consecutive Due Periods) is reduced to a rate below the average
Base Rate for such period;
(g) failure to distribute an amount equal to the full Class A
Invested Amount and the Class B Invested Amount, and all interest accrued
thereon, on or before the Series 1998-1 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 1998-1 Certificateholders evidencing more than
50% of the aggregate unpaid principal amount of the Series 1998-1 Certificates
by notice then given in writing to the Seller and the Servicer (and to the
41
<PAGE> 45
Trustee if given by the Series 1998-1 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 $[____________] 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 1998-1 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 1998-1 in
connection with a repurchase of the Certificateholders' 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
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<PAGE> 46
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 (or, with respect to Termination
Proceeds, the Class A Adjusted 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
(or, with respect to Termination Proceeds, the Class B Adjusted 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 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 1998-1
Certificateholders shall be distributed in full to the Series 1998-1
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
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<PAGE> 47
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 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 1998-1 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 1998-1 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 1998-1 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 1998-1 Allocable Finance Charge and Administrative
Collections, (y) the Floating Allocation Percentage with respect to
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<PAGE> 48
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 1998-1 Certificateholders shall be distributed in
full to the Series 1998-1 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.
(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.
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<PAGE> 49
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 1998-1 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).
SECTION 19. Definition of Tax Opinion for Purposes of Series 1998-1
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.
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
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<PAGE> 50
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.
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:
47
<PAGE> 51
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 1998-1
FLOATING RATE CLASS A CREDIT CARD PARTICIPATION CERTIFICATE
SERIES 1998-1 EXPECTED FINAL PAYMENT DATE:
The March 2002 Distribution Date
Each $1,000 minimum denomination represents a 1/_______
undivided interest in the Series 1998-1
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> 52
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 as of April 12,
1995 and as may be further amended from time to time (the "Agreement"), as
supplemented by the Series 1998-1 Supplement dated as of July 1, 1998 (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 and including its date of issuance to and excluding
[____________], 1998 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 1998-1 Expected
Final Payment Date is the [__________] 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
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<PAGE> 53
Period there are not sufficient Collections of Principal Receivables to deposit
the Controlled Deposit Amount into the Principal Funding Account, then to the
extent that excess Collections of Principal Receivables 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 Series 1998-1 Expected 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 1998-1
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.
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: ________ __, 1998
<PAGE> 54
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> 55
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES 1998-1
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
1998-1 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 and any amounts on deposit in the
Principal Funding Account with respect to the Class A Certificates 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 1998-1 Floating Rate
Class B Credit Card Participation Certificates (the "Class B Certificates")
will be issued. Also, the HAFC 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 [____________],
1998, 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 the product of (i) the unpaid principal amount of
the Class A Certificates, (ii) the Class A
<PAGE> 56
Certificate Rate and a fraction, the numerator of which is the actual number of
days in the Interest Period and the denominator of which 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
[____________], 1998.
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 Adjusted Invested Amount and the Class
B Adjusted 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) 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
2
<PAGE> 57
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 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.
3
<PAGE> 58
THIS CLASS A CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
4
<PAGE> 59
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:________________
<TABLE>
<S> <C>
(1) A Non U.S. Person as defined in Note: The signature(s) to this
the Internal Revenue Code of 1986, as Assignment must correspond with the
amended must certify to the Trustee name(s) as written on the face of the
in writing as to its Non U.S. Person within certificate in every particular
status and such further information without alteration or enlargement or
as may be alteration or required any change whatsoever
under the Code or reasonably
requested by the Trustee
</TABLE>
<PAGE> 60
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 1998-1
FLOATING RATE CLASS B CREDIT CARD PARTICIPATION CERTIFICATE
SERIES 1998-1 EXPECTED FINAL PAYMENT DATE:
The March 2002 Distribution Date
Each $1,000 minimum denomination represents a 1/______
undivided interest in the Series 1998-1
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
_________________
* Denominations of $1,000 and integral multiples of $1,000 in excess thereof.
<PAGE> 61
HOUSEHOLD AFFINITY FUNDING CORPORATION
(Not an interest in or obligation of
Household Affinity Funding Corporation
or any affiliate thereof)
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 as of April 12,
1995 and as may be further amended from time to time (the "Agreement"), as
supplemented by the Series 1998-1 Supplement, dated as of July 1, 1998 (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 and including its date of issuance to and excluding
[____________], 1998 and with respect to each Due Period thereafter, at the
rate of [_____]% above LIBOR.
2
<PAGE> 62
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 1998-1 Expected Final
Payment Date is the [___________] 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 1998-1
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.
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: ________ __, 1998
3
<PAGE> 63
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> 64
HOUSEHOLD AFFINITY CREDIT CARD MASTER TRUST I
SERIES 1998-1
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
1998-1 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 and
amounts on deposit in the Principal Funding Account with respect to the Class B
Certificates 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 Trust I, Series
1998-1 Floating Rate Class A Credit Card Participation Certificates (the "Class
A Certificates") will be issued. Also,
<PAGE> 65
the HAFC 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 [____________],
1998, 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 the product of (i) the unpaid principal amount of the
Class B Certificates, (ii) the Class B Certificate Rate and a fraction, the
numerator of which is the actual number of days in the Interest Period and the
denominator of which 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 [____________], 1998.
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 Adjusted Invested Amount and the Class B Adjusted 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.
<PAGE> 66
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 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
<PAGE> 67
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.
<PAGE> 68
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 defined in
the Internal Revenue Code of 1986, as
amended must certify to the Trustee
in writing as to its Non U.S. Person
status and such further information
as may be alteration or required
under the Code or reasonably
requested by the Trustee
Note: The signature(s) to this
Assignment must correspond with the
name(s) as written on the face of the
within certificate in every particular
without alteration or enlargement or
any change whatsoever
<PAGE> 69
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 1998-1
--------------------------------------------
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..........................................................$_______
<PAGE> 70
<TABLE>
<S> <C>
(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............................................................. $_______
(d) The Defaulted Amount for the preceding Due Period is.......................... $_______
(e) The Portfolio Yield for such Distribution Date................................ ________%
(f) The total amount of Principal Receivables as of the last day of the
immediately preceding Due Period is........................................... $_______
(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
5-29 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
30-59 days as of the close of business on the last day of the calendar
month preceding such Distribution Date was equal to........................... $_______
(l) The aggregate outstanding balance of the Accounts which were delinquent by
60 days or more as of the close of business on the last day of the calendar
month preceding such Distribution Date was equal to........................... $_______
(m) The aggregate amount of Trust Excess Principal Collections for such
Distribution Date is.......................................................... $_______
(n) The aggregate amount of Principal Shortfalls for such Distribution Date is.... $_______
6. Group Three Information
(a) The Average Rate for Group Three (the weighted average Certificate Rate
reduced to take into account any payments made pursuant to interest rate
agreements) is equal to....................................................... ________%
(b) Group Three Total Investor Collections is equal to............................ $_______
(c) Group Three Investor Principal Collections is equal to........................ $_______
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
(d) Group Three Investor Finance Charge and Administrative Collections equal
to........................................................................... $_______
(e) Group Three Investor Additional Amounts is equal to.......................... $_______
(f) Group Three Investor Default Amount is equal to.............................. $_______
(g) Group Three Investor Monthly Fees is equal to................................ $_______
(h) Group Three Investor Monthly Interest is equal to............................ $_______
7. Series 1998-1 Information
(a) The Series Adjusted Portfolio Yield for the Due Period preceding such
Distribution Date was equal to............................................... ________%
(b) The Series 1998-1 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..................................................................... $_______
</TABLE>
<PAGE> 72
<TABLE>
<S> <C>
(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........... $_______
(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 1998-1 Principal Shortfall for such Distribution Date is equal
to........................................................................... $_______
(z) The Series 1998-1 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................................ $_______
</TABLE>
<PAGE> 73
<TABLE>
<S> <C>
(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....................... $_______
(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 fund the Collateral Default Amount with respect to such
Distribution Date.......................................................... $_______
(viii) to make any required deposit in the Cash 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................................ $_______
(ff) The total amount to be distributed to Class A Certificateholders on such
Distribution Date in payment of principal is equal to....................... $_______
(gg) The total amount to be distributed to Class B Certificateholders 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............................................... $_______
</TABLE>
<PAGE> 74
<TABLE>
<S> <C>
(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 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............................................ $_______
</TABLE>
<PAGE> 75
<TABLE>
<S> <C>
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................................................ $_______
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>
<PAGE> 76
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Certificate this ____ day of ______________, 199_.
HOUSEHOLD FINANCE CORPORATION
as Servicer,
By:_______________________________________
Name:
Title:
<PAGE> 77
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of Contents.
Deleting this break will cause Table of Contents headers and footers to appear
on any pages following the Table of Contents.
<PAGE> 1
EXHIBIT 5
June 24, 1998
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. 333-51551, as amended, on Form S-1 (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission") pursuant
to the Securities Act of 1933, as amended (the "Act"), pertaining to the 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 re[resenting 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 1998-1 (the "98-1 Class A Certificates"), the Class B
Credit Card Participation Certificates, Series 1998-1 (the "98-1 Class B
Certificates"), to be issued by the Trust. The Trust was created pursuant to
the pooling and Servicing
<PAGE> 2
Household Affinity Funding Corporation
June 24, 1998
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 and October 20, 1997, collectively,
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 1998-1 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 1998-1 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 1998-1 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,
<PAGE> 3
Household Affinity Funding Corporation
June 24, 1998
Page 3
the application of the "Blue Sky" or securities laws of the various states to
sales to sales of the Certificates.
I hereby consent to the use of my name and my opinion in the Prospectus filed
pursuant to Rule 430A or 424 of the Regulation C of the Act, in connection with
the Regulation 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 Blenke
- -----------------------
JWB: kmr
<PAGE> 1
EXHIBIT 8
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 Fifth Avenue
New York, New York 10103
June 24, 1998
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 and October 20, 1997 (as filed as exhibits
4.1, 4.2 and 4.3 to the Registration Statement), 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 exhibit 4.4 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,"
"Federal Income Tax Consequences" and "State and Local Tax Consequences," are
correct in all material respects, and we hereby confirm the opinions set forth
under the headings "Federal Income Tax Consequences-Treatment of the Investor
Certificates as Debt" and "Federal Income Tax Consequences-Treatment of the
Trust."
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 "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
