<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
S-1 REGISTRATION NO. 333-20147
S-3 REGISTRATION NOS. 333-20147-01 AND 333-20147-02
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1 AND FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
<TABLE>
<CAPTION>
S-1 REGISTRANT STATE OF ORGANIZATION I.R.S. EMPLOYER IDENTIFICATION NO.
-------------- --------------------- ----------------------------------
<C> <C> <C>
HOUSEHOLD CONSUMER NEW YORK 88-0345950
LOAN DEPOSIT TRUST I
(Registrant Issuer of the
Series 1997-1 Participation)
</TABLE>
<TABLE>
<CAPTION>
S-3 REGISTRANTS STATE OF ORGANIZATION I.R.S. EMPLOYER IDENTIFICATION NO.
--------------- --------------------- ----------------------------------
<C> <C> <C>
HOUSEHOLD CONSUMER LOAN TRUST DELAWARE TO BE APPLIED FOR
1997-1
(Registrant Issuer of Notes
backed by the Series 1997-1
Participation)
HOUSEHOLD CONSUMER LOAN NEVADA 36-4038996
CORPORATION
(Registrant Originator of the
Deposit Trust and the
Issuer)
</TABLE>
1111 Town Center Drive
Las Vegas, Nevada 89134
(Address of principal executive offices
of Household Consumer Loan Corporation)
PATRICK D. SCHWARTZ, ESQ.
Associate General Counsel -- Corporate Finance and Assistant Secretary
HOUSEHOLD INTERNATIONAL, INC.
2700 Sanders Road
Prospect Heights, Illinois 60070
(847) 564-6301
(Name, Address, telephone number, including area code, of agent for service)
---------------------
<TABLE>
<C> <C>
REID A. MANDEL, ESQ. GAIL G. WATSON, ESQ.
KATTEN MUCHIN & ZAVIS BROWN & WOOD LLP
525 West Monroe Street One World Trade Center
Chicago, Illinois 60661 New York, New York 10048
(312) 902-5200 (212) 839-5300
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE(1)
- ------------------------------------------------------------------------------------------------------------------------
Household Consumer Loan Asset Backed
Class A-1 Notes................... $729,600,000 100% $729,600,000 $221,090.91
Household Consumer Loan Asset Backed
Class A-2 Notes................... $48,000,000 100% $48,000,000 $14,545.46
Household Consumer Loan Asset Backed
Class A-3 Notes................... $62,400,000 100% $62,400,000 $18,909.09
Series 1997-1 Participation......... (2) (2) (2) $100.00(3)
========================================================================================================================
</TABLE>
(1) $253,939.38 paid by wire transfer on February 27, 1997. $706.08 of the
Registration Fee was previously paid.
(2) Not applicable.
(3) As prescribed by Section 6(b) of the Securities Act of 1933.
---------------------
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 THE 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; Deposit
Trust 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 HFC Revolving
Consumer Credit Lines; The Series 1997-1
Participation; Maturity and Prepayment
Considerations; Description of the
Deposit Trust; Description of the
Securities
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant............................... The HFC Revolving Consumer Credit Lines;
The Seller and Subservicers; Description of
the Deposit Trust
12. Disclosure of Commission Position on
Indemnification of Securities Act
Liabilities.............................. *
</TABLE>
- -------------------------
* Not Applicable
<PAGE> 3
Subject to Completion, dated February 28, 1997
PROSPECTUS
$729,600,000 CLASS A-1 NOTES
$48,000,000 CLASS A-2 NOTES
$62,400,000 CLASS A-3 NOTES
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
HOUSEHOLD CONSUMER LOAN ASSET BACKED NOTES, SERIES 1997-1
HOUSEHOLD FINANCE CORPORATION
SERVICER
---------------------------
The Household Consumer Loan Trust 1997-1 (the "Issuer") will be formed
pursuant to a Trust Agreement, to be dated as of March 1, 1997 (the "Trust
Agreement"), between Household Consumer Loan Corporation (the "Seller") and The
Chase Manhattan Bank Delaware, as owner trustee (the "Owner Trustee") and will
issue four classes of Consumer Loan Asset Backed Notes (collectively, the
"Notes") pursuant to an Indenture to be dated as of March 1, 1997 (the
"Indenture") between the Issuer and The Bank of New York, as indenture trustee
(the "Indenture Trustee"). The Issuer will also issue the Consumer Loan Asset
Backed Certificates, Series 1997-1 (the "Certificates"). The Notes and
Certificates will be issued with aggregate principal amounts as set forth
herein. Only the Class A-1, Class A-2 and Class A-3 Notes (the "Class A Notes")
are offered by this Prospectus. The Class B Notes and the Certificates will be
sold privately to qualified institutional buyers or accredited investors (which
may include an affiliate of the Seller), and unless otherwise registered with
the Commission (as defined herein), any resale of such securities will be made
to qualified institutional buyers or to accredited investors. The Notes and the
Certificates are collectively referred to herein as the "Series 1997-1
Securities". The Class A-2, Class A-3, Class B Notes and the Certificates are
subordinated to the extent described herein.
The Notes will be secured by a participation interest (the "Series 1997-1
Participation") in receivables held by Household Consumer Loan Deposit Trust I
(the "Deposit Trust") and originated under certain fixed and variable rate
revolving consumer credit lines (the "Credit Lines") and the collections
thereon. The Deposit Trust was formed pursuant to a Pooling and Servicing
Agreement dated as of September 1, 1995 among the Seller, Household Finance
Corporation, as Servicer (the "Servicer") and The Chase Manhattan Bank, N.A., as
trustee. Texas Commerce Bank National Association has succeeded The Chase
Manhattan Bank, N.A., as trustee under the Pooling and Servicing Agreement and
is referred to herein as the "Deposit Trustee".
Interest will accrue on the Class A-1 Notes, Class A-2 Notes and Class A-3
Notes at floating rates equal to LIBOR (as defined herein) plus 0. %, 0. % and
0. % per annum, respectively, in each case, subject to certain limitations as
described herein. See "Description of the Securities -- Distributions on the
Securities" herein. Payments of interest and principal on the Notes will be made
on the fifteenth day of each month, or if any such day is not a Business Day, on
the next succeeding Business Day, commencing in April 1997 (each, a "Payment
Date").
There is currently no secondary market for the Notes. There can be no
assurance that a secondary market for the Notes will develop or, if it does
develop, that it will continue. Application will be made to list the Notes on
the Luxembourg Stock Exchange. See "Risk Factors -- Limited Liquidity" herein.
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
NOTES, SEE "RISK FACTORS" ON PAGE 21 HEREIN.
---------------------------
THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF HOUSEHOLD CONSUMER LOAN CORPORATION, HOUSEHOLD
FINANCE CORPORATION, THE DEPOSIT TRUSTEE, THE OWNER TRUSTEE, THE INDENTURE
TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT DESCRIBED HEREIN. NONE
OF THE NOTES, THE SERIES 1997-1 PARTICIPATION, OR THE CREDIT LINES ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
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(1) DISCOUNT(2) SELLER(2)(3)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Per Class A-1 Note........................... % % %
- ---------------------------------------------------------------------------------------------------------------------
Per Class A-2 Note........................... % % %
- ---------------------------------------------------------------------------------------------------------------------
Per Class A-3 Note........................... % % %
- ---------------------------------------------------------------------------------------------------------------------
Total........................................ $ $ $
=====================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) The Seller and HFC have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, estimated to be $900,000.
---------------------------
The Notes are offered subject to prior sale and subject to the Underwriters'
right to reject orders in whole or in part. It is expected that delivery of such
Notes will be made in book-entry form only through the facilities of The
Depository Trust Company, Cedel Bank, societe anonyme and the Euroclear System
on or about , 1997.
---------------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
---------------------------
The date of this Prospectus is , 1997.
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.
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Until 90 days after the date of this Prospectus, all dealers effecting
transactions in the Class A Notes, 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. Upon receipt of a
request by an investor, or his or her representative, within the period during
which there is a Prospectus delivery obligation, the Underwriters will transmit
or cause to be transmitted promptly, without charge and in addition to any such
delivery requirements, a paper copy of a Prospectus or, provided certain
procedural requirements are satisfied, a Prospectus in an electronic format.
The address and telephone number of the Seller, the originator of the
Deposit Trust, is 1111 Town Center Drive, Las Vegas, Nevada 89134, (702)
243-1347. The address and telephone number of the Owner Trustee to the Issuer is
1201 Market Street, Wilmington, Delaware 19801, (302) 428-3375.
AVAILABLE INFORMATION
The Seller, has filed a Registration Statement under the Securities Act of
1933, as amended, with the Securities and Exchange Commission (the "Commission")
with respect to the Notes offered pursuant to this Prospectus. This Prospectus,
which forms a part of the Registration Statement, does not contain all of the
information included in the Registration Statement and the exhibits thereto. For
further information, reference is made to the Registration Statement and
amendments thereof and to exhibits thereto, which are available for inspection
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission at Seven
World Trade Center, New York, New York 10048 and at 500 W. Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of the Registration Statement, the
amendments thereof and the exhibits thereto, may be obtained from the Public
Reference Section of the Commission's Washington Offices and while Notes are
listed on the Luxembourg Stock Exchange, at the offices of the Luxembourg Paying
Agent (as defined herein), in each case, at prescribed rates. The Commission
also maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with the Commission on behalf of the Issuer pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), on or subsequent to the date of this Prospectus and
prior to the termination of the offering of the Notes made hereby shall be
deemed to be incorporated by reference herein and to be a part of this
Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or replaces such statement. Any such statement so
modified or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Prospectus. The Seller will provide without charge to
each person to whom this Prospectus is delivered, on the request of such person,
a copy of any or all of the documents incorporated herein by reference (other
than exhibits to such documents unless the exhibits are specifically
incorporated by reference in such documents). Requests should be directed in
writing to Household Consumer Loan Corporation, 2700 Sanders Road, Prospect
Heights, Illinois 60070, Attention: Secretary. While the Notes are listed on the
Luxembourg Stock Exchange, copies may also be obtained at the offices of the
Luxembourg Stock Exchange.
FINANCIAL INFORMATION
The Seller has determined that its financial statements are not material to
the offering made hereby.
The Issuer will be formed to hold the Series 1997-1 Participation and to
issue the Notes and Certificates. The Issuer will have no assets or obligations
prior to the issuance of the Notes and will engage in no activities other than
those described herein. Accordingly, no financial statements with respect to the
Issuer are included in this Prospectus.
REPORTS TO THE NOTEHOLDERS
Unless and until Replacement Notes (as defined herein) are issued, the
Issuer will provide monthly and annual reports concerning the Notes to CEDE &
Co., as nominee of The Depository Trust Company ("DTC") and registered holder of
the Notes, the Luxembourg Paying Agent, if any, and upon request, to
Participants (as defined herein). See "Description of the Securities -- Reports
to Noteholders" and "Description of the Deposit Trust -- Evidence as to
Compliance" herein. Such reports may be made available to the owners of the
Notes (the "Note Owners") upon request to their Participants. Such reports will
not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Issuer does not intend to provide any
financial information to any holder of the Notes which has been examined and
reported upon, with an opinion expressed, by an independent public accountant.
The Servicer will file with the Commission such periodic reports with respect to
the Issuer as are required by the 1934 Act, and the rules, regulations or orders
of the Commission thereunder.
2
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 21
Limited Liquidity............................ 21
Difficulty in Pledging....................... 21
Potential Delays in Receipt of
Distributions.............................. 21
Nature of Underlying Assets.................. 21
Cash Flow Considerations..................... 21
Prepayment Considerations.................... 22
Note Rating.................................. 22
Changes in Loan Terms and Finance Charges.... 22
Discounted Principal Receivables............. 22
Sale of Assets; Insolvency Considerations.... 23
Legal Considerations......................... 24
Generation of Additional Receivables;
Dependency on Borrower Repayments.......... 25
Series 1997-1 Participation.................. 25
Social, Legal, Economic and Other Factors.... 25
Deposit Trust Risk Factors..................... 25
Issuance of Additional Series; Voting
Power...................................... 25
Addition of Assets to the Deposit Trust...... 26
The Seller and Subservicers.................... 27
The Servicer................................... 28
Use of Proceeds................................ 28
The HFC Revolving Consumer Credit Lines........ 28
General...................................... 28
Underwriting Procedures Relating to the
Revolving Consumer Credit Lines............ 29
Revolving Consumer Credit Line Terms......... 29
Servicing of Revolving Consumer Credit
Lines...................................... 31
Revolving Consumer Credit Line Delinquency
Experience for the Portfolio................. 33
Revolving Consumer Credit Line Gross Charge-Off
Experience for the Portfolio................. 34
Revolving Consumer Credit Line Revenue
Experience for the Portfolio................. 34
The Revolving Consumer Credit Lines............ 35
The Series 1997-1 Participation................ 43
General...................................... 43
Conveyance and Performance of the Series
1997-1 Participation....................... 43
Maturity and Prepayment Considerations......... 44
Description of the Deposit Trust............... 48
General...................................... 49
Assignment of Receivables.................... 50
Representations and Warranties............... 51
Transfer of Seller's Interest; Additional
Sellers and Originators.................... 53
Additions of Credit Lines.................... 53
Removal of Deposit Trust Assets.............. 54
Discount Option.............................. 54
Amendments to Credit Line Agreements......... 55
Payments on Credit Lines; Deposits to
Collection Account......................... 55
Allocations and Collections.................. 56
Collection and Other Servicing Procedures.... 57
Servicing Compensation and Payment of
Expenses................................... 57
Evidence as to Compliance.................... 57
Certain Matters Regarding the Servicer and
the Seller................................. 58
Servicer Defaults............................ 59
Rights Upon a Servicer Default............... 59
</TABLE>
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<S> <C>
Amendment.................................... 60
Exercise of Rights by Holders of Series
Participation Interests.................... 60
The Deposit Trustee.......................... 61
Certain Activities........................... 61
Distributions on the Series 1997-1
Participation.............................. 61
Description of the Securities.................. 62
General...................................... 62
Distributions on the Securities.............. 62
Early Amortization Period.................... 67
Maturity..................................... 68
Reports to Noteholders....................... 68
Events of Default; Rights Upon Event of
Default.................................... 69
Certain Covenants............................ 70
Annual Compliance Statement.................. 71
Satisfaction and Discharge of Indenture...... 71
Modification of Indenture.................... 71
Certain Matters Regarding the Indenture
Trustee and the Issuer..................... 71
Duties of the Indenture Trustee.............. 72
Actions in Respect of Series 1997-1
Participation.............................. 72
Resignation of Indenture Trustee............. 72
Registration of Notes........................ 72
Administration Agreement..................... 75
Description of the Receivables Purchase
Agreement.................................... 76
Sale of Receivables.......................... 76
Representations and Warranties............... 76
Certain Covenants............................ 77
Amendments................................... 77
Sale of Credit Line Agreements............... 77
Termination.................................. 77
Certain Legal Aspects of the Receivables....... 77
Transfer of Receivables...................... 77
Certain Matters Relating to Insolvency....... 78
Consumer Protection Laws..................... 80
Potential Legislation........................ 80
"Due-on-Sale" Clauses........................ 80
Environmental Legislation.................... 81
Certain Federal and State Income Tax
Consequences................................. 81
General...................................... 81
Tax Characterization of The Deposit Trust and
The Issuer................................. 82
The Notes.................................... 83
State and Local Income and Franchise Tax
Consequences............................... 84
ERISA Considerations........................... 84
General...................................... 84
Prohibited Transactions and Fiduciary Duty... 85
Plan Asset Regulation........................ 85
Review by Plan Fiduciaries................... 86
Underwriting................................... 86
Legal Matters.................................. 87
Additional Information......................... 87
Index of Defined Terms......................... 88
Global Clearance, Settlement and Tax
Documentation Procedures..................... A-1
Initial Settlement........................... A-1
Secondary Market Trading..................... A-1
Certain U.S. Federal Income Tax Documentation
Requirements............................... A-3
</TABLE>
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus. Reference is made to the Index of Defined Terms for the location of
the definitions of certain capitalized terms.
ISSUER........................... The Household Consumer Loan Trust 1997-1
(the "Issuer"), a Delaware business trust
to be formed by the Seller and the Owner
Trustee pursuant to the Trust Agreement
(the "Trust Agreement").
SECURITIES ISSUED BY THE
ISSUER........................... The Class A-1 Notes, Class A-2 Notes, Class
A-3 Notes, Class B Notes and the
Certificates. The Notes will be issued
pursuant to the Indenture and will be
secured by the Trust Assets (as defined
below). Pursuant to the terms of the
Indenture, the Class B Notes will be
subordinate to the Class A Notes, the Class
A-3 Notes will be subordinate to the Class
A-2 and Class A-1 Notes and the Class A-2
Notes will be subordinate to the Class A-1
Notes. The Certificates will be issued by
the Issuer pursuant to the Trust Agreement.
The Certificates will be subordinate to the
Notes pursuant to the terms of the
Indenture.
The Notes represent obligations solely of
the Issuer and do not represent interests
in or obligations of the Seller, the
Servicer, the Deposit Trustee, the Owner
Trustee, the Indenture Trustee or any
affiliate thereof, except to the extent
described herein. None of the Notes, the
Series 1997-1 Participation or the Credit
Lines are insured or guaranteed by any
governmental agency or instrumentality.
Only the Class A Notes are offered hereby.
A. THE CLASS A-1 NOTES......... $729,600,000 Consumer Loan Asset Backed
Notes, Series 1997-1 (the "Class A-1
Notes").
THE CLASS A-2 NOTES......... $48,000,000 Consumer Loan Asset Backed
Notes, Series 1997-1 (the "Class A-2
Notes").
THE CLASS A-3 NOTES......... $62,400,000 Consumer Loan Asset Backed
Notes, Series 1997-1 (the "Class A-3
Notes").
Collectively, the Class A-1 Notes, Class
A-2 Notes and the Class A-3 Notes are
referred to herein as the "Class A Notes".
The Class A Notes will be issued pursuant
to the Indenture (the "Indenture") between
the Issuer and The Bank of New York, as
indenture trustee (the "Indenture
Trustee").
B. THE CLASS B NOTES........... $45,600,000 Consumer Loan Asset Backed
Notes, Series 1997-1 (the "Class B Notes").
The Class B Notes will be issued pursuant
to the Indenture and are not offered
hereby.
C. THE CERTIFICATES............ $33,600,000 Consumer Loan Asset Backed
Certificates, Series 1997-1 (the
"Certificates"). The Certificates will be
issued pursuant to the Trust Agreement and
are not offered hereby. The Certificates
will represent fractional undivided
beneficial interests in the Issuer.
4
<PAGE> 7
TRUST ASSETS..................... The "Trust Assets" include (i) a
participation interest (the "Series 1997-1
Participation") in (x) the Receivables
arising under the Credit Lines and the
proceeds thereof, and (y) the preferred
stock of the Seller held by the Deposit
Trustee (the "Preferred Stock") and (ii)
monies on deposit in certain accounts of
the Issuer for the benefit of
Securityholders. In addition to the Trust
Assets, as described herein, payments to
Noteholders will be supported by the
Overcollateralization Amount, the
subordination of certain classes of Notes
to other classes of Notes and by the
subordination of the Certificates to the
Notes. See "Description of the Deposit
Trust" herein for a description of the
Preferred Stock of the Seller held by the
Deposit Trust.
SELLER........................... Household Consumer Loan Corporation is a
corporation organized under the laws of the
State of Nevada and is a wholly-owned
special purpose subsidiary of Household
Finance Corporation ("HFC"). The Seller
purchases Receivables from the Subservicers
(as defined below). The Seller then sells
the Receivables and all rights with respect
thereto to the Deposit Trust. See
"Description of the Deposit Trust --
Assignment of Receivables" herein.
DEPOSIT TRUST.................... Household Consumer Loan Deposit Trust I
(the "Deposit Trust") is a common law
trust. Texas Commerce Bank National
Association acts as trustee for the Deposit
Trust. The Deposit Trust previously issued
three participation interests in the pool
of Receivables in connection with the
issuance of three series of asset-backed
securities, a participation interest to the
Seller (the "Seller's Interest") and is
expected to issue additional interests in
the pool of Receivables from time to time
(each such interest, a "Series
Participation Interest"). See "Annex II:
Prior Issuance of Series Participation
Interests" for a summary of the Series
Participation Interests previously issued
by the Deposit Trust. Each Series
Participation Interest will be issued in
connection with the issuance of a series of
securities (each, a "Series").
The Series 1997-1 Participation will be the
only Series Participation Interest held by
the Issuer.
SERVICER......................... HFC, a subsidiary of Household
International, Inc., is the servicer of the
Credit Lines pursuant to the Pooling and
Servicing Agreement dated as of September
1, 1995 (the "Pooling and Servicing
Agreement") among the Seller, the Deposit
Trustee and the Servicer. Each Credit Line
is subserviced by the appropriate
Subservicer (as defined below) on behalf of
HFC as Servicer.
SUBSERVICERS..................... Household Realty Corporation, Household
Finance Corporation of California,
Household Finance Corporation II, Household
Finance Corporation III, Household Finance
Industrial Loan Company, Household Finance
Realty Corporation of New York, Household
Financial Center Inc., Household Finance
Corporation of Nevada, Household Finance
Realty
5
<PAGE> 8
Corporation of Nevada, Household Industrial
Loan Company of Kentucky, Household Finance
Industrial Loan Company of Iowa, Household
Finance Consumer Discount Company,
Household Industrial Finance Company and
Mortgage One Corporation (collectively, the
"Subservicers" and each individually, a
"Subservicer"), are wholly-owned
subsidiaries of HFC, licensed to make and
service consumer loans in the states in
which the Credit Lines were originated. The
Subservicers originated the Credit Lines or
purchased them from third parties.
ADMINISTRATOR.................... HFC is the Administrator pursuant to an
Administration Agreement dated as of March
1, 1997 (the "Administration Agreement")
among HFC, the Seller, the Issuer and the
Owner Trustee. Pursuant to the
Administration Agreement, HFC will perform
certain duties of the Issuer, Owner Trustee
and Seller under the Indenture and Trust
Agreement. See "Description of the
Securities -- Administration Agreement"
herein.
THE CREDIT LINES................. The Credit Lines which generate the
Receivables held by the Deposit Trust
consist of a portion of the total pool of
revolving consumer credit lines originated
or purchased by the Subservicers (and any
other consumer lending affiliates of HFC
that become Subservicers) from time to time
(the "Portfolio"). The Credit Lines are
designated to the Deposit Trust and are
required to satisfy the criteria set forth
in the Pooling and Servicing Agreement for
Eligible Credit Lines (as defined herein).
The Receivables arising under each Credit
Line, whether existing on the applicable
Cut-Off Date (as defined herein) for such
Receivables or thereafter generated have
been or will be sold by the Subservicers to
the Seller, which has sold or will sell
such Receivables to the Deposit Trust.
The Credit Lines are not being sold or
transferred to the Seller or to the Deposit
Trust and will continue to be held and
administered by the Subservicers. See "Risk
Factors -- Change in Loan Terms and Finance
Charges", "Description of the Deposit Trust
-- Assignment of Receivables"; "Description
of the Receivables Purchase Agreement --
Sale of Receivables" herein.
The Seller entered into a receivables
purchase agreement dated as of September 1,
1995 (the "Initial Cut-Off Date"), with
each Subservicer (the "Receivables Purchase
Agreement"), and may enter into a similar
agreement with other affiliates of HFC. On
September 28, 1995 (the "Initial Issuance
Date"), pursuant to the Receivables
Purchase Agreement, each of the
Subservicers sold to the Seller all of
their respective rights, title and interest
in the Receivables existing under the
Credit Lines designated to the Deposit
Trust as of the Initial Cut-Off Date (the
"Initial Credit Lines", and such
Receivables outstanding under the Initial
Credit Lines as of the Initial Cut-Off
Date, the "Initial
6
<PAGE> 9
Receivables"). Each Subservicer has sold
and will continue to sell to the Seller all
of its right, title and interest in new
Principal Receivables and Finance Charge
and Administrative Receivables arising
under the Initial Credit Lines from time to
time.
Pursuant to the Pooling and Servicing
Agreement, all Receivables purchased by the
Seller from the Subservicers will be sold
to the Deposit Trust. Pursuant to the
Pooling and Servicing Agreement, the Seller
expects (subject to certain limitations and
conditions), to continue to add Receivables
to the Deposit Trust. To do so, the Seller
may designate additional Credit Lines, the
Receivables of which will be purchased and
assigned by the Seller to the Deposit
Trust. Such additional Credit Lines may
include New Credit Lines and Additional
Credit Lines (each, as defined herein).
Since the Initial Cut-Off Date, the Seller
has conveyed to the Deposit Trust the
Receivables arising in certain Additional
Credit Lines in accordance with the
provisions of the Pooling and Servicing
Agreement. All Receivables arising under
Credit Lines designated to the Deposit
Trust, whether existing at the time such
Credit Lines are designated, or
subsequently generated, will be conveyed to
the Deposit Trust. The Seller will also
have the right, in certain circumstances,
to remove certain Credit Lines and the
Receivables arising thereunder from the
Deposit Trust, in which case, no further
interest in Receivables arising under such
Credit Lines will be transferred to the
Deposit Trust (the "Removed Credit Lines").
See "Description of the Deposit Trust --
Additions of Credit Lines" and "-- Removal
of Deposit Trust Assets".
THE RECEIVABLES.................. The Receivables include (a) all periodic
finance charges, and other amounts as
described in the Series 1997-1 Supplement
(as defined herein) (as increased by any
Principal Discount, the "Finance Charge
Receivables") (b) all administrative fees
and late charges and all other fees or
charges billed to obligors on the Credit
Lines (the "Administrative Receivables" and
together with the Finance Charge
Receivables, the "Finance Charge and
Administrative Receivables") and (c) all
amounts owed by obligors under the Credit
Line Agreements (as defined herein) and
other amounts in respect of principal as
described in the Series 1997-1 Supplement
(as decreased by any Principal Discount)
(the "Principal Receivables").
Recoveries (as defined below) attributed to
Defaulted Credit Lines (as defined below)
will be treated as collections of Finance
Charge Receivables. Finance Charge and
Administrative Receivables and Principal
Receivables will be allocated to the Series
1997-1 Participation in accordance with the
applicable Allocation Percentage (as
defined herein) for the related Collection
Period. Finance charges are assessed on
principal receivables and on certain of the
finance charge
7
<PAGE> 10
receivables at rates determined by the
Subservicers with respect to the respective
Credit Lines generated by each such party.
As of the close of business on January 31,
1997 (the "Series 1997-1 Cut-Off Date"),
the interest rates on the Receivables
ranged from 0.00% to 36.00% with a weighted
average interest rate (by principal
balance) of 18.98%. As of the Series 1997-1
Cut-Off Date, the average principal balance
of the Credit Lines designated to the
Deposit Trust was $5,658.71.
Pursuant to the option to discount
receivables contained in the Pooling and
Servicing Agreement (see "Description of
the Deposit Trust -- Discount Option"), the
Seller has the option to designate or
redesignate a fixed percentage of each
Principal Receivable assigned to the
Deposit Trust as a finance charge
receivable (the "Principal Discount"). As
of the date of this Prospectus, the Seller
has not elected to exercise such option
with respect to the Receivables; however,
it may do so at any time in the future. In
the event of such election, such percentage
designated by the Seller is the "Discount
Percentage." The Discount Percentage may be
designated by the Seller at any time, and
once designated, may be increased,
decreased or withdrawn by the Seller. The
Principal Discount may apply to Principal
Receivables assigned to the Deposit Trust
prior to, on or after the date the Seller
makes such designation or redesignation.
When the Discount Option has been elected,
the Discount Percentage of Principal
Receivables will instead be treated as
Finance Charge and Administrative
Receivables, and the Discount Percentage of
all collections of Receivables that would
otherwise be Principal Receivables will be
applied as collections of Finance Charge
and Administrative Receivables. The
applicable Allocation Percentage of such
discounted amount treated as Finance Charge
and Administrative receivables will be
available to make distributions of the
Participation Pass-Through Rate and
Defaulted Amounts allocated to the Series
1997-1 Participation. See "Risk Factors --
Discounted Principal Receivables" herein.
If such election is made, as described in
this Prospectus, all references herein to
Principal Receivables or Finance Charge
Receivables, or collections with respect
thereto, are deemed in the case of
Receivables assigned to the Deposit Trust
to refer to such Receivables, or
collections with respect thereto, as
defined above, after application of the
Principal Discount. In such event,
references in this Prospectus to Principal
Receivables or Finance Charge Receivables,
or collections with respect thereto, are
deemed in the case of Receivables assigned
to the Deposit Trust prior to such election
to refer to such Receivables, or
collections with respect thereto, without
application of a Discount Percentage. All
historical and current data herein
regarding credit lines and receivables is
presented without adjustment for a
Principal Discount.
8
<PAGE> 11
The amount of Receivables will fluctuate
from day to day as new Receivables are
generated and sold by the Subservicers to
the Seller and then by the Seller to the
Deposit Trust, and as existing Receivables
are collected, charged-off as uncollectible
or otherwise adjusted.
The amount represented by the Series 1997-1
Participation will not increase as a result
of additional Principal Receivables being
generated under any designated Credit Line
("Additional Balances"). Additional
Balances and Receivables attributable to
Aggregate Additional Credit Lines exceeding
the amount of reinvested collections for
the Series 1997-1 Participation and all
other Series Participation Interests will
be reflected in the principal balance of
the Seller's Interest. However, the
principal balance of the Series 1997-1
Participation will be adjusted to reflect
payments made on the Series 1997-1
Participation.
The aggregate amount of Receivables in the
Deposit Trust on the Series 1997-1 Cut-Off
Date was $3,811,479,951.85 of which
$3,688,140,775.71 were Principal
Receivables and $123,339,176.14 were
Finance Charge and Administrative
Receivables.
With respect to any date, the "Pool
Balance" will be equal to the aggregate of
the Principal Balances of all Credit Lines
as of such date. The "Principal Balance" of
a Credit Line on any day is equal to its
principal balance on the date the Credit
Line is designated to the Deposit Trust
(each such date, a "Cut-Off Date"), plus
(i) any Additional Balance in respect of
such Credit Line, minus (ii) all Principal
Collections credited against the Principal
Balance prior to such day, minus (iii) all
related Defaulted Amounts, and plus or
minus (iv) any correcting adjustments.
Notwithstanding the above, the Principal
Balance of Receivables for a Defaulted
Credit Line shall be zero. With respect to
any Distribution Date, a "Defaulted Credit
Line" is a defaulted Credit Line as to
which the Servicer has charged off all of
the related Principal Balance during the
related Collection Period. A "Defaulted
Amount" is the amount equal to the
Principal Balance of a Defaulted Credit
Line that the Servicer has charged off on
its servicing records in such Collection
Period.
SERIES 1997-1 PARTICIPATION...... Pursuant to the Series 1997-1 Supplement,
the Seller will convey the Series 1997-1
Participation to the Issuer. The Series
1997-1 Participation shall initially be
$960,000,000 (the "Initial Series 1997-1
Participation Invested Amount").
Thereafter, the "Series 1997-1
Participation Invested Amount" with respect
to any date will be an amount equal to the
Initial Series 1997-1 Participation
Invested Amount minus the sum of the Series
1997-1 Participation Principal Distribution
Amount (as defined herein) paid for all
Distribution Dates and the Defaulted
Amounts allocated to the Series 1997-1
Participation during the related and all
prior Collection Periods that have not been
9
<PAGE> 12
included in the Series 1997-1 Participation
Principal Distribution Amount on the
current or any prior Distribution Date.
The Series 1997-1 Participation will be
entitled to receive a percentage of the
Interest Collections (which shall include
Recoveries), Principal Collections or Net
Principal Collections (as defined below)
and Defaulted Amounts received or incurred
during each Collection Period. With respect
to any Collection Period prior to the
occurrence of an Amortization Event,
Interest Collections and Defaulted Amounts
allocated to the Series 1997-1
Participation will be based upon the
Floating Allocation Percentage.
With respect to any Collection Period
during an Early Amortization Period,
Interest Collections will be allocated to
the Series 1997-1 Participation based upon
the Fixed Allocation Percentage. However,
Defaulted Amounts allocated to the Series
1997-1 Participation with respect to any
Collection Period after an Amortization
Event shall continue to be made based upon
the Floating Allocation Percentage.
Interest Collections with respect to any
Collection Period will be distributable to
the Issuer as holder of the Series 1997-1
Participation as described under
"Remittance on the Series 1997-1
Participation." Allocated Interest
Collections not so distributed will be
distributable to the Seller.
With respect to any Collection Period prior
to the Accelerated Amortization Date or the
commencement of an Early Amortization
Period, Principal Collections will be
allocated to the Series 1997-1
Participation based upon the greater of:
(i) the Floating Allocation Percentage of
Net Principal Collections (as defined
below) or (ii) the Minimum Principal
Amount. With respect to any Collection
Period after the Accelerated Amortization
Date or during the Early Amortization
Period, the Series 1997-1 Participation
will be entitled to Principal Collections
based upon the Fixed Allocation Percentage.
For any Distribution Date, the Fixed
Allocation Percentage applicable to
Principal Collections may be different than
the Fixed Allocation Percentage applicable
to Interest Collections if an Amortization
Event occurs after the Accelerated
Amortization Date.
"Net Principal Collections" will equal the
excess, if any, of Principal Collections
for the related Collection Period, minus
Additional Balances sold to the Deposit
Trust during any Collection Period. If
there is no excess, Net Principal
Collections will equal zero.
The Floating Allocation Percentage and the
Fixed Allocation Percentage are defined
herein under "Description of the Deposit
Trust -- Allocations and Collections". The
Minimum Principal Amount is defined herein
under "Description of the Deposit
Trust -- Distributions on the Series 1997-1
Participation".
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<PAGE> 13
COLLECTIONS...................... All collections on the Receivables will be
allocated by the Servicer as payments on
Credit Lines in accordance with the terms
of the Credit Line Agreements. See
"Description of the Deposit
Trust -- Allocations and Collections"
herein.
As to any Payment Date, "Interest
Collections" will be equal to the sum of
(i) the amounts collected during the
related Collection Period in respect of
Finance Charge and Administrative
Receivables, including Recoveries and (ii)
the interest portion of the Transfer Price
(as defined herein) received in the event
the Series 1997-1 Participation is
reassigned to the Seller, reduced, if HFC
is no longer the Servicer, by the Servicing
Fee for such Collection Period.
As to any Payment Date, "Principal
Collections" will be equal to the sum of
(i) the amounts collected during the
related Collection Period in respect of
Principal Receivables (other than the
principal portion of any Recoveries), and
(ii) the principal portion of the price
received for any repurchased Receivable and
the Transfer Price.
As to any Payment Date, the "Collection
Period" is the calendar month preceding the
month of such Payment Date.
On the Business Day prior to each Payment
Date, the Servicer will deposit the
remittances on the Series 1997-1
Participation for such Payment Date into an
account (the "Collection Account")
established and maintained by the Deposit
Trustee under the Pooling and Servicing
Agreement.
ACCELERATED AMORTIZATION DATE.... The "Accelerated Amortization Date" is
February 28, 2002.
EARLY AMORTIZATION PERIOD........ An Early Amortization Period will begin
with the first day of the Collection Period
in which an Amortization Event has occurred
and will continue until the unpaid
principal balance of the Series 1997-1
Participation is zero. "Amortization
Events" will include, but are not limited
to:
(a) failure of the Seller to observe
certain covenants;
(b) certain breaches of representations and
warranties;
(c) the occurrence of certain events of
bankruptcy, insolvency or receivership
related to the Seller or the Servicer;
(d) the Deposit Trust or the Issuer becomes
an investment company under the
Investment Company Act of 1940;
(e) a Servicer Default occurs under the
Pooling and Servicing Agreement;
(f) the percentage (averaged over any three
consecutive months) obtained by
dividing i) the Overcollateralization
Amount by ii) the outstanding unpaid
principal balance of the Series 1997-1
Participation, is reduced below 4.25%;
and
(g) the portion of the Seller's Trust
Amount owned by Household Consumer
Loan Corporation is reduced
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<PAGE> 14
below 1.01% of the aggregate invested amounts of all outstanding Series
Participation Interests.
See "Description of the Securities -- Early
Amortization Period."
REMITTANCE ON THE SERIES 1997-1
PARTICIPATION.................. On each Distribution Date the Deposit Trust
will make the following remittances to the
Indenture Trustee in respect of collections
during the preceding Collection Period:
INTEREST.................... An amount will be remitted to the Indenture
Trustee on behalf of the Issuer from the
applicable Allocation Percentage of
Interest Collections for the preceding
Collection Period equal to the amount
accrued at the Participation Pass-Through
Rate on the unpaid principal balance of the
Series 1997-1 Participation. The
"Participation Pass-Through Rate" for each
Distribution Date is a per annum rate equal
to Prime Rate (as defined herein), less
1.50%, subject to a minimum rate equal to a
per annum rate which will result in an
amount sufficient to pay the full amount of
interest due on the Notes and to make a
full distribution on the Certificates at
the Certificate Rate, plus one-twelfth of
the Series 1997-1 Participation Invested
Amount, multiplied for each Distribution
Date occurring prior to April 1998, by
0.75%, and for each Distribution Date
occurring in April 1998 or thereafter, by
0.25% (the "Series 1997-1 Participation
Interest Distribution Amount").
PRINCIPAL................... An amount will be remitted to the Indenture
Trustee on behalf of the Issuer equal to
the sum of the applicable Allocation
Percentage of Principal Collections, or
during any Collection Period prior to the
Accelerated Amortization Date or
commencement of an Early Amortization
Period, equal to the sum of (a) the greater
of: (i) the Floating Allocation Percentage
of Net Principal Collections or (ii) the
Minimum Principal Amount, as defined
herein, and (b) to the extent of the
applicable Allocation Percentage of
Interest Collections remaining after
providing for the distribution of the
Participation Pass-Through Rate on the
Series 1997-1 Participation, Defaulted
Amounts and the amount of any Defaulted
Amounts previously allocated to the Series
1997-1 Participation that have not been
included in the Series 1997-1 Principal
Distribution Amount on any prior
Distribution Date (the "Series 1997-1
Participation Principal Distribution
Amount").
SECURITIES INTEREST.............. Interest on each Class of Notes will be
payable monthly on the fifteenth day of
each month or, if such day is not a
Business Day (as defined herein), on the
next succeeding Business Day (each, a
"Payment Date"), commencing in April 1997,
in an amount equal to interest accrued
during the related Interest Period (as
defined below) at the applicable Note Rate
on the Security Balance for the related
class of Notes. The applicable Note Rate
for an Interest Period will be the per
annum rate equal to the sum of (a) the
London
12
<PAGE> 15
interbank offered rate for one-month United
States dollar deposits ("LIBOR"),
determined as specified herein, as of the
second LIBOR Business Day (as defined
herein) prior to the first day of such
Interest Period (or as of two LIBOR
Business Days prior to the Closing Date, in
the case of the first Interest Period) and
(b) 0. %, 0. %, 0. % and a rate
specified in the Indenture not to exceed
0.875% per annum in the case of the Class
A-1 Notes, Class A-2 Notes, Class A-3 Notes
and Class B Notes, respectively, in each
case, subject to a maximum rate for each
class as described under "Description of
the Securities -- Distributions on the
Securities" herein. Interest on the Notes
in respect of any Payment Date will accrue
from (and including) the preceding Payment
Date (or in the case of the first Payment
Date, from the date of the initial issuance
of the Notes (the "Closing Date")) through
(and including) the day preceding such
Payment Date (each such period, an
"Interest Period") on the basis of a
360-day year and the actual number of days
in such interest period. See "Description
of the Securities -- Distributions on the
Securities". Interest for any Payment Date
due but not paid on such Payment Date shall
bear interest, to the extent permitted by
applicable law, at the related Note Rate
until paid. Failure to pay interest in full
on any Payment Date after expiration of the
applicable grace period is an Event of
Default under the Indenture.
Distributions on Certificates will be
payable monthly on each Payment Date,
commencing in April 1997, at the
Certificate Rate on the Security Balance of
the Certificates for the related Interest
Period. The "Certificate Rate" will
generally equal the sum of (a) LIBOR
(calculated in the manner described above
for the Class A and Class B Notes for such
Interest Period) and (b) the rate specified
in the Trust Agreement not to exceed 1.25%
per annum, subject to certain limitations
as described herein under "Description of
the Securities -- Distributions on the
Securities." The Certificate Rate will
accrue on any amounts distributable in
payment of the Certificate Rate, but not
paid on any monthly Payment Date.
SECURITIES PRINCIPAL............. On each Payment Date, to the extent funds
are available therefore, other than the
Payment Date in March 2007 (the "Final
Payment Date"), principal payments will be
due and payable on the Notes and
distributions will be due on the
Certificates in respective amounts
described below under "Allocation of
Remittances on the Series 1997-1
Participation".
On the Final Payment Date, principal will
be due and payable on the Notes in an
amount equal to the Security Balance
thereof on such Payment Date.
In addition, on any Payment Date, to the
extent of funds available therefor,
Noteholders will also be entitled to
receive principal payments in respect of
the Accelerated Principal
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<PAGE> 16
Payment Amount as described in this
Prospectus Summary under "Allocation of
Remittances on the Series 1997-1
Participation". In no event will principal
payments on the Notes on any Payment Date
exceed the Security Balance thereof on such
date.
ALLOCATION OF REMITTANCES ON THE
SERIES 1997-1 PARTICIPATION...... The majority of the defined terms used in
this Allocation of Remittances on the
Series 1997-1 Participation are defined
beginning on page 64 under "Description of
the Securities -- Distributions on the
Securities -- Allocations of Remittances on
the Series 1997-1 Participation".
Except as provided below, on each Payment
Date other than a Payment Date occurring
after an Event of Default, remittances on
the Series 1997-1 Participation will be
allocated in the following order of
priority:
(i) sequentially, as payment for the
amount of interest due on the Class A-1
Notes, Class A-2 Notes, Class A-3 Notes
and Class B Notes;
(ii) except as otherwise specified
below, to the Certificates on behalf of
the Issuer, as payment of the amount
distributable in respect of the
Certificate Rate on the Security
Balance of the Certificates and
previously unpaid;
(iii) sequentially, up to the Optimum
Monthly Principal,
(a) to the Class A-1 Notes until
the Security Balance of the Class
A-1 Notes equals the Class A-1
Targeted Principal Balance,
(b) to the Class A-2 Notes until
the Security Balance of the Class
A-2 Notes equals the Class A-2
Targeted Principal Balance, to the
extent the Adjusted Security Balance
of the Class A-2 Notes is not
reduced below the Minimum Security
Balance for the Class A-2 Notes,
(c) to the Class A-3 Notes until
the Security Balance of the Class
A-3 Notes equals the Class A-3
Targeted Principal Balance, to the
extent the Adjusted Security Balance
of the Class A-3 Notes is not
reduced below the Minimum Security
Balance for the Class A-3 Notes, and
(d) to the Class B Notes until
the Security Balance of the Class B
Notes equals the Class B Targeted
Principal Balance, to the extent the
Adjusted Security Balance of the
Class B Notes is not reduced below
the Minimum Security Balance for the
Class B Notes;
(iv) to the Certificates, up to the
remaining Optimum Monthly Principal
until the Security Balance of the
14
<PAGE> 17
Certificates equals the Certificate
Targeted Balance, to the extent the
Adjusted Security Balance of the
Certificates is not reduced below
$11,200,000;
(v) to the Seller, in reduction of the
Overcollateralization Amount, up to the
remaining Optimum Monthly Principal
provided the Overcollateralization
Amount is not less than $13,600,000;
(vi) as principal on the Notes,
sequentially, up to the Accelerated
Principal Payment Amount for such
Payment Date:
(a) to the Class A-1 Notes until
the Security Balance of the Class
A-1 Notes equals the Class A-1
Targeted Principal Balance,
(b) to the Class A-2 Notes until
the Security Balance of the Class
A-2 Notes equals the Class A-2
Targeted Principal Balance, to the
extent the Adjusted Security Balance
of the Class A-2 Notes is not
reduced below the Minimum Security
Balance for the Class A-2 Notes,
(c) to the Class A-3 Notes until
the Security Balance of the Class
A-3 Notes equals the Class A-3
Targeted Principal Balance, to the
extent the Adjusted Security Balance
of the Class A-3 Notes is not
reduced below the Minimum Security
Balance for the Class A-3 Notes,
(d) to the Class B Notes until
the Security Balance of the Class B
Notes equals the Class B Targeted
Principal Balance, to the extent the
Adjusted Security Balance of the
Class B Notes is not reduced below
the Minimum Security Balance for the
Class B Notes,
(e) to the Class A-1 Notes until
the Security Balance of the Class
A-1 Notes equals zero,
(f) to the Class A-2 Notes until
the Security Balance of the Class
A-2 Notes equals zero,
(g) to the Class A-3 Notes until
the Security Balance of the Class
A-3 Notes equals zero, and
(h) to the Class B Notes until
the Security Balance of the Class B
Notes equals zero;
(vii) as principal on the Notes,
sequentially, up to the remaining
Optimum Monthly Principal for such
Payment Date:
(a) to the Class A-1 Notes until
the Security Balance of the Class
A-1 Notes equals zero,
(b) to the Class A-2 Notes until
the Security Balance of the Class
A-2 Notes equals zero,
15
<PAGE> 18
(c) to the Class A-3 Notes until
the Security Balance of the Class
A-3 Notes equals zero, and
(d) to the Class B Notes until
the Security Balance of the Class B
Notes equals zero;
(viii) to the Certificates, up to the
remaining Optimum Monthly Principal
until the Security Balance of the
Certificates equals the Certificate
Minimum Balance, or if the Series
1997-1 Participation Invested Amount is
zero, then to the Certificates until
the Security Balance of the
Certificates equals zero;
(ix) to the Seller in reduction of the
Overcollateralization Amount, to an
amount not less than zero, the
remaining Optimum Monthly Principal;
and
(x) any remaining amounts to the
Issuer or its designee.
In the event (a) immediately prior to a
Distribution Date the Series 1997-1
Participation Invested Amount is less than
the aggregate Security Balance of the Class
A and Class B Notes immediately prior to
the related Payment Date, or (b) the
remittances on the Series 1997-1
Participation for a Payment Date is less
than the aggregate amount to be paid
pursuant to clauses (i) and (ii) above, the
amount to be paid pursuant to clause (ii)
above will be paid only after payments are
made on the Notes pursuant to clause (iii).
OVERCOLLATERALIZATION AMOUNT..... As of the Closing Date, the
Overcollateralization Amount is equal to
$40,800,000 (the "Initial
Overcollateralization Amount") or 4.25%
(the "Initial Overcollateralization
Percentage") of the Initial Series 1997-1
Participation Invested Amount. For each
Payment Date the "Overcollateralization
Amount" equals the amount by which the
Series 1997-1 Participation Invested Amount
exceeds the aggregate Security Balance of
the Series 1997-1 Securities, in each case
after giving effect to distributions on
such Payment Date. For each Payment Date,
the "Accelerated Principal Payment Amount"
is equal to the lesser of (i) the amount by
which the remittance on the Series 1997-1
Participation exceeds the sum of (a) the
amount to be distributed on the Notes with
respect to interest and the Certificates
with respect to the Certificate Rate on
such Payment Date and (b) the Optimum
Monthly Principal for such Payment Date and
(ii) one-twelfth of the Series 1997-1
Participation Invested Amount, multiplied
for each Payment Date occurring prior to
April 1998, by 0.75%, and for each Payment
Date occurring in April 1998 or thereafter,
by 0.25%. The distribution of Accelerated
Principal Payment Amounts, if any, to
Noteholders will increase the
Overcollateralization Amount. The
Overcollateralization Amount will be
available to absorb any Defaulted Amounts
that are allocated to Noteholders and not
covered by remittances on the Series 1997-1
Securities. See "Description of the
Securities -- Distributions on the
Securities -- Overcollateralization Amount"
herein.
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<PAGE> 19
ISSUANCE OF ADDITIONAL SERIES.... Three Series were previously issued through
the sale of Series Participation Interests
in the Receivables of the Deposit Trust.
See "Annex II: Prior Issuance of Series
Participation Interests" for a summary of
the Series Participation Interests
previously issued by the Deposit Trust.
Additional Series are expected to be issued
from time to time through the sale of
additional Series Participation Interests
to new issuers. It is anticipated that the
securities of other Series will have
expected final payment dates, rapid
amortization dates, amortization periods,
non-amortization periods, accelerated
amortization periods and periods during
which the principal amount of such
securities is accumulated in a principal
funding account or paid to holders of such
securities which differ from those for the
Series 1997-1 Securities.
Accordingly, each Series may have entirely
different methods for calculating the
amount and timing of principal and interest
distributions to securityholders and Series
Enhancements (as defined below) and may
utilize other methods for determining the
portion of collections allocable to such
securityholders and Series Enhancements.
See "Deposit Trust Risk Factors."
"Series Enhancement" means any letter of
credit, surety bond, subordinated interest
in the trust assets, collateral invested
amount, 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
holders of interests in a Series.
DENOMINATIONS.................... The Notes will be issued in the aggregate
principal amounts set forth on the cover
page hereof, in fully registered
denominations of $100,000 and integral
multiples of $1,000 in excess thereof.
REGISTRATION OF NOTES............ The Notes will initially be issued in
book-entry form. Persons acquiring
beneficial ownership interests in the Notes
("Note Owners") may elect to hold their
Notes through DTC, in the United States, or
Cedel Bank, societe anonyme ("Cedel") or
the Euroclear System ("Euroclear"), in
Europe. Transfers within DTC, Cedel or
Euroclear, as the case may be, will be in
accordance with the usual rules and
operating procedures of the relevant
system.
Cross-market 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. or The Chase
Manhattan Bank, the relevant depositaries
(collectively, the "Depositaries") of Cedel
or Euroclear, respectively, and each a
participating member of DTC. So long as the
Notes are in book-entry form, such Notes
will be evidenced by one or more Notes
registered in the name of CEDE & Co., the
nominee of DTC. The interests of the Note
Owners will be
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<PAGE> 20
represented by book-entries on the records
of DTC and participating members thereof.
Notes will be available in definitive form
only under the limited circumstances
described herein. All references in this
Prospectus to "Holders" or "Noteholders"
shall be deemed, unless the context clearly
requires otherwise, to refer to CEDE & Co.,
as nominee of DTC. See "Risk Factors" and
"Description of the Securities --
Registration of Notes" herein.
RECORD DATE...................... The last day preceding a Payment Date, or
if the Notes are no longer book-entry
securities, the last day of a month
preceding a Payment Date.
SERVICING........................ The Servicer will be responsible for
servicing and managing the Credit Lines and
making collections on the Receivables. Each
Credit Line will be subserviced by the
appropriate Subservicer on behalf of HFC,
as Servicer. The Servicer will cause
Interest Collections and Principal
Collections to be deposited into the
Collection Account, except as described
herein. On the fifth Business Day prior to
any Payment Date (the "Determination
Date"), the Servicer will calculate, and
instruct the Deposit Trust, the Issuer and
the Indenture Trustee regarding the amounts
to be paid to the Noteholders with respect
to the related Collection Period. See
"Description of the Securities --
Distributions on the Securities."
As long as HFC is the Servicer it will
receive, or be entitled to retain on behalf
of itself and the Subservicers, a portion
of the Interest Collections remaining after
distribution of the Series 1997-1
Participation Interest Distribution Amount
and the Series 1997-1 Participation
Principal Distribution Amount a monthly
servicing fee (the "Servicing Fee")
attributable to the Series 1997-1
Participation in the amount of 2.00% per
annum of the Series 1997-1 Participation
Invested Amount as of the end of the
related Collection Period. See "Description
of the Deposit Trust -- Servicing
Compensation and Payment of Expenses." In
certain limited circumstances, the Servicer
may resign or be removed under the Pooling
and Servicing Agreement, in which event
either the Deposit Trustee or, so long as
it meets certain eligibility standards as
set forth in the Pooling and Servicing
Agreement, a third-party servicer will be
appointed as a successor Servicer. In such
event, the Servicing Fee will be paid to
the successor Servicer from Interest
Collections prior to any distributions on
the Series 1997-1 Participation. See
"Description of the Deposit Trust --
Certain Matters Regarding the Servicer and
the Seller."
If the Servicer fails to comply with
certain representations, warranties or
covenants with respect to any Credit Line
and such noncompliance is not cured within
a specified period and has a material
adverse effect on the Noteholders, or if
certain events of insolvency occur with
respect to the Servicer, the Deposit
Trustee may appoint a successor Servicer.
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<PAGE> 21
See "Description of the Deposit Trust --
Assignment of Receivables."
FINAL PAYMENT OF PRINCIPAL;
TERMINATION...................... The Notes will mature on the earlier of the
date the Notes are paid in full or on the
Payment Date occurring in March 2007. In
addition, the Issuer of the Notes will pay
the Notes in full upon the exercise by the
Seller of its option to purchase the Series
1997-1 Participation after the aggregate
Security Balance of the Series 1997-1
Securities is reduced to an amount less
than or equal to $91,920,000 (10% of the
initial aggregate Security Balance of the
Series 1997-1 Securities). See "Description
of the Securities -- Maturity."
MANDATORY RETRANSFER OF CERTAIN
RECEIVABLES.................... The Seller will make certain
representations and warranties with respect
to the Trust Assets, the Credit Lines and
the Receivables. If the Seller breaches
certain of its representations and
warranties with respect to any Receivable,
then depending upon the representation or
warranty breached, if such breach has a
material adverse effect on the interest of
the Noteholders and the persons holding the
Certificates ("Certificateholders") and is
not cured within the specified period, such
Receivable will be removed from the Deposit
Trust and assigned to the Seller for
reassignment to the related Subservicer.
TAX STATUS....................... Special tax counsel to the Seller is of the
opinion that under existing law, the Class
A Notes will be characterized as
indebtedness, and neither the Deposit Trust
nor the Issuer will be characterized as an
association (or publicly traded
partnership) taxable as a corporation. The
Seller, the Indenture Trustee, the Owner
Trustee and the Class A Noteholders will
agree to treat the Class A Notes as
indebtedness for all federal, state and
local income and franchise tax purposes.
See "Certain Federal and State Income Tax
Consequences" for additional information
concerning the application of federal
income tax laws.
ERISA CONSIDERATIONS............. Generally a pension or an employee benefit
plan (a "Plan") subject to the requirements
of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and the
Internal Revenue Code of 1986, as amended
(the "Code") is permitted to purchase
instruments like the Notes that are debt
under applicable state law and have no
"substantial equity features" without
reference to the prohibited transaction
requirements of ERISA and the Code, absent
certain circumstances described in "ERISA
Considerations" herein.
In the opinion of ERISA Counsel (as defined
herein), the Class A Notes will be
classified as indebtedness without
substantial equity features for ERISA
purposes. However, if the Class A Notes are
deemed to be equity interests and no
statutory, regulatory or administrative
exemption applies, the Issuer will hold
plan assets by reason of a Plan's
investment
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<PAGE> 22
in the Class A Notes. Any Plan fiduciary
considering whether to purchase any Class A
Notes on behalf of a Plan should consult
with its counsel regarding the
applicability of the provisions of ERISA
and the Code. See "ERISA Considerations"
herein.
RISK FACTORS..................... Certain risks related to the Notes, the
Credit Lines, the Receivables, the Deposit
Trust and the Issuer are set forth in "Risk
Factors" and "Deposit Trust Risk Factors"
herein. Among the factors described in such
sections are considerations related to: the
book-entry registration of the Notes, the
amortization rate of outstanding
Receivables, the maturity of the Credit
Lines, the servicing and administration of
the Credit Lines, the insolvency of the
Seller and Servicer, the dilution in voting
power upon issuance of additional Series
Participation Interests in the Deposit
Trust, and the effect of adding additional
receivables to the Deposit Trust.
LISTING.......................... Application will be made to list the Notes
on the Luxembourg Stock Exchange.
RATING........................... It is a condition to the issuance of the
Class A Notes that they be rated in at
least the rating category specified below
(or its equivalent) by at least two
nationally recognized statistical rating
organizations:
<TABLE>
<S> <C>
Class A-1......................... "AAA"
Class A-2......................... "AA"
Class A-3......................... "A"
</TABLE>
The ratings of the Notes is based primarily
on the value of the Receivables, the credit
quality of HFC and the terms of the Notes.
There is no assurance that the ratings will
remain in place for any given period of
time or that the ratings will not be
lowered or withdrawn by the Rating
Agencies.
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<PAGE> 23
RISK FACTORS
LIMITED LIQUIDITY. Application will be made to list the Notes on the
Luxembourg Stock Exchange. There is currently no market for the Notes and while
the Underwriters currently intend to make a market in the Notes, they are under
no 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 holders of
the Notes with liquidity of investment or that it will continue while the Notes
remain outstanding.
Issuance of the Notes in book-entry form may reduce the liquidity of such
Notes in the secondary trading market since investors may be unwilling to
purchase Notes for which they cannot obtain physical certificates. See
"Description of the Securities -- Registration of Notes" herein.
DIFFICULTY IN PLEDGING. Since transactions in the Notes can be effected
only through DTC, Cedel, Euroclear, participating organizations, indirect
participants and certain banks, the ability of a Note Owner to pledge a Note to
persons or entities that do not participate in the DTC, Cedel or Euroclear
system, or otherwise to take actions in respect of such Notes, may be limited
due to lack of a physical certificate representing the Notes. See "Description
of the Securities -- Registration of Notes" herein.
POTENTIAL DELAYS IN RECEIPT OF DISTRIBUTIONS. Note Owners may experience
some delay in their receipt of distributions of interest and principal on the
Notes since such distributions will be forwarded by the Indenture Trustee to DTC
and DTC will credit such distributions to the accounts of its Participants (as
defined herein) which will thereafter credit them to the accounts of Note Owners
either directly or indirectly through indirect participants. Such delays will
decrease the yield to the Note Owners from the Notes. See "Description of the
Securities -- Registration of Notes" herein.
NATURE OF UNDERLYING ASSETS. Payment of the Minimum Monthly Payment with
respect to the Principal Balance of a Personal Unsecured Credit Line (as defined
herein) is not expected to fully amortize such Principal Balance during the life
of the borrower. The Principal Balances of Personal Unsecured Credit Lines are
due and payable upon the death of any borrower with respect to such Credit
Lines. With respect to Personal Homeowner Credit Lines (as defined herein), the
Minimum Monthly Payment is not, in most instances, expected to be sufficient to
fully amortize the Principal Balance of a Personal Homeowner Credit Line prior
to maturity. As a result, a borrower under a Personal Homeowner Credit Line will
generally be required to make a balloon payment to repay the principal amount of
the Credit Line at its maturity. The ability to make such a payment may be
dependent on the ability of a borrower to refinance the balance due on the
Credit Line. An increase in interest rates over the Loan Rate applicable at the
time the Credit Line was originated may have an adverse effect on the borrower's
ability to pay the required Minimum Monthly Payment. In addition, such an
increase in interest rates may reduce the borrower's ability to refinance and to
pay the balance of a Personal Homeowner Credit Line at its maturity. A
borrower's payment in any month may be as low as the interest payment for such
month or as high as the entire outstanding principal balance (plus accrued
interest, any insurance premium and any outstanding Administrative Receivables).
CASH FLOW CONSIDERATIONS. Collections on the Credit Lines may vary because,
among other things, borrowers may make payments during any month (other than the
month in which the Credit Line matures) as low as the interest payment for such
month or as high as the outstanding balance plus accrued interest thereon.
Collections on the Credit Lines may also vary due to seasonal purchasing and
payment habits of borrowers.
Minimum Monthly Payments will generally at least equal and may exceed
accrued interest. However, such payments will not result in a significant
reduction in the principal balance of the Credit Lines. Although historically,
most borrowers pay down all or part of their outstanding principal balances
prior to maturity, borrowers are under no obligation to do so and, in the event
such balances have not been substantially paid down prior to maturity, some
borrowers may find themselves unable to make the required final payment.
Most of the Credit Lines will not mature prior to the maturity date of the
Notes. It has been HFC's experience and is expected to continue to be the case
that borrowers will prepay the Receivables at a sufficient rate to retire the
Notes prior to their maturity date, but no assurance can be given in this
respect.
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<PAGE> 24
PREPAYMENT CONSIDERATIONS. All of the Credit Lines may be prepaid in whole
or in part at any time. Neither the Seller nor HFC is aware of any publicly
generated studies or statistics available on the rate of prepayment of such
consumer loans. Generally, consumer loans are not viewed by borrowers as
permanent financing. Accordingly, the Credit Lines can be expected to prepay
prior to any maturity of the Credit Lines. On the other hand, because the Credit
Lines are not fully amortizing, in the absence of voluntary borrower
prepayments, the Credit Lines could experience much slower rates of principal
payment than fully amortizing loans. Actual prepayment experience may be
affected by a wide variety of factors, including general economic conditions,
interest rates and the availability of alternative financing (including from HFC
or any of its affiliates). As described under "-- Changes in Loan Terms and
Finance Charges" below, HFC and the Subservicers will implement a rate increase
in 1997 with respect to some or all of the Personal Unsecured Credit Lines. Such
an increase may result in a greater rate of prepayment and delinquency with
respect to the affected Credit Lines. However, as the ability of a borrower to
pay depends upon a number of factors, HFC and the Subservicers cannot predict
the change in prepayments and delinquencies that may result due to a rate
change. It is expected that the aggregate yield on the Credit Lines will
increase as a result of such rate change. The amount by which the aggregate
yield may increase cannot be predicted.
NOTE RATING. The ratings of the Notes will depend primarily on an
assessment by the Rating Agencies of the underlying Credit Lines, the continued
ability of the Subservicers to originate and assign the Receivables to the
Seller, and the protection afforded to Noteholders by the subordination of
certain classes of the Notes and the Certificates and the Overcollateralization
Amount. The ratings assigned by the Rating Agencies are not recommendations to
purchase, hold or sell the Notes, inasmuch as such ratings do not comment as to
the market price or suitability for a particular investor. There is no assurance
that the ratings will remain in place for any given period of time or that the
ratings will not be lowered or withdrawn if in the judgment of the Rating
Agencies future circumstances so warrant, including a change in the credit
ratings of HFC, or the ability of the Subservicers to originate and assign
additional Receivables to the Seller.
CHANGES IN LOAN TERMS AND FINANCE CHARGES. Pursuant to the Receivables
Purchase Agreement, the related Subservicer transfers Receivables and not the
related Credit Lines to the Seller. Consequently, pursuant to the Pooling and
Servicing Agreement, the Seller will not be transferring the Credit Lines to the
Deposit Trust but only the Receivables arising under the Credit Lines. As
holders of the Credit Lines, the Subservicers will have the right to determine
the annual percentage rates and the fees which will be applicable from time to
time to the Credit Lines, to alter the Minimum Monthly Payment required under
the Credit Lines and to change various other terms with respect to the Credit
Lines.
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
the Subservicers to change customer finance charges or take other actions which
would change the terms of the Credit Lines. HFC and the Subservicers will
implement a rate increase during 1997 with respect to some or all of the
Personal Unsecured Credit Lines. Such increase will be imposed only where state
law permits and may be made with respect to some or all of the Personal
Unsecured Credit Lines originated in each such state. The change will be
implemented by increasing the Margin (for Variable Rate Credit Lines) and the
Loan Rate (for Fixed Rate Credit Lines), in each case, by up to three percentage
points. The actual amount of the increase with respect to particular Credit
Lines may be limited by state law, the applicable Credit Line Agreement or due
to competitive considerations.
DISCOUNTED PRINCIPAL RECEIVABLES. Under the Pooling and Servicing
Agreement, the Seller has the right at any time to designate or redesignate a
fixed percentage (the "Discount Percentage") of the amount of Principal
Receivables assigned to the Deposit Trust that would otherwise be treated as
Principal Receivables to be treated as Finance Charge and Administrative
Receivables. Subject to the satisfaction of certain conditions, such designation
may be increased, decreased or withdrawn with respect to such Receivables. Any
applicable designation will increase the percentage of collections on the
Receivables that are allocated to Finance Charge and Administrative Collections.
This designation should also decrease the likelihood of the occurrence of an
Amortization Event. However, a designation will also reduce the aggregate amount
of receivables the Seller is thereafter selling to the Deposit Trust, which may
increase the likelihood that the
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<PAGE> 25
Seller will not be able to add Principal Receivables to the Deposit Trust at the
times required by the Pooling and Servicing Agreement.
SALE OF ASSETS; INSOLVENCY CONSIDERATIONS. The Subservicers each warrant in
the Receivables Purchase Agreement that the transfers of all Receivables to the
Seller are valid sales and assignments of such Receivables. The Subservicers
have filed, and will file appropriate Uniform Commercial Code ("UCC") financing
statements to evidence such sales and perfect the Seller's right, title and
interest to and in such Receivables. The Seller warrants in the Pooling and
Servicing Agreement that its transfers of the Receivables to the Deposit Trust
are either valid sales and assignments or the grant to the Deposit Trust of a
security interest in all such Receivables. The Seller has warranted that if the
transfers to the Deposit Trust are deemed to be a grant of a security interest
in the Receivables, the Deposit Trust will have a first priority perfected
security interest therein. The Deposit Trust warrants that the Issuer will
either be the owner of or have a first priority perfected security interest in
the Series 1997-1 Participation. The Issuer will pledge all its rights in the
Series 1997-1 Participation to the Indenture Trustee on behalf of the
Noteholders.
Each of the Subservicers and the Seller believes that the transfers of the
Receivables pursuant to the Receivables Purchase Agreement are true sales of the
Receivables. The Seller believes that each transfer of Receivables pursuant to
the Pooling and Servicing Agreement is either a true sale or a grant to the
Deposit Trust of a security interest in all such Receivables. However, in the
event of an insolvency of a Subservicer and/or the Seller, it is possible that a
receiver, conservator or trustee in bankruptcy could, under the federal
bankruptcy laws, challenge the Seller's and/or the Deposit Trust's right to the
Receivables and the Issuer's beneficial interest in the Receivables. In such
event, delays in payments on the Notes and reductions in the amount of those
payments could occur. See "Certain Legal Aspects of the Receivables -- Certain
Matters Relating to Insolvency".
In the event of a Servicer Default relating to the bankruptcy or insolvency
of the Servicer, and if no Servicer Default other than such bankruptcy or
insolvency-related Servicer Default exists, the bankruptcy trustee or receiver
may have the power to prevent the Deposit Trustee from appointing a successor
Servicer. If a conservator, receiver or trustee in bankruptcy were appointed for
a Subservicer, or if certain other events occur relating to the bankruptcy,
receivership or insolvency of the Seller (such events with respect to the
Seller, an "Insolvency Event"), new Receivables would not be transferred by the
Seller to the Deposit Trust. In the event of an Insolvency Event with respect to
the Seller, the Deposit Trustee would cause a liquidation of the Receivables
held by the Deposit Trust (unless holders of Series Participation Interests
aggregating more than 50% of the aggregate unpaid principal amount of all Series
Participation Interests instruct otherwise and provided that a receiver,
conservator or trustee in bankruptcy for the Seller does not order a sale
despite such instructions not to sell), which would cause an early retirement of
the Notes. The entire proceeds of such sale or liquidation of Receivables will
be treated as collections of Receivables and allocated accordingly among the
Series Participation Interests. The Receivables may have limited liquidity and
there can be no assurance that any can be sold for an amount which equals or
exceeds the outstanding principal amount thereof. In the case of the Notes, such
proceeds allocable to the Noteholders will be applied as described in
"Description of the Securities -- Distributions on the Securities". See
"Description of the Securities -- Early Amortization Period" 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 receiver, conservator
or trustee in bankruptcy is appointed for a Subservicer or the Seller, and no
Amortization Event other than such appointment or respective insolvency of such
Subservicer or Seller exists, the receiver, conservator or trustee may have the
power to prevent the early sale 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".
The Seller may, by agreement with the Deposit Trustee and the Owner
Trustee, amend the Pooling and Servicing Agreement and the Trust Agreement to
eliminate the provisions for dissolution of the trusts created thereby upon an
Insolvency Event of the Seller if it is determined, based upon an opinion of tax
counsel, that such provisions are no longer necessary to sustain the tax
treatment of those trusts. See "Description of the Deposit Trust -- Amendment."
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<PAGE> 26
While HFC is the Servicer, cash collections held by HFC may, subject to
certain conditions, be commingled and used for the benefit of HFC prior to each
Distribution Date. In the event of the insolvency or receivership of HFC or, in
certain circumstances, the lapse of certain time periods, the Deposit Trust and
the Issuer and Indenture Trustee may not have perfected security interests in
such collections. Unless otherwise agreed to by each nationally recognized
statistical rating organization selected by the Seller to rate the interests of
any Series or class, as specified in the applicable prospectus (each, a "Rating
Agency"), if the commercial paper rating of HFC is reduced below A-1 or P-1 by
the applicable Rating Agency, HFC will, within five Business Days, be required
to 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 Receivables Purchase Agreement, the
Trust Agreement, the Pooling and Servicing Agreement and the Series 1997-1
Supplement and similar transactions and activities incidental to, or necessary
or convenient to accomplish, the foregoing. The Seller does not have any current
intention to file a voluntary petition under the Bankruptcy Code of 1978, as
amended (the "Bankruptcy Code"), or any similar applicable state law.
Application of federal and state bankruptcy and debtor relief laws to any
obligors could affect the ability of the Noteholders to recover their full
investment if such laws result in any Receivables being written off as
uncollectible and the total of the Defaulted Amounts exceeds funds available
from the Overcollateralization Amount and the amounts otherwise distributable on
the Certificates.
LEGAL CONSIDERATIONS. The Credit Lines 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 which may be enacted and court rulings (including,
but not limited to, federal or state interest rate caps on consumer loans), may
adversely affect the Servicer's ability to collect on the Receivables. In
addition, failure by the Servicer to comply with such requirements could
adversely affect the Servicer's ability to enforce the Credit Lines or
Receivables.
Pursuant to the Pooling and Servicing Agreement, if the interest of the
Deposit Trust, and consequently the Noteholders, in a Receivable is materially
and adversely affected by the failure of the related Credit Line to comply in
all material respects with applicable requirements of law, all Receivables in
the affected Credit Line will be reassigned to the Seller, or, in some
circumstances, to the Servicer. Pursuant to the Pooling and Servicing Agreement,
the Seller makes certain other representations and warranties relating to the
validity and enforceability of the Credit Lines and the Receivables. However, it
is not anticipated that the Deposit Trustee or Indenture Trustee will make any
examination of the Credit Line Agreements 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 breached and such breach has a
material adverse effect on the interest of Noteholders in any Receivable and
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 Deposit Trust portfolio. See "Description of the Deposit Trust --
Representations and Warranties".
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and may require licensing of the Subservicers. In
addition, many states have other laws, such as consumer protection laws, unfair
and deceptive practices acts and debt collection practices acts which may apply
to the origination or collection of the Credit Lines and Receivables. Depending
on the provisions of the applicable law, violations of these laws may limit the
ability of the Subservicers to collect all or part of the principal of or
interest on the Credit Lines, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Subservicers, Seller and
possibly the Deposit Trust to damages and administrative enforcement.
The Credit Lines will also be subject to federal laws, including: (i) the
Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the Credit
Lines and related Credit Line Agreements; (ii) the Equal Credit Opportunity Act
and Regulation B promulgated thereunder, which prohibit discrimination on the
basis of age, race, color, sex,
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<PAGE> 27
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; and (iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience.
Violations of certain provisions of these federal laws may limit the
ability of the Subservicers and the Deposit Trust to collect all or part of the
principal of or interest on the Credit Lines and in addition could subject the
Subservicers, and possibly the Seller or the Deposit Trust, to damages and
administrative enforcement.
GENERATION OF ADDITIONAL RECEIVABLES; DEPENDENCY ON BORROWER
REPAYMENTS. The full payment of the Security Balance of each class of Notes is
dependent on borrower repayments. A decrease in the effective yield on the
Receivables due to, among other things, an increase in the level of
delinquencies could result in decreased protection to Noteholders against
defaults under the Credit Lines. Further, the Receivables may be paid at any
time by the obligors thereof and there is no assurance that there will be
additional Receivables created under the Credit Lines, that Receivables will be
added to the Deposit Trust or that any particular pattern of borrower repayments
will occur.
SERIES 1997-1 PARTICIPATION. The Trust Assets consist primarily of the
Series 1997-1 Participation, which is an undivided beneficial interest in the
Receivables held by the Deposit Trust. As a beneficial interest, it does not
grant the Owner Trustee, the Indenture Trustee or the Noteholders any direct
rights with respect to the Receivables. Rather, it grants the Issuer, on behalf
of the Certificateholders, rights against the Deposit Trust which the Issuer has
pledged to the Indenture Trustee on behalf of the Noteholders. The Deposit
Trustee has covenanted that it will enforce its rights and perform its covenants
under the Pooling and Servicing Agreement and will cause the Seller to enforce
its rights and perform its covenants under the Receivables Purchase Agreement.
In the event the Issuer lacks sufficient funds to make payments due Noteholders,
and such lack of funds does not result from a default by the Servicer, Seller,
Owner Trustee or Deposit Trustee, there will be no recourse under the Pooling
and Servicing Agreement other than to rely upon the Servicer to pursue the
remedies available under the Credit Lines against obligors. Although it is
expected that the payment in final reduction of the Series 1997-1 Participation
will occur prior to the Distribution Date in March 2007, no assurance can be
given in this respect, and failure to receive final payment by such date will
not by itself create any additional rights or remedies under the Series 1997-1
Participation. In the event final payment in reduction of the Series 1997-1
Participation is not made by such date, an Event of Default will occur under the
Indenture. See "Description of the Securities -- Events of Default" herein.
Further, in the event of a bankruptcy of the Seller or the Deposit Trust, delays
or reductions in payments on the Series 1997-1 Participation and other adverse
consequences could result. See "Certain Legal Aspects of the Receivables --
Certain Matters Relating to Insolvency."
SOCIAL, LEGAL, ECONOMIC AND OTHER FACTORS. Changes in borrowing and payment
patterns by borrowers 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 Seller and the Subservicers 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 credit line use or
repayment patterns. See "The Revolving Consumer Credit Lines." As of the date of
this Prospectus, 21.57% (by Principal Balance) of the Receivables were generated
under Credit Lines originated by Subservicer branch offices located in
California. In the event economic conditions in a geographic area representing a
higher portion of the Pool Balance (such as California) are weaker than other
areas of the country, a higher rate of delinquency and/or charge-off may result.
DEPOSIT TRUST RISK FACTORS
ISSUANCE OF ADDITIONAL SERIES; VOTING POWER. The Issuer's principal asset
will be the Series 1997-1 Participation in the cash flows on the Receivables
held by the Deposit Trust. The Series 1997-1 Participation represents an
undivided beneficial interest in the Interest Collections (which include
Recoveries) and Principal Collections received during each Collection Period.
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The Seller has caused three trusts to be formed and Series Participation
Interests in the Deposit Trust to be sold to such trusts to support Series of
asset-backed securities. The Seller is expected to cause additional trusts to be
formed from time to time to issue additional Series of Household Consumer Loan
Asset Backed Notes or other securities. Series Participation Interests in the
assets of the Deposit Trust are expected to be the primary or sole assets of
those trusts. The terms of each Series Participation Interest, and therefore,
the terms of any additional Series, will not be subject to the prior review or
consent of holders of any other Series, including the Series 1997-1
Securityholders. Such terms may include methods for determining applicable
participation percentages and allocating collections and provisions creating
different or additional security or other credit enhancements. The obligation of
the Deposit Trustee to issue any Series Participation Interest supporting a new
trust and 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 Notes 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 Deposit Trustee that any action will not
result in such a reduction or withdrawal is referred to herein as the "Rating
Agency Condition") and (b) the Seller shall have delivered to the Deposit
Trustee a certificate of any authorized officer to the effect that, in the
reasonable belief of the Seller, such issuance will not have an Adverse Effect.
The rights of the holders of each Series to direct the voting of the
related Series Participation Interest will be governed by the documents pursuant
to which such additional Series are issued and may be different from such
provisions relating to the Series 1997-1 Participation. It is not expected that
the holders of the Series 1997-1 Securities will hold voting power sufficient to
direct any action with respect to the Deposit Trust. As additional Series
Participation Interests are issued and the Series 1997-1 Participation balance
is reduced, the relative interests of the holders of the Series 1997-1
Securities in the Deposit Trust will be reduced, thereby further reducing the
voting power of such securities.
ADDITION OF ASSETS TO THE DEPOSIT TRUST. Under certain conditions, as more
fully described below, the Seller is permitted to designate certain additional
Credit Lines to the Deposit Trust. When a Credit Line is designated, the
respective Subservicer's records are revised to reflect that as of the date of
such designation all outstanding receivables under the Credit Line are assigned
by the applicable Subservicer to the Seller, and by the Seller to the Deposit
Trust. All receivables subsequently arising under a designated Credit Line will
also be assigned to the Seller and in turn, to the Deposit Trust. The Seller may
designate Credit Lines to the Deposit Trust in two ways. As required by the
Pooling and Servicing Agreement, New Credit Lines (as defined below) are
expected to be substantially similar to the Credit Lines currently designated to
the Deposit Trust. New Credit Lines may be designated to the Deposit Trust
without regard to the satisfaction of the Rating Agency Condition; however, the
number of Credit Lines that may be so designated is limited, as described below.
Subject to the Rating Agency Condition and certain other requirements, the
Seller is permitted to designate other credit lines (other than New Credit
Lines) as Credit Lines, the receivables from which will be conveyed to the
Deposit Trust. Such other credit lines are referred to herein as "Additional
Credit Lines." New Credit Lines and Additional Credit Lines are collectively
referred to herein as "Aggregate Additional Credit Lines." The Seller expects to
convey from time to time to the Deposit Trust the receivables arising under
certain Aggregate Additional Credit Lines in accordance with the provisions of
the Pooling and Servicing Agreement.
The Receivables which arise under Aggregate Additional Credit Lines
designated to the Deposit Trust may have different characteristics than the
Receivables currently assigned to the Deposit Trust. The Credit Lines which are
subsequently assigned to the Deposit Trust will be Eligible Credit Lines, but
may be subject to different origination criteria than the Credit Lines
designated to the Deposit Trust on the date of this Prospectus because they were
originated at a later date or were acquired from another originator of consumer
loans. In addition, Aggregate Additional Credit Lines may have different terms
than the existing Credit Lines, including lower periodic finance charges, which
may have the effect of reducing the average yield on the Credit Lines currently
designated to the Deposit Trust.
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"New Credit Lines" may be designated in accordance with the following
limitations and conditions. First, a New Credit Line must be an Eligible Credit
Line of a type which (i) was designated to the Deposit Trust as an Initial
Credit Line or (ii) was previously designated to the Deposit Trust as an
Additional Credit Line provided that in the assignment related to such addition
of Credit Lines, the Seller warranted that such type of revolving credit lines
are permitted to be designated as New Credit Lines. Second, unless each
applicable Rating Agency otherwise consents, the number and balance of New
Credit Lines designated as Credit Lines with respect to any of the three
consecutive Collection Periods shall not exceed 15% of the number and balance of
the Credit Lines as of the first day of such three month period and the number
and balance of New Credit Lines designated during any consecutive twelve month
period shall not exceed 20% of the number and balance of the Credit Lines as of
the first day of such twelve consecutive month period. Third, the Seller shall
deliver to the Trustee, at least semi-annually, an opinion of counsel with
respect to the New Credit Lines included as Credit Lines confirming the validity
and perfection of each transfer of such New Credit Lines. If such opinion of
counsel with respect to any New Credit Lines is not so received, all Receivables
arising in the New Credit Lines to which such failure relates will be removed
from the Deposit Trust. Fourth, the Seller will designate New Credit Lines
subject to the conditions, among others, that (i) the conveyance of the
Receivables therein will not result in the occurrence of any Amortization Event
and (ii) such conveyance shall not have been made in contemplation of an
Insolvency Event with respect to the Seller or the applicable Subservicer.
"Eligible Credit Line" means (a) a revolving consumer credit line owned by
(i) a Subservicer and its respective successors and assigns and/or any
transferee of the credit lines from any such entity or any other originator of
credit lines which enters into a receivables purchase agreement with the Seller
or any additional Seller and (ii) which, as of the respective date of
designation, is in existence and maintained by a Subservicer or such successors,
transferees or originator, is payable in United States dollars, has an obligor
whose address is in the United States, has an obligor who has not been
identified as being involved in any voluntary or involuntary bankruptcy
proceeding, has not been sold or pledged to any other party except for any
transferee referred to above and does not have receivables which have been sold
or pledged to any other party and has not been charged-off; or (b) any other
credit line acceptable to the Rating Agency.
The Seller will also be permitted to designate Eligible Credit Lines as
Additional Credit Lines under the following conditions, among others. First,
except in the limited circumstances described below, Additional Credit Lines
must be revolving consumer credit lines established pursuant to a credit line
agreement between a Subservicer or any additional seller and the person or
persons obligated to make payments thereunder, which are designated by the
Seller to be included as Additional Credit Lines. Second, such addition must
satisfy the Rating Agency Condition. Third, the Seller must deliver to the
Deposit Trustee a certificate of an authorized officer to the effect that, in
the reasonable belief of the Seller, such addition will not have any Adverse
Effect.
THE SELLER AND SUBSERVICERS
The Seller was incorporated under the laws of the State of Nevada on July
27, 1995 and is a wholly-owned special purpose subsidiary of HFC. The Seller was
organized for the limited purposes of engaging in the type of transactions
described herein and other similar transactions and any activities incidental to
and necessary or convenient for the accomplishment of such purposes. Neither
HFC's nor the Seller's board of directors intends to change the business purpose
of the Seller. The Seller's principal executive office is located at 1111 Town
Center Road, Las Vegas, Nevada 89134.
The Subservicers are wholly-owned subsidiaries of HFC that are licensed,
where required, to make revolving consumer credit line loans in the states in
which the Credit Lines are originated. These companies originate revolving
consumer credit line loans and, in some cases, other types of secured and
unsecured consumer loans from branch offices located in the states in which they
are licensed to do business and with respect to telemarketing and direct mail
solicitations, from a centralized facility.
Each Receivable will be sold to the Deposit Trust by the Seller at a price
equal to its balance as of the date it is assigned to the Deposit Trust plus the
excess spread for such Credit Line less the Principal Discount applicable
thereto, if any, and will be subserviced by the appropriate Subservicer on
behalf of HFC as Servicer. The Servicer will be entitled to retain, on behalf of
itself and the Subservicers, the Servicing Fee.
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<PAGE> 30
THE SERVICER
HFC 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. HFC will be responsible for acting as the Servicer for the Credit Lines.
HFC is a subsidiary of Household International, Inc. The address of its
principal executive office is 2700 Sanders Road, Prospect Heights, Illinois
60070. Its telephone number is (847) 564-5000.
HFC and its subsidiaries offer a diversified range of financial services.
Their principal business is the making of cash loans, including secured and
unsecured consumer loans and home equity loans secured by first and second
mortgages, directly to consumers in the United States. Loans are made through
branch lending offices and by direct mail or telemarketing. HFC, through banking
subsidiaries, also offers both VISA* and MasterCard* credit cards to residents
throughout the United States.
In conjunction with its consumer finance operations and where applicable
laws permit, HFC makes available to customers credit life, credit accident and
health, and household contents insurance. Credit life and credit accident and
health insurance are generally directly written by or reinsured with HFC's
insurance subsidiary, Household Life Insurance Company.
As of December 31, 1996, HFC had approximately $20.6 billion in total
assets, approximately $17.9 billion in total liabilities and approximately $2.7
billion in shareholder's equity.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Notes and the
Certificates will be used by the Seller for general corporate purposes.
THE HFC REVOLVING CONSUMER CREDIT LINES
GENERAL
HFC and its subsidiaries originate various consumer loan products which are
of two basic types. "Personal Unsecured Credit Lines" are fixed or variable rate
revolving unsecured lines of credit which are accessed through personalized
checks issued to borrowers. "Personal Homeowner Credit Lines" are fixed or
variable rate revolving lines of credit which are also accessed through
personalized checks issued to borrowers. Personal Homeowner Credit Lines are
secured by a security interest filed against the borrower's home; however,
generally no independent appraisal of property value or title search is
performed and no title insurance is obtained to insure HFC's interest in the
property. Because an appraisal or title insurance is not generally required to
be obtained with respect to Personal Homeowner Credit Lines and applications for
such credit lines are underwritten using guidelines for unsecured lines, HFC
services such loans as an unsecured product. Because such Credit Lines are
serviced as unsecured, under the Servicing Guidelines (as defined herein), as
requested by a borrower, Subservicers will generally subordinate any lien to any
subsequent lien on the property.
Unsecured consumer loans, such as the Personal Unsecured Credit Lines, have
been originated by HFC and its subsidiaries for in excess of 100 years and
Personal Homeowner Credit Lines have been originated by HFC and its subsidiaries
since 1989. As of December 31, 1996, HFC and its subsidiaries had approximately
$5.2 billion aggregate amount of such outstanding credit line receivables,
including receivables sold with servicing performed by HFC and its subsidiaries.
Prospective applicants for HFC's and its subsidiaries' consumer credit line
products are solicited in a variety of methods including branch office sales,
direct mail and telemarketing. The direct mailings may include pre-approved
credit lines to consumers who may or may not be current or former customers of
HFC or its affiliates.
- ---------------
* VISA and MasterCard are registered trademarks of VISA USA, Inc. and MasterCard
International Incorporated, respectively.
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UNDERWRITING PROCEDURES RELATING TO THE REVOLVING CONSUMER CREDIT LINES
With respect to consumer credit line applications received by HFC or its
subsidiaries, each application is subjected to a direct credit investigation by
the related Subservicer prior to the extension of credit. This investigation
generally includes (i) obtaining and reviewing an independent credit bureau
report, (ii) verifying ownership of the property and any senior mortgage balance
(in the case of a Personal Homeowner Credit Line), (iii) verifying payment
history, which may be obtained from credit bureau information, provided it has
been updated within two months of the application or, in the case of a Personal
Homeowner Credit Line, if the credit bureau information has not been updated
within two months of the application, it may be obtained in writing or by
telephone from the holder of any senior lien, and (iv) verification of
employment, which may include obtaining a W-2 form or paystub, a minimum of two
years of tax returns for self-employed individuals or other written or telephone
verification with employers.
After this investigation is conducted, a decision is made to accept or
reject the application. A limit on the amount of credit to be extended to the
borrower is assigned based on the Subservicer's assessment of the borrower's
ability to pay (a "Credit Limit"). Under current policies, the maximum Credit
Limits which may be assigned to Personal Homeowner Credit Lines and to Personal
Unsecured Credit Lines are $25,000 and $15,000, respectively. However, within
certain parameters established by the Subservicers, on an exceptional basis,
borrowers may exceed their Credit Limits by an amount generally not in excess of
$2,000 above their Credit Limit. Generally, all prospective borrowers must have
a debt-to-income ratio of no greater than 45% but such limitation may be waived
by management. Only in limited circumstances will a debt-to-income ratio exceed
60%. For purposes of calculating the debt to income ratio, debt is defined as
the sum of any mortgage payment, including escrow payments for the hazard
insurance premium, real estate taxes, mortgage insurance premium, owners
association dues and ground rents, plus payments on installment debt that
extends beyond 10 months and revolving debt (including payments on the consumer
credit line computed based on the Credit Limit applied for at the then current
Loan Rate), and alimony, child support or maintenance payments, and income is
defined as stable monthly gross income from the borrower's primary source of
employment, plus acceptable secondary income.
With respect to solicitations of prospective customers for a pre-approved
credit line who have no existing credit relationship with HFC or its affiliates,
selection is made based upon certain information obtained through proprietary
and acquired databases, which information includes credit history and income
levels. The Credit Limit for a pre-approved credit line to a borrower with no
existing credit relationship with HFC is initially established at an amount not
in excess of $5,000 and may be increased following a complete evaluation by HFC
or its subsidiary of an updated credit bureau report and verification of certain
other information, as discussed above with respect to consumer generated credit
line applications.
Existing customers of HFC and its affiliates, and prospective customers
with no existing relationship with HFC or its affiliates, may receive
pre-approved credit lines which may be activated by cashing a check enclosed in
the notice of pre-approval sent to the borrower. The determination as to which
existing and prospective customers will receive a pre-approved line of credit
and the amount of the Credit Limit are made based upon available credit
information using the same criteria discussed above with respect to consumer
generated applications and, in the case of existing customers, consideration of
prior payment history with HFC and its affiliates.
REVOLVING CONSUMER CREDIT LINE TERMS
The borrower may access the revolving line of credit by writing a check or
by cashing a check issued by the Subservicer to the borrower. Except in certain
circumstances related to collection efforts, the "Minimum Monthly Payment" for
each Credit Line is the greatest of (i) a specified percentage (which generally
ranges between 1.43% and 3.40% of the Principal Balance depending upon the state
in which the loan was originated, the related interest rate and the actual loan
product) of the principal balance of the Credit Line, plus currently payable
late charge fees, bad check fees and other fees (the "Administrative Charges")
and credit insurance charges, (ii) a designated minimum dollar amount, which is
generally $25 plus Administrative Charges and credit insurance charges, (iii)
the amount of accrued interest during the related billing cycle plus Administra-
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tive Charges and credit insurance charges and (iv) the amount of the annual fee
assessed on the credit line. However, in some instances, the Minimum Monthly
Payment may exceed the formula set forth above. A borrower's minimum monthly
payment is due on a fixed date each month which is between 22 and 25 days after
the Cycle Date for the borrower's particular Credit Line. "Cycle Dates" for the
Credit Lines are the 4th, 5th, 6th, 8th, 10th, 11th, 12th, 16th, 17th, 18th,
19th, 20th, 25th and 26th of every month. For example, if the Cycle Date for a
Credit Line is on the 5th day of the month, an update of the Credit Line is
completed at the close of business on the 5th. A detailed listing of all debits
and credits along with the Minimum Monthly Payment and available line of credit
is listed on the borrower's billing statement. The billing statement would be
sent to the borrower on the 5th and payment would be due on the 27th of the
month.
"Variable Rate Credit Lines" bear interest at rates which may change from
month to month subject to maximum and minimum per annum rates, if any, specified
in the Credit Line Agreement. The monthly periodic rate (the "Loan Rate") for a
Variable Rate Credit Line is one-twelfth of the sum of the Index Rate (as
defined below) plus a certain spread (the "Margin"), generally ranging from 9.9%
to 17.9%. The Loan Rate assigned to each "Fixed Rate Credit Line" is a fixed
rate generally ranging from 18.0% to 27.9%. The variable or fixed rates of
interest charged on a revolving consumer line of credit are determined by the
overall qualification of the borrower and market conditions. Interest on the
revolving consumer lines of credit is payable at the Loan Rate monthly in
arrears on the average daily outstanding principal balance.
For Variable Rate Credit Lines, the "Index Rate" during a billing cycle is
the "prime rate" published by The Wall Street Journal on the first publication
date of the month in which the related billing cycle begins. If a prime rate
range is published, then the average of that range will be used for Credit Lines
established prior to October 1, 1991 and for most other Credit Lines established
after October 1, 1991 the highest rate in such range will be used. When a change
in the prime rate is published, a change in the Loan Rate will take effect on
the first day of the billing cycle following the date of the published change
and the new Loan Rate will apply to new loans and charges, as well as to the
existing Loan Balance. The Credit Line Agreements further provide that in the
event of a change in law or any court ruling that prohibits a Subservicer from
using the Index Rate, or if the publication of the Index Rate is discontinued,
the related Subservicer will change the Index Rate upon notification of such
event in accordance with the Credit Line Agreement.
Principal amounts may be drawn upon (up to the Credit Limit of the Credit
Line, and in certain cases in excess of the Credit Limit) from time to time.
Except for any amortization of principal which may occur as a result of the
required Minimum Monthly Payments, there are no required payments of principal,
except that the outstanding principal amount of Personal Homeowner Credit Lines
will be due fifteen years from origination. Other than Personal Unsecured Credit
Lines originated in Arizona which have a maximum maturity of 20 years, assuming
no further draws and payment of the Minimum Monthly Payment, Personal Unsecured
Credit Lines will not fully amortize during the life of the borrowers. The
Principal Balances of such Credit Lines will be due upon the death of any
borrower with respect to such a Credit Line. However, based upon the
Subservicers' experience it is expected that borrowers will generally pay off
all balances during their lifetime. See "Risk Factors -- Cash Flow
Considerations" herein. The Loan Rate for a Variable Rate Credit Line will in no
event exceed the maximum rate permitted under applicable state law. With the
exception of Credit Lines originated to Arizona borrowers, the Variable Rate
Credit Lines have no periodic interest rate adjustment caps. The Loan Rate for
Arizona Variable Rate Credit Lines may not increase or decrease in excess of
three percentage points during any 12 month period or more than seven percentage
points over the life of the Credit Line.
Subject to applicable law, the Subservicers have the right under each
Credit Line to change its terms. Changes may apply to both new and outstanding
balances unless prohibited by applicable law. However, termination of a
borrower's Credit Limit generally will occur only as provided below. No other
party will have the right to amend or require amendments to the Credit Lines.
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The Subservicers will also have the right to employ certain promotions with
respect to the Credit Lines. These promotions will be offered to certain
preferred customers who meet payment and credit history criteria established by
the Subservicers from time to time. These promotions may be offered periodically
but are not expected to be offered more than twice a year to qualifying
borrowers. The promotions are offered only in certain states and may include
programs under which the applicable Subservicer will make Minimum Monthly
Payments on behalf of the borrowers or will permit the borrowers to not make
Minimum Monthly Payments without being assessed a late charge or considered
delinquent. In the event a borrower is not required to make a Minimum Monthly
Payment and no Subservicer payment is made on behalf of the borrower, interest
will accrue on the Credit Line during such month and will accrue in the future
on the amount of such unpaid payment. The effect of this promotion will be to
increase the accrued yield on the Receivables and to decrease collections during
the month in which the promotion is in effect. It is not expected that any
promotional programs offered by the Subservicers will have an adverse impact on
Securityholders.
The Subservicers will have the right to require a borrower to immediately
pay the entire balance plus all other accrued but unpaid charges and to cancel
any credit privileges under the Credit Line Agreement if, among other things,
the borrower fails to make one or more payments when due under a Personal
Unsecured Credit Line, or two or more payments when due under a Personal
Homeowner Credit Line, the borrower has provided false, misleading or incorrect
material information to the Subservicer, frequent advances are requested by the
borrower over the Credit Limit, the borrower dies, a bankruptcy petition is
filed by or against the borrower or the borrower defaults under the Credit Line
Agreement. In addition, with respect to Personal Homeowner Credit Lines,
Subservicers may accelerate the entire balance and all other charges and cancel
credit privileges if the borrower sells any interest in the property securing a
Personal Homeowner Credit Line (including the creation of a subordinate lien),
foreclosure or condemnation proceedings are instituted on the property by any
lien holder or governmental agency, the borrower incurs any lien on the property
which adversely affects the property or the Subservicer's rights in the property
or the borrower fails to maintain the property, fails to pay the real estate
taxes on the property, fails to keep the property insured, or abandons the
property. Additionally, with respect to Personal Homeowner Credit Lines, the
Subservicers will have the right to reduce the Credit Limit or prohibit
additional advances under the Credit Line Agreement if, among other things, a
material change in the financial condition of the borrower has occurred, the
maximum annual percentage rate under the Credit Line Agreement is attained, or
any borrower under the Credit Line Agreement so requests.
In the event of a default on a mortgage that is senior to any Personal
Homeowner Credit Line, the related Subservicer will have the right in many
states to pay off a defaulted senior mortgage or cure such default and pay any
past due amounts on the senior mortgage. In either case, any amounts expended in
connection with such pay off or cure will be added to the then current loan
balance for such Credit Line. However, it is not expected that the Subservicers
will take such action with respect to any Personal Homeowner Credit Line, and no
party has the right to require the Subservicers to do so.
SERVICING OF REVOLVING CONSUMER CREDIT LINES
HFC will be responsible for servicing the Credit Lines. The Subservicers
will perform the servicing activities on behalf of HFC in accordance with HFC's
policies and procedures for servicing revolving consumer credit lines.
Servicing activities, including collection on delinquent credit lines, is
performed by or on behalf of the Subservicers from facilities in California,
Illinois, and Maryland. Following charge-off of a delinquent credit line,
collection efforts are performed by a subsidiary of the Servicer located in
Virginia. In the effort to collect upon delinquent credit lines, attempts are
made to contact the borrower to determine both ability and intent to pay. In
accordance with the policies and procedures of HFC and the Subservicers
regarding the servicing of credit lines (the "Servicing Guidelines") and
reasonable commercial practice, appropriate action may be taken in the
discretion of the Subservicer, including, but not limited to, extended payment
arrangements, forbearance, deferment pending a change in circumstances, referral
for legal action and account restructuring.
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A credit line is considered contractually delinquent if less than 50% of any
Minimum Monthly Payment due from a borrower has not been received by the
Subservicer or if the borrower has submitted three consecutive payments each of
which are greater than 50% but less than 100% of the Minimum Monthly Payment
then due. Generally, credit lines that are in excess of 26 days delinquent may
be restructured once during a six month period after the borrower makes, in one
or more payments, at least 95% of one Minimum Monthly Payment in either the
current or prior month. When a credit line is restructured, it is no longer
considered delinquent. Under the Subservicers' current Servicing Guidelines,
which became effective January 1, 1996, a credit line is generally charged off
when it becomes 300 days contractually delinquent and the aggregate of all
payments made in any two consecutive months during the last six calendar months
was not greater than or equal to 50% of a Minimum Monthly Payment, or in any
event, when it becomes 570 days contractually delinquent, regardless of any
partial payments received in prior months (the "Recency Charge-off Policy").
Prior to implementation of the Recency Charge-off Policy on January 1, 1996, in
all states other than California, Colorado, Illinois and Missouri, a credit line
was generally charged-off when it became 300 days contractually delinquent.
During various periods in 1995, the Subservicers tested alternative charge-off
policies in the four states listed above in anticipation of employing a revised
uniform policy. From April 1, 1995 to September 1, 1995, for all credit lines
originated in Colorado and Illinois and from May 1, 1995 to September 1, 1995
for credit lines originated in Missouri, a charge-off policy was employed under
which a credit line was charged-off if it became contractually delinquent and
when all payments received during the prior 180 days did not aggregate to at
least 50% of one Minimum Monthly Payment. The Recency Charge-off Policy has been
employed since September 1, 1995 for credit lines originated in California,
Colorado, Illinois and Missouri.
The Servicer has the option to repurchase from the Deposit Trust all
Receivables which are delinquent prior to the date such Receivables would be
charged-off. Such repurchase will be accomplished by deducting the balance
thereof from the Seller's Trust Amount, provided that the Seller's Trust Amount
is not reduced below 1.01% of the aggregate invested amounts of all Series
Participation Interests.
Once a credit line has been charged-off, it is deemed removed from the
Deposit Trust by the Seller. In such case, the Subservicer may assign the credit
line to a collection agency or initiate legal action for collection. Amounts
collected or received with respect to Defaulted Credit Lines, net of costs and
expenses of recovery ("Recoveries") will be deposited into the Collection
Account.
The delinquency and charge-off policies and collection practices discussed
herein may change over time in accordance with the Servicer's business judgment,
changes in the Subservicers' revolving consumer credit line agreements,
applicable laws and regulations, and other considerations.
The information in the tables below has not been adjusted to eliminate the
effect of the significant growth in the size of HFC's and its subsidiaries'
revolving consumer credit line portfolio during the periods shown. Accordingly,
loss and delinquency as percentages of Receivables serviced for each period
would be higher than those shown if a group of Credit Lines were artificially
isolated at a point in time and the information showed the activity only in that
isolated group. The tables below present revolving consumer credit line data
applicable to substantially all of the United States operations of HFC,
including loans managed in states which are not represented in the pool
consisting of the Credit Lines and include loans sold with servicing performed
by HFC and its subsidiaries. It should be noted that if the charge-off policy
currently employed had been applied during the periods shown below, the
historical delinquency rates reported would be higher, while the historical
charge-off rates reported would be reduced without any improvement of the actual
payment experience in the related Credit Lines. There is no assurance that
future credit and revenue performance of the Portfolio will be consistent with
the information set forth in the tables below as changes in social, legal,
economic and competitive conditions are likely to affect the payment patterns of
borrowers. In particular, it is unclear what impact the 1997 rate increase with
respect to selected Personal Unsecured Credit Lines may have on the delinquency,
charge-off, prepayment and revenue experience of the portfolio. See "Risk
Factors -- Nature of
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Underlying Assets", "-- Cash Flow Considerations", "-- Changes in Loan Terms and
Finance Charges" and "-- Social, Legal, Economic and Other Factors" herein. The
general increase in personal bankruptcy filings in the United States has had an
impact on the charge-off experience in the Portfolio. There can be no assurance
that the rate of such filings will remain constant, increase or decrease over
time.
REVOLVING CONSUMER CREDIT LINE
DELINQUENCY EXPERIENCE FOR THE PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995(1) 1996(1)
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Number of credit lines managed(2).... 612,490 572,346 559,880 669,687 713,802 749,270
Aggregate receivable balance of
credit lines managed............... $2,179,968 $2,190,537 $2,356,840 $3,067,112 $3,790,410 $4,813,990
Receivable balance of credit lines
2-3 payments past due.............. $ 80,751 $ 71,233 $ 65,929 $ 76,756 $ 110,447 $ 139,705
Receivable balance of credit lines 3+
payments past due.................. $ 162,911 $ 149,526 $ 132,913 $ 137,899 $ 192,347 $ 281,342
Receivable balance of credit lines 2+
payments past due.................. $ 211,534 $ 193,182 $ 173,849 $ 185,028 $ 258,089 $ 369,102
Receivable balance of credit lines 2+
payments past due as a percentage
of aggregate receivable balance of
credit lines managed............... 9.70% 8.82% 7.38% 6.03% 6.81% 7.67%
</TABLE>
- -------------------------
(1) Based upon the contractual delinquency and the charge-off policies employed
by the Subservicers as described on pages 31-32.
(2) "Credit lines managed" includes credit lines owned and credit lines serviced
with limited recourse.
33
<PAGE> 36
REVOLVING CONSUMER CREDIT LINE
GROSS CHARGE-OFF EXPERIENCE FOR THE PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995(1) 1996(1)
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Number of credit lines
managed(2).................. 612,490 572,346 559,880 669,687 713,802 749,270
Gross charge-offs............. $ 137,329 $ 182,563 $ 162,654 $ 145,481 $ 168,337 $ 252,777
Average receivable
balance(3).................. $2,083,028 $2,174,470 $2,241,992 $2,587,639 $3,467,095 $4,310,606
Gross charge-offs
percentage(4)............... 6.59% 8.40% 7.25% 5.62% 4.86% 5.86%
</TABLE>
- -------------------------
(1) Based upon the contractual delinquency and the charge-off policies employed
by the Subservicers as described on pages 31-32.
(2) "Credit lines managed" includes credit lines owned and credit lines serviced
with limited recourse.
(3) Average receivable balance is the average of the monthly average receivable
balances.
(4) Gross charge-offs as a percentage of the average receivable balance.
The revenues for HFC's and its subsidiaries' consumer credit line portfolio
from finance charges and fees collected from borrowers are set forth in the
following table for each of the periods shown. The historical revenue figures in
the table include interest and fees collected during the cycle. Cash collections
on the Receivables may not reflect the historical experience in the table.
REVOLVING CONSUMER CREDIT LINE
REVENUE EXPERIENCE FOR THE PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average receivable
balance(1).................. $2,083,028 $2,174,470 $2,241,992 $2,587,639 $3,467,095 $4,310,606
Total Finance Charges and Fees
collected................... $ 395,279 $ 395,979 $ 392,569 $ 443,115 $ 617,422 $ 745,859
Total Finance Charges and Fees
collected as a percentage of
average receivables
balance(2).................. 18.98% 18.21% 17.51% 17.12% 17.81% 17.30%
</TABLE>
- -------------------------
(1) Average receivable balance is the average of the monthly average receivable
balances.
(2) Represents finance charges and fees collected divided by the average
receivable balance.
The revenues for the HFC consumer credit line portfolio shown in the tables
above are related to finance charges, together with fees, collected from
borrowers. Charges accrued and billed generally would be higher, if shown, than
amounts collected. Revenues related to finance charges and fees also depend on
the types of charges and fees assessed on the credit lines in the Portfolio.
Accordingly, revenues will be affected by changes in the types of charges and
fees assessed on the credit lines and other factors. See "Certain Legal Aspects
of the Receivables -- Potential Legislation". Neither the Servicer nor any of
its affiliates has any basis to predict how any future changes in the usage of
credit lines by borrowers or in the terms of credit lines may affect the revenue
for the Portfolio.
34
<PAGE> 37
THE REVOLVING CONSUMER CREDIT LINES
The Receivables are evidenced by loan agreements (each, a "Credit Line
Agreement") originated in 40 states. The term to maturity of Personal Homeowner
Credit Lines at origination is fifteen years. Other than Personal Unsecured
Credit Lines originated in Arizona which have a maximum maturity of 20 years,
assuming no further draws and payment of the Minimum Monthly Payment, Personal
Unsecured Credit Lines will not fully amortize during the life of the borrowers.
The Principal Balances of such Credit Lines will be due upon the death of any
borrower under such Credit Lines.
Each Credit Line was originated between August 1979 and December 1996 in
the ordinary course of the related Subservicer's revolving consumer credit line
program. As of the Series 1997-1 Cut-Off Date, the average principal balance of
the Receivables was approximately $5,658.71. As of the Series 1997-1 Cut-Off
Date the weighted average loan utilization rate (computed by dividing the
Principal Balance for each Credit Line as of the Series 1997-1 Cut-Off Date by
the related Credit Limit, which, in cases where credit privileges have been
terminated, may be the Principal Balance as of the Series 1997-1 Cut-Off Date)
was approximately 88.23%.
The Fixed Rate Credit Lines have Loan Rates ranging from 0.00% to 36.00%
per annum, with a weighted average loan rate as of the Series 1997-1 Cut-Off
Date of 18.83% per annum. Each Variable Rate Credit Line, has an Index Rate
equal to the prime rate. The Variable Rate Credit Lines have loan margins
ranging from 0.00% to 25.00% per annum, with a weighted average loan margin as
of the Series 1997-1 Cut-Off Date of 12.07% per annum.
Set forth below is a description of certain characteristics of the
Receivables and Credit Lines as of the Series 1997-1 Cut-Off Date. The rate
increase described in "Risk Factors -- Changes in Loan Terms and Finance
Charges" with respect to some or all of the Personal Unsecured Credit Lines may
cause an increase in prepayments, delinquency and yield with respect to the
affected Credit Lines. Such changes may alter the characteristics of the Credit
Lines as set forth in the tables below. However, it is not expected that such
changes will materially alter such characteristics or the aggregate credit
performance and revenue experience of the Credit Lines.
COMPOSITION OF CREDIT LINES BY LOAN TYPE
<TABLE>
<CAPTION>
NUMBER OF % OF PRINCIPAL % OF POOL BY
LOAN TYPE CREDIT LINES CREDIT LINES OUTSTANDING PRINCIPAL OUTSTANDING
--------- ------------ ------------ ----------------- ---------------------
<S> <C> <C> <C> <C>
Personal Unsecured Credit Line...... 564,774 86.65% $2,593,011,993.26 70.31%
Personal Homeowner Credit Line...... 86,990 13.35 1,095,128,782.45 29.69
------- ------ ----------------- -------
Total.......................... 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= =======
</TABLE>
35
<PAGE> 38
COMPOSITION OF CREDIT LINES BY PRINCIPAL BALANCE
<TABLE>
<CAPTION>
CREDIT LINE NUMBER OF % OF PRINCIPAL % OF POOL BY
PRINCIPAL BALANCE CREDIT LINES CREDIT LINES OUTSTANDING PRINCIPAL OUTSTANDING
----------------- ------------ ------------ ----------------- ---------------------
<S> <C> <C> <C> <C>
$ 0 and below................... 88,911 13.63% $ (817,358.88) (0.02)%
1 to 1,000................... 32,624 5.01 14,290,817.78 0.39
1,001 to 2,000................... 51,862 7.96 84,183,006.88 2.28
2,001 to 3,000................... 72,893 11.18 185,030,318.17 5.02
3,001 to 4,000................... 65,714 10.08 231,728,203.29 6.28
4,001 to 5,000................... 63,636 9.76 289,443,290.57 7.85
5,001 to 6,000................... 45,231 6.94 249,031,652.19 6.75
6,001 to 7,000................... 34,023 5.22 221,641,211.94 6.01
7,001 to 8,000................... 30,619 4.70 230,077,222.74 6.24
8,001 to 9,000................... 22,926 3.52 194,877,872.83 5.28
9,001 to 10,000................... 31,765 4.87 304,270,311.66 8.25
10,001 to 11,000................... 16,746 2.57 175,627,728.53 4.76
11,001 to 12,000................... 13,209 2.03 152,059,397.41 4.12
12,001 to 13,000................... 11,255 1.73 140,907,494.45 3.82
13,001 to 14,000................... 11,765 1.81 159,221,611.10 4.32
14,001 to 15,000................... 26,585 4.08 387,390,829.12 10.50
15,001 to 16,000................... 6,019 0.92 92,976,968.22 2.52
16,001 to 17,000................... 1,808 0.28 29,874,913.11 0.81
17,001 to 18,000................... 1,695 0.26 29,727,723.78 0.81
18,001 to 19,000................... 1,565 0.24 29,001,722.32 0.79
19,001 to 20,000................... 3,230 0.50 63,213,568.45 1.71
20,001 to 21,000................... 1,858 0.29 38,033,294.67 1.03
21,001 to 22,000................... 1,072 0.16 23,085,668.79 0.63
22,001 to 23,000................... 1,065 0.16 24,005,621.68 0.65
23,001 to 24,000................... 1,593 0.24 37,585,342.74 1.02
24,001 to 25,000................... 7,667 1.18 188,578,529.19 5.11
25,000 and over.................... 4,428 0.68 113,093,812.98 3.07
------- ------ ----------------- -------
Total.......................... 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= =======
</TABLE>
36
<PAGE> 39
COMPOSITION OF CREDIT LINES BY GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION>
NUMBER OF % OF PRINCIPAL % OF POOL BY
STATE CREDIT LINES CREDIT LINES OUTSTANDING PRINCIPAL OUTSTANDING
----- ------------ ------------ ----------- ---------------------
<S> <C> <C> <C> <C>
Arizona.......................... 9,516 1.46% $ 50,188,977.02 1.36%
California....................... 119,222 18.28 796,160,247.78 21.57
Colorado......................... 10,053 1.54 48,727,549.62 1.32
Connecticut...................... 9,353 1.44 51,485,507.23 1.40
Delaware......................... 3,706 0.57 21,497,797.93 0.58
Florida.......................... 43,886 6.73 248,056,278.14 6.73
Georgia.......................... 12,216 1.87 85,037,526.12 2.31
Idaho............................ 1,003 0.15 4,316,946.32 0.12
Illinois......................... 30,430 4.67 144,799,304.19 3.93
Indiana.......................... 12,216 1.87 67,299,099.01 1.82
Iowa............................. 2,260 0.35 9,542,461.71 0.26
Kansas........................... 7,755 1.19 46,894,574.92 1.27
Kentucky......................... 542 0.08 5,880,576.91 0.16
Louisiana........................ 1,997 0.31 7,480,623.31 0.20
Maryland......................... 26,305 4.04 162,573,578.69 4.41
Massachusetts.................... 6,271 0.96 64,939,549.74 1.76
Michigan......................... 53,119 8.15 276,147,230.53 7.49
Minnesota........................ 7,615 1.17 34,167,998.75 0.93
Mississippi...................... 2,234 0.34 8,803,415.56 0.24
Missouri......................... 19,199 2.95 95,990,526.06 2.60
Nebraska......................... 304 0.05 2,944,840.90 0.08
Nevada........................... 5,502 0.84 31,872,247.76 0.86
New Hampshire.................... 2,737 0.42 16,390,595.83 0.44
New Jersey....................... 9,965 1.53 66,102,715.07 1.79
New Mexico....................... 3,400 0.52 16,115,657.84 0.44
New York......................... 55,202 8.47 284,478,517.22 7.71
North Carolina................... 18,277 2.80 126,196,305.54 3.42
Ohio............................. 37,517 5.76 186,700,559.46 5.06
Oklahoma......................... 5,586 0.86 32,388,552.58 0.88
Oregon........................... 6,392 0.98 31,586,933.35 0.86
Pennsylvania..................... 43,450 6.67 223,033,351.71 6.05
Rhode Island..................... 2,191 0.34 12,570,577.20 0.34
South Carolina................... 7,634 1.17 40,818,514.52 1.11
South Dakota..................... 262 0.04 648,621.94 0.02
Tennessee........................ 9,828 1.51 46,677,628.95 1.27
Texas............................ 11,195 1.72 39,617,458.49 1.07
Utah............................. 1,824 0.28 6,589,388.76 0.18
Virginia......................... 25,296 3.88 150,102,031.68 4.07
Washington....................... 20,701 3.18 110,272,190.07 2.99
Wisconsin........................ 5,603 0.86 33,044,317.30 0.90
------- ------ ----------------- -------
Total....................... 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= =======
</TABLE>
- -------------------------
(1) Location is determined by the location of the applicable Subservicer's
branch office which originated the credit line.
37
<PAGE> 40
COMPOSITION OF CREDIT LINES BY CREDIT LIMIT
<TABLE>
<CAPTION>
NUMBER OF % OF PRINCIPAL % OF POOL BY
CREDIT LIMIT CREDIT LINES CREDIT LINES OUTSTANDING PRINCIPAL OUTSTANDING
------------ ------------ ------------ ----------------- ---------------------
<S> <C> <C> <C> <C>
$ 0............................. 104,891 16.10% $ 383,584,693.92 10.40%
1 to 1,000................... 3,507 0.54 1,171,454.00 0.03
1,001 to 2,000................... 8,510 1.31 9,728,651.22 0.26
2,001 to 3,000................... 48,929 7.51 87,106,643.59 2.36
3,001 to 4,000................... 51,904 7.96 118,784,183.57 3.22
4,001 to 5,000................... 75,814 11.63 219,766,978.63 5.96
5,001 to 6,000................... 50,438 7.74 188,600,977.11 5.11
6,001 to 7,000................... 34,615 5.31 147,824,226.67 4.01
7,001 to 8,000................... 34,213 5.25 168,114,956.58 4.56
8,001 to 9,000................... 24,112 3.70 133,666,719.67 3.62
9,001 to 10,000................... 53,045 8.14 358,001,920.28 9.71
10,001 to 11,000................... 13,560 2.08 95,976,895.66 2.60
11,001 to 12,000................... 19,163 2.94 154,563,773.41 4.19
12,001 to 13,000................... 14,435 2.21 106,749,980.65 2.89
13,001 to 14,000................... 12,507 1.92 116,387,934.69 3.16
14,001 to 15,000................... 73,531 11.28 802,822,034.77 21.77
15,001 to 16,000................... 1,593 0.24 23,672,540.89 0.64
16,001 to 17,000................... 1,643 0.25 25,500,989.62 0.69
17,001 to 18,000................... 1,712 0.26 27,858,124.47 0.76
18,001 to 19,000................... 962 0.15 17,246,026.73 0.47
19,001 to 20,000................... 4,807 0.74 89,195,062.91 2.42
20,001 to 21,000................... 735 0.11 14,618,515.84 0.40
21,001 to 22,000................... 852 0.13 17,756,286.10 0.48
22,001 to 23,000................... 708 0.11 15,444,674.77 0.42
23,001 to 24,000................... 615 0.09 13,883,379.63 0.38
24,001 to 25,000................... 14,963 2.30 350,113,150.33 9.49
------- ------ ----------------- -------
Total.......................... 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= =======
</TABLE>
38
<PAGE> 41
COMPOSITION OF VARIABLE RATE CREDIT LINES BY MARGIN
<TABLE>
<CAPTION>
CUT-OFF DATE NUMBER OF % OF PRINCIPAL % OF POOL BY
MARGIN CREDIT LINES CREDIT LINES OUTSTANDING PRINCIPAL OUTSTANDING
------------ ------------ ------------ ----------------- ---------------------
<S> <C> <C> <C> <C>
N/A(1)............................. 16,822 3.60% $ 90,572,856.47 3.56%
0.00% to 6.99%.................... 118 0.03 611,124.00 0.02
7.00% to 7.99%.................... 11,656 2.50 67,535,478.03 2.66
8.00% to 8.99%.................... 5,964 2.50 43,320,855.13 1.70
9.00% to 9.99%.................... 63,529 13.61 462,414,799.12 18.20
10.00% to 10.99%.................... 64,093 13.73 433,778,540.45 17.07
11.00% to 11.99%.................... 59,342 12.71 291,268,191.48 11.46
12.00% to 12.99%.................... 104,009 22.29 447,969,161.39 17.63
13.00% to 13.99%.................... 51,538 11.04 262,596,714.09 10.33
14.00% to 14.99%.................... 41,440 8.88 162,796,872.87 6.41
15.00% to 15.99%.................... 40,755 8.73 244,217,821.73 9.61
16.00% to 16.99%.................... 6,390 1.37 28,170,020.68 1.11
17.00% to 17.99%.................... 470 0.10 1,795,140.79 0.07
18.00% and above.................... 618 0.13 4,265,611.42 0.17
------- ------ ----------------- -------
Total.......................... 466.744 100.00% $2,541,313,187.65 100.00%
======= ====== ================= =======
</TABLE>
- -------------------------
(1) As part of the Subservicers' collection efforts, the Subservicers have
suspended interest accrual on these Credit Lines. Consequently, the margin
is "not applicable".
COMPOSITION OF CREDIT LINES BY TYPE OF CREDIT LINE
<TABLE>
<CAPTION>
TYPE OF LOAN NUMBER OF % OF PRINCIPAL % OF POOL BY
RATES CREDIT LINES CREDIT LINES OUTSTANDING PRINCIPAL OUTSTANDING
------------ ------------ ------------ ----------------- ---------------------
<S> <C> <C> <C> <C>
Variable............................ 466,744 71.61% $2,541,313,187.65 68.90%
Fixed............................... 185,020 28.39 1,146,827,588.06 31.10
------- ------ ----------------- -------
Total.......................... 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= =======
</TABLE>
39
<PAGE> 42
COMPOSITION OF CREDIT LINES BY CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
% OF POOL
NUMBER OF % OF PRINCIPAL BY PRINCIPAL
RANGES OF CREDIT LIMIT UTILIZATION RATE CREDIT LINES CREDIT LINES OUTSTANDING OUTSTANDING
- --------------------------------------- ------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
0.00% to 4.99%..................... 88,533 13.58% $ 485,524.86 0.01%
5.00% to 9.99%..................... 4,283 0.66 2,285,224.36 0.06
10.00% to 14.99%..................... 4,501 0.69 4,225,361.20 0.11
15.00% to 19.99%..................... 4,958 0.76 6,463,813.40 0.18
20.00% to 24.99%..................... 5,976 0.92 10,286,567.14 0.28
25.00% to 29.99%..................... 7,576 1.16 16,087,884.14 0.44
30.00% to 34.99%..................... 14,123 2.17 36,800,056.16 1.00
35.00% to 39.99%..................... 15,521 2.38 47,091,672.27 1.28
40.00% to 44.99%..................... 12,983 1.99 45,894,459.36 1.24
45.00% to 49.99%..................... 12,717 1.95 50,672,366.67 1.37
50.00% to 54.99%..................... 13,496 2.07 60,287,827.36 1.63
55.00% to 59.99%..................... 14,579 2.24 70,430,469.15 1.91
60.00% to 64.99%..................... 16,192 2.48 84,477,518.60 2.29
65.00% to 69.99%..................... 18,631 2.86 102,249,787.88 2.77
70.00% to 74.99%..................... 19,547 3.00 115,881,630.16 3.14
75.00% to 79.99%..................... 24,239 3.72 148,341,794.97 4.02
80.00% to 84.99%..................... 33,833 5.19 217,777,743.83 5.90
85.00% to 89.99%..................... 26,618 4.08 195,164,194.32 5.29
90.00% to 94.99%..................... 41,193 6.32 316,903,707.03 8.59
95.00% to 99.99%..................... 130,226 19.99 1,209,825,465.46 32.83
100.00%................................ 104,760 16.07 552,449,262.63 14.98
100.01% to 104.99%(1).................. 22,752 3.49 280,885,206.52 7.62
105.00% to 109.99%(1).................. 13,493 2.07 106,738,730.84 2.89
110.00% and above(1)................... 1,034 0.16 6,434,507.40 0.17
------- ------ ----------------- ------
Total................................ 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= ======
</TABLE>
- -------------------------
(1) Within certain parameters established by the Subservicers from time to time,
on an exceptional basis, borrowers may exceed their Credit Limits by an
amount generally not in excess of $2,000 above their Credit Limit.
40
<PAGE> 43
COMPOSITION OF CREDIT LINES BY LOAN RATES(1)
<TABLE>
<CAPTION>
% OF POOL
NUMBER OF % OF PRINCIPAL BY PRINCIPAL
LOAN RATES CREDIT LINES CREDIT LINES OUTSTANDING OUTSTANDING
---------- ------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
0.00(2).................................... 28,524 4.38% $ 152,175,697.58 4.13%
0.01% to 7.99%............................ 184 0.03 647,248.40 0.02
8.00% to 8.99%............................ 134 0.02 336,090.79 0.01
9.00% to 9.99%............................ 476 0.07 1,806,607.36 0.05
10.00% to 10.99%............................ 349 0.05 1,687,979.80 0.05
11.00% to 11.99%............................ 65 0.01 467,737.50 0.01
12.00% to 12.99%............................ 156 0.02 681,089.76 0.02
13.00% to 13.99%............................ 215 0.03 826,827.05 0.02
14.00% to 14.99%............................ 379 0.06 2,830,988.47 0.08
15.00% to 15.99%............................ 9,389 1.44 54,685,301.73 1.48
16.00% to 16.99%............................ 10,505 1.61 92,302,492.18 2.50
17.00% to 17.99%............................ 15,833 2.43 115,099,774.46 3.12
18.00% to 18.99%............................ 172,458 26.47 1,247,081,752.06 33.80
19.00% to 19.99%............................ 90,917 13.95 543,778,834.80 14.74
20.00% to 20.99%............................ 77,609 11.91 394,451,547.45 10.70
21.00% to 21.99%............................ 105,914 16.25 440,225,900.09 11.94
22.00% to 22.99%............................ 48,794 7.49 252,950,513.76 6.86
23.00% to 23.99%............................ 61,489 9.43 247,852,450.59 6.72
24.00% to 24.99%............................ 22,349 3.43 111,347,815.76 3.02
25.00% to 25.99%............................ 5,294 0.81 23,996,760.70 0.65
26.00% to 26.99%............................ 473 0.07 1,782,175.15 0.05
Over 27.00%................................. 258 0.04 1,125,190.27 0.03
------- ------ ----------------- ------
Total..................................... 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= ======
</TABLE>
- -------------------------
(1) The Series 1997-1 Cut-Off Date Loan Rates for Credit Lines with an Index
Rate based on the prime rate are based on the prime rate as of January 1,
1997 which was 8.25%.
(2) As part of the Subservicers' collection efforts, the Subservicers have
suspended interest accrual on these Credit Lines.
41
<PAGE> 44
COMPOSITION OF CREDIT LINES BY AGE
<TABLE>
<CAPTION>
% OF POOL
NUMBER OF % OF PRINCIPAL BY PRINCIPAL
AGE (IN MONTHS) CREDIT LINES CREDIT LINES OUTSTANDING OUTSTANDING
--------------- ----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
0 to 5............................. 23,227 3.56% $ 283,245,240.90 7.68%
6 to 11............................. 107,747 16.54 711,006,792.51 19.30
12 to 17............................. 92,759 14.23 484,509,945.75 13.14
18 to 23............................. 60,523 9.29 348,858,304.41 9.46
24 to 29............................. 103,536 15.89 511,209,549.62 13.86
30 to 35............................. 49,279 7.56 282,792,787.03 7.67
36 to 41............................. 38,885 5.97 188,178,544.80 5.10
42 to 47............................. 24,654 3.78 136,970,174.68 3.71
48 to 53............................. 15,273 2.34 79,950,367.56 2.17
54 to 59............................. 11,621 1.78 58,424,229.26 1.58
60 to 65............................. 11,437 1.75 56,601,990.95 1.53
66 to 71............................. 10,211 1.57 49,577,246.43 1.34
72 to 77............................. 17,764 2.73 78,780,281.96 2.14
78 to 83............................. 20,466 3.14 97,685,835.19 2.65
84 to 89............................. 17,555 2.69 84,904,736.99 2.30
90 to 95............................. 10,510 1.61 48,730,322.57 1.32
96 to 101............................ 7,432 1.14 34,792,872.59 0.94
102 to 107........................... 8,327 1.28 41,838,385.68 1.13
Over 108 months...................... 20,558 3.15 110,083,166.83 2.98
------- ------ ----------------- ------
Total.............................. 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= ======
</TABLE>
COMPOSITION OF CREDIT LINES BY CONTRACTUAL DAYS DELINQUENT(1)
<TABLE>
<CAPTION>
% OF POOL
NUMBER OF % OF PRINCIPAL BY PRINCIPAL
DAYS DELINQUENT CREDIT LINES CREDIT LINES OUTSTANDING OUTSTANDING
--------------- ------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
0 to 29............................ 573,645 88.01% $3,243,119,386.84 87.93%
30 to 59............................ 28,250 4.33 168,512,752.20 4.57
60 to 89............................ 11,964 1.84 67,639,546.19 1.83
90 to 119............................ 8,043 1.23 44,756,438.52 1.21
120 to 149............................ 5,686 0.87 32,339,887.33 0.88
150 to 179............................ 5,428 0.83 30,483,139.99 0.83
180 to 209............................ 4,801 0.74 26,689,013.84 0.72
210 to 239............................ 4,540 0.70 25,095,637.68 0.68
240 to 269............................ 4,477 0.69 23,631,736.89 0.64
270 to 299............................ 4,088 0.63 21,598,739.82 0.59
Over 299.............................. 842 0.13 4,274,496.41 0.12
------- ------ ----------------- ------
Total................................. 651,764 100.00% $3,688,140,775.71 100.00%
======= ====== ================= ======
</TABLE>
- -------------------------
(1) See the discussion on pages 31-32 as to the Subservicers' delinquency and
charge-off policies.
The Subservicers sold and assigned to the Seller, and the Seller sold and
assigned to the Deposit Trust, all right, title and interest in the balance of
the Initial Receivables as of the Initial Cut-Off Date. Additional Credit Lines
were designated to the Deposit Trust and Receivables thereunder have been
conveyed to the Deposit Trust. In addition, from time to time, Aggregate
Additional Credit Lines may be designated to the Deposit Trust and the Cut-Off
Date Balance of each such Credit Line and Additional Balances generated under
all Credit Lines during the life of the Deposit Trust will be funded by the
appropriate Subservicer and sold to the Seller pursuant to the Receivables
Purchase Agreement. Such Receivables will then be transferred by the Seller to
the Deposit Trust pursuant to the Pooling and Servicing Agreement. Pursuant to
the Pooling
42
<PAGE> 45
and Servicing Agreement, the Servicer will have the responsibility to service
the Credit Lines and will receive the monthly servicing fee. The Subservicers
will perform the servicing activities on behalf of HFC as described in "The HFC
Revolving Consumer Credit Lines -- Servicing of Revolving Consumer Credit
Lines". See "Description of the Deposit Trust -- Assignment of Receivables" and
"-- Servicing Compensation and Payment of Expenses" herein.
THE SERIES 1997-1 PARTICIPATION
GENERAL
The Series 1997-1 Participation constitutes an undivided beneficial
interest in the Receivables held in the Deposit Trust. Generally, the Series
1997-1 Participation will produce cash flows and incur defaults in the same
manner as if the Receivables were held directly by the Issuer, subject to the
distribution of excess spread to the Seller.
CONVEYANCE AND PERFORMANCE OF THE SERIES 1997-1 PARTICIPATION
The Seller will convey the Series 1997-1 Participation to the Issuer on the
Closing Date. Pursuant to the Series 1997-1 Supplement, the Issuer, as holder of
the Series 1997-1 Participation, shares on the basis of a specified percentage
of the Pool Balance in the cash flows on the Receivables held as assets of the
Deposit Trust. The Series 1997-1 Participation shall initially represent a
principal balance of $960,000,000 (the "Initial Series 1997-1 Participation
Invested Amount"). Thereafter, the "Series 1997-1 Participation Invested Amount"
with respect to any date will be an amount equal to the Initial Series 1997-1
Participation Invested Amount minus the sum of the Series 1997-1 Participation
Principal Distribution Amount paid for all Distribution Dates and the Defaulted
Amounts allocated to the Series 1997-1 Participation during the related and all
prior Collection Periods that have not been included in the Series 1997-1
Participation Principal Distribution Amount on the current or any prior
Distribution Date.
The Series 1997-1 Participation will be entitled to the applicable
percentage (the "Allocation Percentage") of the Interest Collections (which
shall include Recoveries), Principal Collections or Net Principal Collections
and Defaulted Amounts received or incurred during a Collection Period.
With respect to any Collection Period prior to the Early Amortization
Period, Interest Collections and Defaulted Amounts allocated to the Series
1997-1 Participation will be based upon the Floating Allocation Percentage (as
defined herein).
During an Early Amortization Period, Interest Collections will be allocated
to the Series 1997-1 Participation based upon the Fixed Allocation Percentage
(as defined herein). However, Defaulted Amounts allocated to the Series 1997-1
Participation with respect to any Collection Period during an Early Amortization
Period shall continue to be made based upon the Floating Allocation Percentage.
Interest Collections with respect to any Collection Period will be distributable
to the Issuer as holder of the Series 1997-1 Participation as described under
"Description of the Deposit Trust -- Distributions on the Series 1997-1
Participation". Allocated Interest Collections not so distributed will be
distributable to the Seller.
With respect to any Collection Period prior to the Accelerated Amortization
Date or the commencement of an Early Amortization Period, Principal Collections
will be allocated to the Series 1997-1 Participation based upon the greater of:
(i) the Floating Allocation Percentage of Net Principal Collections or (ii) the
Minimum Principal Amount. With respect to any Collection Period after the
Accelerated Amortization Date or during an Early Amortization Period, the Series
1997-1 Participation will be entitled to Principal Collections based upon the
Fixed Allocation Percentage.
"Net Principal Collections" will equal the excess, if any, of Principal
Collections for the related Collection Period, minus Additional Balances sold to
the Deposit Trust during the Collection Period. If there is no excess, Net
Principal Collections will equal zero.
On the Closing Date, the Issuer will pledge all of its interest in the
Series 1997-1 Participation to the Indenture Trustee for the benefit of the
Noteholders. The Indenture Trustee will have the right to enforce
43
<PAGE> 46
certain terms of the Pooling and Servicing Agreement and the Series 1997-1
Supplement upon the Issuer's failure to enforce such terms.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Indenture, except as otherwise described herein, provides that the
Noteholders of each Class will be entitled to receive on each Payment Date
distributions of Principal Collections, in the amounts described herein, until
the Security Balance of the Class is reduced to zero. All amounts distributable
as principal to Noteholders will be allocated to each class of Notes as
described under "Description of the Securities -- Distributions on the
Securities." Prior to the commencement of the Early Amortization Period,
Noteholders will receive, to the extent of the availability thereof, amounts
from Net Principal Collections based upon the Floating Allocation Percentage so
long as such amount is not less than the Minimum Principal Amount. Upon the
commencement of the Early Amortization Period or during any Collection Period
after the occurrence of the Accelerated Amortization Date, Noteholders will
receive amounts from Principal Collections based upon the Fixed Allocation
Percentage.
To the extent obligors make more draws than principal payments, the
Seller's Interest may increase. During the Early Amortization Period or after
the Accelerated Amortization Date, when the Series 1997-1 Participation's share
of Principal Collections is based upon the Fixed Allocation Percentage and does
not reflect any subsequent reductions in the Series 1997-1 Participation
Invested Amount, an increase in the Seller's Interest due to the funding of
Additional Balances and/or the addition of Aggregate Additional Credit Lines may
also result in the Series 1997-1 Participation receiving principal at a greater
rate. This is the case because (a) Principal Collections are not reinvested in
additional Receivables after the Early Amortization Period or the Accelerated
Amortization Date, but instead are distributed on the Series 1997-1
Participation, and (b) the Series 1997-1 Participation is entitled to Principal
Collections based on the Fixed Allocation Percentage, which gives the Series
1997-1 Participation a greater share of Principal Collections each month.
The Pooling and Servicing Agreement permits the Seller, at its option, but
subject to the satisfaction of certain conditions specified in the Pooling and
Servicing Agreement, to remove certain Receivables from the Deposit Trust at any
time during the life of the Deposit Trust, so long as the Rating Agency
Condition is satisfied. Such removals may affect the rate at which principal is
distributed to Noteholders by reducing the overall Pool Balance and thus the
amount of Principal Collections. See "Description of the Deposit Trust --
Removal of Deposit Trust Assets."
As described herein, the actual maturity of each Class of Notes will depend
in part on the availability and timing of the acquisition of the Additional
Balances and Aggregate Additional Credit Lines, the receipt of principal on the
Credit Lines and the extent of Defaulted Credit Lines. All of the Credit Lines
may be prepaid in full or in part at any time. The prepayment experience with
respect to the Credit Lines will affect the actual maturity of each Class of
Notes.
HFC is not aware of any publicly generated studies or statistics available
on the rate of prepayment or additional draws with respect to revolving consumer
loans. Generally, consumer loans are not viewed by borrowers as permanent
financing. Accordingly, the Credit Lines may prepay prior to their respective
maturities. On the other hand, because most of the Credit Lines are not fully
amortizing, in the absence of voluntary borrower prepayments the Credit Lines
may experience minimal principal payment during their terms. The Deposit Trust's
prepayment experience may be affected by a wide variety of factors, including
general economic conditions, interest rates, the availability of alternative
financing, as well as homeowner mobility, in the case of a Personal Homeowner
Credit Line.
In addition, the Deposit Trust's prepayment experience and the rate at
which the principal amount of each class of Notes amortizes will be affected by
any repurchases of Receivables by the Servicer or the Subservicers pursuant to
the Pooling and Servicing Agreement. Only the Personal Homeowner Credit Lines
contain due-on-sale provisions, and to the extent a Subservicer learns of a sale
of an interest in a property securing such a Credit Line, the applicable
Subservicer will generally attempt to open a new line of credit with such
borrower, which would be used to pay off the balance of the Personal Homeowner
Credit Line. In the
44
<PAGE> 47
event a new line is not established, the Subservicer will enforce the
due-on-sale provision unless such enforcement is not permitted by applicable
law. The enforcement of a due-on-sale provision will have the same effect as a
prepayment of the related Receivables. See "Description of the Deposit Trust --
Collection and Other Servicing Procedures" and "Certain Legal Aspects of the
Credit Lines -- 'Due-on-Sale' Clauses" for a description of certain provisions
of the Pooling and Servicing Agreement referred to below that may affect the
prepayment experience on the Credit Lines. The yield to an investor in any Note
who purchased such Note in the secondary market at a price that is different
from par will be different if the rate of prepayment on the Credit Lines is
actually different than the rate anticipated by such investor at the time such
Note was purchased.
Collections on the Credit Lines may vary because, among other things,
borrowers may make payments during any month as low as the Minimum Monthly
Payment for such month or as high as the entire outstanding principal balance
plus accrued interest and the fees and charges thereon and, in addition,
borrowers may borrow additional amounts under their respective Credit Line
Agreements. It is possible that borrowers may fail to make Minimum Monthly
Payments. In addition, collections on the Credit Lines may also vary due to
seasonal purchasing and payment habits of borrowers. Any increase in the
interest rate charged on the Credit Lines due to a change in the Index Rate or a
rate increase may result in a greater level of prepayments and may result in
increased levels of delinquency and charge-offs.
No assurance can be given as to the level of prepayments that will be
experienced by the Deposit Trust and it can be expected that a portion of
borrowers will not prepay their Credit Lines to any significant degree.
Most of the Credit Lines will not mature prior to the maturity date of the
Notes. It has been HFC's experience and is expected to be the case that
borrowers will prepay the Receivables at a sufficient rate to retire the Notes
prior to their maturity date, but no assurance can be given in this respect.
The tables below set forth balances, payment windows and average lives
based on certain constant prepayment rates (which includes charge-offs) and
constant draw rates. Increases in constant prepayment rates will have the effect
of reducing average lives and payment windows, and speeding up reductions in
principal balances. Prior to an Accelerated Amortization Date or the occurrence
of an Amortization Event, draws will have the effect of reducing principal
payments to the Notes (but will not decrease payments below 2.20% of the Series
1997-1 Participation Invested Amount per month). For Collection Periods after
the Accelerated Amortization Date or during an Early Amortization Period, draws
will no longer have the effect of reducing principal payments.
The following tables set forth below are based on a constant prepayment
rate (which includes charge-offs), constant draw rate (which for purposes of
these assumptions is the amount of Additional Balances on the Credit Lines drawn
each month expressed as an annualized percentage of the total principal of the
pool of Receivables outstanding at the beginning of such month), and optional
termination assumptions as indicated in the tables below. The following tables
assume that the Receivables have been aggregated into a pool with a principal
balance of $975,000,000, and that the Credit Lines have an interest rate of
18.00%, an annual gross charge-off rate of 7.00%, a 0% recovery rate and no
additional Credit Lines have been designated to the Deposit Trust. In addition,
such tables assume that (i) the distributions are made in accordance with the
description set forth under "Description of the Securities -- Distributions on
the Securities," (ii) distributions of principal and interest on the Notes will
be made on the 15th day of each calendar month regardless of the day on which
the Payment Date actually occurs, (iii) monthly payments on the Credit Lines are
comprised of interest only payments and the only principal payments on the
Credit Lines are those represented by prepayments calculated under each of the
prepayment assumptions as set forth in the tables below before giving effect to
draws and charge-offs, (iv) monthly draws are calculated under each of the
assumptions as set forth in the tables below before giving effect to prepayments
and charge-offs, (v) the scheduled due date for each of the Credit Lines is the
first day of each month, (vi) monthly charge-offs are calculated under each of
the assumptions set forth above before giving effect to prepayments and draws,
(vii) the closing date is March 13, 1997, and (viii) Interest Collections
allocated to the Series 1997-1 Participation are sufficient to pay interest on
the Notes and the Certificate Rate on the Certificates, Defaulted Amounts and
Accelerated Principal Payment Amounts on the Series 1997-1 Securities.
45
<PAGE> 48
PERCENTAGE OF ORIGINAL SECURITY BALANCE OF THE CLASS A-1 NOTES -- AMORTIZATION
SCHEDULE (1)(2)
<TABLE>
<CAPTION>
CONSTANT PREPAYMENT RATE (% CPR)
----------------------------------
PAYMENT DATE 20% 30% 43% 50%
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
The Closing Date........................... 100% 100% 100% 100%
December 1997.............................. 79 75 75 66
December 1998.............................. 56 50 50 34
December 1999.............................. 38 33 33 23
December 2000.............................. 30 25 25 16
December 2001.............................. 24 19 19 10
December 2002.............................. 19 13 11 0
December 2003.............................. 14 4 0 0
December 2004.............................. 9 0 0 0
December 2005.............................. 0 0 0 0
December 2006.............................. 0 0 0 0
December 2007.............................. 0 0 0 0
Weighted Average Life (yrs)(3)........... 3.00 2.49 2.42 1.79
</TABLE>
- -------------------------
(1) Assumes that (i) an optional termination is exercised when the aggregate
Security Balance of the Notes and Certificates has been reduced to 10% or
less of the aggregate Security Balance of the Notes and Certificates as of
the Closing Date and the required 30 days notice has been given and (ii) a
monthly constant draw rate of 2.37%.
(2) All percentages are rounded to the nearest 1%.
(3) The weighted average life of each of the Notes is determined by (i)
multiplying the amount of each principal payment by the number of years from
March 13, 1997 to the related Payment Date (on a 30/360 basis), (ii) adding
the results, and (iii) dividing by the sum of all principal payments
received since issuance.
WEIGHTED AVERAGE LIFE(1) AND PAYMENT WINDOW(2)
SENSITIVITY OF THE CLASS A-1 NOTES TO PAYMENTS AND DRAWS
<TABLE>
<CAPTION>
CONSTANT PREPAYMENT RATE (% CPR)(3)
---------------------------------------------------------------------------------------------
20% 30% 43% 50%
--------------------- -------------------- -------------------- --------------------
MONTHLY CONSTANT DRAW RATE WAL WINDOW WAL WINDOW WAL WINDOW WAL WINDOW
-------------------------- --- ------ --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.00%............................. 3.00 yrs. 1 to 102 2.50 yrs. 1 to 84 1.64 yrs. 1 to 62 1.28 yrs. 1 to 48
2.37%............................. 3.00 yrs. 1 to 102 2.49 yrs. 1 to 83 2.42 yrs. 1 to 76 1.79 yrs. 1 to 65
3.00%............................. 3.00 yrs. 1 to 102 2.49 yrs. 1 to 83 2.41 yrs. 1 to 75 2.13 yrs. 1 to 71
4.00%............................. 3.00 yrs. 1 to 102 2.49 yrs. 1 to 83 2.41 yrs. 1 to 75 2.39 yrs. 1 to 72
</TABLE>
- -------------------------
(1) The weighted average life of each of the Notes is determined by (i)
multiplying the amount of each principal payment by the number of years from
March 13, 1997 to the related Payment Date (on a 30/360 basis), (ii) adding
the results, and (iii) dividing by the sum of all principal payments
received since issuance.
(2) The payment window is expressed in months and begins on the Payment Date in
which Noteholders first receive principal payments and ends on the Payment
Date in which the Security Balance of such Class of Notes is paid in full,
assuming the first Payment Date is April 15, 1997.
(3) Assumes that an optional termination is exercised when the aggregate
Security Balance of the Notes and Certificates has been reduced to 10% or
less of the aggregate Security Balance of the Notes and Certificates as of
the Closing Date and the required 30 days notice has been given.
46
<PAGE> 49
PERCENTAGE OF ORIGINAL SECURITY BALANCE OF THE CLASS A-2 NOTES -- AMORTIZATION
SCHEDULE (1)(2)
<TABLE>
<CAPTION>
CONSTANT PREPAYMENT RATE (% CPR)
----------------------------------
PAYMENT DATE 20% 30% 43% 50%
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
The Closing Date........................... 100% 100% 100% 100%
December 1997.............................. 100 100 100 100
December 1998.............................. 100 100 100 100
December 1999.............................. 100 96 96 67
December 2000.............................. 87 73 73 45
December 2001.............................. 69 56 56 33
December 2002.............................. 55 39 33 0
December 2003.............................. 42 33 0 0
December 2004.............................. 33 0 0 0
December 2005.............................. 0 0 0 0
December 2006.............................. 0 0 0 0
December 2007.............................. 0 0 0 0
Weighted Average Life (yrs)(3)........... 6.23 5.15 4.91 3.77
</TABLE>
- -------------------------
(1) Assumes that (i) an optional termination is exercised when the aggregate
Security Balance of the Notes and Certificates has been reduced to 10% or
less of the aggregate Security Balance of the Notes and Certificates as of
the Closing Date and the required 30 days notice has been given and (ii) a
monthly constant draw rate of 2.37%.
(2) All percentages are rounded to the nearest 1%.
(3) The weighted average life of each of the Notes is determined by (i)
multiplying the amount of each principal payment by the number of years from
March 13, 1997 to the related Payment Date (on a 30/360 basis), (ii) adding
the results, and (iii) dividing by the sum of all principal payments
received since issuance.
WEIGHTED AVERAGE LIFE(1) AND PAYMENT WINDOW(2)
SENSITIVITY OF THE CLASS A-2 NOTES TO PAYMENTS AND DRAWS
<TABLE>
<CAPTION>
CONSTANT PREPAYMENT RATE (% CPR)(3)
-------------------------------------------------------------------------------------------------
20% 30% 43% 50%
---------------------- --------------------- --------------------- ---------------------
MONTHLY CONSTANT DRAW RATE WAL WINDOW WAL WINDOW WAL WINDOW WAL WINDOW
-------------------------- --- ------ --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.00%......................... 6.23 yrs. 38 to 102 5.17 yrs. 32 to 84 3.50 yrs. 20 to 62 2.71 yrs. 15 to 48
2.37%......................... 6.23 yrs. 38 to 102 5.15 yrs. 32 to 83 4.91 yrs. 32 to 76 3.77 yrs. 22 to 65
3.00%......................... 6.23 yrs. 38 to 102 5.15 yrs. 32 to 83 4.89 yrs. 32 to 75 4.39 yrs. 27 to 71
4.00%......................... 6.23 yrs. 38 to 102 5.15 yrs. 32 to 83 4.89 yrs. 32 to 75 4.79 yrs. 32 to 72
</TABLE>
- -------------------------
(1) The weighted average life of each of the Notes is determined by (i)
multiplying the amount of each principal payment by the number of years from
March 13, 1997 to the related Payment Date (on a 30/360 basis), (ii) adding
the results, and (iii) dividing by the sum of all principal payments
received since issuance.
(2) The payment window is expressed in months and begins on the Payment Date in
which Noteholders first receive principal payments and ends on the Payment
Date in which the Security Balance of such Class of Notes is paid in full,
assuming the first Payment Date is April 15, 1997.
(3) Assumes that an optional termination is exercised when the aggregate
Security Balance of the Notes and Certificates has been reduced to 10% or
less of the aggregate Security Balance of the Notes and Certificates as of
the Closing Date and the required 30 days notice has been given.
47
<PAGE> 50
PERCENTAGE OF ORIGINAL SECURITY BALANCE OF THE CLASS A-3 NOTES --
AMORTIZATION SCHEDULE (1)(2)
<TABLE>
<CAPTION>
CONSTANT PREPAYMENT RATE (% CPR)
----------------------------------
PAYMENT DATE 20% 30% 43% 50%
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
The Closing Date........................... 100% 100% 100% 100%
December 1997.............................. 100 100 100 100
December 1998.............................. 100 100 100 100
December 1999.............................. 100 96 96 67
December 2000.............................. 87 73 73 45
December 2001.............................. 69 56 56 33
December 2002.............................. 55 39 33 0
December 2003.............................. 42 33 0 0
December 2004.............................. 33 0 0 0
December 2005.............................. 0 0 0 0
December 2006.............................. 0 0 0 0
December 2007.............................. 0 0 0 0
Weighted Average Life (yrs)(3)........... 6.23 5.15 4.91 3.77
</TABLE>
- -------------------------
(1) Assumes that (i) an optional termination is exercised when the aggregate
Security Balance of the Notes and Certificates has been reduced to 10% or
less of the aggregate Security Balance of the Notes and Certificates as of
the Closing Date and the required 30 days notice has been given and (ii) a
monthly constant draw rate of 2.37%.
(2) All percentages are rounded to the nearest 1%.
(3) The weighted average life of each of the Notes is determined by (i)
multiplying the amount of each principal payment by the number of years from
March 13, 1997 to the related Payment Date (on a 30/360 basis), (ii) adding
the results, and (iii) dividing by the sum of all principal payments
received since issuance.
WEIGHTED AVERAGE LIFE(1) AND PAYMENT WINDOW(2)
SENSITIVITY OF THE CLASS A-3 NOTES TO PAYMENTS AND DRAWS
<TABLE>
<CAPTION>
CONSTANT PREPAYMENT RATE (% CPR)(3)
----------------------------------------------------------------------------------------------
20% 30% 43% 50%
---------------------- --------------------- --------------------- ---------------------
MONTHLY CONSTANT DRAW RATE WAL WINDOW WAL WINDOW WAL WINDOW WAL WINDOW
-------------------------- --- ------ --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.00%............................ 6.23 yrs. 38 to 102 5.17 yrs. 32 to 84 3.50 yrs. 20 to 62 2.71 yrs. 15 to 48
2.37%............................ 6.23 yrs. 38 to 102 5.15 yrs. 32 to 83 4.91 yrs. 32 to 76 3.77 yrs. 22 to 65
3.00%............................ 6.23 yrs. 38 to 102 5.15 yrs. 32 to 83 4.89 yrs. 32 to 75 4.39 yrs. 27 to 71
4.00%............................ 6.23 yrs. 38 to 102 5.15 yrs. 32 to 83 4.89 yrs. 32 to 75 4.79 yrs. 32 to 72
</TABLE>
- -------------------------
(1) The weighted average life of each of the Notes is determined by (i)
multiplying the amount of each principal payment by the number of years from
March 13, 1997 to the related Payment Date (on a 30/360 basis), (ii) adding
the results, and (iii) dividing by the sum of all principal payments
received since issuance.
(2) The payment window is expressed in months and begins on the Payment Date in
which Noteholders first receive principal payments and ends on the Payment
Date in which the Security Balance of such Class of Notes is paid in full,
assuming the first Payment Date is April 15, 1997.
(3) Assumes that an optional termination is exercised when the aggregate
Security Balance of the Notes and Certificates has been reduced to 10% or
less of the aggregate Security Balance of the Notes and Certificates as of
the Closing Date and the required 30 days notice has been given.
DESCRIPTION OF THE DEPOSIT TRUST
Household Consumer Loan Deposit Trust I (the "Deposit Trust") was
established pursuant to a Pooling and Servicing Agreement dated as of September
1, 1995 among The Chase Manhattan Bank, N.A. as deposit trustee, the Servicer
and the Seller. In July 1996, The Chase Manhattan Bank, N.A. merged into
Chemical
48
<PAGE> 51
Bank, a New York state chartered commercial bank. Following that merger, The
Chase Manhattan Bank, N.A. resigned as deposit trustee and the Seller appointed
Texas Commerce Bank National Association as successor deposit trustee (the
"Deposit Trustee"). The Deposit Trustee is an affiliate of The Chase Manhattan
Bank, N.A. An affiliate of the Deposit Trustee is also acting as Owner Trustee.
The Deposit Trust operates as a master trust to acquire assets from the
Seller and to issue participation interests in the assets of the Deposit Trust
from time to time, such as the Series 1997-1 Participation and the Seller's
Interest. As of the date of this Prospectus, three Series Participation
Interests in the assets of the Deposit Trust have been issued and sold to
trusts, each of which issued Series backed by one of the Series Participation
Interests. The Deposit Trust is expected to continue as a trust after the Final
Payment Date with respect to the Series 1997-1 Securities. The assets of the
Deposit Trust are expected to change over the life of the Deposit Trust and the
Series 1997-1 Securities, as certain interests and receivables in revolving
consumer credit lines and related assets are included in the Deposit Trust and
as certain interests and receivables subject to the Deposit Trust are collected,
charged-off or removed.
The Series 1997-1 Participation will be issued pursuant to the Pooling and
Servicing Agreement and a supplement thereto containing specific provisions
relating to the Series 1997-1 Participation (the "Series 1997-1 Supplement").
The Pooling and Servicing Agreement and a form of the Series 1997-1 Supplement
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. The following summaries describe certain provisions of the
Pooling and Servicing Agreement and the Series 1997-1 Supplement. The summaries
do not purport to be complete and are subject to and are qualified in their
entirety by reference to, all of the provisions of the Pooling and Servicing
Agreement and the Series 1997-1 Supplement, as applicable. Additionally,
capitalized terms used herein that are not defined herein shall have the
meanings ascribed to them in the Pooling and Servicing Agreement and the Series
1997-1 Supplement.
The Trust Assets include one share of preferred stock of the Seller (the
"Preferred Stock"). The Preferred Stock has a par value of $1.00 and is
designated the "Class SV Preferred Stock". On the Initial Issuance Date, the
Preferred Stock was issued directly to the Deposit Trustee. The share of
Preferred Stock held by the Deposit Trustee is the only issued and outstanding
share of the Seller's Preferred Stock. Pursuant to the Articles of Incorporation
of the Seller (incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus forms a part), the sole rights of the Deposit
Trustee as holder of the Preferred Stock are to (a) vote in the event the Seller
desires to institute proceedings to be adjudicated insolvent, consent to the
institution of any bankruptcy or insolvency case or petition, make an assignment
for the benefit of creditors, or admit in writing its inability to pay its debts
as they become due (collectively, the "Seller's Bankruptcy Initiatives"), and
(b) receive $1.00 upon liquidation of the Seller. The unanimous affirmative vote
of the holders of the Preferred Stock is required to approve any of the Seller's
Bankruptcy Initiatives. Holders of the Preferred Stock of the Seller have no
other rights, including the right to receive dividends or to vote on any other
matter.
Although a majority of the holders of Series Participation Interests is
required to direct the action of the Deposit Trustee with respect to any vote,
pursuant to the Issuer's pledge of its interest in the Series 1997-1
Participation, the Indenture Trustee has the authority to vote the interest of
the Series 1997-1 Participation. In the Indenture, the Indenture Trustee
covenants that it will not consent to any of the Seller's Bankruptcy
Initiatives. As trustee under indentures substantially identical to the
Indenture, the Indenture Trustee also holds the voting power with respect to the
three other outstanding Series Participation Interests in the Deposit Trust, and
accordingly the authority to vote to direct the Deposit Trustee with respect to
the Seller's Bankruptcy Initiatives. Such indentures also obligate the Indenture
Trustee to refuse to consent to any of the Seller's Bankruptcy Initiatives.
GENERAL
The Series 1997-1 Participation will evidence a specified percentage
undivided beneficial interest in the Receivables held by the Deposit Trust and
collections thereon. The Receivables held by the Deposit Trust will consist of
the Receivables existing under the Initial Credit Lines as of the close of
business on the Initial
49
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Cut-Off Date and Additional Balances arising under such Credit Lines thereafter.
In addition, the Seller has conveyed and may convey from time to time to the
Deposit Trust, without recourse, its interest in all Receivables existing in
certain Aggregate Additional Credit Lines and Additional Balances arising under
such Credit Lines.
The balance in the Deposit Trust represented by the Series 1997-1
Participation on the Series 1997-1 Cut-Off Date will equal $960,000,000 (the
"Initial Series 1997-1 Participation Invested Amount"). Thereafter, the "Series
1997-1 Participation Invested Amount" with respect to any date will be an amount
equal to the Initial Series 1997-1 Participation Invested Amount minus the sum
of the Series 1997-1 Participation Principal Distribution Amount paid for all
Distribution Dates and the Defaulted Amounts allocated to the Series 1997-1
Participation during the related and all prior Collection Periods that have not
been included in the Series 1997-1 Participation Principal Distribution Amount
on the current or any prior Distribution Date. The "Series 1997-1 Participation
Principal Distribution Amount" on a Distribution Date is equal to the sum of (a)
either (i) for Collection Periods occurring prior to the Accelerated
Amortization Date or the commencement of an Early Amortization Period an amount
equal to the greater of: (x) the Floating Allocation Percentage of Net Principal
Collections or (y) the Minimum Principal Amount, or (ii) the Fixed Allocation
Percentage of Principal Collections for Collection Periods occurring after the
Accelerated Amortization Date or during an Early Amortization Period, and (b) to
the extent of the applicable Allocation Percentage of Interest Collections
remaining after the distribution of the Participation Pass-Through Rate on the
Series 1997-1 Participation, the Defaulted Amounts allocated to the Series
1997-1 Participation during the related Collection Period and the amount of any
Defaulted Amounts previously allocated to the Series 1997-1 Participation that
have not been included in the Series 1997-1 Participation Principal Distribution
Amount on any prior Distribution Date. The Seller will own the entire remaining
undivided beneficial interest in the Receivables held by the Deposit Trust (the
"Seller's Interest") not represented by the Series 1997-1 Participation and any
other Series Participation Interests issued by the Deposit Trust.
ASSIGNMENT OF RECEIVABLES
On the Initial Issuance Date, each of the Subservicers transferred to the
Seller and the Seller transferred to the Deposit Trust all of its right, title
and interest in (i) all Receivables under the Initial Credit Lines existing as
of the Initial Cut-Off Date, (ii) Additional Balances arising under such Credit
Lines thereafter, (iii) all Recoveries allocable to the Initial Credit Lines,
and (iv) the proceeds of all of the foregoing. The Seller has also sold and
assigned to the Deposit Trust and may hereafter sell and assign to the Deposit
Trust from time to time (a) Receivables arising under designated Aggregate
Additional Credit Lines (whether existing at the time the Credit Lines were
designated or arising under such Credit Lines thereafter), (b) all Recoveries
allocable to such Aggregate Additional Credit Lines, and (c) the proceeds of all
of the foregoing. The Deposit Trustee, concurrently with the transfer of the
Initial Receivables, delivered the Seller's Interest to the Seller. On each
issuance date for any Series, including the Closing Date, the Deposit Trustee
will authenticate and deliver one or more certificates representing a Series
Participation Interest, in each case against payment to the Seller of the net
proceeds of the sale of such Series Participation Interest. At the direction of
the Seller and the Issuer, the Deposit Trustee will deliver the Series 1997-1
Participation to the Indenture Trustee.
In connection with the transfer of Receivables to the Deposit Trust, each
Subservicer will indicate in its respective computer records that the
Receivables have been conveyed to the Seller and from the Seller to the Deposit
Trust. In addition, the Seller will provide to the Deposit Trustee a computer
file or a microfiche list from the Subservicers containing a true and complete
list showing for each Credit Line, as of the applicable date of designation (i)
its account number, (ii) the aggregate amount outstanding in such Credit Line
and (iii) the aggregate amount of Principal Receivables in such Credit Line. The
Subservicers will retain and will not deliver to the Deposit Trustee any other
records or agreements relating to the Credit Lines or the Receivables. Except as
set forth above, the records and agreements relating to the Credit Lines and the
Receivables will not be segregated from those relating to other consumer loans
and receivables, and the physical documentation relating to the Credit Lines or
Receivables will not be stamped or marked to reflect the transfer of Receivables
to the Seller or to the Deposit Trust. The Subservicers and the Seller have
filed and will file UCC financing statements with respect to the sale of the
Receivables from each of the Subservicers to
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the Seller and from the Seller to the Deposit 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 Credit Lines", the Seller will
have the right (subject to certain limitations and conditions) to designate from
time to time New Credit Lines and Additional Credit Lines (together, the
"Aggregate Additional Credit Lines") to be included as Credit Lines. In the
event such a designation is made, the Subservicers will convey to the Seller
(for conveyance by the Seller to the Deposit Trust) all Receivables in such
Aggregate Additional Credit Lines, whether such receivables are then existing or
thereafter created. Each such Aggregate Additional Credit Line must be an
Eligible Credit Line. In respect of any designation of Aggregate Additional
Credit Lines, the Seller will follow the procedures set forth in the preceding
paragraph, except the list provided to the Deposit Trustee will show information
concerning such Aggregate Additional Credit Lines as of the date such Aggregate
Additional Credit Lines are identified and designated. Aggregate Additional
Credit Lines will be selected by the respective Subservicer, in a manner which
it reasonably believes will not be materially adverse to the holders of
interests in the Deposit Trust. In addition, the Seller may (under certain
circumstances and subject to certain limitations and conditions) remove the
Receivables under certain Credit Lines as described under "Description of the
Deposit Trust -- Removal of Deposit Trust Assets".
REPRESENTATIONS AND WARRANTIES
In the Pooling and Servicing Agreement, the Seller makes representations
and warranties to the Deposit Trust relating to the Credit Lines and the
Receivables as of the closing date for each Series (and as of the date Aggregate
Additional Credit Lines are designated to the Deposit Trust) to the effect among
other things, that as of each applicable date of designation, (a) each Credit
Line was an Eligible Credit Line, (b) each of the Receivables then existing in
the Credit Lines was an Eligible Receivable and (c) thereafter, on the date of
creation of any new Receivable, such Receivable was an Eligible Receivable. If
the Seller breaches any representation and warranty described in this paragraph
and such breach remains uncured for 60 days after the earlier 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 holder of an
interest in such Receivable, all Receivables with respect to the Credit Line
affected ("Ineligible Receivables") will be reassigned to the Seller on the
terms and conditions set forth below. Each reassigned account shall no longer be
included as a Credit Line. The Deposit Trustee and the Servicer may agree to
extend the cure period for any such breach.
"Eligible Receivable" means each receivable (a) which has arisen under an
Eligible Credit Line (b) which was created in compliance in all material
respects with all requirements of law and pursuant to any agreement under which
such receivable was originated and which complies in all material respects with
all requirements of law applicable to the respective Subservicer or other
originator of the receivable, as applicable, (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 the applicable Subservicer, or by the
originator of the receivable, if not a Subservicer, of the related 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 Deposit Trust, the Seller or the Deposit 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 Deposit 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 Deposit Trust, (f) which at the time of
transfer to the Deposit Trust, will be the legal, valid and binding payment
obligation of the obligor thereof enforceable against such obligor in accordance
with its terms, subject to certain bankruptcy or insolvency related exceptions,
(g) which at the time of its transfer to the Deposit Trust, has not been waived
or modified except as permitted in accordance with the Servicing Guidelines, (h)
which is not at the time of its transfer to the Deposit Trust subject to any
right of rescission, set off, counterclaim or defense (including the defense of
usury), (i) as to which the applicable Subservicer or other originator of the
Receivable, as applicable, and the Seller have satisfied all obligations to be
fulfilled at the time it is transferred
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to the Deposit Trust, (j) as to which, at the time of its transfer to the
Deposit Trust, none of the applicable Subservicer or such other originator of
the receivable, as applicable, 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 Deposit Trust or the holders of interests 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 Collection 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 Trust Amount (as defined
herein). In the event that the exclusion of the principal portion of an
Ineligible Receivable from the calculation of the Seller's Trust Amount would
cause the portion of the Seller's Trust Amount owned by Household Consumer Loan
Corporation to be reduced below 1.01% of the aggregate invested amounts of all
outstanding Series Participation Interests on the Distribution Date following
the Collection 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 Trust Amount would be
reduced below 1.01% of the aggregate invested amounts of all outstanding Series
Participation Interests. The portion of such deposit attributable to the
principal of such Ineligible Receivable will be applied as a Principal
Collection. 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 available to the holders of
Series Participation Interests or the Deposit Trustee on behalf of holders of
Series Participation Interests with respect to any breach of the representations
and warranties described in the preceding paragraph. The Subservicers have each
agreed with respect to Receivables conveyed by such institution 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 Trust Amount" means at any time of
determination, an amount equal to the total aggregate amount of Principal
Receivables, minus the aggregate invested amount of all outstanding Series
Participation Interests in the Deposit Trust (including the Series 1997-1
Participation) at such time.
The Seller will also make representations and warranties to the Deposit
Trust to the effect, among other things, that as of the Closing Date it is a
corporation validly existing under the laws of the State of Nevada, it has the
authority to consummate the transactions contemplated by the Pooling and
Servicing Agreement and the Series 1997-1 Supplement. The Seller will further
represent to the Deposit Trust on the Closing Date and, with respect to the
Aggregate Additional Credit Lines, as of each addition date, that (a) the
Pooling and Servicing Agreement and the Series 1997-1 Supplement constitutes a
valid, binding and enforceable agreement of the Seller and (b) the Pooling and
Servicing Agreement and the Series 1997-1 Supplement constitute either a valid
sale, transfer and assignment to the Deposit 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 holders of interests in the Deposit Trust),
and in Recoveries, or the grant of a first priority perfected security interest
under the applicable UCC in such Receivables and the proceeds thereof, 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 interest of any holder of
any Series Participation Interest in the Receivables or the availability of the
proceeds thereof to the Deposit Trust (which determination will be made without
regard to whether funds are then available pursuant to any Series Enhancement),
either the Deposit Trustee, holders of Series Participation Interests entitled
to vote thereon evidencing not less than 51% of the principal portion of such
interests, or any other person entitled pursuant to a Series Supplement to
deliver such notice, by written notice to the Seller and the Servicer (and to
the Deposit Trustee if given by the holders of interests in the Deposit Trust or
any such other person), may direct the Seller to accept the reassignment of the
Receivables in the Deposit 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
Collection 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 Series 1997-1 Participation will be equal
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to the unpaid principal balance of the Series 1997-1 Participation on such
Distribution Date on which the purchase is scheduled to be made plus accrued and
unpaid amounts at the Participation Pass-Through Rate on the unpaid principal
balance of the Series 1997-1 Participation and certain amounts that were
distributable but not paid on a prior Distribution Date at the Participation
Pass-Through Rate, through the day preceding such Distribution Date (the
"Transfer Price"). The payment of the Transfer Price in immediately available
funds will be considered a payment in full of the unpaid principal balance of
the Series 1997-1 Participation and such funds will be distributed upon
presentation and surrender of the Series 1997-1 Participation. If the Deposit
Trustee or holders of interests in the Deposit Trust give a notice as provided
above, the obligation of the Seller to make any such deposit will constitute the
sole remedy respecting a breach of the representations and warranties available
to holders of interests in the Deposit Trust or the Deposit Trustee on behalf of
holders of interests in the Deposit Trust. Under the Receivables Purchase
Agreement, the applicable Subservicer will repurchase the Receivables purchased
by the Seller in accordance with this paragraph.
It is not required or anticipated that the Deposit Trustee, the Owner
Trustee or the Indenture Trustee will make any initial or periodic examination
of the Receivables or any records relating to the Receivables for the purpose of
establishing the presence or absence of defects, compliance with the
Subservicers' and the Seller's representations and warranties or for any other
purpose. In addition, it is not anticipated or required that the Deposit
Trustee, the Owner Trustee or the Indenture Trustee will make any initial or
periodic general examination of the Servicer or Subservicers 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, the Series 1997-1 Supplement or for any other
purpose. The Servicer, however, will deliver to the Deposit Trustee on or before
March 31 of each calendar year an opinion of counsel with respect to the
validity of the interest of the Deposit Trust in and to the Receivables and
certain other components of the Deposit Trust.
TRANSFER OF SELLER'S INTEREST; ADDITIONAL SELLERS AND ORIGINATORS
The Pooling and Servicing Agreement allows the Seller to designate
affiliates of the Seller as additional sellers. Each such additional seller
would be a "Seller" under the Pooling and Servicing Agreement, and the term
"Seller" as used herein and therein would thereupon include such additional
seller, except that each person that is a Seller shall be severally and not
jointly, liable for all obligations, covenants, representations and warranties
specifically undertaken by such person in its capacity as a Seller. Such
additional seller would be transferred a "Supplemental Certificate",
representing a portion of the Seller's Interest subject to the following
conditions, among others: (a) the Rating Agency Condition shall have been
satisfied; and (b) the Seller shall have delivered to the Deposit Trustee a
certificate of any authorized officer to the effect that, in the reasonable
belief of the Seller, such transfer will not have an Adverse Effect.
Except for transfers to additional sellers as described above, as otherwise
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 Series Supplement, unless the Seller and the Deposit Trustee
have been advised that the Rating Agency Condition has been satisfied.
Upon satisfaction of the Rating Agency Condition and certification by the
Seller that it reasonably believes that no Adverse Effect will result, the
Seller is also permitted to acquire Receivables from originators other than the
Subservicers. Each such additional originator would sell Receivables to the
Seller pursuant to a receivables purchase agreement substantially similar to the
Receivables Purchase Agreement, which receivables purchase agreement would
subject such additional originator to the same obligations described herein to
which the Subservicers are subject, and references herein to the Subservicers in
their capacities as originators shall be deemed to include a reference to each
such additional originator.
ADDITIONS OF CREDIT LINES
The Seller will have the right, but not an obligation, to designate from
time to time Aggregate Additional Credit Lines to be included as Credit Lines in
order to avoid the occurrence of an Amortization Event. Should the Seller fail
to exercise this right, an Amortization Event may occur. In the event the Seller
does exercise
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such right, the applicable Subservicer will convey to the Seller, which in turn
will convey to the Deposit Trust, its interest in all receivables arising from
such Aggregate Additional Credit Lines, whether such Receivables are then
existing or thereafter created. Such conveyances will be subject to the
following conditions, among others: (i) each such Aggregate Additional Credit
Line must be an Eligible Credit Line, and (ii) except for the addition of New
Credit Lines (a) the Additional Credit Lines are selected in a manner which the
Seller 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 with respect
to any Series Participation Interest or adversely affect the amount or timing of
distributions to holders of any Series Participation Interest.
Each Aggregate Additional Credit Line must be an Eligible Credit Line at
the time of its designation. However, since Aggregate Additional Credit Lines
which may be originated after the Closing Date may not have been a part of the
Portfolio as of the close of business on the Series 1997-1 Cut-Off Date, they
may not be of the same credit quality as the Credit Lines existing as of such
date. Such Aggregate Additional Credit Lines may have been originated using
credit criteria different from those which were applied to the Credit Lines as
of the Series 1997-1 Cut-Off Date or may have been acquired from another
consumer credit lender or entity which utilized different credit criteria.
Consequently, the performance of such Aggregate Additional Credit Lines may be
better or worse than the performance of the credit lines in HFC's portfolio as
of the Series 1997-1 Cut-Off Date.
REMOVAL OF DEPOSIT TRUST ASSETS
Subject to the conditions set forth in the following sentence, on any day
the Seller may, but shall not be obligated to, acquire all Receivables and
proceeds thereof with respect to Removed Credit Lines. The Seller is permitted
to designate and require reassignment to it of the Receivables from Removed
Credit Lines only upon satisfaction of the following conditions: (i) the Seller
shall have delivered to the Deposit Trustee a computer file or microfiche list
containing a true and complete list of all Removed Credit Lines, such Credit
Lines 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 Deposit Trustee to the effect that in the
reasonable belief of the Seller: (a) no selection procedure reasonably believed
by the Seller to be materially adverse to the interests of holders of interests
in the Deposit Trust was utilized in removing the Removed Credit Lines; (b) such
removal will not result in the occurrence of an Amortization Event; and (c) such
removal will not have an Adverse Effect; (iii) the Seller shall have delivered
prior written notice (the "Removal Notice") of the removal to each Rating
Agency, the Deposit Trustee and the Servicer; and (iv) except with respect to a
removal of less than 5% of the Principal Receivables in the Deposit Trust, 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.
Notwithstanding the foregoing, on the date a Credit Line becomes a
Defaulted Credit Line such Credit Line will be deemed removed from the Deposit
Trust and assigned to the Seller. All Recoveries attributable to such Credit
Lines will be deposited in the Collection Account and applied as Finance Charge
Receivables as provided herein.
In addition, the Servicer has the option to repurchase Receivables which
are delinquent prior to the date such Receivables would be charged-off. Such
repurchase will be accomplished by deducting the balance thereof from the
Seller's Trust Amount, provided that the portion of the Seller's Trust Amount
owned by Household Consumer Loan Corporation would not be reduced below 1.01% of
the aggregate invested amounts of all outstanding Series Participation
Interests.
DISCOUNT OPTION
The Pooling and Servicing Agreement provides that the Seller may at any
time designate, or redesignate a fixed percentage (the "Discount Percentage") of
the Principal Receivables assigned to the Deposit Trust to
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be treated as Finance Charge and Administrative Receivables. The Principal
Discount may apply to such Principal Receivables assigned to the Deposit Trust
prior to, on or after the date the Seller makes such designation or
redesignation. The Seller must provide 30 days' prior written notice to the
Servicer, the Deposit Trustee, and each Rating Agency of any increase, decrease
or withdrawal of such designation or redesignation, 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 or redesignation will not have an Adverse Effect and
(ii) the Rating Agency Condition is satisfied. No such election has been
exercised as of the date of this Prospectus.
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the applicable Subservicer may change the terms
of the Credit Line Agreements at any time. Upon a determination by a Subservicer
that prudent business practice requires such Subservicer to make changes in the
terms of the Credit Line Agreements as well as all comparable loans in its
respective portfolio, then, provided that such Subservicer and the Servicer
reasonably believe such changes will not have an Adverse Effect, such changes
may be made.
PAYMENTS ON CREDIT LINES; DEPOSITS TO COLLECTION ACCOUNT
The Servicer has established and will maintain with the Deposit Trustee a
single separate trust account (the "Collection Account") for the benefit of the
holders of interests in the Deposit Trust, as their interests may appear. The
Collection Account will be an Eligible Account (as defined herein). Except as
otherwise described herein and subject to the investment provision described in
the following paragraphs, within two Business Days following receipt by the
Servicer or a Subservicer of amounts in respect of the Receivables (excluding
amounts representing taxes, assessments, credit insurance charges, or similar
items), the Servicer or Subservicer will deposit such amounts in the Collection
Account. Notwithstanding the foregoing, for as long as HFC remains the Servicer
under the Pooling and Servicing Agreement and maintains a commercial paper
rating of at least P-1 from Moody's Investors Service, Inc. ("Moody's") and A-1
from Standard & Poor's Ratings Services ("Standard & Poor's"), which is
currently the case, the Servicer need not deposit collections into the
Collection Account within two Business Days of receipt but may use for its own
benefit all such collections until the related Distribution Date. While such
ratings are maintained, on or prior to each Distribution Date, the Servicer will
deposit in the Collection Account amounts which are to be included in the funds
available for the related Distribution Date. Amounts deposited in the Collection
Account may be invested in Permitted Investments (as described in the Pooling
and Servicing Agreement) maturing no later than the related Distribution Date.
On the fourth Business Day prior to each Distribution Date, the Servicer will
notify the Deposit Trustee and the Indenture Trustee of the amount of such
deposit to be included in funds available for the related Distribution Date.
At any time that the commercial paper issued by HFC does not satisfy the
rating requirements specified above, HFC may continue to hold collections prior
to distribution as described above so long as HFC causes to be maintained an
irrevocable letter of credit or surety bond or other credit enhancement
instrument in form and substance satisfactory to each Rating Agency (a "Servicer
Credit Facility"), issued by a depository institution or insurance company
having a rating on its (A) short-term obligations of at least P-1 and long-term
obligations of at least A2 by Moody's and (B) short-term obligations of A-1 and
long-term obligations of A by Standard & Poor's or other ratings if approved by
the Rating Agencies and providing that the Deposit Trustee may draw thereon in
the event that HFC, as Servicer, fails to make any deposit or payment required
under the Pooling and Servicing Agreement.
An "Eligible Account" is an account that is either (i) a segregated account
with a depository institution organized under the laws of the United States or
any of the states thereof, which depository at the time of any deposit therein
has a long-term debt rating acceptable to the Rating Agencies or a certificate
of deposit rating acceptable to the Rating Agencies, or (ii) a segregated trust
account with the corporate trust department of a depository organized under the
laws of the United States or any one of the states thereof, and acting as a
trustee for funds deposited in such account, so long as any of the unsecured,
unguaranteed senior debt securities of such depository shall have a credit
rating signifying investment grade from the Rating Agencies.
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Permitted Investments are specified in the Pooling and Servicing Agreement
and are limited to investments which meet the criteria of the Rating Agencies
from time to time as being consistent with their then-current ratings of the
Notes. 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 Deposit 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 the Series 1997-1 Supplement.
ALLOCATIONS AND COLLECTIONS
All collections on the Credit Lines will be allocated in accordance with
the Credit Line Agreements between amounts collected in respect of interest (the
"Interest Collections") and amounts collected in respect of principal, including
amounts constituting the principal portion of the amount paid to repurchase a
Receivable (the "Principal Collections"). However, notwithstanding the
requirements of the Credit Line Agreements, all Recoveries (whether interest or
principal) shall be treated as Interest Collections and not Principal
Collections.
Prior to an Early Amortization Period, the portion of Interest Collections
allocable to the Series 1997-1 Participation will equal the Floating Allocation
Percentage of such Interest Collections. The remaining amount of Interest
Collections shall be allocated to the Seller's Interest or other Series
Participation Interests, as applicable. During an Early Amortization Period,
Interest Collections allocated to the Series 1997-1 Participation will equal the
Fixed Allocation Percentage of such Interest Collections. However, during an
Early Amortization Period, Defaulted Amounts allocated to the Series 1997-1
Participation shall continue to be made based upon the Floating Allocation
Percentage.
For any Collection Period prior to the Accelerated Amortization Date or the
commencement of an Early Amortization Period, Principal Collections will be
allocated to the Series 1997-1 Participation based upon the greater of: (i) the
Floating Allocation of Net Principal Collections or (ii) the Minimum Principal
Amount. For any Collection Period after the Accelerated Amortization Date or
during an Early Amortization Period, the Series 1997-1 Participation will be
entitled to Principal Collections based upon the Fixed Allocation Percentage. As
of any Determination Date, "Net Principal Collections" is the excess, if any, of
Principal Collections for the related Collection Period, less Additional
Balances sold to the Deposit Trust during such Collection Period.
As of any Determination Date, the "Floating Allocation Percentage" is
calculated as a fraction, the numerator of which is the Series 1997-1
Participation Invested Amount as of the last day of the related Collection
Period and the denominator of which is the greater of (a) the Pool Balance as of
the first day of the related Collection Period and (b) the sum of the numerators
used to calculate the Allocation Percentage of Finance Charge and Administrative
Receivables, Principal Receivables and Defaulted Amounts, as applicable, for all
outstanding Series Participation Interests for the related Distribution Date.
As of any Determination Date, the "Fixed Allocation Percentage" is
calculated as a fraction, the numerator of which is the Series 1997-1
Participation Invested Amount as of the last day immediately preceding the
commencement of an Early Amortization Period or the Accelerated Amortization
Date, as applicable, and the denominator of which is the greater of (a) the Pool
Balance as of the first day of the related Collection Period and (b) the sum of
the numerators used to calculate the Allocation Percentage of Finance Charges
and Administrative Receivables, Principal Receivables and Defaulted Amounts, as
applicable, for all outstanding Series Participation Interests for the related
Distribution Date.
For any Distribution Date, the Fixed Allocation Percentage applicable to
Principal Collections may be different than the Fixed Allocation Percentage
applicable to Interest Collections if an Amortization Event occurs after the
Accelerated Amortization Date.
"Recoveries" means amounts collected or received with respect to Defaulted
Credit Lines, net of costs and expenses of recovery.
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With respect to any date, the "Pool Balance" will be equal to the aggregate
of the Principal Balances of all Credit Lines as of such date. The "Principal
Balance" of a Credit Line (other than a Defaulted Credit Line) on any day is
equal to its Principal Balance on the respective Cut-Off Date, plus (i) any
Additional Balance in respect of such Credit Line, minus (ii) all Principal
Collections credited against the Principal Balance prior to such day, minus
(iii) all related Defaulted Amounts, and plus or minus (iv) any correcting
adjustments. The Principal Balance of a Defaulted Credit Line shall be zero.
With respect to any Distribution Date, a "Defaulted Amount" is the amount equal
to the Principal Balance of a Defaulted Credit Line that the Servicer has
charged off on its servicing records in the related Collection Period. A
"Defaulted Credit Line" is a Credit Line as to which the Servicer has charged
off all of the related Principal Balance.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments called
for under the Credit Lines and will, consistent with the Pooling and Servicing
Agreement, follow such collection procedures as it follows from time to time
with respect to the consumer loans in its servicing portfolio which are
comparable to the Credit Lines. Consistent with the above, the Servicer may in
its discretion waive any late payment charge or any assumption or other fee or
charge that may be collected in the ordinary course of servicing the Credit
Lines. The Servicer may also enter into a payment arrangement for past due
payments, provided that any such arrangement is consistent with the Servicer's
policies with respect to comparable consumer loans held in its portfolio.
In accordance with the terms of the Pooling and Servicing Agreement, the
Servicer may consent under certain circumstances to the placing of a subsequent
senior lien in respect of a Personal Homeowner Credit Line. In any case in which
a property against which a lien was filed in connection with a Personal
Homeowner Credit Line is being conveyed by the borrower, the Servicer is not
obligated to exercise its rights to accelerate the maturity of such Credit Line
under any due-on-sale clause applicable thereto. To the extent the Servicer
becomes aware of such a conveyance, it will generally attempt to open a new
secured or unsecured line of credit with the borrower, thereby paying off the
balance of the Personal Homeowner Credit Line. In the event a new credit line is
not established, the Servicer will enforce the due-on-sale clause unless
prohibited by applicable law from doing so. See "Certain Legal Aspects of
Receivables -- 'Due-on-Sale' Clauses" herein.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As long as HFC is the Servicer it will receive, or be entitled to retain on
behalf of itself and the Subservicers, a portion of the Interest Collections
remaining after distribution of the Series 1997-1 Participation Interest
Distribution Amount and the Series 1997-1 Participation Principal Distribution
Amount as a servicing fee. Such fee attributable to the Series 1997-1
Participation will be paid monthly in arrears in the amount of 2.00% per annum
of the Series 1997-1 Participation Invested Amount as of the end of the related
Collection Period (the "Servicing Fee"). If HFC is no longer the Servicer, the
Servicing Fee will be paid to the successor Servicer from Interest Collections
prior to any distributions on the Series 1997-1 Participation.
The Servicer will pay certain ongoing expenses associated with the Deposit
Trust and incurred by it in connection with its responsibilities under the
Pooling and Servicing Agreement, including, without limitation, payment of the
fees and disbursements of the Deposit Trustee, and any Paying Agent. In
addition, the Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with defaulted Credit Lines, such right of
reimbursement being prior to the rights of holders of any Series Participation
Interests, including the Series 1997-1 Participation, to receive any related
Recoveries.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides for delivery on or before
March 31 in each year, to the Deposit Trustee, the Owner Trustee, the Indenture
Trustee and the Rating Agencies of an annual statement signed by an officer of
the Servicer to the effect that the Servicer has fulfilled its material
obligations under the Pooling and Servicing Agreement throughout the preceding
calendar year, except as specified in such statement.
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On or before March 31 of each year, the Servicer will furnish a report
prepared by a firm of independent public accountants to the Deposit Trustee, the
Owner Trustee, the Indenture Trustee and the Rating Agencies stating that such
accountants have examined certain documents and the records relating to
servicing of credit lines as prescribed under certain agreements (including the
Pooling and Servicing Agreement) and compared mathematical calculations for each
monthly servicing report with the Servicer's computer reports. Such report will
state whether such examinations disclosed items of non-compliance with the
provision of the Pooling and Servicing Agreement or variations in the results of
such calculations which, in the opinion of the firm, are material, and all items
of non-compliance shall be specified in the report.
CERTAIN MATTERS REGARDING THE SERVICER AND THE SELLER
The Pooling and Servicing Agreement provides that the Servicer may not
resign from its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless (i) such duties and obligations are no
longer permissible under applicable law or are in conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it or (ii) upon the satisfaction of the following conditions: (a) the
Servicer has delivered an executed assumption agreement in form satisfactory to
the Deposit Trustee, assigning its obligations and duties to a wholly owned
subsidiary of Household International, Inc. or to another entity as to which the
Rating Agency Condition shall have been satisfied; and (b) the successor meets
the eligibility requirements specified in the Pooling and Servicing Agreement.
No such resignation will become effective until the Deposit Trustee or a
successor servicer has assumed the Servicer's obligations and duties under the
Pooling and Servicing Agreement.
The Servicer may perform any of its duties and obligations under the
Pooling and Servicing Agreement through one or more subservicers or delegates,
which may be affiliates of the Servicer. Notwithstanding any such arrangement,
the Servicer will remain liable and obligated to the Deposit Trustee, the
Indenture Trustee, and the holders of interests in the Deposit Trust for the
Servicer's duties and obligations under the Pooling and Servicing Agreement,
without any diminution of such duties and obligations and as if the Servicer
itself were performing such duties and obligations.
The Pooling and Servicing Agreement provides that neither the Servicer, the
Seller, nor any director, officer, employee or agent of the Servicer or the
Seller will be under any liability to the Deposit Trust, the Indenture Trustee
or the holders of any Series Participation Interest and any Noteholders or
Certificateholders (together, "Securityholders") for any action taken or for
refraining from the taking of any action in good faith pursuant to the Pooling
and Servicing Agreement, or for errors in judgment; provided, however, that
neither the Servicer, the Seller nor any such person will be protected against
any liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties thereunder. The Pooling and
Servicing Agreement further provides that the Servicer, the Seller and any
director, officer, employee or agent of the Servicer or the Seller is entitled
to indemnification by the Deposit Trust and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the Pooling and Servicing Agreement or any interest in the Deposit Trust,
other than any loss, liability or expense related to any specific Credit Line
(except any such loss, liability or expense otherwise reimbursable pursuant to
the Pooling and Servicing Agreement) and any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Pooling and Servicing
Agreement provides that neither the Servicer nor the Seller will be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its respective duties under the Pooling and Servicing Agreement
and which in its opinion may involve it in any expense or liability. The
Servicer or the Seller may, however, in its or their discretion undertake any
such action which it or they may deem necessary or desirable with respect to the
Pooling and Servicing Agreement and the rights and duties of the parties thereto
and the interests of the holders of interest thereunder. In such event, the
legal expenses and costs of such action and any liability resulting therefrom
and any claims by the Servicer or the Seller for indemnification will be
expenses, costs and liabilities of the Deposit Trust. The Servicer or the
Seller, as the case may be, will be entitled to be reimbursed therefor and
indemnified pursuant to the terms of the Pooling and Servicing Agreement out of
funds otherwise distributable to holders of
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interests in the Deposit Trust. The Servicer's right to such indemnity or
reimbursement shall survive any resignation or termination of the Servicer with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination).
Any corporation into which the Servicer or the Seller may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer or the Seller shall be a party, or any
corporation succeeding to the business of the Servicer or the Seller shall be
the successor of the Servicer or the Seller under the Pooling and Servicing
Agreement.
SERVICER DEFAULTS
"Servicer Defaults" will consist of: (i) any failure by the Servicer to
deposit in the Collection Account any deposit, or to give instructions to the
Deposit Trustee to make a payment, transfer or deposit required to be made under
the Pooling and Servicing Agreement which failure continues unremedied for five
Business Days after the date such payment, transfer or deposit was required to
be made or given; (ii) any failure by the Servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the Pooling and
Servicing Agreement which has an Adverse Effect and continues unremedied for 60
days after the giving of written notice of such failure to the Servicer by the
Deposit Trustee, or to the Servicer and the Deposit Trustee by holders of
interests in the Deposit Trust evidencing not less than 10% of the then
outstanding principal amount of each such affected interest; (iii) any breach of
a representation or warranty or untrue certification by the Servicer which has
an Adverse Effect and continues unremedied for 60 days after the giving of
written notice of such failure to the Servicer by the Deposit Trustee, or to the
Servicer and the Deposit Trustee by holders of interests in the Deposit Trust
evidencing not less than 10% of the then outstanding principal amount of each
such affected interest; or (iv) the occurrence of certain events of bankruptcy,
insolvency or receivership relating to the Servicer as set forth in the Pooling
and Servicing Agreement which continue unremedied for 60 days.
A delay in or failure of performance referred to under clauses (ii) or
(iii) above that continues for a period of 60 days after the applicable grace
period shall not constitute a Servicer Default if such delay or failure could
not be prevented by the exercise of reasonable diligence by the Servicer and
such delay or failure was caused by an act of God or other similar occurrence.
Upon the occurrence of any such event the Servicer shall 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 shall provide the Deposit Trustee, the Seller, and the holders of
interests in the Deposit Trust prompt notice of such failure or delay by it,
together with a description of its efforts to so perform its obligations.
RIGHTS UPON A SERVICER DEFAULT
So long as a Servicer Default remains unremedied, either (a) the Deposit
Trustee or (b) the holders of Series Participation Interests in the Deposit
Trust evidencing more than 50% of the then aggregate outstanding principal
amount of each such interest may terminate all of the rights and obligations of
the Servicer under the Pooling and Servicing Agreement and in and to the Credit
Lines. If the Servicer's rights are terminated, a successor Servicer, appointed
by the Deposit Trustee, or if no successor has been appointed by the date the
Servicer's rights and obligations are terminated, the Deposit Trustee, will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such Agreement and will be entitled to similar compensation arrangements.
In addition, if the Deposit Trustee has not received any bids from potential
successor Servicers within 60 days of the date notice of termination has been
delivered to the Servicer and the Servicer Default cannot be cured, the Seller
shall have the right, but not an obligation, to repurchase the outstanding
Series Participation Interests on the following Distribution Date for an amount
equal to the Transfer Price. In the event that the Deposit Trustee would be
obligated to succeed the Servicer but is unwilling or unable so to act, it may
appoint, or petition a court of competent jurisdiction for the appointment of a
consumer loan servicer holding all licenses and permits required to perform the
obligations of the Servicer under the Pooling and Servicing Agreement. Any such
successor must have a net worth of at least $50,000,000
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and be reasonably acceptable to the Rating Agencies. Pending such appointment,
the Deposit Trustee will be obligated to act in the capacity as Servicer unless
prohibited by law. Any successor will receive the same compensation that the
prior Servicer would otherwise have received (or such lesser compensation as the
Deposit Trustee and such successor may agree). A receiver or conservator for the
Servicer may be empowered to prevent the termination and replacement of the
Servicer where the only Servicer Default that has occurred relates to the
bankruptcy or insolvency of the Servicer.
Holders of Series Participation Interests in the Deposit Trust will have no
right under the Pooling and Servicing Agreement to direct the time, method and
place of exercising any remedy, trust or power of the Deposit Trustee unless
holders evidencing more than 50% of the then aggregate outstanding principal
amount of Series Participation Interests make written request upon the Deposit
Trustee to take such action. However, under certain circumstances described in
the Pooling and Servicing Agreement, upon the advice of counsel, the Deposit
Trustee may refuse to take such action. The Deposit Trustee will be under no
obligation to exercise any of the trusts or powers vested in it by the Pooling
and Servicing Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Series Participation Interests in the Deposit Trust, unless such holders have
offered to the Deposit Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
Other than as described in the following paragraph, the Pooling and
Servicing Agreement and any supplement thereto may be amended by the Seller, the
Servicer and the Deposit Trustee, without consent of the holders of the Series
1997-1 Participation, any other Series Participation Interest or the Series
1997-1 Securities provided that the Seller certifies to the Deposit Trustee and
the Rating Agencies that it does not believe such amendment will have an Adverse
Effect.
The Pooling and Servicing Agreement or any supplement thereto may be
amended by the Seller, the Servicer and the Deposit Trustee with the consent of
the holders of Series Participation Interests evidencing not less than 66 2/3%
of the aggregate unpaid principal amount of the Series Participation Interests
of all affected Series for which the Seller has not delivered an officer's
certificate stating that there is no Adverse Effect. However, no such amendment
may (a) without the consent of each holder of a Series Participation Interest
effected (i) reduce in any manner the amount of, or delay the timing of,
deposits or distributions on any Series Participation Interest, (ii) change the
definition or the manner of calculating the interest of any Series Participation
Interest or (iii) reduce the aforesaid percentage of the aggregate unpaid
principal amount of the Series Participation Interests the holders of which are
required to consent to any amendment, or (b) adversely affect the rating of any
Series or class of securities without the consent of the holders of Series
Participation Interests evidencing not less than 66 2/3% of the aggregate unpaid
principal amount of the Series Participation Interests affected thereby.
Promptly following the execution of any amendment to the Pooling and Servicing
Agreement that did not require the consent of any holders of Series
Participation Interests, the Deposit Trustee will furnish written notice of the
substance of such amendment to holders of Series Participation Interests.
Notwithstanding the foregoing, any supplement executed in connection with the
issuance of one or more subsequent Series 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.
EXERCISE OF RIGHTS BY HOLDERS OF SERIES PARTICIPATION INTERESTS
The Series 1997-1 Participation will be the fourth Series Participation
Interest issued by the Deposit Trust. It is anticipated that additional Series
Participation Interests will be issued and held by issuers such as the Issuer
and will be the basis for the issuance of additional series of securities. The
rights of such holders to direct the voting of the related Series Participation
Interest will be governed by the documents pursuant to which such additional
series are issued and may be different from such provisions relating to the
Series 1997-1 Participation. It is not expected that holders of the Series
1997-1 Securities will hold voting power sufficient to
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unilaterally direct any action with respect to the Deposit Trust. As additional
Series Participation Interests are issued and the Series 1997-1 Participation is
reduced, the relative interest of the Series 1997-1 Securities in the Deposit
Trust will be reduced, thereby further reducing the effective voting power of
such securities.
THE DEPOSIT TRUSTEE
The commercial bank or trust company serving as Deposit Trustee may have
other banking relationships with the Seller and/or its affiliates, including the
Servicer.
The Deposit Trustee may resign at any time, in which event the Seller will
be obligated to appoint a successor Deposit Trustee. The Seller may also remove
the Deposit Trustee if the Deposit Trustee ceases to be eligible to continue as
such under the Pooling and Servicing Agreement or if the Deposit Trustee becomes
insolvent. Upon becoming aware of such circumstances, the Seller will be
obligated to appoint a successor Deposit Trustee. Any resignation or removal of
the Deposit Trustee and appointment of a successor Deposit Trustee will not
become effective until acceptance of the appointment by the successor Deposit
Trustee.
CERTAIN ACTIVITIES
The Deposit Trust will not: (i) borrow money; (ii) make loans; (iii) invest
in securities for the purpose of exercising control; (iv) underwrite securities;
(v) except as provided in the Pooling and Servicing Agreement, engage in the
purchase and sale (or turnover) of investments; (vi) offer securities or other
interests in exchange for property (except Series Participation Interests); or
(vii) repurchase or otherwise reacquire its securities. See "Description of the
Deposit Trust -- Evidence as to Compliance" for information regarding reports as
to the compliance by the Servicer with the terms of the Pooling and Servicing
Agreement.
DISTRIBUTIONS ON THE SERIES 1997-1 PARTICIPATION
On each Distribution Date, distributions on the Series 1997-1 Participation
will be made by the Deposit Trustee or the Paying Agent to the Indenture
Trustee. The term "Distribution Date" means the Business Day prior to the
Payment Date in each month. Distributions will be made by wire transfer to the
Payment Account maintained by the Indenture Trustee.
Interest Distributions. On each Distribution Date, the Deposit Trustee or
the Paying Agent will distribute to the Indenture Trustee from the applicable
Allocation Percentage of Interest Collections for the preceding Collection
Period an amount equal to the amount accrued at the Participation Pass-Through
Rate on the unpaid Principal Balance of the Series 1997-1 Participation,
calculated on the basis of the actual number of days elapsed, from and
including, the preceding Distribution Date (or in the case of the first
Distribution Date, the Closing Date), to but excluding, the current Distribution
Date and a 360 day year. The "Participation Pass-Through Rate" for each
Distribution Date is a per annum rate equal to the Prime Rate as published by
the Board of Governors of the Federal Reserve System in Statistical Release
H.15(519), Selected Interest Rates, or any successor publication ("Prime Rate")
as of the first day of the related Interest Period, less 1.50%, subject to a
minimum rate equal to a per annum rate which will result in an amount which will
be sufficient to pay the full amount of interest due on the Notes and to make a
full distribution on the Certificates at the Certificate Rate, plus, in respect
of the Accelerated Principal Payment Amount, for Distribution Dates occurring
prior to April 1998, 0.75% of the Series 1997-1 Participation Invested Amount,
and for Distribution Dates occurring in April 1998 and thereafter, 0.25% of the
Series 1997-1 Participation Invested Amount, in each case, on the basis of
twelve months consisting of 30 days each and a 360 day year. See "Description of
the Securities -- Distributions on the Securities" herein.
Principal Distributions. On each Distribution Date, the Deposit Trustee or
the Paying Agent will distribute to the Indenture Trustee on behalf of the
Issuer, the Floating or Fixed Allocation Percentage (as applicable) of Principal
Collections or Net Principal Collections (as applicable); provided that prior to
an Early Amortization Period or the Accelerated Amortization Date, if the
Floating Allocation Percentage of Net Principal Collections is less than the
Minimum Principal Amount, the amount of Principal Collections distributable on
the Series 1997-1 Participation shall be the Minimum Principal Amount.
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The "Minimum Principal Amount" for any Distribution Date prior to the
Accelerated Amortization Date and the occurrence of an Amortization Event is the
lesser of (a) the Floating Allocation Percentage of Principal Collections for
such Distribution Date and (b) the amount by which 2.20% of the Series 1997-1
Participation Invested Amount exceeds the portion of the amount of the Defaulted
Amount allocated to the Series 1997-1 Participation that is covered by the
applicable Allocation Percentage of Finance Charges and Administrative
Receivables in excess of the Series 1997-1 Participation Interest Distribution
Amount distributed on the Series 1997-1 Participation on such Distribution Date.
DESCRIPTION OF THE SECURITIES
The Notes will be issued pursuant to the Indenture. The Certificates will
be issued pursuant to the Trust Agreement. Forms of the Indenture and Trust
Agreement have been filed as exhibits to the Registration Statement of which
this Prospectus is a part. The following summaries describe certain provisions
of the Indenture and Trust Agreement. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Indenture and Trust Agreement.
GENERAL
The Notes will be issued only in fully registered form, in denominations of
$100,000 and integral multiples of $1,000 in excess thereof. The Notes will be
secured by the Trust Assets pledged by the Issuer to the Indenture Trustee
pursuant to the Indenture which will consist of: (i) the Series 1997-1
Participation (ii) collections in respect of the Series 1997-1 Participation;
(iii) amounts on deposit in the Payment Account (excluding net earnings
thereon); (iv) the Preferred Stock of the Seller and (v) an assignment of the
Issuer's rights under the Series 1997-1 Supplement. Replacement Notes, if
issued, will be transferable and exchangeable at the corporate trust office of
the Indenture Trustee, which will initially act as Note Registrar. See
"Registration of Notes" below. No service charge will be made for any
registration, exchange or transfer of Notes, but the Indenture Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge.
Application will be made to list the Notes on the Luxembourg Stock
Exchange.
DISTRIBUTIONS ON THE SECURITIES
Beginning with the Payment Date occurring in April 1997, distributions on
the Notes will be made by the Indenture Trustee or the Paying Agent on each
Payment Date to the persons in whose names such Notes are registered
("Noteholders") at the close of business on the day prior to each Payment Date
(the "Record Date"), except as provided in "Registration of Notes" below. The
term "Payment Date" means the fifteenth day of each month (or if such day is not
a Business Day, the next succeeding Business Day). Distributions will be made by
check or money order mailed (or upon the request of a Noteholder owning Notes
having denominations aggregating at least $5,000,000, by wire transfer or
otherwise) to the address of the person entitled thereto (which, in the case of
book-entry certificates, will be DTC or its nominee) as it appears on the Note
Register in amounts calculated as described herein on the fifth Business Day
prior to the related Payment Date (the "Determination Date"). However, the final
distribution in respect of the Notes will be made only upon presentation and
surrender thereof at the office or the agency of the Indenture Trustee specified
in the notice to Noteholders of such final distribution. A "Business Day" is any
day other than (i) a Saturday or Sunday or (ii) a day on which banking
institutions in the States of New York or Illinois are required or authorized by
law to be closed.
Allocation of Remittances on the Series 1997-1 Participation. The Indenture
Trustee will establish and maintain an account (the "Payment Account") into
which the Deposit Trustee will wire the remittances on the Series 1997-1
Participation for the related Collection Period. Each Distribution Date with
respect to the Series 1997-1 Participation will be the Business Day prior to
each Payment Date on the Series 1997-1 Securities. The Payment Account will be
an Eligible Account. Amounts on deposit in the Payment Account will be invested
in certain investments acceptable to the Rating Agencies maturing on or before
the related Payment Date.
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Except as provided below, on each Payment Date other than a Payment Date
occurring after an Event of Default, remittances on the Series 1997-1
Participation will be allocated in the following order of priority:
(i) sequentially, as payment for the amount of interest due on the
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class B Notes;
(ii) except as otherwise specified below, to the Certificates on
behalf of the Issuer, as payment of the amount distributable in respect of
the Certificate Rate on the Security Balance of the Certificates and
previously unpaid;
(iii) sequentially, up to the Optimum Monthly Principal,
(a) to the Class A-1 Notes until the Security Balance of the Class
A-1 Notes equals the Class A-1 Targeted Principal Balance,
(b) to the Class A-2 Notes until the Security Balance of the Class
A-2 Notes equals the Class A-2 Targeted Principal Balance, to the extent
the Adjusted Security Balance of the Class A-2 Notes is not reduced
below the Minimum Security Balance for the Class A-2 Notes,
(c) to the Class A-3 Notes until the Security Balance of the Class
A-3 Notes equals the Class A-3 Targeted Principal Balance, to the extent
the Adjusted Security Balance of the Class A-3 Notes is not reduced
below the Minimum Security Balance for the Class A-3 Notes, and
(d) to the Class B Notes until the Security Balance of the Class B
Notes equals the Class B Targeted Principal Balance, to the extent the
Adjusted Security Balance of the Class B Notes is not reduced below the
Minimum Security Balance for the Class B Notes;
(iv) to the Certificates, up to the remaining Optimum Monthly
Principal until the Security Balance of the Certificates equals the
Certificate Targeted Balance, to the extent the Adjusted Security Balance
of the Certificates is not reduced below $11,200,000;
(v) to the Seller, in reduction of the Overcollateralization Amount,
up to the remaining Optimum Monthly Principal provided the
Overcollateralization Amount is not less than $13,600,000;
(vi) as principal on the Notes, sequentially, up to the Accelerated
Principal Payment Amount for such Payment Date:
(a) to the Class A-1 Notes until the Security Balance of the Class
A-1 Notes equals the Class A-1 Targeted Principal Balance,
(b) to the Class A-2 Notes until the Security Balance of the Class
A-2 Notes equals the Class A-2 Targeted Principal Balance, to the extent
the Adjusted Security Balance of the Class A-2 Notes is not reduced
below the Minimum Security Balance for the Class A-2 Notes,
(c) to the Class A-3 Notes until the Security Balance of the Class
A-3 Notes equals the Class A-3 Targeted Principal Balance, to the extent
the Adjusted Security Balance of the Class A-3 Notes is not reduced
below the Minimum Security Balance for the Class A-3 Notes,
(d) to the Class B Notes until the Security Balance of the Class B
Notes equals the Class B Targeted Principal Balance, to the extent the
Adjusted Security Balance of the Class B Notes is not reduced below the
Minimum Security Balance for the Class B Notes,
(e) to the Class A-1 Notes until the Security Balance of the Class
A-1 Notes equals zero,
(f) to the Class A-2 Notes until the Security Balance of the Class
A-2 Notes equals zero,
(g) to the Class A-3 Notes until the Security Balance of the Class
A-3 Notes equals zero, and
(h) to the Class B Notes until the Security Balance of the Class B
Notes equals zero;
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(vii) as principal on the Notes, sequentially, up to the remaining
Optimum Monthly Principal for such Payment Date;
(a) to the Class A-1 Notes until the Security Balance of the Class
A-1 Notes equals zero,
(b) to the Class A-2 Notes until the Security Balance of the Class
A-2 Notes equals zero,
(c) to the Class A-3 Notes until the Security Balance of the Class
A-3 Notes equals zero, and
(d) to the Class B Notes until the Security Balance of the Class B
Notes equals zero;
(viii) to the Certificates, up to the remaining Optimum Monthly
Principal until the Security Balance of the Certificates equals the
Certificate Minimum Balance, or if the Series 1997-1 Participation Invested
Amount is zero, then to the Certificates until the Security Balance of the
Certificates equals zero;
(ix) to the Seller in reduction of the Overcollateralization Amount to
an amount not less than zero, the remaining Optimum Monthly Principal; and
(x) any remaining amounts to the Issuer or its designee.
In the event (a) immediately prior to a Distribution Date the Series 1997-1
Participation Invested Amount is less than the aggregate Security Balance of the
Class A and Class B Notes immediately prior to the related Payment Date, or (b)
the remittances on the Series 1997-1 Participation for a Payment Date is less
than the aggregate amount to be paid pursuant to clauses (i) and (ii) above, the
amount to be paid pursuant to clause (ii) above will be paid only after payments
are made on the Notes pursuant to clause (iii).
The defined terms used in this description of Allocation of Remittances on
the Series 1997-1 Participation are defined as follows:
For each Payment Date, the "Accelerated Principal Payment Amount" is equal
to the lesser of (i) the amount by which the remittance on the Series 1997-1
Participation exceeds the sum of (a) the amount to be distributed on the Notes
with respect to interest and the Certificates in respect of the Certificate Rate
on such Payment Date and (b) the Optimum Monthly Principal for such Payment Date
and (ii) one-twelfth of the Series 1997-1 Participation Invested Amount,
multiplied, for each Payment Date occurring prior to April 1998, by 0.75%, and
for each Payment Date occurring in April 1998 or thereafter, by 0.25%.
With respect to any Payment Date, the "Adjusted Security Balance" of a
Class of Notes or of the Certificates shall equal the related Security Balance
on the Closing Date after giving effect to distributions thereon in respect of
principal on all Payment Dates (including the current Payment Date), less any
Net Charge-Off allocated to such security on such Payment Date.
With respect to any Payment Date, the "Certificate Minimum Balance" shall
equal the Series 1997-1 Participation Invested Amount after giving effect to the
distribution made on the Series 1997-1 Participation on such Payment Date,
multiplied by 1.0101%.
With respect to any Payment Date, the "Certificate Targeted Balance" shall
equal (i) the Series 1997-1 Participation Invested Amount, multiplied by 91.5%,
less (ii) the Adjusted Security Balance of each Class of Notes immediately prior
to such Payment Date and after giving effect to payments of principal on the
Class A Notes and Class B Notes pursuant to clause (iii) above, respectively, on
such Payment Date.
With respect to any Payment Date, "Class A-1 Targeted Principal Balance"
shall equal the Series 1997-1 Participation Invested Amount multiplied by 52.0%.
With respect to any Payment Date, "Class A-2 Targeted Principal Balance"
shall equal the Series 1997-1 Participation Invested Amount multiplied by 62.0%,
less the Adjusted Security Balance of the Class A-1 Notes immediately prior to
such Payment Date after giving effect to payments of principal on the Class A-1
Notes pursuant to clause (iii)(a) above, on such Payment Date.
With respect to any Payment Date, "Class A-3 Targeted Principal Balance"
shall equal the Series 1997-1 Participation Invested Amount multiplied by 75.0%,
less the aggregate of the Adjusted Security Balances of the Class A-1 and Class
A-2 Notes immediately prior to such Payment Date after giving effect to payments
of
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principal on the Class A-1 and Class A-2 Notes pursuant to clauses (iii)(a) and
(iii)(b) above, on such Payment Date.
With respect to any Payment Date, the "Class B Targeted Principal Balance"
shall equal the Series 1997-1 Participation Invested Amount multiplied by 84.5%,
less the aggregate Adjusted Security Balance for the Class A Notes immediately
prior to such Payment Date after giving effect to payments of principal on the
Class A Notes pursuant to clauses (iii)(a), (iii)(b) and (iii)(c) above, on such
Payment Date.
With respect to any Payment Date, the "Minimum Security Balance" shall
equal with respect to the Class A-2 Notes, Class A-3 Notes and the Class B
Notes, $16,000,000, $20,800,000 and $15,200,000, respectively.
As to any Payment Date, "Net Charge-Off" shall equal the aggregate Optimum
Monthly Principal not distributed for this and all prior Payment Dates and
reduced by aggregate Reversals distributed on this and all prior Payment Dates.
The Net Charge-Off will be allocated to the Series 1997-1 Securities in the
manner as set forth herein under "Allocations of Defaulted Amounts and
Reversals".
As to each Payment Date, "Optimum Monthly Principal" shall mean the amount
equal to the sum of (a) the Series 1997-1 Participation Principal Distribution
Amount, (b) the amount of the reduction in the Series 1997-1 Participation
Invested Amount during the preceding Collection Period that was not included in
the Series 1997-1 Participation Principal Distribution Amount, and (c) the
lesser of (i) the amount, if any, by which the Series 1997-1 Participation
Interest Distribution Amount exceeds the sum of (x) the amounts to be
distributed on such Payment Date pursuant to clauses (i)-(iii) on page 63, and
(y) the amount referred to in clause (b) in this paragraph, and (ii) the Net
Charge-Off as of the preceding Payment Date.
With respect to any Payment Date, the "Overcollateralization Amount" shall
equal the amount by which the Series 1997-1 Participation Invested Amount
exceeds the aggregate of the Security Balances, in each case after giving effect
to distributions on such Payment Date. As of the Closing Date, the
Overcollateralization Amount will be $40,800,000 or 4.25% of the balance of the
Series 1997-1 Participation.
The "Security Balance" of any Note on any day is the respective initial
principal balance as of the Closing Date, reduced by all payments of principal
thereon as of such day.
Allocations of Defaulted Amounts and Reversals. On each Payment Date with
respect to which the Series 1997-1 Participation is reduced due to Defaulted
Amounts during the related Collection Period and less than the Optimum Monthly
Principal is distributed in respect of principal on such Payment Date, the
amount that was not distributed shall be allocated in the following order of
priority:
(i) if the Overcollateralization Amount is zero, to the Adjusted
Security Balance of the Certificates until such balance equals zero;
(ii) to the Adjusted Security Balance of the Class B Notes until such
balance equals zero;
(iii) to the Adjusted Security Balance of the Class A-3 Notes until
such balance equals zero;
(iv) to the Adjusted Security Balance of the Class A-2 Notes until
such balance equals zero; and
(v) to the Adjusted Security Balance of the Class A-1 Notes until such
balance equals zero.
On each Payment Date with respect to which a Reversal exists, such Reversal
shall be allocated in the following order of priority:
(1) to the Adjusted Security Balance for the Class A-1 Notes until
such balance equals the Security Balance for the Class A-1 Notes;
(2) to the Adjusted Security Balance for the Class A-2 Notes until
such balance equals the Security Balance for the Class A-2 Notes;
(3) to the Adjusted Security Balance for the Class A-3 Notes until
such balance equals the Security Balance for the Class A-3 Notes;
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(4) to the Adjusted Security Balance for the Class B Notes until such
balance equals the Security Balance for the Class B Notes; and
(5) to the Adjusted Security Balance for the Certificates until such
balance equals the Security Balance for the Certificates.
As to any Payment Date, "Reversals" is the sum of (a) the lesser of (i) the
Series 1997-1 Participation Interest Distribution Amount, reduced by the sum of
amounts to be distributed pursuant to clauses (i)-(iii) of Allocation of
Remittances on the Series 1997-1 Participation and the amount of the reduction
in the Series 1997-1 Participation Invested Amount during the preceding
Collection Period that was not included in the Series 1997-1 Participation
Principal Distribution Amount for the related Distribution Date, and (ii) the
Net Charge-Off, and (b) the portion of the Defaulted Amounts allocated to the
Series 1997-1 Participation on prior Distribution Dates for which payments on
the Series 1997-1 Participation Principal Distribution Amount in respect thereof
have been made on the related Distribution Date. On any Payment Date, Reversals
for such date may not exceed the amount of the Net Charge-Off on the preceding
Payment Date.
Interest. On each Payment Date, interest payments will be made on the Notes
and distributions on the Certificates at the respective Note Rates and
Certificate Rate for the related Interest Period. The Note Rate for an Interest
Period will generally be the per annum rate equal to the sum of (a) LIBOR,
determined as specified herein, plus (b) 0. % per annum with respect to the
Class A-1 Notes, 0. % per annum in the case of the Class A-2 Notes, 0. % per
annum in the case of the Class A-3 Notes and a rate specified in the Indenture
not to exceed 0.875% per annum with respect to the Class B Notes. The Class A-1,
Class A-2, Class A-3 and Class B Note Rates are subject to maximum rates equal
to % per annum, % per annum, % per annum and % per annum,
respectively. The "Certificate Rate" will generally be the per annum rate equal
to the sum of (a) LIBOR, determined as specified herein, plus (b) a rate
specified in the Trust Agreement not to exceed 1.25% per annum.
Interest on the Notes and the Certificate Rate on the Certificates in
respect of any Payment Date will accrue on the applicable Security Balance from
(and including) the preceding Payment Date (or in the case of the first Payment
Date, from (and including) the date of the initial issuance of the Series 1997-1
Securities (the "Closing Date")) through (and including) the day preceding such
Payment Date (each such period, an "Interest Period") on the basis of the actual
number of days in the Interest Period and a 360-day year. Interest for any
Payment Date due but not paid on such Payment Date shall bear interest, to the
extent permitted by applicable law, at the related Note Rate until paid.
LIBOR shall be established by the Indenture Trustee and as to any Interest
Period, "LIBOR" will equal the rate for United States dollar deposits for one
month which appears on the Telerate Screen Page 3750 as of 11:00 A.M., London
time, on the second LIBOR Business Day prior to the first day of such Interest
Period (or as of two LIBOR Business Days prior to the Closing Date, in the case
of the first Interest Period). "Telerate Screen Page 3750" means the display
designated as page 3750 on the Telerate Service (or such other page as may
replace page 3750 on that service for the purpose of displaying London interbank
offered rates of major banks). If such rate does not appear on such page (or
such other page as may replace that page on that service, or if such service is
no longer offered, such other service for displaying LIBOR or comparable rates
as may be selected by the Indenture Trustee after consultation with the
Servicer), the rate will be the Reference Bank Rate. The "Reference Bank Rate"
will be determined on the basis of the rates at which deposits in U.S. Dollars
are offered by the reference banks (which shall be three major banks that are
engaged in transactions in the London interbank market, selected by the
Indenture Trustee after consultation with the Servicer) as of 11:00 A.M., London
time, on the day that is two LIBOR Business Days prior to the immediately
preceding Payment Date to prime banks in the London interbank market for a
period of one month in amounts approximately equal to the Security Balance then
outstanding. The Indenture Trustee 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 will be the arithmetic mean of the
quotations. If on such date fewer than two quotations are provided as requested,
the rate will be the arithmetic mean of the rates quoted by one or more major
banks in New York City, selected by the Indenture Trustee after consultation
with the Servicer, as of 11:00 A.M., New York City time, on such date for loans
in U.S. Dollars to leading European banks for a
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period of one month in amounts approximately equal to the aggregate Security
Balance then outstanding. If no such quotations can be obtained, the rate will
be LIBOR for the prior Payment Date. "LIBOR Business Day" means any day other
than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in
the States of New York or Illinois or in the City of London, England are
required or authorized by law to be closed.
If Notes are listed on the Luxembourg Stock Exchange, on the first day of
each Interest Period, the Servicer will inform the Luxembourg Stock Exchange of
the applicable Payment Date and the rate at which interest will accrue on each
Class of Notes during the Interest Period.
Principal. On each Payment Date, to the extent funds are available
therefore, other than the Payment Date in March 2007, principal payments except
as provided below will be due and payable on the Notes in the respective amounts
described under Allocation of Remittances on the Series 1997-1 Participation. On
the Payment Date in March 2007, principal will be due and payable on the Notes
in amounts equal to the Security Balance for each such Class on such Payment
Date. In addition, on any Payment Date, to the extent of funds available
therefor, each Class of Notes will also be entitled to receive principal
payments in respect of the Accelerated Principal Payment Amount, as further
described above under Allocation of Remittances on the Series 1997-1
Participation. In no event will principal payments on the Notes on any Payment
Date exceed the Security Balance thereof on such date.
Overcollateralization Amount. The payment of the Accelerated Principal
Payment Amounts, if any, to Noteholders will increase the Overcollateralization
Amount. The Overcollateralization Amount will be available to absorb any
Defaulted Amounts that are allocated to the Noteholders or to the
Certificateholders and not covered by remittances on the Series 1997-1
Participation. The "Initial Overcollateralization Amount" is equal to
$40,800,000 or 4.25% (the "Initial Overcollateralization Percentage") of the
Initial Series 1997-1 Participation as of the Closing Date. On each Payment
Date, the "Overcollateralization Amount" is the amount by which the Series
1997-1 Participation Invested Amount as of the end of the related Collection
Period exceeds the sum of the Security Balance of each Class of Notes and the
Security Balance of Certificates on such day (after giving effect to all amounts
distributable and allocable to principal on the Series 1997-1 Securities on such
Payment Date).
EARLY AMORTIZATION PERIOD
An "Early Amortization Period" will begin with the first day of the
Collection Period in which an Amortization Event has occurred. Upon commencement
of an Early Amortization Period, Interest Collections and Principal Collections
will be allocated to the Series 1997-1 Participation based upon the Fixed
Allocation Percentage which gives the Series 1997-1 Participation a greater
share of such collections each month. See "Maturity and Prepayment
Considerations" herein.
An "Amortization Event" will be deemed to occur:
(a) upon failure on the part of the Seller (i) to make any payment or
deposit required under the Pooling and Servicing Agreement within five
Business Days after the date such payment or deposit is required to be
made; or (ii) to observe or perform in any material respect any other
covenants or agreements of the Seller set forth in the Pooling and
Servicing Agreement as a result of which the interests of holders of
interest in the Deposit Trust are materially and adversely affected, which
failure continues unremedied for a period of 60 days after written notice;
(b) if any representation or warranty made by the Seller in the
Pooling and Servicing Agreement proves to have been incorrect in any
material respect when made, as a result of which the interests of holders
of interest in the Deposit Trust are materially and adversely affected, and
which continues for a period of 60 days after written notice to be
incorrect in any respect that materially and adversely affects the holders
of interests in the Deposit Trust; provided, however, that an Amortization
Event shall not be deemed to occur if the Seller has repurchased the
related Receivables, during such period (or within an additional 60 days
with the consent of the Deposit Trustee) in accordance with the provisions
of the Pooling and Servicing Agreement;
(c) upon the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Seller;
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(d) if the Deposit Trust or the Issuer becomes subject to regulation
by the Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended;
(e) if a Servicer Default occurs under the Pooling and Servicing
Agreement;
(f) if the percentage (averaged over any three consecutive months)
obtained by dividing (i) the Overcollateralization Amount by (ii) the
outstanding principal balance of the Series 1997-1 Participation is reduced
below 4.25%; and
(g) the portion of the Seller's Trust Amount owned by Household
Consumer Loan Corporation is reduced below 1.01% of the aggregate invested
amounts of all outstanding Series Participation Interests.
In the case of any event described in (a), (b) or (e), an Amortization
Event will be deemed to have occurred only if, after any applicable grace period
described in such clauses, either the Deposit Trustee, or, holders of at least
50% of each outstanding Series Participation Interest in the Deposit Trust, by
written notice to the Seller and the Servicer (and to the Trustee, if given by
the holders of interests in the Deposit Trust) declare that an Amortization
Event has occurred as of the date of such notice. In the case of any event
described in clauses (c), (d), (f) or (g), an Amortization Event will be deemed
to have immediately occurred without any notice or other action on the part of
the Deposit Trustee or the holders of Series Participation Interests in the
Deposit Trust.
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the Seller and no Amortization Event
exists other than such conservatorship, receivership or insolvency of the
Seller, the conservator, receiver or trustee-in-bankruptcy may have the power to
prevent the commencement of the Early Amortization Period.
MATURITY
The Notes will mature on the earlier of the date the Notes are paid in full
or on the Payment Date occurring in March 2007. In the event there are
insufficient funds to retire the Notes on the Payment Date occurring in March
2007, an Event of Default will occur. See "-- Events of Default; Rights Upon
Event of Default" below. In addition, the Issuer will pay the Notes in full on
the Payment Date following exercise by the Seller of its option to purchase the
Series 1997-1 Participation after the aggregate Security Balance of the Series
1997-1 Securities is reduced to an amount less than or equal to $91,920,000 (10%
of the initial aggregate Security Balance of the Series 1997-1 Securities). The
purchase price will be equal to the sum of the unpaid principal balance of the
Series 1997-1 Participation and accrued and unpaid interest thereon at the
weighted average of the Note Rates and the Certificate Rate through the day
preceding the call date. Under certain circumstances in the event of a Servicer
Default, the Seller may repurchase each outstanding Series Participation
Interest, including the Series 1997-1 Participation, at a price equal to the
outstanding principal balance of each Series Participation Interest, plus
accrued and unpaid interest at the applicable pass-through rates. In such event,
the Series 1997-1 Securities will be paid in full.
The Paying Agent. The Paying Agent shall initially be the Indenture
Trustee, together with any successor thereto in such capacity (the "Paying
Agent"). The Paying Agent shall have the revocable power to withdraw funds from
the Payment Account for the purpose of making payments to the Securityholders.
REPORTS TO NOTEHOLDERS
Concurrently with each distribution to the Noteholders, the Indenture
Trustee will prepare and forward to each Noteholder a statement setting forth
certain information, including the following:
(i) remittances on the Series 1997-1 Participation for the related
Collection Period;
(ii) the Series 1997-1 Participation Invested Amount;
(iii) the aggregate Principal Balance of the Receivables as of the
last day of the related Collection Period;
(iv) the Adjusted Security Balance of each class of Notes and of the
Certificates after giving effect to the distribution of principal on such
Payment Date;
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(v) the Overcollateralization Amount after giving effect to the
payments to be made on the Notes and the Certificates on such Payment Date;
(vi) the amount of principal distributable on such Payment Date to
Noteholders separately stating the portion thereof in respect of Defaulted
Amounts allocated to the Notes that was not included in the Principal
Distribution Amount for the Distribution Date related to the period in
which such Defaulted Amount was incurred and the Accelerated Principal
Payment Amount and stating the amount of any remaining Defaulted Amounts
not previously distributed;
(vii) the amount of interest distributable on such Payment Date to
Noteholders separately stating the portion thereof in respect of overdue
accrued interest and stating the amount of remaining overdue accrued
interest; and
(viii) the Seller's Trust Amount after giving effect to the payments
made on the Notes and the Certificates on such Payment Date.
In the case of information furnished pursuant to clauses (vi) and (vii)
above, the amounts shall be expressed as a dollar amount per $1,000 in face
amount of Notes.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes, an "Event of Default" under the Indenture exists
at any time when any one of the following events occurs: (i) interest due and
payable on any Note is not paid within five days of the date such payment was
due; (ii) any payment of principal on a Note is not made when the payment is due
and payable; (iii) a default in the observance or performance of any covenant or
agreement of the Issuer made in the Indenture, or any representation or warranty
of the Issuer made in the Indenture or in any certificate or other writing
delivered pursuant hereto or in connection herewith is proven to have been
incorrect in any material respect as of the time when the representation or
warranty was made and has a material adverse effect on Noteholders, and such
default shall continue or not be cured, or the circumstance or condition in
respect of which such representation or warranty was incorrect shall not have
been eliminated or otherwise cured, for a period of 30 days after there shall
have been given, by registered or certified mail, to the Issuer by the Indenture
Trustee or to the Issuer and the Indenture Trustee by the Holders of at least
25% in principal amount of the Notes then outstanding, a written notice
specifying such default or incorrect representation or warranty and requiring it
to be remedied and stating that such notice is a notice of default hereunder;
(iv) the filing of a decree or order for relief by a court having jurisdiction
over the Issuer or any substantial part of the Trust Assets in an involuntary
case under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Issuer or
for any substantial part of the Trust Assets, or ordering the winding-up or
liquidation of the Issuer's affairs, and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or (v) the
commencement by the Issuer of a voluntary case under any applicable federal or
state bankruptcy, insolvency or other similar law now or hereafter in effect, or
the consent by the Issuer to the entry of an order for relief in an involuntary
case under any such law, or the consent by the Issuer to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for any substantial part of
the Trust Assets, or the making by the Issuer of any general assignment for the
benefit of creditors, or the failure by the Issuer generally to pay its debts as
such debts become due, or the taking of any action by the Issuer in furtherance
of any of the foregoing. If there is an Event of Default due to late payment or
nonpayment of interest or principal on a Note, interest will continue to accrue
on such principal at the Note Rate until such principal is paid. If an Event of
Default should occur and be continuing with respect to the Notes, the Indenture
Trustee or holders of a majority in principal amount of Notes then outstanding
may declare the principal of such Notes to be immediately due and payable. Such
declaration may, under certain circumstances, be rescinded by the holders of a
majority in principal amount of the Notes then outstanding.
If the Notes are due and payable following an Event of Default with respect
thereto, the Indenture Trustee may institute proceedings to collect amounts due
or foreclose on property comprising Trust Assets or exercise remedies as a
secured party. Unless the Indenture Trustee determines that the Series 1997-1
Participation will not provide sufficient funds for the payment of principal and
interest on the Notes as such
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payments would become due, any sale, liquidation or other disposition of the
Trust Assets for an amount less than the amounts due on the Notes will not occur
without the consent of all of the Noteholders. If the Indenture Trustee makes
such a determination, it may sell, liquidate or otherwise dispose of the Trust
Assets for less than the amount due on the Notes provided that the consent of
Noteholders of not less than 66 2/3% of the Security Balance of the Notes is
obtained. After payment of the amounts due and owing the Indenture Trustee, the
proceeds of any sale, liquidation or other deposition of the Trust Assets will
be applied sequentially to pay all amounts due and owing on the Class A-1 Notes,
Class A-2 Notes, Class A-3 Notes, and Class B Notes, and to pay all amounts
distributable on the Certificates.
If an Event of Default occurs and is continuing with respect to the Notes,
the Indenture Trustee will be under no obligation to exercise any of the rights
or powers under the Indenture at the request or direction of any of the holders
of the Notes, if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the Indenture, the holders
of a majority in principal amount of the outstanding Notes will have the right
to direct the time, method and place of conducting any proceeding or any remedy
available to the Indenture Trustee, and the holders of a majority in principal
amount of the Notes then outstanding may, in certain cases, waive any default
with respect thereto, except a default in the payment of principal or interest
or a default in respect of a covenant or provision of the Indenture that cannot
be modified without the waiver or consent of all the holders of the outstanding
Notes. No holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% of the aggregate Security Balance of all
outstanding Notes have made written request to the Indenture Trustee to
institute such proceeding in its own name as Indenture Trustee, (iii) such
holder or holders have offered the Indenture Trustee reasonable indemnity, (iv)
the Indenture Trustee has for 60 days failed to institute such proceeding and
(v) no direction inconsistent with such written request has been given to the
Indenture Trustee during the 60-day period by the holders of a majority of the
aggregate Security Balance of all outstanding Notes. In addition, the Indenture
Trustee and the Noteholders, by accepting the Notes, covenant that they will not
at any time institute against the Issuer or the Seller any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law. With respect to the Issuer, neither the Indenture Trustee nor the
Owner Trustee in its individual capacity, nor any holder representing an
ownership interest in the Issuer nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors or
assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the principal of or interest on the Notes
or for the agreements of the Issuer contained in the Indenture.
CERTAIN COVENANTS
The Indenture will provide that the Issuer may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Issuer's obligation to make due and punctual payments upon the Notes and the
performance or observance of any agreement and covenant of the Issuer under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Issuer has been advised
that the ratings of the Notes then in effect would not be reduced or withdrawn
by any Rating Agency as a result of such merger or consolidation, (v) any action
that is necessary to maintain the lien and security interest created by the
Indenture is taken and (vi) the Issuer has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Issuer or to any Noteholder or Certificateholder. The Issuer
may not, among other things, (i) except as expressly permitted by the Indenture,
sell, transfer, exchange or otherwise dispose of any of the assets of the
Issuer, (ii) claim any credit on or make any deduction from the principal and
interest payable in respect of the Notes (other than amounts withheld under the
Code or applicable state law) or assert any claim against any present or former
Holder of Notes for payment of taxes levied or assessed upon the Issuer, (iii)
permit the validity or effectiveness of the Indenture to be impaired or permit
any person to be released from any covenants or obligations with respect to the
Notes under the Indenture except as may be expressly permitted thereby or (iv)
permit any lien, charge, excise,
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claim, security interest, mortgage or other encumbrance to be created on or
extend to or otherwise arise upon or burden the assets of the Issuer or any part
thereof, or any interest therein or the proceeds thereof. The Issuer may not
engage in any activity other than as specified under the Trust Agreement.
ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Indenture Trustee a
written statement as to the fulfillment of its obligations under the Indenture.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery of all the Notes to the Indenture Trustee for
cancellation or, with certain limitations, upon deposit with the Indenture
Trustee of funds sufficient for the payment in full of all the Notes.
MODIFICATION OF INDENTURE
With the consent of the holders of a majority of the Security Balance of
each Class of Notes affected thereby, the Issuer and the Indenture Trustee may
execute a supplemental indenture to add provisions to, change in any manner or
eliminate any provisions of, the Indenture, or modify (except as provided below)
in any manner the rights of the Noteholders. However, without the consent of the
holder of each outstanding Note affected thereby, no supplemental indenture
will: (i) change the due date of any installment of principal of or interest on
any Note or reduce the principal amount thereof, the interest rate specified
thereon or the redemption price with respect thereto or change any place of
payment where or the coin or currency in which any Note or any interest thereon
is payable; (ii) impair the right to institute suit for the enforcement of
certain provisions of the Indenture regarding payment; (iii) reduce the
percentage of the aggregate Security Balance of the outstanding Notes, which is
required to approve any supplemental indenture, waive compliance with certain
provisions of the Indenture or waive certain defaults thereunder and their
consequences as provided for in the Indenture; (iv) except in the limited
circumstance described in the following paragraph, modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Issuer,
the Seller or an affiliate of any of them; (v) decrease the percentage of the
aggregate Security Balance of Notes required to amend the sections of the
Indenture which specify the applicable percentage of the aggregate Security
Balance of the Notes necessary to amend the Indenture or certain other related
agreements; (vi) modify any of the provisions of the Indenture in such manner as
to affect the calculation of the amount of any payment of interest of principal
due on any Note (including the calculation of any of the individual components
of such calculation); or (vii) permit the creation of any lien ranking prior to
or, except as otherwise contemplated by the Indenture, on a parity with the lien
of the Indenture with respect to any of the Trust Assets or, except when the
full amount required to pay the Notes in full has been deposited or is held in
trust, terminate the lien of the Indenture on any such collateral or deprive the
holder of any Note of the security afforded by the lien of the Indenture.
At the time of the first sale of a Class B Note to a party that is not an
affiliate of the Seller, by mutual agreement of the Class B Noteholders and the
Issuer, but without the consent of any Class A Noteholder, the per annum
percentage that is added to LIBOR to determine the Class B Note Rate may be
modified to a percentage that does not exceed 0.875% per annum.
The Issuer and the Indenture Trustee may also enter into supplemental
indentures without obtaining the consent of the Noteholders, for the purpose of,
among other things, to cure any ambiguity or to correct or supplement any
provision in the Indenture that may be inconsistent with any other provision
therein.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE ISSUER
Neither the Issuer, the Indenture Trustee nor any director, officer or
employee of the Issuer or the Indenture Trustee will be under any liability to
the Issuer or the related Noteholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Indenture or for
errors in judgment; provided, however, that none of the Indenture Trustee, the
Issuer or any director, officer or employee thereof will be protected against
any liability which would otherwise be imposed by reason of willful malfeasance,
bad
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faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under the Indenture. Subject to certain
limitations set forth in the Indenture, the Indenture Trustee and any director,
officer, employee or agent of the Indenture Trustee shall be indemnified by the
Issuer and held harmless against any loss, liability or expense incurred in
connection with investigating, preparing to defend or defending any legal
action, commenced or threatened, relating to the Indenture other than any loss,
liability or expense incurred by reason of willful malfeasance, bad faith or
negligence in the performance of its duties under such Indenture or by reason of
reckless disregard of its obligations and duties under the Indenture. All
persons into which the Indenture Trustee may be merged or with which it may be
consolidated or any person resulting from such merger or consolidation shall be
the successor of the Indenture Trustee under each Indenture.
DUTIES OF THE INDENTURE TRUSTEE
The Indenture Trustee makes no representations as to the validity or
sufficiency of the Indenture, the Series 1997-1 Securities or of the Trust
Assets or related documents. If no Event of Default has occurred, the Indenture
Trustee is required to perform only those duties specifically required of it
under the Indenture. Upon receipt of the various certificates, statements,
reports or other instruments required to be furnished to it, the Deposit Trustee
is required to examine them to determine whether they are in the form required
by the Indenture; however, the Indenture Trustee will not be responsible for the
accuracy or content of any such documents.
The Indenture Trustee may be held liable for its own negligent action or
failure to act, or for its own misconduct; provided, however, the Indenture
Trustee will not be personally liable with respect to any action taken, suffered
or omitted to be taken by it in good faith in accordance with the direction of
the Holders in an Event of Default. The Indenture Trustee is not required to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties under the Indenture, or in the exercise of any
of its rights or powers, if it has reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
ACTIONS IN RESPECT OF SERIES 1997-1 PARTICIPATION
If at any time the Indenture Trustee, as the pledgee of the Series 1997-1
Participation is requested in such capacity to take any action or to give any
approval or waiver, including, without limitation, in connection with an
amendment of the Pooling and Servicing Agreement, or if any Servicer Default
occurs, so long as any Notes are outstanding the Indenture Trustee may either
take any action in connection with the enforcement of any rights and remedies
available to it as it deems in the best interests of the Noteholders, or it may
notify all of the Noteholders of the substance of any such amendment, approval
or waiver and act in accordance with the written direction of Noteholders
evidencing at least a majority of the aggregate Security Balance of the Notes.
RESIGNATION OF INDENTURE TRUSTEE
The Indenture Trustee may, upon written notice to the Seller and the
Issuer, resign at any time, in which event the Issuer will be obligated to use
its best efforts to appoint a successor Indenture Trustee. If no successor
Indenture Trustee has been appointed and has accepted the appointment within 30
days after giving such notice of resignation, the resigning Indenture Trustee,
the Issuer or the Noteholders evidencing at least a majority of the Security
Balance of the Notes may petition any court of competent jurisdiction for
appointment of a successor Indenture Trustee. The Indenture Trustee may also be
removed at any time (i) if the Indenture Trustee ceases to be eligible to
continue as such under the Indenture, (ii) if the Indenture Trustee becomes
insolvent or (iii) by the holders of a majority of the aggregate Security
Balance of the Notes upon written notice to the Indenture Trustee and to the
Seller. Any resignation or removal of the Indenture Trustee and appointment of a
successor Indenture Trustee will not become effective until acceptance of the
appointment by the successor Indenture Trustee.
REGISTRATION OF NOTES
Notes Owners may hold their Notes 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.
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The Notes will initially be registered in the name of CEDE & Co., the
nominee of DTC. 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 which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A. will act as depositary for Cedel and
The Chase Manhattan Bank will act as depositary for Euroclear (in such
capacities, individually the "Depositary" and collectively the "Depositaries").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants 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 system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant or 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 Notes, see "Certain Federal and
State Income Tax Consequences" and "Global Clearance, Settlement and Tax
Documentation Procedures" in Annex I hereto.
Note Owners who are not Participants but desire to purchase, sell or
otherwise transfer ownership of Notes may do so only through Participants or
indirect participants (unless and until Replacement Notes, as defined below, are
issued). In addition, Note Owners will receive all distributions of principal
of, and interest on, the Notes from the Indenture Trustee through DTC and
Participants. Note Owners will not receive or be entitled to receive
certificates representing their respective interests in the Notes, except under
the limited circumstances described below.
Unless and until Replacement Notes are issued, it is anticipated that the
only Noteholder of the Notes will be CEDE & Co., as nominee of DTC. Note Owners
will not be Noteholders as that term is used in the Indenture. Note Owners are
only permitted to exercise the rights of Noteholders indirectly through
Participants and DTC.
While the Notes are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Notes and is
required to receive and transmit distributions of principal of, and interest on,
the Notes. Participants and indirect participants with whom Note Owners have
accounts with respect to Notes are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Note Owners. Accordingly, although Note Owners will not possess
certificates, the Rules provide a mechanism by which Note Owners will receive
distributions and will be able to transfer their interests.
Unless and until Replacement Notes are issued, Note Owners who are not
Participants may transfer ownership of Notes only through Participants and
indirect participants by instructing such Participants and
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indirect participants to transfer Notes, by book-entry transfer, through DTC for
the account of the purchasers of such Notes, which account is maintained with
their respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Notes will be executed through DTC
and the accounts of the respective Participants at DTC will be debited and
credited. Similarly, the Participants and indirect participants will make debits
or credits, as the case may be, on their records on behalf of the selling and
purchasing Note Owners.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
1934 Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
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").
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilities 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 a number of
currencies, including United States dollars. Cedel provides to its 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. Indirect access to Cedel is also available to others, such as
banks, brokers dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in a number of 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 Euroclear 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. 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
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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 Notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See "Certain
Federal and State Income Tax Consequences". Cedel or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a
Noteholder under the Indenture on behalf of a 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.
Notes will be issued in registered form to Note Owners, or their nominees,
rather than to DTC (such Notes being referred to herein as "Replacement Notes"),
only if (i) DTC or HFC advises the Indenture Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as nominee and
depository with respect to the Notes and HFC or the Indenture Trustee is unable
to locate a qualified successor, (ii) HFC, at its sole option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default, DTC, at the direction of Class A and Class B Note Owners
evidencing at least a majority of the then outstanding Security Balance of each
such Class, advises DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of Note
Owners. Upon issuance of Replacement Notes to Note Owners, such Notes will be
transferable directly (and not exclusively on a book-entry basis) and registered
holders will deal directly with the Indenture Trustee with respect to transfers,
notices and distributions.
DTC has advised HFC and the Indenture Trustee that, unless and until
Replacement Notes are issued, DTC will take any action permitted to be taken by
a Noteholder under the Indenture only at the direction of one or more
Participants to whose DTC accounts the Notes are credited. DTC may take actions,
at the direction of the related Participants, with respect to some Notes which
conflict with actions taken with respect to other Notes.
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 Notes to pledge such Notes to persons or entities
that do not participate in the DTC system, or otherwise take actions in respect
of such Notes, may be limited due to the lack of a definitive certificate for
such Notes.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes 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.
In the event Replacement Notes are issued, transfers may be effected
through the Indenture Trustee or if Notes are listed on the Luxembourg Stock
Exchange, Banque Internationale a Luxembourg (the "Luxembourg Paying Agent").
Payments on Replacement Notes will be made by either the Indenture Trustee or if
Notes are listed on the Luxembourg Stock Exchange, the Luxembourg Paying Agent,
acting as a transfer agent.
ADMINISTRATION AGREEMENT
Pursuant to the Administration Agreement, the Administrator will perform
certain duties of the Issuer, Owner Trustee and Seller under the Indenture and
the Trust Agreement. Such duties include, but are not limited to, the
preparation, delivery and/or filing of required reports, notices, certificates,
tax returns, opinions and other documents as required under the Indenture or the
Trust Agreement. The Administrator will also monitor and advise the Owner
Trustee when action is required to comply with the Issuer's duties under such
agreements. Subject to certain limitations contained in the Administration
Agreement, the Administrator will
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indemnify the Indenture Trustee, Owner Trustee and Seller, and each of their
respective agents, for any loss, liability or expense incurred by reason of the
willful misconduct, gross negligence or bad faith of the Administrator in the
performance of its obligations under the Administration Agreement. A form of the
Administration Agreement is filed as an exhibit to the registration statement of
which this Prospectus is a part.
DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENT
The Receivables transferred to the Deposit Trust by the Seller are acquired
by the Seller from the Subservicers pursuant to the Receivables Purchase
Agreement between the Seller, as purchaser of the Receivables, and the
Subservicers, as owners of the Credit Line Agreements and sellers of the
Receivables. The Receivables Purchase Agreement is incorporated by reference as
an exhibit to the Registration Statement of which this Prospectus is a part.
Under the Receivables Purchase Agreement, the Subservicers agreed to sell or
transfer the Receivables to the Seller in accordance with the terms set forth
therein. Pursuant to the Pooling and Servicing Agreement, such balances are
immediately transferred by the Seller to the Deposit Trust. The Seller also
assigned its rights under the Receivables Purchase Agreement with respect to
such balances to the Deposit Trust. The following summary describes certain
terms of the Receivables Purchase Agreement and is qualified in its entirety by
reference to the Receivables Purchase Agreement.
SALE OF RECEIVABLES
Pursuant to the Receivables Purchase Agreement, the Subservicers have sold
or will sell to the Seller all their right, title and interest in and to all of
the Receivables, consisting of the Initial Receivables arising under the Credit
Line Agreements, all Additional Balances thereafter arising under such Credit
Line Agreements and the Receivables arising under each Aggregate Additional
Credit Line designated to the Deposit Trust, whether existing on the date a
Credit Line is designated or arising under such Credit Line thereafter. 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 each sale of the Receivables to the Seller, the
Subservicers indicate in their computer files that the Receivables have been
sold to the Seller by the Subservicers and that such Receivables have been sold
or transferred by the Seller to the Deposit Trust. In addition, the Subservicers
provide to the Seller a computer file or a microfiche list containing a true and
complete list showing each Credit Line, identified by account number and by
total outstanding balance on the applicable date of designation. The records and
agreements relating to the Credit Lines and Receivables are not segregated by
the Subservicers from other documents and agreements relating to other credit
line accounts and receivables and are not stamped or marked to reflect the sale
or transfer of the Receivables to the Seller. However, the computer records of
the Subservicers are marked to evidence such sale or transfer. The Subservicers
have filed UCC financing statements meeting the requirements of applicable state
laws in each of the jurisdictions in which such filings are required and will
make any subsequent filings required in order to maintain the lien priority with
respect to the Receivables in the Credit Lines. See "Risk Factors -- Sale of
Assets; Insolvency Considerations" and "Certain Legal Aspects of the
Receivables".
Pursuant to the Receivables Purchase Agreement, the Subservicers may agree
from time to time with the Seller to designate Aggregate Additional Credit
Lines. See "Description of Deposit Trust -- Additions of Credit Lines". The
purchase price for Credit Lines so designated will not be less than an amount
equal to the Principal Receivables conveyed by the Subservicers to the Seller
plus the present value of anticipated excess spread.
REPRESENTATIONS AND WARRANTIES
In the Receivables Purchase Agreement, each Subservicer severally, and not
jointly, represents and warrants to the Seller to the effect, among other
things, that as of the Initial Issuance Date and each date when Aggregate
Additional Credit Lines are designated to the Seller, that (a) the Receivables
Purchase Agreement constitutes a legal, valid and binding obligation of the
Subservicer, (b) as of each date of designation with respect to Aggregate
Additional Credit Lines, each Aggregate Additional Credit Line will be an
Eligible Credit Line, (c) as of each date of designation with respect to
Aggregate Additional Credit Lines, each Receivable generated thereunder is an
Eligible Receivable, and (d) the Receivables Purchase
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Agreement constitutes a valid sale to the Seller of all right, title and
interest of the Subservicers in and to the Receivables, existing and thereafter
created in the Credit Lines and in the proceeds thereof or, if held not to
constitute a sale, 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 reassignment of the Receivables, the
Subservicer that maintains the related Credit Line will repurchase such
Receivables from the Seller for an amount equal to the unpaid principal balance
thereof, plus accrued and unpaid finance charges from the last date billed
through the end of the current Collection Period.
CERTAIN COVENANTS
In the Receivables Purchase Agreement, the Subservicers covenant to perform
their obligations under the Credit Line Agreements and the Subservicers'
policies and procedures relating to the Credit Line Agreements, as they may be
amended from time to time. In that regard, the Subservicers may change the terms
and provisions of such Credit Line Agreements or policies and procedures in any
respect (including, without limitation, the calculation of the amount or timing
of charge-offs and changes in the Loan Rates), so long as the Subservicers
reasonably believe such action will not have an Adverse Effect on the
Securityholders and such changes are made in accordance with all applicable
laws.
In addition, the Subservicers expressly acknowledge and consent to the
Seller's assignment of its rights relating to the Receivables under the
Receivables Purchase Agreement to the Deposit Trustee for the benefit of the
holders of interests in the Deposit Trust. The Subservicers also agree, for the
benefit of the Deposit Trust, that any collections or Recoveries on the
Receivables received by the Subservicers will be paid to the Seller, or at the
request of the Seller, to the Servicer, as soon as practicable after receipt
thereof.
AMENDMENTS
The Receivables Purchase Agreement may be amended by the Seller and the
Subservicers without the consent of the holders or beneficiaries of any Series
Participation Interest, including the Securityholders. However, as certified by
the Seller, no such amendment may have an Adverse Effect on the Securityholders.
SALE OF CREDIT LINE AGREEMENTS
The Subservicers have the right to transfer their respective interests in
the Credit Line Agreements provided that (i) if such transferee is not an
affiliate of the Servicer, the Rating Agencies have notified the Seller and the
Subservicers that such transfer will not result in a reduction or withdrawal of
the rating of the Series 1997-1 Securities, and (ii) the purchaser agrees in
writing to assume all obligations of the applicable Subservicer as contained in
the Receivables Purchase Agreement.
TERMINATION
The Receivables Purchase Agreement will terminate immediately after the
Deposit Trust terminates. In addition, if a conservator, trustee or receiver is
appointed for the Subservicers, the Subservicers will immediately cease to sell
or transfer Receivables and Additional Balances to the Seller and promptly give
notice of such event to the Seller and to the Deposit Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Each of the Subservicers will sell the Receivables to the Seller and the
Seller, in turn, will transfer all Receivables to the Deposit Trust. Each of the
Subservicers will represent and warrant that its respective transfers to the
Seller constitute valid sales and assignments of all of its respective right,
title and interest in and to the Receivables. The Seller will represent and
warrant that each of its transfers constitute either a valid sale and assignment
to the Deposit Trust of all of its right, title and interest in and to the
Receivables, subject to its interest as holder of the Seller's Interest, or a
grant of a security interest to the Deposit Trust in and to
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the Receivables. In the event the assignment is held to be the grant of a
security interest, the Seller also represents and warrants that there will exist
a valid, subsisting and enforceable first priority perfected security interest
in the Receivables in favor of the Deposit Trust. Such perfected security
interest will be maintained until the Deposit Trust terminates. For a discussion
of the Deposit Trust's rights in the event these representations and warranties
are breached, see "Description of the Deposit Trust -- Representations and
Warranties".
Each of the Subservicers and the Seller will represent that the Receivables
are either "accounts" or "general intangibles" for purposes of the UCC. If a
transfer of the Receivables by a Subservicer or the Seller is deemed to be
either a sale of accounts or a transfer of accounts or general intangibles as
security for an obligation, such transfer will be treated under the UCC as
creating a security interest in such Receivables. In such case, the Deposit
Trust will have perfected its security interest in such Receivables by its and
the Seller's filing of the appropriate financing statements under the UCC. If
any transfer of the Receivables is deemed to be a sale of general intangibles,
then the UCC is not applicable and no further action under the UCC is required
to protect the Deposit Trust's interest in the Receivables from third parties.
There are certain limited circumstances under the UCC in which prior or
subsequent transferees of Receivables coming into existence after the Closing
Date could have an interest in such Receivables with priority over the Deposit
Trust's interest. A tax or other government lien on property of the Seller, or a
Subservicer may also have priority over the interest of the Deposit Trust in
such Receivables. Under the Receivables Purchase Agreement, however, each of the
Subservicers will warrant that it has transferred the Receivables to the Seller
free and clear of the lien of any third party. In addition, each of the
Subservicers will covenant that it will not sell, pledge, assign, transfer or
grant any lien on any Receivable (or any interest therein) other than to the
Seller.
CERTAIN MATTERS RELATING TO INSOLVENCY
Each of the Subservicers and the Seller believes that the transfers of the
Receivables pursuant to the Receivables Purchase Agreement are sales of the
Receivables. The Seller believes that the transfers of the Receivables pursuant
to the Pooling and Servicing Agreement are either sales of the Receivables to
the Deposit Trust or a grant to the Deposit Trust of a security interest in all
such Receivables. However, in the event of an insolvency of a Subservicer and/or
the Seller, it is possible that a receiver, conservator or trustee in bankruptcy
could, under the federal bankruptcy laws, challenge the Seller's and/or the
Deposit Trust's right to payments from, and ownership of, the Receivables, as
well as the Issuer's beneficial interest therein, under one or more of the
theories set forth below, or otherwise. Similarly, while the Seller believes its
assignment of the Series 1997-1 Participation to the Issuer is either a sale of,
or a grant of a security interest in, such asset or the Receivables, in the
event of the insolvency of the Seller or the Deposit Trust, a receiver,
conservator or trustee in bankruptcy possibly could challenge the Issuer's right
to remittances on the Series 1997-1 Participation. In such event, delays in
payments on the Series 1997-1 Securities and reductions in the amount of those
payments could occur.
A receiver, conservator or trustee in bankruptcy could attempt to
recharacterize any of the transactions between the Subservicers, the Seller and
the Deposit Trust as a loan of the purchase price from the purchaser of the
Receivables in conjunction with a pledge by the seller of the Receivables to
secure repayment of such loan. Based upon an opinion of Katten Muchin & Zavis,
special counsel to the Seller, that the conveyance of the Receivables by the
Subservicers to the Seller would be deemed a true sale of such assets, which
opinion is subject to various assumptions and qualifications set forth therein,
the Subservicers and the Seller believe that a trustee-in-bankruptcy or receiver
would be unable to successfully challenge the transfer of the Receivables from
the Subservicers to the Seller and the subsequent transfer to the Deposit Trust
or to interfere with the timely transfer to the Deposit Trustee of payments
received with respect to the Receivables. Moreover, even if a receiver,
conservator or trustee in bankruptcy were to so recharacterize any transfer of
the Receivables, if the security interest granted by a Subservicer or the
Seller, as the case may be, in the Receivables was validly perfected prior to
such party's insolvency, and was not taken in contemplation of such party's
insolvency, such security interest should not be subject to avoidance, and
payments to the Seller or the Deposit Trust, as the case may be, with respect to
the Receivables should not be subject to recovery by a receiver, conservator or
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trustee in bankruptcy. Nonetheless, a conservator, receiver or trustee in
bankruptcy could assert a contrary position.
Even accepting a transfer of the Receivables as a "true sale," a receiver,
conservator or trustee in bankruptcy could still attempt to avoid any such
transfer by employing the argument, developed by the Tenth Circuit in Octagon
Gas Systems, Inc. v. Rimmer, that accounts transferred in a "true sale" by a
seller to a buyer may nonetheless constitute property of the seller's bankruptcy
estate. Each of the Subservicers and the Seller believes that Octagon is
unlikely to be binding precedent as applied to any transfers of the Receivables
given that the Tenth Circuit's reasoning in the Octagon decision has not been
widely followed outside the Tenth Circuit and the transfers of the Receivables
do not have any particular link with the Tenth Circuit.
In addition, a receiver, conservator or trustee in bankruptcy could
challenge the validity or otherwise impair the benefits of a transfer of the
Receivables under federal bankruptcy laws on grounds including the following:
the transfer was made pursuant to an executory contract; the transfer was a
preferential payment made within certain periods prior to the filing of a
bankruptcy case; and/or the transfer was made between parties that should be
substantively consolidated.
Upon the appointment of a receiver, conservator or trustee in bankruptcy or
upon a voluntary liquidation with respect to the Seller (an "Insolvency Event"),
notice thereof will promptly be provided to the Deposit Trustee and the
Indenture Trustee, which will result in the occurrence of an Amortization Event.
Pursuant to the Pooling and Servicing Agreement, thereafter Additional Balances
will not be transferred to the Deposit Trust and the Deposit Trustee will
proceed to sell, dispose or otherwise liquidate the Receivables, unless holders
of in excess of 50% of the aggregate principal amount of all outstanding Series
Participation Interests otherwise direct. An Insolvency Event also triggers a
termination of the Issuer unless within a specified period of time holders of
more than 50% of the Security Balance of the Certificates instruct otherwise
(assuming that the receiver, conservator or trustee in bankruptcy does not order
such a sale despite such instructions). In the event such dissolution proceeds,
the Indenture Trustee will be directed to sell, dispose of or otherwise
liquidate the Series 1997-1 Participation in a commercially reasonable manner
and on commercially reasonable terms. The proceeds from the sale of the Series
1997-1 Participation will be treated as collections of the Receivables and
deposited into the Payment Account. This procedure could be delayed, as
described above. In addition, upon the occurrence of an Amortization Event, if a
receiver, conservator or trustee in bankruptcy, is appointed for the Seller and
no Amortization Event other than such appointment or insolvency of the Seller
exists, the receiver, conservator or trustee in bankruptcy may have the power to
prevent the early sale, liquidation or disposition of the Series 1997-1
Participation and the commencement of the Early Amortization Period. See
"Description of the Securities -- Early Amortization Period".
In addition, application of federal bankruptcy and state debtor relief laws
to any borrower could affect the interests of the Deposit Trust in any related
Receivables if the enforcement of such laws result in such Receivables conveyed
to the Deposit Trust being written off as uncollectible by the Servicer. Whether
or not any such Receivables are written off as uncollectible, delays in payments
due on such Receivables could result. See "Description of the Deposit Trust --
Representations and Warranties".
While HFC is the Servicer, cash collections held by HFC may, subject to
certain conditions, be commingled and used for the benefit of HFC prior to each
Distribution Date and, in the event of the insolvency or receivership of HFC or,
in certain circumstances, the lapse of certain time periods, the Deposit Trust
may not have a perfected interest in such collections. However, unless otherwise
agreed to by the applicable Rating Agency, if the commercial paper rating of HFC
is reduced below A-1 or P-1 by the applicable Rating Agency, HFC will, within
five business days, be required to commence the deposit of collections directly
into the Collection Account within two business days of the day of processing.
See "Description of the Deposit Trust -- Payments on Credit Lines; Deposits to
Collection Account".
The Seller will not engage in any activities except purchasing Receivables
from the Subservicers or other originators, forming the Deposit Trust or trusts
similar thereto, transferring Receivables to such trusts, causing the formation
of trusts such as the Issuer, causing such trusts to issue securities 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 Deposit Trustee or the holders of Series
Participation Interests from appointing a successor Servicer. See "Description
of the Deposit Trust -- Servicer Defaults" and "-- Rights Upon a Servicer
Default".
CONSUMER PROTECTION LAWS
The relationship of the borrower and the issuer of a credit line is
extensively regulated by federal and state consumer protection laws and
regulations. With respect to credit lines issued by the Subservicers, the most
significant federal laws include the Federal Truth-in-Lending, Equal Credit
Opportunity, Fair Credit Reporting, Fair Debt Collection Practices and Real
Estate Settlement Procedures Acts. These statutes and the regulations thereunder
impose various disclosure requirements, prohibit certain discriminatory
practices in extending credit and regulate practices followed in collections.
Congress and the states may enact new laws and amendments to existing laws to
regulate further the consumer credit industry.
The Deposit Trust may be liable for certain violations of consumer
protection laws that apply to the Receivables, either as assignee from the
Seller (as a Subservicer's assignee) with respect to obligations arising before
transfer of the Receivables to the Deposit Trust or as the party directly
responsible for obligations arising after the transfer. In addition, a borrower
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 holders of
interests therein) will be reassigned to the Seller. The Servicer has also
agreed in the Pooling and Servicing Agreement to accept assignment from the
Deposit Trust of Receivables existing under Credit Lines with respect to which
the Servicer has breached certain representations and warranties. See
"Description of the Deposit Trust -- Representations and Warranties".
POTENTIAL LEGISLATION
Legislation proposing new laws and amendments to existing laws can be
expected to be introduced in Congress and certain state and local legislatures
from time to time that, if enacted, would further regulate the consumer credit
industry. In particular, the issue of federal regulation of interest rates on
consumer loans continues to be debated, and there can be no assurance that such
a bill will not become law in the future. Congress and the states may also
propose and enact new laws and amendments to existing laws to regulate further
the consumer credit industry or to reduce finance charges or other fees or
charges applicable to consumer credit accounts. The potential effect of any such
legislation (which could affect the Subservicers) could be to reduce the yield
on the Credit Lines. If such yield is reduced, an Amortization Event could
occur, and the Early Amortization Period would commence. See "Description of the
Securities -- Early Amortization Period".
"DUE-ON-SALE" CLAUSES
All of the Personal Homeowner Credit Line Agreements contain due-on-sale
clauses. These clauses permit the related Subservicer to accelerate the maturity
of the loan on notice if the borrower sells, transfers or conveys an interest in
the property. The enforceability of these clauses has been the subject of
legislation or litigation in many states, and in some cases the enforceability
of these clauses was limited or denied. However, sec. 341 of the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibit the enforcement of many
due-on-sale clauses and permits lenders to enforce most of these clauses in
accordance with their terms, subject to certain limited exceptions.
Exempted from the general rule of enforceability of due-on-sale clauses are
mortgage loans (originated other than by federal savings and loan associations
and federal savings banks) that were made during the period beginning on the
date a state, by statute or final appellate court decision having statewide
effect, prohibited the exercise of due-on-sale clauses and ending October 15,
1982 ("Window Period Loans").
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However, this exception applies only to transfers of property which secure
Window Period Loans occurring between October 15, 1982 and October 15, 1985 and
does not restrict enforcement of a due-on-sale clause in connection with
transfers of property which secure Window Period Loans occurring after October
15, 1985 unless the property which secures such Window Period Loans is located
in one of the five states identified below.
Therefore, most standard due-on-sale clauses have become generally
enforceable except in those states whose legislatures exercised their authority
after October 15, 1982 to restrict the enforceability of such clauses with
respect to mortgage loans that were (i) originated or assumed after the date a
state prohibited enforcement of due-on-sale clauses and before October 15, 1982,
and (ii) originated by lenders other than national banks, federal savings
institutions and federal credit unions. The Federal Home Loan Mortgage
Corporation has taken the position in its published mortgaged servicing
standards that five states (Arizona, Michigan, Minnesota, New Mexico and Utah)
have enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of Window Period Loans.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intrafamily transfers, certain transfers by
operation of law, leases of fewer than three years with no option to purchase,
and the creation of a junior encumbrance.
To the extent a Subservicer becomes aware of a conveyance of a borrower's
interest in a property securing a Personal Homeowner Credit Line, if the
Subservicer is unable to establish a new credit line with the borrower to prepay
the Personal Homeowner Credit Line, the Subservicer generally will enforce the
due-on-sale clause to the extent permissible by law.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have the priority over all subsequent liens on the property
and, in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and possibly under state law in a number of states, a secured party
which takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale may be liable for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is uncertain whether they would be
imposed on a secured lender (such as the Deposit Trust). In the event that title
to a property securing a Personal Homeowner Credit Line was acquired on behalf
of the Deposit Trust and cleanup costs were incurred in respect of the property,
the Securityholders may incur a loss if such costs were required to be paid by
the Deposit Trust.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
GENERAL
Set forth below is a discussion of the anticipated material United States
federal and state income tax consequences of the purchase, ownership and
disposition of the Notes offered hereunder. This discussion is based upon
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury regulations thereunder, the laws of
various states, current administrative rulings, judicial decisions and other
applicable authorities. There are no cases or Internal Revenue Service ("IRS")
rulings on similar transactions involving both debt and equity interests issued
by a trust with terms similar to those of the Series 1997-1 Securities. As a
result, there can be no assurance that the IRS will not challenge the
conclusions reached herein, and no ruling from the IRS has been or will be
sought on any of the issues discussed below. Furthermore, legislative, judicial
or administrative changes may occur, perhaps with retroactive effect, which
could affect the accuracy of the statements and conclusions set forth herein as
well as the tax consequences to Noteholders.
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This discussion is directed to prospective purchasers who purchase Notes in
the initial distribution thereof, including corporations and partnerships, and
who hold the Notes as "capital assets" within the meaning of Section 1221 of the
Code. It does not purport to deal with all aspects of federal income taxation
that may be relevant to the Noteholders in light of their personal investment
circumstances nor, except for certain limited discussion of particular topics,
to certain types of holders subject to special treatment under the federal
income tax laws (e.g., financial institutions, broker-dealers, life insurance
companies and tax-exempt organizations). ACCORDINGLY, PROSPECTIVE INVESTORS
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL,
FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF SECURITIES.
TAX CHARACTERIZATION OF THE DEPOSIT TRUST AND THE ISSUER
With respect to each series of Notes, Katten Muchin & Zavis, special
counsel to the Seller ("Tax Counsel"), has opined that for federal income tax
purposes, neither the Deposit Trust nor the Issuer will be (i) classified as an
association taxable as a corporation or (ii) subject to corporate taxation under
the rules governing publicly traded partnerships. This opinion is based upon,
among other things, the assumption that the terms of the trust agreements for
the Deposit Trust and the Issuer and related agreements will be complied with in
all material respects.
Tax Counsel's opinions are not binding upon the IRS. If the Deposit Trust
were taxable as a corporation for income tax purposes, the income from the
Receivables would be subject to federal and state taxation at the highest
marginal rates for corporations, probably with no offset for distributions to
the Seller or the Issuer. If the Issuer were also to be taxable as a
corporation, it might be able to reduce its taxable income on distributions of
earnings from the Deposit Trust by its interest expense on the Notes and the
dividend received deduction. However, the overall effect of such
recharacterization of the Deposit Trust and the Issuer would be to reduce
materially the cash available to make payments due on the Notes.
Under Code Section 7704, a "publicly traded partnership" is subject to
taxation as a corporation unless substantially all its income falls within
certain categories. In 1988, the Treasury issued Notice 88-75 containing
guidelines for the disposition of partnership interests which, if followed,
prevent the IRS from characterizing a partnership as "publicly traded" and
thereby subjecting it to taxation as a corporation. In 1995, the Treasury
promulgated regulations under Section 7704 which supersede Notice 88-75 with
respect to the Issuer immediately, and with respect to the Deposit Trust after
2005. The trust agreements for the Deposit Trust and the Issuer contain
restrictions on the conditions for investing in and disposing of beneficial
interests that meet the applicable guidelines and regulations. The trust
agreements also further authorize the Seller to modify the terms for the
disposition of beneficial interests in the Deposit Trust and the Issuer if
necessary or advisable for compliance with any subsequent governmental
regulations, rulings or notices, and any judicial decisions, affecting the
characterization of a partnership as "publicly traded."
When asset-backed securities are issued in two or more classes by any
entity substantially all of whose assets consist of debt obligations, the entity
will be subject to the "taxable mortgage pool" rules of Code Section 7701(i) if,
among other factors, more than 50% of the debt obligations it holds at the time
of issuance of the asset-backed securities consist of loans secured by interests
in real estate. A taxable mortgage pool is subject to taxation as a corporation.
The Pooling and Servicing Agreement prohibits the Deposit Trust from acquiring
Receivables secured by liens on real estate if such acquisition would cause the
tax basis of such Receivables to amount to 45% or more of the aggregate tax
bases of all Receivables held directly and beneficially by the Deposit Trust and
to obtain an opinion of tax counsel prior to the issuance of any new Series
Participation or other asset-backed securities that such action will not cause
the Deposit Trust, the Issuer or any portion of either to be a taxable mortgage
pool.
The IRS has adopted so-called "check-the-box" regulations which permit the
Deposit Trust and the Issuer to be treated as a partnership for federal income
tax purposes, even if such trusts had the characteristics of an association
taxable as a corporation under prior law, such as (i) limited liability for the
Seller and (ii) continuity of life notwithstanding an Insolvency Event affecting
the Seller. In the event such regulations
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or their equivalent are adopted at state levels as well, the Pooling and
Servicing Agreement and the Trust Agreement may be amended by the Seller and the
Trustee thereof to permit those corporate attributes.
THE NOTES
Characterization as Debt. With respect to each class of Class A Notes, Tax
Counsel has opined that, although no specific authority exists with respect to
the characterization for federal income tax purposes of securities having the
same terms as the Notes, the Notes will be treated as debt for federal income
tax purposes. The Issuer, the Seller and each Noteholder, by acquiring an
interest in a Note, will agree to treat the Notes as indebtedness for federal,
state and local income and franchise tax purposes.
Interest Income to Noteholders. If the Notes are treated as indebtedness
for federal income tax purposes, then interest on the Notes will be taxable as
ordinary income for Federal income tax purposes when received by Noteholders
utilizing the cash method of accounting and when accrued by Noteholders
utilizing the accrual method of accounting. Interest received on the Notes may
constitute "investment income" for purposes of certain limitations of the Code
concerning the deductibility of investment interest expense.
Original Issue Discount, Market Discount and Premium. It is not anticipated
that any series of Notes will be issued at a greater than de minimis discount (a
yield to the stated or expected maturity of less than .25% per year). However,
even if a Note has OID falling within the de minimis exception, the holder must
include such OID in income proportionately as principal payments are made on
such Note. A holder who purchases a Note after the initial distribution thereof
at a discount that exceeds a statutorily defined de minimis amount will be
subject to the "market discount" rules of the Code, and a holder who purchases a
Note at a premium will be subject to the bond premium amortization rules of the
Code.
Disposition of Notes. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of the Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount and gain previously
included by such Noteholder in income with respect to the Note and decreased by
any bond premium previously amortized and any principal payments previously
received by such Noteholder with respect to such Note. Subject to the market
discount rules of the Code, any such gain or loss will be capital gain or loss
if the Note was held as a capital asset. Capital gain or loss will be long-term
if the Note was held by the holder for more than one year and otherwise will be
short-term. Any capital losses realized generally may be used by a corporate
taxpayer only to offset capital gains, and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income.
Tax Consequences to Foreign Noteholders. Notes will be issued in registered
form. If interest paid (or accrued) to a Noteholder who is a nonresident alien,
foreign corporation or other non-United States person (a "foreign person") is
not effectively connected with the conduct of a trade or business within the
United States by the foreign person, the interest generally will be considered
"portfolio interest," and generally will not be subject to United States federal
income tax and withholding tax, as long as the foreign person (i) is not
actually or constructively a "10 percent shareholder" of the Issuer (including a
direct or indirect holder of 10% or more of the applicable outstanding
Certificates or of the Seller's stock) or a "controlled foreign corporation"
with respect to which the Issuer is a "related person" within the meaning of the
Code, and (ii) provides to the Issuer or its paying agent an appropriate
statement on IRS Form W-8 or its substantial equivalent, signed under penalties
of perjury, certifying that the beneficial owner of the Note is a foreign person
and providing that foreign person's name and address. (Investors who hold their
Notes through Participants, indirect participants or other nominees must provide
their certifications to such nominee.) If the information provided in this
statement changes, the foreign person must so inform the Issuer within 30 days
of such change. The statement generally must be provided in the year a payment
occurs or in either of the two preceding years, and therefore must be renewed
triennially. If such interest were not portfolio interest, then it would be
subject to United States federal income and withholding tax at a rate of 30
percent unless such tax is reduced or eliminated pursuant to an applicable tax
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the
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gain is not effectively connected with the conduct of a trade or business in the
United States by the foreign person, and (ii) in the case of an individual, the
foreign person is not present in the United States for 183 days or more in the
taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person, the holder (although exempt from the withholding
tax previously discussed if an appropriate statement is furnished) generally
will be subject to United States federal income tax on the interest, gain or
income at regular federal income tax rates. In addition, if the foreign person
is a foreign corporation, it may be subject to a branch profits tax equal to 30
percent of its "effectively connected earnings and profits" within the meaning
of the Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty.
Information Reporting and Backup Withholding. The Issuer will be required
to report annually to the IRS, and to each related Noteholder of record, the
amount of interest paid on the Notes (and the amount of interest withheld for
federal income taxes, if any) for each calendar year, except as to exempt
holders (generally, corporations, tax-exempt organizations, qualified pension
and profit-sharing trusts, and individual retirement accounts). Each holder
(other than holders who are not subject to the reporting requirements, or
foreign persons who provide certification as to their status as described above)
will be required to provide to the Issuer, under penalties of perjury, a
certificate on IRS Form W-9 or its equivalent containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Issuer will be required to withhold,
from interest and OID otherwise payable to the holder, 31% of such amounts and
remit the withheld amounts to the IRS as a credit against the holder's federal
income tax liability. Such Noteholders will receive payments without gross up
for amounts withheld and neither the Issuer, Seller, Servicer, Indenture Trustee
or any other party will have an obligation to pay a Noteholder any additional
amount due to the imposition of any withholding tax. If the holder of record of
Notes is CEDE, as nominee for DTC, Noteholders and the IRS will receive tax and
other information only from Participants and indirect participants rather than
from the Issuer. Similarly, investors who hold their Notes through a
Participant, indirect participant or other nominee must provide their
certifications to such nominee.
STATE AND LOCAL INCOME AND FRANCHISE TAX CONSEQUENCES
Taxation of the Deposit Trust and the Issuer. Some states in which obligors
are located or the Deposit Trust conducts its collection activities may impose
an income or franchise tax on the Deposit Trust or on the Issuer,
notwithstanding their avoidance of taxation as a corporation for federal income
tax purposes. Such taxes are not now material, but are subject to change at any
time. As to the consequences under state law of the Deposit Trust or the Issuer
being taxable as a corporation, see "Tax Characterization of The Deposit Trust
and The Issuer", above.
Taxation of Note Owners. If, in accordance with the opinion of Tax Counsel,
the Notes are characterized as indebtedness for federal income tax purposes,
Note Owners that are subject to taxation generally will be taxed on the income
and gain realized from their Notes in the locality of their commercial domicile
or residence, as applicable. Prospective investors should consult with their own
tax advisors as to the state and local income and franchise tax consequences of
an investment in the Notes.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and Code Section 4975 impose certain restrictions on employee benefit plans
subject to ERISA or plans or arrangements subject to Code Section 4975 (a
"Plan") and on persons who are parties in interest or disqualified persons
("party in interest") with respect to such a Plan. In addition, ERISA imposes a
fiduciary duty on any person who is considered to be a fiduciary (as defined in
ERISA) with respect to a Plan ("fiduciary"). Certain employee benefit plans,
such as governmental plans and church plans (if no election has been made under
Code Section 410(d)), are not subject to the restrictions of ERISA, and assets
of such plans may be invested
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in the Notes 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 Code Section 401(a) and exempt from
taxation under Code Section 501(a) is subject to the prohibited transaction
rules set forth in Code Section 503. Investments by a Plan are also subject to
ERISA's general fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a Plan's investments be
made in accordance with the documents governing the Plan. ANY PLAN FIDUCIARY
WHICH PROPOSES TO CAUSE A PLAN TO ACQUIRE ANY OF THE NOTES SHOULD CONSULT WITH
ITS COUNSEL WITH RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA, AND THE
CODE, OF THE PLAN'S ACQUISITION AND OWNERSHIP OF THE NOTES.
PROHIBITED TRANSACTIONS AND FIDUCIARY DUTY
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain direct or indirect transactions (including loans) or
self-dealing transactions ("prohibited transaction") involving a Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. Code Section 4975 imposes certain excise taxes (or, in some cases,
a civil penalty may be assessed against a fiduciary pursuant to Section 502(i)
and 502(l) of ERISA) on parties in interest which engage in similar non-exempt
prohibited transactions. Section 409 of ERISA imposes personal liability upon a
fiduciary who breaches a fiduciary duty with respect to a Plan. With respect to
the assets of the Issuer, it is not anticipated that there will be any
transaction which is a prohibited transaction with a party in interest with
respect to a Noteholder who is a Plan for the reasons discussed below under the
"Plan Asset Regulation."
In addition, the acquisition or holding of Notes by or on behalf of a Plan
would in some circumstances be considered to give rise to a prohibited
transaction or a breach of a fiduciary duty (1) if the Seller, the Issuer, the
applicable Trustee, the Servicer, the Underwriter, or any of their respective
affiliates is or becomes a fiduciary or party in interest with respect to such
Plan; or (2) if the sponsor of such Plan is a Certificateholder or intends to
purchase any Certificate. Certain exemptions from the prohibited transaction
rules granted by the U.S. Department of Labor could be applicable to the
purchase and holding of Notes by a Plan depending on the type and circumstances
of the plan fiduciary making the decision to acquire such Notes. Included among
these exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-1,
regarding investments by insurance company pooled separate accounts; PTCE 91-38,
regarding investments by bank collective investment funds; PTCE 84-14, regarding
transactions effected by "qualified professional asset managers;" PTCE 75-1,
regarding investments in principal transactions and during underwritings, PTCE
95-60, regarding transactions involving insurance company general accounts; and
PTCE 96-23, regarding transactions effected by an "in-house asset manager."
Moreover, in Public Law 104-188, ERISA was amended to provide interim relief
from Part 4 of ERISA and Code Section 4975 with respect to most claims that the
assets contained in a general account of an insurance company constitute assets
of a Plan. Neither the Issuer nor Katten Muchin & Zavis ("ERISA Counsel")
expresses any opinion as to the applicability of any of the above exemptions or
interim relief to the acquisition of or holding of Notes by a Plan.
PLAN ASSET REGULATION
The United States Department of Labor ("Labor") has issued final
regulations concerning the definition of what constitutes the assets of a Plan
for purposes of ERISA and the prohibited transaction provisions (the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be subject
to regulation by ERISA ("plan assets") such that any person who exercises
control over such plan assets would be subject to ERISA's fiduciary standards
and transactions involving such assets would be subject to the prohibited
transaction rules. Under the Plan Asset Regulation, generally when a Plan
invests in another entity, the Plan's assets do not include, solely by reason of
such investment, any of the underlying assets of the entity. However, the Plan
Asset Regulation provides that, if a Plan acquires an "equity interest" in an
entity that is neither a "publicly-offered security" (as defined therein) nor a
security issued by an investment company registered under the Investment Company
Act of 1940, the assets of the entity will be treated as assets of the Plan
investor and thus plan assets unless certain exceptions apply. If the Notes were
deemed to be equity interests and no statutory, regulatory or
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administrative exemption applies, the Issuer could be considered to hold plan
assets by reason of a Plan's investment in the Notes. Such plan assets would
include an undivided interest in any assets held by the Issuer. In such an
event, the Trustee, Seller, Servicer, Underwriter and other persons, in
providing services with respect to the Issuer's assets, may be a fiduciary or a
party in interest with respect to such Plan, subject to the fiduciary
responsibility provisions of ERISA, and the prohibited transaction provisions of
Section 406 of ERISA and the Code, with respect to transactions involving the
Issuer's assets. Under the Plan Asset Regulation, the term "equity interest" is
defined as any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, Labor
has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Assets Regulation, Labor declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services. ERISA
Counsel has rendered its opinion that the Class A Notes, based upon the plain
language of the Plan Assets Regulation, will be classified as indebtedness,
under the laws of the State of New York governing indebtedness, without
substantial equity features for ERISA purposes. ERISA Counsel's opinion is based
upon the terms of the Class A Notes, its opinion as Tax Counsel that the Class A
Notes will be classified as debt instruments for federal income tax purposes,
the ratings which have been assigned to the Notes, and the collateral securing
the Class A Notes. However, if contrary to ERISA Counsel's opinion the Class A
Notes are not deemed to be indebtedness without substantial equity features and
no statutory, regulatory or administrative exemption applies, the Issuer could
be considered to hold plan assets by reason of a Plan's investment in the Class
A Notes.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Notes on behalf of a
Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment. Among other things, before purchasing any Notes, a
fiduciary of a Plan should make its own determination as to whether (i) the
Seller, the Issuer, the applicable Trustee, the Servicer, the Underwriters or
any of their respective affiliates, is a party in interest with respect to the
Plan, (ii) the Plan's sponsor is a Certificateholder, (iii) the availability of
the exemptive relief provided in the Plan Asset Regulations and (iv) the
availability of any other prohibited transaction exemptions.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated , 1997 (the "Underwriting Agreement") among the Seller, the
Subservicers, HFC and the Underwriters named below (the "Underwriters"), the
Seller has agreed to sell to the Underwriters and each of the Underwriters has
agreed to purchase, the principal amount of the Notes set forth opposite its
name below.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3
UNDERWRITERS NOTES NOTES NOTES
------------ ------------ ----------- -----------
<S> <C> <C> <C>
Lehman Brothers Inc. ................................... $ $ $
Bear, Stearns & Co. Inc. ...............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..............................
J.P. Morgan Securities Inc. ............................
------------ ----------- -----------
Total.............................................. $ $ $
============ =========== ===========
</TABLE>
86
<PAGE> 89
The Underwriters propose to offer the Class A Notes in part directly to
purchasers at the initial public offering prices set forth on the cover page of
this Prospectus and in part to certain securities dealers at such prices less
concessions not to exceed %, % and % of the respective Security
Balance of the Class A-1, Class A-2 and Class A-3 Notes. The Underwriters may
allow, and such dealers may reallow, concessions not to exceed %, % and
% of the respective Security Balance of the Class A-1, Class A-2 and Class
A-3 Notes, to certain brokers and dealers. After the Class A Notes are released
for sale to the public, the offering price and other selling terms may be varied
by the Underwriters.
The Seller and HFC have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon for the
Seller by John W. Blenke, Vice President -- Corporate Law and Assistant
Secretary of Household International, Inc., the parent company of HFC and the
Seller, and by Katten Muchin & Zavis, Chicago, Illinois, special counsel to the
Seller. Certain legal matters will be passed upon for the Underwriters by Brown
& Wood 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
beneficially owns, and holds options to purchase, shares of Common Stock of
Household International, Inc.
ADDITIONAL INFORMATION
Application will be made to list the Notes on the Luxembourg Stock
Exchange. The legal notice relating to the issue of the Notes and copies of the
respective constitutional documents of the Issuer will be lodged with the Chief
Registrar of the District Court in Luxembourg ("Grettier en Chef du Tribunal
d'Arrondissement de et a Luxembourg"), where such documents may be inspected and
copies thereof obtained. The Issuer has undertaken to maintain a paying agent in
Luxembourg so long as the Notes are listed on the Luxembourg Stock Exchange.
All consents, approvals, authorizations or other orders of all regulatory
authorities required by the Issuer under applicable laws have been given for the
issue of the Notes and for the Issuer to undertake and perform its obligations
under the Trust Agreement, the Indenture and the Notes.
The issuance of the Notes has been authorized by a resolution of the Board
of Directors of the Seller passed on .
The Issuer is not involved in any litigation, arbitration or administrative
proceedings relating to claims or amounts which are material in the context of
the issue of the Notes nor, to the best of its knowledge, are any such
litigation, arbitration or administration proceedings pending or threatened.
The Notes have been accepted for clearance through Euroclear and Cedel with
a common code of . The ISIN (International Securities Identification
Number) for the Notes is XS00 .
So long as the Notes are listed on the Luxembourg Stock Exchange, copies of
the constitutional documents of the Issuer and copies of the Trust Agreement and
the Indenture may be inspected at, or may be obtained from, the Luxembourg
Paying Agent during business hours.
87
<PAGE> 90
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
1934 Act.................................................... 2
Accelerated Amortization Date............................... 11
Accelerated Principal Payment Amount........................ 16, 64
Additional Balances......................................... 9
Additional Credit Lines..................................... 26
Adjusted Security Balance................................... 64
Administration Agreement.................................... 6
Administrative Charges...................................... 29
Administrative Receivables.................................. 7
Administrator............................................... 6
Adverse Effect.............................................. 54
Aggregate Additional Credit Lines........................... 26, 51
Allocation Percentage....................................... 43
Amortization Event.......................................... 11, 67
Bankruptcy Code............................................. 24
Business Day................................................ 62
Cedel....................................................... 17
Certificateholders.......................................... 19
Certificate Minimum Balance................................. 64
Certificate Rate............................................ 13, 66
Certificate Targeted Balance................................ 64
Certificates................................................ 1, 4
Class A Note Rate........................................... 12
Class A Notes............................................... Cover, 4
Class A-1 Notes............................................. 4
Class A-2 Notes............................................. 4
Class A-3 Notes............................................. 4
Class A-1 Targeted Principal Balance........................ 64
Class A-2 Targeted Principal Balance........................ 64
Class A-3 Targeted Principal Balance........................ 64
Class B Notes............................................... 4
Class B Targeted Principal Balance.......................... 65
Closing Date................................................ 13, 66
Code........................................................ 19, 81
Collection Account.......................................... 11, 55
Collection Period........................................... 11
Commission.................................................. 2
Credit Limit................................................ 29
Credit Line Agreement....................................... 35
Credit Lines................................................ 1, 6
Cut-Off Date................................................ 9
Cycle Date.................................................. 30
Defaulted Amount............................................ 9, 57
Defaulted Credit Line....................................... 9, 57
Deposit Trust............................................... 1, 5, 48
Deposit Trustee............................................. 1, 49
Depositaries................................................ 17, 73
Determination Date.......................................... 18, 62
Discount Percentage......................................... 8, 22, 54
Distribution Date........................................... 61
DTC......................................................... 2, A-1
Early Amortization Period................................... 11, 67
Eligible Account............................................ 55
Eligible Credit Line........................................ 27
Eligible Receivable......................................... 51
</TABLE>
88
<PAGE> 91
<TABLE>
<S> <C>
ERISA....................................................... 19, 84
ERISA Counsel............................................... 85
Euroclear................................................... 17
Events of Default........................................... 69
Final Payment Date.......................................... 13
Finance Charge and Administrative Receivables............... 7
Finance Charge Receivables.................................. 7
Fixed Allocation Percentage................................. 56
Fixed Rate Credit Line...................................... 30
Floating Allocation Percentage.............................. 56
Global Securities........................................... A-1
HFC......................................................... 5
Holders..................................................... 18
Indenture................................................... 1, 4
Indenture Trustee........................................... 1, 4
Index Rate.................................................. 30
indirect participants....................................... 74
Ineligible Receivables...................................... 51
Initial Credit Lines........................................ 6
Initial Cut-Off Date........................................ 6
Initial Issuance Date....................................... 6
Initial Overcollateralization Amount........................ 16, 67
Initial Overcollateralization Percentage.................... 16, 67
Initial Receivables......................................... 6
Initial Series 1997-1 Participation Invested Amount......... 9, 43, 50
IRS......................................................... 81
Insolvency Event............................................ 23, 79
Interest Collections........................................ 11, 56
Interest Period............................................. 13, 66
Issuer...................................................... 1, 4
Labor....................................................... 85
LIBOR....................................................... 13, 66
LIBOR Business Day.......................................... 67
Loan Rate................................................... 30
Luxembourg Paying Agent..................................... 75
Margin...................................................... 30
Minimum Security Balance.................................... 65
Minimum Monthly Payment..................................... 30
Minimum Principal Amount.................................... 62
Moody's..................................................... 55
Net Charge-Off.............................................. 65
Net Principal Collections................................... 10, 43, 56
New Credit Lines............................................ 27
Note Owners................................................. 2, 17
Note Rate................................................... 12, 66
Noteholders................................................. 18, 62
Notes....................................................... 1
Optimum Monthly Principal................................... 65
Overcollateralization Amount................................ 16, 65, 67
Owner Trustee............................................... 1
Participants................................................ 74
Participation Pass-Through Rate............................. 12, 61
Paying Agent................................................ 68
Payment Account............................................. 62
Payment Date................................................ 1, 12, 62
Personal Homeowner Credit Line.............................. 28
Personal Unsecured Credit Line.............................. 28
</TABLE>
89
<PAGE> 92
<TABLE>
<S> <C>
Plan........................................................ 19, 84
Pool Balance................................................ 9, 57
Pooling and Servicing Agreement............................. 5
Portfolio................................................... 6
Preferred Stock............................................. 5, 49
Prime Rate.................................................. 61
Principal Balance........................................... 9, 57
Principal Collections....................................... 11, 56
Principal Discount.......................................... 8
Principal Receivables....................................... 7
Rating Agency............................................... 24
Rating Agency Condition..................................... 26
Receivables................................................. 7
Receivables Purchase Agreement.............................. 6
Recency Charge-off Policy................................... 32
Record Date................................................. 18, 62
Recoveries.................................................. 32, 56
Reference Bank Rate......................................... 66
Removal Notice.............................................. 54
Removed Credit Lines........................................ 7
Replacement Notes........................................... 75
Reversals................................................... 66
Security Balance............................................ 65
Securityholders............................................. 58
Seller...................................................... 1, 5, 27, 53
Seller's Bankruptcy Initiatives............................. 49
Seller's Interest........................................... 5, 50
Seller's Trust Amount....................................... 52
Series...................................................... 5
Series Enhancement.......................................... 17
Series Participation Interest............................... 5
Series 1997-1 Cut-Off Date.................................. 8
Series 1997-1 Participation................................. 1, 5
Series 1997-1 Participation Interest Distribution Amount.... 12
Series 1997-1 Participation Invested Amount................. 9, 43, 50
Series 1997-1 Participation Principal Distribution Amount... 12, 50
Series 1997-1 Securities.................................... 1
Series 1997-1 Supplement.................................... 49
Servicer.................................................... 1, 5, 28
Servicer Credit Facility.................................... 55
Servicing Fee............................................... 18, 57
Servicing Guidelines........................................ 31
Servicer Default............................................ 59
Standard & Poor's........................................... 55
Subservicer................................................. 6, 27
Supplemental Certificate.................................... 53
Tax Counsel................................................. 82
Telerate Screen Page 3750................................... 66
Transfer Price.............................................. 53
Trust Agreement............................................. 1, 4
Trust Assets................................................ 5
UCC......................................................... 23
Underwriters................................................ 86
Underwriting Agreement...................................... 86
Variable Rate Credit Line................................... 30
</TABLE>
90
<PAGE> 93
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Household
Consumer Loan Asset Backed Notes, Series 1997-1 (the "Global Securities") will
be available only in book-entry form. Investors in the Global Securities may
hold such Global Securities through any of The Depository Trust Company ("DTC"),
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior asset backed issues.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their Participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
CEDE & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior asset backed issues. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior asset
backed securities issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the
A-1
<PAGE> 94
respective Depositary, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date, on the basis of (i) the actual number of days in such accrual period and a
year assumed to consist of 360 days. For transactions settling on the 31st of
the month, payment will include interest accrued to and excluding the first day
of the following month. Payment will then be made by the respective Depositary
of the DTC Participant's account against delivery of the Global Securities.
After settlement has been completed, the Global Securities will be credited to
the respective clearing system and by the clearing system, in accordance with
its usual procedures, to the Cedel Participant's or Euroclear Participant's
account. The securities credit will appear the next day (European time) and the
cash debt will be back-valued to, and the interest on the Global Securities will
accrue from, the value date (which would be the preceding day when settlement
occurred in New York). If settlement is not completed on the intended value date
(i.e., the trade fails), the Cedel or Euroclear cash debt will be valued instead
as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of (i) the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be backed-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
A-2
<PAGE> 95
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owners
or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owners of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust subject to the primary jurisdiction of
a U.S. court and having one or more U.S.
A-3
<PAGE> 96
fiduciaries with authority to control all substantial decisions. This summary
does not deal with all aspects of U.S. federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities.
ANNEX II
PRIOR ISSUANCE OF SERIES PARTICIPATION INTERESTS
The Deposit Trust has previously issued three Series Participation
Interests, the Series 1995-1 Participation, the Series 1996-1 Participation and
the Series 1996-2 Participation. The table below sets forth the characteristics
of each of these Participations. For more specific information with respect to
these Series Participation Interests, prospective investors should contact the
Servicer.
SERIES 1995-1 PARTICIPATION
Issuance Date: September 28, 1995
Initial Series 1995-1 Participation Invested Amount: $1,000,000,000
Minimum Participation Pass-Through Rate: Prime Rate, less 1.50%
SERIES 1996-1 PARTICIPATION
Issuance Date: March 26, 1996
Initial Series 1996-1 Participation Invested Amount: $840,000,000
Minimum Participation Pass-Through Rate: Prime Rate, less 1.50%
SERIES 1996-2 PARTICIPATION
Issuance Date: August 26, 1996
Initial Series 1996-2 Participation Invested Amount: $1,044,800,000
Minimum Participation Pass-Through Rate: Prime Rate, less 1.50%.
A-4
<PAGE> 97
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER, HFC OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
SELLER, HFC OR THE ISSUER SINCE SUCH DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... 2
Incorporation of Certain Documents by
Reference............................. 2
Financial Information................... 2
Reports to the Noteholders.............. 2
Table of Contents....................... 3
Prospectus Summary...................... 4
Risk Factors............................ 21
Deposit Trust Risk Factors.............. 25
The Seller and Subservicers............. 27
The Servicer............................ 28
Use of Proceeds......................... 28
The HFC Revolving Consumer Credit
Lines................................. 28
The Revolving Consumer Credit Lines..... 35
The Series 1997-1 Participation......... 43
Maturity and Prepayment
Considerations........................ 44
Description of the Deposit Trust........ 48
Description of the Securities........... 62
Description of the Receivables Purchase
Agreement............................. 76
Certain Legal Aspects of the
Receivables........................... 77
Certain Federal and State Income Tax
Consequences.......................... 81
ERISA Considerations.................... 84
Underwriting............................ 86
Legal Matters........................... 87
Additional Information.................. 87
Index of Defined Terms.................. 88
Global Clearance, Settlement and Tax
Documentation Procedures.............. A-1
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE NOTES, 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.
======================================================
======================================================
$729,600,000
CLASS A-1 NOTES
$48,000,000
CLASS A-2 NOTES
$62,400,000
CLASS A-3 NOTES
HOUSEHOLD CONSUMER
LOAN TRUST 1997-1
HOUSEHOLD CONSUMER LOAN
ASSET BACKED NOTES,
SERIES 1997-1
HOUSEHOLD FINANCE
CORPORATION
SERVICER
---------------------------
PROSPECTUS
February , 1997
---------------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
======================================================
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 OF FORM S-1 AND ITEM 14 OF FORM S-3. OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred by Household
Consumer Loan Corporation in connection with the issuance and distribution of
the Certificates.
<TABLE>
<S> <C>
SEC Filing Fee.............................................. $254,645.46*
Trustee's Fees and Expenses................................. 16,500.00
Legal Fees and Expenses..................................... 62,500.00
Accounting Fees and Expenses................................ 60,000.00
Printing and Engraving Expenses............................. 50,000.00
Blue Sky Qualification and Legal Investment Fees and
Expenses.................................................. 16,000.00
Rating Agency Fees.......................................... 420,000.00
Miscellaneous............................................... 20,354.54
-----------
Total............................................. $900,000.00
===========
</TABLE>
- ---------------
* Actual.
II-1
<PAGE> 99
ITEM 16 OF FORM S-1. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND ITEM 16 OF
FORM S-3. EXHIBITS.
(a) EXHIBITS
<TABLE>
<S> <C> <S>
1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation, as amended, of Seller.
(Incorporated by reference to Exhibit 3.1 of the
Registration Statement on Forms S-1 and S-3 (No. 33-95220)).
3.2 -- By-Laws of Seller. (Incorporated by reference to Exhibit 3.2
of the Registration Statement on Forms S-1 and S-3 (No.
33-95220)).
4.1 -- Form of Trust Agreement between the Owner Trustee and the
Seller.
4.2 -- Form of Indenture between the Owner Trustee and the
Indenture Trustee.
5 -- Opinion of John W. Blenke, Esq., Vice President -- Corporate
Law and Assistant Secretary of Household International, Inc.
8 -- Opinion of Katten Muchin & Zavis with respect to tax
matters.
10.1 -- Receivables Purchase Agreement between the Seller as
purchaser, and Household Realty Corporation, Household
Finance Corporation II, Household Finance Corporation III,
Household Finance Realty Corporation of New York, Household
Finance Corporation of California, Household Finance
Corporation of Alabama, Household Finance Industrial Loan
Company, Household Financial Center, Inc., Household Finance
Corporation of Nevada, Household Finance Realty Corporation
of Nevada, Household Industrial Loan Company of Kentucky,
Household Finance Industrial Loan Company of Iowa, Household
Finance Consumer Discount Company, Household Industrial
Finance Company and Mortgage One Corporation, as sellers
(the "Subservicers"). (Incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K for September 28,
1995 of Household Consumer Loan Trust 1995-1 (File No.
33-95220)).
10.2 -- Pooling and Servicing Agreement among the Seller, the
Servicer and the Deposit Trustee, including exhibits
thereto. (Incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K for September 28, 1995 of
Household Consumer Loan Trust 1995-1 (File No. 33-95220)).
10.3 -- Form of Series 1997-1 Supplement.
10.4 -- Form of Administration Agreement between the Owner Trustee
and the Seller.
23.1 -- Consent of John W. Blenke is included in the opinion filed
as Exhibit 5 hereto.
23.2 -- Consent of Katten Muchin & Zavis is included in the opinion
filed as Exhibit 8 hereto.
24 -- Powers of Attorney (filed previously).
25.1 -- Statement of eligibility and qualification of the Indenture
Trustee.
</TABLE>
(b) Financial statements filed as part of the Registration Statement: Not
applicable with respect to the Seller.
II-2
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Household
Consumer Loan Corporation certifies that it has duly caused this Amendment to
the Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Prospect Heights, State of
Illinois, on the 28th day of February, 1997.
HOUSEHOLD CONSUMER LOAN
CORPORATION, as originator of
the Deposit Trust
By: *
------------------------------------
R. F. Elliott,
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-1 has been signed below by the following
persons in the capacities indicated on the 28th day of February, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* President (Principal Executive Officer)
- ----------------------------------------------------- and Director
(R. F. Elliott)
* Senior Vice President and Treasurer
- ----------------------------------------------------- (Principal Financial Officer)
(E. Ancona)
* Vice President, Secretary and Director
- -----------------------------------------------------
(J. W. Blenke)
* Vice President, Assistant Treasurer and Director
- -----------------------------------------------------
(S. H. Smith)
* Vice President and Controller
- ----------------------------------------------------- (Principal Accounting Officer)
(R. J. Kolb)
</TABLE>
*By: /s/ PATRICK D. SCHWARTZ
-------------------------------
(Patrick D. Schwartz)
Attorney-in-fact
II-3
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Household
Consumer Loan Corporation certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Prospect Heights, State of
Illinois, on the 28th day of February, 1997.
HOUSEHOLD CONSUMER LOAN
CORPORATION
By: *
------------------------------------
R. F. Elliott,
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-3 has been signed below by the following
persons in the capacities indicated on the 28th day of February, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* President (Principal Executive Officer)
- ----------------------------------------------------- and Director
(R. F. Elliott)
* Senior Vice President and Treasurer
- ----------------------------------------------------- (Principal Financial Officer)
(E. Ancona)
* Vice President, Secretary and Director
- -----------------------------------------------------
(J. W. Blenke)
* Vice President, Assistant Treasurer and Director
- -----------------------------------------------------
(S. H. Smith)
* Vice President and Controller
- ----------------------------------------------------- (Principal Accounting Officer)
(R. J. Kolb)
</TABLE>
The Registrant reasonably believes that the security ratings to be assigned
to the securities registered hereunder will make the securities "investment
grade securities" pursuant to Transaction Requirement B.2 of Form S-3, prior to
the sale of such securities.
*By: /s/ PATRICK D. SCHWARTZ
-------------------------------
(Patrick D. Schwartz)
Attorney-in-fact
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Household
Consumer Loan Corporation certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Prospect Heights, State of
Illinois, on the 28th day of February, 1997.
HOUSEHOLD CONSUMER LOAN
CORPORATION, as originator of
the Issuer
By: *
----------------------------------
R. F. Elliott,
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-3 has been signed below by the following
persons in the capacities indicated on the 28th day of February, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* President (Principal Executive Officer)
- ----------------------------------------------------- and Director
(R. F. Elliott)
* Senior Vice President and Treasurer
- ----------------------------------------------------- (Principal Financial Officer)
(E. Ancona)
* Vice President, Secretary and Director
- -----------------------------------------------------
(J. W. Blenke)
* Vice President, Assistant Treasurer and Director
- -----------------------------------------------------
(S. H. Smith)
* Vice President and Controller
- ----------------------------------------------------- (Principal Accounting Officer)
(R. J. Kolb)
</TABLE>
The Registrant reasonably believes that the security ratings to be assigned
to the securities registered hereunder will make the securities "investment
grade securities" pursuant to Transaction Requirement B.2 of Form S-3, prior to
the sale of such securities.
*By: /s/ PATRICK D. SCHWARTZ
---------------------------------
(Patrick D. Schwartz)
Attorney-in-fact
II-5
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. PAGES
- ----------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement..............................
3.1 Certificate of Incorporation, as amended, of Seller
(Incorporated by reference to Exhibit 3.1 of the
Registration Statement on Forms S-1 and S-3 (No.
33-95220))..................................................
3.2 By-Laws of Seller (Incorporated by reference to Exhibit 3.2
of the Registration Statement on Forms S-1 and S-3 (No.
33-95220))..................................................
4.1 Form of Trust Agreement between the Owner Trustee and the
Seller......................................................
4.2 Form of Indenture between the Owner Trustee and the
Indenture Trustee...........................................
5 Opinion of John W. Blenke, Esq., Vice President-Corporate
Law and Assistant Secretary of Household International,
Inc. .......................................................
8 Opinion of Katten Muchin & Zavis with respect to tax
matters.....................................................
10.1 Receivables Purchase Agreement between the Seller as
purchaser, and Household Realty Corporation, Household
Finance Corporation II, Household Finance Corporation III,
Household Finance Realty Corporation of New York, Household
Finance Corporation of California, Household Finance
Corporation of Alabama, Household Finance Industrial Loan
Company, Household Financial Center, Inc., Household Finance
Corporation of Nevada, Household Finance Realty Corporation
of Nevada, Household Industrial Loan Company of Kentucky,
Household Finance Industrial Loan Company of Iowa, Household
Finance Consumer Discount Company, Household Industrial
Finance Company and Mortgage One Corporation, as sellers
(the "Subservicers"). (Incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K for September 28,
1995 of Household Consumer Loan Trust 1995-1 (File No.
33-95220))..................................................
10.2 Pooling and Servicing Agreement among the Seller, the
Servicer and the Deposit Trustee, including exhibits thereto
(Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K for September 28, 1995 of Household
Consumer Loan Trust 1995-1 (File No. 33-95220)).............
10.3 Form of Series 1997-1 Supplement............................
10.4 Form of Administration Agreement between the Owner Trustee
and the Seller..............................................
23.1 Consent of John W. Blenke is included in the opinion filed
as Exhibit 5 hereto.........................................
23.2 Consent of Katten Muchin & Zavis is included in the opinion
filed as Exhibit 8 hereto...................................
24 Powers of Attorney (filed previously).......................
25.1 Statement of eligibility and qualification of the Indenture
Trustee.....................................................
</TABLE>
<PAGE> 1
EXHIBIT 1
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
HOUSEHOLD CONSUMER LOAN ASSET BACKED NOTES,
Series 1997-1, Class A-1, Class A-2 and Class A-3
HOUSEHOLD FINANCE CORPORATION
(Servicer)
HOUSEHOLD CONSUMER LOAN CORPORATION
(Seller)
FORM OF UNDERWRITING AGREEMENT
March ___, 1997
LEHMAN BROTHERS INC.,
as Representative of the Underwriters
3 World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Household Consumer Loan Corporation, a Nevada corporation (the
"Seller") and a wholly-owned, special purpose subsidiary of Household Finance
Corporation ("HFC"), has entered into a Trust Agreement dated as of March 1,
1997 (the "Trust Agreement") with Chase Manhattan Bank Delaware (the "Owner
Trustee"), creating Household Consumer Loan Trust 1997-1 (the "Issuer"), a
statutory business trust established under the laws of the State of Delaware.
The Seller proposes to direct the Owner Trustee under the Trust Agreement to
cause the Issuer to issue Household Consumer Loan Asset Backed Notes, Series
1997-1, Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class B Notes
(collectively, the "Notes") and Household Consumer Loan Asset Backed
Certificates, Series 1997-1 (the "Certificates" and, together with the Notes,
the "Securities"). The Class A-1, Class A-2 and Class A-3 Notes are collectively
referred to herein as the "Class A Notes". Only the Class A Notes are being
purchased by the underwriters named in Schedule A hereto (the "Underwriters")
for whom Lehman Brothers Inc. is acting as representative (the
"Representative"). The Seller and HFC understand that the Underwriters propose
to make a
<PAGE> 2
public offering of the Class A Notes as soon as the Underwriters deem advisable
after the date hereof.
The Notes will be issued pursuant to an Indenture dated as of March 1,
1997 (the "Indenture") between the Issuer and The Bank of New York (the
"Indenture Trustee") and will represent indebtedness of the Issuer. The
Certificates will be issued pursuant to the Trust Agreement. The Notes will be
secured by (i) a participation interest (the "Series 1997-1 Participation
Interest") in (a) receivables held in Household Consumer Loan Deposit Trust I
(the "Deposit Trust") originated under certain fixed and variable rate revolving
unsecured consumer credit lines (the "Credit Lines") and (b) certain other
participation interests, (ii) amounts on deposit in certain accounts of the
Issuer held for the benefit of the holders of the Securities and (iii) an
assignment of the Issuer's rights under the Series 1997-1 Supplement (as defined
below) (collectively, the "Trust Assets"). The Deposit Trust was formed pursuant
to a Pooling and Servicing Agreement dated as of September 1, 1995 (the "Base
Pooling and Servicing Agreement") among the Seller, HFC, as Servicer (the
"Servicer"), and Texas Commerce Bank National Association as successor trustee
to The Chase Manhattan Bank, N.A., as Deposit Trustee (the "Deposit Trustee").
The Series 1997-1 Participation Interest was issued pursuant to the Supplement
for Series 1997-1 dated as of March 1, 1997 among the Seller, the Servicer and
the Deposit Trustee (the "Supplement" and, together with the Base Pooling and
Servicing Agreement, the "Pooling and Servicing Agreement"). The Pooling and
Servicing Agreement, together with the Trust Agreement, the Certificate of Trust
thereto, the Indenture, the Receivables Purchase Agreement, the Administration
Agreement and this Agreement, constitute the "Basic Documents" herein.
Capitalized terms used but not defined herein shall have the meanings assigned
to such terms in the Indenture.
The Notes are more fully described in the Registration Statement (as
defined below) which the Seller has furnished to the Underwriters.
SECTION 1. Representations and Warranties of the Seller and the Credit
Line Owners. Each of the Credit Line Owners (as defined in the Pooling and
Servicing Agreement) and the Seller, each as to itself, represents and warrants
to, and agrees with the Underwriters that:
(a) A registration statement on Form S-3 (Nos. 333-20147-01 and
333-20147-02) in respect of the Notes and a registration statement on Form S-1
(No. 333-20147) in respect of the Series 1997-1 Participation Interest,
including a prospectus and such amendments thereto as may have been required on
the date hereof, relating to the Notes and the Series 1997-1 Participation
Interest, have been filed with the Securities and Exchange Commission (the
-2-
<PAGE> 3
"Commission"). The conditions to the use of a registration statement on Form S-3
and Form S-1 under the Securities Act of 1933, as amended (the "Act"), as set
forth in the General Instructions to Form S-3 and Form S-1, as applicable, have
been, or will prior to the effective date of the Registration Statement (defined
herein) be, satisfied in all material respects with respect to the Seller and
the Registration Statement. The Commission has not issued any order preventing
or suspending the use of the Preliminary Prospectus. There are no contracts or
documents of the Seller which are required to be filed as exhibits to the
Registration Statement pursuant to the Act or the Rules and Regulations (defined
herein) which have not been so filed or incorporated by reference therein on or
prior to the Effective Date of the Registration Statement, assuming compliance
by each Underwriter with Section 2(a) hereof.
To the extent that any Underwriter (i) has provided to the Seller
Collateral Term Sheets (as hereinafter defined) that such Underwriter has
provided to a prospective investor, the Seller has filed such Collateral Term
Sheets as an exhibit to a report on Form 8-K within one business day of its
receipt thereof, or (ii) has provided to the Seller Structural Term Sheets or
Computational Materials (each as hereinafter defined) that such Underwriter has
provided to a prospective investor, the Seller will file or cause to be filed
with the Commission a report on Form 8-K containing such Structural Term Sheet
and Computational Materials, as soon as reasonably practicable after the date of
this Agreement, but in any event, not later than the date on which the
Prospectus is filed with the Commission pursuant to Rule 424 or 430A of the
Rules and Regulations.
(b) The Seller will next file with the Commission either, (i) prior to
the effectiveness of the Registration Statement, a further amendment thereto
(including the form of final prospectus) or (ii) after effectiveness of the
Registration Statement, a final prospectus in accordance with Rules 430A and
424(b)(1) or (4). In the case of clause (ii), the Seller has included in such
Registration Statement, as amended at the Effective Date (defined herein), all
information (other than Rule 430A Information (defined herein)) required by the
Act and the rules and regulations thereunder (the "Rules and Regulations") to be
included in the Registration Statement with respect to the Series 1997-1
Participation Interest and the Notes and the offering of the Notes. 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 the Underwriters prior to the Execution Time (defined
herein) or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other
-3-
<PAGE> 4
changes (beyond that contained in the Preliminary Prospectus which has
previously been furnished to the Underwriters) as the Seller has advised the
Underwriters, prior to the Execution Time, will be included or made therein.
The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "Effective Date" shall mean each date that the
Registration Statement and any post-effective amendment or amendments thereto
became or become effective under the Act. "Execution Time" shall mean the date
and time that this Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus included in the
Registration Statement, or amendments thereof, which, as completed, is proposed
to be used in connection with the sale of the Notes and any prospectus
subsequently filed with the Commission by the Seller with the consent of the
Underwriters pursuant to Rule 424(a) of the Rules and Regulations. "Prospectus"
shall mean the prospectus relating to the Notes that is first filed with the
Commission pursuant to Rule 424(b) and any prospectus 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. Reference made herein to the Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date
of the Preliminary Prospectus or the Prospectus, as the case may be, and any
reference to any amendment or supplement to the Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any document filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the date
of the Preliminary Prospectus or the Prospectus and incorporated by reference in
the Preliminary Prospectus or the Prospectus; and any reference to any amendment
to the Registration Statement shall be deemed to include any report of the
Seller filed with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act after the Effective Time that is incorporated by reference in the
Registration Statement. "Registration Statement" shall mean both registration
statements referred to in Section 1(a) hereof and any registration statements
required to be filed under the Act or the Rules and Regulations, including
incorporated documents, exhibits and financial statements, in the form in which
it has or shall become effective and, in the event of any post-effective
amendment thereto which becomes effective prior to the Closing Date (defined
herein), shall also mean such Registration Statement as so amended and including
the 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 and
regulations under the Act. "Rule 430A Information" means information with
respect to the Notes and the offering thereof
-4-
<PAGE> 5
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A.
(c) 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 and Regulations; assuming compliance by each Underwriter with Section
2(a), 2(b) and 2(c) hereof when the Prospectus is first filed (if required) in
accordance with Rule 424(b), as of its date 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 and Regulations; on
the Effective Date, the Registration Statement, did or will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and, as of its date and on the date of any filing pursuant to Rule 424(b) (if
required) 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 Seller makes no representations or warranties as to (i) 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 Seller by or on behalf of the
Underwriters specifically for use in connection with the preparation of the
Registration Statement or the Prospectus (or any supplements thereto) or (ii)
any Derived Information (as defined below).
(d) Since the respective dates as of which information is given in the
Prospectus, or the Prospectus, as amended and supplemented at the Closing Time,
there has not been any material adverse change in the general affairs,
management, financial condition, or results of operations of any of the Credit
Line Owners or the Seller or of their subsidiaries, otherwise than as set forth
or contemplated in the Prospectus or the Prospectus as amended and supplemented
at the Closing Time.
(e) Each of the Credit Line Owners and the Seller has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its respective jurisdiction of incorporation, with the full right, power
and authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus and to enter into and
perform its obligations under the Basic Documents to which each is a party, and
with respect to the Seller, to authorize the execution, delivery and performance
of the Indenture and the issuance of the Notes and the Certificates,
respectively, by the
-5-
<PAGE> 6
Issuer; each of the Credit Line Owners and the Seller 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 be so
qualified would not have a material adverse effect on the business or financial
condition of any such Credit Line Owner or the Seller; and each Credit Line
Owner is duly authorized under the statutes which regulate the business of
making loans or of financing the sale of goods (commonly called "small loan
laws," "consumer finance laws," or "sales finance laws"), or is permitted under
the general interest statutes and related laws and court decisions, to conduct
in the various jurisdictions in which any of them do business the businesses as
currently conducted therein by any of them.
(f) There are no legal or governmental proceedings pending to which any
Credit Line Owner or the Seller is a party or of which any property of any
Credit Line Owner or the Seller is the subject, which if determined adversely to
any Credit Line Owner or the Seller would individually or in the aggregate have
a material adverse effect on the financial position, shareholders' equity or
results of operations of such Credit Line Owner or the Seller; and to the best
knowledge of the Credit Line Owners and the Seller, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others.
(g) Each of the Basic Documents to which the Seller or the Credit Line
Owners are a party, when executed and delivered as contemplated thereby, will
have been duly authorized, executed and delivered by the Seller and the Credit
Line Owners, as applicable, and the Basic Documents to which the Seller or the
Credit Line Owners are a party when executed and delivered as contemplated
herein will constitute, legal, valid and binding instruments enforceable against
the Seller or the Credit Line Owners, as applicable, in accordance with their
respective terms, subject as to enforceability (i) to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally, (ii) to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law) and (iii)
with respect to rights of indemnity under this Agreement, to limitations of
public policy under applicable securities laws.
(h) The issuance and delivery of the Securities, the consummation of
any other of the transactions contemplated herein or in the Basic Documents, or
the fulfillment of the terms of the Basic Documents, do not and will not
conflict with or violate any term or provision of the Certificate or Articles of
Incorporation or Bylaws of any of the Credit Line Owners or the Seller, any
statute, order or regulation applicable to any of the Credit Line Owners or the
Seller of any court, regulatory body, administrative
-6-
<PAGE> 7
agency or governmental body having jurisdiction over any of the Credit Line
Owners or the Seller and do not and will not conflict with, result in a breach
or violation or the acceleration of or constitute a default under or result in
the creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of any of the Credit Line Owners or the Seller pursuant to
the terms of, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which any of the Credit Line Owners or the Seller is
a party or by which any of the Credit Line Owners or the Seller may be bound or
to which any of the property or assets of any of the Credit Line Owners or the
Seller may be subject except for conflicts, violations, breaches, accelerations
and defaults which would not, individually or in the aggregate, be materially
adverse to any of the Credit Line Owners or the Seller or materially adverse to
the transactions contemplated by this Agreement.
(i) Arthur Andersen LLP is an independent public accountant with
respect to the Credit Line Owners and the Seller as required by the Act and the
Rules and Regulations.
(j) The direction by the Seller to the Deposit Trustee to execute,
countersign, issue and deliver the Series 1997-1 Participation Interest has been
duly authorized by the Seller, and assuming the Deposit Trustee has been duly
authorized to do so, when executed, countersigned, issued and delivered by the
Deposit Trustee in accordance with Pooling and Servicing Agreement, the Series
1997-1 Participation Interest will be validly issued and outstanding and will be
entitled to the benefits provided by the Pooling and Servicing Agreement.
(k) The Seller has directed the Issuer to execute, issue and deliver
the Notes and the Issuer has directed the Indenture Trustee to authenticate the
Notes and assuming such direction has been duly authorized by the Issuer, and
assuming the Indenture Trustee has been duly authorized to do so, when executed,
countersigned, issued and delivered in accordance with the Indenture, the Notes
will be validly issued and outstanding and will be entitled to the benefits
provided by the Indenture.
(l) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issue and sale of the Notes to the Underwriters, or
the consummation by any of the Credit Line Owners, the Seller or the Issuer of
the other transactions contemplated by the Basic Documents, except the
registration under the Act of the Notes and such consents, approvals,
authorizations, registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
-7-
<PAGE> 8
distribution of the Notes by the Underwriters or as have been obtained.
(m) Each of the Credit Line Owners and the Seller possesses all
material licenses, certificates, authorities or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct the business now conducted by it and as described in the Prospectus and
none of the Credit Line Owners or the Seller has received notice of proceedings
relating to the revocation or modification of any such license, certificate,
authority or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the conduct of its business, operations or financial condition.
(n) As of the date any Receivables are transferred to the Deposit
Trustee, (i) each Credit Line Owner will have good and marketable title to the
Receivables being transferred by it to the Seller free and clear of any lien,
mortgage, pledge, charge, encumbrance, adverse claim or other security interest
(collectively, "Liens"), (ii) each Credit Line Owner will not have assigned to
any person any of its right, title or interest in such Receivables or in the
Receivables Purchase Agreement and (iii) each Credit Line Owner will have the
power and authority to sell such Receivables to the Seller; and upon the
consummation of the sale and the assignment provided for pursuant to the terms
of the Receivables Purchase Agreement, the Seller will have acquired all the
related Credit Line Owners' right, title and interest in and to the Receivables.
(o) As of the date any Receivables are transferred to the Deposit
Trustee, the Seller (i) will have good and marketable title to the Receivables
being transferred by it to the Deposit Trustee pursuant to the Pooling and
Servicing Agreement, free and clear of any Liens, (ii) will not have assigned to
any person any of its right, title or interest in such Receivables or in the
Receivables Purchase Agreement, and (iii) will have the power and authority to
sell such Receivables to the Deposit Trustee and assuming due execution and
delivery of the Pooling and Servicing Agreement and any Assignment of
Receivables in Credit Lines by the Deposit Trustee, the Deposit Trustee will
have acquired all of the Seller's right, title and interest in and to the
Receivables. As of the Closing Date, the Seller (i) will not have assigned to
any person other than the Issuer any of its right, title or interest in the
Series 1997-1 Participation Interest being issued pursuant to the Pooling and
Servicing Agreement and (ii) will have the power and authority to convey the
Series 1997-1 Participation Interest to the Issuer pursuant to the Trust
Agreement.
-8-
<PAGE> 9
(p) At the Closing Time, the Seller will (i) have good and marketable
title to the Series 1997-1 Participation Interest, free and clear of any Lien
and (ii) have the power and authority to sell the Series 1997-1 Participation
Interest to the Issuer and to authorize the Issuer to issue the Securities. Upon
execution and delivery of the Trust Agreement by the Seller and the conveyance
of the Series 1997-1 Participation Interest from the Seller to the Issuer, the
Issuer will have acquired ownership of all of the Seller's right, title and
interest in and to the Series 1997-1 Participation Interest.
(q) As of the Closing Time, each of the Initial Receivables will meet
the eligibility criteria described in the Prospectus and Pooling and Servicing
Agreement.
(r) None of the Credit Line Owners, the Seller, the Deposit Trust or
the Issuer will conduct its operations while any of the Securities are
outstanding in a manner that would require any Credit Line Owner, the Seller,
the Deposit Trust or the Issuer to be registered as an "investment company"
under the Investment Company Act of 1940, as amended (the "1940 Act"), as in
effect on the date hereof.
(s) At the Closing Time, the Securities and the Basic Documents that
are described in the Prospectus will conform in all material respects to the
descriptions thereof.
(t) At the Closing Time, Moody's and Standard & Poor's each shall have
assigned to each class of the Notes the respective ratings for the Notes as set
forth in the Prospectus.
(u) Any taxes, fees and other governmental charges in connection with
the execution and delivery of the Basic Documents and the issuance of the
Securities have been paid or will be paid at or prior to the Closing Time.
(v) At the Closing Time, each of the representations and warranties of
the Seller and the Credit Line Owners set forth in this Agreement will be true
and correct in all material respects.
Any certificate signed by an officer of any Credit Line Owner or the
Seller and delivered to the Underwriter or counsel for the Underwriter in
connection with an offering of the Securities 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.
SECTION 2. Representations and Warranties of the Underwriters. Each
Underwriter severally, and not jointly,
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represents and warrants to, and agrees with the other Underwriters, the Credit
Line Owners, the Seller, the Servicer and HFC that:
(a) Prior to the Effective Date of the Registration Statement, such
Underwriter has not and will not furnish, in writing or by electronic
transmission, Derived Information relating to the Notes to any prospective
investor.
(b) Such Underwriter shall provide the Seller no later than one
Business Day after any Collateral Term Sheets are delivered to a prospective
investor, or in the case of any Structural Term Sheets and Computational
Materials no later than one Business Day before which the Prospectus is required
to be filed pursuant to Rule 424, all such Derived Information delivered to a
prospective investor by it during the period commencing on the Effective Date of
the Registration Statement and ending on the date the Prospectus is filed with
the Commission. Such Underwriter shall deliver to the Seller a hard copy and, in
a mutually agreed upon format, a disk or electronic transmission of such Derived
Information.
(c) Assuming the accuracy of the Seller-Provided Information used in
the preparation of Derived Information, the Derived Information, delivered by
such Underwriter, as of the date thereof, is accurate in all material respects,
taking into account the assumptions set forth in such Derived Information, but
without making any representations as to the appropriateness of such
assumptions.
(d) Each Underwriter acknowledges that the Credit Line Owners, the
Seller or HFC will not be deemed to have breached any representation and
warranty or to have failed to satisfy any other agreement contained herein as a
result of an Underwriter's breach of a representation and warranty set forth in
clause (a), (b) or (c) above; provided, however, that the rights and obligations
otherwise available pursuant to Sections 9 and 10 hereof are not limited solely
as a result of an Underwriter's breach of a representation and warranty set
forth in clause (a), (b), or (c) above.
SECTION 3. Purchase and Sale. The commitment of the Underwriters to
purchase and of the Seller to sell the Notes pursuant to this Agreement shall be
deemed to have been made on the basis of the respective representations and
warranties of each of the parties herein contained and shall be subject to the
terms and conditions herein set forth. The Seller agrees to instruct the Issuer
to issue and agrees to sell to the Underwriters, and the Underwriters agree,
severally and not jointly (except as provided in Section 12 hereof), to purchase
from the Seller, at a purchase price for each Class of the Notes set forth on
Schedule A hereto,
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the respective principal amount of each Class of the Notes set forth opposite
the name of such Underwriter on Schedule A hereto.
SECTION 4. Delivery and Payment. Payment of the purchase price for, and
delivery of, any Notes to be purchased by the Underwriters shall be made at the
office of Katten Muchin & Zavis, of Chicago, Illinois or at such other place as
shall be agreed upon by the Underwriters, the Seller and HFC at 10:00 a.m.
eastern time on March ___, 1997 or at such other time or date as shall be agreed
upon in writing by the Underwriters, the Seller and HFC (the "Closing Time").
The Notes will be delivered in book-entry form through the facilities of the
Depository Trust Company, Cedel Bank Societe Anonyme and the Euroclear System.
Payment shall be made to the Seller by wire transfer of same day funds payable
to the account of the Seller. Delivery of the Notes shall be made to the
Underwriters for the respective accounts of the Underwriters against payment of
the purchase price thereof. Such Notes shall be in such denominations and
registered in such names as the Underwriters may request in writing at least one
business day prior to the applicable Closing Time. Such Notes, which may be in
temporary form, will be made available for examination and packaging by the
Underwriters no later than 3:00 p.m. central time on the first business day
prior to the Closing Time.
SECTION 5. Offering by the Underwriters. It is understood that the
Underwriters propose to offer the Notes for sale to the public as set forth in
the Prospectus.
SECTION 6. Covenants of the Seller and HFC. The Seller and HFC covenant
with each of the Underwriters as follows:
(a) If at any time when the Prospectus as amended or supplemented is
required by the Act to be delivered in connection with sales of the Notes by the
Underwriters, any event shall occur or condition exist as a result of which it
is necessary, in the opinion of counsel to the Underwriters or counsel for the
Seller, to further amend or supplement the Prospectus as then amended or
supplemented in order that the Prospectus as amended or supplemented will not
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of circumstances
under which they were made, not misleading or if it shall be necessary, in the
opinion of any such counsel, at any such time to amend or supplement the
Registration Statement or the Prospectus as then amended or supplemented in
order to comply with the requirements of the Act or the Rules and Regulations,
or if required by such Rules and Regulations, including Rule 430A thereunder, to
file a post-effective amendment to such Registration Statement (including an
amended Prospectus), the Seller will promptly prepare and file with the
Commission such amendment or supplement as may be
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<PAGE> 12
necessary to correct such untrue statement or omission or to make the
Registration Statement comply with such requirements, and within two business
days will furnish to the Underwriters as many copies of the Prospectus, as
amended or supplemented, as the Underwriters shall reasonably request.
(b) The Seller will give the Underwriters reasonable notice of its
intention to file any amendment to the Registration Statement, the Prospectus or
the Prospectus as amended or supplemented, pursuant to the Act, will furnish the
Underwriters with copies of any such amendment or supplement proposed to be
filed a reasonable time in advance of filing, and will not file any such
amendment or supplement to which the Underwriters or counsel to the Underwriters
shall object.
(c) The Seller will notify the Underwriters immediately, and confirm
the notice in writing, (i) of the effectiveness of any amendment to the
Registration Statement, (ii) of the mailing or the delivery to the Commission
for filing of any supplement to the Prospectus or the Prospectus as amended or
supplemented, (iii) of the receipt of any comments from the Commission with
respect to the Registration Statement or the Prospectus or the Prospectus as
amended or supplemented, (iv) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the Prospectus
or for additional information and (v) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Seller will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(d) The Seller will deliver to the Underwriters as many signed and as
many conformed copies of the Registration Statement (as originally filed) and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated by reference in the Prospectus) as
you may reasonably request.
(e) The Seller will make generally available to holders of the Notes as
soon as practicable, but in any event not later than 120 days after the close of
the period covered thereby, an earning statement of the Issuer (which need not
be audited) complying with Section 11(a) of the Act and the Rules and
Regulations (including, at the option of the Seller, Rule 158) and covering a
period of at least twelve consecutive months beginning not later than the first
day of the first fiscal quarter following the Closing Time.
(f) The Seller will endeavor, in cooperation with you, to qualify the
Notes for offering and sale under the applicable
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securities laws of such states and other jurisdictions of the United States as
you may designate, and will maintain or cause to be maintained such
qualifications in effect for as long as may be required for the distribution of
the Notes. The Seller will file or cause the filing of such statements and
reports as may be required by the laws of each jurisdiction in which the Notes
have been qualified as above provided.
(g) Neither the Seller nor HFC will, without your prior written
consent, publicly offer or sell or contract to sell any asset-backed securities
or participation interests or other similar securities representing interests in
or secured by other consumer loan-related assets originated or owned by the
Seller or HFC for a period of five days following the commencement of the
offering of the Notes to the public.
(h) So long as the Notes shall be outstanding, the Seller will cause
the Issuer to deliver to the Underwriters the annual statement as to compliance
delivered to the Indenture Trustee pursuant to Section 3.10 of the Indenture and
each monthly report delivered pursuant to Section 3.23 of the Indenture. So long
as the Notes are outstanding, the Servicer will deliver to the Underwriters the
annual statement of a firm of independent public accountants furnished to the
Deposit Trustee pursuant to Section 3.06 of the Pooling and Servicing Agreement
and the monthly servicing report delivered pursuant to Article V of the Pooling
and Servicing Agreement.
(i) The Seller will apply the net proceeds from the sale of the Notes
in the manner set forth in the Prospectus.
(j) If, between the date hereof and the Closing Time, to the knowledge
of HFC or the Seller there are any legal or governmental proceedings instituted
or threatened against HFC or the Seller which, if determined adversely to HFC or
the Seller would individually or in the aggregate have a material adverse effect
on the financial condition, shareholders' equity or results of operations of HFC
or the Seller, and HFC and the Seller, as applicable, will give prompt written
notice thereof to the Underwriters.
SECTION 7. Conditions to Underwriters' Obligations. The respective
obligations of the Underwriters to purchase and of the Seller to sell the Notes
pursuant to this Agreement are subject to the accuracy on and as of the Closing
Time of the representations and warranties on the part of the Credit Line Owners
and the Seller on the one hand and the Underwriters on the other, each as herein
contained, and to the material accuracy of the statements of officers of the
Credit Line Owners, the Seller and HFC, respectively, made pursuant hereto, to
the performance by the
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Credit Line Owners, the Seller and HFC of all of their respective obligations
hereunder and to the following conditions at the Closing Time:
(a) If the Registration Statement has not become effective prior to the
date of this Agreement, unless the Underwriters agree in writing to a later
time, the Registration Statement shall have become effective not later than (i)
6:00 p.m. New York City time on the date of determination of the public offering
price, if such determination occurred at or prior to 10:00 a.m. New York City
time on such date, or (ii) 3:00 p.m. on the business day following the day on
which the public offering price was determined, if such determination occurred
after 10:00 a.m. New York City time on such date; if filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b), the Prospectus
shall be 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) There shall not have come to the Underwriters' attention any facts
that would cause the Underwriters to believe that the Prospectus, at the time it
was required to be delivered to a purchaser of the Notes, contained an untrue
statement of a material fact or omitted 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.
(c) The Underwriters shall have received the favorable opinion, dated
the date of the Closing Time, of John W. Blenke, Esq., Vice President--Corporate
Law of Household International, Inc., the parent company of HFC, in the form
attached hereto as Exhibit A.
(d) The Underwriters shall have received the favorable opinion, dated
the date of the Closing Time, of John W. Blenke, Esq., Vice President--Corporate
Law of Household International, Inc., the parent company of HFC, in form and
substance satisfactory to the Underwriters, to the effect that:
(i) HFC has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power to own its properties, to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under the Basic Documents to which it is a party.
(ii) The Seller has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Delaware, with corporate power to own its
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<PAGE> 15
properties, to conduct its business as described in the Prospectus and
to enter into and perform its obligations under the Basic Documents to
which it is a party.
(iii) Each of the Credit Line Owners has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, with corporate
power to own its properties, to conduct its business as described in
the Prospectus and to enter into and perform its obligations under the
Basic Documents to which it is a party.
(iv) HFC has full corporate power and authority to serve
in the capacity of servicer of the Receivables as contemplated by the
Pooling and Servicing Agreement.
(v) Each of the Credit Line Owners, the Seller and HFC
is duly authorized under related statutes, laws and court decisions, to
conduct in the various jurisdictions in which they do business the
respective businesses therein currently conducted by them, except where
failure to be so permitted or failure to be so authorized will not have
a material adverse effect on the business or financial condition of the
Credit Line Owners, the Seller or HFC, and the Credit Line Owners are
duly authorized under the statutes which regulate the business of
making loans or of financing the sale of goods (commonly called "small
loan laws," "consumer finance laws," or "sales finance laws"), or are
permitted under the general interest statutes and related laws and
court decisions, to conduct in the various jurisdictions in which any
of them do business the businesses as currently conducted therein by
any of them.
(vi) None of the Credit Line Owners, the Seller or HFC
is in violation of its Certificate or Articles of Incorporation or
Bylaws or, to the best of such counsel's knowledge, 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 known to such counsel
to which any of the Credit Line Owners, the Seller or HFC is a party or
by which it or its properties may be bound, which default might result
in any material adverse changes in the financial condition, earnings,
affairs or business of any of the Credit Line Owners, the Seller or HFC
or which might materially and adversely affect the properties or
assets, taken as a whole, of any of the Credit Line Owners, the Seller
or of HFC.
(vii) Each of the Basic Documents to which HFC, the
Seller and the Credit Line Owners are a party has been duly
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authorized, executed and delivered by HFC, the Seller and the Credit
Line Owners, as applicable, and, assuming the due authorization,
execution and delivery of such agreements by the other parties thereto,
such agreements constitute the valid and binding obligation of each of
the Seller, HFC and the Credit Line Owners, enforceable against each of
the Seller, HFC and the Credit Line Owners, in accordance with its
terms, except that in each case as to enforceability (A) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, (B) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and (C) the enforceability as to
rights to indemnification under this Agreement (to the extent
indemnification under this Agreement relates to liability under the
Act) may be subject to limitations of public policy under applicable
securities laws.
(viii) The issuance and delivery of the Securities and the
Series 1997-1 Participation Interest, the consummation of any other of
the transactions contemplated hereby or by the Basic Documents, or the
fulfillment of the terms of such agreements do not and will not
conflict with or violate any term or provision of the Certificate or
Articles of Incorporation or Bylaws of the Seller or, to the best of
such counsel's knowledge, any statute, order or regulation applicable
to the Seller of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Seller and do not and
will not conflict with, result in a breach or violation or the
acceleration of or constitute a default under or result in the creation
or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Seller pursuant to the terms of any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which the Seller is a party or
by which the Seller may be bound or to which any of the property or
assets of the Seller may be subject except for conflicts, violations,
breaches, accelerations and defaults which would not, individually or
in the aggregate, be materially adverse to the Seller or materially
adverse to the transactions contemplated by this Agreement.
(ix) The consummation of any of the transactions
contemplated by the Basic Documents to which the Credit Line Owners are
a party and the fulfillment of the terms of such documents, do not and
will not conflict with or violate any terms or provision of the
Certificate or Articles of Incorporation or Bylaws of any of the Credit
Line Owners or,
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to the best of such counsel's knowledge, any statute, order or
regulation applicable to any of the Credit Line Owners or, to the best
of such counsel's knowledge, any statute, order or regulation
applicable to any of the Credit Line Owners and do not and will not
conflict with, result in a breach or violation or the acceleration of
or constitute a default under or result in the creation or imposition
of any lien, charge or encumbrance upon any of the property or assets
of any of the Credit Line Owners pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which any of the Credit Line
Owners may be bound or to which any of the property or assets of any of
the Credit Line Owners may be subject except for conflicts, violations,
breaches, accelerations and defaults which would not, individually or
in the aggregate, be materially adverse to the applicable Credit Line
Owners or materially adverse to the transactions contemplated by this
Agreement.
(x) The consummation of any of the transactions
contemplated herein or the fulfillment of the terms of the Basic
Documents do not and will not conflict with or violate any term or
provision of the Certificate or Articles of Incorporation or By-laws of
HFC or, to the best of such counsel's knowledge, any statute, order or
regulation applicable to HFC and do not and will not conflict with,
result in a breach or violation or the acceleration of or constitute a
default under or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of HFC
pursuant to the terms of, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to
which HFC is a party or by which HFC may be bound or to which any of
the property or assets of HFC may be subject except for conflicts,
violations, breaches, accelerations and defaults which would not,
individually or in the aggregate, be materially adverse to HFC or
materially adverse to the transactions contemplated by this Agreement.
(xi) The direction by the Seller to the Deposit Trustee
to execute, issue, countersign and deliver the Series 1997-1
Participation Interest has been duly authorized by the Seller and,
assuming that the Deposit Trustee has been duly authorized to do so and
when executed and countersigned and delivered by the Deposit Trustee in
accordance with the Pooling and Servicing Agreement, the Series 1997-1
Participation Interest will be validly issued and outstanding and will
be entitled to the benefits of the Pooling and Servicing Agreement.
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(xii) The direction by the Seller to the Owner Trustee to
execute, issue, countersign and deliver the Certificates on behalf of
the Issuer has been duly authorized by the Seller and, assuming that
the Owner Trustee has been duly authorized to do so and when executed
and countersigned and delivered by the Owner Trustee in accordance with
the Trust Agreement, the Certificates will be validly issued and
outstanding and will be entitled to the benefits of the Trust
Agreement.
(xiii) To the best of such counsel's knowledge, no
consent, approval, authorization, order, registration or qualification
of or with any court or governmental agency or body of the United
States is required for the issuance of the Securities and the sale of
the Securities to the Underwriters, or the consummation by the Credit
Line Owners, the Seller and HFC of the other transactions contemplated
by the Basic Documents, except the registration under the Act of the
Securities and such consents, approvals, authorizations, registrations
or qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Securities
by the Underwriters or as have been obtained.
(xiv) The Registration Statement is effective under the
Act and to the best of such counsel's knowledge and information, no
stop order suspending the effectiveness of the Registration Statement
has been issued under the Act or proceedings therefor initiated or
threatened by the Commission.
(xv) The conditions to the use by the Seller of a
registration statement on Form S-3 and Form S-1 under the Act, as set
forth in the General Instructions to Form S-3 and Form S-1, have been
satisfied with respect to the Registration Statement and the
Prospectus. To the best of such counsel's knowledge, there are no
contracts or documents of the Seller which are required to be filed as
exhibits to the Registration Statement pursuant to the Act or the Rules
and Regulations thereunder which have not been so filed. The statements
in the Prospectus under the caption "Risk Factors--Legal
Considerations" and under the caption "Certain Legal Aspects of the
Receivables", to the extent that statements in such sections constitute
matters of law or legal conclusions with respect thereto, have been
reviewed by attorneys under such counsel's supervision and are complete
and correct in all material respects.
(xvi) There are no actions, proceedings or investigations
pending before or, to the best knowledge of such counsel, threatened by
any court, administrative agency or other
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tribunal to which any of the Credit Line Owners, HFC or the Seller is a
party or of which any of their respective properties is the subject (A)
which if determined adversely to any of the Credit Line Owners, HFC or
the Seller would have a material adverse effect on the business or
financial condition of any of the Credit Line Owners, HFC or the
Seller, (B) asserting the invalidity of any of the Basic Documents, or
the Securities, (C) seeking to prevent the issuance of the Securities
or the consummation by any of the Credit Line Owners, HFC or the Seller
of any of the transactions contemplated by any of the Basic Documents,
as the case may be, or (D) which might materially and adversely affect
the performance by any of the Credit Line Owners, HFC or the Seller of
their respective obligations under, or the validity or enforceability
of any of the Basic Documents or the Securities.
(xvii) The Registration Statement at the time it became
effective, and any amendment thereto at the time such amendment becomes
effective, complied as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations.
(xviii) Such counsel has no reason to believe that (A) the
Registration Statement and the Prospectus, as of the date the
Registration Statement became effective, or the Registration Statement
(excluding the exhibits thereto) as of the date that the most recent
post-effective amendment thereto became effective, contained or
contains any untrue statement of a material fact or omitted or omits to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading or (B) assuming
compliance by each of the Underwriters with Section 2(a) and (b)
hereof, the Prospectus, as of its date and the date of such opinion,
contained or contains any untrue statement of a material fact or
omitted 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 (it being understood that such counsel
need express no opinion as to information set forth in the financial
statements or other financial and statistical data contained or
incorporated by reference in the Registration Statement).
Such opinion may express its reliance as to factual matters on the
representations and warranties made by the parties hereto, and on certificates
or other documents furnished by officers of such parties to the instruments and
documents referred to therein. Such opinion may be qualified, insofar as it
concerns the enforceability of the documents referred to therein, to the extent
that such enforceability may be limited by bankruptcy, insolvency,
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reorganization or other similar laws affecting the enforcement of creditors'
rights in general, or by general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law) and no
opinion need be given as to the enforceability of Section 9 of this Agreement.
(e) The Underwriters shall have received the favorable opinion of
counsel to the Indenture Trustee, dated the date of the Closing Time, addressed
to the Underwriters and in form and scope satisfactory to counsel to the
Underwriters, to the effect that:
(i) The Indenture Trustee has duly authorized, executed
and delivered the Indenture which constitute the valid and legally
binding agreements of the Indenture Trustee, are enforceable against
the Indenture Trustee in accordance with its terms, subject, as to
enforcement of remedies, (A) to applicable bankruptcy, insolvency,
reorganization, and other similar laws affecting the rights of
creditors generally and (B) to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity
or at law).
(ii) The Indenture Trustee has duly countersigned the
Notes issued on the date hereof on behalf of the Issuer.
(iii) The execution and delivery by the Indenture Trustee
of the Indenture and the performance by the Indenture Trustee of its
obligations thereunder do not conflict with or result in a violation of
the organizational charter or Bylaws of the Indenture Trustee.
(iv) The Indenture Trustee has full power and authority
to execute and deliver the Indenture and to perform its obligations
thereunder.
(v) To the best of such counsel's knowledge, there are
no actions, proceedings or investigations pending or threatened against
or affecting the Indenture Trustee before or by any court, arbitrator,
administrative agency or other governmental authority which, if
adversely decided, would materially and adversely affect the ability of
the Indenture Trustee to carry out the transactions contemplated by the
Indenture.
(vi) No consent, approval or authorization of, or
registration, declaration or filing with, any court or governmental
agency or body of the United States of America or any state thereof is
required for the execution, delivery or performance by the Indenture
Trustee of the Indenture.
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(f) The Underwriters shall have received the favorable opinion of
counsel to the Owner Trustee, dated the Closing Date, addressed to the
Underwriters, satisfactory to counsel to the Underwriters, to the effect that:
(i) The Owner Trustee is duly incorporated and
validly existing as a banking corporation under the laws of
the State of Delaware and has the power and authority to
execute and deliver the Basic Documents to which it is a
party;
(ii) The Basic Documents to which it is a party have
been duly authorized, executed and delivered to the Owner
Trustee and constitutes the legal, valid and binding
agreements of the Owner Trustee, enforceable against the Owner
Trustee in accordance with its respective terms;
(iii) The Securities have been duly authorized,
executed and delivered by Owner Trustee on behalf of the
Issuer;
(iv) No consent, approval or other authorization of,
or registration, declaration or filing with, any court or
governmental agency or commission of the State of Delaware is
required by or with respect to the Owner Trustee or the Issuer
for the issuance and sale of the Securities or the valid
execution and delivery of the Trust Agreement, or for the
validity and enforceability thereof, or for the payment of any
amounts by the Issuer thereunder;
(v) Neither the execution and delivery by the Owner
Trustee of the Basic Documents to which it is a party, nor the
issuance, execution and delivery by the Issuer of the
Securities, nor the consummation of the transactions
contemplated thereby, nor compliance with the terms thereof,
(i) conflicts with or results in a breach of, or constitutes a
default under, the provisions of the Trust Agreement or the
Certificate of Incorporation of the Owner Trustee or any law,
rule or regulation of the State of Delaware applicable to the
Owner Trustee or, to such counsel's knowledge, any judgment or
order applicable to the Owner Trustee or their respective
properties or, to such counsel's knowledge, any indenture,
mortgage, contract or other agreement or instrument to which
the Owner Trustee is a party or by which it is bound or (ii)
to such counsel's knowledge, results in the creation or
imposition or any lien, charge or encumbrance upon the Owner
Trustee's properties or the Owner Trust Estate (except as
permitted by the Trust Agreement);
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(vi) To such counsel's knowledge, there are no
pending or threatened actions, suits or proceedings affecting
the Issuer or the Owner Trustee before any court or other
governmental authority which, if adversely decided, would
materially and adversely affect the ability of the Issuer or
the Owner Trustee, as the case may be, to carry out the
transactions contemplated in the Trust Agreement;
(vii) The Issuer has been duly formed and is validly
existing as a business trust under the Delaware Business Trust
Act 12 Del. C. Section 3801 et seq.
(g) The Underwriters shall have received the favorable opinion of
counsel to the Deposit Trustee, dated the Closing Date, addressed to the
Underwriters, satisfactory to counsel to the Underwriters, to the effect that:
(i) The Deposit Trustee is duly incorporated and
validly existing as a banking corporation under the laws of
the United States and has the power and authority to execute
and deliver the Pooling and Servicing Agreement;
(ii) The Pooling and Servicing Agreement has been
duly authorized, executed and delivered to the Deposit Trustee
and constitutes the legal, valid and binding agreements of the
Deposit Trustee, enforceable against the Deposit Trustee in
accordance with its respective terms;
(iii) The Series 1997-1 Participation Interest has
been duly authorized, executed and delivered by the Deposit
Trust, and, when authenticated in accordance with the
provisions of the Pooling and Servicing Agreement, and when
delivered to and paid for by the Seller, will be entitled to
the benefits and security afforded by the Pooling and
Servicing Agreement, and will constitute legal, valid and
binding obligations of the Deposit Trust, enforceable against
the Deposit Trust in accordance with the terms of the Pooling
and Servicing Agreement;
(iv) No consent, approval or other authorization of,
or registration, declaration or filing with, any court or
governmental agency or commission is required by or with
respect to the Deposit Trustee or the Deposit Trust for the
issuance and sale of the Series 1997-1 Participation Interest
or the valid execution and delivery of the Pooling and
Servicing Agreement, or for the validity and
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<PAGE> 23
enforceability thereof, or for the payment of any amounts
by the Deposit Trust thereunder;
(v) Neither the execution and delivery by the Deposit
Trustee of the Pooling and Servicing Agreement, nor the
issuance, execution and delivery by the Deposit Trustee of the
Series 1997-1 Participation Interest, nor the consummation of
the transactions contemplated thereby, nor compliance with the
terms thereof, (i) conflicts with or results in a breach of,
or constitutes a default under, the provisions of the Pooling
and Servicing Agreement or the certificate of incorporation of
the Deposit Trustee or any law, rule or regulation of the
United States applicable to the Deposit Trustee or, to such
counsel's knowledge, any judgment or order applicable to the
Deposit Trustee or their respective properties or, to such
counsel's knowledge, any indenture, mortgage, contract or
other agreement or instrument to which the Deposit Trustee is
a party or by which it is bound or (ii) to such counsel's
knowledge, results in the creation or imposition or any lien,
charge or encumbrance upon the Deposit Trustee's properties or
the Deposit Trust's properties (except as permitted by the
Pooling and Servicing Agreement); and
(vi) To such counsel's knowledge, there are no
pending or threatened actions, suits or proceedings affecting
the Deposit Trust or the Deposit Trustee before any court or
other governmental authority which, if adversely decided,
would materially and adversely affect the ability of the
Deposit Trust or the Deposit Trustee, as the case may be, to
carry out the transactions contemplated in the Basic
Documents.
(h) The Underwriters shall have received the favorable opinion or
opinions, dated the date of the Closing Time, of Brown & Wood LLP, as counsel
for the Underwriters, with respect to the issue and sale of the Notes, the
Registration Statement, this Agreement, the Prospectus and such other related
matters as the Underwriters may require.
(i) The Underwriters shall have received opinions, dated the date of
the Closing Time, of Katten Muchin & Zavis, as special counsel to the Seller and
HFC, addressed to the Indenture Trustee, the Seller and the Underwriters
relating to certain matters specified in Section 2.03 (iii) of the Indenture.
(j) The Underwriters shall have received an opinion, dated the date of
the Closing Time, of Katten Muchin & Zavis, as special counsel to the Seller and
HFC addressed to the Seller and
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<PAGE> 24
satisfactory to the Rating Agencies relating to (i) the sale of the Receivables
to the Seller, (ii) the transfer of the Receivables to the Deposit Trustee and
(iii) the transfer of the Series 1997-1 Participation Interest from the Seller
to the Issuer and such counsel shall have consented to reliance by the Rating
Agencies and the Underwriters on such opinion as though such opinion had been
addressed to each such party.
(k) Each of the Credit Line Owners, the Seller and HFC shall have
furnished to the Underwriters a certificate signed on behalf of the Credit Line
Owners, the Seller and HFC by the respective principal accounting or principal
financial officer thereof, dated the date of the Closing Time, as to (i) the
accuracy of the representations and warranties (except for the representations
made in Section 1(f) hereof) of the Credit Line Owners and the Seller herein at
and as of the Closing Time, (ii) there being no legal or governmental
proceedings pending, other than those, if any, referred to in the Prospectus to
which any of the Credit Line Owners, the Seller or HFC is a party or of which
any property of any of the Credit Line Owners, the Seller or HFC is the subject,
which, in the judgment of any of the Credit Line Owners, the Seller or HFC, as
applicable, have a reasonable likelihood of resulting in a material adverse
change in the financial condition, shareholders' equity or results of operations
of the Credit Line Owners, the Seller or HFC; and to the best knowledge of each
of the Credit Line Owners, the Seller or HFC, as applicable, no such proceedings
are threatened or contemplated by governmental authorities or threatened by
others, (iii) the performance by the Credit Line Owners, the Seller and HFC of
all of their respective obligations hereunder to be performed at or prior to the
Closing Time, and (iv) such other matters as the Underwriters may reasonably
request.
(l) The Indenture Trustee shall have furnished to the Underwriters a
certificate of the Indenture Trustee, signed by one or more duly authorized
officers of the Indenture Trustee, dated the Closing Time, as to the due
authorization, execution and delivery of the Indenture by the Indenture Trustee
and the acceptance by the Indenture Trustee of the trusts created by the
Indenture and the due execution and delivery of the Notes by the Indenture
Trustee thereunder and such other matters as the Underwriters shall reasonably
request.
(m) The Owner Trustee shall have furnished to the Underwriters a
certificate of the Owner Trustee, signed by one or more duly authorized officers
of the Owner Trustee, dated the Closing Time, as to the due authorization,
execution and delivery of the Trust Agreement by the Owner Trustee and the
acceptance by the Owner Trustee of the trusts created by the Trust Agreement and
the due execution and delivery of the Notes by the Issuer under the
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<PAGE> 25
Indenture and such other matters as the Underwriters shall reasonably request.
(n) The Deposit Trustee shall have furnished to the Underwriters a
certificate of the Deposit Trustee, signed by one or more duly authorized
officers of the Deposit Trustee, dated the Closing Time, as to the due
authorization, execution and delivery of the Pooling and Servicing Agreement by
the Deposit Trustee and the acceptance by the Deposit Trustee of the trusts
created by the Pooling and Servicing Agreement and the due execution and
delivery of the Series 1997-1 Participation Interest by the Deposit Trustee
thereunder and such other matters as the Underwriters shall reasonably request.
(o) The Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes
shall have been rated at least "AAA", "AA-" and "A", respectively, by at least
two nationally recognized rating organizations, Standard & Poor's and Moody's,
respectively.
(p) Counsel and special counsel to HFC and the Seller shall have
furnished to the Underwriters any opinions supplied to the Rating Agencies
relating to certain matters with respect to the Notes.
(q) The Underwriters shall have received from Arthur Andersen LLP, or
other independent certified public accountants acceptable to the Underwriters, a
letter, dated as of the date of this Agreement in the form heretofore agreed to.
(r) Prior to the Closing Time, Brown & Wood LLP, as counsel for the
Underwriters, shall have been furnished with such documents and opinions as they
may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Notes as herein contemplated and related proceedings or
in order to evidence the accuracy and completeness of any of the representations
and warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Seller and HFC in connection with the issuance
and sale of the Notes as herein contemplated shall be satisfactory in form and
substance to the Underwriters and Brown & Wood LLP.
(s) Since the respective dates as of which information is given in the
Prospectus, there shall not have been any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
condition, stockholders' equity or results of operations of the Seller, any of
the Credit Line Owners or HFC otherwise than as set forth or contemplated in the
Prospectus, the effect of which is in the judgment of the Underwriters so
material and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of
-25-
<PAGE> 26
the Notes on the terms and in the manner contemplated in the Prospectus.
(t) Prior to the Closing Time, the Credit Line Owners, the Seller and
HFC shall have furnished to the Underwriters such further information,
certificates and documents as the Underwriters may reasonably request.
If any condition specified in this Section 7 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriters by notice to the Seller at any time at or prior to the
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Section 7.
SECTION 8. Payment of Expenses. The Seller, the Credit Line Owners and
HFC jointly and severally agree to pay all expenses incident to the performance
of their obligations under this Agreement, including without limitation those
related to (i) the filing of the Registration Statement and all amendments
thereto, (ii) the preparation, issuance and delivery of the Notes, (iii) the
fees and disbursements of Katten Muchin & Zavis, as special counsel for the
Seller and HFC, and Arthur Andersen LLP, accountants of the Seller and HFC, (iv)
the qualification of the Notes under securities and Blue Sky laws and the
determination of the eligibility of the Notes for investment in accordance with
the provisions of Section 6(f) including filing fees, and the fees and
disbursements of Brown & Wood LLP, as counsel for the Underwriters (not to
exceed $28,000), in connection therewith and in connection with the preparation
of any Blue Sky Survey, (v) the printing and delivery to the Underwriters, in
such quantities as the Underwriters may reasonably request, of copies of the
Registration Statement and Prospectus and all amendments and supplements
thereto, and of any Blue Sky Survey, (vi) the delivery to the Underwriters, in
such quantities as the Underwriters may reasonably request, of copies of the
Basic Documents and (vii) the fees charged by nationally recognized statistical
rating agencies for rating the Notes, and (viii) the fees and expenses of the
Deposit Trustee, the Indenture Trustee and the Owner Trustee and their counsel,
respectively.
If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section 7, the Seller, the Credit Line Owners and HFC shall
reimburse the Underwriters for all reasonable out-of-pocket expenses, including
the fees and disbursements of Brown & Wood LLP, as counsel for the Underwriters.
SECTION 9. Indemnification. (a) HFC and the Seller jointly and
severally agree to indemnify and hold harmless the Underwriters
-26-
<PAGE> 27
and each person, if any, who controls the Underwriters within the meaning of
Section 15 of the Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
information deemed to be a part of the Registration Statement pursuant
to Rule 430A under the Act, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out
of any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless (a) such untrue
statement or omission or alleged untrue statement or omission was made
in reliance upon and in conformity with written information furnished
to the Seller, or information electronically transmitted to the Seller
by the Underwriters expressly for use in the Registration Statement (or
any amendment thereto) or (b) such loss, liability, claim, damage or
expense is incurred by an Underwriter solely as a result of the
dissemination by it of Derived Information in violation of Section
2(a), 2(b) or 2(c) hereof;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of the Seller; and
(iii) against any and all expense whatsoever (including
the fees and disbursements of counsel chosen by the Underwriters) as
reasonably incurred in investigating, preparing to defend or defending
against or appearing as a third party witness with respect to any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, as such expense is incurred and
to the extent that any such expense is not paid under (i) or (ii)
above.
This indemnity agreement will be in addition to any liability which the
Seller may otherwise have.
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<PAGE> 28
(b) Each of the Underwriters severally agree to indemnify and hold
harmless the Seller, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Seller within
the meaning of Section 15 of the Act (each, an "Indemnified Party") against any
and all loss, liability, claim, damage and expense, as incurred, described in
the indemnity contained in subsection (a) of this Section 9, arising out of (i)
any untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Seller by such Underwriter expressly for
use in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto). The parties hereto acknowledge that
the only information supplied to the Seller by the Underwriter expressly for use
in the Registration Statement or the Prospectus is limited to the information
set forth in the last paragraph on the cover, the first paragraph on page 2 and
the second paragraph under the caption "Underwriting" in the Prospectus, and
(ii) and the Derived Information described below. This indemnity agreement will
be in addition to any liability which the Underwriters may otherwise have.
(c) Each Underwriter agrees to provide the Seller the Derived
Information as set forth in Section 2(b), for filing with the Commission on Form
8-K. Each Underwriter severally and not jointly agrees, assuming all
Seller-Provided Information (as defined below) is accurate and complete in all
material respects, to indemnify and hold harmless the Seller, each of the
Seller's officers and directors and each person who controls the Seller within
the meaning of Section 15 of the Act against all losses, claims, damages or
liabilities, joint or several, to which they may become subject under the Act 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 of a
material fact contained in the Derived Information provided by such Underwriter,
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 for any
legal or other expenses reasonably incurred by him, her or it in connection with
investigating or defending or preparing to investigate or defend any such loss,
claim, damage, liability or action as such expenses are incurred. The
obligations of an Underwriter under this Section 9(c) are in addition to any
liability which such Underwriter may otherwise have. The procedures set forth in
Section 9(d) shall be equally applicable to this Section 9(c).
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<PAGE> 29
"Derived Information" means the type of information defined as
Collateral Term Sheets, Structural Term Sheets or Computational Materials (as
such terms are interpreted in the No-Action Letters (as defined below)), if any,
that have been distributed to
prospective investors in written form that:
(i) is not contained in the Prospectus without taking
into account information incorporated therein by reference;
and
(ii) does not constitute Seller-Provided Information.
"Seller-Provided Information" means the information contained on any computer
tape furnished to the Underwriters by the Seller concerning the assets
comprising the Issuer.
The terms "Collateral Term Sheet" and "Structural Term Sheet" shall
have the respective meanings assigned to them in the February 13, 1995 letter
(the "PSA Letter") of Cleary, Gottlieb, Steen & Hamilton on behalf of the Public
Securities Association (which letter, and the Commission staff's response
thereto, were publicly available February 17, 1995). The term "Collateral Term
Sheet" as used herein includes any subsequent Collateral Term Sheet that
reflects a substantive change in the information presented. The term
"Computational Materials" has the meaning assigned to it in the May 17, 1994
letter (the "Kidder Letter" and together with the PSA Letter, the "No-Action
Letters") of Brown & Wood on behalf of Kidder, Peabody & Co., Inc. (which
letter, and the Commission staff's response thereto, were publicly available May
20, 1994).
(d) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it with respect to which
indemnity may be sought hereunder but failure to so notify an indemnifying party
shall not relieve it from any liability which it may have hereunder unless it
has been materially prejudiced by such failure to notify or from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of such
action. In no event shall the indemnifying parties be liable for the fees and
expenses of more than one counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
unless (i) if the defendants in any such action include one or more of the
indemnified parties and the indemnifying party, one or more of the indemnified
parties shall have employed separate counsel after having reasonably concluded
that there may be legal defenses available to it or them that are different from
or additional to those available to the indemnifying party or to one or more of
the other indemnified parties or (ii) the indemnifying party shall not
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<PAGE> 30
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of the
commencement of the action.
SECTION 10. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 9 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, HFC and the Seller on the one
hand, and the Underwriters (or Underwriter, if such loss, liability, claim,
damage or expense arises solely as a result of such Underwriter's breach of a
representation and warranty set forth in Section 2(a), 2(b) or 2(c) hereof), on
the other, shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Seller and one or more of the Underwriters (i) except for any
Underwriter's indemnification arising solely from a breach of its representation
and warranty set forth in Section 2(a), 2(b) or 2(c) hereof, in such proportion
as is appropriate to reflect the relative benefits to HFC and the Seller on the
one hand and the Underwriters or such Underwriter in the case of a breach of a
representation or warranty set forth in Section 2(a), 2(b) or 2(c) hereof on the
other in connection with the matter to which the indemnification relates, which
relative benefits shall be deemed to be in such proportions that the
Underwriters are responsible for that portion represented by the percentage that
the underwriting discount on the cover of the Prospectus as amended or
supplemented bears to the initial public offering price as set forth thereon,
and HFC and the Seller shall be jointly and severally responsible for the
balance or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law or otherwise prohibited hereby, 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 HFC and the Seller on the one hand and the
Underwriters or Underwriter, as applicable, on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations; provided, however, that 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. 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 HFC or the Seller, on the one hand, or the Underwriters,
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. HFC, the Seller and the Underwriters agree that it would not be just
and equitable if
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<PAGE> 31
contributions pursuant to this Section 10 were to be 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 into account
the equitable considerations referred to in the first sentence of this Section
10. The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to in the first
sentence of this Section 10 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating, preparing to defend or defending against any action or claim
which is the subject of this Section 10. Notwithstanding the provisions of this
Section 10, except for any loss, claim, damage, liability or expense resulting
solely from a breach of any Underwriter's breach of the representation and
warranty set forth in Section 2(a) or 2(b) hereof, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Notes underwritten by such Underwriter 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 in respect of such losses,
liabilities, claims, damages and expenses. The Underwriters' obligations in this
Section 10 to contribute are several in proportion to their respective
underwriting obligations and not joint and no Underwriter shall be required to
contribute to any loss, liability, claim, damage or expense as a result of
another Underwriter's breach of the representation and warranty set forth in
Section 2(a) or 2(b) hereof. Each party entitled to contribution agrees that
upon the service of a summons or other initial legal process upon it in any
action instituted against it in respect to which contribution may be sought, it
shall promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom contribution
may be sought for any obligation it may have hereunder or otherwise (except as
specifically provided in Section 9 hereof). For purposes of this Section 10,
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act shall have the same rights to contribution as such Underwriter and
each respective director of the Seller, each respective officer of the Seller
who signed the Registration Statement, and each person, if any, who controls the
Seller within the meaning of Section 15 of the Act shall have the same rights to
contribution as the Seller.
SECTION 11. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Credit Line Owners,
the Seller or HFC submitted pursuant hereto shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of the
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<PAGE> 32
Underwriters or controlling person thereof, or by or on behalf of the Credit
Line Owners, the Seller or HFC and shall survive delivery of any Notes to the
Underwriters.
SECTION 12. Termination of Agreement. You, as representative of the
Underwriters, may terminate this Agreement, immediately upon notice to the
Seller, at any time at or prior to the Closing Time (i) if there has been an
outbreak or material escalation of hostilities involving the United States of
America where armed conflict appears imminent, or the declaration by the United
States of America of a national emergency or war, if the effect of any such
event in the Underwriter's reasonable judgment makes it impracticable or
inadvisable to proceed with the public offering of the Notes or (ii) if trading
generally on the New York Stock Exchange has been suspended, or minimum prices
have been established by the exchange or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by either
federal or New York State authorities. In the event of any such termination, the
covenant set forth in subsection 6(b), the provisions of Section 8, the
indemnity agreement set forth in Section 9, and the provisions of Sections 10
and 15 shall remain in effect.
SECTION 13. Default by One or More of the Underwriters. If one or more
of the Underwriters participating in the public offering of the Notes shall fail
at the Closing Time to purchase the Notes which it is (or they are) obligated to
purchase hereunder (the "Defaulted Certificates"), then such of the
non-defaulting Underwriters shall have the right, within 24 hours thereafter, to
make arrangements for one or more of the non-defaulting Underwriters, or any
other underwriters, to purchase all, but not less than all, of the Defaulted
Certificates in such amounts as may be agreed upon and upon the terms herein set
forth. If, however, the Underwriters have not completed such arrangements within
such 24-hour period, then:
(i) if the aggregate principal amount of Defaulted
Certificates does not exceed 10% of the aggregate principal amount of
the Notes to be purchased pursuant to this Agreement, the
non-defaulting Underwriters named in this Agreement shall be obligated
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all such non-defaulting Underwriters, or
(ii) if the aggregate principal amount of Defaulted
Certificates exceeds 10% of the aggregate principal amount of the Notes
to be purchased pursuant to this Agreement, this Agreement shall
terminate, without any liability on the part of any non-defaulting
Underwriters.
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<PAGE> 33
No action taken pursuant to this Section 13 shall relieve any
defaulting Underwriter from the liability with respect to any default of such
Underwriter under this Agreement.
In the event of a default by the Underwriters as set forth in this
Section 13, either the Underwriters or the Seller shall have the right to
postpone the Closing Time for a period not exceeding five Business Days in order
that any required changes in the Registration Statement or Prospectus or in any
other documents or arrangements may be effected.
SECTION 14. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to them at the address set forth on the first
page hereof. Notices to the Seller or HFC shall be directed to Household Finance
Corporation, 2700 Sanders Road, Prospect Heights, Illinois 60070, to the
attention of the Secretary, with a copy to the Treasurer.
SECTION 15. Parties. This Agreement shall inure to the benefit of and
be binding upon the Underwriter, the Credit Line Owners, the Seller and HFC, and
their respective successors. Nothing expressed or mentioned in this Agreement is
intended nor shall it be construed to give any person, firm or corporation,
other than the parties hereto or thereto and their respective successors and the
controlling persons and officers and directors referred to in Sections 9 and 10
and their heirs and legal representatives any legal or equitable right, remedy
or claim under or with respect to this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the parties and their respective
successors and said controlling persons and officers and directors and their
heirs and legal representatives (to the extent of their rights as specified
herein and therein) and except as provided above for the benefit of no other
person, firm or corporation. No purchaser of Notes from the Underwriter shall be
deemed to be a successor by reason merely of such purchase.
SECTION 16. Governing Law and Time. This Agreement shall be governed by
the law of the State of New York and shall be construed in accordance with such
law. Specified times of day refer to New York City time.
SECTION 17. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original of any party whose
signature appears on it, and all of which shall together constitute a single
instrument.
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<PAGE> 34
If the foregoing is in accordance with the Underwriters' understanding
of our agreement, please sign and return to us a counterpart hereof, whereupon
this instrument along with all counterparts will become a binding agreement
among the Underwriters, the Seller, HFC and the Credit Line Owners in accordance
with its terms.
Very truly yours,
HOUSEHOLD CONSUMER LOAN CORPORATION
By:
---------------------------------------
Name:
Title:
HOUSEHOLD FINANCE CORPORATION
By:
---------------------------------------
Name:
Title:
<PAGE> 35
HOUSEHOLD REALTY CORPORATION,
HOUSEHOLD FINANCE CORPORATION OF
CALIFORNIA,
HOUSEHOLD FINANCE CORPORATION II,
HOUSEHOLD FINANCE CORPORATION III,
HOUSEHOLD FINANCE INDUSTRIAL LOAN
COMPANY,
HOUSEHOLD FINANCE REALTY CORPORATION
OF NEW YORK,
HOUSEHOLD FINANCIAL CENTER, INC.,
HOUSEHOLD FINANCE CORPORATION OF
NEVADA,
HOUSEHOLD FINANCE REALTY CORPORATION
OF NEVADA,
HOUSEHOLD INDUSTRIAL LOAN COMPANY
OF KENTUCKY,
HOUSEHOLD FINANCE INDUSTRIAL LOAN
COMPANY OF IOWA,
HOUSEHOLD FINANCE CONSUMER DISCOUNT
COMPANY,
HOUSEHOLD INDUSTRIAL FINANCE
COMPANY, AND
MORTGAGE ONE CORPORATION
By:
---------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED, as of
the date first above written:
LEHMAN BROTHERS INC.,
as Representative of the Underwriters
By:
-------------------------------------
Name:
Title:
<PAGE> 36
SCHEDULE A
UNDERWRITING
<TABLE>
<CAPTION>
Class A-1 Notes Purchase Price
- --------------- --------------
<S> <C>
Total........................................$
-------------
Class A-2 Notes
Total........................................$
-------------
Class A-3 Notes
Total........................................$
-------------
</TABLE>
-36-
<PAGE> 37
EXHIBIT A
Opinion of John W. Blenke, Esq.
Section 7(c) of the Underwriting Agreement
March ___, 1997
LEHMAN BROTHERS INC.,
as Representative of the Underwriters
World Financial Center
Three World Financial Center
New York, New York 10285
Re: Household Consumer Loan Asset
Backed Notes and Certificates,
Series 1997-1
Ladies and Gentlemen:
I address this opinion to the Underwriters pursuant to Section 7(c) of
the Underwriting Agreement dated March ___, 1997 (the "Underwriting Agreement")
among Household Consumer Loan Corporation (the "Seller"), Household Finance
Corporation, a Delaware corporation (the "Company"), Household Realty
Corporation, Household Finance Corporation of California, Household Finance
Corporation II, Household Finance Corporation III, Household Finance Industrial
Loan Company, Household Finance Realty Corporation of New York, Household
Financial Center, Inc., Household Finance Corporation of Nevada, Household
Finance Realty Corporation of Nevada, Household Industrial Loan Company of
Kentucky, Household Finance Industrial Loan Company of Iowa, Household Finance
Consumer Discount Company, Household Industrial Finance Company, and Mortgage
One Corporation (collectively, the "Credit Line Owners" and each individually, a
"Credit Line Owner") and the underwriters referred to therein (together, the
"Underwriters"). The Seller has entered into a Trust Agreement dated as of March
1, 1997 (the "Trust Agreement") with Chase Manhattan Bank Delaware (the "Owner
Trustee"), creating Household Consumer Loan Trust 1997-1 (the "Issuer"), a
statutory business trust established under the laws of the State of Delaware.
The Seller proposes to direct the Owner Trustee pursuant to the Trust Agreement
to cause the Issuer to issue Household Consumer Loan Asset Backed Notes, Series
1997-1, Class A and Class B (the "Notes") and Household Consumer Loan Asset
Backed Certificates, Series 1997-1 (the "Certificates" and, together with the
Notes, the "Securities"). Only the Class A Notes are being purchased by the
Underwriters [ ].
A-1
<PAGE> 38
The Notes will be issued pursuant to an Indenture dated as of March 1,
1997 (the "Indenture") between the Issuer and The Bank of New York (the
"Indenture Trustee") and will represent indebtedness of the Issuer. The
Certificates will be issued pursuant to the Trust Agreement. The Notes will be
secured by (i) a participation interest (the "Series 1997-1 Participation
Interest") in (a) receivables held in Household Consumer Loan Deposit Trust I
(the "Deposit Trust") originated under certain fixed and variable rate revolving
secured and unsecured consumer credit lines (the "Credit Lines") and (b) certain
other participation interests, (ii) amounts on deposit in certain accounts of
the Issuer held for the benefit of the holders of the Securities, and (iii) an
assignment of the Issuer's rights under the Series 1997-1 Supplement (as defined
below) (collectively, the "Trust Assets"). The Deposit Trust was formed pursuant
to a Pooling and Servicing Agreement dated as of September 1, 1995 (the "Base
Pooling and Servicing Agreement") among the Seller, the Company, as Servicer
(the "Servicer") and Texas Commerce Bank National Association as successor
trustee to The Chase Manhattan Bank, N.A., as Deposit Trustee (the "Deposit
Trustee"). The Series 1997-1 Participation Interest was issued pursuant to the
Supplement for Series 1997-1 dated as of March 1, 1997 among the Seller, the
Servicer and the Deposit Trustee (the "Supplement" and together with the Base
Pooling and Servicing Agreement, the "Pooling and Servicing Agreement"). The
Pooling and Servicing Agreement, together with the Trust Agreement, the
Certificate of Trust thereto, the Indenture, the Receivables Purchase Agreement,
the Administration Agreement and the Underwriting Agreement constitute the
"Basic Documents" herein. Capitalized terms used herein shall have the meanings
ascribed to them in the Underwriting Agreement unless herein otherwise defined.
As Vice President--Corporate Law and the Secretary of Household
International, Inc., a Delaware corporation, the ultimate parent corporation of
the Company, the Seller and each of the Credit Line Owners, I, or the attorneys
under my supervision have, among other things (i) participated in the
preparation of the Pooling and Servicing Agreement and (ii) cooperated with
officers of the Seller and the Company, representatives of the Underwriters and
independent accountants in the preparation of the Registration Statement on Form
S-3 and S-1 (Registration Nos. 333-20147, 333-20147-01 and 333-20147-02) filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and the Prospectus dated March
___, 1997 in the form in which it was transmitted for filing with the Commission
pursuant to Rule 424(b) of the Rules and Regulations under the Act (the "Final
Prospectus").
I advise you that in my opinion:
A-2
<PAGE> 39
(i) The Pooling and Servicing Agreement is not required to be
qualified and the Indenture has been duly qualified under the Trust Indenture
Act;
(ii) None of the Seller, the Deposit Trust or the Owner Trust is
an "investment company" or under the "control" of an "investment company" as
such terms are defined in the Investment Company Act of 1940; and
(iii) The Notes and the Basic Documents that are described in the
Final Prospectus conform in all material respects to the respective descriptions
thereof in the Final Prospectus.
The opinions set forth herein are subject to the following
qualifications:
No opinion is expressed as to the effect of the compliance or
noncompliance of the Seller, Credit Line Owners, Servicer, Deposit Trustee,
Owner Trustee or Indenture Trustee with any state or federal laws or regulations
applicable to them because of their legal or regulatory status or the nature of
their respective businesses and to the extent that the opinions set forth herein
relate to the due authorization, execution and delivery of the Pooling and
Servicing Agreement and the Certificates.
I, or the attorneys under my supervision, have examined originals, or
copies of originals certified to my satisfaction, of such agreements, documents,
certificates and other statements of public officials and responsible officers
of each of the Seller, Company, Deposit Trustee, Owner Trustee and Indenture
Trustee and other papers and matters of fact and law as I have deemed relevant
and necessary as a basis for the opinions I expressed herein. I have relied,
with respect to factual matters, on representations and warranties made by, and
on certificates and other documents furnished by responsible officers of each of
the Deposit Trustee, Owner Trustee, Indenture Trustee, the Seller and the
Servicer. In expressing the foregoing opinions, I have assumed, with the
Underwriters' permission, (i) the authenticity of all documents submitted to me
as originals and the conformity with the original documents of any copies of
such documents submitted to me for my examination, (ii) that each of the Seller,
Deposit Trustee, Owner Trustee and Indenture Trustee has been duly organized and
is validly existing and in good standing under the laws of its jurisdiction of
incorporation and (iii) the due execution and delivery, pursuant to due
authorization, of the agreements and documents referred to above by the Trustee.
A-3
<PAGE> 40
The opinions expressed herein are only with respect to federal laws of
the United States and the laws of the State of Illinois. I consent to the
reliance on this opinion by Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies, Inc., and Moody's Investors Service, Inc. Subject to
the foregoing sentence, this opinion is solely for the Underwriters' benefit and
may not be relied upon by, nor copies be delivered to, any other person without
my prior written consent.
Very truly yours,
A-4
<PAGE> 1
EXHIBIT 4.1
================================================================================
HOUSEHOLD CONSUMER LOAN CORPORATION,
as Seller and
Holder of the
Designated Certificate
and
CHASE MANHATTAN BANK DELAWARE,
as Owner Trustee
-----------------------------------------
FORM OF TRUST AGREEMENT
Dated as of March 1, 1997
------------------------------------------
Consumer Loan Asset Backed Certificates,
Series 1997-1
================================================================================
<PAGE> 2
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I
Definitions
1.01. Definitions..................................................................... 1
1.02. Other Definitional Provisions................................................... 1
ARTICLE II
Organization
2.01. Name............................................................................ 3
2.02. Office.......................................................................... 3
2.03. Purposes and Powers............................................................. 3
2.04. Appointment of Owner Trustee.................................................... 4
2.05. Initial Capital Contribution of Owner Trust
Estate.......................................................................... 4
2.06. Declaration of Trust............................................................ 4
2.07. Liability of the Holder of the Designated
Certificate..................................................................... 5
2.08. Title to Trust Property......................................................... 5
2.09. Location of Corporate Trust Office.............................................. 5
2.10. Representations and Warranties and Covenants
of HCLC......................................................................... 5
ARTICLE III
Conveyance of the Series 1997-1 Participation Interest;
Certificates
3.01. Conveyance of the Series 1997-1 Participation
Interest........................................................................ 8
3.02. Initial Ownership............................................................... 8
3.03. The Certificates................................................................ 8
3.04. Authentication of Certificates.................................................. 9
3.05. Registration of and Limitations on Transfer
and Exchange of Certificates.................................................... 9
3.06. Mutilated, Destroyed, Lost or Stolen Certif-
icates.......................................................................... 12
3.07. Persons Deemed Certificateholders............................................... 12
3.08. Access to List of Certificateholders' Names
and Addresses................................................................... 12
3.09. Maintenance of Office or Agency................................................. 13
3.10. Certificate Paying Agent........................................................ 13
3.11. Ownership by HCLC............................................................... 14
3.12. RESERVED........................................................................ 14
3.13. Optional Repurchase of the Series 1997-1
Participation Interest.......................................................... 14
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
ARTICLE IV
Actions by Owner Trustee
4.01. Prior Notice to Certificateholders with
Respect to Certain Matters...................................................... 16
4.02. Action by Certificateholders with Respect to
Certain Matters................................................................. 17
4.03. Action by Certificateholders with Respect to
Bankruptcy...................................................................... 17
4.04. Restrictions on Certificateholders' Power....................................... 17
4.05. Majority Control................................................................ 17
ARTICLE V
Application of Trust Funds
5.01. Distributions................................................................... 18
5.02. Method of Payment............................................................... 18
5.03. Signature on Returns............................................................ 19
5.04. Statements to Certificateholders................................................ 19
5.05. Tax Reporting; Tax Elections.................................................... 19
5.06. Capital Accounts................................................................ 19
ARTICLE VI
Authority and Duties of Owner Trustee
6.01. General Authority............................................................... 22
6.02. General Duties.................................................................. 22
6.03. Action upon Instruction......................................................... 22
6.04. No Duties Except as Specified in this Trust
Agreement or in Instructions.................................................... 23
6.05. No Action Except Under Specified Documents or
Instructions.................................................................... 24
6.06. Restrictions.................................................................... 24
ARTICLE VII
Concerning the Owner Trustee
7.01. Acceptance of Trusts and Duties................................................. 25
7.02. Furnishing of Documents......................................................... 26
7.03. Representations and Warranties.................................................. 26
7.04. Reliance; Advice of Counsel..................................................... 27
7.05. Not Acting in Individual Capacity............................................... 27
7.06. Owner Trustee Not Liable for Certificates....................................... 27
7.07. Owner Trustee May Own Certificates and Notes.................................... 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
ARTICLE VIII
Compensation of Owner Trustee
8.01. Owner Trustee's Fees and Expenses............................................... 29
8.02. Indemnification................................................................. 29
ARTICLE IX
Termination of Trust Agreement
9.01. Termination of Trust Agreement.................................................. 31
9.02. Dissolution upon Bankruptcy of the Holder of
the Designated Certificate...................................................... 32
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
10.01. Eligibility Requirements for Owner Trustee...................................... 34
10.02. Resignation or Removal of Owner Trustee......................................... 34
10.03. Successor Owner Trustee......................................................... 35
10.04. Merger or Consolidation of Owner Trustee........................................ 35
10.05. Appointment of Co-Trustee or Separate
Trustee......................................................................... 36
ARTICLE XI
Miscellaneous
11.01. Amendments...................................................................... 38
11.02. No Legal Title to Owner Trust Estate in
Certificateholders.............................................................. 39
11.03. Limitations on Rights of Others................................................. 39
11.04. Notices......................................................................... 39
11.05. Severability.................................................................... 40
11.06. Separate Counterparts........................................................... 40
11.07. Successors and Assigns.......................................................... 40
11.08. Covenants of the Seller......................................................... 40
11.09. No Petition..................................................................... 40
11.10. No Recourse..................................................................... 41
11.11. Headings........................................................................ 41
11.12. Governing Law................................................................... 41
11.13. Integration..................................................................... 41
Signatures ........................................................................................ 40
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A - Form of Certificate.................................................................... A-1
Exhibit B - RESERVED............................................................................... B-1
Exhibit C - Certificate of Trust of Household
Consumer Loan Trust 1997-1..................................................... C-1
Exhibit D - Form of 144A Investment Letter......................................................... D-1
Exhibit E - Definitions............................................................................ E-1
Exhibit F - Form of Certificate of Non-Foreign Status.............................................. F-1
Exhibit G - Form of Investment Letter
for Accredited Investors............................................................... G-1
</TABLE>
iv
<PAGE> 6
This Trust Agreement, dated as of March 1, 1997 (as amended from time
to time, this "Trust Agreement"), between HOUSEHOLD CONSUMER LOAN CORPORATION, a
Nevada corporation, as Seller and as Holder of the Designated Certificate
("HCLC", the "Seller", and the "Designated Certificateholder" as the context
requires) and CHASE MANHATTAN BANK DELAWARE, a Delaware banking corporation, as
Owner Trustee (the "Owner Trustee"),
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, HCLC and
the Owner Trustee agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Trust Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Definitions attached hereto as Exhibit E, which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
SECTION 1.02. Other Definitional Provisions.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust Agreement or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this Trust
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Trust Agreement shall refer to this Trust Agreement as
a whole and not to any particular provision of this Trust Agreement; Section and
Exhibit references contained in this Trust Agreement are references to Sections
and Exhibits in or to this Trust Agreement unless otherwise speci-
<PAGE> 7
fied; and the term "including" shall mean "including without limitation".
(d) The definitions contained in this Trust Agreement 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.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
2
<PAGE> 8
ARTICLE II
Organization
Section 2.01. Name. The trust created hereby (the "Issuer") shall be
known as "Household Consumer Loan Trust 1997- 1," in which name the Owner
Trustee may conduct the business of the Issuer, make and execute contracts and
other instruments on behalf of the Issuer and sue and be sued.
Section 2.02. Office. An office of the Issuer shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders
and the Seller.
Section 2.03. Purposes and Powers. The purpose of the Issuer is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Trust Agreement and to sell the Notes and
the Certificates;
(ii) to purchase the Series 1997-1 Participation Interest and
to pay or cause to be paid its organizational, start-up and
transactional expenses;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Indenture Trust Estate pursuant to the Indenture and to hold,
manage and distribute to the Certificateholders pursuant to Section
5.01 any portion of the Indenture Trust Estate released from the Lien
of, and remitted to the Issuer pursuant to the Indenture;
(iv) to enter into and perform its obligations under the
Basic Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith,
including, without limitation, to accept additional contributions of
equity that are not subject to the Lien of the Indenture; and
(vi) subject to compliance with the Basic Documents, to
engage in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholders and the Noteholders.
The Issuer is hereby authorized to engage in the foregoing activities. The
Issuer shall not engage in any activity other than in connection with the
foregoing or other than as required or autho-
3
<PAGE> 9
rized by the terms of this Trust Agreement or the Basic Documents.
Section 2.04. Appointment of Owner Trustee. The Seller hereby appoints
the Owner Trustee as trustee of the Issuer effective as of the date hereof, to
have all the rights, powers and duties set forth herein.
Section 2.05. Initial Capital Contribution of Owner Trust Estate. The
Seller hereby sells, assigns, transfers, conveys and sets over to the Issuer, as
of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges on
behalf of the Issuer, receipt in trust from the Seller, as of the date hereof,
of the foregoing contribution, which shall constitute the initial corpus of the
Issuer and shall be deposited in the Payment Account. The Owner Trustee also
acknowledges on behalf of the Issuer receipt of the other property transferred
and assigned to the Issuer pursuant to Section 3.01, which shall constitute the
Owner Trust Estate. The Seller shall pay or cause to be paid organizational
expenses of the Issuer as they may arise or shall, upon the request of the Owner
Trustee, promptly reimburse the Owner Trustee for any such expenses paid by the
Owner Trustee. The Seller shall execute and deliver any necessary state or
federal securities law filings on behalf of the Issuer.
Section 2.06. Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate on behalf of the Issuer in trust upon
and subject to the conditions set forth herein for the use and benefit of the
Certificate- holders, subject to the obligations of the Issuer under the Basic
Documents. It is the intention of the parties hereto that the Issuer constitute
a business trust under the Business Trust Statute and that this Trust Agreement
constitute the governing instrument of such business trust. It is the intention
of the parties hereto that, for income and franchise tax purposes, the Issuer
shall be treated as a partnership, with the assets of the partnership being the
Owner Trust Estate, the partners of the partnership being the
Certificateholders, and the Notes being debt of the partnership. Except as
otherwise provided in this Trust Agreement, the rights of the Certificateholders
(other than the Holder of the Designated Certificate) will be those of limited
partners and the rights of the Holder of the Designated Certificate, subject to
Section 6.03 hereof, will be those of a general partner in a partnership formed
under the Delaware Revised Uniform Limited Partnership Act. The parties agree
that, unless otherwise required by appropriate tax authorities, the Issuer will
file or cause to be filed annual or other necessary returns, reports and other
forms consistent with the characterization of the Issuer as a partnership for
such tax purposes. Effective as of the date hereof, the Owner Trustee shall have
all rights, powers and duties set forth herein and in the Business Trust Statute
with respect to accomplishing the purposes of the Issuer. The Owner Trustee has
filed with the
4
<PAGE> 10
Secretary of State of the State of Delaware a Certificate of Trust of the
Issuer.
Section 2.07. Liability of the Holder of the Designated Certificate.
(a) The Holder of the Designated Certificate shall be liable directly to and
will indemnify any injured party for all losses, claims, damages, liabilities
and expenses of the Issuer (including Expenses, to the extent not paid out of
the Owner Trust Estate) to the extent that the Holder of the Designated
Certificate would be liable if the Issuer were a partnership under the Delaware
Revised Uniform Limited Partnership Act in which the Holder of the Designated
Certificate were a general partner; provided, however, that the Holder of the
Designated Certificate shall not be liable for payments required to be made on
the Notes or the Certificates, or for any losses incurred by a Certificateholder
in the capacity of an investor in the Certificates or a Noteholder in the
capacity of an investor in the Notes. In addition, any third party creditors of
the Issuer (other than in connection with the obligations described in the
preceding sentence for which the Holder of the Designated Certificate shall not
be liable) shall be deemed third party beneficiaries of this paragraph. The
obligations of the Holder of the Designated Certificate under this paragraph
shall be evidenced by the Designated Certificate.
(b) Subject to subsection (a) above, the Certificateholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
Section 2.08. Title to Trust Property. Legal title to the Owner Trust
Estate shall be vested at all times in the Issuer as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
Section 2.09. Location of Corporate Trust Office. All bank accounts
maintained by the Owner Trustee on behalf of the Issuer shall be located in the
State of Delaware or the State of New York. The Issuer shall not have any
employees; provided, however, that nothing herein shall restrict or prohibit the
Owner Trustee from having employees within or without the State of Delaware or
taking actions outside the State of Delaware in order to comply with Section
2.03. Payments will be received by the Issuer only in Delaware or New York, and
payments will be made by the Issuer only from Delaware or New York. The Owner
Trustee shall maintain its Corporate Trust Office in the State of Delaware.
5
<PAGE> 11
Section 2.10. Representations and Warranties and Covenants of HCLC. (a)
The Seller hereby represents and warrants to the Owner Trustee that:
(i) The Seller is duly organized and validly existing as a
corporation in good standing under the laws of the State of Nevada,
with power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted.
(ii) The Seller is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business shall require such
qualifications and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or
condition (financial or other) of the Seller.
(iii) The Seller has the power and authority to execute and
deliver this Trust Agreement and to carry out its terms; the Seller has
full power and authority to sell and assign the property to be sold and
assigned to and deposited with the Issuer and the Seller has duly
authorized such sale and assignment and deposit to the Issuer by all
necessary corporate action; and the execution, delivery and performance
of this Trust Agreement have been duly authorized by the Seller by all
necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Trust Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default
under, the articles of incorporation or bylaws of the Seller, or any
indenture, agreement or other instrument to which the Seller is a party
or by which it is bound; nor result in the creation or imposition of
any Lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than pursuant to the
Basic Documents); nor violate any law or, to the best of the Seller's
knowledge, any order, rule or regulation applicable to the Seller of
any court or of any federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over
the Seller or its properties.
(v) To the Seller's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its properties:
(A) asserting the invalidity of this Trust Agreement, (B) seeking to
prevent the consum-
6
<PAGE> 12
mation of any of the transactions contemplated by this Trust Agreement
or (C) seeking any determination or ruling that might materially and
adversely affect the performance by the Seller of its obligations
under, or the validity or enforceability of, this Trust Agreement.
(vi) Immediately prior to the conveyance by the Seller to
the Issuer of the Series 1997-1 Participation Interest as contemplated
by Section 3.01 hereof, the Seller owned the Series 1997-1
Participation Interest free and clear of any Lien.
7
<PAGE> 13
ARTICLE III
Conveyance of the Series 1997-1 Participation Interest;
Certificates
Section 3.01. Conveyance of the Series 1997-1 Participation Interest.
The Seller, concurrently with the execution and delivery hereof, does hereby
transfer, convey, sell and assign to the Issuer, on behalf of the Holders of the
Notes and the Certificates, without recourse, all its right, title and interest
in and to the Series 1997-1 Participation Interest free and clear of any Liens,
and all monies and the collections and proceeds due thereon and any part thereof
which consists of general intangibles (as defined in the UCC) (the "Owner Trust
Estate"). Simultaneous therewith and in consideration thereof, the Seller shall
receive from the Issuer the Securities, including the Designated Certificate,
and the obligation of the Issuer to pay an amount equal to a deferred stream of
payments represented by the Holdback Amount in accordance with Section 3.05 of
the Indenture.
The parties hereto intend that the transaction set forth herein be a
sale by the Seller to the Issuer of all of its right, title and interest in and
to the Series 1997-1 Participation Interest and the other property described
above. In the event that the transaction set forth herein is not deemed to be a
sale, the Seller hereby grants to the Issuer a security interest in all of its
right, title and interest in, to and under the Owner Trust Estate, all
distributions thereon and all proceeds thereof; and this Trust Agreement shall
constitute a security agreement under applicable law.
Section 3.02. Initial Ownership. Upon the formation of the Issuer by
the contribution by the Seller pursuant to Section 2.05 and until the conveyance
of the Series 1997-1 Participation Interest pursuant to Section 3.01 and the
issuance of the Certificates, the Seller shall be the sole beneficiary of the
Issuer.
Section 3.03. The Certificates. The Certificates shall be issued in
minimum denominations of $1,000,000 and in integral multiples of $100,000 in
excess thereof; except for one Certificate that may not be in an integral
multiple of $100,000; provided, however, that the Designated Certificate issued
pursuant to Section 3.11 may be issued in the amount of $__________. The
Certificates may not be subdivided for resale into units that had a Security
Balance of less than $1,000,000 upon the Closing Date. The Certificates shall be
executed on behalf of the Issuer by manual or facsimile signature of an
authorized officer of the Owner Trustee and authenticated in the manner provided
in Section 3.04. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on
8
<PAGE> 14
behalf of the Issuer, shall be validly issued and entitled to the benefit of
this Trust Agreement, notwithstanding that such individuals or any of them shall
have ceased to be so authorized prior to the authentication and delivery of such
Certificates or did not hold such offices at the date of authentication and
delivery of such Certificates. A Person shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such Person's acceptance of a Certificate duly
registered in such Person's name, pursuant to Section 3.05. Each Person who
shall become a Certificateholder shall establish its non-foreign status by
submitting to the Certificate Paying Agent an IRS Form W-9 and the Certificate
of Non-Foreign Status set forth in Exhibit F hereto.
A transferee of a Certificate shall become a Certificate-holder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to and upon satisfaction of
the conditions set forth in Section 3.05.
Section 3.04. Authentication of Certificates. Concurrently with the
acquisition of the Series 1997-1 Participation Interest by the Issuer, the Owner
Trustee shall cause the Certificates in an aggregate principal amount equal to
the Initial Principal Balance of the Certificates to be executed on behalf of
the Issuer, authenticated and delivered to or upon the written order of the
Seller, signed by its chairman of the board, its president, any vice president,
secretary, treasurer or any assistant treasurer, without further corporate
action by the Seller, in authorized denominations. No Certificate shall entitle
its holder to any benefit under this Trust Agreement or be valid for any purpose
unless there shall appear on such Certificate a certificate of authentication
substantially in the form set forth in Exhibit A, executed by the Owner Trustee
or The Bank of New York, as the Issuer's authenticating agent, by manual
signature; such authentication shall constitute conclusive evidence that such
Certificate shall have been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
Section 3.05. Registration of and Limitations on Transfer and Exchange
of Certificates. The Certificate Registrar shall keep or cause to be kept, at
the office or agency maintained pursuant to Section 3.09, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. The Bank of New York shall be the
initial Certificate Registrar.
Subject to satisfaction of the conditions set forth below and to the
provisions of Section 3.11 with respect to the Desig-
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nated Certificate, upon surrender for registration of transfer of any
Certificate at the office or agency maintained pursuant to Section 3.09, the
Issuer shall execute, authenticate and deliver (or shall cause The Bank of New
York as its authenticating agent to authenticate and deliver) in the name of the
designated transferee or transferees, one or more new Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder,
Certificates may be exchanged for other Certificates of authorized denominations
of a like aggregate amount upon surrender of the Certificates to be exchanged at
the office or agency maintained pursuant to Section 3.09.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Certificate Registrar in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
No transfer of a Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, the Certificate Registrar or the Seller
shall require the transferee to execute (i) (a) an investment letter (in
substantially the form attached hereto as Exhibit D) in form and substance
reasonably satisfactory to the Certificate Registrar and the Seller certifying
to the Issuer, the Owner Trustee, the Certificate Registrar and the Seller that
such transferee is a "qualified institutional buyer" under Rule 144A under the
Securities Act, or (b) an investment letter (in substantially the form attached
hereto as Exhibit G), acceptable to and in form and substance reasonably
satisfactory to the Certificate Registrar, which investment letters shall not be
an expense of the Issuer, the Owner Trustee, the Certificate Registrar, the
Servicer or the Seller and (ii) the Certificate of Non-Foreign Status (in
substantially the form attached hereto as Exhibit F) acceptable to and in form
and substance reasonably satisfactory to the Certificate Registrar, which
certificate shall not be an expense of the Issuer, the Owner Trustee, the
Certificate Registrar, the Servicer, the Administrator or the Seller. The Holder
of a Certificate desiring to effect such transfer shall, and does hereby agree
to, indemnify the Issuer, the Owner Trustee, the
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Certificate Registrar, the Servicer and the Seller against any liability that
may result if the transfer is not so exempt or is not made in accordance with
such federal and state laws.
No transfer of a Certificate shall be made unless the Certificate
Registrar shall have received either (i) a representation letter from the
proposed transferee of such Certificate to the effect that such proposed
transferee is not an employee benefit plan subject to the fiduciary
responsibility provisions of ERISA, or Section 4975 of the Code, or a Person
acting on behalf of any such plan or using the assets of any such plan, or if
the proposed transferee is an insurance company, a representation that the
proposed transferee is an insurance company which is purchasing such
certificates with funds contained in an "insurance company general account" (as
such term is defined in section v(e) of prohibited transaction class exemption
95-60 ("ptce 95-60")) and that the purchase and holding of such certificates are
covered under ptce 95-60, which representation letter shall not be an expense of
the Issuer, Owner Trustee, the Certificate Registrar, the Servicer or the Seller
or (ii) in the case of any such certificate presented for registration in the
name of an employee benefit plan subject to the fiduciary responsibility
provisions of ERISA, or Section 4975 of the Code (or comparable provisions of
any subsequent enactments), or a trustee of any such plan, or any other Person
who is using the assets of any such plan to effect such acquisition, an Opinion
of Counsel, in form and substance reasonably satisfactory to, and addressed and
delivered to, the Issuer, the Certificate Registrar and the Seller, to the
effect that the purchase or holding of such Certificate will not result in the
assets of the Owner Trust Estate being deemed to be "plan assets" and subject to
the fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of the Code, will not constitute or result in a prohibited
transaction within the meaning of Section 406 or Section 407 of ERISA or Section
4975 of the Code, and will not subject the Issuer, the Owner Trustee, the
Certificate Registrar, the Servicer or the Seller to any obligation or liability
(including obligations or liabilities under ERISA or Section 4975 of the Code)
in addition to those explicitly undertaken in this Trust Agreement which Opinion
of Counsel shall not be an expense of the Issuer, the Owner Trustee, the
Certificate Registrar, the Servicer or Seller.
The Certificates shall not be listed for trading on an established
securities market, nor be readily tradeable on a secondary market, nor be
transferrable through the substantial equivalent of a secondary market, nor
shall the Issuer be permitted to have more than 100 partners, for income tax
purposes, all within the meaning of Code Section 7704, and its attendant
regulations, as applicable. If requested, in the discretion of the Seller,
transfer of a Certificate shall be made only if accompanied by an Opinion of
Counsel satisfactory to the Owner Trustee, which Opinion of Counsel shall not be
an expense
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of the Issuer, the Owner Trustee, the Servicer or the Seller, to the effect such
transfer will not cause the Issuer to be a publicly traded partnership taxable
as a corporation and will not cause the termination of the Issuer under the
federal income tax rules applicable to partnerships.
Each Certificateholder agrees to provide information to the
Administrator when so requested concerning the beneficial ownership of its
Certificates as necessary for the Issuer to assure its compliance with the
requirements for avoiding taxation at the entity level as a publicly traded
partnership or otherwise. Each Certificateholder agrees to restrict the transfer
of record ownership and beneficial ownership of its Certificates as requested by
the Administrator based upon applicable governmental regulation, rulings or
notices and any judicial decisions as may exist from time to time, as necessary
or advisable for avoiding the Issuer's treatment as a publicly-traded
partnership taxable as a corporation, or its termination for federal income tax
purposes under Code Section 708.
Section 3.06. Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Issuer, the Certificate Registrar and the Owner Trustee such security or
indemnity as may be required by them to save each of them harmless, then in the
absence of notice that such Certificate has been acquired by a bona fide
purchaser, the Owner Trustee on behalf of the Issuer shall execute and the Owner
Trustee or The Bank of New York, as the Issuer's authenticating agent, shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
denomination. In connection with the issuance of any new Certificate under this
Section 3.06, the Owner Trustee or the Certificate Registrar may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith. Any duplicate Certificate issued
pursuant to this Section 3.06 shall constitute conclusive evidence of ownership
in the Issuer, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
Section 3.07. Persons Deemed Certificateholders. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Certificate Paying Agent may treat the Person
in whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Issuer, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
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Section 3.08. Access to List of Certificateholders' Names and
Addresses. The Certificate Registrar shall furnish or cause to be furnished to
the Seller or the Owner Trustee, within 15 days after receipt by the Certificate
Registrar of a written request therefor from the Seller or the Owner Trustee, a
list, in such form as the Seller or the Owner Trustee, as the case may be, may
reasonably require, of the names and addresses of the Certificateholders as of
the most recent Record Date. If three or more Certificateholders or one or more
Holders of Certificates representing not less than 25% of the Security Balance
of the Certificates apply in writing to the Certificate Registrar, and such
application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under the Basic Documents or
under the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Certificate
Registrar shall, within five Business Days after the receipt of such
application, afford such applicants access during normal business hours to the
current list of Certificateholders. Each Holder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Issuer, the
Seller, the Holder of the Designated Certificate, the holder of the Holdback
Amount, the Certificate Registrar or the Owner Trustee accountable by reason of
the disclosure of its name and address, regardless of the source from which such
information was derived.
Section 3.09. Maintenance of Office or Agency. The Certificate
Registrar, on behalf of the Issuer, shall maintain in the city of New York, an
office or offices or agency or agencies where Certificates may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Owner Trustee in respect of the Certificates and the Basic Documents
may be served. The Issuer initially designates the Corporate Trust Office of the
Indenture Trustee as its office for such purposes. The Certificate Registrar
shall give prompt written notice to the Seller, the Owner Trustee, the Holder of
the Designated Certificate and the Certificateholders of any change in the
location of the Certificate Register or any such office or agency. The
Certificate Registrar shall immediately furnish to the Owner Trustee any notices
or demands to the Owner Trustee received by the Certificate Registrar at the
office maintained by it pursuant to this Section.
Section 3.10. Certificate Paying Agent. The Certificate Paying Agent
shall make distributions to Certificateholders from the Payment Account pursuant
to Section 3.05 of the Indenture. The Issuer may revoke such power and remove
the Certificate Paying Agent if the Administrator determines in its sole discre-
tion that the Certificate Paying Agent shall have failed to perform its
obligations under this Trust Agreement or as set forth in Section 3.03 of the
Indenture in any material respect; provided that at the time of such removal,
the Paying Agent shall also be removed by the Issuer under the Indenture. The
Bank of
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New York shall be permitted to resign as Certificate Paying Agent upon 30 days
written notice to the Owner Trustee; provided that The Bank of New York is also
resigning as Paying Agent under the Indenture at such time. In the event that
The Bank of New York shall no longer be the Certificate Paying Agent and Paying
Agent under the Indenture, the Administrator shall appoint a successor to act as
Certificate Paying Agent (which shall be a bank or trust company) and which
shall also be the successor Paying Agent under the Indenture. The Administrator
shall cause such successor Certificate Paying Agent or any additional
Certificate Paying Agent appointed by the Administrator to execute and deliver
to the Owner Trustee an instrument to the effect set forth in Section 3.03 of
the Indenture as it relates to the Certificate Paying Agent. The Certificate
Paying Agent shall return all unclaimed funds to the Issuer and upon removal of
a Certificate Paying Agent such Certificate Paying Agent shall also return all
funds in its possession to the Issuer. The provisions of Sections 7.01, 7.03,
7.04 and 8.01 shall apply to the Certificate Paying Agent to the extent
applicable. Any reference in this Agreement to the Certificate Paying Agent
shall include any co-paying agent unless the context requires otherwise.
Section 3.11. Ownership by HCLC. (a) HCLC shall receive on the Closing
Date, in partial consideration for the transfer of the Series 1997-1
Participation Interest, a Certificate representing at least 1% of the Initial
Principal Balance of the Certificates (the "Designated Certificate") and the
right to the entire payment stream represented by the Holdback Amount. The Owner
Trustee shall cause the Designated Certificate and any Successor Designated
Certificate created pursuant to Section 9.02 to contain a legend stating "THIS
CERTIFICATE IS NOT TRANSFERABLE EXCEPT UPON SATISFACTION OF THE CONDITIONS IN
SECTION 3.11(b) OF THE TRUST AGREEMENT." For purposes of the Business Trust
Statute, the Designated Certificate and any Successor Designated Certificate
shall be deemed to be a separate class of Certificates from all other
Certificates issued by the Issuer; provided that the rights and obligations
evidenced by all Certificates, regardless of class, shall, except as provided in
this Section, be identical.
(b) The Designated Certificate and Holdback Amount shall, for income
and franchise tax purposes, be treated as the general partnership interest of
the Issuer. The Designated Certificate shall at all times represent an
investment in the Issuer of not less than 1.00% of the capital represented by
all Certificates. The Designated Certificate and Holdback Amount shall not be
separately transferable. HCLC may transfer the Designated Certificate to an
Affiliate of HCLC if, (a) the applicable provisions of Section 3.05 are
satisfied and (b) the Certificate Registrar receives an Opinion of Counsel to
the effect that the transfer of the Designated Certificate shall not cause the
Issuer to be subject to an entity level tax. Otherwise, HCLC may transfer the
Designated Certificate if, (a) the conditions in
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clauses (a) and (b) in the preceding sentence are satisfied, (b) a majority in
interest by Security Balance of the Certificates (exclusive of the Designated
Certificate) approves such transfer, which will not be unreasonably withheld,
and (c) the Rating Agencies shall consent to such transfer.
Section 3.12. RESERVED
Section 3.13. Optional Repurchase of the Series 1997-1 Participation
Interest. (a) The Seller may, with 10 days prior written notice to the Owner
Trustee, Servicer and the Indenture Trustee, purchase the entire Series 1997-1
Participation Interest, on any Payment Date in which the Aggregate Security
Balance is equal to or less than ten percent of the initial Aggregate Security
Balance. The Seller shall deposit into the Payment Account on the Business Day
prior to the Payment Date on which such purchase is to occur, an amount equal to
the principal balance of the Series 1997-1 Participation Interest and the amount
of interest and Certificate Yield to be distributed to the Security holders
pursuant to Section 3.05(a) of the Indenture as of such Payment Date.
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ARTICLE IV
Actions by Owner Trustee
Section 4.01. Prior Notice to Certificateholders with Respect to
Certain Matters. With respect to the following matters, the Owner Trustee shall
not take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Certificateholders shall not have notified the Owner
Trustee in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Issuer (except claims
or lawsuits brought in connection with the collection of the Series 1997-1
Participation Interest) and the compromise of any action, claim or lawsuit
brought by or against the Issuer (except with respect to the aforementioned
claims or lawsuits for collection of the Series 1997-1 Participation Interest);
(b) the election by the Issuer to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) (i) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Certificateholders or
(ii) the amendment of the Pooling and Servicing Agreement under circumstances
where the consent of the holder of Series Participation Interests is required;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust Agreement
of a successor Certificate Registrar, Certificate Paying Agent or Administrator
or the consent to the assignment by the Note Registrar, Paying Agent, Indenture
Trustee, Certificate Registrar, Certificate Paying Agent or Administrator of its
obligations under the Indenture or this Trust Agreement, as applicable.
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Section 4.02. Action by Certificateholders with Respect to Certain
Matters. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, to (a) remove the Administrator under the
Administration Agreement pursuant to Section 8 thereof, (b) appoint a successor
Administrator pursuant to Section 8 of the Administration Agreement, (c) remove
the Servicer under the Pooling and Servicing Agreement pursuant to Article X
thereof or (d) except as expressly provided in the Basic Documents, sell the
Series 1997-1 Participation Interest after the termination of the Indenture. The
Owner Trustee shall take the actions referred to in the preceding sentence only
upon written instructions signed by the Certificateholders.
Section 4.03. Action by Certificateholders with Respect to Bankruptcy.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Issuer without the unanimous prior approval of all
Certificateholders and the delivery to the Owner Trustee by each such
Certificate-holder of a certificate certifying that such Certificateholder
reasonably believes that the Issuer is insolvent.
Section 4.04. Restrictions on Certificateholders' Power. The
Certificateholders shall not direct the Owner Trustee to take or to refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Issuer or the Owner Trustee under this Trust Agreement or any of the
Basic Documents or would be contrary to Section 2.03, nor shall the Owner
Trustee be obligated to follow any such direction, if given.
Section 4.05. Majority Control. Except as expressly pro- vided herein,
any action that may be taken by the Certificate- holders under this Trust
Agreement may be taken by the Holders of Certificates evidencing not less than a
majority of the outstanding Security Balance of the Certificates. Except as
expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Trust Agreement shall be effective if signed by
Holders of Certificates evidencing not less than a majority of the outstanding
Security Balance of the Certificates at the time of the delivery of such notice.
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ARTICLE V
Application of Trust Funds
Section 5.01. Distributions. (a) On each Payment Date, the Certificate
Paying Agent shall distribute out of the Payment Account to the extent of funds
on deposit therein and available therefor, distributions on the Certificates and
in payment of the Holdback Amount as provided in Section 3.05 of the Indenture.
(b) In the event that any withholding tax is imposed on the
distributions (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to the Certificateholder in accordance
with Section 3.05 of the Indenture. The Certificate Paying Agent is hereby
authorized and directed to retain or cause to be retained from amounts otherwise
distributable to the Certificateholders sufficient funds for the payment of any
tax that is legally owed by the Issuer (but such authorization shall not prevent
the Issuer or the effected Certificateholder with the consent of the Designated
Certificateholder), from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings). The amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such Certificateholder
at the time it is withheld by the Certificate Paying Agent and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Certificate Paying Agent may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
(c) All calculations of the Certificate Yield on the Certificates shall
be made on the basis of the actual number of days in an Interest Period and a
year assumed to consist of 360 days.
Section 5.02. Method of Payment. Subject to Section 9.01(c),
distributions required to be made to Certificateholders on any Payment Date as
provided in Section 3.05 of the Indenture shall be made to each
Certificateholder of record on the preceding Record Date either by, in the
case of any Certificateholder owning Certificates, other than the Designated
Certificate, having denominations aggregating at least $1,000,000, wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date or,
if not, by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register. All distributions in respect of the
initial Designated Certificate and the Holdback Amount shall be made to HCLC,
the initial Holder of the Designated Certificate or
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its permitted transferee, as the case may be, by wire transfer, in immediately
available funds, to the account of such entity at a bank or other entity having
appropriate facilities therefor, as specified in written instructions to the
Certificate Paying Agent on the fifth Business Day prior to the first Payment
Date.
Section 5.03. Signature on Returns. The Holder of the Designated
Certificate shall sign on behalf of the Issuer the tax returns of the Issuer.
Section 5.04. Statements to Certificateholders. No later than the
second Business Day prior to each Payment Date, the Owner Trustee on behalf of
the Issuer shall cause to be delivered to the Certificate Paying Agent and the
Indenture Trustee the Monthly Security Report for such Payment Date prepared by
the Administrator substantially in the form set forth on Exhibit B to the
Indenture. On each Payment Date, the Certificate Paying Agent shall send to each
Certificateholder the statement or statements provided to the Owner Trustee, the
Certificate Paying Agent and the Indenture Trustee by the Servicer pursuant to
Article V of the Pooling and Servicing Agreement with respect to such Payment
Date.
Section 5.05. Tax Reporting; Tax Elections. The Holder of the
Designated Certificate shall cause the Issuer to file federal and state income
tax returns and information statements as a partnership for each of its taxable
years. Within 90 days after the end of each calendar year, the Holder of the
Designated Certificate shall cause the Issuer to provide to each
Certificateholder an Internal Revenue Service form "K-1" or any successor
schedule and supplemental information, if required by law, to enable each
Certificateholder to file its federal and state income tax returns. The Holder
of the Designated Certificate may from time to time make and revoke such tax
elections with respect to the Issuer as it deems necessary or desirable in its
sole discretion to carry out the business of the Issuer or the purposes of this
Trust Agreement if permitted by applicable law. Notwithstanding the foregoing,
an election under Section 754 of the Code shall not be made without the written
consent of the Holder of the Designated Certificate, which consent shall be
given in the sole discretion of the Holder of the Designated Certificate. The
Holder of the Designated Certificate shall serve as tax matters partner for the
Issuer.
Section 5.06. Capital Accounts. Separate capital accounts shall be
maintained for each Certificateholder in accordance with tax accounting
principles. Each such account shall initially equal the amount paid to the
Issuer by the Certificateholder for its Certificate and shall be (i) increased
by the distributive share of profits and capital gains of such
Certificateholder, and (ii) decreased by the amount of any cash and the fair
market value of any non-cash assets distributed to such Certificate-
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holder by the Issuer pursuant to this Agreement, and by such Certificateholder's
distributive share of losses.
The fiscal year of the Issuer shall end on the 31st day of December in
each year, unless otherwise required by the Code. For each fiscal year of the
Issuer, net profits shall be allocated among the Certificateholders (including
the holder of the Designated Certificate to which the payments in respect of the
Holdback Amount will be made to the extent possible) in such manner as to cause
their ending capital accounts (prior to any reduction for distributions for such
year and to the extent possible) to reflect their respective rights to current
and future distributions with respect to income and the return of their
investment. Such allocation shall be made to the Certificateholders in the order
of their right to such distributions and proportionately among
Certificateholders having equal priority. For each fiscal year of the Issuer,
net losses shall be allocated among the Certificateholders in such manner as to
reflect the order and amount in which they would respectively bear the economic
burden of such losses, and then in accordance with their relative Percentage
Interests.
The partnership tax returns of the Issuer shall be prepared in such a
manner as to fairly reflect the respective interest in the Issuer of each
Certificateholder in accordance with the principles of the regulations under
Code Section 704(b). Items of income and gain shall be allocated in proportion
to the overall allocation of income to each Certificateholder, and items of
loss, expense and deduction shall be allocated in proportion to the overall
allocation of loss to each Certificateholder. Any unexpected adjustments,
allocations or distributions shall be offset by allocations of items of income
and gain as quickly as possible in accordance with the qualified income offset
provisions of the Code Section 704(b) regulations.
If during any fiscal year of the Issuer there is a change in any
Certificateholder's interest as a result of the issuance, transfer or redemption
of any Certificates, profits and losses shall be allocated among the
Certificateholders so as to reflect their varying interest in the Issuer during
the period. The allocation shall be made using the "interim closing of the
books" method or any other method permissible under Code Section 706 selected by
the Administrator. The Administrator shall determine when any transferee of a
Certificate shall be deemed admitted to the "partnership" for federal income tax
purposes. Any transferee shall succeed to that portion of the assignor's capital
account attributable to the interest so transferred.
The maintenance of capital accounts by the Issuer is solely for the
preparation of its income tax returns, and is not intended to confer rights upon
any third parties. No Certificateholder shall have, by reason of its capital
account, any right to demand or receive any property or cash from the Issuer
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or any obligation to contribute such items to the Issuer. No creditor of the
Issuer shall be deemed a third party beneficiary of any obligation of any
Certificateholder by reason of its capital account to contribute capital or make
loans or advances to the Issuer.
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ARTICLE VI
Authority and Duties of Owner Trustee
Section 6.01. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Issuer is to
be a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Issuer is to be a party and any
amendment or other agreement or instrument described herein, in each case, in
such form as the Administrator shall approve, as evidenced conclusively by the
Owner Trustee's execution thereof. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Issuer pursuant to the Basic Documents. The Owner Trustee is further
authorized from time to time to take such action as the Administrator directs
with respect to the Basic Documents.
Section 6.02. General Duties. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Issuer is
a party and to administer the Issuer in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement. Notwithstanding the foregoing, the Owner Trustee shall be
deemed to have discharged its duties and responsibilities hereunder and under
the Basic Documents to the extent the Administrator has agreed in the
Administration Agreement to perform such acts or to discharge such duties of the
Owner Trustee or the Issuer hereunder or under any Basic Document, and the Owner
Trustee shall not be held liable for the default or failure of the Administrator
to carry out its obligations under the Administration Agreement. The Designated
Certificateholder may delegate its duties hereunder, provided, however, that
such delegation of duties shall not relieve the Designated Certificateholder of
its obligations hereunder.
Section 6.03. Action upon Instruction. (a) Unless the Owner Trustee has
actual knowledge that an Insolvency Event or breach of representation or
violation of any material obligation under the Basic Documents has occurred in
respect of the Designated Certificateholder or of any Affiliate thereof, the
Designated Certificateholder may by written instruction direct the Owner Trustee
in the management of the Issuer. In the event the Owner Trustee has actual
knowledge that an Insolvency Event or breach of representation or violation of
any material obligation under the Basic Documents has occurred in respect of the
Designated Certificateholder or any Affiliate thereof, the Certificateholders
may by written instruction direct the Owner Trustee in the management of the
Issuer. Such direction may be exercised at any time by written instruction of
the Designated Certificateholder or the Certificateholders as the case may be
pursuant to Article IV.
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(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Trust Agreement or
under any Basic Document, the Owner Trustee shall promptly give notice (in such
form as shall be appropriate under the circumstances) to the Certificateholders
requesting instruction as to the course of action to be adopted, and to the
extent the Owner Trustee acts in good faith in accordance with any written
instruction of the Certificateholders received, the Owner Trustee shall not be
liable on account of such action to any Person. If the Owner Trustee shall not
have received appropriate instruction within 10 days of such notice (or within
such shorter period of time as reasonably may be specified in such notice or may
be necessary under the circumstances) it may, but shall be under no duty to,
take or refrain from taking such action not inconsistent with this Trust
Agreement or the Basic Documents, as it shall deem to be in the best interests
of the Certificateholders, and shall have no liability to any Person for such
action or inaction.
(d) In the event that the Owner Trustee is unsure as to the application
of any provision of this Trust Agreement or any Basic Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this Trust
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the
Certificateholders requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received, the Owner Trustee shall not be liable, on account of such
action or inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Trust Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
Section 6.04. No Duties Except as Specified in this Trust Agreement or
in Instructions. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect
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to, register, record, sell, dispose of, or otherwise deal with the Owner Trust
Estate, or to otherwise take or refrain from taking any action under, or in
connection with, any document contemplated hereby to which the Owner Trustee is
a party, except as expressly provided by the terms of this Trust Agreement or in
any document or written instruction received by the Owner Trustee pursuant to
Section 6.03; and no implied duties or obligations shall be read into this Trust
Agreement or any Basic Document against the Owner Trustee. The Owner Trustee
shall have no responsibility for filing any financing or continuation statement
in any public office at any time or to otherwise perfect or maintain the
perfection of any security interest or lien granted to it hereunder or to
prepare or file any Securities and Exchange Commission filing for the Trust or
to record this Trust Agreement or any Basic Document. The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take all
action as may be necessary to discharge any liens on any part of the Owner Trust
Estate that result from actions by, or claims against, the Owner Trustee that
are not related to the ownership or the administration of the Owner Trust
Estate.
Section 6.05. No Action Except Under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (1) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (2) in accordance with the Basic
Documents and (3) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 6.03.
Section 6.06. Restrictions. The Owner Trustee shall not take any action
(i) that is inconsistent with the purposes of the Issuer set forth in Section
2.03 or (ii) that, to the actual knowledge of the Owner Trustee, would result in
the Issuer becoming taxable as a corporation for federal income tax purposes.
The Certificateholders shall not direct the Owner Trustee to take action that
would violate the provisions of this Section 6.06.
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ARTICLE VII
Concerning the Owner Trustee
Section 7.01. Acceptance of Trusts and Duties. The Owner Trustee
accepts the trust hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Trust Agreement. The
Owner Trustee and the Certificate Paying Agent also agree to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Trust Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Basic Document under
any circumstances, except (i) for its own willful misconduct, negligence or
bad faith or (ii) in the case of the inaccuracy of any representation or
warranty contained in Section 7.03 expressly made by the Owner Trustee. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) The Owner Trustee shall not be liable for any error of judgment
made by a responsible officer of the Owner Trustee;
(b) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator, Holder of the Designated Certificate or the Certificateholders;
(c) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(d) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Seller or the Holder of the Designated Certificate or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate, or for or in respect of the validity or sufficiency of the Basic
Documents, other than the certificate of authentication on the Certificates, if
executed by the Owner Trustee and the Owner Trustee shall in no event assume or
incur any liability, duty, or obligation to any Noteholder or to any
Certificateholder, other
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than as expressly provided for herein or expressly agreed to in the Basic
Documents;
(f) The Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Certificate Paying Agent, the Certificate Registrar,
the Holder of the Designated Certificate, the Seller, Indenture Trustee or the
Servicer under any of the Basic Documents or otherwise and the Owner Trustee
shall have no obligation or liability to perform the obligations of the Issuer
under this Trust Agreement or the Basic Documents that are required to be
performed by the Administrator under the Administration Agreement, the Indenture
Trustee, the Certificate Paying Agent, the Certificate Registrar under this
Trust Agreement or the Indenture or the Seller under the Receivables Purchase
Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it or duties imposed by this Trust Agreement, or
to institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence or willful misconduct in the
performance of any such act.
Section 7.02. Furnishing of Documents. The Issuer shall furnish to the
Certificateholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Issuer under the Basic Documents.
Section 7.03. Representations and Warranties. The Owner Trustee hereby
represents and warrants to the Seller, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Trust Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Trust Agreement, and this Trust Agreement
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Trust Agreement on its behalf.
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(c) Neither the execution nor the delivery by it of this Trust
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or bylaws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
Section 7.04. Reliance; Advice of Counsel. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or any assistant treasurer or other authorized officers of the relevant party,
as to such fact or matter and such certificate shall constitute full protection
to the Owner Trustee for any action taken or omitted to be taken by it in good
faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (1) may act directly or through its agents,
attorneys or administrators pursuant to agreements entered into with any of
them, and the Owner Trustee shall not be liable for the conduct or misconduct of
such agents or attorneys if such agents or attorneys shall have been selected by
the Owner Trustee with reasonable care, and (2) may consult with counsel,
accountants and other skilled persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the written opinion
or advice of any such counsel, accountants or other such Persons and not
contrary to this Trust Agreement or any Basic Document.
Section 7.05. Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created Chase Manhattan Bank
Delaware acts solely as Owner Trustee hereunder and not in its individual
capacity, and all Persons having any claim against the Owner Trustee by reason
of the transactions contemplated by this Trust Agreement or any Basic
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Document shall look only to the Owner Trust Estate for payment or satisfaction
thereof.
Section 7.06. Owner Trustee Not Liable for Certificates. The recitals
contained herein and in the Certificates (other than the signatures of the Owner
Trustee on the Certificates) shall be taken as the statements of the Seller, and
the Owner Trustee assumes no responsibility for the correctness thereof. The
Owner Trustee makes no representations as to the validity or sufficiency of this
Trust Agreement, of any Basic Document or of the Certificates (other than the
signatures of the Owner Trustee on the Certificates) or the Notes. The Owner
Trustee shall at no time have any responsibility or liability for or with
respect to the sufficiency of the Owner Trust Estate or its ability to generate
the payments to be distributed to Certificateholders under this Trust Agreement
or the Noteholders under the Indenture, including, the compliance by the Seller
with any warranty or representation made under any Basic Document or in any
related document or the accuracy of any such warranty or representation, or any
action of the Administrator, the Certificate Paying Agent, the Certificate
Registrar or the Indenture Trustee taken in the name of the Owner Trustee.
Section 7.07. Owner Trustee May Own Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Notes and may deal with the Seller, the Certificate Paying
Agent, the Certificate Registrar, the Administrator and the Indenture Trustee in
banking transactions with the same rights as it would have if it were not Owner
Trustee.
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ARTICLE VIII
Compensation of Owner Trustee
Section 8.01. Owner Trustee's Fees and Expenses. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof, and the Owner Trustee shall be
reimbursed by HCLC, the initial Holder of the Designated Certificate for its
reasonable expenses hereunder and under the Basic Documents, including the
reasonable compensation, expenses and disbursements of such agents,
representatives, experts and outside counsel as the Owner Trustee may reasonably
employ in connection with the exercise and performance of its rights and its
duties hereunder and under the Basic Documents.
Section 8.02. Indemnification. The Holder of the Designated
Certificate shall be liable as primary obligor for, and shall indemnify the
Owner Trustee and its successors, assigns, agents and servants (collectively,
the "Indemnified Parties") from and against, any and all liabilities,
obligations, losses, damages, taxes, claims, actions and suits, and any and all
reasonable costs, expenses and disbursements (including reasonable legal fees
and expenses) of any kind and nature whatsoever (collectively, "Expenses") which
may at any time be imposed on, incurred by, or asserted against the Owner
Trustee or any Indemnified Party in any way relating to or arising out of this
Trust Agreement, the Basic Documents, the Owner Trust Estate, the administration
of the Owner Trust Estate or the action or inaction of the Owner Trustee
hereunder; provided that:
(i) the Holder of the Designated Certificate shall not be
liable for or required to indemnify an Indemnified Party from and
against Expenses arising or resulting from the Owner Trustee's willful
misconduct, negligence or bad faith or as a result of any inaccuracy of
a representation or warranty contained in Section 7.03 expressly made
by the Owner Trustee;
(ii) with respect to any such claim, the Indemnified Party
shall have given the Holder of the Designated Certificate written
notice thereof promptly after the Indemnified Party shall have actual
knowledge thereof;
(iii) while maintaining control over its own defense, the
Holder of the Designated Certificate shall consult with the Indemnified
Party in preparing such defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Holder of the Designated Certificate shall not be liable
for settlement of any claim by an Indemnified Party entered into
without the prior consent of the Holder
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of the Designated Certificate which consent shall not be unreasonably
withheld.
The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Trust Agreement.
In the event of any claim, action or proceeding for which indemnity will be
sought pursuant to this Section, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection with
the execution and delivery of this Trust Agreement, shall be subject to the
approval of the Holder of the Designated Certificate, which approval shall not
be unreasonably withheld. In addition, upon written notice to the Owner Trustee
and with the consent of the Owner Trustee which consent shall not be
unreasonably withheld, the Holder of the Designated Certificate has the right to
assume the defense of any claim, action or proceeding against the Owner Trustee.
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ARTICLE IX
Termination of Trust Agreement
Section 9.01. Termination of Trust Agreement. (a) This Trust Agreement
(other than Article VIII) and the Issuer shall terminate and be of no further
force or effect upon the earliest of (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and this Trust Agreement, (ii) the Payment Date
in __________ 20___ or (iii) at the time provided for in Section 9.02. The
bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder, other than the Holder of the Designated Certificate, shall
not (x) operate to terminate this Trust Agreement or the Issuer or (y) entitle
such Certificate-holder's legal representatives or heirs to claim an accounting
or to take any action or proceeding in any court for a partition or winding up
of all or any part of the Issuer or the Owner Trust Estate or (z) otherwise
affect the rights, obligations and liabilities of the parties hereto.
(b) Except as provided in Section 9.01(a), none of the Seller, the
Holder of the Designated Certificate or any other Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Issuer, specifying the Payment
Date upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
mailed within five Business Days of receipt of notice of such termination from
the Administrator, stating (i) the Payment Date upon or with respect to which
final payment of the Certificates shall be made upon presentation and surrender
of the Certificates at the office of the Certificate Paying Agent therein
designated, (ii) the amount of any such final payment and (iii) that the Record
Date otherwise applicable to such Payment Date is not applicable, payments being
made only upon presentation and surrender of the Certificates at the office of
the Certificate Payment Agent therein specified. The Certificate Paying Agent
shall give such notice to the Owner Trustee and the Certificate Registrar at the
time such notice is given to Certificateholders. Upon presentation and surrender
of the Certificates, the Certificate Paying Agent shall cause to be distributed
to Certificate-holders amounts distributable on such Payment Date pursuant to
Section 5.01.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Paying Agent shall give a
second written notice to the remaining Certificateholders to surrender their
Certifi-
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cates for cancellation and receive the final distribution with respect thereto.
Subject to applicable laws with respect to escheat of funds, if within two years
following the Payment Date on which final payment of the Certificates was to
have been made all the Certificates shall not have been surrendered for
cancellation, the Certificate Paying Agent may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Trust Agreement. Any funds remaining in the Payment Account
after exhaustion of such remedies shall be distributed by the Certificate Paying
Agent to the Holder of the Designated Certificate.
(d) Upon the winding up of the Issuer and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(c) of the Business Trust Statute.
Section 9.02. Dissolution upon Bankruptcy of the Holder of the
Designated Certificate. In the event that an Insolvency Event shall occur with
respect to the Holder of the Designated Certificate, this Agreement shall be
terminated in accordance with Section 9.01, 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the Owner
Trustee shall have received written instructions from Holders of Certificates
(other than the Holder of the Designated Certificate) representing more than 50%
of the Security Balance of the Certificates (not including the Security Balance
of the Designated Certificate or any other Certificates held by HCLC or any
Affiliate thereof), to the effect that such Holders disapprove of the
termination of the Issuer and have elected or appointed any one of such Holders
or a transferee of Certificates meeting the requisite conditions set forth in an
Opinion of Counsel delivered to the Owner Trustee as a new Designated
Certificateholder (the "Successor Designated Certificateholder") for the
continuation of the tax treatment of the Issuer. Such Successor Designated
Certificate shall represent at least 1% of the Initial Principal Balance of the
Certificates. The appointment of a Successor Designated Certificateholder will
not deprive HCLC or its transferee of its economic interest in the Designated
Certificate or Holdback Amount, its Certificates or otherwise in the Owner Trust
Estate. Promptly after the occurrence of any Insolvency Event with respect to
any Holder of the Designated Certificate (A) the Holder of such Designated
Certificate or Successor Designated Certificate shall give the Indenture Trustee
and the Owner Trustee written notice of such Insolvency Event, (B) the Owner
Trustee shall, upon the receipt of such written notice from the Holder of such
Designated Certificate, give prompt written notice to the Certificateholders of
the occurrence of such event and (C) the Indenture Trustee shall give prompt
written notice of such event to the Noteholders; provided, however, that any
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failure to give a notice required by this sentence shall not prevent or delay,
in any manner, a termination of the Issuer pursuant to the first sentence of
this Section 9.02. Upon a termination pursuant to this Section, the Owner
Trustee shall direct the Indenture Trustee promptly to sell the assets of the
Issuer (other than the Payment Account) in a commercially reasonable manner and
on commercially reasonable terms. The proceeds of such a sale of the assets of
the Issuer shall be deposited to the Payment Account for distribution in
accordance with Section 5.03(a) of the Indenture.
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ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
Section 10.01. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities; and
having (or having a parent that has) a rating of at least Baa3 by Moody's (or a
rating otherwise acceptable to Moody's). If such corporation shall publish
reports of condition at least annually pursuant to law or to the requirements of
the aforesaid supervising or examining authority, then for the purpose of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Owner Trustee shall cease to be
eligible in accordance with the provisions of this Section 10.01, the Owner
Trustee shall resign immediately in the manner and with the effect specified in
Section 10.02.
Section 10.02. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Administrator and the Designated
Certificateholder. Upon receiving such notice of resignation, the Designated
Certificateholder shall promptly appoint a successor Owner Trustee, by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
resigning Owner Trustee and one copy to the successor Owner Trustee. If no
successor Owner Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Owner Trustee may petition any court of competent jurisdiction for the
appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.01 and shall fail to resign after
written request therefor by the Designated Certificateholder or if at any time
the Owner Trustee shall be legally unable to act, or shall be adjudged bankrupt
or insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Designated Certificateholder may remove
the Owner Trustee. If the Designated Certificateholder shall remove the Owner
Trustee under the authority of the immediately preceding sentence, the
Designated Certificateholder shall promptly appoint a successor Owner Trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the outgoing
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Owner Trustee so removed and one copy to the successor Owner Trustee, and shall
pay all fees owed to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
Section 10.03. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to
the Designated Certificateholder and to its predecessor Owner Trustee an
instrument accepting such appointment under this Trust Agreement, and thereupon
the resignation or removal of the predecessor Owner Trustee shall become
effective, and such successor Owner Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor under this Trust Agreement, with like effect as
if originally named as Owner Trustee. The predecessor Owner Trustee shall upon
payment of its fees and expenses deliver to the successor Owner Trustee all
documents and statements and monies held by it under this Trust Agreement; and
the Designated Certificateholder and the predecessor Owner Trustee shall execute
and deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor Owner
Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 10.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 10.03, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 10.04. Merger or Consolidation of Owner Trustee. Any Person
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner
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Trustee, shall be the successor of the Owner Trustee hereunder, without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided
that such Person shall be eligible pursuant to Section 10.01 and, provided,
further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 10.05. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate may at the time be located, the Designated
Certificateholder and the Owner Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Designated Certificateholder and Owner Trustee to act as
co-trustee, jointly with the Owner Trustee, or as separate trustee or separate
trustees, of all or any part of the Owner Trust Estate, and to vest in such
Person, in such capacity, such title to the Owner Trust Estate or any part
thereof and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Designated Certificateholder and
the Owner Trustee may consider necessary or desirable. If the Designated
Certificateholder shall not have joined in such appointment within 15 days after
the receipt by it of a request so to do, the Owner Trustee alone shall have the
power to make such appointment. No co-trustee or separate trustee under this
Trust Agreement shall be required to meet the terms of eligibility as a
successor Owner Trustee pursuant to Section 10.01 and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant to
Section 10.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
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(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
(c) The Designated Certificateholder and the Owner Trustee acting
jointly may at any time accept the resignation of or remove any separate trustee
or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy thereof given to the
Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
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ARTICLE XI
Miscellaneous
Section 11.01. Amendments. (a) This Trust Agreement may be amended from
time to time by the parties hereto, by a written instrument signed by each of
them, without the consent of any of the Securityholders; provided that an
Opinion of Counsel for the Seller (which Opinion of Counsel may, as to factual
matters, rely upon Officer's Certificates of the Seller) is addressed and
delivered to the Owner Trustee, dated the date of any such amendment, to the
effect that the conditions precedent to any such amendment have been satisfied
and the Seller shall have delivered to the Owner Trustee an Officer's
Certificate, dated the date of any such Amendment, stating that the Seller
reasonably believes that such amendment will not have a material adverse effect
on the Securityholders.
(b) This Agreement may also be amended from time to time with the
consent of the Holders of the Securities evidencing not less than 66-2/3% of the
aggregate unpaid principal amount of the Security Balance of all affected
Securityholders for which the Seller has not delivered an Officer's Certificate
stating that there is no material adverse effect, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Securityholders;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, payments received that are required to be
distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all such Certificates then outstanding or cause any
material adverse tax consequences to any Certificateholders or Noteholders.
(c) If the purpose of the amendment is to (i) prevent the imposition of
any federal or state taxes at any time that any Security is outstanding (i.e.,
technical in nature), or (ii) eliminate the provisions for termination of this
Trust Agreement and replacement of the Holder of the Designated Certificate upon
an Insolvency Event with respect to the Holder, and eliminate Section 2.07(a) so
that Section 2.07(b) applies as well to the Holder of the Designated
Certificate, or (iii) to permit the election or qualification of the Issuer as a
"FASIT" or other similar form of entity for federal income tax purposes pursuant
to legislation which may be enacted subsequent to the date of this Agreement it
shall not be necessary to obtain the consent of any Holder, but the Owner
Trustee shall be furnished with an Opinion of Counsel that in the case of (i)
above such amendment is necessary or helpful to prevent the imposition of such
taxes, or in the case of (ii) or (iii) above such amendment will not cause the
Issuer to be subject to an entity level tax and the
38
<PAGE> 44
Seller shall deliver an Officer's Certificate to the Owner Trustee stating that
the Seller reasonably believes that such amendment will not have a material
adverse effect on Securityholders.
(d) Promptly after the execution of any such amendment or consent
(other than an amendment pursuant to paragraph (a)), the Owner Trustee shall
furnish notification of the substance of such amendment to each
Certificateholder, and to each Rating Agency.
(e) It shall not be necessary for the consent of Certificateholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.
Section 11.02. No Legal Title to Owner Trust Estate in
Certificateholders. The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. The Certificate-holders shall be entitled to
receive distributions with respect to their undivided beneficial interest
therein only in accordance with Articles V and IX. No transfer, by operation of
law or otherwise, of any right, title or interest of the Certificate-holders to
and in their ownership interest in the Owner Trust Estate shall operate to
terminate this Trust Agreement or the trusts hereunder or entitle any transferee
to an accounting or to the transfer to it of legal title to any part of the
Owner Trust Estate.
Section 11.03. Limitations on Rights of Others. Except for Section
2.07, the provisions of this Trust Agreement are solely for the benefit of the
Owner Trustee, the Seller, the Holder of the Designated Certificate, the
Certificateholders, the Administrator and, to the extent expressly provided
herein, the Indenture Trustee and the Noteholders, and nothing in this Trust
Agreement (other than Section 2.07), whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in the Owner Trust Estate or under or in respect of this Trust Agreement
or any covenants, conditions or provisions contained herein.
Section 11.04. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt by the intended recipient or three Business Days after
mailing if mailed by certified mail, postage prepaid (except that notice to the
Owner Trustee shall be deemed given only upon actual receipt by the
39
<PAGE> 45
Owner Trustee), if to the Owner Trustee, addressed to the Corporate Trust
Office; if to the Seller, addressed to Household Consumer Loan Corporation, 1111
Town Center Drive, Las Vegas, Nevada 89134, Attn: Compliance Officer, with a
copy to Household Finance Corporation, 2700 Sanders Road, Prospect Heights,
Illinois 60070, Attn: Treasurer; or, as to each party, at such other address as
shall be designated by such party in a written notice to each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Issuer
shall also be delivered to the Seller, the Administrator and The Chase Manhattan
Bank, 450 West 33rd Street, 15th Floor, New York, New York 10001, Attn: Global
Trust Services.
Section 11.05. Severability. Any provision of this Trust Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 11.06. Separate Counterparts. This Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 11.07. Successors and Assigns. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Seller, the Owner Trustee and its successors and
each Certificateholder and its successors and permitted assigns. Any request,
notice, direction, consent, waiver or other instrument or action by a
Certificateholder shall bind the successors and assigns of such
Certificateholder.
Section 11.08. Covenants of the Seller. Neither the Seller nor the
Holder of the Designated Certificate will at any time institute against the
Issuer any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Notes, this Trust Agreement or any of the Basic Documents.
40
<PAGE> 46
Section 11.09. No Petition. The Owner Trustee, by entering into this
Trust Agreement, and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against the Seller
or the Issuer, or join in any institution against the Seller or the Issuer of
any bankruptcy proceedings under any United States federal or state bankruptcy
or similar law in connection with any obligations to the Certificates, the
Notes, this Trust Agreement or any of the Basic Documents.
Section 11.10. No Recourse. Each Certificateholder by accepting a
Certificate acknowledges that such Certificate- holder's Certificates represent
beneficial interests in the Issuer only and do not represent interests in or
obligations of the Seller, the Holder of the Designated Certificate, the
Administrator, the Owner Trustee, the Indenture Trustee or any Affiliate thereof
and no recourse may be had against such parties or their assets, except as may
be expressly set forth or contemplated in this Trust Agreement, the Certificates
or the Basic Documents.
Section 11.11. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 11.12. Governing Law. THIS TRUST AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.13. Integration. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
41
<PAGE> 47
IN WITNESS WHEREOF, the Seller and the Owner Trustee have caused their
names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
HOUSEHOLD CONSUMER LOAN CORPORATION,
as Seller and Holder of the
Designated Certificate
By:
--------------------------------
Name:
Title:
CHASE MANHATTAN BANK DELAWARE, not in
its individual capacity but solely
as Owner Trustee
By:
--------------------------------
Name: John J. Cashin
Title: Senior Trust Officer
Acknowledged and Agreed:
THE BANK OF NEW YORK, as Certificate
Registrar and Certificate
Paying Agent
By:
-------------------------
Name:
Title:
<PAGE> 48
EXHIBIT A
[FORM OF CERTIFICATE]
[Face]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE REGISTRAR
SHALL HAVE RECEIVED (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF THIS
CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN
SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING ON
BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, (II) IF THIS
CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE
FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE CODE (OR
COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF ANY SUCH
PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT
SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR
HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE SELLER TO ANY OBLIGATION OR LIABILITY,
(III) OR IF THE PURCHASER IS AN INSURANCE COMPANY, A REPRESENTATION THAT THE
PURCHASER IS AN INSURANCE COMPANY WHICH IS PURCHASING SUCH CERTIFICATES WITH
FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT" (AS SUCH TERM IS
DEFINED IN SECTION V(e) OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 ("PTCE
95-60")) AND THAT THE PURCHASE AND HOLDING OF SUCH CERTIFICATES ARE COVERED
UNDER PTCE 95-60, OR (IV) IN THE CASE OF ANY SUCH PROPOSED TRANSFEREE WHICH IS A
PLAN, AN OPINION OF COUNSEL SATISFACTORY TO THE OWNER TRUSTEE AND THE SELLER TO
THE EFFECT SET FORTH IN THE AGREEMENT.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE REGISTRAR
SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN STATUS CERTIFYING AS TO THE
TRANSFEREE'S STATUS AS U.S. PERSONS OR CORPORATION OR PARTNERSHIP UNDER U.S.
LAW.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
THE SERVICER, THE INDENTURE TRUSTEE, OR THE OWNER TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY PROVIDED IN THE TRUST AGREEMENT OR
THE BASIC DOCUMENTS.
A-1
<PAGE> 49
Certificate No.
----
Original principal amount ("Denomination")
of this Certificate: $
--------------
Aggregate Denominations of all Certificates:
$
--------------
Certificate Rate: Floating
Closing Date: March , 1997
---
First Payment Date
April 15, 1997
CUSIP NO.
---------
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
Evidencing a fractional undivided interest in the Owner Trust Estate,
the property of which consists primarily of the Series 1997-1 Participation
Interest in Receivables, sold by
HOUSEHOLD CONSUMER LOAN CORPORATION, AS SELLER
This certifies that [name of Holder] is the registered owner of the
Percentage Interest represented hereby in the Household Consumer Loan Trust
1997-1 (the "Issuer").
The Issuer was created pursuant to a Trust Agreement dated as of March
1, 1997 (as amended and supplemented from time to time, the "Trust Agreement")
among the Seller, as seller and as holder of the Designated Certificate, and
Chase Manhattan Bank Delaware, as owner trustee (the "Owner Trustee"), a summary
of certain of the pertinent provisions of which is set forth hereinafter. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement, to which Trust Agreement the Holder of this
Certificate by virtue of the acceptance hereof assents and by which such Holder
is bound.
This Certificate is one of a duly authorized issue of Consumer Loan
Asset Backed Certificates, Series 1997-1 (the "Certificates") issued under the
Trust Agreement to which reference is hereby made for a statement of the
respective rights thereunder of the Seller, Designated Certificateholder, the
Owner Trustee and the Holders of the Certificates and the terms upon which the
Certificates are executed and delivered. All terms used in this Certificate
which are defined in the Trust Agreement shall have the meanings assigned to
them in the Trust Agreement. The Owner Trust Estate consists of the Series
1997-1 Participation Interest and all monies and the collections and
A-2
<PAGE> 50
proceeds due thereon and any part thereof which consists of general intangibles
(as defined in the UCC). The rights of the Holders of the Certificates are
subordinated to the rights of the Holders of the Notes, as set forth in the
Indenture.
There will be distributed on the fifteenth day of each month or, if
such fifteenth day is not a Business Day, the next Business Day (each, a
"Payment Date"), commencing in April 1997, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such Payment Date (the "Record Date"), such
Certificateholder's Percentage Interest (obtained by dividing the Denomination
of this Certificate by the aggregate Denominations of all Certificates) in the
amount to be distributed to Certificateholders on such Payment Date.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Seller is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Noteholders as described in the Indenture, dated as of March 1,
1997, between the Issuer and The Bank of New York, as Indenture Trustee (the
"Indenture").
It is the intent of the Seller and the Certificateholders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Issuer will be treated as a partnership. The Seller
and the other Certificateholders, by acceptance of a Certificate, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates for such tax purposes as an equity interest in a partnership.
Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Seller, or join in any institution against the Seller or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Certificates, the
Notes, the Trust Agreement or any of the Basic Documents.
A-3
<PAGE> 51
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent to each Certificateholder of record on
the preceding Record Date either by, in the case of any Certificateholder owning
Certificates having denominations aggregating at least $1,000,000, wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date or,
if not, by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register. Except as otherwise provided in the Trust
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Certificate Paying Agent of the
pendency of such distribution and only upon presentation and surrender of this
Certificate at the office or agency maintained by the Certificate Registrar for
that purpose by the Issuer in the Borough of Manhattan, The City of New York.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-4
<PAGE> 52
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Issuer and not
in its individual capacity, has caused this Certificate to be duly executed.
HOUSEHOLD CONSUMER LOAN TRUST
1997-1
By: Chase Manhattan Bank
Delaware, not in its
individual capacity but
solely as Owner Trustee
Dated: March ___, 1997
------------------------------
Name: John J. Cashin
Title: Senior Trust Officer
Certificate of Authentication
This is one of the Certificates referred to in the within mentioned Trust
Agreement.
Chase Manhattan Bank Delaware,
not in its individual capacity
but solely as Owner Trustee
By:
---------------------------------
Name:
Title:
or
The Bank of New York,
as Authenticating Agent of the Issuer
By:
---------------------------------
Name:
Title:
<PAGE> 53
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Seller, the Servicer, the Indenture Trustee, the Owner Trustee or any
Affiliates of any of them and no recourse may be had against such parties or
their assets, except as expressly set forth or contemplated herein or in the
Trust Agreement or the Basic Documents. In addition, this Certificate is not
guaranteed by any governmental agency or instrumentality and is limited in right
of payment to certain collections and recoveries with respect to the Series
1997-1 Participation Interest (and certain other amounts), all as more
specifically set forth herein. A copy of the Trust Agreement may be examined by
any Certificateholder upon written request during normal business hours at the
principal office of the Seller and at such other places, if any, designated by
the Seller.
The Trust Agreement permits the amendment thereof as specified below;
provided that any amendment be accompanied by an Opinion of Counsel for the
Seller (which Opinion of Counsel may, as to factual matters, rely upon Officer's
Certificates of the Seller) addressed and delivered to the Owner Trustee, to the
effect that the conditions precedent in the Trust Agreement to any such
amendment have been satisfied and the Seller shall have delivered to the Owner
Trustee an Officer's Certificate, stating that the Seller reasonably believes
that such amendment will not have a material adverse effect on the
Securityholders. If the purpose of the amendment is to (i) prevent the
imposition of any federal or state taxes at any time that any Security is
outstanding (i.e., technical in nature), or (ii) eliminate or modify certain
provisions relating to the Designated Certificate or to permit the election or
qualification of the Issuer as a "FASIT" or other similar form of entity for
federal income tax purposes pursuant to legislation which may be enacted
subsequent to the date of this Agreement it shall not be necessary to obtain the
consent of any Holder, but the Owner Trustee shall be furnished with an Opinion
of Counsel that in the case of (i) above such amendment is necessary or helpful
to prevent the imposition of such taxes, or in the case of (ii) above such
amendment will not cause the Issuer to be subject to an entity level tax. If the
purpose of the amendment is to add or eliminate or change any provision of the
Trust Agreement, other than as specified in the preceding two sentences, the
amendment shall require the consent of the Holders of the Certificates
evidencing not less than 66-2/3% of the aggregate unpaid Security Balance of all
affected Certificateholders; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments received
that are required to be distributed on any Certificate without the consent of
the related Certificateholder, or (ii) reduce the aforesaid percentage of
Certificates the Holders of which are required to consent to any such amendment,
without the consent of the Holders
A-6
<PAGE> 54
of all such Certificates then outstanding or cause any material adverse tax
consequences to any Certificateholders or Noteholders.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Issuer in the Borough of Manhattan, The City of New York, accompanied by a
written instrument of transfer in form satisfactory to the Certificate Registrar
duly executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Issuer will be issued to the
designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is The Bank of New York.
Except as provided in the Trust Agreement, the Certificates are
issuable only in minimum denominations of $1,000,000 and in integral multiples
of $100,000 in excess thereof, except for one Certificate issued in a
denomination of $________________ which will be held by the Seller and one other
Certificate that may not be in an integral multiple of $100,000. As provided in
the Trust Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of authorized denominations
evidencing the same aggregate denomination, as requested by the Holder
surrendering the same. No service charge will be made for any such registration
of transfer or exchange, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge
payable in connection therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Paying Agent, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Issuer created thereby shall terminate (i) upon the final distribution of
all moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and the Trust Agreement, (ii) the Payment Date
in ___________ 20___, or (iii) upon the bankruptcy or insolvency of the Holder
of the Designated Certificate and the satisfaction of other conditions specified
in Section 9.01 of the Trust Agreement.
A-7
<PAGE> 55
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip
code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby
irrevocably constituting and appointing
- --------------------------------------------------------------------------------
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
*/
- ---------------------------------------------
Signature Guaranteed:
*/
------------------------------
- -----------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-8
<PAGE> 56
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately
available funds to
--------------------------------------------------------------
- --------------------------------------------------------------------------------
for the account of
--------------------------------------------------------------
account number , or, if mailed by check,
-----------------------------------------
to
------------------------------------------------------------------------------
Applicable statements should be mailed to
------------------------------
- --------------------------------------------------------------------------------
------------------------------
Signature of assignee or agent
(for authorization of wire
transfer only)
A-9
<PAGE> 57
EXHIBIT B
[RESERVED]
B-1
<PAGE> 58
EXHIBIT C
CERTIFICATE OF TRUST OF
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
This Certificate of Trust of HOUSEHOLD CONSUMER LOAN TRUST
1997-1 (the "Trust"), dated as of March ___, 1997, is being duly executed and
filed by Chase Manhattan Bank Delaware, a Delaware banking corporation, as
trustee, to form a business trust under the Delaware Business Trust Act (12 Del.
Code, ss. 3801 et seq.).
1. Name. The name of the business trust formed hereby
is HOUSEHOLD CONSUMER LOAN TRUST 1997-1.
2. Delaware Trustee. The name and business address of
the trustee of the Trust in the State of Delaware is Chase
Manhattan Bank Delaware, 1201 Market Street, Wilmington, Delaware
19801, Attention: Corporate Trustee Administration.
3. Effective Date. This Certificate of Trust shall be
effective on March ___, 1997.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
Chase Manhattan Bank Delaware,
as Owner Trustee
By:
---------------------------------
Name:
Title:
C-1
<PAGE> 59
EXHIBIT D
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Owner Trustee, and the Seller (as defined in the Trust Agreement (the
"Agreement"), dated as of March 1, 1997 among Household Consumer Loan
Corporation, as Seller, and as Holder of the Designated Certificate and Chase
Manhattan Bank Delaware, as Owner Trustee pursuant to Section 3.05 of the
Agreement and The Bank of New York as Indenture Trustee, as follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge
and experience in financial and business matters that it is
D-1
<PAGE> 60
capable of evaluating the merits and risks of investment in
the Rule 144A Securities.
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller, the Indenture Trustee, the Owner Trustee or the Servicer.
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may be
resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants
with, the Seller, the Indenture Trustee, Owner Trustee, Servicer and the Seller
that either (1) the Buyer is (A) not an employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of
the Internal Revenue Code of 1986 ("Code")), which (in either case) is subject
to ERISA or Section 4975 of the Code (both a "Plan"), and (B) is not directly
or indirectly purchasing the Rule 144A Securities on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with "plan assets" of a
D-2
<PAGE> 61
Plan, or (2) the Buyer understands that registration of transfer of any Rule
144A Securities to any Plan, or to any Person acting on behalf of any Plan, will
not be made unless such Plan delivers an opinion of its counsel, addressed and
satisfactory to the Certificate Registrar and the Seller, to the effect that the
purchase and holding of the Rule 144A Securities by, on behalf of or with "plan
assets" of any Plan would not constitute or result in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code, and would not subject
the Seller, the Servicer, the Indenture Trustee or the Issuer to any obligation
or liability (including liabilities under ERISA or Section 4975 of the Code) in
addition to those undertaken in the Agreement or any other liability.]
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
- ------------------------------------ ------------------------------------
Print Name of Seller Print Name of Seller
By: By:
---------------------------------- ---------------------------------
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No. No.
--------------------------------- ---------------------------------
Date: Date:
------------------------------- -------------------------------
D-3
<PAGE> 62
Annex 1 to Exhibit D
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule
144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President,
Chief Financial Officer, Senior Vice President or other executive
officer of the Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ Corporation, etc. The Buyer is a corporation (other than a
bank, savings and loan association or similar institution),
Massachusetts or similar business trust, partnership, or
charitable organization described in Section 501(c)(3) of the
Internal Revenue Code.
___ Bank. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the
District of Columbia, the business of which is substantially
confined to banking and is supervised by the State or
territorial banking commission or similar official or is a
foreign bank or equivalent institution, and (b) has an audited
net worth of at least $25,000,000 as demonstrated in its
latest annual financial statements, a copy of which is
attached hereto.
- --------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.
D-4
<PAGE> 63
___ Savings and Loan. The Buyer (a) is a savings and loan
association, building and loan association, cooperative bank,
homestead association or similar institution, which is
supervised and examined by a State or Federal authority having
supervision over any such institutions or is a foreign savings
and loan association or equivalent institution and (b) has an
audited net worth of at least $25,000,000 as demonstrated in
its latest annual financial statements.
___ Broker-Dealer. The Buyer is a dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
___ Insurance Company. The Buyer is an insurance company whose
primary and predominant business activity is the writing of
insurance or the reinsuring of risks underwritten by insurance
companies and which is subject to supervision by the insurance
commissioner or a similar official or agency of a State or
territory or the District of Columbia.
___ State or Local Plan. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees.
___ ERISA Plan. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security
Act of 1974.
___ Investment Adviser. The Buyer is an investment adviser
registered under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of
1958.
___ Business Development Company. The Buyer is a business
development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
___ Trust Fund. The Buyer is a trust fund whose trustee is a bank
or trust company and whose participants are exclusively (a)
plans established and maintained by a State, its political
subdivisions, or any agency or instrumentality of the State or
its political subdivisions, for the benefit of its employees,
or (b) employee benefit plans within the meaning of Title I of
the Employee Retirement Income Security Act of 1974, but is
not a trust fund that includes as participants individual
retirement accounts or H.R. 10 plans.
D-5
<PAGE> 64
3. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's
D-6
<PAGE> 65
purchase of Rule 144A Securities will constitute a reaffirmation of this
certification as of the date of such purchase.
-----------------------------------
Print Name of Buyer
By:
--------------------------------
Name:
Title:
Date:
------------------------------
D-7
<PAGE> 66
Annex 2 to Exhibit D
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President,
Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer
is a "qualified institutional buyer" as that term is defined in Rule 144A under
the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities
(other than the excluded securities referred to below)
as of the end of the Buyer's most recent fiscal year
(such amount being calculated in accordance with
Rule 144A).
____ The Buyer is part of a Family of Investment Companies
which owned in the aggregate $______________ in
securities (other than the excluded securities referred
to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance
with Rule 144A).
3. The term "Family of Investment Companies" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
4. The term "securities" as used herein does not include
(i) securities of issuers that are affiliated with the
D-8
<PAGE> 67
Buyer or are part of the Buyer's Family of Investment Companies, (ii) bank
deposit notes and certificates of deposit, (iii) loan participations, (iv)
repurchase agreements, (v) securities owned but subject to a repurchase
agreement and (vi) currency, interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that
each of the parties to which this certification is made are relying and will
continue to rely on the statements made herein because one or more sales to the
Buyer will be in reliance on Rule 144A. In addition, the Buyer will only
purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which
this certification is made of any changes in the information and conclusions
herein. Until such notice, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
------------------------------------
Print Name of Buyer
By:
--------------------------------
Name:
--------------------------
Title:
-------------------------
IF AN ADVISER:
------------------------------------
Print Name of Buyer
Date:
-------------------------------
D-9
<PAGE> 68
EXHIBIT E
DEFINITIONS
[See Appendix A attached to the Indenture]
E-1
<PAGE> 69
EXHIBIT F
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of March 1, 1997 (the
"Trust Agreement"), among the Household Consumer Loan Corporation, as seller and
the entity who is the general partner for tax purposes (the "Designated Holder")
and Chase Manhattan Bank Delaware, as Owner Trustee, in connection with the
acquisition of, transfer to or possession by the undersigned, whether as
beneficial owner (the "Beneficial Owner"), or nominee on behalf of the
Beneficial Owner of the Household Consumer Loan Asset Backed Certificates,
Series 1997-1 (the "Certificate"). Capitalized terms used but not defined in
this certificate have the respective meanings given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III. In addition, each holder shall
submit with the Certificate an IRS Form W-9 relating to such holder.
To confirm to the Issuer that the provisions of Section 1446 of the Internal
Revenue Code (relating to withholding tax on foreign partners) do not apply in
respect of the Certificate held by the undersigned, the undersigned hereby
certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is) not a non-
resident alien for purposes of U.S. income
taxation;
2. My (The Beneficial Owner's) name and home
address are:
------------------------------------------
------------------------------------------
------------------------------------------;
and
3. My (The Beneficial Owner's) U.S. taxpayer
identification number (Social Security
Number) is .
B. Corporate, Partnership or Other Entity as
Beneficial Owner
1. (Name of the
-------------------------
Beneficial Owner) is not a foreign
corporation, foreign partnership, foreign
F-1
<PAGE> 70
trust or foreign estate (as those terms are
defined in the Code and Treasury
Regulations);
2. The Beneficial Owner's office address and
place of incorporation (if applicable) is
; and
--------------------------------------
3. The Beneficial Owner's U.S. employer
identification number is .
-------------------
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
_______ an IRS Form W-9
_______ a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Issuer at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Issuer promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Issuer within sixty (60) days of the date that the Beneficial
Owner becomes a foreign person. The undersigned understands that this
certificate may be disclosed to the Internal Revenue Service by the Issuer and
any false statement contained therein could be punishable by fines, imprisonment
or both.
F-2
<PAGE> 71
Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Issuer of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
- ----------------------------------
Name
- ----------------------------------
Title (if applicable)
- ----------------------------------
Signature and Date
*NOTE: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
F-3
<PAGE> 72
EXHIBIT G
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[Certificate Registrar]
Re: Household Consumer Loan Trust 1997-1
Consumer Loan Asset Backed Certificates,
Series 1997-1 (the "Certificates")
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to review the Trust Agreement, Indenture and Pooling
and Servicing Agreement and we have had the opportunity to ask questions of and
receive answers from the Seller concerning the purchase of the Certificates and
all matters relating thereto or any additional information deemed necessary to
our decision to purchase the Certificates, (d) we are not an employee benefit
plan that is subject to the Employee Retirement Income Security Act of 1974, as
amended, or a plan that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of or using the assets of any
such plan, [or if the Purchaser is an insurance company, a representation that
the Purchaser is an insurance company which is purchasing such certificates with
funds contained in an "insurance company general account" (as such term is
defined in section v(e) of prohibited transaction class exemption 95-60 ("ptce
95-60")) and that the purchase and holding of such certificates are covered
under ptce 95-60,] or (iv) in the case of any such proposed transferee which is
a plan, an opinion of counsel satisfactory to the Owner Trustee and the Seller
to the effect set forth in the agreement (e) we are acquiring the Certificates
for investment for our own account and not with a view to any distribution of
such Certificates (but without prejudice to our right at all times to sell or
otherwise dispose of the Certificates in accordance with clause (g) below), (f)
we have not offered or sold any Certificates to, or solicited offers to buy any
Certificates from, any person, or otherwise approached or
G-1
<PAGE> 73
negotiated with any person with respect thereto, or taken any other action which
would result in a violation of Section 5 of the Act, (g) we will not sell,
transfer or otherwise dispose of any Certificates unless (1) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements, and if such
transfer is made pursuant to an exemption other than Rule 144A, we will, if
requested, at our expense provide an opinion of counsel satisfactory to the
addressees of this certificate that such sale, transfer or other disposition may
be made pursuant to an exemption from the Act, (2) the purchaser or transferee
of such Certificate has executed and delivered to you a certificate to
substantially the same effect as this certificate, and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Trust Agreement, and (h), either (i) we are a "C Corporation" under the
Internal Revenue Code of 1986, as amended, or (ii) we have provided such
disclosure concerning our status for federal income tax purposes and the status
and economic interest of our beneficial owners, as the Issuer or its
representatives have reasonably requested to determine that our acquisition of
the Certificates will not subject the Issuer to an entity level tax.
Very truly yours,
[TRANSFEREE]
By:
-------------------------------
Authorized Officer
G-2
<PAGE> 1
EXHIBIT 4.2
- -------------------------------------------------------------------------------
HOUSEHOLD CONSUMER LOAN TRUST 1997-1,
as Issuer
AND
THE BANK OF NEW YORK,
as Indenture Trustee
-----------------------------------------
FORM OF INDENTURE
Dated as of March 1, 1997
------------------------------------------
HOUSEHOLD CONSUMER LOAN ASSET BACKED NOTES
SERIES 1997-1
- -------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
ARTICLE I
Definitions
<S> <C> <C>
1.01. Definitions..................................................................................... 2
1.02. Incorporation by Reference of Trust Indenture
Act...................................................................................... 2
1.03. Rules of Construction........................................................................... 2
ARTICLE II
Original Issuance of Notes
2.01. Form ......................................................................................... 4
2.02. Execution, Authentication and Delivery.......................................................... 4
2.03. Opinions of Counsel............................................................................. 5
ARTICLE III
Covenants
3.01. Collection of Payments on the Series 1997-1
Participation Interest................................................................... 6
3.02. Maintenance of Office or Agency................................................................. 6
3.03. Money for Payments To Be Held in Trust; Paying
Agent; Certificate Paying Agent.......................................................... 6
3.04. Existence....................................................................................... 8
3.05. Payment of Principal and Interest; Defaulted
Interest................................................................................. 9
3.06. Protection of Indenture Trust Estate............................................................ 14
3.07. Opinions as to Indenture Trust Estate........................................................... 15
3.08. Performance of Obligations...................................................................... 15
3.09. Negative Covenants.............................................................................. 16
3.10. Annual Statement as to Compliance............................................................... 17
3.11. Indenture Trust Estate; Related Documents....................................................... 17
3.12. Amendments to Pooling and Servicing Agreement................................................... 17
3.13. Investment Company Act.......................................................................... 18
3.14. Existence of Issuer; Issuer May Consolidate,
etc., Only on Certain Terms.............................................................. 18
3.15. Successor or Transferee......................................................................... 20
3.16. No Other Business............................................................................... 20
3.17. No Borrowing.................................................................................... 20
3.18. Guarantees, Loans, Advances and Other Liabil-
ities.................................................................................... 20
3.19. Capital Expenditures............................................................................ 21
3.20. Restricted Payments............................................................................. 21
3.21. Notice of Events of Default..................................................................... 21
3.22. Further Instruments and Acts.................................................................... 21
3.23. Statements to Noteholders....................................................................... 21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.24. Determination of Note Rate and Certificate
Rate..................................................................................... 21
3.25. Optional Repurchase of the Series 1997-1
Participation Interest................................................................... 21
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. The Notes....................................................................................... 23
4.02. Registration of and Limitations on Transfer and
Exchange of Notes; Appointment of Certificate
Registrar................................................................................ 23
4.03. Mutilated, Destroyed, Lost or Stolen Notes...................................................... 24
4.04. Persons Deemed Owners........................................................................... 25
4.05. Cancellation.................................................................................... 26
4.06. Book-Entry Notes................................................................................ 26
4.07. Notices to Depository........................................................................... 27
4.08. Definitive Notes................................................................................ 27
4.09. Tax Treatment................................................................................... 28
4.10. Satisfaction and Discharge of Indenture......................................................... 28
4.11. Application of Trust Money...................................................................... 29
4.12. Repayment of Moneys Held by Paying Agent........................................................ 29
ARTICLE V
Remedies
5.01. Event of Default; Acceleration of Maturity;
Rescission and Annulment................................................................. 30
5.02. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee......................................................... 31
5.03. Remedies; Priorities............................................................................ 33
5.04. Optional Preservation of the Indenture Trust
Estate................................................................................... 35
5.05. Limitation of Suits............................................................................. 35
5.06. Unconditional Rights of Noteholders To Receive
Principal and Interest................................................................... 36
5.07. Restoration of Rights and Remedies.............................................................. 36
5.08. Rights and Remedies Cumulative.................................................................. 37
5.09. Delay or Omission Not a Waiver.................................................................. 37
5.10. Control by Noteholders.......................................................................... 37
5.11. Waiver of Past Defaults......................................................................... 38
5.12. Undertaking for Costs........................................................................... 38
5.13. Waiver of Stay or Extension Laws................................................................ 38
5.14. Sale of Indenture Trust Estate.................................................................. 39
5.15. Action on Notes................................................................................. 40
5.16. Performance and Enforcement of Certain Obli-
gations.................................................................................. 41
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VI
The Indenture Trustee
6.01. Duties of Indenture Trustee..................................................................... 42
6.02. Rights of Indenture Trustee..................................................................... 43
6.03. Individual Rights of Indenture Trustee.......................................................... 44
6.04. Indenture Trustee's Disclaimer.................................................................. 44
6.05. Notice of Event of Default...................................................................... 44
6.06. Reports by Indenture Trustee.................................................................... 44
6.07. Compensation and Indemnity...................................................................... 44
6.08. Replacement of Indenture Trustee................................................................ 45
6.09. Successor Indenture Trustee by Merger........................................................... 46
6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee........................................................................ 47
6.11. Eligibility; Disqualification................................................................... 48
6.12. Preferential Collection of Claims Against
Issuer................................................................................... 48
6.13. Representation and Warranty..................................................................... 48
6.14. Directions to Indenture Trustee................................................................. 49
6.15. No Consent to Certain Acts of Seller............................................................ 49
ARTICLE VII
Noteholders' Lists and Reports
7.01. Issuer To Furnish Indenture Trustee Names and
Addresses of Noteholders................................................................. 50
7.02. Preservation of Information; Communications to
Noteholders.............................................................................. 50
7.03. Reports by Issuer............................................................................... 50
7.04. Reports by Indenture Trustee.................................................................... 51
ARTICLE VIII
Accounts, Disbursements and Releases
8.01. Collection of Money............................................................................. 52
8.02. Trust Accounts.................................................................................. 52
8.03. Opinion of Counsel.............................................................................. 52
8.04. Termination Upon Distribution to Noteholders.................................................... 53
8.05. Release of Indenture Trust Estate............................................................... 53
8.06. Surrender of Notes Upon Final Payment........................................................... 54
ARTICLE IX
Supplemental Indentures
9.01. Supplemental Indentures Without Consent of
Noteholders.............................................................................. 55
9.02. Supplemental Indentures With Consent of Note-
holders.................................................................................. 56
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
9.03. Execution of Supplemental Indentures............................................................ 58
9.04. Effect of Supplemental Indenture................................................................ 58
9.05. Conformity with Trust Indenture Act............................................................. 58
9.06. Reference in Notes to Supplemental Indentures................................................... 58
ARTICLE X
Miscellaneous
10.01. Compliance Certificates and Opinions, etc...................................................... 60
10.02. Form of Documents Delivered to Indenture
Trustee.................................................................................. 61
10.03. Acts of Noteholders............................................................................ 62
10.04. Notices, etc., to Indenture Trustee, Issuer,
and Rating Agencies...................................................................... 63
10.05. Notices to Noteholders; Waiver................................................................. 64
10.06. Alternate Payment and Notice Provisions........................................................ 64
10.07. Conflict with Trust Indenture Act.............................................................. 65
10.08. Effect of Headings............................................................................. 65
10.09. Successors and Assigns......................................................................... 65
10.10. Separability................................................................................... 65
10.11. Benefits of Indenture.......................................................................... 65
10.12. GOVERNING LAW.................................................................................. 65
10.13. Counterparts................................................................................... 65
10.14. Recording of Indenture......................................................................... 66
10.15. Issuer Obligation.............................................................................. 66
10.16. No Petition.................................................................................... 66
10.17. Inspection..................................................................................... 66
10.18. Authority of the Administrator................................................................. 67
Signatures and Seals ........................................................................................... 66
Acknowledgments ................................................................................................ 67
</TABLE>
EXHIBITS
Exhibit A-1 - Form of Class A-1 Note
Exhibit A-2 - Form of Class A-2 Note
Exhibit A-3 - Form of Class A-3 Note
Exhibit A-4 - Form of Class B Note
Appendix A - Definitions
iv
<PAGE> 6
This Indenture, dated as of March 1, 1997, between HOUSEHOLD CONSUMER
LOAN TRUST 1997-1, a Delaware business trust, as Issuer (the "Issuer"), and The
Bank of New York, a New York banking corporation, as Indenture Trustee (the
"Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the other party
and for the benefit of the Holders of the Household Consumer Loan Asset Backed
Notes, Series 1997-1, Class A and Class B Notes (collectively, the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date,
as Indenture Trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created (a) the Series 1997-1 Participation Interest free and clear of any
Liens, and all monies and the collections and proceeds due thereon and any part
thereof which consists of general intangibles (as defined in the UCC), (b) all
rights of the Issuer as holder of the Series 1997-1 Participation Interest in
and to the Pooling and Servicing Agreement including without limitation, rights
to consent, receive notices and vote thereunder; (c) all funds on deposit from
time to time in the Payment Account and all proceeds thereof, and (d) all
present and future claims, demands, causes and chooses in action in respect of
any or all of the foregoing and all payments on or under, and all proceeds of
every kind and nature whatsoever in respect of, any or all of the foregoing and
all payments on or under, and all proceeds of every kind and nature whatsoever
in the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Indenture Trust Estate" or the
"Indenture Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and to secure compliance with the provisions of this Indenture, all as
provided in this Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the
Holders of the Notes, acknowledges such Grant, accepts the trust under this
Indenture in accordance with the provisions hereof and agrees to perform its
duties as Indenture Trustee as required herein.
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ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Definitions attached hereto as Appendix
A which is incorporated by reference herein. All other capitalized terms used
herein shall have the meanings specified herein.
Section 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange
Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means
the Indenture Trustee.
"obligor" on the indenture securities means the Issuer
and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
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(v) words in the singular include the plural and
words in the plural include the singular; and
(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or statute as
from time to time amended, modified or supplemented and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
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ARTICLE II
Original Issuance of Notes
Section 2.01. Form. The Class A-1, Class A-2, Class A-3 and Class B
Notes, together with the Indenture Trustee's certificate of authentication,
shall be in substantially the forms set forth in Exhibits A-1, A-2, A-3 and B,
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes.
Any portion of the text of any Note may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibits A-1, A-2, A-3, and B are
part of the terms of this Indenture.
Section 2.02. Execution, Authentication and Delivery. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class B Notes
for original issue in aggregate initial principal amounts of $_____________,
$_____________, $______________ and $_____________, respectively.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Notes shall be issuable in the
minimum initial Security Balances of $100,000 and in integral multiples of
$1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substan-
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tially in the form provided for herein executed by the Indenture Trustee by the
manual signature of one of its authorized signatories, and such certificate
upon any Note shall be conclusive evidence, and the only evidence, that such
Note has been duly authenticated and delivered hereunder.
Section 2.03. Opinions of Counsel. On the Closing Date, the Indenture
Trustee shall have received: (i) an Opinion of Counsel, in form and substance
reasonably satisfactory to the Indenture Trustee and its counsel, with respect
to securities law matters; (ii) an Opinion of Counsel, in form and substance
reasonably satisfactory to the Indenture Trustee and its counsel, with respect
to the tax status of the arrangement created by the Indenture; (iii) an Opinion
of Counsel to the Issuer, in form and substance reasonably satisfactory to the
Indenture Trustee and its counsel, with respect to the due authorization, valid
execution and delivery of this Indenture and with respect to its binding effect
on the Issuer; and (iv) an Opinion of Counsel to the Issuer, in form and
substance reasonably satisfactory to the Indenture Trustee and its counsel, to
the effect that the Indenture creates in favor of the Indenture Trustee a first
priority perfected security interest in the Series 1997-1 Participation
Interest and the other assets of the Indenture Trust Estate.
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ARTICLE III
Covenants
Section 3.01. Collection of Payments on the Series 1997-1
Participation Interest. The Indenture Trustee shall establish and maintain with
itself a trust account (the "Payment Account") in which the Indenture Trustee
shall, subject to the terms of this paragraph, deposit, on the same day as it
is received from the Deposit Trustee, each remittance received by the Indenture
Trustee with respect to the Series 1997-1 Participation Interest. The Indenture
Trustee shall make all payments of principal of and interest on the Notes,
subject to Section 3.03 as provided in Section 3.05 herein from moneys on
deposit in the Payment Account.
Section 3.02. Maintenance of Office or Agency. The Issuer will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where, subject to satisfaction of conditions set forth herein, Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Issuer hereby initially appoints the Indenture Trustee to serve as
its agent for the foregoing purposes. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Indenture Trustee, and the
Issuer hereby appoints the Indenture Trustee as its agent to receive all such
surrenders, notices and demands.
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent;
Certificate Paying Agent. (a) As provided in Section 3.01, all payments of
amounts due and payable with respect to any Notes that are to be made from
amounts withdrawn from the Payment Account pursuant to Section 3.01 shall be
made on behalf of the Issuer by the Indenture Trustee or by the Paying Agent,
and no amounts so withdrawn from the Payment Account for payments of Notes
shall be paid over to the Issuer except as provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of
amounts due with respect to the Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as
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herein provided and pay such sums to such Persons as herein
provided;
(ii) give the Indenture Trustee notice of any default
by the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes
of any applicable withholding taxes imposed thereon and with respect
to any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Request direct any Paying Agent to pay to the Indenture Trustee all sums
held in trust by such Paying Agent, such sums to be held by the Indenture
Trustee upon the same trusts as those upon which the sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Indenture
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such
trust and be paid to the Issuer on Issuer Request; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any
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unclaimed balance of such money then remaining will be repaid to the Issuer.
The Indenture Trustee shall also adopt and employ, at the expense and direction
of the Issuer, any other reasonable means of notification of such repayment
(including, but not limited to, mailing notice of such repayment to Holders
whose Notes have been called but have not been surrendered for redemption or
whose right to or interest in moneys due and payable but not claimed is
determinable from the records of the Indenture Trustee or of any Paying Agent,
at the last address of record for each such Holder).
The Issuer hereby appoints The Bank of New York as Certificate Paying
Agent to make payments to Certificateholders on behalf of the Issuer in
accordance with the provisions of the Certificates, Section 3.05 hereof and the
provisions of the Trust Agreement, and The Bank of New York hereby accepts such
appointment and further agrees that it will be bound by the provisions of the
Trust Agreement relating to the Certificate Paying Agent and will:
(i) hold all sums held by it for the payment of
amounts due with respect to the Certificates in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and as provided in
the Trust Agreement and pay such sums to such Persons as herein and
therein provided;
(ii) give the Owner Trustee notice of any default by
the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Certificates;
(iii) at any time during the continuance of any such
default, upon the written request of the Owner Trustee forthwith pay
to the Owner Trustee on behalf of the Issuer all sums so held in Trust
by such Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and
forthwith pay to the Owner Trustee on behalf of the Issuer all sums
held by it in trust for the payment of Certificates if at any time it
ceases to meet the standards required to be met by the Certificate
Paying Agent at the time of its appointment;
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any
Certificates of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection
therewith; and
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(vi) deliver to the Owner Trustee a copy of the report
to Certificateholders prepared with respect to each Payment Date by
the Servicer pursuant to Article V of the Pooling and Servicing
Agreement.
Section 3.04. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the
State of Delaware (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other state or of the United States of
America, in which case the Issuer will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction) and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Series 1997-1 Participation
Interest and each other instrument or agreement included in the Indenture Trust
Estate.
Section 3.05. Payment of Principal and Interest; Defaulted Interest.
(a) On each Payment Date from amounts on deposit in the Payment Account, the
Paying Agent, on behalf of the Issuer, shall pay to the Noteholders and the
Certificate Paying Agent, on behalf of the Issuer shall pay to the
Certificateholders and the Indenture Trustee in its capacity as agent for the
Issuer shall pay to other Persons the amounts to which they are entitled as set
forth below:
(i) sequentially (a) to the Holders of the Class A-1
Notes, the related Class Interest Distribution, (b) to the Holders of
the Class A-2 Notes, the related Class Interest Distribution, (c) to
the Holders of the Class A-3 Notes, the related Class Interest
Distribution, (d) to the Holders of the Class B Notes, the related
Class Interest Distribution and (e) subject to the proviso set forth
following clause (vii) below to the Holders of the Certificates, the
Certificate Yield;
(ii) sequentially, up to the Optimum Monthly
Principal:
(a) to the Holders of the Class A-1 Notes, until the
Principal Balance of the Class A-1 Notes would equal the
Class A-1 Targeted Principal Balance,
(b) to the Holders of the Class A-2 Notes, until the
Principal Balance of the Class A-2 Notes would equal the
Class A-2 Targeted Principal Balance, so long as the related
Adjusted Principal Balance for the Class A-2 Notes would not
thereby be reduced below the related Minimum Adjusted
Principal Balance for such Class of Notes,
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(c) to the Holders of the Class A-3 Notes, until the
Principal Balance of the Class A-3 Notes would equal the
Class A-3 Targeted Principal Balance, so long as the related
Adjusted Principal Balance for the Class A-3 Notes would not
thereby be reduced below the related Minimum Adjusted
Principal Balance for such Class of Notes, and
(d) to the Holders of the Class B Notes, until the
Principal Balance of the Class B Notes would equal the Class
B Targeted Principal Balance, so long as the related Adjusted
Principal Balance for the Class B Notes would not thereby be
reduced below the related Minimum Adjusted Principal Balance
for such Class of Notes;
(iii) to the Holders of the Certificates, up to the
balance of the Optimum Monthly Principal, until the Certificate
Balance would equal the Certificate Targeted Balance so long as the
Certificate Adjusted Security Balance would not thereby be reduced
below the Certificate Minimum
Adjusted Balance;
(iv) HCLC, the initial Holder of the Designated
Certificate or its transferee, up to the balance of the
Optimum Monthly Principal, provided the
Overcollateralization Amount is not less than the
Overcollateralization Minimum Amount;
(v) sequentially, up to the Accelerated Principal
Payment Amount:
(a) to the Holders of the Class A-1 Notes, until the
Principal Balance of the Class A-1 Notes would equal the
Class A-1 Targeted Principal Balance,
(b) to the Holders of the Class A-2 Notes, until the
Principal Balance of the Class A-2 Notes would equal the
Class A-2 Targeted Principal Balance, so long as the related
Adjusted Principal Balance for the Class A-2 Notes would not
thereby be reduced below the related Minimum Adjusted
Principal Balance for such Class of Notes,
(c) to the Holders of the Class A-3 Notes, until the
Principal Balance of the Class A-3 Notes would equal the
Class A-3 Targeted Principal Balance, so long as the related
Adjusted Principal Balance for the Class A-3 Notes would not
thereby be reduced below the related Minimum Adjusted
Principal Balance for such Class of Notes,
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(d) to the Holders of the Class B Notes, until the
Principal Balance of the Class B Notes would equal the Class
B Targeted Principal Balance, so long as the related Adjusted
Principal Balance for the Class B Notes would not thereby be
reduced below the related Minimum Adjusted Principal Balance
for such Class of Notes,
(e) to the Holders of the Class A-1 Notes, until
the Principal Balance on the Class A-1 Notes would
equal zero,
(f) to the Holders of the Class A-2 Notes, until
the Principal Balance on the Class A-2 Notes would
equal zero,
(g) to the Holders of the Class A-3 Notes, until
the Principal Balance on the Class A-3 Notes would
equal zero, and
(h) to the Holders of the Class B Notes, until the
Principal Balance on the Class B Notes would equal
zero;
(vi) sequentially, up to the balance of the Optimum
Monthly Principal:
(a) to the Holders of the Class A-1 Notes, until
the Principal Balance on the Class A-1 Notes would
equal zero,
(b) to the Holders of the Class A-2 Notes, until
the Principal Balance on the Class A-2 Notes would
equal zero,
(c) to the Holders of the Class A-3 Notes, until
the Principal Balance on the Class A-3 Notes would
equal zero,
(d) to the Holders of the Class B Notes, until the
Principal Balance on the Class B Notes would equal
zero,
(e) to the Holders of the Certificates, until the
Certificate Balance would equal the Certificate Minimum
Balance, or if the Series 1997-1 Participation Interest
Invested Amount is zero, then to the to the Holders of the
Certificates, until the Certificate Balance would equal zero,
and
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(f) to HCLC, the initial Holder of the Designated
Certificate or its transferee provided the
Overcollateralization Amount is greater than zero; and
(vii) any remaining amounts to HCLC, the initial
Holder of the Designated Certificate or its transferee;
provided that, in the event (a) an Event of Default shall have occurred and be
continuing, (b) immediately prior to any Distribution Date the Series 1997-1
Participation Interest Invested Amount is less than the aggregate Security
Balance of the Class A and Class B Notes immediately prior to such related
Payment Date, or (c) the remittances on the Series 1997-1 Participation
Interest for such Payment Date is less than the aggregate amount to be paid
pursuant to clauses (i) above, the amount to be paid pursuant to clause (i)(c)
above will be paid only after payments are made on the Notes pursuant to clause
(ii) for such Payment Date.
Amounts distributed pursuant to clauses (iv) and (vi)(f) above shall
be paid in the following order in respect of the following amounts (a) first to
HCLC, the initial Holder of the Designated Certificate or its transferee to the
extent of Accelerated Principal Payments made on the Notes, and (b) second to
HCLC, the initial Holder of the Designated Certificate or its transferee in
reduction of the Holdback Amount and (c) third once the Holdback Amount is
reduced to zero, any remaining amount to HCLC, as the initial Holder of the
Designated Certificate or its transferee.
The amounts paid to Noteholders shall be paid to each Class in
accordance with the Class Percentage as set forth in paragraph (b) below.
Interest will accrue on the Notes during an Interest Period on the basis of the
actual number of days in such Interest Period and a year assumed to consist of
360 days.
Any installment of interest or principal, if any, payable on any Note
that is punctually paid or duly provided for by the Issuer on the applicable
Payment Date shall, if such Holder holds Notes of an aggregate initial
Principal Balance of at least $5,000,000 be paid to each Holder of record on
the preceding Record Date, by wire transfer to an account specified in writing
by such Holder reasonably satisfactory to the Indenture Trustee as of the
preceding Record Date or in all other cases or if no such instructions have
been delivered to the Indenture Trustee, by check to such Noteholder mailed to
such Holder's address as it appears in the Note Register the amount required to
be distributed to such Holder on such Payment Date pursuant to such Holder's
Securities. Amounts to be paid to Certificateholders and the owner of the
Holdback Amount shall be paid by the Certificate Paying Agent in the manner
provided in the Trust Agreement.
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Neither the Indenture Trustee nor the Issuer shall pay to such Holders
any amount required to be withheld from a payment to such Holder by the Code
and any amounts so withheld shall be deemed to have been paid.
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date as provided in the related form of Note set forth
in Exhibits A-1, A-2, A-3 and A-4. All principal payments on each Class of
Notes shall be made to the Noteholders of such Class entitled thereto in
accordance with the Percentage Interests represented by such Notes. Upon notice
to the Indenture Trustee by the Issuer, the Indenture Trustee shall notify the
Person in whose name a Note is registered at the close of business on the
Record Date preceding the Final Scheduled Payment Date or other final Payment
Date. Such notice shall be mailed no later than five Business Days prior to
such Final Scheduled Payment Date or other final Payment Date and shall specify
that payment of the principal amount and any interest due with respect to such
Note at the Final Scheduled Payment Date or other final Payment Date will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for such final payment.
(c) On any Payment Date with respect to which Series 1997-1
Participation Interest Charge-Offs were incurred during the preceding Due
Period and less than the Optimum Monthly Principal is distributed in respect of
principal on such Payment Date, such amount that was not distributed shall be
allocated in the following order:
(i) (A) to HCLC, the initial Holder of the Designated
Certificate or its transferee to the extent of Accelerated Principal
Payments made on the Notes, and (B) to HCLC, the initial Holder of the
Designated Certificate or its transferee to the extent of the Holdback
Amount until such amount equals zero.
(ii) to the Certificate Adjusted Security Balance
until the Certificate Adjusted Security Balance equals zero;
(iii) to the Class B Adjusted Principal Balance until
the Class B Adjusted Principal Balance equals zero; and
(iv) to the Class A-3 Adjusted Principal Balance
until the Class A-3 Adjusted Principal Balance equals zero;
(v) to the Class A-2 Adjusted Principal Balance
until the Class A-2 Adjusted Principal Balance equals zero;
and
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(vi) to the Class A-1 Adjusted Principal Balance until
the Class A-1 Adjusted Principal Balance equals zero.
(d) On to any Payment Date in which a Reversal exists, it shall be
allocated in the following order of priority:
(i) to the Class A-1 Adjusted Principal Balance until the
Class A-1 Adjusted Principal Balance equals the Principal Balance of
the Class A-1 Notes;
(ii) to the Class A-2 Adjusted Principal Balance until the
Class A-2 Adjusted Principal Balance equals the Principal Balance of
the Class A-2 Notes;
(iii)to the Class A-3 Adjusted Principal Balance until the
Class A-3 Adjusted Principal Balance equals the Principal Balance of
the Class A-3 Notes;
(iv) to the Class B Adjusted Principal Balance until the
Class B Adjusted Principal Balance equals the Principal Balance of the
Class B Notes;
(v) to the Certificate Adjusted Security Balance until the
Certificate Adjusted Security Balance equals the amount of the
Security Balance of the Certificates; and
(vi) (A) first to the Holdback Amount to the extent of any
Series 1997-1 Participation Charge-Offs allocated to the Holdback
Amount pursuant to Section 3.05(c)(i) on prior Payment Dates, and (B)
second to HCLC, as the initial Holder of the Designated Certificates
or its transferee to the extent of any Series 1997-1 Participation
Charge-Offs allocated to the HCLC, the initial Holder of Designated
Certificate or its transferee pursuant to Section 3.05(c)(i) on prior
Payment Dates.
Section 3.06. Protection of Indenture Trust Estate. (a) The Issuer
will from time to time execute and deliver all such supplements and amendments
hereto and all such financing statements, continuation statements, instruments
of further assurance and other instruments, and will take such other action
necessary or advisable to:
(i) in the case of the Series 1997-1 Participation
Interest, take physical delivery of the Series 1997-1 Participation
Interest and cause it to be registered in the name of the Indenture
Trustee for the benefit of the Holders of the Notes;
(ii) maintain or preserve the lien and security
interest (and the priority thereof) of this Indenture or
carry out more effectively the purposes hereof;
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(iii) perfect, publish notice of or protect the
validity of any Grant made or to be made by this Indenture;
(iv) enforce Series 1997-1 Participation Interest in
the manner contemplated by Section 5.16; and
(v) preserve and defend title to the Indenture Trust
Estate and the rights of the Indenture Trustee and the Noteholders in
such Indenture Trust Estate against the claims of all persons and
parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Indenture Trust Estate that
consists of money or is evidenced by an instrument, certificate or other
writing from the jurisdiction in which it was held at the date of the most
recent Opinion of Counsel delivered pursuant to Section 3.07(b) (or from the
jurisdiction in which it was held as described in the Opinion of Counsel
delivered at the Closing Date pursuant to Section 3.07(a), if no Opinion of
Counsel has yet been delivered pursuant to Section 3.07(b)) unless the Trustee
shall have first received an Opinion of Counsel to the effect that the lien and
security interest created by this Indenture with respect to such property will
continue to be maintained after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.06.
For so long as the Indenture Trustee holds the Indenture Collateral,
it shall also hold it as bailee for the Issuer for the purpose of perfecting
the Issuer's security interest in the Indenture Collateral; provided that
nothing in this sentence shall limit any rights or remedies of the Indenture
Trustee or the Noteholders against the Issuer or the Indenture Collateral under
this Indenture.
Section 3.07. Opinions as to Indenture Trust Estate. (a) On or
promptly following the Closing Date, the Issuer shall furnish to the Indenture
Trustee, the Owner Trustee and to the Administrator an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the delivery of the Series 1997-1 Participation Interest, the
recording and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and filing of
any financing statements and continuation statements, as are necessary to
perfect and make effective the lien and security interest of this Indenture and
reciting the details of such action, or stating that, in the
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opinion of such counsel, no such action is necessary to make such lien and
security interest effective.
(b) On or before December 31 in each calendar year, beginning in 1997,
the Issuer shall furnish to the Indenture Trustee and to the Administrator an
Opinion of Counsel at the expense of Issuer either stating that, in the opinion
of such counsel, such action has been taken with respect to the Series 1997-1
Participation Interest, the recording, filing, re-recording and refiling of
this Indenture, any indentures supplemental hereto and any other requisite
documents and with respect to the execution and filing of any financing
statements and continuation statements as is necessary to maintain the lien and
security interest created by this Indenture and reciting the details of such
action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest. Such Opinion of Counsel
shall also describe the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and the execution and filing of any financing statements and continuation
statements that will, in the opinion of such counsel, be required to maintain
the lien and security interest of this Indenture until December 31 in the
following calendar year.
Section 3.08. Performance of Obligations. (a) The Issuer will
punctually perform and observe all of its obligations and agreements contained
in this Indenture, the Basic Documents and in the instruments and agreements
included in the Indenture Trust Estate. Except as otherwise expressly provided
therein, the Issuer shall not waive, amend, modify, supplement or terminate any
Basic Document, without the consent of the Indenture Trustee or the Holders of
at least a majority of the Security Balances of the Notes. Upon the taking of
any such action with respect to any Basic Document the Issuer shall give
written notice thereof to the Rating Agencies.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Series
1997-1 Participation Interest or under any instrument included in the Indenture
Trust Estate, or which would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the
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validity or effectiveness of, any of the documents relating to the Series
1997-1 Participation Interest or any such instrument.
(d) The Issuer shall at all times retain an Administrator and may
enter into contracts with other Persons for the performance of the Issuer's
obligations hereunder, and performance of such obligations by such Persons
shall be deemed to be performance of such obligations by the Issuer.
Section 3.09. Negative Covenants. So long as any Notes are
Outstanding, the Issuer shall not:
(i) claim any credit on, or make any deduction from
the principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Indenture
Trust Estate; or
(ii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations
with respect to the Notes under this Indenture except as may be
expressly permitted hereby, (B) permit any lien, charge, excise,
claim, security interest, mortgage or other encumbrance (other than
the lien of this Indenture) to be created on or extend to or otherwise
arise upon or burden the Indenture Trust Estate or any part thereof or
any interest therein or the proceeds thereof or (C) permit the lien of
this Indenture not to constitute a valid first priority security
interest in the Indenture Trust Estate.
Section 3.10. Annual Statement as to Compliance. The Issuer will
deliver to the Indenture Trustee and the Rating Agencies within 120 days after
the end of each fiscal year of the Issuer (commencing with the fiscal year
1997), an Officer's Certificate stating, as to the Authorized Officer signing
such Officer's Certificate, that:
(i) a review of the activities of the Issuer during
such year and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's
knowledge, based on such review, the Issuer has complied with all
conditions and covenants under this Indenture throughout such year,
or, if there has been a default in its compliance with any such
condition or covenant, specifying each such
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default known to such Authorized Officer and the nature and
status thereof.
Section 3.11. Indenture Trust Estate; Related Documents. (a) When
required by the provisions of this Indenture, the Indenture Trustee shall
execute instruments to release property from the lien of this Indenture, or
convey the Indenture Trustee's interest in the same, in a manner and under
circumstances which are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Indenture Trustee as
provided in this Article III shall be bound to ascertain the Indenture
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding, release all of the Indenture Trust Estate to the Issuer (other
than any cash held for the payment of the Notes pursuant to Section 3.03 or
4.11), subject, however, to the rights of the Indenture Trustee under Section
6.07.
Section 3.12. Amendments to Pooling and Servicing Agreement. The
Indenture Trustee may consent to any amendment or supplement to the Pooling and
Servicing Agreement only in accordance with Section 13.01 of the Pooling and
Servicing Agreement if (i) it has received a letter from each Rating Agency to
the effect that such amendment will not result in the reduction or withdrawal
of the ratings then assigned to the Notes or (ii) a majority in interest of
Noteholders (by Security Balance of the Notes) have instructed the Indenture
Trustee to consent to such amendment and if an Opinion of Counsel is required
to be delivered pursuant to Section 13.01 of the Pooling and Servicing
Agreement, such opinion shall be delivered to the Indenture Trustee. The
Indenture Trustee may, in its discretion, decline to enter into or consent to
any such supplement or amendment if its own rights, duties or immunities shall
be adversely affected.
Section 3.13. Investment Company Act. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section
3.13 if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
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Section 3.14. Existence of Issuer; Issuer May Consolidate, etc., Only
on Certain Terms. (a) The Issuer shall at all times while any Notes are
outstanding maintain its existence except as otherwise permitted by Subsections
(b) or (c) below.
(b) The Issuer shall not consolidate or merge with or into any other
Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state
or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Indenture
Trustee, in form reasonably satisfactory to the Indenture Trustee, the
due and punctual payment of the principal of and interest on all Notes
and the performance or observance of every agreement and covenant of
this Indenture on the part of the Issuer to be performed or observed,
all as provided herein;
(ii) immediately after giving effect to such trans-
action, no Event of Default shall have occurred and be
continuing;
(iii) each Rating Agency shall have notified the Issuer
that such transaction shall not cause the rating of the Notes to be
reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any
material adverse tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the
lien and security interest created by this Indenture shall
have been taken; and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation or merger and such supplemental
indenture comply with this Article III and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act).
(c) The Issuer shall not convey or transfer any of its
properties or assets, including those included in the Indenture
Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or
transfer the properties and assets of the Issuer the
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conveyance or transfer of which is hereby restricted shall (A) be a
United States citizen or a Person organized and existing under the
laws of the United States of America or any state, (B) expressly
assumes, by an indenture supplemental hereto, executed and delivered
to the Indenture Trustee, in form satisfactory to the Indenture
Trustee, the due and punctual payment of the principal of and interest
on all Notes and the performance or observance of every agreement and
covenant of this Indenture on the part of the Issuer to be performed
or observed, all as provided herein, (C) expressly agrees by means of
such supplemental indenture that all right, title and interest so
conveyed or transferred shall be subject and subordinate to the rights
of Holders of the Notes, (D) unless otherwise provided in such
supplemental indenture, expressly agrees to indemnify, defend and hold
harmless the Issuer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes and (E)
expressly agrees by means of such supplemental indenture that such
Person (or if a group of Persons, then one specified Person) shall
make all filings with the Commission (and any other appropriate
Person) required by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such trans-
action, no Default or Event of Default shall have occurred
and be continuing;
(iii) each Rating Agency shall have notified the Issuer
that such transaction shall not cause the rating of the Notes to be
reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any
material adverse tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the
lien and security interest created by this Indenture shall
have been taken; and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such conveyance or transfer and such supplemental
indenture comply with this Article III and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act).
Section 3.15. Successor or Transferee. (a) Upon any
consolidation or merger of the Issuer in accordance with Section
3.14(b), the Person formed by or surviving such consolidation or
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merger (if other than the Issuer) shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer under this Indenture with the
same effect as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.14(c), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the
part of the Issuer with respect to the Notes immediately upon the delivery of
written notice to the Indenture Trustee is to be so released.
Section 3.16. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Series 1997-1 Participation Interest in the manner contemplated by this
Indenture and the Basic Documents and all activities incidental thereto.
Section 3.17. No Borrowing. The Issuer shall not issue,
incur, assume, guarantee or otherwise become liable, directly or
indirectly, for any indebtedness except for the Notes.
Section 3.18. Guarantees, Loans, Advances and Other Liabilities.
Except as contemplated by this Indenture, the Issuer shall not make any loan or
advance or credit to, or guarantee (directly or indirectly or by an instrument
having the effect of assuring another's payment or performance on any
obligation or capability of so doing or otherwise), endorse or otherwise become
contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire
(or agree contingently to do so) any stock, obligations, assets or securities
of, or any other interest in, or make any capital contribution to, any other
Person.
Section 3.19. Capital Expenditures. The Issuer shall not
make any expenditure (by long-term or operating lease or other-
wise) for capital assets (either realty or personalty).
Section 3.20. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or
security in or of the Issuer, (ii) redeem, purchase, retire or otherwise
acquire for value any such ownership or equity interest or security or (iii)
set aside or otherwise segregate any amounts for any such purpose; provided,
however, that the Issuer may make, or cause to be made, (x) distributions to
the Owner Trustee and the Certificateholders as contemplated by, and to the
extent funds are available for such purpose under the Trust Agreement, and (y)
payments to the Indenture Trustee.
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Section 3.21. Notice of Events of Default. The Issuer shall give the
Indenture Trustee and the Rating Agencies prompt written notice of each Event
of Default hereunder and under the Trust Agreement.
Section 3.22. Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.23. Statements to Noteholders. The Indenture Trustee and the
Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the Monthly Servicing Report and the Monthly
Security Statement delivered to them pursuant to Article V of the Pooling and
Servicing Agreement and Section 6.06(b) hereof, respectively.
Section 3.24. Determination of Note Rate and Certificate Rate. On the
second LIBOR Business Day immediately preceding (i) the Closing Date in the
case of the first Interest Period and (ii) the first day of each succeeding
Interest Period, the Indenture Trustee after consultation with the Servicer
shall determine LIBOR and the Note Rate and the Certificate Rate for such
Interest Period and shall inform the Issuer and the Seller at their respective
facsimile numbers given to the Indenture Trustee in writing thereof.
Section 3.25. Optional Repurchase of the Series 1997-1 Participation
Interest. (a) The Seller may, with 10 days prior written notice to the Owner
Trustee, Servicer and the Indenture Trustee, purchase the entire Series 1997-1
Participation Interest, on any Payment Date in which the Aggregate Security
Balance is equal to or less than ten percent of the initial Aggregate Security
Balance. The Seller shall deposit into the Payment Account on the Business Day
prior to the Payment Date on which such purchase is to occur, an amount equal
to the principal balance of the Series 1997-1 Participation Interest and the
amount of interest and Certificate Yield to be distributed to the Security
holders pursuant to Section 3.05(a) as of such Payment Date.
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ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. The Notes. (a) The Notes shall be registered in the name
of a nominee designated by the Depository. Beneficial Owners will hold
interests in the Notes through the book-entry facilities of the Depository in
minimum initial Principal Balances of $100,000 and integral multiples of $1,000
in excess thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the
Notes as to which they are the Beneficial Owners. Requests and directions from,
and votes of, the Depository as Holder of the Notes shall not be deemed
inconsistent if they are made with respect to different Beneficial Owners. The
Indenture Trustee may establish a reasonable record date in connection with
solicitations of consents from or voting by Noteholders and give notice to the
Depository of such record date. Without the consent of the Issuer and the
Indenture Trustee, no Note may be transferred by the Depository except to a
successor Depository that agrees to hold such Note for the account of the
Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the
Issuer by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. Registration of and Limitations on Transfer and Exchange
of Notes; Appointment of Certificate Registrar. The Note Registrar shall cause
to be kept at its Corporate Trust Office a Note Register in which, subject to
such reasonable regulations as it may prescribe, the Note Registrar shall
provide for
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the registration of Notes and of transfers and exchanges of Notes
as herein provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Owner Trustee on behalf of the Issuer shall execute and the Note
Registrar shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes in authorized initial Security
Balances evidencing the same aggregate Percentage Interests.
Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of
the Note Registrar. Whenever any Notes are so surrendered for exchange, the
Issuer shall execute and the Note Registrar shall authenticate and deliver the
Notes which the Noteholder making the exchange is entitled to receive. Each
Note presented or surrendered for registration of transfer or exchange shall
(if so required by the Note Registrar) be duly endorsed by, or be accompanied
by a written instrument of transfer in form reasonably satisfactory to the Note
Registrar duly executed by, the Holder thereof or his attorney duly authorized
in writing. Notes delivered upon any such transfer or exchange will evidence
the same obligations, and will be entitled to the same rights and privileges,
as the Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall
be cancelled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
The Issuer hereby appoints The Bank of New York as Certificate
Registrar to keep at its Corporate Trust Office a Certificate Register pursuant
to Section 3.09 of the Trust Agreement in which, subject to such reasonable
regulations as it may prescribe, the Certificate Registrar shall provide for
the registration of Certificates, and of transfers and exchanges thereof
pursuant to Section 3.05 of the Trust Agreement. The Bank of New York hereby
accepts such appointment.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Notes.
If (i) any mutilated Note is surrendered to the Indenture
Trustee, or the Indenture Trustee receives evidence to its satis-
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faction of the destruction, loss or theft of any Note, and (ii) there is
delivered to the Indenture Trustee such security or indemnity as may be
required by it to hold the Issuer and the Indenture Trustee harmless, then, in
the absence of notice to the Issuer, the Note Registrar or the Indenture
Trustee that such Note has been acquired by a bona fide purchaser, and provided
that the requirements of Section 8-405 of the UCC are met, the Issuer shall
execute, and upon its request the Indenture Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Note, a replacement Note of the same Class; provided, however, that if
any such destroyed, lost or stolen Note, but not a mutilated Note, shall have
become or within seven days shall be due and payable, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when
so due or payable without surrender thereof. If, after the delivery of such
replacement Note or payment of a destroyed, lost or stolen Note pursuant to the
proviso to the preceding sentence, a bona fide purchaser of the original Note
in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Indenture Trustee shall be entitled to
recover such replacement Note (or such payment) from the Person to whom it was
delivered or any Person taking such replacement Note from such Person to whom
such replacement Note was delivered or any assignee of such Person, except a
bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute
an original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
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Section 4.04. Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if
any, on such Note and for all other purposes whatsoever, whether or not such
Note be overdue, and neither the Issuer, the Indenture Trustee nor any agent of
the Issuer or the Indenture Trustee shall be affected by notice to the
contrary.
Section 4.05. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by
the Indenture Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section 4.05, except as
expressly permitted by this Indenture. All cancelled Notes may be held or
disposed of by the Indenture Trustee in accordance with its standard retention
or disposal policy as in effect at the time unless the Issuer shall direct by
an Issuer Request that they be returned to it; provided that such Issuer
Request is timely and the Notes have not been previously disposed of by the
Indenture Trustee.
Section 4.06. Book-Entry Notes. The Notes, upon original issuance,
will be issued in the form of typewritten Notes representing the Book-Entry
Notes, to be delivered to The Depository Trust Company, the initial Depository,
by, or on behalf of, the Issuer. Such Notes shall initially be registered on
the Note Register in the name of Cede & Co., the nominee of the initial
Depository, and no Beneficial Owner will receive a definitive Note representing
such Beneficial Owner's interest in such Note, except as provided in Section
4.08. Unless and until definitive, fully registered Notes (the "Definitive
Notes") have been issued to Beneficial Owners pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in
full force and effect;
(ii) the Note Registrar and the Indenture Trustee shall
be entitled to deal with the Depository for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the
Noteholders;
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(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised
only through the Depository and shall be limited to those established
by law and agreements between such Beneficial Owners and the
Depository and/or the Depository Participants pursuant to the Note
Depository Agreement. Unless and until Definitive Notes are issued
pursuant to Section 4.08, the initial Depository will make book-entry
transfers among the Depository Participants and receive and transmit
payments of principal of and interest on the Notes to such Depository
Participants; and
(v) whenever this Indenture requires or permits
actions to be taken based upon instructions or directions of
Noteholders evidencing a specified percentage of the Security Balances
of the Notes, the Depository shall be deemed to represent such
percentage only to the extent that it has received instructions to
such effect from Beneficial Owners and/or Depository Participants
owning or representing, respectively, such required percentage of the
beneficial interest in the Notes and has delivered such instructions
to the Indenture Trustee.
Section 4.07. Notices to Depository. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able
to properly discharge its responsibilities with respect to the Notes and the
Administrator is unable to locate a qualified successor, (ii) the Administrator
at its option advises the Indenture Trustee in writing that it elects to
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, Beneficial Owners representing beneficial
interests aggregating at least a majority of the Security Balances of the Notes
advise the Depository in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Beneficial
Owners, then the Depository shall notify all Beneficial Owners and the
Indenture Trustee of the occurrence of any such event and of the availability
of Definitive Notes to Beneficial Owners requesting the same. Upon surrender to
the
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Indenture Trustee of the typewritten Notes representing the Book- Entry Notes
by the Depository, accompanied by registration instructions, the Issuer shall
execute and the Indenture Trustee shall authenticate the Definitive Notes in
accordance with the instructions of the Depository. None of the Issuer, the
Note Registrar or the Indenture Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Notes, the Indenture Trustee shall recognize the Holders of the Definitive
Notes as Noteholders.
Section 4.09. Tax Treatment. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each
Beneficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections 3.03,
3.04, 3.06, 3.09, 3.14, 3.16 and 3.17, (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.07 and the obligations of the Indenture
Trustee under Section 4.11) and (vi) the rights of Noteholders as beneficiaries
hereof with respect to the property so deposited with the Indenture Trustee
payable to all or any of them, and the Indenture Trustee, on demand of and at
the expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to
the Issuer or discharged from such trust, as provided in Section 3.03)
have been delivered to the Indenture Trustee for cancellation; or
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(2) all Notes not theretofore delivered to the Inden-
ture Trustee for cancellation
a. have become due and payable, or
b. will become due and payable at the Final
Scheduled Payment Date within one year,
and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
then outstanding not theretofore delivered to the Indenture Trustee
for cancellation when due on the Final Scheduled Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer.
Section 4.11. Application of Trust Money. All moneys deposited with
the Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Holders of Notes, of all sums due and
to become due thereon for principal and interest; but such moneys need not be
segregated from other funds except to the extent required herein or required by
law.
Section 4.12. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect
to the Notes, all moneys then held by any Administrator other than the
Indenture Trustee under the provisions of this Indenture with respect to such
Notes shall, upon demand of the Issuer, be paid to the Indenture Trustee to be
held and applied according to Section 3.05 and thereupon such Paying Agent
shall be released from all further liability with respect to such moneys.
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ARTICLE V
Remedies
Section 5.01. Event of Default; Acceleration of Maturity; Rescission
and Annulment. The Issuer shall deliver to the Indenture Trustee, within five
days after the occurrence of any event, which with the giving of notice and the
lapse of time would become an Event of Default under clause (iii) of the
definition of "Event of Default", written notice in the form of an Officer's
Certificate of such event, its status and what action the Issuer is taking or
proposes to take with respect thereto. If an Event of Default should occur and
be continuing, then and in every such case the Indenture Trustee or the Holders
of Notes representing not less than a majority of the Security Balances of all
Notes may declare the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the unpaid principal amount of such Notes,
together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided,
the Holders of Notes representing a majority of the Security Balances of all
Notes, by written notice to the Issuer and the Indenture Trustee, may rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the
Indenture Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and outside counsel; and
(ii) all Events of Default, other than the nonpayment
of the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.11.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
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Section 5.02. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in
the payment of the principal of or any installment of the principal of any Note
when the same becomes due and payable, the Issuer will, upon demand of the
Indenture Trustee, pay to it, for the benefit of the Holders of Notes, the
whole amount then due and payable on the Notes for principal and interest, with
interest upon the overdue principal, and in addition thereto such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and outside counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an
express trust, subject to the provisions of Section 10.16 hereof may institute
a Proceeding for the collection of the sums so due and unpaid, and may
prosecute such Proceeding to judgment or final decree, and may enforce the same
against the Issuer or other obligor upon the Notes and collect in the manner
provided by law out of the property of the Issuer or other obligor the Notes,
wherever situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee, subject to the provisions of Section 10.16 hereof may, as more
particularly provided in Section 5.03, in its discretion, proceed to protect
and enforce its rights and the rights of the Noteholders, by such appropriate
Proceedings as the Indenture Trustee shall deem most effective to protect and
enforce any such rights, whether for the specific enforcement of any covenant
or agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy or legal or equitable right
vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Indenture Trust Estate, Proceedings under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or other similar law, or in case a receiver, assignee or trustee in
bankruptcy or reorganization, liquidator, sequestrator or similar official
shall have been appointed for or taken possession of the Issuer or its property
or such other obligor or Person, or in case of any other comparable judicial
Proceedings relative to the Issuer or other obligor upon the Notes, or to the
creditors or property of the Issuer or such other obligor, the Indenture
Trustee, irrespective of whether the principal of any Notes shall
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then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Indenture Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, and outside counsel, and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the Indenture Trustee
and each predecessor Indenture Trustee, except as a result of
negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any moneys or other
property payable or deliverable on any such claims and to distribute
all amounts received with respect to the claims of the Noteholders and
of the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, and outside counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the
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Notes or the rights of any Holder thereof or to authorize the Indenture Trustee
to vote in respect of the claim of any Note- holder in any such proceeding
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary
to make any Noteholder a party to any such Proceedings.
Section 5.03. Remedies; Priorities. (a) If an Event of
Default shall have occurred and be continuing, the Indenture
Trustee, subject to the provisions of Section 10.16 hereof, may
do one or more of the following (subject to Section 5.04):
(i) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with
respect to the Indenture Trust Estate;
(ii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee and the Holders of the
Notes; and
(iii) sell the Indenture Trust Estate or any portion
thereof or rights or interest therein, at one or more public or
private sales called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Indenture Trust Estate following an Event of Default, unless (A)
the Holders of 100% of the Security Balances of the Notes consent thereto, (B)
the proceeds of such sale or liquidation distributable to Holders of the Notes
are sufficient to discharge in full all amounts then due and unpaid upon the
Notes for principal and interest or (C) the Indenture Trustee determines that
the Series 1997-1 Participation Interest will not continue to provide
sufficient funds for the payment of
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principal of and interest on the Notes, as they would have become due if the
Notes had not been declared due and payable, and the Indenture Trustee obtains
the consent of the Holders of not less than 66-2/3% of the Security Balances of
the Notes. In determining such sufficiency or insufficiency with respect to
clause (B) and (C), the Indenture Trustee may, but need not, obtain and rely
upon an opinion of an Independent investment banking or accounting firm of
national reputation as to the feasibility of such proposed action and as to the
sufficiency of the Indenture Trust Estate for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall deposit such money into the Payment Account and pay
out the money in the following order:
FIRST: to the Indenture Trustee for amounts due
hereunder;
SECOND: to Holders of Class A-1 Notes for amounts due and
unpaid on such Class of Notes first for interest and then for
principal, and to each Noteholder of such Class in each case
ratably, without preference or priority of any kind,
according to the amounts due and payable on such Class of
Notes for interest and then for principal, until all amounts
of interest due have been paid and the Security Balance of
such Class of Notes is reduced to zero;
THIRD: to Holders of Class A-2 Notes for amounts due and
unpaid on such Class of Notes first for interest and then for
principal, and to each Noteholder of such Class in each case
ratably, without preference or priority of any kind,
according to the amounts due and payable on such Class of
Notes for interest and then for principal, until all amounts
of interest due have been paid and the Security Balance of
such Class of Notes is reduced to zero;
FOURTH: to Holders of Class A-3 Notes for amounts due and
unpaid on such Class of Notes first for interest and then for
principal, and to each Noteholder of such Class in each case
ratably, without preference or priority of any kind,
according to the amounts due and payable on such Class of
Notes for interest and then for principal, until all amounts
of interest due have been paid and the Security Balance of
such Class of Notes is reduced to zero;
FIFTH: to Holders of Class B Notes for amounts due and
unpaid on such Class of Notes first for interest and
then for principal, and to each Noteholder of such
Class in each case ratably, without preference or
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priority of any kind, according to the amounts due and
payable on such Class of Notes for interest and then for
principal, until all amounts of interest due have been paid
and the Security Balance of such Class of Notes is reduced to
zero;
SIXTH: to the Issuer for amounts required to be
distributed to the Certificateholders in respect of
Certificate Yield and reduction of the Certificate
Balance pursuant to the Trust Agreement;
SEVENTH: to the Issuer for amounts due under Article
VIII of the Trust Agreement; and
EIGHTH: to the payment of the remainder, if any to
HCLC, the initial Holder of the Designated Certificate
or its transferee.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.03. At least 15 days before
such record date, the Issuer shall mail to each Noteholder and the Indenture
Trustee a notice that states the record date, the payment date and the amount
to be paid.
Section 5.04. Optional Preservation of the Indenture Trust Estate. If
the Notes have been declared to be due and payable under Section 5.01 following
an Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Indenture Trust Estate. It is the desire of the
parties hereto and the Noteholders that there be at all times sufficient funds
for the payment of principal of and interest on the Notes and other obligations
of the Issuer and the Indenture Trustee shall take such desire into account
when determining whether or not to maintain possession of the Indenture Trust
Estate. In determining whether to maintain possession of the Indenture Trust
Estate, the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Indenture Trust Estate for such purpose.
Section 5.05. Limitation of Suits. No Holder of any Note shall have
any right to institute any Proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless and subject to the provisions of Section 10.16
hereof:
(i) such Holder has previously given written notice
to the Indenture Trustee of a continuing Event of Default;
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(ii) the Holders of not less than 25% of the Security
Balances of the Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the
Indenture Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its
receipt of such notice, request and offer of indemnity has
failed to institute such Proceedings; and
(v) no direction inconsistent with such written
request has been given to the Indenture Trustee during such 60-day
period by the Holders of a majority of the Security Balances of the
Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of
Notes, each representing less than a majority of the Security Balances of the
Notes, the Indenture Trustee in its sole discretion may determine what action,
if any, shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.06. Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional,
to receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.07. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination
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in such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had
been instituted.
Section 5.08. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Indenture Trustee or to the
Noteholders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.09. Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.10. Control by Noteholders. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.03, any
direction to the Indenture Trustee to sell or liquidate the Indenture
Trust Estate shall be by Holders of Notes representing not less than
100% of the Security Balances of Notes;
(iii) if the conditions set forth in Section 5.04 have
been satisfied and the Indenture Trustee elects to retain the
Indenture Trust Estate pursuant to such Section, then any direction to
the Indenture Trustee by Holders of Notes representing less than 100%
of the Security Balances of Notes to sell or liquidate the Indenture
Trust Estate shall be of no force and effect; and
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(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights
of any Noteholders not consenting to such action.
Section 5.11. Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.01, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of
the Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note. In the case
of any such waiver, the Issuer, the Indenture Trustee and the Holders of the
Notes shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other Event
of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto. The Indenture Trustee shall
notify the Rating Agencies of any such waiver pursuant to this Section 5.11.
Section 5.12. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Indenture Trustee for any action taken, suffered or omitted by
it as Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.12 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Security Balances of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture.
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Section 5.13. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the Indenture Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 5.14. Sale of Indenture Trust Estate. (a) The power to effect
any sale or other disposition (a "Sale") of any portion of the Indenture Trust
Estate pursuant to Section 5.03 is expressly subject to the provisions of
Section 5.04 and this Section 5.14. The power to effect any such Sale shall not
be exhausted by any one or more Sales as to any portion of the Indenture Trust
Estate remaining unsold, but shall continue unimpaired until the entire
Indenture Trust Estate shall have been sold or all amounts payable on the Notes
and under this Indenture shall have been paid. The Indenture Trustee may from
time to time postpone any public Sale by public announcement made at the time
and place of such Sale. The Indenture Trustee hereby expressly waives its right
to any amount fixed by law as compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale
sell the Indenture Trust Estate, or any portion thereof, unless
(1) the Holders of all Notes consent to or direct the
Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the
entire amount which would be payable to the Noteholders under the Notes in full
payment thereof in accordance with Section 5.01, on the Payment Date next
succeeding the date of such Sale, or
(3) The Indenture Trustee determines or is advised that the
conditions for retention of the Indenture Trust Estate set forth in Section
5.04 cannot be satisfied (in making any such determination, the Indenture
Trustee may rely upon an opinion of an Independent investment banking firm
obtained and delivered as provided in Section 5.04), and the Holders
representing at least 66-2/3% of the Note Balances of the Notes consent to such
Sale.
The purchase by the Indenture Trustee of all or any portion of the Indenture
Trust Estate at a private Sale shall not be deemed a Sale or other disposition
thereof for purposes of this Section 5.14(b).
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(c) Unless the Holders of the Notes have otherwise consented or
directed the Indenture Trustee, at any public Sale of all or any portion of the
Indenture Trust Estate at which a minimum bid equal to or greater than the
amount described in paragraph (2) of subsection (b) of this Section 5.14 has
not been established by the Indenture Trustee and no Person bids an amount
equal to or greater than such amount, the Indenture Trustee shall bid an amount
at least $1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the
Indenture Trust Estate
(1) any Holder or Holders of Notes may bid for and purchase
the property offered for sale, and upon compliance with the terms of sale may
hold, retain and possess and dispose of such property, without further
accountability, and may, in paying the purchase money therefor, deliver any
Notes or claims for interest thereon in lieu of cash up to the amount which
shall, upon distribution of the net proceeds of such sale, be payable thereon,
and such Notes, in case the amounts so payable thereon shall be less than the
amount due thereon, shall be returned to the Holders thereof after being
appropriately stamped to show such partial payment;
(2) the Indenture Trustee may bid for and acquire the
property offered for Sale in connection with any Sale thereof, and, subject to
any requirements of, and to the extent permitted by, applicable law in
connection therewith, may purchase all or any portion of the Indenture Trust
Estate in a private sale, and, in lieu of paying cash therefor, may make
settlement for the purchase price by crediting the gross Sale price against the
sum of (A) the amount which would be distributable to the Holders of the Notes
in accordance with Section 5.03 on the Payment Date next succeeding the date of
such Sale and (B) the expenses of the Sale and of any Proceedings in connection
therewith which are reimbursable to it, without being required to produce the
Notes in order to complete any such Sale or in order for the net Sale price to
be credited against such Notes, and any property so acquired by the Indenture
Trustee shall be held and dealt with by it in accordance with the provisions of
this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion
of the Indenture Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Indenture Trust Estate in connection with a Sale thereof,
and to take all action necessary to effect such Sale; and
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(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction
of any conditions precedent or see to the application of any moneys.
Section 5.15. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Indenture
Trust Estate or upon any of the assets of the Issuer. Any money or property
collected by the Indenture Trustee shall be applied in accordance with Section
5.03(b).
Section 5.16. Performance and Enforcement of Certain Obligations. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and
observance by the Deposit Trust in its obligations to the Issuer under or in
connection with the Pooling and Servicing Agreement, and upon the occurrence
and continuance of a "Servicer Default" under the Pooling and Servicing
Agreement to exercise any and all rights, remedies, powers and privileges
lawfully available to the Issuer under or in connection with the Pooling and
Servicing Agreement to the extent and in the manner directed by the Indenture
Trustee, including the transmission of notices of default on the part of the
Seller or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Servicer of each of their obligations under the Receivables
Purchase Agreement and the Pooling and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of the
Holders of 66-2/3% of the Security Balances of the Notes shall, exercise all
rights, remedies, powers, privileges and claims of the Issuer against the
Deposit Trust under or in connection with the Pooling and Servicing Agreement,
including the right or power to take any action to compel or secure performance
or observance by the Deposit Trustee, of its obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Pooling and Servicing Agreement and any right of
the Issuer to take such action shall not be suspended.
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ARTICLE VI
The Indenture Trustee
Section 6.01. Duties of Indenture Trustee. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless
it is proved that the Indenture Trustee was negligent in ascertaining
the pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 5.10.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section 6.01.
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
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(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms
of this Indenture.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
Section 6.02. Rights of Indenture Trustee. (a) The Inden-
ture Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper
person. The Indenture Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
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Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
Section 6.05. Notice of Event of Default. If an Event of Default
occurs and is continuing and if it is known to a Responsible Officer of the
Indenture Trustee, the Indenture Trustee shall mail to each Noteholder notice
of the Event of Default within 90 days after it occurs. Except in the case of
an Event of Default in payment of principal of or interest on any Note, the
Indenture Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee. (a) The Indenture Trustee
shall deliver to each Noteholder such information as may be required to enable
such holder to prepare its federal and state income tax returns. In addition,
upon the Issuer's written request, the Indenture Trustee shall promptly furnish
information reasonably requested by the Issuer that is reasonably available to
the Indenture Trustee to enable the Issuer to perform its federal and state
income tax reporting obligations.
(b) Within 10 days of each Payment Date, the Indenture Trustee will
prepare and forward to each Holder of the Notes and each Rating Agency, a
Monthly Security Report, a form of which is attached hereto as Exhibit B.
Section 6.07. Compensation and Indemnity. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee from time to time
compensation for its services as previously agreed to by the Administrator on
behalf of the Issuer and the Indenture Trustee. The Indenture Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Issuer shall or shall cause the Administrator to reimburse
the Indenture Trustee for all reasonable out-of-pocket expenses incurred or
made by it, including costs of
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collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, outside counsel, accountants and
experts. The Issuer shall or shall cause the Administrator to indemnify the
Indenture Trustee against any and all loss, liability, damages or claims or
expense (including attorneys' fees) incurred by it in connection with the
administration of this trust and the performance of its duties hereunder. The
Indenture Trustee shall notify the Issuer and the Administrator promptly of any
claim for which it may seek indemnity. Failure by the Indenture Trustee to so
notify the Issuer and the Administrator shall not relieve the Issuer or the
Administrator of its obligations hereunder. The Issuer shall or shall cause the
Administrator to defend any such claim, and the Indenture Trustee may have
separate counsel and the Issuer shall or shall cause the Administrator to pay
the fees and expenses of such counsel. Neither the Issuer nor the Administrator
need reimburse any expense or indemnify against any loss, liability or expense
incurred by the Indenture Trustee through the Indenture Trustee's own willful
misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture and the
resignation or removal of the Indenture Trustee. When the Indenture Trustee
incurs expenses after the occurrence of an Event of Default with respect to the
Issuer, the expenses are intended to constitute expenses of administration
under Title 11 of the United States Code or any other applicable federal or
state bankruptcy, insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture
Trustee may resign at any time by so notifying the Seller and the Issuer. The
Holders of a majority of Security Balances of the Notes may remove the
Indenture Trustee by so notifying the Indenture Trustee and may appoint a
successor Indenture Trustee. The Issuer shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with
Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge
of the Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes
incapable of acting.
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If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in
such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall promptly appoint a successor Indenture Trustee by notice thereof
to the Noteholders.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Issuer. Thereupon
the resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights,
powers and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 30 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided that such corporation or banking association shall be otherwise
qualified and eligible under Section 6.11 and shall not be an Affiliate of the
Owner Trustee. The Indenture Trustee shall provide the Rating Agencies prior
written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created
by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the
certificate of
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authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this
Indenture provided that the certificate of the Indenture Trustee shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee. (a) Notwithstanding any other provisions of this Indenture,
at any time, for the purpose of meeting any legal requirement of any
jurisdiction in which any part of the Indenture Trust Estate may at the time be
located, the Indenture Trustee shall have the power and may execute and deliver
all instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of
the Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Indenture Trust Estate, or any
part hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Indenture Trustee may consider
necessary or desirable. No co-trustee or separate trustee hereunder shall be
required to meet the terms of eligibility as a successor trustee under Section
6.11 and no notice to Noteholders of the appointment of any co-trustee or
separate trustee shall be required under Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Indenture Trustee shall be conferred or
imposed upon and exercised or performed by the Indenture Trustee and
such separate trustee or co-trustee jointly (it being understood that
such separate trustee or co-trustee is not authorized to act
separately without the Indenture Trustee joining in such act), except
to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed the Indenture Trustee shall
be incompetent or unqualified to perform such act or acts, in which
event such rights, powers, duties and obligations (including the
holding of title to the Indenture Trust Estate or any portion thereof
in any such jurisdiction) shall be exercised and performed singly by
such separate trustee or co-trustee, but solely at the direction of
the Indenture Trustee;
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(ii) no trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee
hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee shall refer to this
Agreement and the conditions of this Article VI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the liability
of, or affording protection to, the Indenture Trustee. Every such instrument
shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect
of this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee
shall at all times satisfy the requirements of TIA Section 310(a). The Indenture
Trustee shall not be an affiliate of the Owner Trustee. The Indenture Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition and it or its parent
shall have a long-term debt rating of Baa3 or better by Moody's. The Indenture
Trustee shall comply with TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9); provided, however,
that there shall be excluded from the operation of TIA Section 310(b)(1) any
indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against
Issuer. The Indenture Trustee shall comply with TIA Section 311(a),
excluding any creditor relationship listed in TIA Section 311(b). An
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Indenture Trustee who has resigned or been removed shall be subject to TIA
Section 311(a) to the extent indicated.
Section 6.13. Representation and Warranty. The Indenture Trustee
represents and warrants to the Issuer, for the benefit of the Noteholders, that
this Indenture has been executed and delivered by one of its Responsible
Officers who is duly authorized to execute and deliver such document in such
capacity on its behalf.
Section 6.14. Directions to Indenture Trustee. The Indenture Trustee
is hereby directed:
(a) to accept assignment of the Series 1997-1 Participation Interest
and hold the assets of the Indenture Trust Estate in trust for the Noteholders;
(b) to authenticate the Notes on behalf of the Issuer substantially in
the form prescribed by Exhibit A in accordance with the terms of this
Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
Section 6.15. No Consent to Certain Acts of Seller. The Seller shall
not request that the Indenture Trustee consent to, nor shall the Indenture
Trustee consent to any action proposed to be taken by the Seller pursuant to
Article FOURTEENTH or Article FIFTEENTH of the Seller's Certificate of
Incorporation.
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ARTICLE VII
Noteholders' Lists and Reports
Section 7.01. Issuer To Furnish Indenture Trustee Names and Addresses
of Noteholders. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list,
in such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee may request in writing, within 30 days after
receipt by the Issuer of any such request, a list of similar form and content
as of a date not more than 10 days prior to the time such list is furnished;
provided, however, that so long as the Indenture Trustee is the Note Registrar,
no such list shall be required to be furnished.
Section 7.02. Preservation of Information; Communications to
Noteholders. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as
provided in Section 7.01 and the names and addresses of Holders of Notes
received by the Indenture Trustee in its capacity as Note Registrar. The
Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall
have the protection of TIA Section 312(c).
Section 7.03. Reports by Issuer. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days
after the Issuer is required to file the same with the Commission,
copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as
the Commission may from time to time by rules and regulations
prescribe) that the Issuer may be required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the
Commission in accordance with rules and regulations prescribed from
time to time by the Commission such additional information, documents
and reports with respect to compliance by the Issuer with the
conditions and covenants of this Inden-
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ture as may be required from time to time by such rules and
regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA
Section 313(c)) such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses (i) and
(ii) of this Section 7.03(a) and by rules and regulations prescribed
from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each January 1 beginning with January 1, 1998, the
Indenture Trustee shall mail to each Note- holder as required by TIA Section
313(c) a brief report dated as of such date that complies with TIA Section
313(a). The Indenture Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders
shall be filed by the Indenture Trustee with the Commission and each stock
exchange, if any, on which the Notes are listed. The Issuer shall notify the
Indenture Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII
Accounts, Disbursements and Releases
Section 8.01. Collection of Money. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The
Indenture Trustee shall apply all such money received by it as provided in this
Indenture. Except as otherwise expressly provided in this Indenture, if any
default occurs in the making of any payment or performance under any agreement
or instrument that is part of the Indenture Trust Estate, the Indenture Trustee
may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V.
Section 8.02. Trust Accounts. (a) On or prior to the Closing Date, the
Issuer shall (i) cause the Indenture Trustee to establish and maintain, in the
name of the Indenture Trustee, for the benefit of the Noteholders, the Payment
Account as provided in Section 3.01 of this Indenture and (ii) pursuant to
Article V of the Supplement for Series 1997-1, irrevocably direct the Deposit
Trustee to make all payments in respect of the Series 1997-1 Participation
Interest into the Payment Account for so long as the Notes are outstanding.
(b) All moneys deposited from time to time in the Payment Account are
for the benefit of the Noteholders.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (including any investment income
thereon) to Noteholders in respect of the Notes and in its capacity as
Certificate Paying Agent to Certificateholders in the order of priority set
forth in Section 3.05.
The Designated Certificateholder may direct the Indenture Trustee to
invest any funds in the Payment Account in Eligible Investments maturing no
later than each Payment Date and such Eligible Investments shall not be sold or
disposed of prior to the maturity.
Section 8.03. Opinion of Counsel. The Indenture Trustee
shall receive at least seven days notice when requested by the Issuer to take
any action pursuant to Section 8.05(a), accompanied by copies of any
instruments to be executed, and the
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Indenture Trustee shall also require, as a condition to such action, an Opinion
of Counsel, in form and substance satisfactory to the Indenture Trustee,
stating the legal effect of any such action, outlining the steps required to
complete the same, and concluding that all conditions precedent to the taking
of such action have been complied with and such action will not materially and
adversely impair the security for the Notes or the rights of the Noteholders in
contravention of the provisions of this Indenture; provided, however, that such
Opinion of Counsel shall not be required to express an opinion as to the fair
value of the Indenture Trust Estate. Counsel rendering any such opinion may
rely, without independent investigation, on the accuracy and validity of any
certificate or other instrument delivered to the Indenture Trustee in
connection with any such action.
Section 8.04. Termination Upon Distribution to Noteholders. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificate holders, and the Indenture Trustee of all amounts
required to be distributed pursuant to Article III; provided, however, that in
no event shall the trust created hereby continue beyond the expiration of 21
years from the death of the survivor of the descendants of Joseph P. Kennedy,
the late ambassador of the United States to the Court of St. James, living on
the date hereof.
Section 8.05. Release of Indenture Trust Estate. (a) Subject to the
payment of its fees and expenses, the Indenture Trustee may, and when required
by the provisions of this Indenture shall, execute instruments to release
property from the lien of this Indenture, or convey the Indenture Trustee's
interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in Article IV
hereunder shall be bound to ascertain the Indenture Trustee's authority,
inquire into the satisfaction of any conditions precedent, or see to the
application of any moneys.
(b) The Indenture Trustee shall, at such time as (i) there are no
Notes Outstanding and (ii) all sums due the Indenture Trustee pursuant to this
Indenture have been paid, release any remaining portion of the Indenture Trust
Estate that secured the Notes from the lien of this Indenture. The Indenture
Trustee shall release property from the lien of this Indenture pursuant to this
Section 8.05 only upon receipt of an request from the Issuer accompanied by an
Officers' Certificate, an Opinion of Counsel, and (if required by the TIA)
Independent Certificates in accordance with TIA Section 314(c) and 314(d)(1)
meeting the applicable requirements as described herein.
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Section 8.06. Surrender of Notes Upon Final Payment. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
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ARTICLE IX
Supplemental Indentures
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes but with prior notice to
the Rating Agencies, the Issuer and the Indenture Trustee, when authorized by
an Issuer Request, at any time and from time to time, may enter into one or
more indentures supplemental hereto (which shall conform to the provisions of
the Trust Indenture Act as in force at the date of the execution thereof), in
form satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture, or better
to assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any
right or power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge
any property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement
any provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided that such action shall not adversely affect the
interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(vii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to
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effect the qualification of this Indenture under the TIA or under any
similar federal statute hereafter enacted and to add to this Indenture
such other provisions as may be expressly required by the TIA;
provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with prior notice to the Rating Agencies, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, (i) adversely affect in any material respect the interests
of any Noteholder or (ii) cause the Issuer to be subject to an entity level tax
or be classified as a taxable mortgage pool within the meaning of Section
7701(i) of the Code.
Section 9.02. Supplemental Indentures With Consent of Noteholders.
The Issuer and the Indenture Trustee, when authorized by an Issuer Request,
also may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Security Balances of each Class of
Notes affected thereby, or if all Classes are affected, by majority of the
aggregate of Security Balances of the Notes, by act of such Holders delivered
to the Issuer and the Indenture Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Note affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Indenture Trust Estate to payment of
principal of or
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interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is
payable, or impair the right to institute suit for the enforcement of
the provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
(ii) reduce the percentage of the Security Balances of
the Notes, the consent of the Holders of which is required for any
such supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences
provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to
the definition of the term "Outstanding" or modify or alter
the exception in the definition of the term "Holder";
(iv) reduce the percentage of the Security Balances of
the Notes required to direct the Indenture Trustee to direct the
Issuer to sell or liquidate the Indenture Trust Estate pursuant to
Section 5.03;
(v) modify any provision of this Section 9.02 except
to increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder of each Note
affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date
(including the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to
or on a parity with the lien of this Indenture with respect to any
part of the Indenture Trust Estate or, except as otherwise permitted
or contemplated herein, terminate the lien of this Indenture on any
property at any time subject hereto or deprive the Holder of any Note
of the security provided by the lien of this Indenture; and, provided,
further, that such action shall not, as evidenced by an Opinion of
Counsel, cause the Issuer to be subject to an entity level tax or be
classified as a taxable mortgage pool within the meaning of Section
7701(i) of the Code.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the
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Holders of all Notes, whether theretofore or thereafter authenticated and
delivered hereunder. The Indenture Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Noteholders under this
Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Promptly after the execution by the Issuer and the Indenture Trustee
of any supplemental indenture pursuant to this Section 9.02, the Indenture
Trustee shall mail to the Holders of the Notes to which such amendment or
supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Indenture Trustee
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects
the Indenture Trustee's own rights, duties, liabilities or immunities under
this Indenture or otherwise.
Section 9.04. Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the
Notes shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and be deemed to be part
of the terms and conditions of this Indenture for any and all purposes.
Section 9.05. Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
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Section 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee
shall, bear a notation in form approved by the Indenture Trustee as to any
matter provided for in such supplemental indenture. If the Issuer or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the Indenture Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
Miscellaneous
Section 10.01. Compliance Certificates and Opinions, etc. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Indenture Trustee (i) an Officer's Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, (ii) an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate
from a firm of certified public accountants meeting the applicable requirements
of this Section 10.01, except that, in the case of any such application or
request as to which the furnishing of such documents is specifically required
by any provision of this Indenture, no additional certificate or opinion need
be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as
to whether or not such covenant or condition has been complied with;
and
(4) a statement as to whether, in the opinion of each
such signatory, such condition or covenant has been complied
with; and
(5) if the signer of such Certificate or Opinion is
required to be Independent, the Statement required by the
definition of the term "Independent".
(b) (i) Prior to the deposit of any Indenture Collateral or other
property or securities with the Indenture Trustee that is to be made the basis
for the release of any property or
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securities subject to the lien of this Indenture, the Issuer shall, in addition
to any obligation imposed in Section 10.01(a) or elsewhere in this Indenture,
furnish to the Indenture Trustee an Officer's Certificate certifying or stating
the opinion of each person signing such certificate as to the fair value
(within 90 days of such deposit) to the Issuer of the Indenture Collateral or
other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to
the Indenture Trustee an Officer's Certificate certifying or stating the
opinion of any signer thereof as to the matters described in clause (i) above,
the Issuer shall also deliver to the Indenture Trustee an Independent
Certificate as to the same matters, if the fair value to the Issuer of the
securities to be so deposited and of all other such securities made the basis
of any such withdrawal or release since the commencement of the then-current
fiscal year of the Issuer, as set forth in the certificates delivered pursuant
to clause (i) above and this clause (ii), is 10% or more of the Security
Balances of the Notes, but such a certificate need not be furnished with
respect to any securities so deposited, if the fair value thereof to the Issuer
as set forth in the related Officer's Certificate is less than $25,000 or less
than one percent of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to
the Indenture Trustee an Officer's Certificate certifying or stating the
opinion of any signer thereof as to the matters described in clause (iii)
above, the Issuer shall also furnish to the Indenture Trustee an Independent
Certificate as to the same matters if the fair value of the property or
securities and of all other property, other than property as contemplated by
clause (v) below or securities released from the lien of this Indenture since
the commencement of the then-current calendar year, as set forth in the
certificates required by clause (iii) above and this clause (iv), equals 10% or
more of the Security Balances of the Notes, but such certificate need not be
furnished in the case of any release of property or securities if the fair
value thereof as set forth in the related Officer's Certificate is less than
$25,000 or less than one percent of the then Security Balances of the Notes.
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Section 10.02. Form of Documents Delivered to Indenture Trustee. In
any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Seller, the Issuer or the Administrator, stating that the information
with respect to such factual matters is in the possession of the Seller, the
Issuer or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of
the facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more
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instruments of substantially similar tenor signed by such Note- holders in
person or by agents duly appointed in writing; and except as herein otherwise
expressly provided such action shall become effective when such instrument or
instruments are delivered to the Indenture Trustee, and, where it is hereby
expressly required, to the Issuer. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 10.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of
every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by
the Indenture Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
Section 10.04. Notices, etc., to Indenture Trustee, Issuer, and Rating
Agencies. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Noteholders or other documents provided or permitted by this
Indenture shall be in writing and if such request, demand, authorization,
direction, notice, consent, waiver or act of Noteholders is to be made upon,
given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office, or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer
addressed to: Household Consumer Loan Trust 1997-1, in care of the
Administrator, Owner Trustee and the Seller, or at any other address
previously furnished in writing to the Indenture Trustee by the Issuer
or the Administrator. The Issuer shall promptly transmit any notice
received by it from the Noteholders to the Indenture Trustee.
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Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, to (i) in the
case of Moody's, at the following address: Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007, (ii) in the
case of Standard & Poor's, at the following address: Standard & Poor's, 26
Broadway (15th Floor), New York, New York 10004, Attention of Asset Backed
Surveillance Department, (iii) in the case of Duff & Phelps, at the following
address: Duff & Phelps Credit Rating Co., 17 State Street, New York, New York,
10004, and (iv) in the case of Fitch at the following address: Fitch Investors
Service LP, One State Street Plaza, New York, New York 10004, Attention:
Giovanni Pini or as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
Section 10.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed
to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
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Section 10.06. Alternate Payment and Notice Provisions.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Indenture Trustee or any
Administrator to such Holder, that is different from the methods provided for
in this Indenture for such payments or notices. The Issuer will furnish to the
Indenture Trustee a copy of each such agreement and the Indenture Trustee will
cause payments to be made and notices to be given in accordance with such
agreements.
Section 10.07. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.08. Effect of Headings. The Article and Section
headings herein are for convenience only and shall not affect the
construction hereof.
Section 10.09. Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee
in this Indenture shall bind its successors, co-trustees and agents.
Section 10.10. Separability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 10.11. Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Indenture Trust Estate, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 10.12. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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Section 10.13. Counterparts. This Indenture may be
executed in any number of counterparts, each of which so executed
shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 10.14. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Note- holders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.15. Issuer Obligation. No recourse may be taken, directly
or indirectly, with respect to the obligations of the Issuer, the Seller, the
Owner Trustee or the Indenture Trustee on the Notes or under this Indenture or
any certificate or other writing delivered in connection herewith or therewith,
against (i) the Indenture Trustee or the Owner Trustee in its individual
capacity, (ii) the Seller or any other owner of a beneficial interest in the
Issuer or the Seller or (iii) any partner, owner, beneficiary, agent, officer,
director, employee or agent of the Indenture Trustee or the Owner Trustee in
its individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as
any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity. For all purposes of this Indenture,
in the performance of any duties or obligations of the Issuer hereunder, the
Owner Trustee shall be subject to, and entitled to the benefits of, the terms
and provisions of Article VI, VII and VIII of the Trust Agreement.
Section 10.16. No Petition. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Seller, the Issuer,
the Administrator or the Servicer, or join in any institution against the
Seller or the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Notes, this Indenture or any of the Basic
Documents.
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Section 10.17. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all
such information except to the extent disclosure may be required by law (and
all reasonable applications for confidential treatment are unavailing) and
except to the extent that the Indenture Trustee may reasonably determine that
such disclosure is consistent with its obligations hereunder.
Section 10.18. Authority of the Administrator. Each of the parties to
this Indenture acknowledges that the Issuer has appointed the Administrator to
act as its agent to perform the duties and obligations of the Issuer hereunder.
Unless otherwise instructed by the Owner Trustee, copies of all notices,
requests, demands and other documents to be delivered to the Issuer or the
Owner Trustee pursuant to the terms hereof also shall be delivered to the
Administrator. Unless otherwise instructed by the Owner Trustee, all notices,
requests, demands and other documents to be executed or delivered, and any
action to be taken, by the Issuer pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1,
as Issuer
By: CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity
but solely as Owner Trustee
By:
------------------------------------
Name: John J. Cashin
Title: Senior Trust Officer
THE BANK OF NEW YORK,
as Indenture Trustee, as Certificate
Paying Agent and as Certificate
Registrar
By:
------------------------------------
Name:
Title:
THE BANK OF NEW YORK, hereby accepts the appointment as Certificate Paying
Agent pursuant to Section 3.03 hereof and as Certificate Registrar pursuant to
Section 4.02 hereof.
By:
------------------------------
Name:
Title:
<PAGE> 74
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
On this _______ day of March 1997, before me personally appeared Reyne
A. Macadaeg, to me known, who being by me duly sworn, did depose and say, that
she resides at 101 Barclay Street, New York, NY, 10286, that she is the
Assistant Vice President of The Bank of New York, as Indenture Trusteee, one of
the corporations described in and which executed the above instrument; that she
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation; and that she signed her name thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE> 75
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this _______ day of March 1997, before me personally appeared______
__________________________ to me known, who being by me duly sworn, did depose
and say, that he resides at________________________________________________,
that he is the____________________________________of The Bank of New York, as
Indenture Trustee, one of the corporations described in and which executed the
above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his/her
name thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this _______ day of March 1997, before me personally appeared_____
___________________to me known, who being by me duly sworn, did depose and say,
that he resides at________________________________________________, that he is
the____________________________________of The Bank of New York, as Indenture
Trustee, one of the corporations described in and which executed the above
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said corporation; and that he signed his/her name
thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE> 76
Exhibit A-1
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
to such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
Household Consumer Loan Asset Backed Notes, Series 1997-1
Class: Class A-1
Registered Principal Amount: $[ ]
Percentage Interest: [ ]%
Note Rate: Floating
No.
CUSIP No.
Household Consumer Loan Trust 1997-1, a business trust duly
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to Cede & Co.
or registered assigns, the principal sum of [ ] DOLLARS, payable on each
Payment Date in an amount equal to the Percentage Interest specified above of
the aggregate amount, if any, payable from the Payment Account in respect of
principal on the Class A-1 Notes pursuant Section 3.05 of the Indenture dated
as of March 1, 1997 (the "Indenture") between the Issuer and The Bank of New
York, as Indenture Trustee (the "Indenture Trustee"); provided, however, that
the entire unpaid principal amount of this Note shall be due and payable on the
________ 20___ Payment Date. Capitalized terms used but not defined herein are
defined in Article I of the Indenture, which also contains rules as to
construction that shall be applicable herein.
The Issuer will pay interest on this Note on each Payment
Date at a rate per annum equal to LIBOR plus _____% on the principal amount of
this Class A-1 Note on the preceding Payment Date (after giving effect to all
payments of principal made on such preceding Payment Date); provided, however,
that in no event shall
A-1-1
<PAGE> 77
the Note Rate with respect to any Interest Period exceed ___% for such Interest
Period. LIBOR for each applicable Interest Period will be determined on the
second LIBOR Business Day prior to the first day of such Interest Period or in
the case of the first Interest Period, two days prior to the Closing Date as
set forth in the Indenture. All determinations of LIBOR by the Indenture
Trustee shall, in the absence of manifest error, be conclusive for all
purposes, and each holder of this Class A-1 Note, by accepting this Class A-1
Note, agrees to be bound by such determination. Interest on this Class A-1 Note
will accrue for each Payment Date from the most recent Payment Date on which
interest has been paid (in the case of the first Payment Date, from the Closing
Date) to but excluding such Payment Date. Interest will be computed on the
basis of the actual number of days in each Interest Period and a year assumed
to consist of 360 days. Principal of and interest on this Class A-1 Note shall
be paid in the manner specified on the reverse hereof.
Principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee whose name appears below by manual signature,
this Note shall not be entitled to any benefit under the Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
A-1-2
<PAGE> 78
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the
Issuer and not in its individual capacity, has caused this Note to be duly
executed.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
By CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity
but solely as Owner Trustee
By
--------------------------------------
Authorized Signatory
Certificate of Authentication
This is one of the Class A-1 Notes referred to in the within mentioned
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but
solely as Indenture Trustee
Dated: March ___, 1997
By
----------------------------------
Authorized Signatory
<PAGE> 79
[REVERSE OF NOTE]
This Class A-1 Note is one of a duly authorized issue of
Class A-1 Notes of the Issuer, designated as its Household Consumer Loan Asset
Backed Notes, Series 1997-1 (herein called the "Class A-1 Notes"), all issued
under the Indenture, to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the holders of
the Notes. The Notes are subject to all terms of the Indenture.
The Class A-1 Notes and the Class A-2 Notes, the Class A-3
Notes and the Class B Notes, also issued under the Indenture (collectively, the
"Notes") are and will be secured by the collateral pledged as security therefor
as provided in the Indenture.
Principal of and interest on this Class A-1 Note will be
payable on each Payment Date, commencing on April 15, 1997, as described in the
Indenture. "Payment Date" means the fifteenth day of each month, or, if any
such day is not a Business Day, then the next Business Day.
The entire unpaid principal amount of this Class A-1 Note
shall be due and payable in full on the Payment Date in __________ 20___
pursuant to the Indenture. Notwithstanding the foregoing, if an Event of
Default shall have occurred and be continuing, then the Indenture Trustee or
the holders of Notes representing not less than a majority of the Security
Balances of all the Notes may declare the Notes to be immediately due and
payable in the manner provided in Section 5.01 of the Indenture. On each
Payment Date, principal payments on the Class A-1 Notes shall be payable in the
amounts as provided in Section 3.05 of the Indenture.
Payments of interest on this Class A-1 Note due and payable
on each Payment Date, together with the installment of principal, if any, to
the extent not in full payment of this Note, shall be made by check mailed to
the Person whose name appears as the Registered Holder of this Note on the Note
Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of
the Depository Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note
effected by any payments made on any Payment Date shall be binding upon all
future holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected to be available, as provided in the Indenture,
for payment in full
A-1-4
<PAGE> 80
of the then remaining unpaid principal amount of this Note on a Payment Date,
then the Indenture Trustee, in the name of and on behalf of the Issuer, will
notify the Person who was the Registered Holder hereof as of the Record Date
preceding such Payment Date by notice mailed or transmitted by facsimile prior
to such Payment Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note at the address specified in such
notice of final payment.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the Corporate Trust Office, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Indenture Trustee duly
executed by, the holder hereof or such holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in the Securities Transfer Agent's Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended, and
thereupon one or more new Notes in authorized denominations and in the same
aggregate principal amount will be issued to the designated transferee or
transferees. No service charge will be charged for any registration of transfer
or exchange of this Note, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of this Note.
Each holder or Beneficial Owner of a Note, by acceptance of a
Note or, in the case of a Beneficial Owner of a Note, a beneficial interest in
a Note, covenants and agrees that no recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee,
the Administrator, the Seller, the Servicer or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Indenture Trustee or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee, the
Administrator or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as
any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
A-1-5
<PAGE> 81
Each holder or Beneficial Owner of a Note, by acceptance of
a Note or, in the case of a Beneficial Owner of a Note, a beneficial interest
in a Note, covenants and agrees by accepting the benefits of the Indenture that
such holder or Beneficial Owner of a Note will not at any time institute
against the Seller, the Administrator, the Servicer or the Issuer, or join in
any institution against the Seller, the Administrator, the Servicer or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is
issued with the intention that, for federal, state and local income, single
business and franchise tax purposes, the Notes will qualify as indebtedness of
the Issuer. Each holder of a Note, by acceptance of a Note (and each Beneficial
Owner of a Note by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day
of determination or as of such other date as may be specified in the Indenture)
is registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the holders of the Notes under the
Indenture at any time by the Issuer with the consent of the holders of Notes
representing a majority of the Security Balances of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the holders of
Notes representing specified percentages of the Security Balances of all Notes,
on behalf of the holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the holder of
this Note shall be conclusive and binding upon such holder and upon all future
holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
A-1-6
<PAGE> 82
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the holders of Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note and the Indenture shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of
law provisions, and the obligations, rights and remedies of the parties
hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place and rate, and in the coin or currency herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Basic Documents, none of Chase Manhattan Bank
Delaware in its individual capacity, The Bank of New York in its individual
capacity, any owner of a beneficial interest in the Issuer, or any of their
respective partners, beneficiaries, agents, officers, directors, employees or
successors or assigns shall be personally liable for, nor shall recourse be had
to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be
taken to prevent recourse to, and enforcement against, the assets of the Issuer
for any and all liabilities, obligations and undertakings contained in the
Indenture or in this Note.
A-1-7
<PAGE> 83
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee:_______________________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto______________________________________________________________
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably
constitutes and appoints________________________________________________________
________________________________________________________________________________
________________________________, attorney, to transfer said Note
on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: */
-------------------------- --------------------------------
Signature Guaranteed:
*/
--------------------------------
- ------------------------
*/ NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note
in every particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in STAMP or such
other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-1-8
<PAGE> 84
Exhibit A-2
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
to such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
THIS CLASS A-2 NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A-1 NOTES
AS DESCRIBED IN THE INDENTURE REFERRED TO BELOW.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
Household Consumer Loan Asset Backed Notes, Series 1997-1
Class: Class A-2
Registered Principal Amount: $[ ]
Percentage Interest: [ ]%
Note Rate: Floating
No.
CUSIP No.
Household Consumer Loan Trust 1997-1, a business trust duly
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to Cede & Co.
or registered assigns, the principal sum of [ ] DOLLARS, payable on each
Payment Date in an amount equal to the Percentage Interest specified above of
the aggregate amount, if any, payable from the Payment Account in respect of
principal on the Class A-2 Notes pursuant Section 3.05 of the Indenture dated
as of March 1, 1997 (the "Indenture") between the Issuer and The Bank of New
York, as Indenture Trustee (the "Indenture Trustee"); provided, however, that
the entire unpaid principal amount of this Note shall be due and payable on the
__________ 20___ Payment Date. Capitalized terms used but not defined herein
are defined in Article I of the Indenture, which also contains rules as to
construction that shall be applicable herein.
The Issuer will pay interest on this Note on each Payment
Date at a rate per annum equal to LIBOR plus _____% on the principal amount of
this Class A-2 Note on the preceding Payment Date (after giving effect to all
payments of principal made on such
A-2-1
<PAGE> 85
preceding Payment Date); provided, however, that in no event shall the Note
Rate with respect to any Interest Period exceed ___% for such Interest Period.
LIBOR for each applicable Interest Period will be determined on the second
LIBOR Business Day prior to the first day of such Interest Period or in the
case of the first Interest Period, two days prior to the Closing Date as set
forth in the Indenture. All determinations of LIBOR by the Indenture Trustee
shall, in the absence of manifest error, be conclusive for all purposes, and
each holder of this Class A-2 Note, by accepting this Class A-2 Note, agrees to
be bound by such determination. Interest on this Class A-2 Note will accrue for
each Payment Date from the most recent Payment Date on which interest has been
paid (in the case of the first Payment Date, from the Closing Date) to but
excluding such Payment Date. Interest will be computed on the basis of the
actual number of days in each Interest Period and a year assumed to consist of
360 days. Principal of and interest on this Class A-2 Note shall be paid in the
manner specified on the reverse hereof.
Principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee whose name appears below by manual signature,
this Note shall not be entitled to any benefit under the Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
A-2-2
<PAGE> 86
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the
Issuer and not in its individual capacity, has caused this Note to be duly
executed.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
By CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity
but solely as Owner Trustee
By
------------------------------------
Authorized Signatory
Certificate of Authentication
This is one of the Class A-2 Notes referred to in the within mentioned
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but
solely as Indenture Trustee
Dated: March ___, 1997
By
------------------------------------
Authorized Signatory
<PAGE> 87
[REVERSE OF NOTE]
This Class A-2 Note is one of a duly authorized issue of
Class A-2 Notes of the Issuer, designated as its Household Consumer Loan Asset
Backed Notes, Series 1997-1 (herein called the "Class A-2 Notes"), all issued
under the Indenture, to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the holders of
the Notes. The Notes are subject to all terms of the Indenture.
The Class A-2 Notes and the Class A-1 Notes, the Class A-3
Notes and the Class B Notes, also issued under the Indenture (collectively, the
"Notes") are and will be secured by the collateral pledged as security therefor
as provided in the Indenture.
Principal of and interest on this Class A-2 Note will be
payable on each Payment Date, commencing on April 15, 1997, as described in the
Indenture. "Payment Date" means the fifteenth day of each month, or, if any
such day is not a Business Day, then the next Business Day.
The entire unpaid principal amount of this Class A-2 Note
shall be due and payable in full on the Payment Date in ___________ 20___
pursuant to the Indenture. Notwithstanding the foregoing, if an Event of
Default shall have occurred and be continuing, then the Indenture Trustee or
the holders of Notes representing not less than a majority of the Security
Balances of all the Notes may declare the Notes to be immediately due and
payable in the manner provided in Section 5.01 of the Indenture. On each
Payment Date, principal payments on the Class A-2 Notes shall be payable in the
amounts as provided in Section 3.05 of the Indenture.
Payments of interest on this Class A-2 Note due and payable
on each Payment Date, together with the installment of principal, if any, to
the extent not in full payment of this Note, shall be made by check mailed to
the Person whose name appears as the Registered Holder of this Note on the Note
Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of
the Depository Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note
effected by any payments made on any Payment Date shall be binding upon all
future holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected to be available, as provided in the Indenture,
for payment in full
A-2-4
<PAGE> 88
of the then remaining unpaid principal amount of this Note on a Payment Date,
then the Indenture Trustee, in the name of and on behalf of the Issuer, will
notify the Person who was the Registered Holder hereof as of the Record Date
preceding such Payment Date by notice mailed or transmitted by facsimile prior
to such Payment Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note at the address specified in such
notice of final payment.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the Corporate Trust Office, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Indenture Trustee duly
executed by, the holder hereof or such holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in the Securities Transfer Agent's Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended, and
thereupon one or more new Notes in authorized denominations and in the same
aggregate principal amount will be issued to the designated transferee or
transferees. No service charge will be charged for any registration of transfer
or exchange of this Note, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of this Note.
Each holder or Beneficial Owner of a Note, by acceptance of a
Note or, in the case of a Beneficial Owner of a Note, a beneficial interest in
a Note, covenants and agrees that no recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee,
the Administrator, the Seller, the Servicer or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Indenture Trustee or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee, the
Administrator or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as
any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
A-2-5
<PAGE> 89
Each holder or Beneficial Owner of a Note, by acceptance of
a Note or, in the case of a Beneficial Owner of a Note, a beneficial interest
in a Note, covenants and agrees by accepting the benefits of the Indenture that
such holder or Beneficial Owner of a Note will not at any time institute
against the Seller, the Administrator, the Servicer or the Issuer, or join in
any institution against the Seller, the Administrator, the Servicer or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is
issued with the intention that, for federal, state and local income, single
business and franchise tax purposes, the Notes will qualify as indebtedness of
the Issuer. Each holder of a Note, by acceptance of a Note (and each Beneficial
Owner of a Note by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day
of determination or as of such other date as may be specified in the Indenture)
is registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the holders of the Notes under the
Indenture at any time by the Issuer with the consent of the holders of Notes
representing a majority of the Security Balances of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the holders of
Notes representing specified percentages of the Security Balances of all Notes,
on behalf of the holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the holder of
this Note shall be conclusive and binding upon such holder and upon all future
holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
A-2-6
<PAGE> 90
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the holders of Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note and the Indenture shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of
law provisions, and the obligations, rights and remedies of the parties
hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place and rate, and in the coin or currency herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Basic Documents, none of Chase Manhattan Bank
Delaware in its individual capacity, The Bank of New York in its individual
capacity, any owner of a beneficial interest in the Issuer, or any of their
respective partners, beneficiaries, agents, officers, directors, employees or
successors or assigns shall be personally liable for, nor shall recourse be had
to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be
taken to prevent recourse to, and enforcement against, the assets of the Issuer
for any and all liabilities, obligations and undertakings contained in the
Indenture or in this Note.
A-2-7
<PAGE> 91
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee:_______________________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto______________________________________________________________
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably
constitutes and appoints________________________________________________________
________________________________________________________________________________
________________________________, attorney, to transfer said Note
on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: */
-------------------------- --------------------------------
Signature Guaranteed:
*/
--------------------------------
- ------------------------
*/ NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note
in every particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in STAMP or such
other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-2-8
<PAGE> 92
Exhibit A-3
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
to such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
THIS CLASS A-3 NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE
CLASS A-1 AND CLASS A-2 NOTES AS DESCRIBED IN THE INDENTURE
REFERRED TO BELOW.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
Household Consumer Loan Asset Backed Notes, Series 1997-1
Class: Class A-3
Registered Principal Amount: $[ ]
Percentage Interest: [ ]%
Note Rate: Floating
No.
CUSIP No.
Household Consumer Loan Trust 1997-1, a business trust duly
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to Cede & Co.
or registered assigns, the principal sum of [ ] DOLLARS, payable on each
Payment Date in an amount equal to the Percentage Interest specified above of
the aggregate amount, if any, payable from the Payment Account in respect of
principal on the Class A-3 Notes pursuant Section 3.05 of the Indenture dated
as of March 1, 1997 (the "Indenture") between the Issuer and The Bank of New
York, as Indenture Trustee (the "Indenture Trustee"); provided, however, that
the entire unpaid principal amount of this Note shall be due and payable on the
_____________ 20___ Payment Date. Capitalized terms used but not defined herein
are defined in Article I of the Indenture, which also contains rules as to
construction that shall be applicable herein.
The Issuer will pay interest on this Note on each Payment
Date at a rate per annum equal to LIBOR plus _____% on the principal amount of
this Class A-3 Note on the preceding Payment
A-3-1
<PAGE> 93
Date (after giving effect to all payments of principal made on such preceding
Payment Date); provided, however, that in no event shall the Note Rate with
respect to any Interest Period exceed ___% for such Interest Period. LIBOR for
each applicable Interest Period will be determined on the second LIBOR Business
Day prior to the first day of such Interest Period or in the case of the first
Interest Period, two days prior to the Closing Date as set forth in the
Indenture. All determinations of LIBOR by the Indenture Trustee shall, in the
absence of manifest error, be conclusive for all purposes, and each holder of
this Class A-3 Note, by accepting this Class A-3 Note, agrees to be bound by
such determination. Interest on this Class A-3 Note will accrue for each
Payment Date from the most recent Payment Date on which interest has been paid
(in the case of the first Payment Date, from the Closing Date) to but excluding
such Payment Date. Interest will be computed on the basis of the actual number
of days in each Interest Period and a year assumed to consist of 360 days.
Principal of and interest on this Class A-3 Note shall be paid in the manner
specified on the reverse hereof.
Principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee whose name appears below by manual signature,
this Note shall not be entitled to any benefit under the Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
A-3-2
<PAGE> 94
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the
Issuer and not in its individual capacity, has caused this Note to be duly
executed.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
By CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity
but solely as Owner Trustee
By
------------------------------------
Authorized Signatory
Certificate of Authentication
This is one of the Class A-3 Notes referred to in the within mentioned
Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but
solely as Indenture Trustee
Dated: March ___, 1997
By
------------------------------------
Authorized Signatory
<PAGE> 95
[REVERSE OF NOTE]
This Class A-3 Note is one of a duly authorized issue of
Class A-3 Notes of the Issuer, designated as its Household Consumer Loan Asset
Backed Notes, Series 1997-1 (herein called the "Class A-3 Notes"), all issued
under the Indenture, to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the holders of
the Notes. The Notes are subject to all terms of the Indenture.
The Class A-3 Notes and the Class A-1 Notes, the Class A-2
Notes and the Class B Notes, also issued under the Indenture (collectively, the
"Notes") are and will be secured by the collateral pledged as security therefor
as provided in the Indenture.
Principal of and interest on this Class A-3 Note will be
payable on each Payment Date, commencing on April 15, 1997, as described in the
Indenture. "Payment Date" means the fifteenth day of each month, or, if any
such day is not a Business Day, then the next Business Day.
The entire unpaid principal amount of this Class A-3 Note
shall be due and payable in full on the Payment Date in ____________ 20___
pursuant to the Indenture. Notwithstanding the foregoing, if an Event of
Default shall have occurred and be continuing, then the Indenture Trustee or
the holders of Notes representing not less than a majority of the Security
Balances of all the Notes may declare the Notes to be immediately due and
payable in the manner provided in Section 5.01 of the Indenture. On each
Payment Date, principal payments on the Class A-3 Notes shall be payable in the
amounts as provided in Section 3.05 of the Indenture.
Payments of interest on this Class A-3 Note due and payable
on each Payment Date, together with the installment of principal, if any, to
the extent not in full payment of this Note, shall be made by check mailed to
the Person whose name appears as the Registered Holder of this Note on the Note
Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of
the Depository Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note
effected by any payments made on any Payment Date shall be binding upon all
future holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected
A-3-4
<PAGE> 96
to be available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Payment Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Registered Holder hereof as of the Record Date preceding
such Payment Date by notice mailed or transmitted by facsimile prior to such
Payment Date, and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the address specified in such notice
of final payment.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the Corporate Trust Office, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Indenture Trustee duly
executed by, the holder hereof or such holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in the Securities Transfer Agent's Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended, and
thereupon one or more new Notes in authorized denominations and in the same
aggregate principal amount will be issued to the designated transferee or
transferees. No service charge will be charged for any registration of transfer
or exchange of this Note, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of this Note.
Each holder or Beneficial Owner of a Note, by acceptance of a
Note or, in the case of a Beneficial Owner of a Note, a beneficial interest in
a Note, covenants and agrees that no recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee,
the Administrator, the Seller, the Servicer or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Indenture Trustee or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee, the
Administrator or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as
any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law,
A-3-5
<PAGE> 97
for any unpaid consideration for stock, unpaid capital contribution or failure
to pay any installment or call owing to such entity.
Each holder or Beneficial Owner of a Note, by acceptance of
a Note or, in the case of a Beneficial Owner of a Note, a beneficial interest
in a Note, covenants and agrees by accepting the benefits of the Indenture that
such holder or Beneficial Owner of a Note will not at any time institute
against the Seller, the Administrator, the Servicer or the Issuer, or join in
any institution against the Seller, the Administrator, the Servicer or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is
issued with the intention that, for federal, state and local income, single
business and franchise tax purposes, the Notes will qualify as indebtedness of
the Issuer. Each holder of a Note, by acceptance of a Note (and each Beneficial
Owner of a Note by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day
of determination or as of such other date as may be specified in the Indenture)
is registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the holders of the Notes under the
Indenture at any time by the Issuer with the consent of the holders of Notes
representing a majority of the Security Balances of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the holders of
Notes representing specified percentages of the Security Balances of all Notes,
on behalf of the holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the holder of
this Note shall be conclusive and binding upon such holder and upon all future
holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of holders of the Notes issued thereunder.
A-3-6
<PAGE> 98
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the holders of Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note and the Indenture shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of
law provisions, and the obligations, rights and remedies of the parties
hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place and rate, and in the coin or currency herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Basic Documents, none of Chase Manhattan Bank
Delaware in its individual capacity, The Bank of New York in its individual
capacity, any owner of a beneficial interest in the Issuer, or any of their
respective partners, beneficiaries, agents, officers, directors, employees or
successors or assigns shall be personally liable for, nor shall recourse be had
to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be
taken to prevent recourse to, and enforcement against, the assets of the Issuer
for any and all liabilities, obligations and undertakings contained in the
Indenture or in this Note.
A-3-7
<PAGE> 99
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee:_______________________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto______________________________________________________________
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably
constitutes and appoints________________________________________________________
________________________________________________________________________________
________________________________, attorney, to transfer said Note
on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: */
-------------------------- --------------------------------
Signature Guaranteed:
*/
--------------------------------
- ------------------------
*/ NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note
in every particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in STAMP or such
other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-3-8
<PAGE> 100
Exhibit B
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
to such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
THIS CLASS B NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A-1, CLASS
A-2 AND CLASS A-3 NOTES AS DESCRIBED IN THE INDENTURE REFERRED TO BELOW.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
Household Consumer Loan Asset Backed Notes, Series 1997-1
Class: Class B
Registered Principal Amount: $[ ]
Percentage Interest: [ ]%
Note Rate: Floating
No.
CUSIP No.
Household Consumer Loan Trust 1997-1, a business trust duly
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to Cede & Co.
or registered assigns, the principal sum of [ ] DOLLARS, payable on each
Payment Date in an amount equal to the Percentage Interest specified above of
the aggregate amount, if any, payable from the Payment Account in respect of
principal on the Class B Notes pursuant Section 3.05 of the Indenture dated as
of March 1, 1997 (the "Indenture") between the Issuer and The Bank of New York,
as Indenture Trustee (the "Indenture Trustee"); provided, however, that the
entire unpaid principal amount of this Note shall be due and payable on the
____________ 20___ Payment Date. Capitalized terms used but not defined herein
are defined in Article I of the Indenture, which also contains rules as to
construction that shall be applicable herein.
The Issuer will pay interest on this Note on each Payment
Date at a rate per annum equal to LIBOR plus ___% on the principal amount of
this Class B Note on the preceding Payment Date (after
B-1
<PAGE> 101
giving effect to all payments of principal made on such preceding Payment
Date); provided, however, that in no event shall the Note Rate with respect to
any Interest Period exceed ___% for such Interest Period. LIBOR for each
applicable Interest Period will be determined on the second LIBOR Business Day
prior to the first day of such Interest Period or in the case of the first
Interest Period, two days prior to the Closing Date as set forth in the
Indenture. All determinations of LIBOR by the Indenture Trustee shall, in the
absence of manifest error, be conclusive for all purposes, and each holder of
this Class B Note, by accepting this Class B Note, agrees to be bound by such
determination. Interest on this Class B Note will accrue for each Payment Date
from the most recent Payment Date on which interest has been paid (in the case
of the first Payment Date, from the Closing Date) to but excluding such Payment
Date. Interest will be computed on the basis of the actual number of days in
each Interest Period and a year assumed to consist of 360 days. Principal of
and interest on this Class B Note shall be paid in the manner specified on the
reverse hereof.
Principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee whose name appears below by manual signature,
this Note shall not be entitled to any benefit under the Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
B-2
<PAGE> 102
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the
Issuer and not in its individual capacity, has caused this Note to be duly
executed.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
By CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity
but solely as Owner Trustee
By
------------------------------------
Authorized Signatory
Certificate of Authentication
This is one of the Class B Notes referred to in the within mentioned Indenture.
THE BANK OF NEW YORK,
not in its individual capacity but
solely as Indenture Trustee
Dated: March ___, 1997
By
-------------------------------------
Authorized Signatory
<PAGE> 103
[REVERSE OF NOTE]
This Class B Note is one of a duly authorized issue of Class
B Notes of the Issuer, designated as its Household Consumer Loan Asset Backed
Notes, Series 1997-1 (herein called the "Class B Notes"), all issued under the
Indenture, to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights and obligations
thereunder of the Issuer, the Indenture Trustee and the holders of the Notes.
The Notes are subject to all terms of the Indenture.
The Class B Notes and the Class A-1 Notes, Class A-2 Notes
and Class A-3 Notes, also issued under the Indenture (collectively, the
"Notes") are and will be secured by the collateral pledged as security therefor
as provided in the Indenture.
Principal of and interest on this Class B Note will be
payable on each Payment Date, commencing on April 15, 1997, as described in the
Indenture. "Payment Date" means the fifteenth day of each month, or, if any
such day is not a Business Day, then the next Business Day.
The entire unpaid principal amount of this Class B Note shall
be due and payable in full on the Payment Date in ___________ 20___ pursuant to
the Indenture. Notwithstanding the foregoing, if an Event of Default shall have
occurred and be continuing, then the Indenture Trustee or the holders of Notes
representing not less than a majority of the Security Balances of all the Notes
may declare the Notes to be immediately due and payable in the manner provided
in Section 5.01 of the Indenture. On each Payment Date, principal payments on
the Class B Notes shall be payable in the amounts as provided in Section 3.05
of the Indenture.
Payments of interest on this Class B Note due and payable on
each Payment Date, together with the installment of principal, if any, to the
extent not in full payment of this Note, shall be made by check mailed to the
Person whose name appears as the Registered Holder of this Note on the Note
Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of
the Depository Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note
effected by any payments made on any Payment Date shall be binding upon all
future holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected to be available, as provided in the Indenture,
for payment in full
B-4
<PAGE> 104
of the then remaining unpaid principal amount of this Note on a Payment Date,
then the Indenture Trustee, in the name of and on behalf of the Issuer, will
notify the Person who was the Registered Holder hereof as of the Record Date
preceding such Payment Date by notice mailed or transmitted by facsimile prior
to such Payment Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note at the address specified in such
notice of final payment.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the Corporate Trust Office, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Indenture Trustee duly
executed by, the holder hereof or such holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in the Securities Transfer Agent's Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended, and
thereupon one or more new Notes in authorized denominations and in the same
aggregate principal amount will be issued to the designated transferee or
transferees. No service charge will be charged for any registration of transfer
or exchange of this Note, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of this Note.
Each holder or Beneficial Owner of a Note, by acceptance of a
Note or, in the case of a Beneficial Owner of a Note, a beneficial interest in
a Note, covenants and agrees that no recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee,
the Administrator, the Seller, the Servicer or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Indenture Trustee or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee, the
Administrator or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as
any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
B-5
<PAGE> 105
Each holder or Beneficial Owner of a Note, by acceptance of
a Note or, in the case of a Beneficial Owner of a Note, a beneficial interest
in a Note, covenants and agrees by accepting the benefits of the Indenture that
such holder or Beneficial Owner of a Note will not at any time institute
against the Seller, the Administrator, the Servicer or the Issuer, or join in
any institution against the Seller, the Administrator, the Servicer or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is
issued with the intention that, for federal, state and local income, single
business and franchise tax purposes, the Notes will qualify as indebtedness of
the Issuer. Each holder of a Note, by acceptance of a Note (and each Beneficial
Owner of a Note by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day
of determination or as of such other date as may be specified in the Indenture)
is registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the holders of the Notes under the
Indenture at any time by the Issuer with the consent of the holders of Notes
representing a majority of the Security Balances of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the holders of
Notes representing specified percentages of the Security Balances of all Notes,
on behalf of the holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the holder of
this Note shall be conclusive and binding upon such holder and upon all future
holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
B-6
<PAGE> 106
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the holders of Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note and the Indenture shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of
law provisions, and the obligations, rights and remedies of the parties
hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place and rate, and in the coin or currency herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Basic Documents, none of Chase Manhattan Bank
Delaware, in its individual capacity, The Bank of New York in its individual
capacity, any owner of a beneficial interest in the Issuer, or any of their
respective partners, beneficiaries, agents, officers, directors, employees or
successors or assigns shall be personally liable for, nor shall recourse be had
to any of them for, the payment of principal of or interest on this Note or
performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The holder of this Note by its
acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event of Default under the Indenture, the holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be
taken to prevent recourse to, and enforcement against, the assets of the Issuer
for any and all liabilities, obligations and undertakings contained in the
Indenture or in this Note.
B-7
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ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of
assignee:_______________________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto______________________________________________________________
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably
constitutes and appoints________________________________________________________
________________________________________________________________________________
________________________________, attorney, to transfer said Note
on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: */
-------------------------- --------------------------------
Signature Guaranteed:
*/
--------------------------------
- ------------------------
*/ NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note
in every particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in STAMP or such
other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
B-8
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EXHIBIT C
FORM OF MONTHLY SECURITY REPORT
<TABLE>
<CAPTION>
Date:
To:
From: [INDENTURE TRUSTEE]
<S> <C>
Series 1997-1 Participation Interest Balance: $
Prime - 150: %
Series 1997-1 Participation Interest
Distribution Amount: $
Securities Interest Distribution Amount
- Class A-1 $
- Class A-2 $
- Class A-3 $
- Class B $
- Certificates $
Amounts per $1,000
Accelerated Principal Distribution Amount $
Series 1997-1 Principal Distribution Amount $
Optimal principal distribution amount $
Class A-1 principal distribution $
Class A-2 principal distribution $
Class A-3 principal distribution $
Class B principal distribution $
Certificate distribution $
OC Distribution: $
Balance of Class A-1 $
Balance of Class A-2 $
Balance of Class A-3 $
Balance of Class B $
Balance of Certificates $
</TABLE>
C-1
<PAGE> 109
<TABLE>
<S> <C>
Balance of OC $
Net Charge-Offs applied to each class
Reversals applied to each class $
Excess to Issuer $
Subordination available to each class $
Overcollateralization as %
of Participation Interest: $
Invested Amount
</TABLE>
C-2
<PAGE> 110
APPENDIX A
DEFINITIONS
The definitions contained herein are incorporated into and made a part
of the Trust Agreement and Indenture, each as defined below.
Accelerated Principal Payment Amount: With respect to any Payment
Date, the lesser of (i) the Excess Interest reduced by the amount of the Net
Charge-Off and (ii) one-twelfth of the Series 1997-1 Participation Interest
Invested Amount as of the beginning of the related Interest Period multiplied
for each Payment Date occurring prior to April 1998, by ____%, and for each
Payment Date occurring in April 1998 or thereafter, by ____%.
Act: The meaning assigned to such term in Section 10.03 of
the Indenture.
Adjusted Principal Balance: With respect to the Class A-1 Notes, Class
A-2 Notes, Class A-3 Notes and Class B Notes, the Class A-1 Adjusted Principal
Balance, Class A-2 Adjusted Principal Balance, Class A-3 Adjusted Principal
Balance and Class B Adjusted Principal Balance, respectively.
Adjusted Security Balance: With respect to any Payment Date,
the sum of the Class A Adjusted Principal Balance, the Class B
Adjusted Principal Balance and the Certificate Adjusted Security
Balance.
Administration Agreement: The Administration Agreement dated as of
March 1, 1997 among the Issuer, the Indenture Trustee and HFC, as
Administrator, as it may be amended from time to time.
Administrator: HFC, as administrator under the Administration
Agreement or any successor Administrator appointed pursuant to the
terms of the Administration Agreement.
Affiliate: The meaning assigned to such term in the Pooling
and Servicing Agreement.
Aggregate Security Balance: With respect to any Payment Date,
the aggregate of the Principal Balances of all Securities as of
such date.
Amortization Event: The meaning assigned to such term in the
Pooling and Servicing Agreement.
Authorized Newspaper: A newspaper of general circulation in the
Borough of Manhattan, The City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
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<PAGE> 111
Authorized Officer: With respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter) and, so
long as the Administration Agreement is in effect, any Responsible Officer of
the Administrator who is authorized to act for the Administrator in matters
relating to the Issuer and to be acted upon by the Administrator pursuant to
the Administration Agreement and who is identified on the list of Authorized
Officers delivered by the Administrator to the Indenture Trustee on the Closing
Date (as such list may be modified or supplemented from time to time
thereafter).
Available Investor Principal Collections: The meaning
assigned to such term in the Pooling and Servicing Agreement.
Basic Documents: The Trust Agreement, the Certificate of
Trust, the Indenture, Receivables Purchase Agreement, the Administration
Agreement, the Pooling and Servicing Agreement, and the other documents and
certificates delivered in connection with any of the above.
Beneficial Owner: With respect to any Note, the Person who is the
beneficial owner of such Note as reflected on the books of the Depositary or on
the books of a Person maintaining an account with such Depositary (directly as
a Depositary Participant or indirectly through a Depositary Participant, in
accordance with the rules of such Depositary).
Book-Entry Notes: Beneficial interests in the Notes, ownership and
transfers of which shall be made through book entries by the Seller as
described in Section 4.06 of the Indenture.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the State of New York or Illinois are
required or authorized by law to be closed.
Business Trust Statute: Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss.ss. 3801 et seq., as the same may be
amended from time to time.
Certificate Adjusted Security Balance: With respect to any Payment
Date, the Certificate Balance after giving effect to any distributions thereon
pursuant to Section 3.05(a)(iii) and (vi) of the Indenture on all Payment Dates
including the current Payment Date less all Net Charge-Offs allocated to the
Certificates after giving effect to any such allocation to be made on such
Payment Date.
Certificate Balance: With respect to any Payment Date, the Initial
Certificate Balance, reduced by all distributions thereon other than
distributions in respect of the Certificate Yield, prior to such Payment Date.
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Certificate of Trust: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute.
Certificateholder: The Person in whose name a Certificate is
registered in the Certificate Register except that, any Certificate registered
in the name of the Seller, the Owner Trustee or the Indenture Trustee or any
Affiliate of any of them shall be deemed not to be outstanding and the
registered holder will not be considered a Certificateholder or a holder for
purposes of giving any request, demand, authorization, direction, notice,
consent or waiver under the Indenture or the Trust Agreement provided that, in
determining whether the Indenture Trustee or the Owner Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Certificates that the Indenture Trustee or the
Owner Trustee knows to be so owned shall be so disregarded. Owners of
Certificates that have been pledged in good faith may be regarded as Holders if
the pledgee establishes to the satisfaction of the Indenture Trustee or the
Owner Trustee, as the case may be, the pledgee's right so to act with respect
to such Certificates and that the pledgee is not the Seller, any other obligor
upon the Certificates or any Affiliate of any of the foregoing Persons.
Certificate Minimum Adjusted Balance: $___________.
Certificate Minimum Balance: With respect to any Payment Date the
Series 1997-1 Participation Interest Invested Amount, after giving effect to
the distribution made on the Series 1997-1 Participation Interest on such
Payment Date, multiplied by ________%.
Certificate Paying Agent: The meaning specified in Section 3.03 of
the Indenture.
Certificate Rate: With respect to any Interest Period, the per annum
rate equal to the sum of (i) LIBOR and (ii) 0.___%, but in no event greater
than ______% per annum.
Certificate Register: The register maintained by the Certificate
Registrar in which the Certificate Registrar shall provide for the registration
of Certificates and of transfers and exchanges of Certificates.
Certificate Registrar: Initially, The Bank of New York, in its
capacity as Certificate Registrar, or any successor to the Indenture Trustee in
such capacity as appointed pursuant to Section 3.05 of the Trust Agreement.
Certificates: The Consumer Loan Asset-Backed Certificates, Series
1997-1, each evidencing undivided beneficial interests in the Issuer and
executed by the Owner Trustee in substantially the form set forth in Exhibit A
to the Trust Agreement.
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Certificate Targeted Balance: An amount equal to (i) the Series 1997-1
Participation Interest Invested Amount multiplied by _____%, less (ii) the
Class A Adjusted Principal Balance and the Class B Adjusted Principal Balance
immediately prior to such Payment Date and after giving effect to payments of
principal on the Class A Notes and Class B Notes pursuant to Section
3.05(a)(ii)(a) and (b) of the Indenture on such Payment Date.
Certificate Yield: The sum of (a) the amount accrued during the
related Interest Period at the Certificate Rate on the sum of (i) the
Certificate Balance immediately prior to such Payment Date and (ii) any
previously accrued and unpaid amount at the Certificate Rate for prior Payment
Dates, and (b) any previously accrued and unpaid amount at the Certificate Rate
for prior Payment Dates.
Class: Any of class of the Class A Notes and Class B Notes
issued pursuant to Article II of the Indenture.
Class A Adjusted Principal Balance: The sum of the Class A-1
Adjusted Principal Balance, Class A-2 Adjusted Principal Balance and Class A-3
Adjusted Principal Balance.
Class A Notes: Any of the Class A-1 Notes, Class A-2 Notes and Class
A-3 Notes issued pursuant to Article II of the Indenture.
Class A Targeted Principal Balance: The sum of the Class A-1
Targeted Principal Balance, Class A-2 Targeted Principal Balance,
and Class A-3 Targeted Principal Balance.
Class A-1 Adjusted Principal Balance: With respect to any Payment
Date, the Principal Balance of the Class A-1 Notes after giving effect to any
distributions thereon pursuant to Section 3.05(a)(ii), (v) and (vi) of the
Indenture on all Payment Dates including the current Payment Date less any Net
Charge-Off allocated to the Class A-1 Notes after giving effect to any such
allocation to be made on such Payment Date.
Class A-1 Notes: The Class A-1 Notes issued pursuant to
Article II of the Indenture.
Class A-1 Targeted Principal Balance: The Series 1997-1
Participation Interest Invested Amount multiplied by ______%.
Class A-2 Adjusted Principal Balance: With respect to any Payment
Date, the Principal Balance of the Class A-2 Notes after giving effect to any
distributions thereon pursuant to Section 3.05(a)(ii), (v) and (vi) of the
Indenture on all Payment Dates including the current Payment Date less any Net
Charge-Off allocated to the Class A-2 Notes after giving effect to any such
allocation to be made on such Payment Date.
Class A-2 Notes: The Class A-2 Notes issued pursuant to
Article II of the Indenture.
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Class A-2 Targeted Principal Balance: With respect to any Payment Date
an amount equal to (i) the Series 1997-1 Participation Interest Invested Amount
multiplied by ________%, less (ii) the Class A-1 Adjusted Principal Balance
immediately prior to such Payment Date and after giving effect to payments of
principal on the Class A-1 Notes pursuant to Section 3.05(a)(ii)(a) of the
Indenture on such Payment Date.
Class A-3 Adjusted Principal Balance: With respect to any Payment
Date, the Principal Balance of the Class A-3 Notes after giving effect to any
distributions thereon pursuant to Section 3.05(a)(ii), (v) and (vi) of the
Indenture on all Payment Dates including the current Payment Date less any Net
Charge-Off allocated to the Class A-3 Notes after giving effect to any such
allocation to be made on such Payment Date.
Class A-3 Notes: The Class A-3 Notes issued pursuant to
Article II of the Indenture.
Class A-3 Targeted Principal Balance: With respect to any Payment Date
an amount equal to (i) the Series 1997-1 Participation Interest Invested Amount
multiplied by _______%, less (ii) the sum of the Class A-1 Adjusted Principal
Balance and Class A-2 Adjusted Principal Balance immediately prior to such
Payment Date and after giving effect to payments of principal on the Class A-1
Notes and Class A-2 Notes pursuant to Section 3.05(a)(ii) of the Indenture on
such Payment Date.
Class B Adjusted Principal Balance: With respect to any Payment Date,
the Principal Balance of the Class B Notes, after giving effect to any
distributions thereon pursuant to Section 3.05(a)(ii), (v) and (vi) of the
Indenture on all Payments Dates including the current Payment Date less all Net
Charge-Off allocated to the Class B Notes after giving effect to any such
allocation to be made on such Payment Date.
Class B Notes: The Class B Notes issued pursuant to Article
II of the Indenture.
Class B Targeted Principal Balance: With respect to any Payment Date
an amount equal to (i) the Series 1997-1 Participation Interest Invested Amount
multiplied by _____%, less (ii) the Class A Adjusted Principal Balance
immediately prior to such Payment Date and after giving effect to payments of
principal on the Class A Notes pursuant to Section 3.05(a)(ii) of the Indenture
on such Payment Date.
Class Interest Distribution: With respect to any Payment Date and
Class of Notes, the sum of (a) the amount of interest accrued during the
Interest Period relating to such Payment Date at the related Note Rate for such
Class of Notes on the sum of (i) the Principal Balance of such Class of Notes
immediately prior to such Payment Date and (ii) any previously accrued and
unpaid interest on such Class of Notes for prior Payment Dates, and (b) any
previously
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<PAGE> 115
accrued and unpaid interest on such Class of Notes for prior
Payment Dates.
Class Percentage: With respect to each Class of Notes and Payment
Date, the ratio, expressed as a percentage, of the aggregate Principal Balance
of such Class of Notes to the aggregate Principal Balance of the Notes, in each
case immediately prior to such Payment Date.
Closing Date: March ___, 1997.
Code: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
Corporate Trust Office: With respect to the Indenture Trustee,
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of the execution of this instrument is
located at 101 Barclay Street, Floor 12 East, New York, New York 10286,
Attention: Corporate Trust Administration Asset-Backed Unit. With respect to
the Owner Trustee, the principal corporate trust office of the Owner Trustee at
which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of the Trust Agreement
is located at 1201 Market Street, Wilmington, Delaware 19801, Attention:
Corporate Trustee Administration.
Default: Any occurrence which is or with notice or the lapse
of time or both would become an Event of Default.
Definitive Notes: The meaning specified in Section 4.06 of
the Indenture.
Deposit Trust: The trust created pursuant to the Pooling and
Servicing Agreement.
Deposit Trustee: Texas Commerce Bank National Association, as
successor trustee to The Chase Manhattan Bank, N.A., and any successor thereto
under the Pooling and Servicing Agreement.
Depository or Depository Agency: The Depository Trust Company or a
successor appointed by the Indenture Trustee with the approval of the Seller.
Any successor to the Depository shall be an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
Depository Participant: A Person for whom, from time to time,
the Depository effects book-entry transfers and pledges of securi-
ties deposited with the Depository.
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Designated Certificate: The meaning specified in Section 3.11
of the Trust Agreement.
Determination Date: With respect to any Payment Date, the 5th Business
Day prior to such Payment Date occurs or if such day is not a Business Day, the
next succeeding Business Day.
Distribution Date: The meaning specified in the Supplement.
Due Period: The meaning assigned to such term in the Pooling
and Servicing Agreement.
Eligible Deposit Account: The meaning assigned to such term
in the Pooling and Servicing Agreement.
Eligible Investments: The meaning assigned to such term in
the Pooling and Servicing Agreement.
ERISA: The meaning assigned to such term in the Pooling and
Servicing Agreement.
Event of Default: With respect to the Indenture, any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default in the payment on any related Payment Date of
any interest accrued on any Note during the related Interest Period,
and such default shall continue for a period of five days;
(ii) a default in the payment of the principal of or any
installment of the principal of any Note when the same becomes
due and payable;
(iii) default in the observance or performance of any covenant or
agreement of the Issuer made in the Indenture, or any representation
or warranty of the Issuer made in the Indenture or in any certificate
or other writing delivered pursuant thereto or in connection therewith
proving to have been incorrect in any material respect as of the time
when the same shall have been made and shall have had a material
adverse effect on any Noteholders, and such default shall continue or
not be cured, or the circumstance or condition in respect of which
such representation or warranty was incorrect shall not have been
eliminated or otherwise cured, for a period of 30 days after there
shall have been given, by registered or certified mail, to the Issuer
by the Indenture Trustee or to the Issuer and the Indenture Trustee by
the Holders of at least 25% in principal amount of the Notes then
outstanding, a written notice specifying such default or incorrect
representation or warranty and requiring it to be
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remedied and stating that such notice is a notice of default
hereunder;
(iv) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any
substantial part of the Indenture Trust Estate in an involuntary case
under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Indenture
Trust Estate, or ordering the winding-up or liquidation of the
Issuer's affairs, and such decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; or
(v) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by the Issuer to the
entry of an order for relief in an involuntary case under any such
law, or the consent by the Issuer to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for any substantial
part of the Indenture Trust Estate, or the making by the Issuer of any
general assignment for the benefit of creditors, or the failure by the
Issuer generally to pay its debts as such debts become due, or the
taking of any action by the Issuer in furtherance of any of the
foregoing.
Excess Interest: With respect to any Payment Date the amount if any by
which Series 1997-1 Participation Interest Monthly Interest exceeds the sum of
(a) the amount to be distributed pursuant to Section 3.05(a)(i) of the
Indenture on such Payment Date and (b) Series 1997-1 Participation Interest
Charge-Offs for
the related Due Period.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
Expenses: The meaning specified in Section 8.02 of the Trust
Agreement.
FASIT: Financial Asset Securitization Investment Trust as passed by
Congress in the Small Business Tax Bill, H.R. 3448, in August 1996, and as
enacted and amended from time to time.
FDIC: The Federal Deposit Insurance Corporation or any successor
thereto.
Final Scheduled Payment Date: To the extent not previously paid, the
principal balance of each Class of Notes will be due on the Payment Date in
____________ 20___.
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Grant: Mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm
pursuant to the Indenture. A Grant of the Indenture Collateral or of any other
agreement or instrument shall include all rights, powers and options (but none
of the obligations) of the granting party thereunder, including the immediate
and continuing right to claim for, collect, receive and give receipt for
principal and interest payments in respect of such collateral or other
agreement or instrument and all other moneys payable thereunder, to give and
receive notices and other communications, to make waivers or other agreements,
to exercise all rights and options, to bring proceedings in the name of the
granting party or otherwise, and generally to do and receive anything that the
granting party is or may be entitled to do or receive thereunder or with
respect thereto.
HFC: Household Finance Corporation, a subsidiary of Household
International, Inc., incorporated under the laws of Delaware.
Holdback Amount: An amount initially equal to the excess of (i) the
Series 1997-1 Participation Interest Initial Invested Amount over (ii) the
aggregate Initial Principal Balances of the Class A Notes, the Class B Notes,
and the Certificates. Such amount will be reduced through payments made
pursuant to Section 3.05(a)(iv) and 3.05(a)(vi) of the Indenture and will be
reduced or increased through the allocation of Series 1997-1 Participation
Interest Charge-Offs and Reversals pursuant to Section 3.05(c) of the
Indenture.
Holder: Any of the Noteholders or Certificateholders.
Indemnified Party: The meaning specified in Section 8.02 of
the Trust Agreement.
Indenture: The indenture dated as of March 1, 1997 between
the Issuer, as debtor, and the Indenture Trustee, as Indenture
Trustee, as may be amended from time to time.
Indenture Collateral: The meaning specified in the Granting
Clause of the Indenture.
Indenture Trustee: The Bank of New York, and its successors
and assigns or any successor indenture trustee appointed pursuant
to the terms of the Indenture.
Indenture Trust Estate: The meaning specified in the Granting
Clause of the Indenture.
Independent: When used with respect to any specified Person, the
Person (i) is in fact independent of the Issuer, any other obligor on the
Notes, the Seller, the Seller and any Affiliate of any of the foregoing
Persons, (ii) does not have any direct financial interest or any material
indirect financial interest in
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the Issuer, any such other obligor, the Seller, the Seller or any Affiliate of
any of the foregoing Persons and (iii) is not connected with the Issuer, any
such other obligor, the Seller, the Seller or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
Independent Certificate: A certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 10.01 of the Indenture,
made by an Independent appraiser or other expert appointed by the Issuer and
approved by the Indenture Trustee in the exercise of reasonable care, and such
opinion or certificate shall state that the signer has read the definition of
"Independent" in this Indenture and that the signer is Independent within the
meaning thereof.
Initial Certificate Balance: $___________.
Initial Principal Balance: With respect to the Class A-1 Notes, Class
A-2 Notes, Class A-3 Notes and Class B Notes, $_____________, $____________,
$____________ and $____________, respectively.
Insolvency Event: With respect to a specified Person, (a) the filing
of a decree or order for relief by a court having jurisdiction in the premises
in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or the
making by such Person of any general assignment for the benefit of creditors,
or the failure by such Person generally to pay its debts as such debts become
due or the admission by such Person in writing (as to which the Indenture
Trustee shall have notice) of its inability to pay its debts generally, or the
adoption by the Board of Directors or managing member of such Person of a
resolution which authorizes action by such Person in furtherance of any of the
foregoing.
Interest Period: With respect to any Payment Date other than
the first Payment Date, the period beginning on the preceding Payment Date
and ending on the day preceding such Payment Date, and in
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the case of the first Payment Date, the period beginning on the Closing Date
and ending on the day preceding the first Payment Date.
Issuer: The Household Consumer Loan Trust 1997-1, a Delaware
business trust, or its successor in interest.
Issuer Request: A written order or request signed in the name
of the Issuer by any one of its Authorized Officers and delivered
to the Indenture Trustee.
LIBOR: For any Interest Period other than the first Interest Period,
the rate for United States dollar deposits for one month which appears on the
Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR
Business Day prior to the first day of such Interest Period. With respect to
the first Interest Period, the rate for United States dollar deposits for one
month which appears on the Telerate Screen Page 3750 as of 11:00 A.M., London
time, two LIBOR Business Days prior to the Closing Date. If such rate does not
appear on such page (or such other page as may replace that page on that
service, or if such service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be reasonably selected by the
Indenture Trustee after consultation with the Servicer), the rate will be the
Reference Bank Rate. If no such quotations can be obtained and no Reference
Bank Rate is available, LIBOR will be LIBOR applicable to the preceding Payment
Date.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the State of New York or Illinois,
or in the city of London, England are required or authorized by law to be
closed.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
however, that any assignment pursuant to Section 6.02 of the Pooling and
Servicing Agreement shall not be deemed to constitute a Lien.
Minimum Adjusted Principal Balance: With respect to the Class A-2
Notes, Class A-3 Notes and Class B Notes, $___________, $_____________, and
$_____________, respectively.
Monthly Security Report: The report attached as Exhibit C to
the Indenture.
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Monthly Servicer's Certificate: The Monthly Servicer's
Certificate attached to the Supplement for Series 1997-1 as Exhibit
B.
Moody's: Moody's Investors Service, Inc. or its successor in
interest.
Net Charge-Off: With respect to any Payment Date, the aggregate amount
of Optimum Monthly Principal not distributed on such Payment Date and all prior
Payment Dates less the aggregate amount of Reversals allocated on such Payment
Date and prior Payment Dates.
Note Depositary Agreement: The DTC Letter of Representations
dated as of the Closing Date by and among, The Depository Trust
Company, the Indenture Trustee and the Issuer.
Note Owner: The Beneficial Owner of a Note.
Note Rate: With respect to any Interest Period, a per annum rate equal
to the sum of (a) LIBOR and (b) 0.____% with respect to the Class A-1 Notes,
0.____% with respect to the Class A-2 Notes, 0.____% with respect to the Class
A-3 Notes, and 0.____% with respect to the Class B Notes but in no event
greater than ____%, ____%, ____% and ____% per annum, respectively.
Note Register: The register maintained by the Note Registrar
in which the Note Registrar shall provide for the registration of
Notes and of transfers and exchanges of Notes.
Note Registrar: The Indenture Trustee, in its capacity as
Note Registrar.
Noteholder: The Person in whose name a Note is registered in the Note
Register, except that, any Note registered in the name of the Seller, the
Issuer or the Indenture Trustee or any Affiliate of any of them shall be deemed
not to be outstanding and the registered holder will not be considered a
Noteholder or holder for purposes of giving any request, demand, authorization,
direction, notice, consent or waiver under the Indenture or the Trust Agreement
provided that, in determining whether the Indenture Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes that the Indenture Trustee or the Owner Trustee
knows to be so owned shall be so disregarded. Owners of Notes that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Owner Trustee the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Issuer, any other obligor upon the Notes or any Affiliate of any of the
foregoing Persons.
Notes: Each of the Class A Notes and Class B Notes.
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<PAGE> 122
Officer's Certificate: With respect to the Servicer, a certificate
signed by the President, Treasurer or Assistant Treasurer, a Vice President or
an Assistant Vice President, of the Servicer and delivered to the Indenture
Trustee. With respect to the Issuer, a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 10.01 of the Indenture,
and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in the Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer.
Opinion of Counsel: A written opinion of counsel who may be
in-house counsel for the Servicer, Seller or Household
International, Inc. if acceptable to the Indenture Trustee, and the
Rating Agencies or counsel for the Seller, as the case may be.
Optimum Monthly Principal: As to any Payment Date, the sum of
Available Investor Principal Collections, any Series 1997-1 Participation
Interest Charge-Offs during the preceding Due Period and the lesser of Excess
Interest and the Net Charge-Off as of the end of the preceding Payment Date.
Outstanding: With respect to the Notes, as of the date of
determination, all Notes theretofore executed, authenticated and
delivered under this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or
delivered to the Indenture Trustee for cancellation; and
(ii) Notes in exchange for or in lieu of which other Notes have
been executed, authenticated and delivered pursuant to the Indenture
unless proof satisfactory to the Indenture Trustee is presented that
any such Notes are held by a holder in due course.
Overcollateralization Amount: As to any Payment Date, the amount by
which the Series 1997-1 Participation Interest Invested Amount exceeds the
Aggregate Security Balances in each case after giving effect to distributions
on such Payment Date.
Overcollateralization Minimum Amount: $____________.
Owner Trust Estate: The corpus of the Issuer created by the
Trust Agreement.
Owner Trustee: Chase Manhattan Bank Delaware and its
successors and assigns or any successor owner trustee appointed
pursuant to the terms of the Trust Agreement.
Paying Agent: Any paying agent or co-paying agent appointed pursuant
to Section 3.03 of the Indenture and Section 3 of the Trust Agreement, which
initially shall be the Indenture Trustee.
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<PAGE> 123
Payment Account: The account established by the Indenture Trustee
pursuant to Section 8.02 of the Indenture. The Payment Account shall be an
Eligible Deposit Account.
Payment Date: The 15th day of each month, or if such day is not a
Business Day, then the next Business Day.
Percentage Interest: With respect to any Payment Date and any Note,
the percentage obtained by dividing the Security Balance of such Note prior to
distributions on such Payment Date by the aggregate of the Security Balances of
all Notes of the same Class. With respect to any Certificate, the percentage
obtained by dividing the denomination specified on such Certificate by the
Initial Principal Balance of the Certificates.
Person: The meaning assigned to such term in the Pooling and
Servicing Agreement.
Pooling and Servicing Agreement: The Pooling and Servicing Agreement
dated as of September 1, 1995, as supplemented by the Supplement for Series
1997-1 dated as of March 1, 1997, by and among the Seller, Servicer and the
Deposit Trustee, as may be amended from time to time.
Principal Balance: With respect to any Payment Date and each Note, the
Initial Principal Balance thereof, reduced by all distributions of principal
thereon prior to such Payment Date.
Proceeding: Any suit in equity, action at law or other judicial or
administrative proceeding.
Rating Agency: The meaning assigned to such term in the Pooling and
Servicing Agreement.
Receivables: The meaning assigned to such term in the Pooling and
Servicing Agreement.
Receivables Purchase Agreement: The meaning assigned to such term in
the Pooling and Servicing Agreement.
Record Date: With respect to the Notes and any Payment Date, the
Business Day next preceding such Payment Date and with respect to the
Certificates and any Payment Date, the last Business Day of the month preceding
the month of such Payment Date.
Reference Bank Rate: With respect to any Interest Period, as follows:
the arithmetic mean (rounded upwards, if necessary, to the nearest one
sixteenth of a percent) of the offered rates for United States dollar deposits
for one month which are offered by the Reference Banks as of 11:00 A.M., London
time, on the second LIBOR Business Day prior to the first day of such Interest
Period to prime banks in the London interbank market for a period of one month
in amounts approximately equal to the Aggregate Security Balance; provided that
at least two such Reference Banks provide
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<PAGE> 124
such rate. If fewer than two offered rates appear, the Reference Bank Rate will
be the arithmetic mean of the rates quoted by one or more major banks in New
York City, selected by the Indenture Trustee after consultation with the
Servicer, as of 11:00 a.m., New York City time, on such date for loans in U.S.
Dollars to leading European Banks for a period of one month in amounts
approximately equal to the Aggregate Security Balance. If no such quotations
can be obtained, the Reference Bank Rate shall be the Reference Bank Rate
applicable to the preceding Interest Period.
Reference Banks: Three money center banks as selected by the
Indenture Trustee after consultation with the Servicer.
Registered Holder: The Person in whose name a Note is registered in
the Note Register on the applicable Record Date.
Responsible Officer: With respect to the Indenture Trustee, any
officer of the Indenture Trustee with direct responsibility for the
administration of the Indenture and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
Reversals: With respect to any Payment Date the sum of (i) the Net
Charge-Off previously allocated, to the extent of Excess Interest for such
Payment Date and (ii) the amounts treated as Available Investor Principal
Collections pursuant to Section 4.11(a)(iv) of the Supplement for the related
Distribution Date; provided however, in no event will such Reversals exceed the
Net Charge-Off.
Sale: The meaning assigned to such term in Section 5.15 of the
Indenture.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Security: Any of the Certificates or Notes.
Security Balance: The Principal Balance of the Notes, or the
Certificate Balance, as the case may be.
Security Collections: With respect to any Payment Date the sum of
Series 1997-1 Participation Interest Monthly Interest and Series 1997-1
Participation Interest Monthly Principal for such Payment Date.
Securityholder or Holder: Any Noteholder or a Certificate-holder.
Seller: Household Consumer Loan Corporation, a Nevada corporation and
a wholly-owned, special purpose subsidiary of Household Finance Corporation, or
its successor in interest.
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<PAGE> 125
Seller's Trust Amount: The meaning assigned to such term in the
Pooling and Servicing Agreement.
Series Participation Interest: The meaning assigned to such term in
the Pooling and Servicing Agreement.
Series 1997-1 Participation Interest: The Series 1997-1 Participation
Interest issued pursuant to the Pooling and Servicing Agreement.
Series 1997-1 Participation Interest Charge-Offs: The meaning
assigned to such term in the Pooling and Servicing Agreement.
Series 1997-1 Participation Interest Invested Amount: The meaning
assigned to such term in the Pooling and Servicing Agreement.
Series 1997-1 Participation Interest Monthly Interest: The meaning
assigned to such term in the Pooling and Servicing Agreement.
Series 1997-1 Participation Interest Monthly Principal: The meaning
assigned to such term in the Pooling and Servicing Agreement.
Servicer: HFC and its successors and assigns.
Servicer Default: An event specified in Section 10.01 of the Pooling
and Servicing Agreement.
Single Certificate: A Certificate in the denomination of $1,000,000.
Single Note: A Note in the amount of $100,000.
Standard & Poor's: Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies, Inc., or its successor in interest.
Successor Designated Certificateholder: The meaning assigned to such
term in Section 9.02 of the Trust Agreement.
Telerate Screen Page 3750: The display designated as page 3750 on the
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks).
Treasury Regulations: Regulations, including proposed or temporary
Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
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<PAGE> 126
Trust Agreement: The Trust Agreement dated as of March 1, 1997 between
the Owner Trustee and the Seller, as amended from time to time.
Trust Indenture Act or TIA: The Trust Indenture Act of 1939, as
amended from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
-17-
<PAGE> 1
Exhibit 5
February 28, 1997
Household Consumer Loan Corporation
1111 Town Center Drive
Las Vegas, Nevada 89134
Gentlemen:
I am the Vice President-Corporate Law of Household International, Inc., which
is indirectly the owner of all of the issued and outstanding common stock of
Household Consumer Loan Corporation, the originator of the Household Consumer
Loan Deposit Trust I (the "Deposit Trust"). I refer to the combined
Registration Statement, as amended, on Form S-1 (File No. 333-20147) and Form
S-3 (File Nos. 333-20147-01 and 333-20147- 02) (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 Notes
(as herein defined) and the Series 1997-1 Participation (as herein defined).
Terms used herein that are not defined herein shall have the meanings ascribed
thereto in the Pooling and Servicing Agreement (as defined below).
The Registration Statement relates to a financing program which involves the
sale by the Subservicers to Household Consumer Loan Corporation and the
transfer by Household Consumer Loan Corporation (the "Seller") to the Deposit
Trust of revolving consumer credit line receivables (the "Receivables")
originated or acquired by the Subservicers. The transfer to the Deposit Trust
of the Receivables will be made in exchange for participation interests
representing an undivided interest in the assets of the Deposit Trust,
including the Receivables. One of these participation interests (the "Series
1997-1 Participation") will, at the direction of the Seller, be conveyed by the
Deposit Trust to the Household Consumer Loan Trust 1997-1 (the "Issuer"), a
statutory business trust established under the laws of the State of Delaware
pursuant to a Trust Agreement to be dated as of March 1, 1997 (the "Trust
Agreement") between the Seller and The Chase Manhattan Bank Delaware, as
trustee (the "Owner Trustee"). The Trust Agreement is filed as an Exhibit to
the Registration Statement. The Series 1997-1 Participation will serve as
collateral for the Notes to be issued pursuant to an Indenture to be dated as
of March 1, 1997 between the Issuer and The Bank of New York, as trustee (the
"Indenture Trustee"). The Indenture is also filed as an Exhibit to the
Registration Statement. The Notes will be debt of the Issuer and will be
offered pursuant to the Registration Statement. The Notes shall be
<PAGE> 2
Household Consumer Loan Corporation
February 28, 1997
Page 2
issued in four classes under the Indenture and shall be the Class A-1, Class
A-2 and Class A-3 Consumer Loan Asset-Backed Notes, Series 1997-1 (the "Class A
Notes") and the Class B Consumer Loan Asset-Backed Notes, Series 1997-1 (the
"Class B Notes" and together with the Class A Notes, the "Notes"). The Deposit
Trust was created pursuant to the Pooling and Servicing Agreement dated as of
September 1, 1995, (as it may be amended from time to time, the "Pooling and
Servicing Agreement") among the Seller, Household Finance Corporation ("HFC"),
as Servicer, and The Chase Manhattan Bank, N.A. The Texas Commerce Bank
National Association has succeeded The Chase Manhattan Bank, N.A., as Deposit
Trustee under the Pooling and Servicing Agreement. The Pooling and Servicing
Agreement is incorporated by reference as an Exhibit to the Registration
Statement. The Series 1997-1 Participation will be issued pursuant to the
Series 1997-1 Supplement to the Pooling and Servicing Agreement (the "Series
1997-1 Supplement"), a form of which is filed as an Exhibit to the Registration
Statement.
I am, or attorneys under my supervision are, familiar with the proceedings to
date with respect to the proposed offering and sale to the public of the Notes
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 Indenture, the Trust Agreement, the Pooling and Servicing
Agreement and the Series 1997-1 Supplement each shall be duly executed and
delivered by the parties thereto,
3) the Series 1997-1 Participation shall have been duly issued by the
Deposit Trust and authenticated by the Deposit Trustee in accordance with the
Pooling and Servicing Agreement and the Series 1997-1 Supplement, and
delivered by the Seller in accordance with the Trust Agreement,
4) the Notes shall have been duly issued by the Issuer and
authenticated by the Indenture Trustee in accordance with the Indenture, and
delivered by the Seller in accordance with the Underwriting Agreement among
HFC, the Seller, the Subservicers and the Underwriters named therein (the
"Underwriting Agreement"), and
5) the Seller shall have received the agreed purchase price for the
Notes in accordance with the Underwriting Agreement,
<PAGE> 3
Household Consumer Loan Corporation
February 28, 1997
Page 3
the Series 1997-1 Participation will be fully paid and non-assessable, validly
issued and will be entitled to the benefits of the Pooling and Servicing
Agreement and the Series 1997-1 Supplement, and each Class of Notes will be
fully paid and non-assessable, validly issued and outstanding and will be
entitled to the benefits of the Indenture and will be the binding obligations
of the Issuer.
I do not find it necessary for the purposes of this opinion, and accordingly do
not purport to cover herein, the application of the "Blue Sky" or securities
laws of the various states to sales of the Series 1997-1 Participation or the
Notes.
I hereby consent to the use of my name and my opinion in the Prospectus filed
pursuant to Rule 430A or 424 of Regulation C of the Act, in connection with the
Registration Statement, including any references to my opinions set forth in
the documents incorporated by reference therein, and to the filing of this
consent as an exhibit to the Registration Statement. In giving such consent I
do not admit that I am in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
John W. Blenke
Vice President-Corporate Law
PDS:jh
<PAGE> 1
EXHIBIT 8
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
February 28, 1997
Household Finance Corporation Household Consumer Loan Corporation
2700 Sanders Road 1111 Town Center Drive
Prospect Heights, Illinois 60070 Las Vegas, Nevada 89134
Re: Household Consumer Loan Asset Backed Notes, Series
1997-1, Class A-1, A-2 and A-3 Notes (the "NOTES").
Ladies and Gentlemen:
We have acted as special counsel to Household Finance Corporation, a
Delaware corporation (the "SERVICER"), Household Consumer Loan Corporation, a
Nevada corporation (the "SELLER"), and Household Consumer Loan Trust 1997-1, a
Delaware business trust (the "ISSUER") for the purpose of rendering various
opinions on matters related to the Notes and Certificates to be issued by the
Issuer. The certificates represent undivided beneficial interests in the
Issuer (the "CERTIFICATES"). This opinion (this "OPINION") is delivered in
connection with the closing of the offering for the Notes registered on Form
S-1 (Registration No. 333-20147) and Form S-3 (Registration No. 333-20147-01
and 333-20147-02), as amended (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, relating to the Notes.
You have asked for our opinion under the United States Federal income tax
laws and the Employee Retirement Income Security Act of 1974, as amended
("ERISA") as to the characterization of the Notes, and whether the Deposit
Trust or the Issuer will be characterized as an association (or publicly-traded
partnership) taxable as a corporation. Based upon our review of the Reviewed
Documents (defined herein) and certain assumptions and representations of the
parties to this transaction described in this Opinion and for the reasons
hereinafter set forth, it is our opinion (i) that the Notes will be
characterized as indebtedness for Federal income tax purposes, (ii) that
neither the Deposit Trust nor the Issuer will be characterized as an
association taxable as a corporation, or as a publicly-traded partnership
taxable as a corporation, for Federal income tax purposes, and (iii) that the
Notes will be classified as indebtedness without substantial equity features
for purposes of ERISA.
<PAGE> 2
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 2
This Opinion is for the benefit of and may be relied upon by (a) Lehman
Brothers, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan
Securities Inc. and Bear, Stearns & Co. Inc. as underwriters and their counsel,
Brown & Wood LLP, in connection with respective transactions contemplated by
the Underwriting Agreement for the sale of the Notes, (b) Moody's Investors
Service, Inc., Standard & Poor's Ratings Group, Duff & Phelps Credit Rating
Co., and Fitch Investors Service, Inc., in connection with the rating of the
Notes, (c) Texas Commerce Bank National Association, in its respective capacity
as Trustee for the Deposit Trust (the "DEPOSIT TRUSTEE"), (d) The Chase
Manhattan Bank Delaware in its respective capacity as Trustee for the Issuer
(the "OWNER TRUSTEE"), and (e) The Bank of New York as Trustee under the Trust
Indenture for the Notes (the "INDENTURE TRUSTEE" and the "INDENTURE"
respectively), (f) our clients named above, and (g) prospective investors in
and purchasers of the Notes. (The persons listed in the foregoing sentence are
hereinafter referred collectively as the "RELIANCE PARTIES"). This Opinion may
not be relied upon by, nor may copies be filed with or delivered to, any other
person or used for any other purpose without our prior written consent.
Capitalized terms for which meanings are provided in the Indenture, unless
otherwise defined herein, are used herein with such meanings. The opinions
expressed herein are based solely upon and limited to the United States Federal
income tax laws, and the laws under ERISA. We do not express any opinion
herein concerning any other law.
DOCUMENTS REVIEWED; INVESTIGATION; ASSUMPTIONS
In connection with this Opinion, we have examined the Registration
Statement of the Issuer and the exhibits thereto, as such exhibits have been
finalized (the "REVIEWED DOCUMENTS"). These include, in particular, the
following documents:
a) The Trust Agreement (the "TRUST AGREEMENT") between
the Seller and the Owner Trustee;
b) The Indenture;
c) The Administration Agreement among the Seller, the
Servicer and the Owner Trustee;
d) The Pooling and Servicing Agreement (the "POOLING AND
SERVICING AGREEMENT") dated as of September 1, 1995, among
the Seller, the Servicer and the Deposit Trustee, including
exhibits thereto;
<PAGE> 3
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 3
e) The Series 1997-1 Supplement, pursuant to which a
participation interest in consumer receivables and
participation interests (the "SERIES 1997-1 PARTICIPATION")
will be issued to the Seller for conveyance to the Issuer;
and
f) The Receivables Purchase Agreement dated as of
September 1, 1995, between the Seller as purchaser and
various subsidiaries of the Servicer for the purchase of
consumer loan receivables by the Seller.
In our examination of the Reviewed Documents, we have assumed the genuineness
of all documents submitted to us as originals, the conformity to originals of
all documents submitted to us as copies and the authenticity of the originals
from which any such copies were made, none of which assumptions have we
independently confirmed.
In our examination, we have further assumed, without independent
investigation, the following:
a) The due execution and delivery of the Reviewed
Documents by the parties thereto;
b) The full legal power and authority of the parties
thereto to execute, deliver and perform their obligations
under the Reviewed Documents;
c) The fulfillment of and material compliance by the
parties thereto with all the terms and conditions of the
Reviewed Documents, the accuracy of all representations and
warranties contained therein, and the binding effect and
enforceability of the Reviewed Documents against the parties
thereto;
d) That the conduct of the parties to the Reviewed
Documents with respect to the transactions contemplated
thereby complies with any requirement of good faith, fair
dealing, and conscionability, and that there will not be any
mutual mistake of fact or misunderstanding, fraud, duress, or
undue influence that would serve as a basis for
non-performance of any of the terms and conditions of the
Reviewed Documents.
We are also relying upon certain representations of the officers of the
Servicer and the Seller, as referred to herein.
<PAGE> 4
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 4
This Opinion is expressly subject to there being no material change in the
law after the date of this Opinion, and assumes without further investigation
that all assumptions and facts set forth herein are and remain true and valid.
However, with respect to the assumptions we have made herein, nothing has come
to our attention which conflicts with such assumptions. This Opinion is given
as of the date hereof, and we expressly disclaim any obligation to update this
Opinion or to give notice to any Reliance Party of any future change in facts
or law that might affect the opinions set forth herein. Captions used in this
Opinion are for convenience only, and should not be regarded as having any
independent meaning.
1. CHARACTERIZATION OF THE NOTES. The question of whether a financial
instrument qualifies as "indebtedness" for Federal income tax purposes is
determined under relevant case law, rather than by any statute or regulations.
The multitude of cases addressing this issue rely on numerous and varying
factors in reaching their conclusions, many of which are subjective in nature,
and no case or ruling addresses the income tax consequences of a transaction on
the precise facts of the issuance of the Notes. However, we have arrived at
our conclusion that the Notes will be treated as "indebtedness" for Federal
income tax purposes based upon an application of the factors commonly used in
this analysis, as follows:
(a) The Form of the Instrument. The Notes are in the
form of debt instruments, administered under a
collateral trust indenture having an independent
institutional trustee. The Notes constitute a written
unconditional promise to pay on a specified date a sum
certain in money in return for an adequate
consideration in money.
(b) Fixed Maturity Date. The Notes have a fixed
maturity date of approximately 10 years from issuance,
within the range of commonly found forms of
indebtedness.
(c) Fixed Interest Rate. The Notes bear interest at a
stated, fixed rate, reset periodically based upon
changes in an objective index, and the calculation of
interest due will not be contingent upon the income or
profits of the Issuer.
(d) Relative Assurance of Repayment. Upon issuance,
the Notes must be rated AAA for the Class A-1 Notes,
AA for the Class A-2 Notes, and A for the Class A-3
Notes or their equivalent by two or more of the Rating
Agencies. The Notes are secured upon issuance
<PAGE> 5
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 5
by a first perfected security interest in the Series
1997-1 Participation, the principal amount of which
exceeds the Security Balance of the Notes by the
amount of (i) the Security Balances of the Class B
Notes and the Certificates, and (ii) the
Overcollateralization Amount, and the Pass-Through
Rate of which exceeds the weighted average interest
rate of the Notes. By the terms of the Indenture,
principal payments are to be made on the Notes in
proportion to reductions in the principal balance of
the Series 1997-1 Participation Invested Amount, with
certain additional payments, so that the Notes remain
fully secured at all times.
(e) Remedies to Enforce Payment of Principal and
Interest. Pursuant to the Indenture, Noteholders will
have the right to exercise remedies in the event of a
default in the payment of principal and interest in a
full and timely manner, which remedies are typical of
the remedies afforded to secured lenders. We expect
the Indenture Trustee and the Noteholders would
exercise such remedies, and there is nothing to
indicate they would not. Similarly, the Issuer and
the Certificateholders should expect that if the debt
to the Noteholders is not repaid in accordance with
its terms, such remedies will be exercised against the
Issuer and its assets.
(f) Convertibility. The Notes are not convertible
into Certificates of the Issuer or other forms of
equity in the Issuer.
(g) Participation in Management. Noteholders will
acquire no right to participate in management of the
Issuer as a result of purchasing Notes, absent
default. As stated above, the default remedies in the
Notes are customary.
(h) Relative Seniority of the Notes. The Notes will
be senior debt of the Issuer (the Notes being
subordinated only inter se), and are in fact expected
to be the only debt of the Issuer other the Class B
Notes issued pursuant to the Indenture and the
Issuer's obligations to service providers and certain
governmental fees and assessments.
<PAGE> 6
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 6
(i) Intent of the Parties. By the terms of the Indenture,
the Issuer, the Indenture Trustee and the Noteholders
each agree to treat the Notes as indebtedness for
Federal, state and local income and franchise tax
purposes.
(j) Commonality of Lenders and Owners. The Notes will
not be paired with the Certificates, and are being
sold in a separate offering. There will be no
necessary relationship between the Class A Noteholders
and the Certificateholders or the Seller. Because of
differences in interest indicies and certain
accelerated principal payments on the Notes, there is
not precise matching, as a contractual matter, of the
payment terms on the Issuer's assets and the terms of
the Notes.
(k) Adequate Capitalization of the Issuer. The Notes
are senior in right of payment to the Certificates and
the Holdback. The Certificates themselves are similar
to securities issued in prior offerings related to the
Deposit Trust, credit rated by the Rating Agencies,
and sold to investors unrelated to the Seller.
(l) Ability to Borrow from Third Parties. The
Issuer's activities are restricted by the terms of the
Trust Agreement, and forbid its borrowing other than
through issuing the Notes and the Class B Notes. The
purchase of the Notes by third parties pursuant to the
offering by the Underwriter is indicative of the Notes
qualifying as debt.
See R.A. Hardman, 87-2 USTC Paragraph 9523, 827 F.2d 1409 (9th Cir. 1987)
(applying factors to purchase note between shareholder and corporation); Fin
Hay Realty Co. v. U.S., 68-2 USTC Paragraph 9438, 398 F.2d 694 (3rd Cir.
1968)(applying factors to shareholder loans to corporation); Nassau Lens Co. v.
CIR, 62-2 USTC Paragraph 9723, 308 F.2d 39 (2d Cir. 1962)(discussing relative
importance of subjective intent and objective standards in related-party
transaction); Willis L. Wright, 63 TCM 1965 (1992)(parties must have good faith
intent to act as borrower and lender); RACAL Electronics, Inc., 60 TCM 756
(1990)(applying factors to intercompany loan). See generally Mertens Law of
Federal Income Taxation, Section 26.16 (Clark Boardman Callaghan); Plumb, "The
Federal Income Tax Significance of Corporate Debt: A Critical Analysis and a
Proposal", 26 Tax Law Review 369 (1972).
<PAGE> 7
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 7
The IRS has announced its intent to scrutinize financial instruments
designed as debt for Federal income tax purposes, but as equity for regulatory,
rating agency or financial accounting purposes, to see if their purported debt
status for tax purposes is appropriate. Such instruments include those having
a variety of equity features, including an unreasonably long maturity or an
inability to repay the instrument's principal with the Issuer's equity. Notice
94-47, I.R.B. 1994-19, 9. The President's most recent budget proposal contains
legislation that would recharacterize instruments purporting to be debt as
equity. The Notes have none of the characteristics described in the Notice or
the President's proposal. It should be noted that under Section 385 of the
Internal Revenue Code (the "CODE"), the Treasury is authorized to prescribe
such regulations as may be necessary or appropriate to determine whether an
interest in a corporation is to be treated for purposes of the Code as stock or
indebtedness, or as part stock and part indebtedness. Such regulations were
proposed in 1980 and withdrawn in 1983. While those regulations, as proposed,
did not squarely address the treatment of noncorporate asset-backed securities
such as the Notes, and gave the IRS substantial discretion in their
application, it is our belief the Notes would have qualified as indebtedness
for Federal income tax purposes under the principles of those regulations.
However, there can be no assurance that in the future, the Treasury will not
issue regulations under Code Section 385, or issue other rulings, which call
into question the income tax characterization of the Notes. If the Notes were
recharacterized as equity, such could have the result of causing the Issuer to
be treated as a "publicly-traded partnership", with the consequences described
below.
2. CHARACTERIZATION OF THE DEPOSIT TRUST AND THE ISSUER. In form, the
Deposit Trust is a common-law trust, and the Issuer is organized as a trust
under the Delaware Business Trust Statute. However, an arrangement for the
conveyance to trustees of legal title to property for the benefit of
beneficiaries will not be classified as trusts for purposes of the Code if they
are more than arrangements simply to protect or conserve the property for the
beneficiaries. Trusts created by or on behalf of the beneficiaries simply as a
device to carry on a profit-making business which normally would have been
carried on through business organizations classified as corporations or
partnerships will not qualify as trusts under the Code if the organization more
nearly resembles an association or a partnership rather than a trust. In
particular, an investment trust will not be classified as a trust if there is a
power under the trust agreement to vary the investment of the
certificateholders. Treas. Regs. Section 301.7701-4(b), (c). We have been
asked to opine as to whether either the Deposit Trust or the Issuer would be
characterized as an association taxable as a corporation.
New regulations have been issued by the Treasury Department effective
January 1, 1997, which provide that any entity not otherwise treated as a trust
for Federal income tax purposes,
<PAGE> 8
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 8
formed without being incorporated or referred to as a corporation or body
corporate under an applicable state or Federal statute, and otherwise not
falling within certain categories inapplicable here, will not be taxable as a
corporation unless it so elects. The Seller has represented to us no election
will be made to have the Deposit Trust or the Issuer treated as a taxable
corporation. Under these terms and conditions, and based upon our conclusions
under the following sections 3 and 4, it is our opinion that neither the
Deposit Trust nor the Issuer will be an association taxable as a corporation,
because (i) it is formed as a noncorporate entity, (ii) it will not elect to be
taxed as a corporation, and (iii) it will not be taxable as a corporation under
other provisions of the Code. See Treas. Regs. Section 301.7701-2(b), -3(a),
(b).
3. PUBLICLY-TRADED PARTNERSHIPS. We have been asked to opine as to
whether the Deposit Trust or the Issuer would be deemed a "publicly-traded
partnership" taxable as a corporation under Code Section 7704. It is our
opinion, based upon the assumptions and caveats set forth herein, that neither
the Deposit Trust nor the Issuer will be a publicly-traded partnership taxable
as a corporation for such purposes. In this respect, we note that in 1988, the
IRS issued guidelines for determining when it would refrain from characterizing
a partnership as being "publicly-traded". These guidelines, set forth in
Notice 88-75, are incorporated within the restrictions on the transfer of
interests in the Deposit Trust.
Notice 88-75 merely provides a "safe harbor", compliance with which
assures a partnership that it will not be challenged by the IRS as being
"publicly-traded". Noncompliance with such guidelines does not mean that the
partnership will be successfully characterized as publicly-traded, only that
the IRS need not refrain from challenging its status as such. Near the end of
1995, the Treasury promulgated regulations under Section 7704 which supersede
Notice 88-75 with respect to the Issuer immediately, and with respect to the
Deposit Trust after 2005. Both the Pooling and Servicing Agreement and the
Trust Agreement include restrictions on transferability of interests and
Certificates, respectively, that meet the applicable guidelines and
regulations. These agreements further empower the Seller to impose such
additional restrictions as may be required by subsequent changes in law,
judicial rulings or administrative pronouncements, to avoid having the Deposit
Trust and the Issuer treated as a publicly-traded partnership.
The Issuer's ability to avoid being characterized as a publicly-traded
partnership depends upon the Notes being characterized as indebtedness for
Federal income tax purposes, in that no restrictions are being placed on the
transferability of the Notes or the Class B Notes for this purpose. If either
class of Notes was characterized as an equity interest in the Issuer, and the
<PAGE> 9
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 9
Issuer qualified as a partnership for Federal income tax purposes, then there
would be nothing to prevent the Issuer from being characterized as a
publicly-traded partnership.
Even if the Deposit Trust or the Issuer were characterized as a
publicly-traded partnership, it could avoid being taxed as a corporation if its
income met certain tests and it was not otherwise considered to have derived
such income "in the conduct of a financial business." It is possible the
Deposit Trust or the Issuer could meet this test, but no assurance can be given
in this regard, due to a lack of applicable authority interpreting the meaning
of "financial business" for purposes of Code Section 7704.
4. TAXABLE MORTGAGE POOL RULES. When asset-backed securities (such as the
Notes) are issued in two or more classes by any entity substantially all of
whose assets consist of direct and indirect interests in debt obligations (such
as the Issuer), the entity will be classified as a "taxable mortgage pool"
under the rules of Code Section 7701(i) if, among other factors, more than 50%
of the debt obligations it holds at the time of issuance of the asset-backed
securities (a "testing date") consist of loans secured by interests in real
estate. A taxable mortgage pool is taxable as a corporation which may not be
included within a consolidated return. The Seller has represented that upon
the Closing Date, and upon any modification of the Class B Notes, no more than
45% of the Receivables by aggregate Balance will be secured by interests in
real estate. Based upon such representation and our review of the Pooling and
Servicing Agreement, it is our opinion that the Issuer is not a "taxable
mortgage pool" as of that "testing date". We express no opinion concerning the
effect of new issuances of asset-backed securities by the Deposit Trust or the
Issuer. We note, however, that to avoid having the Issuer or the Deposit Trust
classified as a taxable mortgage pool in the future, the Pooling and Servicing
Agreement prohibits the Seller from acquiring Principal Receivables secured by
liens on real estate if such acquisition would cause such Principal Receivables
to amount to 45% or more of the cost of all Principal Receivables held by the
Deposit Trust, and to obtain an opinion of counsel prior to the issuance of any
new Series Participation Interests or Investor Certificates that such action
will not cause the Deposit Trust, the Issuer, or any portion of either to be a
taxable mortgage pool.
5. ERISA OPINION. You have asked our opinion as to the treatment of the
Notes under United States Department of Labor ("Labor") regulations concerning
the definition of what constitutes the assets of an employee benefit plan
subject to ERISA or plans or arrangements subject to Code Section 4975 (a
"PLAN") and the prohibited transaction provisions governing Plans (the "PLAN
ASSETS REGULATION") codified in 29 C.F.R. 2510.3-101. The Plan Assets
Regulation provides that, if a Plan acquires an "equity interest" in an entity
that is neither a "publicly-offered security" (as defined therein) nor a
security issued by an investment company registered under the
<PAGE> 10
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Household Finance Corporation
Household Consumer Loan Corporation
February 28, 1997
Page 10
Investment Company Act of 1940, the assets of the entity will be treated as
assets of the Plan and thus as "Plan Assets" unless certain exceptions apply.
Under the Plan Assets Regulation, the term "equity interest" is defined as any
interest in an entity other than an instrument that is treated as indebtedness
under "applicable local law" and which has no "substantial equity features."
Labor Regs. Section 2510.3-101(b)(1). Although the Plan Assets Regulation is
silent with respect to the question of what law constitutes "applicable local
law" for this purpose, Labor has stated that these determinations should be
made under the state law governing interpretation of the instrument in
question. Preamble to the Plan Assets Regulation, 51 FR 41262 (Nov. 13, 1986),
III.B.(1). We assume for these purposes that the applicable local law will be
the laws of the State of New York, as provided in the Indenture. In the
preamble to the Plan Assets Regulation, Labor declined to provide a precise
definition to what features are equity features or the circumstances under
which such features would be considered "substantial", noting that the question
of whether a Plan's interest has substantial equity features is an inherently
factual one, but that in making a determination it would be appropriate to take
into account whether the equity features are such that a Plan's investment
would be a practical vehicle for the indirect provision of investment
management services. Id., at III.B.(2). Based upon our review of the Reviewed
Documents, the credit ratings which will be assigned to the Notes, the
collateral securing the Notes, our opinion as to the treatment of the Notes for
Federal income tax purposes, and the plain language of the Plan Assets
Regulation, it is our opinion that the Notes will be classified as indebtedness
under the applicable local law without substantial equity features for ERISA
purposes. Please be aware that this opinion is not binding upon Labor and if,
contrary to this opinion, the Notes are not deemed to be indebtedness without
substantial equity features and no statutory, regulatory or administrative
exemption applies, the Issuer could be considered to hold Plan Assets by reason
of a Plan's investment in the Notes.
6. PROSPECTUS DISCUSSION. We have reviewed the discussion in the section
of the Prospectus forming a part of the Registration Statement (the
"Prospectus") entitled "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES", and
it is our opinion that the contents thereof are materially correct as to
matters of law. In rendering this opinion, we have relied upon representations
of officers of Household Finance Corporation as to matters of fact.
Very truly yours,
KATTEN MUCHIN & ZAVIS
<PAGE> 1
EXHIBIT 10.3
================================================================================
HOUSEHOLD CONSUMER LOAN CORPORATION,
Seller,
HOUSEHOLD FINANCE CORPORATION,
Servicer,
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
Deposit Trustee
----------------------------------------
FORM OF
SUPPLEMENT FOR SERIES 1997-1
Dated as of March 1, 1997
to the
POOLING AND SERVICING AGREEMENT
Dated as of September 1, 1995
----------------------------------------
HOUSEHOLD CONSUMER LOAN DEPOSIT TRUST I
Series 1997-1
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
SECTION 1. Designation and Covenant to Exclude
Participation Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Covenant to Exclude Participation Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3. Servicing Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4. Article IV of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.07. Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.08. Determination of Monthly Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.09. Determination of Monthly Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.10. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.11. Application of Investor Finance Charge and
Administrative Collections on Deposit in
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.12. Investor Charge-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.13. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6. Statements to Series 1997-1 Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7. Additional Amortization Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8. Optional Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 9. Sale of Series 1997-1 Participants' Interest
pursuant to Section 2.06 or 10.01 of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 10. Distributions pursuant to Section 8 or 9 of
this Series Supplement and Section 2.06,
10.01 or 12.02(c) of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 11. Distribution of Proceeds of Sale, Disposition
or Liquidation of Receivables pursuant to
Section 9.02 of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 12. Rating Agency Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 13. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 14. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 15. Delivery of Series 1997-1 Participation Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 16. Ratification of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 17. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 18. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 19. Forms of Certificates and Monthly Servicer's
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 20. Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
EXHIBITS
Exhibit A-1 Series 1997-1 Participation Interest
Exhibit B Monthly Servicing Report
Exhibit C Investment Letter
</TABLE>
ii
<PAGE> 4
SERIES 1997-1 SUPPLEMENT, dated as of March 1, 1997 (this "Series
Supplement"), by and among Household Consumer Loan Corporation, a Nevada
corporation, as seller (the "Seller"), Household Finance Corporation, a
Delaware corporation, as servicer (the "Servicer"), and Texas Commerce Bank
National Association, a national banking association, as successor trustee to
The Chase Manhattan Bank, N.A. (together with successors in trust thereunder as
provided in the Pooling and Servicing Agreement referred to below, the "Deposit
Trustee"), under the Pooling and Servicing Agreement, by and among the Seller,
the Servicer and the Deposit Trustee dated as of September 1, 1995.
RECITALS
Section 6.03 of the Agreement provides, among other things, that the
Seller and the Deposit 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 Deposit Trustee to the Seller for execution and redelivery to the Deposit
Trustee for authentication one or more Series of Series Participation
Interests. The Seller has tendered the notice of issuance required by Section
6.03(b)(i) of the Agreement and hereby enters into this Series Supplement with
the Servicer and the Deposit Trustee as required by such Section 6.03 to
provide for the issuance, authentication and delivery of the Series
Participation Interest, Series 1997-1 (the "Series 1997-1 Participation
Interest") 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 and Covenant to Exclude Participation Interests.
Section 1.01 Designation. The Series 1997-1 Participation
Interest shall be deemed to be a "Series Participation Interest" for
all purposes under the Agreement and this Series Supplement.
Notwithstanding any provision to the contrary in the Agreement or in
this Series Supplement, the first Distribution Date with respect to
Series 1997-1 shall be April 14, 1997.
Section 1.02 Covenant to Exclude Participation Interests.
Notwithstanding any provisions to the contrary in the Agreement, for
so long as the Series 1997-1 Participation Interest is outstanding,
each of the Seller and the Servicer covenants and agrees not to enter
into a Participation Interest Agreement, and the Trust shall not
acquire or hold any interest in a Participation Interest. The
entering into of any such Participation Interest
1
<PAGE> 5
Agreement in violation of this Section 1.02 will be deemed to have an
"Adverse Effect".
SECTION 2. Definitions.
(a) Whenever used in this Series Supplement and when used in the
Agreement with respect to the Series 1997-1 Participation Interest, 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.
"Accelerated Amortization Date" shall mean February 28, 2002.
"Additional Balances" shall mean, with respect to any Credit
Line, amounts drawn under such Credit Line subsequent to the date such
Credit Line is designated to the Deposit Trust.
"Additional Interest" shall have the meaning set forth in
Section 4.08(a) hereof.
"Adverse Effect" shall have the meaning assigned to such term
in the Pooling and Servicing Agreement as supplemented by the Section
1.02 hereof.
"Agreement" shall mean, for purposes of this Series
Supplement, the Pooling and Servicing Agreement, dated as of September
1, 1995, as such agreement may be amended from time to time, by and
among the Seller, the Servicer and the Deposit Trustee (without regard
to this Series Supplement or supplements for other Series).
"Amortization Event" shall mean any of the events enumerated
in Section 9.01 of the Agreement or in Section 7 of this Series
Supplement.
"Available Investor Principal Collections" shall mean, with
respect to any Distribution Date, the sum of (a) Investor Principal
Collections, (b) the Series 1997-1 Participation Interest Net Default
Payment Amount, and (c) the portion paid by the Seller pursuant to
Section 9 hereof that is included in clause (i) of the definition of
Reassignment Amount.
"Calculation Date" shall mean the first day of the Interest
Period.
"Closing Date" shall mean March ___, 1997.
2
<PAGE> 6
"Distribution Date" shall mean, with respect to Series 1997-1,
the 14th day of each calendar month, or if such day is not a Business
Day, the next preceding Business Day, provided that the first
Distribution Date shall be April 14, 1997.
"Due Period" shall mean, with respect to the first Due Period,
the period from March 1, 1997 through March 31, 1997, and thereinafter
the meaning specified in the Agreement.
"Early Amortization Period" shall mean the period commencing
with an Amortization Event pursuant to Section 7 hereof (after giving
effect to any grace periods) and terminating upon termination of the
Trust pursuant to Section 12.01 of the Agreement.
"Eligible Investments" shall mean, with respect to funds
allocable to the Series 1997-1 Participation Interest in the
Collection 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+ by Standard & Poor's, P-1 by Moody's, F-1 by Fitch (if rated by
Fitch) and D-1 by Duff & Phelps (if rated by Duff & Phelps).
"Eligible Institution" shall mean 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 by Standard and Poor's or Aaa
by Moody's, respectively, or short-term unsecured debt ratings of at
least A-1+ by Standard and Poor's and P-1 by Moody's, respectively,
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
each Rating Agency in one of its generic credit rating categories
which signifies investment grade.
"Final Scheduled Payment Date" shall mean the Payment Date in
__________ 20___.
"Fixed Allocation Percentage" shall mean, with respect to any
Distribution Date, the percentage equivalent of a fraction, the
numerator of which is the Series 1997-1 Participation Interest
Invested Amount as of the last day immediately preceding the
commencement of an Early Amortization Period that is continuing or
preceding the Accelerated Amortization Date, as applicable and the
denominator of which is the greater of (x) the aggregate Principal
Receivables as of the first day of the related Due Period
3
<PAGE> 7
and the then outstanding amount of any Participation Interests in the
Deposit Trust as of the first day of the related Due Period and (y) the
sum of the numerators used to calculate the Allocation Percentage for
allocations with respect to Principal Receivables or Finance Charge and
Administrative Receivables, as applicable, for all outstanding Series
for such Distribution Date; provided, however, that, with
respect to the first Due Period, the Fixed Allocation Percentage shall
mean the percentage equivalent of a fraction, the numerator of which is
the Series 1997-1 Participation Interest Initial Invested Amount and
the denominator of which is the total amount of Principal Receivables
in the Deposit Trust as of the Closing Date; provided, further , that,
with respect to any Due Period in which Aggregate Additional Credit
Lines or Participation Interest are added to the Trust or a removal of
Credit Lines pursuant to Section 2.10 of the Agreement occurs, the
amount of Principal Receivables and Participation Interests referred to
in clause (x) above shall be the average amount of Principal
Receivables and Participation Interests in the Deposit Trust on each
Business Day during such Due Period based upon the assumptions that (1)
the aggregate amount of Principal Receivables in the Deposit Trust at
the end of the day on the last day of the prior Due Period is the
aggregate amount of Principal Receivables and Participation Interests
in the Deposit Trust on each Business Day of the period from and
including the first day of such Due Period to but excluding the related
Addition Date or Removal Date and (2) the aggregate amount of Principal
Receivables in the Deposit Trust at the end of the day on the related
Addition Date or Removal Date is the aggregate amount of Principal
Receivables and Participation Interests in the Deposit Trust on each
Business Day of the period from and including the related Addition Date
or Removal Date to and including the last day of such Due Period.
"Floating Allocation Percentage" shall mean with respect to
any Distribution Date the percentage equivalent of a fraction, the
numerator of which is the Series 1997-1 Participation Interest
Invested Amount as of the last day of the related Due Period and the
denominator of which is the greater of (x) the aggregate Principal
Receivables as of the first day of the related Due Period and the then
outstanding amount of any Participation Interests in the Deposit Trust
as of the first day of the related Due Period and (y) the sum of the
numerators used to calculate the Allocation Percentage for allocations
with respect to Principal Receivables, Default Amounts, or Finance
Charge and Administrative Receivables, as applicable, for all
outstanding Series for such Distribution Date; provided, however,
that, with respect to the first Due Period, the Floating Allocation
Percentage shall mean the percentage
4
<PAGE> 8
equivalent of a fraction, the numerator of which is the Series 1997-1
Participation Interest Initial Invested Amount and the denominator of
which is the total amount of Principal Receivables in the Deposit
Trust as of the Closing Date; provided, further, that, with respect
to any Due Period in which Aggregate Additional Credit Lines or
Participation Interest are added to the Trust or a removal of Credit
Lines pursuant to Section 2.10 of the Agreement occurs, the amount of
Principal Receivables and Participation Interests referred to in clause
(x) above shall be the average amount of Principal Receivables and
Participation Interests in the Deposit Trust on each Business Day
during such Due Period based upon the assumptions that (1) the
aggregate amount of Principal Receivables in the Deposit Trust at the
end of the day on the last day of the prior Due Period is the aggregate
amount of Principal Receivables and Participation Interests in the
Deposit Trust on each Business Day of the period from and including the
first day of such Due Period to but excluding the related Addition Date
or Removal Date and (2) the aggregate amount of Principal Receivables
in the Deposit Trust at the end of the day on the related Addition Date
or Removal Date is the aggregate amount of Principal Receivables and
Participation Interests in the Deposit Trust on each Business Day of
the period from and including the related Addition Date or Removal Date
to and including the last day of such Due Period.
"HCLC" shall mean Household Consumer Loan Corporation, a
Nevada corporation.
"Indenture" shall mean the indenture dated as of March 1, 1997
between the Issuer, as debtor, and The Bank of New York, as Indenture
Trustee, as may be amended from time to time.
"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 Closing Date) to but
excluding such Distribution Date.
"Invested Amount" as defined in the Agreement shall mean the
Series 1997-1 Participation Interest Invested Amount as defined
herein.
"Investor Finance Charge and Administrative Collections" shall
mean with respect to any Distribution Date an amount equal to the sum
of (a) (i) if such Distribution Date is not during an Early
Amortization Period, the product of (x) the Floating Allocation
Percentage for the related Due Period and (y) Finance Charge
5
<PAGE> 9
and Administrative Collections during the related Due Period and (ii)
if such Distribution Date is during an Early Amortization Period the
product of (x) the Fixed Allocation Percentage for the related Due
Period and (y) Finance Charge and Administrative Collections during
the related Due Period and (b) the portion paid by the Seller pursuant
to Section 9 hereof that is included in clauses (ii) and (iii) of the
definition of Reassignment Amount.
"Investor Principal Collections" shall mean, with respect to
any Due Period prior to the Accelerated Amortization Date and not
during an Early Amortization Period, the Floating Allocation
Percentage of Net Principal Collections for the related Due Period (or
any partial Due Period which occurs as the first Due Period during the
Early Amortization Period); provided that if Net Principal Collections
for such Due Period is less than the Minimum Principal Amount, then
Investor Principal Collections shall mean the Minimum Principal
Amount. On and after the Accelerated Amortization Date and during an
Early Amortization Period, Investor Principal Collections shall mean
the Fixed Allocation Percentage of Collections in respect of Principal
Receivables for the related Due Period.
"Issuer" shall mean the Household Consumer Loan Trust 1997-1,
a Delaware business trust, or its successor in interest.
"Minimum Principal Amount" shall mean, with respect to any
Distribution Date, the lesser of (a) the Floating Allocation
Percentage of Principal Collections for such Distribution Date and (b)
the amount by which _____% of the Series 1997-1 Participation Interest
Invested Amount exceeds the Series 1997-1 Participation Interest Net
Default Payment Amount for such Distribution Date to the extent of the
amount of Investor Finance Charge and Administrative Collections
treated as principal pursuant to Section 4.11(a)(iii) for such
Distribution Date.
"Net Principal Collections" shall mean, with respect to any
Due Period prior to the Accelerated Amortization Date and not during
an Early Amortization Period, Collections in respect of Principal
Receivables during the related Due Period reduced by Additional
Balances created during such Due 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 unpaid principal balance of the Series 1997-1 Participation
Interest, plus (ii) accrued and unpaid interest on the unpaid
principal balance of the Series 1997-1 Series Participation Interest
6
<PAGE> 10
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 the
Series 1997-1 Participants, as applicable, on a prior Distribution
Date.
"Overcollateralization Amount" shall have the meaning set
forth in the Indenture.
"Performance Amortization Event" shall mean any of an
Additional Amortization Event pursuant to Section 7(a), (b) or (d)
hereof.
"Prime" shall mean the rate set forth in H.15(519) opposite
the caption "Bank Prime Loan" for such day; provided, however, that
the Prime Rate with respect to any day which in the period beginning
on the Calculation Date through and including the calendar day first
preceding a Distribution Date, shall be the rate as described above in
effect on such Calculation Date. The Prime Rate is also available on
Telerate, currently at page 125. If any discrepancy arises between
Telerate and the printed version of H.15 (519), the printed version of
H.15 (519) will take precedence.
If, by the Calculation Date, the Prime Rate is not yet published in
H.15 (519), then the Prime Rate will be determined by calculating the
arithmetic mean of the rates of interest publicly announced by each
bank named on Telerate under the heading "Prime Rate Top 30 U.S.
Banks," currently at page 38, as such bank's U.S. dollar prime rate or
base lending rate as in effect on such day at 3:30 p.m. (New York
City time). If fewer than four such rates appear on Telerate for such
Reset Date, then the Prime Rate shall be the arithmetic mean of the
rate of interest publicly announced by three major banks in New York
City, selected by the Servicer, as their U.S. dollar prime rate or base
lending rate as in effect for such day.
"Rating Agency" shall mean Duff & Phelps, Fitch, Moody's, and
Standard & Poor's.
"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 unpaid principal balance of the Series 1997-1 Participation
Interest on such Distribution Date, plus (ii) amounts accrued and
unpaid at the Series 1997-1 Participation Interest Pass-Through Rate on
the unpaid principal balance of the Series 1997-1 Participation
Interest through the day preceding such Distribution Date, plus (iii)
the amount of Additional Interest, if any, for
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<PAGE> 11
such Distribution Date and any Additional Interest previously due but
not distributed to the Series 1997-1 Participants on a prior
Distribution Date.
"Required Seller Amount" shall mean an amount equal to 1.01%
of the Series 1997-1 Participation Interest Invested Amount.
"Securities" shall have the meaning assigned to such term in
the Indenture.
"Security Balance" shall have the meaning assigned to such
term in the Indenture.
"Series Cut-Off Date" shall mean the close of business on
February 28, 1997.
"Series 1997-1 Participant" shall mean the Issuer.
"Series 1997-1 Participants' Interest" shall mean 100% of the
interest evidenced by the Series 1997-1 Participation Interest.
"Series 1997-1 Participation Interest" shall be a Series
Participation Interest for the purposes of the Agreement and shall
mean the Series Participation Interest executed by the Seller and
authenticated by or on behalf of the Deposit Trustee, substantially
in the form of Exhibit A-1.
"Series 1997-1 Participation Interest Charge-Offs" shall have
the meaning specified in Section 4.12(a) hereof.
"Series 1997-1 Participation Interest Default Amount" shall
mean, with respect to each Distribution Date, an amount equal to the
product of the Defaulted Amount for the related Due Period and the
Floating Allocation Percentage for such Distribution Date.
"Series 1997-1 Participation Interest Initial Invested Amount"
shall mean the initial principal amount represented by the Series
1997-1 Participation Interest on the Issuance Date, which amount is
$________________.
"Series 1997-1 Participation Interest Interest Shortfall"
shall have the meaning specified in Section 4.08(a) hereof.
"Series 1997-1 Participation Interest Invested Amount" shall
mean, when used with respect to any date, an amount equal to (a) the
Series 1997-1 Participation Interest Initial Invested Amount, minus
(b) the amount of principal payments made to the Series 1997-1 Series
Participants prior
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<PAGE> 12
to and including such date, minus (c) the excess, if any, of the
aggregate amount of Series 1997-1 Participation Interest Charge-Offs
over Series 1997-1 Participation Interest Charge-Offs reimbursed
pursuant to Section 4.12(a) hereof prior to and including such date.
"Series 1997-1 Participation Interest Monthly Interest" shall
mean the monthly interest distributable in respect of the Series
1997-1 Participation Interest as calculated in accordance with Section
4.08(a) hereof.
"Series 1997-1 Participation Interest Monthly Principal" shall
mean the monthly principal distributable in respect of the Series
1997-1 Participation Interest as calculated in accordance with Section
4.09(a) hereof.
"Series 1997-1 Participation Interest Net Default Payment
Amount" shall mean with respect to any Distribution Date the Series
1997-1 Participation Interest Default Amount for such Distribution
Date to the extent of the amount of Investor Finance Charge and
Administrative Collections treated as principal pursuant to clauses
(iii) and (iv) of Section 4.11(a) for such Distribution Date.
"Series 1997-1 Participation Interest Pass-Through Rate" shall
mean as to each Interest Period the Prime Rate minus 1.50%; provided
that the Series 1997-1 Participation Interest Pass-Through Rate for any
Interest Period shall not be less than the sum of (i) a per annum rate
which will result in an amount of Series 1997-1 Monthly Interest for
such Interest Period which will be sufficient to pay the amount of
interest due on the Notes and to make a full distribution on the Trust
Certificates in respect of the Certificate Rate on the related Payment
Date and (ii) ____% per annum of the Series 1997-1 Participation
Interest Invested Amount for Distribution Dates occurring prior to
April 1998 and ____% per annum of the Series 1997-1 Participation
Interest Invested Amount for Distribution Dates occurring in April 1998
and thereafter.
"Series 1997-1 Participation Interest Pool Factor" shall mean,
with respect to any Record Date, a number carried out to eight
decimals representing the ratio of the Series 1997-1 Participation
Interest Invested Amount as of such Record Date (determined after
taking into account any increases or decreases in the Series 1997-1
Participation Interest Invested Amount which will occur on the
following Distribution Date) to the Series 1997-1 Participation
Interest Initial Invested Amount.
"Series 1997-1 Servicing Fee" shall have the meaning specified
in Section 3 hereof.
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<PAGE> 13
"Series 1997-1 Termination Date" shall mean the earlier of the
date the Securities are paid in full and the date the Deposit Trust is
terminated pursuant to Section 12.01 of the Agreement.
"Servicing Fee Rate" shall mean 2% per annum.
"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 Section 12.02(c) of the Agreement with respect to Series 1997-1.
"Trust Agreement" shall mean the trust agreement dated as of
March 1, 1997 between HCLC, as Seller and holder of the Designated
Certificate, and Chase Manhattan Bank Delaware, as Owner Trustee.
"Trust Certificates" shall mean the certificates, issued
pursuant to the Trust Agreement.
(b) All capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to them in the Agreement.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Series Supplement shall refer to this Series
Supplement as a whole and not to any particular provision of this Series
Supplement; references herein to any Article, Section or Exhibit are references
to Articles, Sections and Exhibits in or to this Series Supplement unless
otherwise specified; and the term "including" means "including without
limitation".
(d) The following defined terms used herein are used with the
meanings assigned thereto in the Trust Agreement or the Indenture, as
applicable: "Notes", "Note Rate", "Security Balance", "Owner Trustee",
"Overcollateralization Amount", "Initial Overcollateralization Percentage",
"Indenture Trustee".
SECTION 3. Servicing Compensation.
The monthly servicing fee (the "Series 1997-1 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 first Distribution
Date on which the Series 1997-1 Series Participation Interest Invested Amount
is zero, in an amount equal to 1/12th of, or with respect to the first Due
Period, 4/360th of the product of (i) the Servicing Fee
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<PAGE> 14
Rate and (ii) the Series 1997-1 Invested Amount on the last day of the related
Due Period or with respect to the first Due Period, the Closing Date.
SECTION 4. Article IV of Agreement.
Sections 4.01 through 4.06 of the Agreement shall be read in their
entirety as provided in the Agreement. Article IV of the Agreement (except for
Sections 4.01 through 4.06 thereof) shall, with respect to the Series 1997-1
Participation Interest, be read in its entirety as follows:
ARTICLE IV
RIGHTS OF SERIES 1997-1 PARTICIPANTS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.07. Allocations. Collections of Finance Charge and
Administrative Receivables, Principal Receivables and Defaulted
Receivables allocated to the Series 1997-1 Participation Interest
pursuant to Article IV of the Agreement shall be allocated and
distributed as set forth in this Article.
Section 4.08. Determination of Monthly Interest.
(a) The amount of collections of Finance Charge and
Administrative Receivables distributable from the Collection Account
with respect to the Series 1997-1 Participation Interest on any
Distribution Date shall be an amount equal to the product of (i) the
Series 1997- 1 Participation Interest Pass-Through Rate and (ii) the
unpaid principal balance of the Series 1997-1 Participation Interest on
the first day of the related Interest Period determined on the basis of
the actual number of days in such Interest Period and a 360-day year
("Series 1997-1 Participation Interest Monthly Interest").
On the Determination Date preceding each Distribution Date,
the Servicer shall determine an amount (the "Series 1997-1
Participation Interest Interest Shortfall") equal to the sum of (a)
(x) the Series 1997-1 Participation Interest Monthly Interest for the
Interest Period applicable to such Distribution Date minus (y) the
amount of collections of Finance Charge and Administrative Receivables
which will be on deposit in the Collection Account and allocable to
the Series 1997-1 Participation Interest on such Distribution Date and
(b) the sum of the amounts calculated pursuant to clause (a) on each
preceding Distribution Date. If the Series 1997-1 Participation
Interest Interest Shortfall with respect to any Distribution Date is
greater than zero, on each subsequent Distribution Date until such
Series 1997-1 Participation Interest Interest Shortfall is fully paid,
pursuant to Section 4.11(a), an additional amount
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<PAGE> 15
("Additional Interest") shall be payable as provided herein with
respect to the Series 1997-1 Participation Interest Monthly Interest
on each Distribution Date following such Distribution Date, excluding
the Distribution Date on which the Series 1997-1 Participation
Interest Interest Shortfall is paid to the Series 1997-1 Participants
equal to the product of (i) the Series 1997-1 Participation Interest
Pass-Through Rate and (ii) such Series 1997-1 Participation Interest
Interest Shortfall (or the portion thereof which has not been paid to
the Series 1997-1 Participants) determined on the basis of the actual
number of days in the related Interest Period and a 360-day year.
Notwithstanding anything to the contrary herein, Additional Interest
shall be payable or distributed to the Series 1997-1 Participants.
Section 4.09. Determination of Monthly Principal. (a) The
amount of monthly principal ("Series 1997-1 Participation Interest
Monthly Principal") distributable from the Collection Account with
respect to the Series 1997-1 Participation Interest shall be an amount
equal to the Available Investor Principal Collections on deposit in
the Collection Account with respect to such Distribution Date.
Section 4.10. [RESERVED]
Section 4.11. Application of Investor Finance Charge and
Administrative Collections on Deposit in Collection Account. With
respect to the Series 1997-1 Participation Interest, prior to 12:00
noon, New York City time, on each Distribution Date, the Servicer
shall provide written directions to the Deposit Trustee to apply
Investor Finance Charge and Administrative Collections on deposit in
the Collection Account with respect to such Distribution Date in the
following manner:
(a) An amount equal to Investor Finance Charge and
Administrative Collections with respect to such Distribution Date plus
any other funds available to the Deposit Trust for application
pursuant to this clause will be distributed in the following priority:
(i) if HFC is not the Servicer under this
Agreement, an amount equal to the Series 1997-1 Servicing Fee
for such date (to the extent such amount has not been netted
from deposits made in the related Due Period) plus any unpaid
Series 1997-1 Servicing Fee (but only with respect to the then
current Servicer) shall be paid to the Servicer.
(ii) an amount equal to the Series 1997-1
Participation Interest Monthly Interest for such Distribution
Date, plus the amount of any Series 1997-1
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<PAGE> 16
Participation Interest Interest Shortfall, plus the amount of
any Additional Interest for such Distribution Date;
(iii) an amount equal to the Series 1997-1 Participation
Interest Default Amount for such Distribution Date shall be
treated as a portion of Available Investor Principal
Collections for such Distribution Date;
(iv) an amount equal to the aggregate amount of
the Series 1997-1 Participation Interest Charge-Offs which
have not been previously reimbursed shall be treated as a
portion of Available Investor Principal Collections with
respect to such Distribution Date.
(v) so long as HFC is the Servicer under the
Agreement, an amount equal to the Series 1997-1 Servicing Fee
for such date (to the extent such amount has not been netted
from deposits to cover losses in the related Due Period) plus
any previously unpaid Series 1997-1 Servicing Fee (but only
with respect to the then current Servicer) shall be paid to
the Servicer; and
(vi) the balance, if any, shall be paid to the Seller
with respect to the HCLC Seller Participation Interest and the
Designated HCLC Seller Participation Interest, pro rata.
Section 4.12. Investor Charge-Offs. (a) If on any
Distribution Date, the amount to be distributed on the Series 1997-1
Participation Interest pursuant to Section 4.11(a)(iii) exceeds the
amount of Investor Finance Charge and Administrative Collections for
the related Due Period (net of any portion thereof to be paid pursuant
to Section 4.11(a)(i) and (ii)), then the Series 1997-1 Participation
Interest Invested Amount shall be reduced by the amount of such excess
("Series 1997-1 Participation Interest Charge-Offs"), but not more
than the Series 1997-1 Participation Interest Default Amount for such
Distribution Date.
(b) Notwithstanding any other provision of this Series
Supplement, the Series 1997-1 Participation Interest Invested Amount
shall never be reduced below zero.
Section 4.13. [RESERVED]
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<PAGE> 17
SECTION 5. Distributions.
(a) On each Distribution Date, the Paying Agent shall distribute
to each Series 1997-1 Participant 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 Series 1997-1 Participant's pro rata
share (based on the aggregate fractional undivided interests represented by the
Series 1997-1 Participation Interest held by such Series 1997-1 Participant) of
the amounts on deposit in the Collection Account pursuant to Section
4.11(a)(ii).
(b) On each Distribution Date, the Paying Agent shall distribute
to each Series 1997-1 Participant 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 Series 1997-1 Participant's pro rata
share (based on the aggregate fractional undivided interests represented by the
Series 1997-1 Participation Interest held by such Series 1997-1 Participant) of
the amounts on deposit in the Collection Account with respect to Available
Investor Principal Collections.
(c) Except as provided in Section 12.02 of the Agreement with
respect to a final distribution, distributions to each Series 1997-1
Participant hereunder shall be made in immediately available funds by wire
transfer to the account designated by such Series 1997-1 Participant.
SECTION 6. Statements to Series 1997-1 Participants.
(a) On each Distribution Date, the Paying Agent, on behalf of the
Deposit Trustee, shall forward to each Series 1997-1 Participant a statement
substantially in the form of Exhibit B prepared by the Servicer setting forth
certain information relating to the Deposit Trust and the Series 1997-1
Participation Interest.
(b) On or before January 31 of each calendar year, beginning
January 31, 1997, the Paying Agent, on behalf of the Deposit Trustee, shall
furnish or cause to be furnished to each Person who at any time during the
preceding calendar year was a Series 1997-1 Participant, a statement prepared
by the Servicer containing the information which is required to be contained in
the statement to the Series 1997-1 Participants, as set forth in subsection (a)
above, aggregated for such preceding calendar year or the applicable portion
thereof (the initial statement shall cover the period beginning on the Closing
Date and ending on December 31, 1997) during which such Person was a Series
1997-1 Participant, together with such other customary information as is
necessary to enable the Series 1997-1 Participants 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
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pursuant to any requirements of the Internal Revenue Code, as from time to time
in effect.
(c) The form of the Monthly Servicer's Report set forth as
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 Deposit Trustee 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 Deposit Trustee, Exhibit
B, as so changed, shall for all purposes of this Agreement constitute Exhibit
B. The Deposit 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 under the Agreement within five Business Days after the date
such payment or deposit is required to be made or (ii) to observe or perform in
any material respect any other covenants or agreements of the Seller set forth
in the Agreement, which failure has a material adverse effect on the Series
1997-1 Participation Interest and which continues unremedied for a period of 60
days after written notice;
(b) any representation or warranty made by the Seller in the
Agreement proves to have been incorrect in any material respect when made, as a
result of which the interests of holders of interest in the Deposit Trust are
materially and adversely affected, and which continues to be incorrect in any
material respect and continues to materially and adversely affect the interests
of holders of interest in the Deposit Trust for a period of 60 days after
written notice; provided, however, that an Amortization Event shall not be
deemed to occur if the Seller has repurchased the related Receivables, during
such period (or within an additional 60 days with the consent of the Deposit
Trustee) in accordance with the provisions of the Agreement;
(c) the Deposit Trust or the Issuer becomes subject to regulation
by the Commission as an investment company within the meaning of the Investment
Company Act of 1940, as amended;
(d) a Servicer Default shall occur which has a material adverse
effect on the Series 1997-1 Participants;
(e) the average, for any three consecutive Payment Dates (after
making all distributions on such Payment Dates), of the percentage equivalent
of (i) the Overcollateralization Amount divided by (ii) the unpaid principal
balance of the Series 1997-1 Participation Interest, is less than _____%; and
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(f) the Seller's Trust Amount owned by HCLC is reduced below the
Aggregate Required Seller Amount,
then, in the case of any event described in (a), (b) or (d), an
Amortization Event will be deemed to have occurred only if, after any
applicable grace period described in such clauses, either the Deposit Trustee
or holders of Series Participation Interests evidencing more than 50% of the
unpaid principal balance of the Series 1997-1 Participation Interest, by
written notice to the Seller and the Servicer (and to the Deposit Trustee, if
given by the Series 1997-1 Participants) declare that an Amortization Event has
occurred as of the date of such notice. In the case of any event described in
clauses (c), (e) or (f), an Amortization Event will be deemed to have occurred
and an Early Amortization Period will occur without any notice or other action
on the part of the Deposit Trustee or the Series 1997-1 Participants
immediately upon the occurrence of such event.
SECTION 8. Optional Repurchase.
On the Distribution Date occurring on or after the date on which the
aggregate of the Security Balances is reduced to $_______________ (10% of the
aggregate of the Security Balances on the Closing Date) or less, the Seller
shall have the option to purchase the Series 1997-1 Participants' Interest at a
purchase price equal to the Optional Repurchase Amount. The Seller shall give
the Servicer, the Rating Agency and the Deposit Trustee at least 10 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 Series 1997-1 Participants' Interest pursuant to Section
2.06 or 10.01 of Agreement.
(a) The amount to be paid by the Seller with respect to the Series
1997-1 Participants' Interest in connection with a repurchase of the Series
1997-1 Participants' Interest pursuant to Section 2.06 of the Agreement shall
equal the Reassignment Amount for the first Distribution Date following the Due
Period in which the reassignment obligation arises under the Agreement.
(b) The amount to be paid by the Seller with respect to Series
1997-1 Participants' Interest in connection with a repurchase of the Series
1997-1 Participant's 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 excess, if any, of (I) a price equivalent to the average
of bids quoted on the Record Date preceding the date of
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repurchase or, if not a Business Day, on the next succeeding Business Day by at
least two recognized dealers selected by the Deposit 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 Series 1997-1 Participation
Interest with a remaining maturity approximately equal to the remaining
maturity of the Series 1997-1 Participation Interest over (II) the portion of
the Reassignment Amount attributable to the Series 1997-1 Participation
Interest.
SECTION 10. Distributions pursuant to Section 8 or 9 of this Series Supplement
and Section 2.06, 10.01 or 12.02(c) of 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 Deposit 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: the Series 1997-1 Participation Interest Invested Amount on
such date and the amount of accrued and unpaid interest on the unpaid balance
of the Series 1997-1 Participation Interest, plus the amount of the Series
1997-1 Participation Interest Additional Interest previously due but not paid
on any prior Distribution Date, for distribution to the Series 1997-1
Participants.
(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 Sections 9(a) or (b) and 10(a) hereof and all
other amounts on deposit therein for distribution to the Series 1997-1
Participants shall be distributed in full to the Series 1997-1 Participants 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
Receivables pursuant to Section 9.02 of 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
received, such proceeds shall be deposited into the Collection Account pursuant
to Section 9.02(b) of the Agreement.
(b) [RESERVED]
(c) Notwithstanding anything to the contrary in this Series
Supplement or the Agreement, the entire amount deposited in the
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<PAGE> 21
Collection Account pursuant to this Section 11 and all other amounts on deposit
therein for distribution for the Series 1997-1 Participants shall be
distributed in full to the Series 1997-1 Participants 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. Rating Agency Notice.
In the event a Tax Opinion is delivered pursuant to Section
2.09(e)(vi) of the Agreement and the Series 1997-1 Participation Interest is
outstanding, such opinion shall be also delivered to Moody's.
SECTION 13. [RESERVED]
SECTION 14. [RESERVED]
SECTION 15. Delivery of Series 1997-1 Participation Interest.
The Deposit Trustee shall deliver the Series 1997-1 Participation
Interest to the Seller when authenticated in accordance with Section 6.02 of
the Agreement.
SECTION 16. Ratification of Agreement.
As supplemented by this Series Supplement, the Agreement is in all
respects ratified and confirmed and the Agreement, as so supplemented by this
Series Supplement shall be read, taken and construed as one and the same
instrument.
SECTION 17. Counterparts.
This Series 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 18. Governing Law.
THIS SERIES 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 PREFERENCE TO ITS CONFLICT OF LAW
PROVISIONS.
SECTION 19. Forms of Certificates and Monthly Servicer's Certificate.
The Series 1997-1 Participation Interest and Monthly Servicer's
Certificate with respect to Series 1997-1 shall be in
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<PAGE> 22
substantially the respective forms attached hereto as Exhibits A-1 and B,
respectively.
SECTION 20. Transfer Restrictions.
Registration of transfer of any Series 1997-1 Participation Interest
containing the legend set forth on the Series 1997-1 Participation Interest
attached hereto as Exhibit A-1 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 Series 1997-1 Participation Interest, a Series 1997-1 Participant
shall be deemed to have represented and warranted that it is not a Benefit Plan
and is not purchasing a Series 1997-1 Participation Interest on behalf of a
Benefit Plan. By acquiring any interest in a Book-Entry Certificate
representing a Series 1997-1 Participation Interest, a Certificate Owner shall
be deemed to have represented and warranted that it is not a Benefit Plan and
is not purchasing a Series 1997-1 Participation Interest on behalf of a Benefit
Plan.
No transfer of a Series 1997-1 Participation Interest shall be made
unless a Tax Opinion is delivered and such transfer is exempt from the
registration requirements of the Securities Act of 1933, as amended, and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, (i) unless such transfer is made in
reliance upon Rule 144A under the 1933 Act, the Deposit Trustee or the Seller
may require a written Opinion of Counsel (which may be in-house counsel)
acceptable to and in form and substance reasonably satisfactory to the Deposit
Trustee and the Seller that such transfer may be made pursuant to an exemption,
describing the applicable exemption and the basis therefor, from said Act and
laws or is being made pursuant to said Act and laws, which Opinion of Counsel
shall not be an expense of the Deposit Trustee or the Seller and (ii) the
Deposit Trustee shall require the transferee to execute an investment letter
(in substantially the form attached hereto as Exhibit C) acceptable to and in
form and substance reasonably satisfactory to the Seller and the Deposit
Trustee certifying to the Seller and the Deposit Trustee the facts surrounding
such transfer, which investment letter shall not be an expense of the Deposit
Trustee or the Seller. A Series 1997-1 Participant desiring to effect such
transfer shall, and does hereby agree to indemnify the Deposit Trustee and the
Seller against any liability that may result if the transfer is not so exempt
or is not made in accordance with such federal and state laws.
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IN WITNESS WHEREOF, the Seller, the Servicer and the Deposit
Trustee have caused this Series Supplement to be fully executed by their
respective officers as of the day and year first above written.
HOUSEHOLD CONSUMER LOAN
CORPORATION, as Seller
By:_____________________________________
Name:
Title:
HOUSEHOLD FINANCE CORPORATION,
as Servicer
By:_____________________________________
Name:
Title:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Deposit Trustee
By:_____________________________________
Name:
Title:
<PAGE> 24
EXHIBIT A-1
FORM OF SERIES 1997-1 PARTICIPATION INTEREST
THIS SERIES 1997-1 PARTICIPATION INTEREST HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NEITHER THIS SERIES 1997-1
PARTICIPATION INTEREST NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT IN
COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.
THIS SERIES 1997-1 PARTICIPATION INTEREST IS NOT PERMITTED TO BE
TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN
COMPLIANCE WITH THE TERMS OF THE POOLING AND SERVICING AGREEMENT AND THE SERIES
1997-1 SUPPLEMENT THERETO, BOTH REFERRED TO HEREIN.
No. R-__ One Unit
HOUSEHOLD CONSUMER LOAN DEPOSIT TRUST I
SERIES 1997-1 PARTICIPATION INTEREST
THIS CERTIFICATE REPRESENTS AN INTEREST
IN CERTAIN ASSETS OF
HOUSEHOLD CONSUMER LOAN DEPOSIT TRUST I
Evidencing an interest in a trust, the corpus of which consists primarily of
participation interests and receivables generated from time to time in the
ordinary course of business in a portfolio of credit lines provided by
Household Consumer Loan Corporation.
(Not an interest in or obligation of Household Consumer Loan
Corporation or any affiliate thereof)
This certifies that _______________, is the registered owner of a
fractional interest in the assets of a trust (the "Trust") pursuant to the
Pooling and Servicing Agreement dated as of September 1, 1995 (the
"Agreement"), by and among Household Consumer Loan Corporation, as seller (the
"Seller"), Household Finance Corporation, as servicer (the "Servicer"), and
Texas Commerce Bank National Association, the successor to The Chase Manhattan
Bank, N.A., as deposit trustee (the "Trustee"), as supplemented by the
Supplement for Series 1997-1 dated as of March 1, 1997 (the "Supplement"), by
and among the Seller, the Servicer and the Trustee. The corpus of the Trust
consists of (a) receivables originated under certain fixed and variable rate
revolving unsecured consumer credit lines (the "Credit Lines")
<PAGE> 25
and (b) certain other participation interests, certain amounts payable with
respect thereto, and certain monies constituting Recoveries allocated to the
Trust pursuant to the Agreement and any Supplement. Although a summary of
certain provisions of the Agreement and the Supplement is set forth below, this
Series 1997-1 Participation Interest does not purport to summarize the
Agreement or the Supplement and reference is made to the Agreement and the
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 Supplement may be
requested from the Trustee by writing to the Trustee at the Corporate Trust
Office. To the extent not defined herein, the capitalized terms used herein
have the meanings ascribed to them in the Agreement or the Supplement, as
applicable.
This Series 1997-1 Participation Interest is issued under and is
subject to the terms, provisions and conditions of the Agreement and the
Supplement, to which the holder of this Series 1997-1 Participation Interest by
virtue of the acceptance hereof assents and is bound.
The Receivables consist of amounts payable by obligors on the Credit
Lines from time to time, including amounts payable for Principal Receivables
and Finance Charge and Administrative Receivables.
This Certificate is the Series 1997-1 Participation Interest which
represents an interest in certain assets of the Trust, which includes the right
to receive a portion of the Collections and other amounts at the times and in
the amounts specified in the Agreement and Supplement. The aggregate interest
represented by the Series 1997-1 Participation Interest at any time in the
Receivables in the Trust shall not exceed the Series 1997-1 Participation
Interest Invested Amount at such time. In addition to the Series 1997-1
Participation Interest, (i) Investor Certificates and additional Series
Participation Interests may be issued to investors pursuant to the Agreement,
which will represent the Certificateholders' Interest and (ii) Supplemental
Seller Participation Interests may be issued pursuant to the Agreement, which
will represent that portion of the Seller's Interest not allocated to the
Seller.
In general, this Series 1997-1 Participation Interest is entitled to
receive distributions in respect of the collections of the Trust in accordance
with the terms of the Agreement and Supplement on the 14th day of each calendar
month or if such day is not a business day then on the next preceding business
day, commencing in April 1997.
A-1-2
<PAGE> 26
Unless the certificate of authentication hereon has been executed by
or on behalf of the Trustee, by manual or facsimile signature, this Series
1997-1 Participation Interest shall not be entitled to any benefit under the
Agreement or the Supplement, or be valid for any purpose.
IN WITNESS WHEREOF, the Seller has caused this Series 1997-1
Participation Interest to be duly executed.
HOUSEHOLD CONSUMER LOAN CORPORATION
By:______________________________
Name:
Title:
Dated: March ___, 1997
TRUSTEE'S CERTIFICATE OF AUTHORIZATION
This is one of the Series 1997-1 Participation Interests
described in the within-mentioned
Pooling and Servicing Agreement and Supplement.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee
By:______________________________
Authorized Signatory
A-1-3
<PAGE> 27
HOUSEHOLD CONSUMER LOAN DEPOSIT TRUST I
SERIES 1997-1 PARTICIPATION INTEREST
Summary of Terms and Conditions
The Series 1997-1 Participation Interest constitutes an undivided
beneficial interest in the Receivables held in the Trust. The holder of the
Series 1997-1 Participation Interest shares on the basis of a specified
percentage of the principal balance of the Receivables and the principal
portion of any Participation Interest held as assets of the Trust. The Series
1997-1 Participation Interest initially represents a principal balance of
$_______________. Thereafter, the Series 1997-1 Participation Interest
Invested Amount with respect to any date will be an amount equal to the Series
1997-1 Participation Interest Initial Invested Amount minus the sum of the
Series 1997-1 Participation Interest Principal Distribution Amount paid for all
Distribution Dates and the Defaulted Amounts allocated to the Series 1997-1
Participation Interest during the related and all prior Due Periods that have
not been included in the Series 1997-1 Participation Interest Principal
Distribution Amount on the current or any prior Distribution Date.
On each Distribution Date, the Paying Agent shall distribute to each
Series 1997-1 Participant 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 Series 1997-1 Participant's pro rata share (based on
the aggregate fractional undivided interests represented by Series 1997-1
Participation Interests held by such Series 1997-1 Participant) of the amounts
on deposit in the Collection Account pursuant to the Agreement and the
Supplement.
Except as provided in the Agreement with respect to a final
distribution, distributions to Series Participants shall be made in immediately
available funds by wire transfer to the account designated by such Series
1997-1 Participant.
The Seller shall have the option to purchase the Series 1997-1
Participation Interest at a purchase price equal to the Optional Repurchase
Amount in accordance with the provisions of Section 8 of the Supplement. 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
the Agreement and Supplement.
This Series 1997-1 Participation Interest 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 any other governmental agency
or instrumentality. This Series 1997-1 Participation Interest is limited in
right of payment to certain collections representing the Receivables and any
A-1-4
<PAGE> 28
Participation Interests (and certain other amounts) all as more specifically
set forth herein above and in the Agreement and the Supplement.
The Agreement and the Supplement may be amended by the Seller, the
Servicer and the Trustee, without the consent of the Series 1997-1
Participants. 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 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 and the Series Participants of all
adversely 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 Agreement or any Supplement or of modifying in any manner the
rights of Investor Certificateholders or Series Participants; provided,
however, that no such amendment shall (a) reduce in any manner the amount of,
or delay the timing of, distributions to Investor Certificateholders or holder
of any Series Participation Interest without the consent of each such Holder,
(b)(i) change the definition of or the manner of calculating the interest of
any Investor Certificateholder or Series Participant without the consent of
each affected Investor Certificateholder or Series Participant or (ii) reduce
the aforesaid percentage required to consent to any such amendment, in either
case without the consent of each Investor Certificateholder or Series
Participant. Any such amendment and any such consent by the holder of the
Series 1997-1 Participants shall be conclusive and binding on such Series
1997-1 Participants and upon all future holders of this Series 1997-1
Participation Interest and of any Series 1997-1 Participation Interest issued
in exchange hereof or in lieu hereof whether or not notation thereof is made
upon this Series 1997-1 Participation Interest.
As set forth in Section 6.05 of the Agreement, the transfer of this
Series 1997-1 Participation Interest shall be registered in the Certificate
Register upon surrender of this Series 1997-1 Participation Interest 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 Series 1997-1 Participant or such Series 1997-1 Participant's attorney,
and duly authorized in writing with such signature guaranteed, and thereupon
one or more new Series 1997-1 Participation Interests of authorized
denominations and for the same aggregate Fractional Undivided Interest will be
issued to the designated transferee or transferees.
A-1-5
<PAGE> 29
As provided in the Agreement and subject to certain limitations
therein set forth, the Series 1997-1 Participation Interests are exchangeable
for new Series 1997-1 Participation Interests evidencing like aggregate
fractional undivided interests as requested by the holder surrendering such
Series 1997-1 Participation Interest. 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 Series 1997-1 Participation Interest 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 SERIES 1997-1 PARTICIPATION INTEREST SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
A-1-6
<PAGE> 30
ASSIGNMENT
Social Security or other identifying number of assignee
________________________________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ____________________________________
________________________________________________________________________________
(name and address of assignee)
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints __________________ attorney, to transfer said
certificate on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:_______________
(1) A Non-U.S. Person as Note: The signature(s)
defined in the Internal to this Assign-
Revenue Code of 1986, as ment must corre-
amended, must certify to pond with the
the Trustee in writing name(s) as writ-
as to its Non-U.S. ten on the face
Person status and such of the within
further information as certificate in
may be required under every particular
the Code or reasonably without altera-
requested by the tion or enlarge-
Trustee. ment or any
change whatsoever.
A-1-7
<PAGE> 31
EXHIBIT B
FORM OF MONTHLY SERVICER'S CERTIFICATE
(To be delivered pursuant to Section 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 CONSUMER LOAN CORPORATION
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
Consumer Loan Asset Backed Notes, Series 1997-1,
Class A-1, Class A-2, Class A-3 and Class B
___________________
The undersigned, a duly authorized representative of Household Finance
Corporation, as servicer (the "Servicer"), pursuant to the Pooling and
Servicing Agreement dated as of September 1, 1995 (the "Pooling and Servicing
Agreement") by and among Household Consumer Loan Corporation, as seller (the
"Seller"), the Servicer, and Texas Commerce Bank National Association, the
successor to The Chase Manhattan Bank, N.A., as deposit trustee (the "Deposit
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. Deposit Trust Information.
<TABLE>
<S> <C> <C>
(a) Total Pool Balance of the Receivables for the Due Period preceding
such Distribution Date was equal to . . . . . . . . . . . . . . . . . . . . . . . . $
-------
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C>
(b) Amount of Sub-total Unsecured Consumer Loans for the Due Period
preceding such Distribution Date was equal to . . . . . . . . . . . . . . . . . . . $
-------
(c) Amount of Sub-total Personal Homeowner Lines for the Due Period
preceding such Distribution Date was equal to . . . . . . . . . . . . . . . . . . . . $
-------
(d) Amount of Series 1997-1 Principal Collections for the preceding Due
Period is . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
-------
(e) Amount of Series 1997-1 Finance Charge and Administrative Collections
as of the last day of the immediately preceding Due Period is . . . . . . . . . . . $
-------
(f) Amount of Additional Balances for such Distribution Date is . . . . . . . . . . . . . $
-------
(g) Amount of New Credit Lines is . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
-------
(h) Amount of Additional Credit Lines is . . . . . . . . . . . . . . . . . . . . . . . . $
-------
(i) Amount of Removed Credit Lines is . . . . . . . . . . . . . . . . . . . . . . . . . $
-------
(j) Defaulted Amount is . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
-------
(k) Amount of Repurchased Credit Lines pursuant to Section 2.10 of the
Agreement is . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
-------
(l) Applicable allocation percentages for principal and interest for such
Distribution Date are . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
-------
%
-------
(m) Series 1997-1 Participation Interest Distribution Amount is . . . . . . . . . . . . . $
-------
(n) Accelerated Principal Distribution Amount is . . . . . . . . . . . . . . . . . . . . $
-------
(o) Series 1997-1 Participation Interest Principal Distribution Amount is . . . . . . . . $
-------
(p) Net Charge-Off Amounts (monthly and cumulative) are . . . . . . . . . . . . . . . . . $
-------
$
-------
</TABLE>
B-2
<PAGE> 33
<TABLE>
<S> <C> <C>
(q) Reversals (monthly and cumulative) are . . . . . . . . . . . . . . . . . . . . . . . $
-------
$
-------
(r) Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
-------
</TABLE>
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Certificate this ____ day of _________, 199_.
HOUSEHOLD FINANCE CORPORATION,
as Servicer
By:_________________________________
Name:
Title:
B-3
<PAGE> 34
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
The undersigned seller, as registered holder (the "Seller"), intends
to transfer the Rule 144A Securities described above to the undersigned buyer
(the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner,
or made any general solicitation by means of general advertising or in any
other manner, or taken any other action, that would constitute a distribution
of the Rule 144A Securities under the Securities Act of 1933, as amended (the
"1933 Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant
thereto, and that the Seller has not offered the Rule 144A Securities to any
person other than the Buyer or another "qualified institutional buyer" as
defined in Rule 144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with, the
Deposit Trustee, and the Seller (as defined in the Pooling and Servicing
Agreement (the "Agreement") dated as of September 1, 1995 among Household
Consumer Loan Corporation, as Seller and as Holder of the Designated
Certificate, and Texas Commerce Bank National Association, the successor to The
Chase Manhattan Bank, N.A., as Deposit Trustee) as follows:
a. The Buyer understands that the Rule 144A Securities
have not been registered under the 1933 Act or the securities laws of
any state.
<PAGE> 35
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller and the Deposit Trustee or the Servicer.
d. Neither the Buyer nor anyone acting on its behalf has
offered, transferred, pledged, sold or otherwise disposed of the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner,
or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of
the 1933 Act or require registration pursuant thereto, nor will it
act, nor has it authorized or will it authorize any person to act, in
such manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may
be resold, pledged or transferred only (i) to a person reasonably
believed to be a qualified institutional buyer that purchases for its
own account or for the account of a qualified institutional buyer to
whom notice is given that the resale, pledge or transfer is being made
in reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with, the
Seller, the Deposit Trustee, Servicer and the Seller that either (1) the Buyer
is (A) not an employee benefit plan (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), or a
plan (within the meaning of Section 4975(e)(1) of the Internal Revenue Code of
1986 ("Code")), which (in either case) is subject to ERISA or Section 4975 of
the Code (both a "Plan"), and (B) is not directly or indirectly purchasing the
Rule 144A Securities on
C-2
<PAGE> 36
behalf of, as investment manager of, as named fiduciary of, as trustee of, or
with "plan assets" of a Plan, or (2) the Buyer understands that registration of
transfer of any Rule 144A Securities to any Plan, or to any Person acting on
behalf of any Plan, will not be made unless such Plan delivers an opinion of
its counsel, addressed and satisfactory to the Certificate Registrar and the
Seller, to the effect that the purchase and holding of the Rule 144A Securities
by, on behalf of or with "plan assets" of any Plan would not constitute or
result in a prohibited transaction under Section 406 of ERISA or Section 4975
of the Code, and would not subject the Seller, the Servicer, the Indenture
Trustee or the Issuer to any obligation or liability (including liabilities
under ERISA or Section 4975 of the Code) in addition to those undertaken in the
Agreement or any other liability.]
4. The Buyer has otherwise complied with any conditions for
transfer set forth in the Trust Agreement, and (h), either (i) is a "C
Corporation" under the Internal Revenue Code of 1986, as amended, or (ii) has
provided such disclosure concerning our status for federal income tax purposes
and the status and economic interest of our beneficial owners, as the Issuer or
its representatives have reasonably requested to determine that the Buyer's
acquisition of the Certificates will not subject the Issuer to an entity level
tax.
5. This document may be executed in one or more counterparts and
by the different parties hereto on separate counterparts, each of which, when
so executed, shall be deemed to be an original; such counterparts, together,
shall constitute one and the same document.
IN WITNESS WHEREOF, each of the parties has executed this document as
of the date set forth below.
________________________________ __________________________________
Print Name of Seller Print Name of Buyer
By:_____________________________ By:_______________________________
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No._____________________________ No._______________________________
Date:___________________________ Date:_____________________________
C-3
<PAGE> 37
ANNEX 1 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the
Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or
invested on a discretionary basis $______________________(1) in securities
(except for the excluded securities referred to below) as of the end of the
Buyer's most recent fiscal year (such amount being calculated in accordance
with Rule 144A) and (ii) the Buyer satisfies the criteria in the category
marked below.
___ Corporation, etc. The Buyer is a corporation (other than a
bank, savings and loan association or similar institution),
Massachusetts or similar business trust, partnership, or
charitable organization described in Section 501(c)(3) of the
Internal Revenue Code.
___ Bank. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the
District of Columbia, the business of which is substantially
confined to banking and is supervised by the State or
territorial banking commission or similar official or is a
foreign bank or equivalent institution, and (b) has an audited
net worth of at least $25,000,000 as demonstrated in its
latest annual financial statements, a copy of which is
attached hereto.
____________________
(1) Buyer must own and/or invest on a discretionary basis at least
$100,000,000 in securities unless Buyer is a dealer, and, in that case, Buyer
must own and/or invest on a discretionary basis at least $10,000,000 in
securities.
C-1-1
<PAGE> 38
___ Savings and Loan. The Buyer (a) is a savings and loan
association, building and loan association, cooperative bank,
homestead association or similar institution, which is
supervised and examined by a State or Federal authority having
supervision over any such institutions or is a foreign savings
and loan association or equivalent institution and (b) has an
audited net worth of at least $25,000,000 as demonstrated in
its latest annual financial statements.
___ Broker-Dealer. The Buyer is a dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
___ Insurance Company. The Buyer is an insurance company whose
primary and predominant business activity is the writing of
insurance or the reinsuring of risks underwritten by insurance
companies and which is subject to supervision by the insurance
commissioner or a similar official or agency of a State or
territory or the District of Columbia.
___ State or Local Plan. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees.
___ ERISA Plan. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security
Act of 1974.
___ Investment Adviser. The Buyer is an investment adviser
registered under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of
1958.
___ Business Development Company. The Buyer is a business
development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
___ Trust Fund. The Buyer is a trust fund whose trustee is a bank
or trust company and whose participants are exclusively (a)
plans established and maintained by a State, its political
subdivisions, or any agency or instrumentality of the State or
its political subdivisions, for the benefit of its employees,
or (b) employee benefit plans within the meaning of Title I of
the Employee Retirement Income Security Act of
C-1-2
<PAGE> 39
1974, but is not a trust fund that includes as participants
individual retirement accounts or H.R. 10 plans.
3. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer
is a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is
a majority-owned, consolidated subsidiary of another enterprise and the Buyer
is not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer
for the account of a third party (including any separate account) in reliance
on Rule 144A, the Buyer will only purchase for the account of a third party
that at the time is a "qualified institutional buyer" within the meaning of
Rule 144A. In addition, the Buyer agrees that the Buyer will not purchase
securities for a third party unless the Buyer has obtained a current
representation letter from such third party or taken other appropriate steps
contemplated by Rule 144A to conclude that such third party independently meets
the definition of "qualified institutional buyer" set forth in Rule 144A.
C-1-3
<PAGE> 40
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date of such
purchase.
8. The Buyer has otherwise complied with any conditions for
transfer set forth in the Trust Agreement, and, either (i) is a "C Corporation"
under the Internal Revenue Code of 1986, as amended, or (ii) has provided such
disclosure concerning our status for federal income tax purposes and the status
and economic interest of our beneficial owners, as the Issuer or its
representatives have reasonably requested to determine that the Buyer's
acquisition of the Certificates will not subject the Issuer to an entity level
tax.
________________________________________
Print Name of Buyer
By:_____________________________________
Name:
Title:
Date:___________________________________
C-1-4
<PAGE> 41
ANNEX 2 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the
Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such
securities was used.
____ The Buyer owned $___________________ in securities (other than
the excluded securities referred to below) as of the end of
the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which
owned in the aggregate $______________ in securities (other
than the excluded securities referred to below) as of the end
of the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
3. The term "Family of Investment Companies" as used
herein means two or more registered investment companies (or series thereof)
that have the same investment adviser or investment advisers that are
affiliated (by virtue of being majority owned subsidiaries of the same parent
or because one investment adviser is a majority owned subsidiary of the other).
C-2-1
<PAGE> 42
4. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and
certificates of deposit, (iii) loan participations, (iv) repurchase agreements,
(v) securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that each
of the parties to which this certification is made are relying and will
continue to rely on the statements made herein because one or more sales to the
Buyer will be in reliance on Rule 144A. In addition, the Buyer will only
purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice, the Buyer's purchase of Rule 144A Securities will constitute
a reaffirmation of this certification by the undersigned as of the date of such
purchase.
7. The Buyer has otherwise complied with any conditions for
transfer set forth in the Trust Agreement, and (h), either (i) is a "C
Corporation" under the Internal Revenue Code of 1986, as amended, or (ii) has
provided such disclosure concerning our status for federal income tax purposes
and the status and economic interest of our beneficial owners, as the Issuer or
its representatives have reasonably requested to determine that the Buyer's
acquisition of the Certificates will not subject the Issuer to an entity level
tax.
____________________________________
Print Name of Buyer
By:________________________________
Name:___________________________
Title:__________________________
IF AN ADVISER:
___________________________________
Print Name of Buyer
Date:_______________________________
C-2-2
<PAGE> 1
EXHIBIT 10.4
[FORM OF ADMINISTRATION AGREEMENT]
This ADMINISTRATION AGREEMENT dated as of March 1, 1997 (as
amended from time to time, this "Agreement"), among HOUSEHOLD CONSUMER LOAN
CORPORATION, a Nevada corporation ("HCLC"), HOUSEHOLD CONSUMER LOAN TRUST
1997-1, a Delaware business trust (the "Issuer"), CHASE MANHATTAN BANK
DELAWARE, a Delaware banking corporation, as owner trustee (the "Owner
Trustee"), and HOUSEHOLD FINANCE CORPORATION, a Delaware corporation, as
administrator (the "Administrator"),
W I T N E S S E T H :
WHEREAS, the Issuer is issuing the Household Consumer Loan
Asset Backed Notes, Series 1997-1, Class A-1 Notes, Class A-2 Notes, Class A-3
Notes and Class B Notes (collectively, the "Notes") pursuant to the Indenture
dated as of March 1, 1997 (as amended and supplemented from time to time, the
"Indenture"), between the Issuer and The Bank of New York, a New York banking
corporation, as indenture trustee (the "Indenture Trustee") and the Household
Consumer Loan Asset Backed Certificates, Series 1997-1 (the "Certificates" and
together with the Notes, the "Securities") pursuant to the Trust Agreement
dated as of March 1, 1997 (the "Trust Agreement") among HCLC, as Seller and as
Holder of the Designated Certificate (with any successor Holder of the
Designated Certificate, the "Seller"), and the Owner Trustee. (Capitalized
terms used and not otherwise defined herein shall have the meanings assigned
such terms in the Trust Agreement); and
WHEREAS, pursuant to the Basic Documents, the Seller, the
Issuer and the Owner Trustee are required to perform certain duties in
connection with (a) the Notes and the collateral therefor pledged pursuant to
the Indenture (the "Collateral") and (b) the Certificates (the registered
holders of such interests being referred to herein as the
"Certificateholders"); and
WHEREAS, the Seller, the Issuer and the Owner Trustee desire
to have the Administrator perform certain of the duties of the Seller under the
Trust Agreement and of the Issuer under the Trust Agreement and the Indenture,
(collectively, the "Related Agreements"), and to provide such additional
services consistent with the terms of this Agreement and the Related Agreements
as the Seller, the Issuer and the Owner Trustee may from time to time request
(and the Indenture Trustee is executing this Agreement to acknowledge its
consent to the Administrator's performance of those duties and services); and
<PAGE> 2
WHEREAS, the Administrator has the capacity to provide the
services required hereby and is willing to perform such services for the
Seller, the Issuer and the Owner Trustee on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. Duties of the Administrator.
(a) Duties with Respect to the Related Agreements.
(i) The Administrator agrees to perform all its
duties as Administrator and the duties of the Issuer under the Related
Agreements and the Seller under the Trust Agreement. In addition, the
Administrator shall consult with the Owner Trustee regarding the
duties of the Issuer under the Related Agreements. The Administrator
shall monitor the performance of the Issuer and shall advise the Owner
Trustee when action is necessary to comply with the Issuer's duties
under the Related Agreements. The Administrator shall prepare for
execution by the Issuer or the Seller, as the case may be, or shall
cause the preparation by other appropriate persons or entities of, all
such documents, reports, filings, instruments, certificates and
opinions that it shall be the duty of the Issuer or the Seller to
prepare, file or deliver pursuant to the Related Agreements. In
furtherance of the foregoing, the Administrator shall take all
appropriate action that is the duty of the Issuer to take pursuant to
the Indenture including, without limitation, such of the foregoing as
are required with respect to the following matters under the Indenture
(references are to sections of the Indenture):
(A) the duty to cause newly appointed
Paying Agents, if any, to deliver to the Indenture Trustee the
instrument specified in the Indenture regarding funds held in
trust (Section 3.03);
(B) the direction to the Indenture
Trustee to deposit moneys with Paying Agents, if any, other
than the Indenture Trustee (Section 3.03);
(C) the preparation and delivery to the
Owner Trustee for execution, and to the authenticating agent
for authentication and delivery, of new Certificates for
transfers and replacements of Certificates (Sections 3.05 and
3.06);
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<PAGE> 3
(D) the preparation of the Issuer's
annual statement as to compliance with the Indenture (Section
3.10);
(E) the preparation and obtaining of
documents and instruments required for the release of the
Issuer from its obligations under the Indenture (Section
3.15);
(F) the delivery of written notice to
the Indenture Trustee and the Rating Agencies of each Event of
Default under the Indenture (Section 3.21);
(G) the administration of the Issuer's
obligations as to the satisfaction and discharge of the
Indenture and the preparation of an Officer's Certificate and
the obtaining of the Opinion of Counsel and the Independent
Certificate relating thereto (Section 10.01);
(H) the preparation and delivery of
notice to Noteholders and each Rating Agency of the removal of
the Indenture Trustee and the appointment of a successor
Indenture Trustee (Section 6.08);
(I) subject to Section 1(b)(i) hereof,
the preparation and, after execution by the Seller on behalf
of the Issuer, the filing with the Commission, any applicable
state agencies and the Indenture Trustee of documents required
to be filed on a periodic basis with, and summaries thereof as
may be required by rules and regulations prescribed by, the
Commission and any applicable state agencies and the
transmission of such summaries, as necessary, to the
Noteholders (Section 7.03);
(J) the preparation of an Issuer Request
and Officer's Certificate and the obtaining of an Opinion of
Counsel and Independent Certificates, if necessary, for the
release of the Trust Estate (Sections 8.05 and 8.03);
(K) the preparation of Issuer Requests
and the obtaining of Opinions of Counsel with respect to the
execution of supplemental indentures and the mailing to the
Noteholders of notices with respect to such supplemental
indentures (Sections 9.01, 9.02 and 9.03);
(L) the execution and delivery of new
Notes conforming to any supplemental indenture (Section 9.06);
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<PAGE> 4
(M) the preparation and delivery of
Officer's Certificates and the obtaining of Independent
Certificates, if necessary, for the release of property from
the lien of the Indenture (Section 10.01(b));
(N) the recording of the Indenture, if
applicable (Section 10.14); and
(O) the obtaining of the opinion
referred to in Section 3.07(b) of the Indenture.
(ii) The Administrator will:
(A) indemnify the Indenture Trustee and
its agents for, and hold them harmless against, any losses,
liability or expense, including reasonable attorneys fees and
expenses, incurred without willful misconduct, negligence or
bad faith on their part, arising out of the willful
misconduct, gross negligence or bad faith of the Administrator
in the performance of the transactions contemplated by this
Agreement;
(B) indemnify the Owner Trustee and its
agents for, and hold them harmless against, any losses,
liability or expense, including reasonable attorneys fees and
expenses, incurred without willful misconduct, negligence or
bad faith on their part, arising out of the willful
misconduct, gross negligence or bad faith of the Administrator
in the performance of the transactions contemplated by this
Agreement;
(C) indemnify the Seller and its agents
for, and hold them harmless against, any losses, liability or
expense, including reasonable attorneys fees and expenses,
incurred without willful misconduct, gross negligence or bad
faith on their part, arising out of the willful misconduct,
gross negligence or bad faith of the Administrator in the
performance of the transactions contemplated by this
Agreement;
(D) pay the Owner Trustee, as
compensation for its services, such fees as have been
separately agreed upon before the date hereof, and the
Administrator will reimburse the Owner Trustee for its
reasonable expenses under the Basic Documents, including the
reasonable compensation, expenses and disbursements of such
agents, representatives, experts and outside counsel as the
Owner Trustee may reasonably employ in connection with the
exercise and performance of its rights and its duties under
the Basic Documents; and
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<PAGE> 5
(E) be liable as primary obligor for,
and will indemnify the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities,
obligations, losses, damages, taxes, claims, actions and
suits, and any and all reasonable costs, expenses and
disbursements (including reasonable legal fees and expenses)
of any kind and nature whatsoever (collectively, "Expenses")
which may at any time be imposed on, incurred by, or asserted
against the Owner Trustee or any Indemnified Party in any way
relating to or arising out of the Trust Agreement, the Basic
Documents, the Owner Trust Estate, the administration of the
Owner Trust Estate or the action or inaction of the Owner
Trustee thereunder, provided, that:
(1) the Administrator shall not be
liable for or required to indemnify an Indemnified
Party from and against Expenses arising or resulting
from the Owner Trustee's willful misconduct,
negligence or bad faith or as a result of any
inaccuracy of a representation or warranty contained
in Section 7.03 expressly made by the Owner Trustee;
(2) with respect to any such claim, the
Indemnified Party shall have given the Administrator
written notice thereof promptly after the Indemnified
Party shall have actual knowledge thereof;
(3) while maintaining control over its
own defense, the Administrator shall consult with the
Indemnified Party in preparing such defense; and
(4) notwithstanding anything in this
Agreement to the contrary, the Administrator shall
not be liable for settlement of any claim by an
Indemnified Party entered into without the prior
consent of the Administrator, which consent shall not
be unreasonably withheld.
The indemnities contained in this Section shall
survive the resignation or termination of the Owner Trustee, of the
Seller, as Holder of the Designated Certificate, and of the Indenture
Trustee, and the termination of this Agreement. In the event of any
claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the indemnitee's choice of legal counsel, if
other than the legal counsel retained by such indemnitee in connection
with the execution and delivery of the Related Agreements, shall be
subject to the approval of the Administrator, which
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<PAGE> 6
approval shall not be unreasonably withheld. In addition, upon
written notice to the indemnitee and with the consent of the
indemnitee, which consent shall not be unreasonably withheld, the
Administrator has the right to assume the defense of any claim, action
or proceeding against the Indemnitee.
(b) Additional Duties.
(i) In addition to the duties of the
Administrator set forth above, the Administrator shall perform, or
cause to be performed, the duties and obligations of the Seller,
Designated Certificateholder and the Issuer under the Trust Agreement.
These duties and obligations include, without limitation, the
following (references are to sections of the Trust Agreement):
(A) preparing, filing or delivering tax
returns, reports and forms and performing the other duties of
the Issuer under Sections 2.06 and 5.05;
(B) removing the Certificate Paying
Agent under Section 3.10 and appointing a successor, subject
to compliance with Section 4.01;
(C) directing the Owner Trustee to take
action under the Basic Documents pursuant to Section 6.01;
(D) furnishing documents to the
Certificateholders under Section 7.02;
(E) delivering notice of termination of
the Issuer under Section 9.01 and notices of such termination
or of any Insolvency Event with respect to the Holder of the
Designated Certificate under Section 9.02;
(F) appointing a successor Owner
Trustee, removing the Owner Trustee and providing notices
regarding such action under Section 10.02 and executing
instruments and providing notices in connection with such
appointment under Section 10.03;
(G) appointing co-trustees or separate
trustees under Section 10.05, and removing same thereunder;
and
(H) obtaining any opinion of counsel
required by Section 11.01 and furnishing notice or any
obtaining execution by Certificateholders of any amendment to
the Trust Agreement thereunder.
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<PAGE> 7
In furtherance thereof, the Seller and the Issuer
shall execute and deliver to the Administrator and to each successor
Administrator appointed pursuant to the terms hereof, one or more
powers of attorney substantially in the form of Exhibit A hereto,
appointing the Administrator the attorney-in-fact of the Issuer for
the purpose of executing on behalf of the Issuer all such documents,
reports, filings, instruments, certificates and opinions. Subject to
Section 4 of this Agreement, and in accordance with the directions of
the Issuer, the Administrator shall administer, perform or supervise
the performance of such other activities in connection with the
Collateral (including the Related Agreements) as are not covered by
any of the foregoing provisions and as are expressly requested by the
Seller or the Owner Trustee and are reasonably within the capability
of the Administrator. The Administrator shall be responsible for any
filings required by the Issuer under the Securities Exchange Act of
1934, as amended.
(ii) In carrying out the foregoing duties or any
of its other obligations under this Agreement, the Administrator may
enter into transactions or otherwise deal with any of its affiliates;
provided, however, that the terms of any such transactions or dealings
shall be in accordance with any directions received from the Seller
and the Owner Trustee and shall be, in the Administrator's opinion, no
less favorable to the Seller and the Issuer than would be available
from unaffiliated parties.
(iii) In carrying out any of its obligations under
this Agreement, the Administrator may act either directly or through
agents, attorneys, accountants, independent contractors and auditors
and enter into agreements with any of them.
(c) Non-Ministerial Matters.
(i) With respect to matters that in the
reasonable judgment of the Administrator are non-ministerial, the
Administrator shall not be under any obligation to take any action,
and in any event shall not take any action unless the Administrator
shall have received instructions from the Seller or the Owner Trustee
or the Certificateholders in accordance with the Trust Agreement. For
the purpose of the preceding sentence, "non-ministerial matters" shall
include, without limitation:
(A) the amendment of or any supplement
to the Related Agreements;
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<PAGE> 8
(B) the initiation of any claim or
lawsuit by the Issuer and the compromise of any action, claim
or lawsuit brought by or against the Issuer;
(C) the appointment of successor Note
Registrars, successor Administrators and successor Indenture
Trustees pursuant to the Indenture, or the consent to the
assignment by the Note Registrar, Administrator or Indenture
Trustee of its obligations under the Indenture; and
(D) the removal of the Indenture
Trustee.
(ii) Notwithstanding anything to the contrary in
this Agreement, the Administrator shall not be obligated to, and shall
not (x) make any payments to the Noteholders under the Related
Agreements, (y) sell the Trust Estate pursuant to the Indenture or (z)
take any action that either the Seller or the Owner Trustee directs
the Administrator not to take on its behalf or on the behalf of the
Issuer.
2. Records. The Administrator shall maintain appropriate books
of account and records relating to services performed hereunder, which books of
account and records shall be accessible for inspection by the Seller and the
Owner Trustee at any time, after reasonable notice to the Administrator of such
inspection, during normal business hours.
3. Compensation. As compensation for the performance of the
Administrator's obligations under this Agreement, the Administrator shall be
entitled to a fee of not more than $500.00 per month which shall be paid by the
Holder of the Designated Certificate pursuant to Section 2.07(a) of the Trust
Agreement; provided however the Administrator may with prior written notice to
the Seller, Servicer, Issuer, Owner Trustee and Indenture Trustee, waive its
rights to compensation hereunder and Household Finance Corporation as the
initial Administrator hereby gives written notice to the Seller, Servicer,
Issuer, Owner Trustee and Indenture Trustee that until further written notice
to the contrary, Household Finance Corporation waives its right to receive such
fee. As reimbursement for its expenses related to the performance of the
Administrator's obligations hereunder, the Administrator shall receive payment
from the Seller.
4. Additional Information To Be Furnished. The Administrator
shall furnish to the Seller and the Owner Trustee from time to time such
additional information regarding the Collateral as the Seller and the Owner
Trustee shall reasonably request.
5. Independence of the Administrator. For all purposes of this
Agreement, the Administrator shall be an independent contractor and shall not
be subject to the supervision of the
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<PAGE> 9
Seller or the Owner Trustee with respect to the manner in which it accomplishes
the performance of its obligations hereunder. Unless expressly authorized by
this Agreement, the Administrator shall have no authority to act for or
represent the Seller, the Issuer or the Owner Trustee in any way and shall not
otherwise be deemed an agent of the Seller, the Issuer or the Owner Trustee.
6. No Joint Venture. Nothing contained in this Agreement (i)
shall constitute the Administrator and either of the Issuer or the Owner
Trustee or the Seller as members of any partnership, joint venture,
association, syndicate, unincorporated business or other separate entity, (ii)
shall be construed to impose any liability as such on any of them or (iii)
shall be deemed to confer on any of them any express, implied or apparent
authority to incur any obligation or liability on behalf of the others.
7. Other Activities of the Administrator. Nothing herein shall
prevent the Administrator or its Affiliates from engaging in other businesses
or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Issuer, the Owner
Trustee or the Indenture Trustee.
8. Term of Agreement; Resignation and Removal of Administrator.
(a) This Agreement shall continue in force until the dissolution of the
Issuer, upon which event this Agreement shall automatically terminate.
(b) Subject to Section 8(e) of this Agreement, the
Administrator may resign its duties hereunder by providing the Issuer with at
least 60 days' prior written notice.
(c) Subject to Section 8(e) of this Agreement, the Seller
may remove the Administrator without cause by providing the Administrator with
at least 60 days' prior written notice.
(d) Subject to Section 8(e) of this Agreement, at the
sole option of the Owner Trustee, the Administrator may be removed immediately
upon written notice of termination from the Owner Trustee to the Administrator
and each Rating Agency if any of the following events shall occur:
(i) the Administrator shall default in the
performance of any of its duties under this Agreement in any material
respect and, after notice of such default, shall not cure such default
within ten days (or, if such default cannot be cured in such time,
shall not give within ten days such assurance of cure as shall be
reasonably satisfactory to the Owner Trustee);
(ii) a court having jurisdiction in the premises
shall enter a decree or order for relief, and such decree or
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<PAGE> 10
order shall not have been vacated within 60 days, in respect of the
Administrator in any involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect or appoint
a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for the Administrator or any substantial part of its
property or order the winding-up or liquidation of its affairs;
(iii) the Administrator shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, shall consent to the entry of an order for
relief in an involuntary case under any such law, or shall consent to
the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar official for the Administrator or
any substantial part of its property, shall consent to the taking of
possession by any such official of any substantial part of its
property, shall make any general assignment for the benefit of
creditors or shall fail generally to pay its debts as they become due;
or
(iv) HCLC or an Affiliate ceases to be the Holder
of the Designated Certificate under the Trust Agreement.
The Administrator agrees that if any of the events specified
in clauses (ii) or (iii) of this Section shall occur, it shall give written
notice thereof to the Owner Trustee and the Indenture Trustee within seven days
after the happening of such event.
(e) No resignation or removal of the Administrator
pursuant to this Section shall be effective until (i) a successor Administrator
shall have been appointed by the Seller (with the consent of the Owner Trustee
and the Indenture Trustee) and (ii) such successor Administrator shall have
agreed in writing to be bound by the terms of this Agreement in the same manner
as the Administrator is bound hereunder.
(f) The appointment of any successor Administrator shall
be effective only after each Rating Agency, after having been given 10 days
prior notice of such proposed appointment, shall have declared in writing that
such appointment will not result in a reduction or withdrawal of the then
current rating of the Notes or Certificates.
9. Action upon Termination, Resignation or Removal. Promptly
upon the effective date of termination of this Agreement pursuant to Section
8(a) of this Agreement or the resignation or removal of the Administrator
pursuant to Section 8(b) or (c) of this Agreement, respectively, the
Administrator shall be entitled to be paid all fees and reimbursable expenses
accruing to it to the date of such termination, resignation or removal. The
Admin-
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<PAGE> 11
istrator shall forthwith upon such termination pursuant to Section 8(a) of this
Agreement deliver to the Seller, Owner Trustee or Indenture Trustee, as
appropriate, all property and documents of or relating to the Collateral then
in the custody of the Administrator. In the event of the resignation or
removal of the Administrator pursuant to Section 8(b) or (c) of this Agreement,
respectively, the Administrator shall cooperate with the Seller, the Owner
Trustee and the Indenture Trustee and take all reasonable steps requested to
assist them in making an orderly transfer of the duties of the Administrator.
10. Notices. Any notice, report or other communication given
hereunder shall be in writing and addressed as follows:
(a) if to the Issuer, to:
Household Consumer Loan Trust 1997-1
c/o Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, DE 19801
Attention: Corporate Trust Administration
with a copy to:
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001
Attention: Global Trust Services
(b) If to the Administrator, to:
Household Finance Corporation
2700 Sanders Road
Prospect Heights, IL 60070
Attention: Treasurer
(c) If to the Indenture Trustee, to:
The Bank of New York
101 Barclay Street, Floor 12 East
New York, NY 10286
Attention: Corporate Trust Asset-Backed Unit
(d) If to the Owner Trustee, to:
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, DE 19801
Attention: Corporate Trust Administration
with a copy to:
The Chase Manhattan Bank
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<PAGE> 12
450 West 33rd Street, 15th Floor
New York, NY 10001
Attention: Global Trust Services
(e) If to the Seller, to:
Household Consumer Loan Corporation
111 Town Center Drive
Las Vegas, NV 89134
Attention: Compliance Officer
with a copy to,
Household Finance Corporation
2700 Sanders Road
Prospect Heights, IL 60070
Attention: Treasurer
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed
given if such notice is mailed by certified mail, postage prepaid, or
hand-delivered to the address of such party as provided above.
11. Amendments. (a) This Agreement may be amended from time to
time by the parties hereto, with written notice and acknowledgment by the
Indenture Trustee, by a written instrument signed by each of them, without the
consent of any of the Securityholders, provided that an Opinion of Counsel for
the Seller (which Opinion of Counsel may, as to factual matters, rely upon
Officer's Certificates of the Seller) is addressed and delivered to the Owner
Trustee, the Indenture Trustee and each Rating Agency, dated the date of any
such amendment, to the effect that the conditions precedent to any such
amendment have been satisfied and the Seller shall have delivered to the Owner
Trustee and the Indenture Trustee an Officer's Certificate, dated the date of
any such Amendment, stating that the Seller reasonably believes that such
amendment will not have a material adverse effect on the Securityholders.
(b) This Agreement may also be amended from time to time
with the consent of the Holders of the Certificates evidencing not less than
66-2/3% of the aggregate unpaid principal amount of the Securities of all
affected Certificateholders for which the Seller has not delivered an Officer's
Certificate stating that there is no material adverse effect, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment shall (i) reduce
in any manner the amount of, or delay the timing of, payments received that are
required to be distributed on any Certificate without the consent of the
related Certificateholder, or (ii) reduce the aforesaid percentage of
Certificates the
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<PAGE> 13
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all such Certificates then outstanding or cause any
material adverse tax consequences to any Certificateholders or Noteholders.
(c) Promptly after the execution of any such amendment or
consent (other than an amendment pursuant to paragraph (a)), the Administrator
shall direct the Certificate Registrar to furnish notification of the substance
of such amendment to each Certificateholder, and to each Rating Agency.
(d) It shall not be necessary for the consent of
Certificateholders under this Section to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
12. Successors and Assigns. This Agreement may not be assigned by
the Administrator (except to a Person who also becomes the successor Servicer
in accordance with the Pooling and Servicing Agreement) unless such assignment
is previously consented to in writing by the Seller, the Owner Trustee and the
Indenture Trustee and unless each Rating Agency, after having been given 10
days prior notice of such assignment, shall have declared in writing that such
assignment will not result in a reduction or withdrawal of the then current
rating of the Notes or Certificates. An assignment with such consent and
satisfaction, if accepted by the assignee, shall bind the assignee hereunder in
the same manner as the Administrator is bound hereunder. Notwithstanding the
foregoing, this Agreement may be assigned by the Administrator without the
consent of the Seller, the Owner Trustee and the Indenture Trustee if the
assignment is to (i) a corporation or other organization that is a successor
(by merger, consolidation or purchase of assets) to the Administrator or (ii)
to an Affiliate of the Administrator; provided that (x) the obligations of the
Administrator under Section 1(a)(ii) are not assignable and (y) such successor
organization executes and delivers to the Seller, the Owner Trustee and the
Indenture Trustee an agreement in which such corporation or other organization
agrees to be bound hereunder by the terms of said assignment in the same manner
as the Administrator is bound hereunder. Subject to the foregoing, this
Agreement shall bind any successors or assigns of the parties hereto.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
-13-
<PAGE> 14
14. Headings. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
15. Counterparts. This Agreement may be executed in counterparts,
each of which when so executed shall together constitute but one and the same
agreement.
16. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
17. Limitation of Liability of the Owner Trustee. Notwithstanding
anything contained herein to the contrary, this instrument has been executed by
Chase Manhattan Bank Delaware, not in its individual capacity but solely in its
capacity as Owner Trustee of the Issuer, and in no event shall Chase Manhattan
Bank Delaware in its individual capacity or any beneficial owner of the Issuer
have any liability for the representations, warranties, covenants, agreements
or other obligations of the Issuer hereunder, as to all of which recourse shall
be had solely to the assets of the Issuer. For all purposes of this Agreement,
in the performance of any duties or obligations of the Issuer hereunder, the
Owner Trustee shall be subject to, and entitled to the benefits of, the terms
and provisions of Articles VI, VII and VIII of the Trust Agreement.
18. Third-Party Beneficiary. The Indenture Trustee is a
third-party beneficiary to this Agreement and is entitled to the rights and
benefits hereunder and may enforce the provisions hereof as if it were a party
hereto.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
By: CHASE MANHATTAN BANK DELAWARE, not
in its individual capacity but
solely as Owner Trustee
By:
---------------------------------
Name:
Title:
HOUSEHOLD FINANCE CORPORATION,
in its individual capacity, as
Administrator
By:
-------------------------------------
Name:
Title:
HOUSEHOLD CONSUMER LOAN CORPORATION
By:
-------------------------------------
Name:
Title:
CONSENTED TO BY:
THE BANK OF NEW YORK,
as Indenture Trustee
By:
--------------------------------
Name:
Title:
<PAGE> 16
EXHIBIT A
POWER OF ATTORNEY
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, that Household Consumer Loan Trust
1997-1 (the "Issuer"), does hereby make, constitute and appoint Household
Finance Corporation, as administrator (the "Administrator") under the
Administration Agreement dated as of March 1, 1997 (the "Administration
Agreement"), among the Issuer, Chase Manhattan Bank Delaware, as the Owner
Trustee, Household Consumer Loan Corporation, as the Seller, and Household
Finance Corporation, as the Administrator, as the same may be amended from time
to time, and its agents and attorneys, as Attorneys-in-Fact to execute on
behalf of the Issuer all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer to prepare,
file or deliver pursuant to the Related Agreements, including, without
limitation, to appear for and represent the Issuer in connection with the
preparation, filing and audit of federal, state and local tax returns
pertaining to the Issuer, and with full power to perform any and all acts
associated with such returns and audits that the Issuer could perform,
including without limitation, the right to distribute and receive confidential
information, defend and assert positions in response to audits, initiate and
defend litigation, and to execute waivers of restrictions on assessments of
deficiencies, consents to the extension of any statutory or regulatory time
limit, and settlements.
All powers of attorney for this purpose heretofore filed or executed
by the Issuer are hereby revoked.
Capitalized terms that are used and not otherwise defined herein shall
have the meanings ascribed thereto in the Administration Agreement.
A-1
<PAGE> 17
EXECUTED this ___ day of March, 1997.
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
By: CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity but
solely as Owner Trustee
By:
---------------------------------------------
Name:
Title:
HOUSEHOLD CONSUMER LOAN CORPORATION,
as Seller
By:
---------------------------------------------
Name:
Title:
A-2
<PAGE> 1
EXHIBIT 25.1
CONFORMED COPY
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
HOUSEHOLD CONSUMER LOAN DEPOSIT TRUST I
(Exact name of obligor as specified in its charter)
New York 88-0345950
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1111 Town Center Drive
Las Vegas, Nevada 89134
(Address of principal executive offices) (Zip code)
______________________
HOUSEHOLD CONSUMER LOAN TRUST 1997-1
(Exact name of obligor as specified in its charter)
Delaware To Be Applied For
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1111 Town Center Drive
Las Vegas, Nevada 89134
(Address of principal executive offices) (Zip code)
(cover continued on next page)
<PAGE> 2
______________________
HOUSEHOLD CONSUMER LOAN CORPORATION
(Exact name of obligor as specified in its charter)
Nevada 36-4038996
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1111 Town Center Drive
Las Vegas, Nevada 89134
(Address of principal executive offices) (Zip code)
______________________
Household Consumer Loan Asset Backed Class A-1 Notes
Household Consumer Loan Asset Backed Class A-2 Notes
Household Consumer Loan Asset Backed Class A-3 Notes
Household Consumer Loan Asset Backed Class B Notes
(Title of the indenture securities)
<PAGE> 3
1. General Information. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20549
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule
24 of the Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 25th day of February, 1997.
THE BANK OF NEW YORK
By: /s/ STEPHEN J. GIURLANDO
----------------------------------
Name: STEPHEN J. GIURLANDO
Title: ASSISTANT VICE PRESIDENT
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic
Subsidiaries, a member of the Federal Reserve System, at the close of business
September 30, 1996, published in accordance with a call made by the Federal
Reserve Bank of this District pursuant to the provisions of the Federal Reserve
Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 4,404,522
Interest-bearing balances .......... 732,833
Securities:
Held-to-maturity securities ........ 789,964
Available-for-sale securities ...... 2,005,509
Federal funds sold in domestic offices
of the bank:
Federal funds sold ................. 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................28,728,602
LESS: Allowance for loan and
lease losses ..............584,525
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve 28,143,648
Assets held in trading accounts ...... 1,004,242
Premises and fixed assets (including
capitalized leases) ................ 605,668
Other real estate owned .............. 41,238
Investments in unconsolidated
subsidiaries and associated
companies .......................... 205,031
Customers' liability to this bank on
acceptances outstanding ............ 949,154
Intangible assets .................... 490,524
Other assets ......................... 1,305,839
-----------
Total assets ......................... $44,043,010
===========
LIABILITIES
Deposits:
In domestic offices ................ $20,441,318
Noninterest-bearing .......8,158,472
Interest-bearing .........12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 11,710,903
Noninterest-bearing ..........46,182
Interest-bearing .........11,664,721
Federal funds purchased in
domestic offices of the
bank:
Federal funds purchased ............ 1,565,288
Demand notes issued to the U.S.
Treasury ........................... 293,186
Trading liabilities .................. 826,856
Other borrowed money:
With original maturity of one year
or less .......................... 2,103,443
With original maturity of more than
one year ......................... 20,766
Bank's liability on acceptances exe-
cuted and outstanding .............. 951,116
Subordinated notes and debentures .... 1,020,400
Other liabilities .................... 1,522,884
-----------
Total liabilities .................... 40,456,160
-----------
EQUITY CAPITAL
Common stock ........................ 942,284
Surplus ............................. 525,666
Undivided profits and capital
reserves .......................... 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ ( 2,073)
Cumulative foreign currency transla-
tion adjustments .................. ( 8,403)
-----------
Total equity capital ................ 3,586,850
-----------
Total liabilities and equity
capital ........................... $44,043,010
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot }
Thomas A. Renyi } Directors
Alan R. Griffith }
