<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1998
REGISTRATION NO. 333-67855
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DILLARD CREDIT CARD MASTER TRUSTS
(ISSUERS OF THE CERTIFICATES)
DILLARD ASSET FUNDING COMPANY
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME AS SPECIFIED IN REGISTRANT'S CHARTER)
---------------
DELAWARE DILLARD ASSET FUNDING COMPANY 880352714
(STATE OR OTHER C/O CHASE MANHATTAN BANK DELAWARE (I.R.S. EMPLOYER
JURISDICTION OF 1201 MARKET STREET IDENTIFICATION
INCORPORATION OR WILMINGTON, DELAWARE 19801 NUMBER)
ORGANIZATION) (302) 984-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JAMES FREEMAN
DILLARD ASSET FUNDING COMPANY
C/O CHASE MANHATTAN BANK DELAWARE
1201 MARKET STREET
WILMINGTON, DELAWARE 19801
(302) 984-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE OF REGISTRANT)
COPIES TO:
STEPHAN J. FEDER, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this registration statement becomes effective as determined by
market conditions.
If the only securities registered on this form are to be offered pursuant to
dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
-----------
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE CAN +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1998 A certificate is not a deposit
and neither the certificates
nor the underlying accounts or
PROSPECTUS receivables are insured or
guaranteed by the Federal
DILLARD CREDIT CARD MASTER TRUSTS Deposit Insurance Corporation
ISSUER or any other governmental
agency.
DILLARD ASSET FUNDING COMPANY
TRANSFEROR The certificates will represent
interests in the trusts only
DILLARD NATIONAL BANK and will not represent
SERVICER interests in or obligations of
Dillard Asset Funding Company,
ASSET BACKED CERTIFICATES the servicer or any of their
affiliates.
This prospectus may be used to
offer and sell any series of
certificates only if
accompanied by the prospectus
supplement for that series.
THE TRUSTS--
. may periodically issue asset backed certificates in one or more series with
one or more classes; and
. will own--
. receivables in a portfolio of consumer revolving credit card accounts;
. payments due on those receivables; and
. other property described in this prospectus and in the prospectus
supplement.
THE CERTIFICATES--
. will represent interests in a trust and will be paid only from the assets of
the trust;
. offered by this prospectus will be rated in one of the four highest rating
categories by at least one nationally recognized rating organization;
. may have one or more forms of enhancement; and
. will be issued as part of a designated series which may include one or more
classes of certificates and enhancement.
THE CERTIFICATEHOLDERS--
. will receive interest and principal payments from a varying percentage of
credit card account collections.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
[Date]
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trusts and Related Parties............................................. 2
The Trusts................................................................. 2
Dillard's Inc.............................................................. 2
Dillard National Bank...................................................... 3
Dillard Asset Funding Company.............................................. 3
Dillard's Credit Card Activities........................................... 4
General................................................................... 4
Origination of Credit Card Accounts....................................... 5
Billing and Payments...................................................... 8
Collection of Delinquent Accounts......................................... 11
Recoveries................................................................ 14
Year 2000 Compliance...................................................... 14
The Receivables............................................................ 14
Maturity Considerations.................................................... 15
Use of Proceeds............................................................ 16
Description of the Certificates............................................ 17
General................................................................... 17
Book-Entry Registration................................................... 19
Definitive Certificates................................................... 23
Interest Payments......................................................... 24
Principal Payments........................................................ 24
Revolving Period.......................................................... 25
Controlled Amortization Period............................................ 26
Principal Amortization Period............................................. 26
Accumulation Period....................................................... 26
Rapid Accumulation Period................................................. 27
Rapid Amortization Period................................................. 28
Transfer and Assignment of Receivables.................................... 28
Exchanges................................................................ 29
Representations and Warranties............................................ 31
Addition of Trust Assets.................................................. 34
Removal of Accounts....................................................... 36
Collection and Other Servicing Procedures................................. 36
Discount Option........................................................... 37
Trust Accounts............................................................ 37
Funding Period............................................................ 38
Companion Series.......................................................... 39
Investor Percentage and Transferor Percentage............................. 39
Application of Collections................................................ 40
Shared Excess Finance Charge Collections.................................. 42
Shared Principal Collections.............................................. 42
Defaulted Receivables; Rebates and Fraudulent Charges; Investor
Charge-Offs.............................................................. 43
Final Payment of Principal; Termination................................... 44
Pay Out Events............................................................ 45
Servicing Compensation and Payment of Expenses............................ 46
Certain Matters Regarding the Transferor and the Servicer................. 46
</TABLE>
<TABLE>
<S> <C>
Servicer Default........................................................... 48
Reports to Certificateholders.............................................. 49
Evidence as to Compliance.................................................. 50
Amendments................................................................. 50
List of Certificateholders................................................. 51
The Trustee................................................................ 52
Description of the Purchase Agreements...................................... 53
General.................................................................... 53
Representations and Warranties............................................. 53
Certain Covenants.......................................................... 54
Repurchase Events.......................................................... 54
Merger and Consolidation................................................... 55
Credit Enhancement.......................................................... 56
General.................................................................... 56
Subordination.............................................................. 56
Letter of Credit........................................................... 57
Cash Collateral Guaranty or Account........................................ 57
Collateral Interest........................................................ 57
Surety Bond or Insurance Policy............................................ 58
Spread Account............................................................. 58
Reserve Account............................................................ 58
Certificate Ratings......................................................... 59
Certain Legal Aspects of the Receivables.................................... 60
Transfer of Receivables.................................................... 60
Certain Matters Relating to Bank Receivership.............................. 61
Certain Matters Relating to Insolvency of the Transferor................... 62
Consumer Protection Laws................................................... 63
Claims and Defenses of Cardholders Against the Trust....................... 64
Tax Matters................................................................. 65
General.................................................................... 65
Treatment of the Certificates as Debt...................................... 65
Taxation of Interest Income of U.S. Certificate Owners..................... 66
Sale, Exchange or Retirement of Certificates............................... 67
Possible Alternative Characterizations..................................... 67
Non-U.S. Certificate Owners................................................ 68
Information Reporting and Backup Withholding............................... 70
FASIT Considerations....................................................... 70
State and Local Taxation................................................... 70
Employee Benefit Plan Considerations........................................ 71
Plan of Distribution........................................................ 73
Legal Matters............................................................... 74
Reports to Certificateholders............................................... 74
Where You Can Find More Information......................................... 74
Index of Terms for Prospectus............................................... 75
</TABLE>
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two separate documents
that progressively provide more detail: (a) this prospectus, which provides
general information, some of which may not apply to a particular series of
certificates, including your series, and (b) the prospectus supplement, which
will describe the specific terms of your series of certificates, including:
. the timing and amount of interest and principal payments;
. information about the receivables;
. information about credit enhancement for each class;
. credit ratings; and
. the method for selling the certificates.
WHENEVER INFORMATION IN THE PROSPECTUS SUPPLEMENT IS MORE SPECIFIC THAN THE
INFORMATION IN THIS PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
prospectus supplement, including the information incorporated by reference. We
have not authorized anyone to provide you with different information.
We include cross-references in this prospectus and in the prospectus supplement
to captions in these materials where you can find further related discussions.
The following table of contents and the table of contents included in the
prospectus supplement provide the pages on which these captions are located.
You can find a listing of the pages where capitalized terms are defined under
the caption "Index of Terms for Prospectus" beginning on page 75 in this
prospectus.
1
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THE TRUSTS AND RELATED PARTIES
THE TRUSTS
Each Dillard Credit Card Master Trust (each, a "TRUST") will be formed pursuant
to a pooling and servicing agreement in accordance with the laws of the State
of New York, unless otherwise specified in the related Prospectus Supplement
(each such agreement, an "AGREEMENT") among the Transferor, a servicer, and a
trustee, each as identified in the Prospectus Supplement relating to the Asset
Backed Certificates (collectively, the "CERTIFICATES") of one or more series
(each, a "SERIES") representing interests in such Trust (each trustee under an
Agreement, a "TRUSTEE") in amounts, at prices and on terms to be determined at
the time of sale and to be set forth in a supplement to this Prospectus (a
"PROSPECTUS SUPPLEMENT"). No Trust will engage in any business activity other
than acquiring and holding Receivables, issuing Series of Certificates and the
related certificate that evidences the Transferor Interest (the "TRANSFEROR
CERTIFICATE"), making payments thereon and engaging in related activities
(including, with respect to any Series, obtaining any Enhancement and entering
into an Enhancement agreement relating thereto). As a consequence, no Trust is
expected to have any need for additional capital resources other than the
assets of such Trust.
DILLARD'S INC.
Dillard's Inc. ("DILLARD'S" or the "CORPORATION"), is a regional group of
traditional department stores operating, as of October 31, 1998, 342 stores in
Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho,
Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, South
Carolina, Tennessee, Texas, Virginia, Utah and Wyoming. The stores feature
branded and private label goods in the middle to upper-middle price ranges and
cater to a broad spectrum of the population. The Corporation is incorporated
under the laws of the State of Delaware. The executive offices of the
Corporation are located at 1600 Cantrell Road, Little Rock, Arkansas 77201,
telephone number: 501-376-5200.
The Corporation is currently subject to the periodic reporting and other
financial requirements of the Securities Exchange Act of 1934, as amended and,
in accordance therewith, files reports and other information with the
Securities Exchange Commission (the "COMMISSION"). Such reports and other
information filed with the Commission may be inspected and copies at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may also
be obtained from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates and may also be
accessed electronically by means of the Commission's website at
http://www.sec.gov.
MERCANTILE
On August 18, 1998 the Corporation acquired the stock of Mercantile Stores
Company, Inc., a Delaware corporation ("MERCANTILE"). Mercantile is a
conventional department store retailer engaged in the general merchandising
business.
2
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DILLARD NATIONAL BANK
Dillard National Bank ("DNB" or the "SERVICER"), a wholly-owned banking
subsidiary of the Corporation, was formed in 1991 and is headquartered in
Gilbert, Arizona. DNB is currently chartered as a national bank and as such is
regulated primarily by the United States Comptroller of the Currency (the
"COMPTROLLER"). DNB's activities are predominantly related to credit card
lending and the origination, acquisition and administration of private label
revolving credit card accounts and related receivables. Upon organization of
DNB, the Corporation transferred its credit operations from Little Rock,
Arkansas to DNB's headquarters in Gilbert, Arizona.
MERCANTILE STORES NATIONAL BANK
Dillard National Bank (formerly Mercantile Stores National Bank ) ("DNB-LA."),
a wholly-owned banking subsidiary of the Corporation, was formed in 1997 and is
headquartered in Baton Rouge, Louisiana. DNB-La. is currently chartered as a
national bank and as such is regulated primarily by the Comptroller. DNB-La.'s
activities are predominantly related to credit card lending and the
origination, acquisition and administration of private label revolving credit
card accounts and related receivables. DNB-La. historically originated and
acquired Accounts (as defined below) created for use in Mercantile's stores. An
affiliate, Mercantile Credit Corp., a Louisiana corporation ("MCC"), provides
servicing for Mercantile's private label credit card program.
DILLARD ASSET FUNDING COMPANY
Dillard Asset Funding Company (the "TRANSFEROR"), a Delaware business trust,
was formed in August 1998 pursuant to a Trust Agreement among Chase Manhattan
Bank Delaware, as Owner Trustee, Condev Nevada, Inc., a Nevada corporation and
a wholly-owned subsidiary of Dillard's and the Administrators named therein
(the "Trust Agreement"). The Transferor was formed for the limited purposes of
purchasing, holding, owning and transferring receivables and any activities
incidental to these purposes. The Owner Trustee is located at 1201 Market
Street, Wilmington, Delaware 19801, telephone number (302) 984-3300.
3
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DILLARD'S CREDIT CARD ACTIVITIES
GENERAL.
The receivables which the Transferor will convey to each Trust pursuant to the
related Agreement (the "RECEIVABLES") represent amounts due by holders of
certain private label revolving credit card accounts in connection with the
sale of merchandise and services by retail stores owned and operated by
Dillard's and its subsidiaries. The Accounts will be originated or acquired by
DNB and certain of its affiliates, including DNB-La. (collectively, the
"ORIGINATORS" or the "BANKS") and the Receivables in the Accounts will be
transferred to the Transferor pursuant to certain Receivables Purchase
Agreements (the "RECEIVABLES PURCHASE AGREEMENTS"). See "Description of the
Purchase Agreements" in this Prospectus. Currently, DNB services the Dillard's
Accounts (as defined below) at its facilities located in Gilbert, Arizona and
MCC services the Mercantile Accounts (as defined below) at its facilities
located in Baton Rouge, Louisiana. DNB and MCC may utilize subservicers for
some or all of these Accounts from time to time.
Additional Accounts are expected to be added, from time to time, to the Trusts.
There can be no assurance, however, that such accounts will be added or that,
if added, the receivables in such accounts will constitute a material portion
of the Receivables in the Trusts.
Accounts which are acquired, but not originated by an Originator may be
originated under policies and procedures which differ from those of such
Originator in certain respects. Dillard's does not expect any of these
differences to have a material adverse effect on the credit quality of the
Receivables in the Trusts or on the interests of the Certificateholders. See
"Description of the Certificates--Collection and Other Servicing Procedures" in
this Prospectus.
Dillard's department stores and its subsidiaries have offered a private label
credit card program to creditworthy customers for over 25 years. Prior to its
acquisition by Dillard's, Mercantile offered private label credit card programs
to creditworthy customers for over 20 years.
Dillard's currently originates new private label credit card accounts through
telemarketing, in-store and mail-in credit applications and campus programs. In
addition, Dillard's has purchased and may in the future purchase accounts from
other private label credit card issuers. Dillard's currently offers only one
type of credit card, the "DILLARD'S CARD". Prior to October 17, 1998,
Mercantile offered it's own credit card known as the "MERCANTILE CARD"
(together with the Dillard's Card, the "CREDIT CARDS"). The Dillard's Accounts
(as defined below) were originated under policies and procedures which differed
from those applied to the creation of Mercantile Accounts. Dillard's does not
expect any of these differences to have a material adverse effect on the credit
quality of the Receivables in the trusts or on the interests of the
Certificateholders.
The Accounts have various payment structures, including varying minimum payment
levels and fees. Except as described below, there are currently four types of
customer payment terms under the Credit Cards which can be chosen in connection
with the purchase of merchandise or services at any Dillard's Store (as defined
below): Regular Revolving, Extended Revolving, Reduced Rate and Silver Club.
Prior to October 17, 1998 there were four types of customer payment terms under
the Mercantile Card which could be chosen in connection with the purchase of
merchandise or services at any Mercantile store: Regular Option, Special
Option, Prestige Option, and Home Option.
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Mercantile Card holders currently can choose only the Regular Option in
connection with new purchases of merchandise or services at any Department
Store (as defined below). Payments for purchases of merchandise or services
made by Mercantile Card holders prior to October 17, 1998 under the Special
Option, Prestige Option and Home Option will be unaffected by this change.
Dillard's may from time to time offer its customers incentives to either open
an account or to use a Credit Card. Dillard's does not expect any of these
promotions or incentives to have a material adverse effect on the credit
quality of the Receivables in the trusts or on the interests of the
Certificateholders.
Each Dillard's or Mercantile cardholder is subject to an agreement governing
the terms and conditions of his or her account. Pursuant to such agreement, DNB
or DNB-La., as applicable, reserves the right to change or terminate any terms,
conditions, services or features of the accounts (including increasing or
decreasing periodic finance charges, other charges or minimum payments) and to
sell or transfer the accounts and any amounts owed on such accounts to another
creditor.
Dillard's has added, and may continue to add, accounts to its portfolio by
purchasing credit card accounts from other retailers. Credit card accounts that
have been purchased by Dillard's, such as the Mercantile Accounts, were
originally opened using criteria established by the institution from which the
accounts were purchased and may not have been subject to the same level of
credit review as accounts established by DNB.
ORIGINATION OF CREDIT CARD ACCOUNTS
The revolving credit card accounts originated or acquired by Dillard's (the
"DILLARD'S ACCOUNTS") are generated in connection with the sale of merchandise,
financial service products or services from a department store owned or
operated by Dillard's (a "DEPARTMENT STORE") and are originated, purchased by,
or otherwise transferred to, an Originator and subsequently sold, or otherwise
transferred to, the Transferor. Currently DNB and DNB-La. are Originators of
the Dillard's Accounts. Prior to October 17, 1998, the revolving credit card
accounts originated or acquired by DNB-La. (the "MERCANTILE ACCOUNTS",
collectively with the Dillard's Accounts, the "ACCOUNTS") were generated in
connection with the sale of merchandise, financial service products or services
from a department store owned or operated by Mercantile and were originated,
purchased by, or otherwise transferred to, DNB-La. and subsequently sold, or
otherwise transferred to, the Transferor. Currently, the Mercantile Accounts
may be used to purchase merchandise, financial service products or services
from any Department Store.
Credit Cards may be used to purchase merchandise and services from any
Department Store. Cardholders make purchases when using a Credit Card to buy
merchandise or services and amounts due with respect to such purchases will be
included in the Receivables.
The Accounts were principally generated through: (a) telemarketing and direct-
mail solicitation for accounts on a pre-approved credit basis, (b) in-store
applications made available to prospective cardholders at Department Stores and
(c) applications mailed directly to prospective cardholders or generated on the
internet. The majority of Dillard's Accounts and Mercantile Accounts have
historically been generated through pre-approved telemarketing solicitations
and in-store applications, respectively, although this emphasis may change from
time to time in the future. Dillard's does not
5
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expect any such change to have a material adverse effect on the credit quality
of the Receivables in the trusts or on the interests of the Certificateholders.
Pre-Approved Telemarketing and Direct Mail Solicitations
The Banks obtain from independent consumer credit reporting agencies lists of
prospects located within a specified radius of a Department Store. The lists
identify individuals who live within the specified areas and satisfy certain
credit criteria established by the Originator, such as never having previously
filed for bankruptcy and possessing a specified credit score from the credit
bureau. Individuals qualifying for pre-approved telemarketing or direct mail
solicitations are offered a Credit Card without having to complete a detailed
credit application. A significant portion of telemarketing calls may be made by
third party telemarketing companies. Pre-approved telemarketing and direct mail
solicitations are made periodically (generally once each calendar quarter),
although prior to October 17, 1998 such solicitations had been made by DNB-La.
only in connection with the opening of new Mercantile stores.
In-Store Instant Credit Applications
Instant credit is offered to qualifying applicants at the time of purchase. The
applicant is required to complete an application and present acceptable
identification. The information is subsequently phoned into a processing center
where a Bank representative uses the information to obtain credit bureau and
internally developed reports on the applicant. The decision to either approve
or decline the applicant is determined automatically based on the results of
the reports and can be made in as few as two to three minutes.
Mail-in and Internet Applications
In addition to instant credit in-store applications, the Banks also offer a
mail-in form which can be completed at the leisure of a prospective customer. A
credit evaluation is based upon a proprietary underwriting model and an
independent credit bureau report. The same application is also available on the
Internet.
Campus Programs
The Banks also originate new accounts through campaigns targeted at college
students. Tables are set up on college campuses and offers are made for
accounts with minimal limits (typically $400) to individuals who have no
derogatory credit history.
UNDERWRITING
In determining whether to generate an Account for and issue a Dillard's Card to
a customer, the Banks use underwriting procedures which employ a purely
quantitative approach. There is no subjective decision making utilized. Both
Banks rely heavily upon credit scores obtained from independent credit bureaus
and proprietary underwriting models. Underwriting methodologies differ
depending on the type of application used by a prospective customer.
6
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Instant Credit Model/Neutral Network Score
For in-store instant credit, a sales clerk submits the information provided by
an applicant to a Bank processing center where the applicant's information is
automatically evaluated against established credit bureau and proprietary
models. An application must meet or exceed minimum thresholds under both credit
bureau and proprietary models in order to be approved. In connection with this
process, an instant credit model or "neural network" was developed by DNB as a
more precise means of predicting good and bad credit accounts rather than
relying solely upon credit bureau scores and was developed utilizing a sample
of Dillard's accounts. The applicant attributes used in "neural network"
modeling include the same information derived from credit bureau reports: state
of residence, number of inquiries, number of satisfactory trades, credit bureau
score, number of major derogatory trade lines and credit card references. This
information is then weighted in accordance with the historical patterns
illustrated by credit customers of Dillard's stores.
Application Scorecard
The Banks currently employ a proprietary model (known as an application
scorecard) and a credit report issued by an independent credit reporting agency
in evaluating Mail-in applications. The scorecard is segmented into two
categories: one for applicants 25 years of age and under and another for
applicants older than 25. The scorecard contains information about the
applicant that is not readily available from the credit bureaus such as whether
he or she is a home owner or has a checking account. In order to obtain a
Dillard's Card an applicant must possess both a satisfactory scorecard report
and a satisfactory credit score from the independent credit reporting agency.
Credit Limits
Credit limits are assigned to new customers according to their respective
credit scores. Credit lines for new accounts typically range from $400 to
$3,000.
Proprietary behavioral scoring is conducted on Accounts on a monthly basis and
is used to determine a Credit Card holder's eligibility for credit line
increases periodically. Behavioral scoring considers factors such as payment
history and duration as a cardholder. Accounts must be current to be considered
for an increase in credit limit. In addition, periodic (based upon length of
time an account has been open and credit score ranking) general limit increases
are considered.
Mercantile Cards
In determining whether to generate a Mercantile Account for and issue a
Mercantile Card to a customer, DNB-La. also used underwriting procedures based
almost exclusively on a quantitative analysis of an applicant's information.
Credit decisions were based primarily upon credit scores obtained from
independent credit bureaus and either a bankruptcy propensity score (for pre-
approved applications) or a debt-to-income ratio for in-store and mail-in
applications.
Information contained in an in-store credit application received in a
Mercantile store was phoned in to DNB-La.'s servicing center in Baton Rouge,
Louisiana. Mailed-in applications were likewise directed to DNB-La.'s servicing
center. Upon receipt, information contained in the application together with
information received by an independent credit reporting agency was evaluated by
a credit analyst against DNB-La.'s computer model which calculated the
applicant's
7
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credit score. The credit score was based upon the applicant's debt-to-income
ratio and a credit score provided by the independent credit reporting agency.
Applications which were declined by DNB-La.'s computer model could not be
manually overridden by a DNB-La. credit analyst. However, applications approved
by DNB-La.'s computer model could, in some instances, be declined manually by a
DNB-La. credit analyst if traits deemed to have negative credit implications
were manually identified. An applicant with an inadequate credit score from the
relevant independent credit reporting agency was denied a Mercantile Card
regardless of his or her debt-to-income ratio or bankruptcy propensity score.
With respect to identifying potential customers to whom pre-approved
applications could be sent, DNB-La. would determine a potential customer's
credit score based upon the credit score received from an independent credit
reporting agency together with a proprietary bankruptcy propensity score.
Credit limits for Mercantile Cards were assigned to new customers according to
their respective credit scores. Credit lines for new accounts typically ranged
from $500 to $4,000.
DNB-La. automatically scored all active Mercantile Accounts on a monthly basis
pursuant to proprietary behavioral scoring models. The behavioral scores were
statistically derived from real data relating to the Mercantile Accounts such
as payments, purchases and length of Mercantile Card ownership. The behavioral
score was used to determine eligibility for credit limit increases. Credit
increases could be granted semi-annually. Mercantile Accounts had to be current
to be considered for an increase in credit limit.
BILLING AND PAYMENTS
The Accounts have various billing and payment structures, including varying
minimum payment levels and fees. Monthly billing statements are sent by the
Banks to cardholders. The following information reflects the current billing
and payment characteristics of the Accounts.
The Banks currently use eight billing cycles. All cycles have fixed statement
closing dates throughout the month. New Accounts are assigned to a billing
cycle according to the first letter of the obligor's last name. The billing
cycles are as follows:
<TABLE>
<CAPTION>
LETTER RANGE BILLING DATE
------------ ------------
<S> <C>
A-B.......................................................... 6th
C-D.......................................................... 9th
E-G.......................................................... 12th
H-K.......................................................... 15th
L-M.......................................................... 18th
N-R.......................................................... 21st
S-T.......................................................... 24th
U-Z.......................................................... 27th
</TABLE>
On the billing date for a billing cycle, the activity in the related Accounts
during the month ending on such billing date are processed and billed to
cardholders.
Customer Terms--Dillard's Credit Cards
The Banks currently issue only one type of credit card, the Dillard's Card.
There are four types of customer terms which can be used to charge purchases of
goods and services at any Department Store with a Dillard's Card: Regular
Revolving, Extended Revolving, Reduced Rate and Silver Club.
8
<PAGE>
Regular Revolving. Regular Revolving terms do not have any restrictions on the
type or amounts of merchandise or services charged up to the amount of the
credit limit. Minimum monthly payments for Regular Revolving accounts are the
greater of $20 or 1/10 of the outstanding balance.
Extended Revolving. Extended Revolving terms are sometimes offered to allow
longer-term financing for some big ticket items, such as furniture, electronics
and major appliances. Such accounts are subject to a minimum purchase. The
monthly payment terms under such extended terms are the greater of $20 or 1/20
of the highest balance.
Reduced Rate Revolving. Reduced Rate Revolving terms are sometimes offered in
connection with special promotions on the same type of merchandise as the
Extended Revolving terms, but generally require a greater minimum purchase. The
minimum monthly payment for Reduced Rate Revolving terms is the greater of $20
or 1/12 of the highest balance.
Silver Club Revolving. Silver Club Revolving terms are sometimes offered for
specialty items such as china and silver purchases. Such terms are subject to a
minimum purchase which is greater than Extended Revolving or Reduced Revolving
and require a minimum monthly payment of 1/12 of the highest balance. Silver
Club Revolving terms do not carry any finance charges as long as the minimum
monthly payments are made by the due dates.
Customer Terms--Mercantile Credit Cards
Prior to October 17, 1998, DNB-La. issued the Mercantile Card. While DNB-La.
began issuing Dillard's Cards exclusively on October 17, 1998, the previously
issued Mercantile Cards and the related Mercantile Accounts remain outstanding.
While there were historically four types of customer payment terms under the
Mercantile Card which could be chosen in connection with the purchase of
merchandise or services at any Mercantile store: Regular Option, Special
Option, Prestige Option, and Home Option, Mercantile Card holders currently can
choose only the Regular Option in addition to any of the Dillard's Card
customer terms in connection with new purchases of merchandise or services at a
Department Store. Payments for purchases of merchandise or services made by
Mercantile Card holders prior to October 17, 1998 under the Special Option,
Prestige Option or Home Option will be unaffected by this change.
Regular Option. Regular Option terms do not have any restrictions on the type
or amounts of merchandise or services charged up to the amount of the credit
limit. Minimum monthly payments for Regular Option Accounts are the greater of
$10 or 1/12 of the outstanding balance. A finance charge is assessed on the
unpaid balance.
Special Option. Special Option terms were designed for larger purchases, with
no limit on the types of goods which could be purchased. Special Option terms
entitle the holder of Mercantile Card to a 90 day interest free period if he or
she pays 1/3 of the balance each month. If the interest free option was not
exercised, the required minimum monthly payment is equal to the greater of $10
or 1/24 of the highest new balance.
Prestige Option. Prestige Option terms were available solely for purchases of
specialty items such as china, silver, fine furs, and designer clothing.
Prestige Option terms were subject to a minimum
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<PAGE>
purchase requirement. The required minimum monthly payment is the higher of $15
or 1/12 of the highest new balance. No interest accrues on the balance for so
long as the minimum monthly payment is made.
Home Option. Home Option terms were available only at Mercantile furniture
stores. This option offered cardholders who satisfied a minimum purchase
requirement the option of 12 months interest free financing by paying monthly
the greater of $40 or 1/12 of the highest new balance. If the interest free
option was not exercised, the required minimum monthly payment is equal to the
greater of $15 or 1/36 of the highest new balance.
Credit Card Finance Charges--DNB.
A fixed monthly finance charge is assessed on the average daily balance in each
Account serviced by DNB for each billing cycle. Monthly periodic finance
charges for a billing cycle are not assessed on new purchases made during such
billing cycle if either on the first day of such billing cycle there was no
balance outstanding or if the balance outstanding on the first day of such
billing cycle is paid in full during such billing cycle or if on the last day
of such billing cycle there is no balance outstanding. The monthly periodic
finance charge assessed on outstanding balances is calculated by multiplying
(i) the average daily balance during the billing cycle by (ii) the applicable
monthly periodic finance charge. The current annual percentage rates for the
Dillard's Cards serviced by DNB range from 4.9% to 19.8% under the Regular
Revolving terms. The current annual percentage rates for the Extended
Revolving, Reduced Rate Revolving and Silver Club Revolving terms range from 0%
to 19.8%. In addition, DNB offers from time to time temporary promotional rates
and, under certain circumstances, the periodic finance charges on a limited
number of accounts may be either greater than or less than those assessed by
the Banks generally. To the extent that the amount of any finance charge
applicable to a balance is less than $0.50, such amount is increased to $0.50.
There can be no assurance that periodic finance charges will remain at current
levels in the future.
Credit Card Finance Charges--DNB-La.
A fixed monthly finance charge is assessed on the average daily balance in each
Account serviced by DNB-La. for each billing cycle. Monthly periodic finance
charges for a billing cycle are not assessed on new purchases made during such
billing cycle if either on the first day of such billing cycle there was no
balance outstanding or if the balance outstanding on the first day of such
billing cycle is paid in full during such billing cycle or if on the last day
of such billing cycle there is no balance outstanding. The monthly periodic
finance charge assessed on outstanding balances is calculated by multiplying
(i) the average daily balance during the billing cycle by (ii) the applicable
monthly periodic finance charge. The current annual percentage rates for the
Dillard's Cards and Mercantile Cards serviced by MCC range from 4.9% to 21.0%
under the Regular Option. The current annual percentage rates for the Special
Option, Prestige Option, Home Option, Extended Revolving, Reduced Rate
Revolving and Silver Club Revolving terms range from 0% to 21.0%. While DNB-La.
has not traditionally done so, under certain circumstances, DNB-La. may offer
on a temporary basis periodic finance charges on a limited number of accounts
that are either greater than or less than those assessed by the Banks
generally. To the extent that the amount of any finance charge applicable to a
balance is less than $0.50, such amount is increased to $0.50. There can be no
assurance that periodic finance charges will remain at current levels in the
future.
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Fees and Payment Applications
While the Banks do not currently charge membership fees to cardholders (except
for VIP annual fees in the case of certain Mercantile Card holders), they may
charge accounts certain other fees including: (i) a late fee (currently $20 for
Dillard's Accounts and $10 for Mercantile Accounts) if the Bank does not
receive at least the required minimum monthly payment by the 15th day after the
next statement billing date set forth on the monthly billing statement and (ii)
a fee of $15.00 with respect to each check submitted by a cardholder in payment
of an Account which is dishonored.
Payments by a cardholder in connection with an Account serviced by DNB are
processed and applied first to any billed fees and then to billed and unpaid
balances in the order determined by such Bank. Any excess is applied to
unbilled balances in the order determined by such Bank. Payments by a
cardholder in connection with an Account serviced by DNB-La. are processed and
applied first to any billed fees, next to billed and unpaid finance charges and
then to billed and unpaid balances in the order determined by such Bank. Any
excess is applied to unbilled balances in the order determined by such Bank.
There can be no assurance that fees and other charges will remain at current
levels in the future.
COLLECTION OF DELINQUENT ACCOUNTS
Efforts to collect delinquent credit card receivables are made by DNB's
personnel and collection agencies and attorneys retained by DNB. Collection
efforts include the mailing of delinquency notices, telephone calls and the
referral of delinquent Accounts to collection agencies depending upon the
period for which an Account is delinquent. The following describes the current
collection procedures utilized by the Banks.
DILLARD'S NATIONAL BANK
DNB considers an account delinquent if a payment due thereunder is not received
by DNB by the date of the statement following the statement on which the amount
is first stated to be due. DNB categorizes delinquent accounts into two
categories for purposes of pursuing payment:
. ""Front-End" delinquencies, which are accounts that are one to two
payments past due (15 to 30 days past due); and
. ""Back-End" delinquencies, which are accounts that are more than two
payments past due (more than 30 days past due) and accounts for which
there is no working phone number.
An account delinquency is measured by reference to the billing date, not the
due date. Each delinquency category has a dedicated group of collectors who
manage the collection process. In addition, charged-off balances (described
below) are transferred to the Recovery Unit, which has its own dedicated
employees. New collectors generally begin in the Front-End collections group;
with experience and favorable performance, collectors are moved to the Back-
End.
Front-End collectors utilize an automated dialing system (an "AUTO DIALER") to
telephone delinquent accounts. The dialer leaves pre-recorded messages on
answering machines when customers are not home. If the customer answers the
phone, the Front-End collector talks to the customer from a script
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<PAGE>
that is provided to them. All Front-End collection stations are also equipped
with a caller-id program which identifies and retains the phone numbers from
which customers call. Generally, DNB includes a request for payment of overdue
amounts on billing statements issued after the account becomes delinquent. In
addition, after a certain period determined by its behavioral scoring system,
DNB mails a separate notice to the cardholder notifying him or her of the
delinquency and possible revocation of the credit card and requesting payment
of the delinquent amount.
Once an account becomes a Back-End delinquency, all purchasing ability is
automatically terminated. Based upon behavioral scoring models, DNB may suspend
or terminate an account before it becomes a Back-End Account. Back-End
collectors utilize the Auto Dialer, manual dialing and mail to reach the
customer. Back-End collectors also utilize a phone number and address
verification system and attempt to call nearby acquaintances if the customer
cannot be reached at home or at work.
Delinquent customers are encouraged to either pay the delinquent and current
minimum payment balances in a local Dillard's department store or via a system
which allows collectors to take check payments by phone upon receiving the
appropriate account information.
New collectors are provided with three to four days of classroom instruction
upon hiring. They are familiarized with the computer systems, screen layouts
and DNB's collection philosophy, in addition to using roll playing to sharpen
listening and negotiating skills. Upon completion of the classroom instruction,
new collectors are paired with an experienced agent for on the job training.
Both Front-End and Back-End collectors are monitored for quality control.
Managers listen randomly to calls made by each collector. On-going training is
available if the supervisor determines that the collector is ineffective.
Collection procedures are determined by a behavioral scoring system that uses
statistical models and basic account financial information to determine the
steps to be followed at various stages of delinquency. Generally, MCC includes
a request for payment of overdue amounts on billing statements issued after the
account becomes delinquent. In addition, after a period determined by its
behavioral scoring system, DNB mails a separate notice to the cardholder
notifying him or her of the delinquency and possible revocation of the credit
card and requesting payment of the delinquent amount. Based on DNB's analysis
of a cardholder's behavior through its behavioral scoring system, DNB may take
any or all of the above actions at an earlier point in time. In some cases,
depending on the financial profile of the cardholder and the stated reason for
and magnitude of a delinquency, DNB may enter into arrangements with a
delinquent cardholder to extend or otherwise change the payment schedule.
DNB's policy is to charge off an account during the billing cycle immediately
following the cycle in which such account became seven payments (180 days past
due, or 210 days past billing cycle) delinquent. If DNB receives notice that a
cardholder is the subject of a bankruptcy proceeding, DNB charges off such
cardholder's account upon the earlier of the end of the month in which notice
of the bankruptcy is received and the time period set forth in the previous
sentence. Charged-off accounts are sent to the Recovery Unit, collection
agencies or attorneys.
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<PAGE>
MERCANTILE CREDIT CORPORATION
MCC forwards an account to its collections department if it is two payments (30
days) overdue. An account delinquency is measured by reference to the billing
date, not the due date. If an account is one payment past due, the credit limit
may be lowered depending on the accountholder's behavioral score. If an account
is two payments past due the account is forwarded to the collections department
and the customer's charging privileges are revoked. If the balance of a
delinquent account is less than $200, the collections department will mail
notification of the delinquency to the cardholder and will attempt to reach the
customer through a predictive dialing system similar to the AutoDialer. If the
balance of a delinquent account is greater than $200 but less than $1,300, the
account is put into the "Work Que" to be handled by a collection team. If the
delinquent balance is greater that $1,300 the account will be assigned to a
senior collector. The predictive dialing system is used to contact customers if
there is a good telephone number on file. If there is not a good telephone
number on file, efforts are made to locate the customer including calling the
nearest relative they identified on the credit application. Accounts are
removed from the predictive dialer cue after they are 5 payments or 120 days
past due or after 15 days of no contact.
New collectors undergo 10 days of training upon hiring. They are familiarized
with the computer systems, screen layouts and MCC's collection philosophy, in
addition to using roll playing to sharpen listening and negotiating skills.
Upon completion of the classroom instruction, new collectors are paired with an
experienced agent for on the job training.
Team leaders monitor collectors for quality control. These managers randomly
listen to customer calls and review daily activity reports prepared by
collectors.
Collection procedures are determined by an adaptive control system that uses
statistical models and basic account financial information to determine the
steps to be followed at various stages of delinquency. Generally, MCC includes
a request for payment of overdue amounts on billing statements issued after the
account becomes delinquent. In addition, after a period determined by the
control system (generally 30 days), MCC mails a separate notice to the
cardholder notifying him or her of the delinquency and possible revocation of
the credit card and requesting payment of the delinquent amount. Based on MCC's
analysis of a cardholder's behavior through the control system, MCC may take
any or all of the above actions at an earlier point in time. In some cases,
depending on the financial profile of the cardholder and the stated reason for
and magnitude of a delinquency, MCC may enter into arrangements with a
delinquent cardholder to extend or otherwise change the payment schedule.
MCC's policy is to charge off an account during the billing cycle immediately
following the cycle in which such account became seven payments (180 days past
due, or 210 days past billing date) delinquent. If MCC or DNB-La. receives
notice that a cardholder is the subject of a bankruptcy proceeding, the account
is charged off as of the billing date following the date on which such notice
is received. Charged-off accounts are sent to collection agencies or attorneys.
If a collection agency has not succeeded in collecting on an account within six
months, the account is assigned to another collection agency.
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<PAGE>
RECOVERIES
Under the terms of an Agreement, Recoveries may be included in the assets of
the Trust to the extent, if any, specified in the applicable Series Supplement
for any Series.
YEAR 2000 COMPLIANCE
Dillard's, Inc. (the "CORPORATION") has identified all significant applications
that will require modification to insure year 2000 compliance by it and its
subsidiaries. Internal resources are being used to make the required
modifications and test year 2000 compliance. Management does not expect that
either costs of modifications or consequences of any unsuccessful modifications
should have a material adverse effect on the financial position, results of
operations or liquidity of the Company.
THE RECEIVABLES
The assets of each Trust will include Receivables arising under certain private
label revolving credit card accounts selected from all such accounts owned by
the Originators and all monies due or to become due in payment of the
Receivables, all proceeds of the Receivables and proceeds of any credit
insurance policies relating to the Receivables, and may include the right to
receive Recoveries, if any, allocable to the Trust and all monies on deposit in
certain bank accounts of the Trust (including any permitted investments in
which any such monies are invested, but excluding investment earnings on such
amounts unless otherwise specified in the related Prospectus Supplement), and
any Enhancement with respect to any particular Series or Class, as described in
the related Prospectus Supplement. The term "ENHANCEMENT" means, with respect
to any Series or Class thereof, any Credit Enhancement, guaranteed rate
agreement, maturity liquidity facility, interest rate cap agreement, interest
rate swap agreement, currency swap agreement or other similar arrangement for
the benefit of the Certificateholders of such Series or Class.
The Receivables will consist of amounts charged by cardholders for goods and
services (the "PRINCIPAL RECEIVABLES"), plus the related periodic finance
charges and amounts charged or billed to the Accounts in respect of certain
credit card fees, including late fees (the "FINANCE CHARGE RECEIVABLES");
provided, however, that if the Transferor exercises the Discount Option with
respect to a Trust, an amount equal to the product of the Discount Percentage
and the amount of Receivables arising in the related Accounts on and after the
date such option is exercised that otherwise would be Principal Receivables
will be treated as Finance Charge Receivables. If so provided in the Prospectus
Supplement for a Series of Certificates, Finance Charges for such Series may be
equal to, or may be not greater than, a fixed percentage of the outstanding
balance of some or all Receivables in the applicable Trust. See "Description of
the Certificates-Discount Option." Recoveries allocable to the Trust will be
treated as Finance Charge Receivables. See "Dillard National Bank's Credit Card
Activities-Recoveries."
The Receivables conveyed to each Trust will arise in Accounts selected on the
basis of criteria set forth in the related Agreement and described in the
related Prospectus Supplement as applied initially on the date (the "CUT-OFF
DATE") specified in the related Prospectus Supplement and, with respect to
additional eligible revolving credit card accounts to be included as Accounts
("ADDITIONAL ACCOUNTS"), as of the related date of their designation (the
"TRUST PORTFOLIO"). The Transferor will
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<PAGE>
have the right (subject to certain limitations and conditions set forth
therein), and in some circumstances will be obligated, to designate from time
to time Additional Accounts and to transfer to the related Trust all
Receivables of such Additional Accounts, whether such Receivables are then
existing or thereafter created, or to transfer to such Trust Participations in
lieu of such Receivables or in addition thereto. Any Additional Accounts
designated pursuant to an Agreement must be Eligible Accounts as of the date
the Transferor designates such accounts as Additional Accounts. Furthermore,
pursuant to each Agreement, the Transferor has the right (subject to certain
limitations and conditions) to designate certain Accounts and to accept the
conveyance of all the receivables in such accounts (the "REMOVED ACCOUNTS"),
whether such Receivables are then existing or thereafter created, and to
require the Trustee to reconvey all receivables in such Removed Accounts to the
Transferor, whether such Receivables are then existing or thereafter created.
Throughout the term of each Trust, the related Accounts from which the
Receivables arise will be the Accounts designated by the Transferor on the
relevant Cut-Off Date plus any Additional Accounts minus any Removed Accounts.
With respect to each Series of Certificates, the Transferor will represent and
warrant to the related Trust that, as of the date of issuance of the related
series (the "CLOSING DATE") and the date Receivables are conveyed to the Trust,
such Receivables meet certain eligibility requirements. See "Description of the
Certificates--Representations and Warranties."
The Prospectus Supplement relating to each Series of Certificates will provide
certain information about the related Trust Portfolio as of the date specified.
Such information will include, but not be limited to, the amount of Principal
Receivables, the amount of Finance Charge Receivables, the range of principal
balances of the Accounts and the average thereof, the range of credit limits of
the Accounts and the average thereof, the geographic distribution of the
Accounts, the types of Accounts and delinquency statistics relating to the
Accounts.
MATURITY CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, for each
Series, following the Revolving Period, collections of Principal Receivables
are expected to be distributed to holders of each Class of Certificates (the
"CERTIFICATEHOLDERS") of such Series or any specified class of Certificates
(each, a "CLASS") thereof on each specified Distribution Date during the
Controlled Amortization Period or the Principal Amortization Period, or are
expected to be accumulated for payment to Certificateholders of such Series or
any specified Class thereof during a Controlled Accumulation Period and, under
certain limited circumstances if so specified in the Prospectus Supplement, a
Rapid Accumulation Period (each, an "ACCUMULATION PERIOD") and distributed on a
Scheduled Payment Date; provided, however, that, if the Rapid Amortization
Period commences, collections of Principal Receivables will be paid to
Certificateholders in the manner described herein and in the related Prospectus
Supplement. The related Prospectus Supplement will specify when the Controlled
Amortization Period, the Principal Amortization Period or Accumulation Period
as applicable, will commence, the principal payments expected or available to
be received or accumulated during such Controlled Amortization Period,
Principal Amortization Period or Accumulation Period, or on the Scheduled
Payment Date, as applicable, the manner and priority of principal accumulations
and payments among the Classes of a Series of Certificates, the payment rate
assumptions on which such expected principal accumulations and payments are
based and the Pay Out Events which, if any were to occur, would lead to the
commencement of a Rapid Amortization Period or, if so specified in the related
Prospectus Supplement, a Rapid Accumulation Period.
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<PAGE>
No assurance can be given, however, that the Principal Receivables allocated to
be paid to Certificateholders or the holders of any specified Class thereof
will be available for distribution or accumulation for payment to
Certificateholders on each Distribution Date during the Controlled Amortization
Period, the Principal Amortization Period or Accumulation Period, or on the
Scheduled Payment Date, as applicable. In addition, the Transferor can give no
assurance that the payment rate assumptions for any Series will prove to be
correct. Unless otherwise specified therein, the related Prospectus Supplement
will provide certain historical data relating to payments by cardholders, total
charge-offs and other related information relating to the Dillard's Portfolio.
There can be no assurance that future events will be consistent with such
historical data.
The amount of collections of Receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of Principal
Receivables with respect to any Trust Portfolio, and thus the rate at which the
related Certificateholders could expect to receive or accumulate payments of
principal on their Certificates during an Amortization Period or Accumulation
Period, or on any Scheduled Payment Date, as applicable, will be similar to any
historical experience set forth in a related Prospectus Supplement. If a Pay
Out Event occurs, the average life and maturity of such Series of Certificates
could be significantly reduced.
The actual payment rate for any Series of Certificates may be slower than the
payment rate used to determine the amount of collections of Principal
Receivables scheduled or available to be distributed or accumulated for later
payment to Certificateholders or any specified Class thereof during the
Controlled Amortization Period, the Principal Amortization Period or
Accumulation Period or on the Scheduled Payment Date, as applicable, or a Pay
Out Event may occur which would initiate the Rapid Amortization Period. There
can be no assurance that the actual number of months elapsed from the date of
issuance of such Series of Certificates to the final Distribution Date with
respect to the Certificates will equal the expected number of months. In
addition if, after the issuance of a Series, a related Companion Series is
issued and a Rapid Amortization Period commences, payments to the Holders of
such Series may be delayed. See "Description of the Certificates--Companion
Series."
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds from the sale of each Series of Certificates offered hereby will be
paid to the Transferor. The Transferor will use such proceeds to pay the
Originators for the purchase of Receivables held by the Trust.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued in Series. Each Series will represent an
interest in a specified Trust other than the interests represented by any other
Series of Certificates issued by such Trust (which may include Series offered
pursuant to this Prospectus) and the Transferor Certificate. Each Series will
be issued pursuant to an Agreement entered into by the Transferor and the
Trustee named in the related Prospectus Supplement and a series supplement (a
"SERIES SUPPLEMENT") to the Agreement. The Prospectus Supplement for each
Series will describe any provisions of the particular Agreement relating to
such Series which may differ materially from the Agreement filed as an exhibit
to the Registration Statement. The following is a summary of the provisions
common to each Series of Certificates. The summaries are qualified in their
entirety by reference to the provisions of the related Agreement and Series
Supplement.
GENERAL
The assets of each Trust will be allocated among the Certificateholders of each
Series of such Trust and the holder of the Transferor Certificate of such Trust
and, in certain circumstances, the related Credit Enhancement Provider. With
respect to a Trust, the aggregate principal amount of the interest of the
Certificateholders of a Series in such Trust is referred to herein as the
"INVESTOR INTEREST" and is based on the aggregate amount of the Principal
Receivables, plus the amount on deposit in certain accounts, in such Trust
allocated to such Series. If specified in any Prospectus Supplement, the term
"Investor Interest" with respect to the related Series will include the
Collateral Interest with respect to such Series. The aggregate principal amount
of the interest of the holder of the Transferor Certificate in a Trust is
referred to herein as the "TRANSFEROR INTEREST," and is based on the aggregate
amount of Principal Receivables, plus the amount on deposit in certain
accounts, in such Trust not allocated to the Certificateholders or any Credit
Enhancement Provider with respect to such Trust. It is currently contemplated
that the Dillard Asset Funding Company (the "TRANSFEROR") will own the
remaining undivided interest in each Trust not represented by the Certificates
issued by such Trust.
The Certificates of each Series will represent undivided interests in certain
assets of the related Trust, including the right to the applicable Investor
Percentage of all cardholder payments on the Receivables in such Trust. Unless
otherwise specified in the related Prospectus Supplement, the Investor Interest
for each Series of Certificates on any date will be equal to the initial
Investor Interest as of the related Closing Date for such Series (increased by
the principal balance of any Certificates of such Series issued after the
Closing Date for such Series) minus the amount of principal paid to the related
Certificateholders prior to such date and minus the amount of unreimbursed
Investor Charge-Offs with respect to such Certificates prior to such date. If
so specified in the Prospectus Supplement relating to any Series of
Certificates, under certain circumstances the Investor Interest may be further
adjusted by the amount of principal allocated to Certificateholders, the funds
on deposit in any specified account, and any other amount specified in the
related Prospectus Supplement.
Each Series of Certificates may consist of one or more Classes, one or more of
which may be senior certificates ("SENIOR CERTIFICATES") and one or more of
which may be subordinated certificates ("SUBORDINATED CERTIFICATES"). Each
Class of a Series will evidence the right to receive a specified portion of
each distribution of principal or interest or both. The Investor Interest with
respect to a
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<PAGE>
Series with more than one Class will be allocated among the Classes as
described in the related Prospectus Supplement. The Certificates of a Class may
differ from Certificates of other Classes of the same Series in, among other
things, the amounts allocated to principal payments, maturity date, interest
rate per annum ("CERTIFICATE RATE") and the availability of Enhancement.
The Certificateholders of each Series will have the right to receive (but only
to the extent needed to make required payments under the related Agreement and
the related Series Supplement and subject to any reallocation of such amounts
if the related Series Supplement so provides) varying percentages of the
collections of Finance Charge Receivables and Principal Receivables for each
month and will be allocated a varying percentage of the amount of Receivables
in Accounts which were written off as uncollectible by the Servicer ("DEFAULTED
ACCOUNTS") for such month (each such percentage, an "INVESTOR PERCENTAGE"). The
related Prospectus Supplement will specify the Investor Percentages with
respect to the allocation of collections of Principal Receivables, Finance
Charge Receivables and Receivables in Defaulted Accounts during the Revolving
Period, any Amortization Period and any Accumulation Period, as applicable. If
the Certificates of a Series offered hereby include more than one Class of
Certificates, the assets of the related Trust allocable to the Certificates of
such Series may be further allocated among each Class in such Series as
described in the related Prospectus Supplement. See "Description of the
Certificates--Investor Percentage and Transferor Percentage."
The Certificates of each Series will represent interests in the related Trust
only and will not represent interests in or recourse obligations of the
Transferor, Dillard's or any of its affiliates. Neither the Certificates nor
the underlying Accounts or Receivables are insured or guaranteed by the FDIC or
any other governmental agency.
For each Series of Certificates, payments of interest and principal will be
made on Distribution Dates specified in the related Prospectus Supplement to
Certificateholders in whose names the Certificates were registered on the
record dates (each, a "RECORD DATE") specified in the related Prospectus
Supplement. Interest will be distributed to Certificateholders in the amounts,
for the periods and on the dates specified in the related Prospectus
Supplement.
For each Series of Certificates, the Transferor initially will own the
Transferor Certificate. The Transferor Certificate will represent the undivided
interest in each Trust not represented by the Certificates issued and
outstanding under such Trust or the rights, if any, of any Credit Enhancement
Providers to receive payments from each Trust. The holder of the Transferor
Certificate will have the right to a percentage (the "TRANSFEROR PERCENTAGE")
of all cardholder payments from the Receivables in the Trust. If provided in
the related Agreement and Prospectus Supplement, the Transferor Certificate may
be transferred in whole or in part subject to certain limitations and
conditions set forth therein. See "--Certain Matters Regarding the Transferor
and the Servicer."
Unless otherwise specified in the related Prospectus Supplement, with respect
to each Series of Certificates, during the Revolving Period, the amount of the
Investor Interest in the Trust will remain constant except under certain
limited circumstances. See "--Defaulted Receivables; Rebates and Fraudulent
Charges; Investor Charge-Offs." The amount of Principal Receivables in each
Trust, however, will vary each day as new Principal Receivables in the
applicable Accounts are created and others are paid. The amount of the
Transferor Interest will fluctuate each day, therefore, to reflect the
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changes in the amount of the Principal Receivables in the Trust. When a Series
is amortizing, the Investor Interest of such Series will decline as customer
payments of Principal Receivables are collected and distributed to or
accumulated for distribution to the Certificateholders. As a result, the
Transferor Interest will generally increase to reflect reductions in the
Investor Interest for such Series and will also change to reflect the
variations in the amount of Principal Receivables in the related Trust. The
Transferor Interest in each Trust may also be reduced as the result of an
Exchange. See "--Exchanges."
Unless otherwise specified in the related Prospectus Supplement, Certificates
of each Series initially will be represented by certificates registered in the
name of the nominee of DTC (together with any successor depository selected by
DNB, the "DEPOSITORY") except as set forth below. Unless otherwise specified in
the related Prospectus Supplement, with respect to each Series of Certificates,
beneficial interests in the Certificates will be available for purchase in
minimum denominations of $1,000 and integral multiples thereof in book-entry
form only. The Transferor has been informed by DTC that DTC's nominee will be
Cede & Co. ("CEDE"). Accordingly, Cede is expected to be the holder of record
of each Series of Certificates. No owner of beneficial interests in the
Certificates (a "CERTIFICATE OWNER") acquiring an interest in the Certificates
will be entitled to receive a certificate representing such person's interest
in the Certificates. Unless and until certificates in fully registered,
certificated form ("DEFINITIVE CERTIFICATES") are issued for any Series under
the limited circumstances described herein, all references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
the DTC Participants (as defined below), and all references herein to
distributions, notices, reports and statements to Certificateholders shall
refer to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Certificates, as the case may be, for distribution to
Certificate Owners in accordance with DTC procedures. See "--Book-Entry
Registration" and "--Definitive Certificates."
If so specified in the Prospectus Supplement relating to a Series, application
will be made to list the Certificates of such Series, or one or more Classes
thereof, on the Luxembourg Stock Exchange, or all or a portion of such Series
or Classes thereof on any other specified exchange.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, with respect
to each Series of Certificates, Certificateholders may hold their Certificates
through DTC (in the United States) or Cedel or Euroclear (in Europe) if they
are participants of such systems, or indirectly through organizations that are
participants in such systems.
Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositaries (collectively, the "DEPOSITARIES") which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code
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and a "clearing agency" registered pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). DTC holds
securities for its participants (the "DTC PARTICIPANTS") and facilitates the
clearance and settlement among DTC Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic book-
entry changes in DTC Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. DTC Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to the DTC system is also
available to others such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("INDIRECT PARTICIPANTS"). The rules
applicable to DTC and the DTC Participants are on file with the Securities and
Exchange Commission (the "SEC").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures. Cross-market transfers between persons holding directly or
indirectly through DTC Participants, on the one hand, and directly or
indirectly through Cedel Participants or Euroclear Participants, on the other,
will be effected by 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 securities to or receiving securities from 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 in Cedel or Euroclear
as a result of a transaction with a DTC Participant will be made during the
subsequent securities settlement processing, dated the business day following
the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Cedel Participant or Euroclear Participant on such day. Cash received in Cedel
or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear 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.
Purchases of Certificates under the DTC system must be made by or through DTC
Participants, which will receive a credit for the Certificates on DTC's
records. The ownership interest of each actual Certificate Owner is in turn to
be recorded on the DTC Participants' and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchase, but Certificate Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect Participant through which the
Certificate Owner entered into the transaction. Transfers of ownership
interests in the Certificates are to be accomplished by entries made on the
books of DTC Participants acting on behalf of Certificate Owners. Certificate
Owners will not receive certificates representing their
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ownership interest in Certificates, except in the event that use of the book-
entry system for the Certificates is discontinued.
To facilitate subsequent transfers, all Certificates deposited by DTC
Participants with DTC are registered in the name of DTC's nominee, Cede. The
deposit of Certificates with DTC and their registration in the name of Cede
effects no change in beneficial ownership. DTC has no knowledge of the actual
Certificate Owners of the Certificates; DTC's records reflect only the identity
of the DTC Participants to whose accounts such Certificates are credited, which
may or may not be the Certificate Owners. The DTC Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC Participants, by
DTC Participants to Indirect Participants, and by DTC Participants and Indirect
Participants to Certificate Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Neither DTC nor Cede will consent or vote with respect to Certificates. Under
its usual procedures, DTC mails an omnibus proxy to the Transferor as soon as
possible after the record date, which assigns Cede's consenting or voting
rights to those DTC Participants to whose accounts the Certificates are
credited on the record date (identified in a listing attached thereto).
Principal and interest payments on the Certificates will be made to DTC. DTC's
practice is to credit DTC Participants' accounts on the applicable Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such Distribution
Date. Payments by DTC Participants to Certificate Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name" and will be the responsibility of such DTC Participant and not of DTC,
the Trustee or the Transferor, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal and
interest to DTC is the responsibility of the Trustee, disbursement of such
payments to DTC Participants shall be the responsibility of DTC, and
disbursement of such payments to Certificate Owners shall be the responsibility
of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Certificates at any time by giving reasonable notice to the
Transferor or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Certificates are
required to be printed and delivered. The Transferor may decide to discontinue
use of the system of book-entry transfers through DTC (or a successor
securities depository). In that event, Definitive Certificates will be
delivered to Certificateholders. See "--Definitive Certificates."
The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that the Transferor believes to be reliable, but the
Transferor takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("CEDEL PARTICIPANTS") and facilitates the
clearance and settlement of securities transactions between Cedel
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Participants through electronic book-entry changes in accounts of Cedel
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 36 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
and may include the underwriters of any Series of Certificates. 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.
The Euroclear System was created in 1968 to hold securities for participants of
the Euroclear System ("EUROCLEAR PARTICIPANTS") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 34 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York's Brussels, Belgium
office (the "EUROCLEAR OPERATOR" or "EUROCLEAR"), under contract with Euro-
clear Clearance System, 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 the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters of any Series of Certificates. Indirect access
to the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking corporation
which is a member bank of the Federal Reserve System. As such, it is regulated
and examined by the Board of Governors of the Federal Reserve System and the
New York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear Participants
and has no record of or relationship with persons holding through Euroclear
Participants.
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Distributions with respect to Certificates held through Cedel or Euroclear will
be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Tax Matters." Cedel or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a Certificateholder
under related Agreement on behalf of a Cedel Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, Cedel
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued as Definitive Certificates in fully
registered, certificated form to Certificate Owners or their nominees rather
than to DTC or its nominee, only if (i) the Transferor advises the Trustee for
such Series in writing that DTC is no longer willing or able to discharge
properly its responsibilities as Depository with respect to such Series of
Certificates, and the Trustee or the Transferor is unable to locate a qualified
successor, (ii) the Transferor, at its option, advises the Trustee in writing
that it elects to terminate the book-entry system through DTC or (iii) after
the occurrence of a Servicer Default, Certificate Owners representing not less
than 50% (or such other percentage specified in the related Prospectus
Supplement) of the Investor Interest advise the Trustee and DTC through DTC
Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interest of the
Certificate Owners.
Upon the occurrence of any of the events described in the immediately preceding
paragraph, DTC is required to notify all DTC Participants of the availability
through DTC of Definitive Certificates. Upon surrender by DTC of the definitive
certificate representing the Certificates and instructions for re-registration,
the Trustee will issue the Certificates as Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as holders under the Agreement ("HOLDERS").
Distribution of principal and interest on the Certificates will be made by the
Trustee directly to Holders of Definitive Certificates in accordance with the
procedures set forth herein and in the Agreement. Interest payments and any
principal payments on each Distribution Date will be made to Holders in whose
names the Definitive Certificates were registered at the close of business on
the related Record Date. Distributions will be made by check mailed to the
address of such Holder as it appears on the register maintained by the Trustee
or, if such Holder holds more than an aggregate principal amount of such
Definitive Certificates to be specified in the Agreement, by wire transfer to
such Holder's account. The final payment on any Certificate (whether Definitive
Certificates or the Certificates registered in the name of Cede representing
the Certificates), however, will be made only upon presentation and surrender
of such Certificate at the office or agency specified in the notice of final
distribution to Certificateholders. The Trustee will provide such notice to
registered
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Certificateholders not later than the fifth day of the month of such final
distributions. In addition, if the Certificates are listed on the Luxembourg
Stock Exchange, payments of principal and interest, including the final payment
on any Certificate, will also be made at the offices of Banque Generale du
Luxembourg, S.A.
Definitive Certificates will be transferable and exchangeable at the offices of
any of the Transfer Agents and Registrars, which shall initially be and
the Trustee, respectively. No service charge will be imposed for any
registration of transfer or exchange, but the Transfer Agent and Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith. The Transfer Agent and Registrar shall
not be required to register the transfer or exchange of Definitive Certificates
for a period of fifteen days preceding the due date for any payment with
respect to such Definitive Certificates.
INTEREST PAYMENTS
For each Series of Certificates and Class thereof, interest will accrue from
the date specified in the applicable Prospectus Supplement on the applicable
Investor Interest at the applicable Certificate Rate, which may be a fixed,
floating or other type of rate as specified in the related Prospectus
Supplement. Interest will be distributed to Certificateholders in the amounts
and on the dates (which may be monthly, quarterly, semiannually or otherwise as
specified in the related Prospectus Supplement) (each, a "DISTRIBUTION DATE")
specified in the related Prospectus Supplement. Interest payments on any
Distribution Date will be funded from collections of Finance Charge Receivables
allocated to the Investor Interest during the preceding monthly period or
periods (each, a "MONTHLY PERIOD") or Monthly Periods and may be funded from
certain investment earnings on funds held in accounts of the related Trust and
from any applicable Credit Enhancement, if necessary, or certain other amounts
as specified in the related Prospectus Supplement. If the Distribution Dates
for payment of interest for a Series or Class occur less frequently than
monthly, such collections or other amounts (or the portion thereof allocable to
such Class) may be deposited in one or more trust accounts (each, an "INTEREST
FUNDING ACCOUNT") pending distribution to the Certificateholders of such Series
or Class, as described in the related Prospectus Supplement. If a Series has
more than one class of Certificates, each such Class may have a separate
Interest Funding Account. The Prospectus Supplement relating to each Series of
Certificates and each Class thereof will describe the amounts and sources of
interest payments to be made, the Certificate Rate for each Class thereof, and,
for a Series or each Class thereof bearing interest at a floating Certificate
Rate, the initial Certificate Rate, the dates and the manner for determining
subsequent Certificate Rates, the formula, index or other method by which such
Certificate Rates are determined and any cap or other limitations on any
Certificate Rate.
PRINCIPAL PAYMENTS
The principal of the Certificates of each Series offered hereby will be
scheduled to be paid either in installments commencing on a date specified in
the related Prospectus Supplement (the "PRINCIPAL COMMENCEMENT DATE"), in which
case such Series will have either a Controlled Amortization Period or a
Principal Amortization Period, as described below, or on an expected date
specified in, or determined in the manner specified in, the related Prospectus
Supplement (the "SCHEDULED PAYMENT DATE"), in which case such Series will have
an Accumulation Period, as described below. If a Series
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has more than one Class of Certificates, a different method of paying
principal, Principal Commencement Date or Scheduled Payment Date may be
assigned to each Class. The payment of principal with respect to the
Certificates of a Series or Class may commence earlier than the applicable
Principal Commencement Date or Scheduled Payment Date, and the final principal
payment with respect to the Certificates of a Series or Class may be made later
than the applicable expected payment date, Scheduled Payment Date or other
expected date, if a Pay Out Event occurs and the Rapid Amortization Period
commences with respect to such Series or Class or under certain other
circumstances described herein.
Unless otherwise specified in the related Prospectus Supplement, during the
Revolving Period for each Series of Certificates (which begins on the Closing
Date relating to such Series and ends on the day before an Amortization Period
or Accumulation Period begins), no principal payments will be made to the
Certificateholders of such Series. During the Controlled Amortization Period,
Principal Amortization Period or Accumulation Period, as applicable, which will
be scheduled to begin on the date specified in, or determined in the manner
specified in, the related Prospectus Supplement, and during the Rapid
Amortization Period, which will begin upon the occurrence of a Pay Out Event,
principal will be paid to the Certificateholders in the amounts and on
Distribution Dates specified in the related Prospectus Supplement or will be
accumulated in a trust account established for the benefit of such
Certificateholders (a "PRINCIPAL FUNDING ACCOUNT") for later distribution to
Certificateholders on the Scheduled Payment Date in the amounts specified in
the related Prospectus Supplement. Principal payments for any Series or Class
thereof will be funded from collections of Principal Receivables received
during the related Monthly Period or Periods as specified in the related
Prospectus Supplement and allocated to such Series or Class and from certain
other sources specified in the related Prospectus Supplement. In the case of a
Series with more than one Class of Certificates, the Certificateholders of one
or more Classes may receive payments of principal at different times. The
related Prospectus Supplement will describe the manner, timing and priority of
payments of principal to Certificateholders of each Class.
Funds on deposit in any Principal Funding Account applicable to a Series may be
subject to a guaranteed rate agreement or guaranteed investment contract or
other arrangement specified in the related Prospectus Supplement intended to
assure a minimum rate of return on the investment of such funds. In order to
enhance the likelihood of the payment in full of the principal amount of a
Series of Certificates or Class thereof at the end of an Accumulation Period,
such Series of Certificates or Class thereof may be subject to a principal
payment guaranty or other similar arrangement specified in the related
Prospectus Supplement.
REVOLVING PERIOD
Otherwise specified in the related Prospectus Supplement, with respect to each
Series and any Class thereof, no principal will be payable to
Certificateholders until the Principal Commencement Date or the Scheduled
Payment Date with respect to such Series or Class, as described below. For the
period beginning on the Closing Date and ending with the commencement of an
Amortization Period or an Accumulation Period (the "REVOLVING PERIOD"),
collections of Principal Receivables otherwise allocable to the Investor
Interest will, subject to certain limitations, be paid from the Trust to the
holder of the Transferor Certificate or, under certain circumstances and if so
specified in the related Prospectus Supplement, will be treated as Shared
Principal Collections and paid to the holders of
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other Series of Certificates issued by such Trust, as described herein and in
the related Prospectus Supplement. See "Description of the Certificates--Pay
Out Events" in this Prospectus and the related Prospectus Supplement for a
discussion of the events which might lead to early termination of the Revolving
Period.
CONTROLLED AMORTIZATION PERIOD
If the Prospectus Supplement relating to a Series so specifies, unless a Rapid
Amortization Period with respect to such Series commences, the Certificates of
such Series or any Class thereof will have an amortization period (the
"CONTROLLED AMORTIZATION PERIOD") during which collections of Principal
Receivables allocable to the Investor Interest of such Series (and certain
other amounts if so specified in the related Prospectus Supplement) will be
used on each Distribution Date to make principal distributions in amounts
determined in the manner specified in the related Prospectus Supplement to the
Certificateholders of such Series or any Class of such Series then scheduled to
receive such distributions. The amount to be distributed on any Distribution
Date during the Controlled Amortization Period will be limited to an amount
(the "CONTROLLED DISTRIBUTION AMOUNT") equal to an amount specified in the
related Prospectus Supplement (the "CONTROLLED AMORTIZATION AMOUNT") plus any
existing deficit controlled amortization amount arising from prior Distribution
Dates. If a Series has more than one Class of Certificates, each Class may have
a separate Controlled Amortization Amount. In addition, the related Prospectus
Supplement may describe certain priorities among such Classes with respect to
such distributions. The Controlled Amortization Period will commence at the
close of business on a date specified in the related Prospectus Supplement and
continue until the earliest of (a) the commencement of the Rapid Amortization
Period, (b) payment in full of the Investor Interest of the Certificates of
such Series or Class and, if so specified in the related Prospectus Supplement,
of the Collateral Interest, if any, with respect to such Series and (c) the
Series Termination Date with respect to such Series.
PRINCIPAL AMORTIZATION PERIOD
If the Prospectus Supplement relating to a Series so specifies, unless a Rapid
Amortization Period with respect to such Series commences, the Certificates of
such Series or any Class thereof will have an amortization period (the
"PRINCIPAL AMORTIZATION PERIOD") during which collections of Principal
Receivables allocable to the Investor Interest of such Series (and certain
other amounts if so specified in the related Prospectus Supplement) will be
used on each Distribution Date to make principal distributions in an amount
specified in the Prospectus Supplement to the Certificateholders of such Series
or any Class of such Series then scheduled to receive such distributions. If a
Series has more than one Class of Certificates, the related Prospectus
Supplement may describe certain priorities among such Classes with respect to
such distributions. The Principal Amortization Period will commence at the
close of business on a date specified in the related Prospectus Supplement and
continue until the earliest of (a) the commencement of the Rapid Amortization
Period, (b) payment in full of the Investor Interest of the Certificates of
such Series or Class and, if so specified in the related Prospectus Supplement,
of the Collateral Interest, if any, with respect to such Series and (c) the
Series Termination Date with respect to such Series.
ACCUMULATION PERIOD
If the Prospectus Supplement relating to a Series so specifies, unless a Rapid
Amortization Period with respect to such Series commences, the Certificates of
such Series or any Class thereof will have
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<PAGE>
an Accumulation Period during which collections of Principal Receivables
allocable to the Investor Interest of such Series (and certain other amounts if
so specified in the related Prospectus Supplement) will be deposited on the
business day immediately prior to each Distribution Date or other business day
specified in the related Prospectus Supplement (each a "TRANSFER DATE") in a
Principal Funding Account and used to make distributions of principal to the
Certificateholders of such Series or Class on the Scheduled Payment Date. The
amount to be deposited in the Principal Funding Account on any Transfer Date
will be limited to an amount (the "CONTROLLED DEPOSIT AMOUNT") equal to an
amount specified in the related Prospectus Supplement (the "CONTROLLED
ACCUMULATION AMOUNT") plus any deficit controlled accumulation amount arising
from prior Distribution Dates. If a Series has more than one Class of
Certificates, each Class may have a separate Principal Funding Account and
Controlled Accumulation Amount. In addition, the related Prospectus Supplement
may describe certain priorities among such Classes with respect to deposits of
principal into such Principal Funding Accounts. The Accumulation Period will
commence at the close of business on a date specified in or determined in the
manner specified in the related Prospectus Supplement and continue until the
earliest of (a) the commencement of the Rapid Amortization Period, or, if so
specified in the related Prospectus Supplement, the Rapid Accumulation Period,
(b) payment in full of the Investor Interest of the Certificates of such Series
or Class and, if so specified in the related Prospectus Supplement, of the
Collateral Interest, if any, with respect to such Series and (c) the Series
Termination Date with respect to such Series.
Funds on deposit in any Principal Funding Account may be invested in permitted
investments or subject to a guaranteed rate or investment contract or other
arrangement intended to assure a minimum return on the investment of such
funds. Investment earnings on such funds may be applied to pay interest on the
related Series of Certificates. In order to enhance the likelihood of payment
in full of principal at the end of an Accumulation Period with respect to a
Series of Certificates, such Series or any Class thereof may be subject to a
principal payment guaranty or other similar arrangement.
RAPID ACCUMULATION PERIOD
If so specified and under the conditions set forth in the Prospectus Supplement
relating to a Series having a Controlled Accumulation Period, during the period
from the day on which a Pay Out Event has occurred until the earliest of (a)
the commencement of the Rapid Amortization Period, (b) payment in full of the
Investor Interest of the Certificates of such Series and, if so specified in
the related Prospectus Supplement, of the Collateral Interest, if any, with
respect to such Series and (c) the related Series Termination Date (the "RAPID
ACCUMULATION PERIOD"), collections of Principal Receivables allocable to the
Investor Interest of such Series (and certain other amounts if so specified in
the related Prospectus Supplement) will be deposited on each Transfer Date in
the Principal Funding Account and used to make distributions of principal to
the Certificateholders of such Series or Class on the Scheduled Payment Date.
The amount to be deposited in the Principal Funding Account during the Rapid
Accumulation Period will not be limited to the Controlled Deposit Amount. The
term "PAY OUT EVENT" with respect to a Series of Certificates issued by a Trust
means any of the events identified as such in the related Prospectus Supplement
and any of the following: (a) certain events of insolvency or receivership
relating to the Transferor, (b) the Transferor is unable for any reason to
transfer Receivables to such Trust in accordance with the provisions of the
related
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Agreement or (c) such trust becomes an "investment company" within the meaning
of the Investment Company Act of 1940, as amended. See "Description of the
Certificates--Pay Out Events" in this Prospectus and the Related Prospectus
Supplement for a discussion of the events which might lead to commencement of a
Rapid Accumulation Period.
During the Rapid Accumulation Period, funds on deposit in any Principal Funding
Account may be invested in permitted investments subject to a guaranteed rate
or investment contract or other arrangement intended to assure a minimum return
on the investment of such funds. Investment earnings on such funds may be
applied to pay interest on the related Series of Certificates or make other
payments as specified in the related Prospectus Supplement. In order to enhance
the likelihood of payment in full of principal at the end of the Rapid
Accumulation Period with respect to a Series of Certificates, such Series may
be subject to a principal guaranty or other similar arrangement.
RAPID AMORTIZATION PERIOD
During the period from the day on which a Pay Out Event has occurred with
respect to a Series or, if so specified in the Prospectus Supplement relating
to a Series with a Controlled Accumulation Period, from such time specified in
the related Prospectus Supplement after a Pay Out Event has occurred and the
Rapid Accumulation Period has commenced, to the earlier of (a) the date on
which the Investor Interest of the Certificates of such Series and the
Enhancement Invested Amount or the Collateral Interest, if any, with respect to
such Series have been paid in full and (b) the related Series Termination Date
(the "RAPID AMORTIZATION PERIOD"), collections of Principal Receivables
allocable to the Investor Interest of such Series (and certain other amounts if
so specified in the related Prospectus Supplement) will be distributed as
principal payments to the Certificateholders of such Series and, in certain
circumstances, to the Credit Enhancement Provider, monthly on or before each
Distribution Date with respect to such Series in the manner and order of
priority set forth in the related Prospectus Supplement. During the Rapid
Amortization Period with respect to a Series, distributions of principal will
not be limited by any Controlled Deposit Amount or Controlled Distribution
Amount. In addition, upon the commencement of the Rapid Amortization Period
with respect to a Series, any funds on deposit in a Principal Funding Account
with respect to such Series or any Class thereof will be paid to the
Certificateholders of such Series or Class on the first Distribution Date in
the Rapid Amortization Period. See "Description of the Certificates-Pay Out
Events" in this Prospectus and the Related Prospectus Supplement for a
discussion of the events which might lead to commencement of the Rapid
Amortization Period.
TRANSFER AND ASSIGNMENT OF RECEIVABLES
The Transferor will transfer and assign at the time of formation of each Trust
all of its right, title and interest in and to the Receivables in the related
Accounts and, unless otherwise specified in the related Prospectus Supplement,
all Receivables thereafter created in such Accounts.
In connection with each such initial transfer and in connection with each
subsequent transfer of Receivables to a Trust, the Transferor will indicate in
its computer files that the related Receivables have been conveyed to such
Trust. In addition, the Transferor will provide to the Trustee with respect to
each Trust computer files or microfiche lists, containing a true and complete
list showing each related Account, identified by account number and by total
outstanding balance on the date of
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transfer. The Transferor will not deliver to the related Trustee any other
records or agreements relating to the Accounts or the Receivables, except in
connection with additions or removals of Accounts. Except as stated above, the
records and agreements relating to the Accounts and the Receivables maintained
by the Transferor or the Servicer are not and will not be segregated by the
Transferor or the Servicer from other documents and agreements relating to
other credit card accounts and receivables and are not and will not be stamped
or marked to reflect the transfer of the Receivables to a Trust, but the
computer records of the Transferor are and will be required to be marked to
evidence such transfer. The Transferor will file with respect to each Trust
Uniform Commercial Code financing statements with respect to the Receivables
meeting the requirements of applicable state law. If applicable to a specific
Series, see "Risk Factors--Transfer of Receivables" and "Certain Legal Aspects
of the Receivables."
The Transferor will obtain its interest in the Receivables pursuant to one or
more purchase agreements (each, a "PURCHASE AGREEMENT") between the Transferor
and one or more Originators. Pursuant to a Purchase Agreement the Originator
party thereto will transfer to the Transferor all Receivables in specified
Accounts as of the Cut-Off Date specified therein. The Transferor has entered
into the following receivables purchase agreements: (i) the DIC Receivables
Purchase Agreement dated as of August 14, 1998 with Dillard Investment Co.,
Inc. a Delaware corporation ("DIC"); (ii) the MFI Receivables Purchase
Agreement dated as of August 14, 1998 with Mersco Factors, Inc., a Delaware
corporation ("Mersco Factors"); (iii) the DNB Receivables Purchase Agreement
dated as of August 14, 1998 with DNB; and (iv) the MSNB Receivables Purchase
Agreement dated as of August 14, 1998 with DNB-La. (collectively, the "Existing
Purchase Agreements"). Pursuant to the Purchase Agreements, each of DIC, Mersco
Factors, DNB and DNB-La. transferred to the Transferor all then existing and
thereafter arising receivables in each account identified on a list of accounts
delivered to the Transferor, and all monies due or to become due with respect
thereto as of the close of business on August 12, 1998. In addition, pursuant
to their respective Purchase Agreements, each of DNB and DNB-La. transferred to
the Transferor all receivables then existing and thereafter arising in each
account created after August 12, 1998, and all monies due or to become due with
respect thereto as of the date of creation of such receivables. See
"Description of the Purchase Agreements" in this Prospectus and the Related
Prospectus Supplement.
EXCHANGES
For each Series of Certificates, the related Agreement will provide for the
Related Trustee to issue two types of certificates: (i) one or more Series of
Certificates which are transferable and have the characteristics described
below and (ii) the Transferor Certificate, a certificate which evidences the
Transferor Interest, which initially will be held by the Transferor and will be
transferable only as provided in the related Agreement. The related Prospectus
Supplement may also provide that, pursuant to any one or more Series
Supplements, the holder of the Transferor Certificate may tender such
Transferor Certificate, or the Transferor Certificate and the Certificates
evidencing any Series of Certificates issued by such Trust, to the related
Trustee in exchange for one or more new Series (which may include Series
offered pursuant to this Prospectus) and a reissued Transferor Certificate (any
such tender, an "EXCHANGE"). Pursuant to each Agreement, the holder of the
Transferor Certificate may define, with respect to any newly issued Series, all
principal terms of such new Series
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(the "PRINCIPAL TERMS"). Upon the issuance of an additional Series of
Certificates, none of the Transferor, the Servicer, the Trustee or the related
Trust will be required or will obtain the consent of any Certificateholder of
any other Series previously issued by such Trust. However, as a condition of an
Exchange, the holder of the Transferor Certificate will deliver to the Trustee
written confirmation that the Exchange will not result in the reduction or
withdrawal by any Rating Agency of its rating of any outstanding Series. The
Transferor may offer any Series under a Prospectus or other disclosure document
(a "DISCLOSURE DOCUMENT") in offerings pursuant to this Prospectus or in
transactions either registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT") or exempt from registration thereunder directly, through
one or more other underwriters or placement agents, in fixed-price offerings or
in negotiated transactions or otherwise. As used herein, "RATING AGENCY" shall
mean a nationally recognized rating organization selected by the Transferor to
rate any Series.
Unless otherwise specified in the related Prospectus Supplement, the holder of
the Transferor Certificate may perform Exchanges and define Principal Terms
such that each Series issued under a Trust has a period during which
amortization or accumulation of the principal amount thereof is intended to
occur which may have a different length and begin on a different date than such
period for any other Series. Further, one or more Series may be in their
amortization or accumulation periods while other Series are not. Moreover, each
Series may have the benefit of a Credit Enhancement which is available only to
such Series. Under the related Agreement, the Trustee shall hold any such form
of Credit Enhancement only on behalf of the Series with respect to which it
relates. The holder of the Transferor Certificate may deliver a different form
of Credit Enhancement agreement with respect to each Series. The holder of the
Transferor Certificate may specify different certificate rates and monthly
servicing fees with respect to each Series (or a particular Class within such
Series). The holder of the Transferor Certificate will also have the option
under the related Agreement to vary between Series the terms upon which a
Series (or a particular Class within such Series) may be repurchased by the
Transferor. Additionally, certain Series may be subordinated to other Series,
or Classes within a Series may have different priorities. There will be no
limit to the number of Exchanges that may be performed under a related
Agreement.
Unless otherwise specified in the related Prospectus Supplement, an Exchange
may only occur upon the satisfaction of certain conditions provided in the
related Agreement. Under each Agreement, the holder of the Transferor
Certificate may perform an Exchange by notifying the Trustee at least five days
in advance of the date upon which the Exchange is to occur. Under each
Agreement, the notice will state the designation of any Series to be issued on
the date of the Exchange and, with respect to each such Series (and, if
applicable, each Class thereof): (i) its initial principal amount (or method
for calculating such amount) which amount may not be greater than the current
principal amount of the Transferor Certificate, (ii) its certificate rate (or
method of calculating such rate) and (iii) the provider of Credit Enhancement,
if any, which is expected to provide support with respect to it. Each Agreement
will provide that on the date of the Exchange the Trustee will authenticate any
such Series only upon delivery to it of the following, among others, (i) a
Series Supplement specifying the Principal Terms of such Series, (ii) (a) an
opinion of counsel to the effect that, unless otherwise stated in the related
Series Supplement, the certificates of such Series will be characterized as
indebtedness for federal income tax purposes and (b) an opinion of counsel to
the effect that, for federal income tax purposes, (1) such issuance will not
adversely affect the tax characterization as debt of Certificates of any
outstanding Series or Class that were characterized as debt at the time of
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their issuance, (2) following such issuance, the Trust will not be deemed to be
an association (or publicly traded partnership) taxable as a corporation and
(3) such issuance will not cause or constitute an event in which gain or loss
would be recognized by any Certificateholder or the Trust (an opinion of
counsel with respect to any matter to the effect referred to in clause (b) with
respect to any action is referred to herein as a "TAX OPINION"), (iii) if
required by the related Series Supplement, the form of Credit Enhancement, (iv)
if Credit Enhancement is required by the Series Supplement, an appropriate
Credit Enhancement agreement executed by the Transferor and the issuer of the
Credit Enhancement, (v) written confirmation from each Rating Agency that the
Exchange will not result in such Rating Agency's reducing or withdrawing its
rating on any then outstanding Series rated by it, (vi) an officer's
certificate of the Transferor to the effect that after giving effect to the
Exchange the Transferor would not be required to add Additional Accounts
pursuant to the related Agreement and the Transferor Interest would be at least
equal to at a specified minimum level (the "MINIMUM TRANSFEROR INTEREST") and
(vii) the existing Transferor Certificate and, if applicable, the certificates
representing the Series to be exchanged. Upon satisfaction of such conditions,
the Trustee will cancel the existing Transferor Certificate and the
certificates of the exchanged Series, if applicable, and authenticate the new
Series and a new Transferor Certificate.
REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the Prospectus Supplement relating to a Series of
Certificates, the Transferor will make in each Agreement, certain
representations and warranties to the Trust (subject to specified exceptions
and limitations) to the effect that, among other things, (a) the Transferor is
duly organized and in good standing and that it has the authority to consummate
the transactions contemplated by the related Agreement and had the authority to
consummate the transactions contemplated by the applicable Purchase Agreements,
(b) the Transferor has or had, in the case of the Purchase Agreements, the
trust power and authority to (x) execute and deliver the related Agreement and
Purchase Agreements and to perform its obligations thereunder and (y) transfer
the Receivables to the Trust, (c) the execution and delivery of the related
Agreement and Purchase Agreements will not materially conflict with or
constitute a material default under any instrument, contract or agreement to
which the Transferor is a party, (d) the execution and delivery of the related
Agreement and Purchase Agreements and the performance of its obligations
thereunder will not violate any requirements of law applicable to the
Transferor and (e) no proceedings are pending or, to the best of the
Transferor's knowledge, threatened, against the Transferor before any court (x)
asserting the invalidity of the Certificates of such Series, (y) seeking to
prevent the consummation of the transactions contemplated by the related
Agreement or Purchase Agreements or (z) seeking any determination or ruling
that would materially and adversely affect the validity or enforceability of
the related Agreement or the Purchase Agreements. If so provided in the related
Prospectus Supplement, if (i) any of these representations and warranties
proves to have been incorrect in any material respect when made, and continues
to be incorrect for 60 days after notice to the Transferor by the related
Trustee or to the Transferor and the related Trustee by the Certificateholders
holding more than 50% of the Investor Interest of the related Series, and (ii)
as a result the interests of the Certificateholders are materially and
adversely affected, and continue to be materially and adversely affected during
such period, then the Trustee or Certificateholders holding more than 50% of
the Investor Interest may give notice to the Transferor (and to the related
Trustee in the latter instance) declaring that a Pay Out Event has occurred,
thereby commencing the Rapid Amortization Period.
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Unless otherwise specified in the Prospectus Supplement relating to a Series of
Certificates, the Transferor will make in each Agreement representations and
warranties to the related Trust relating to the Receivables in such Trust to
the effect, among other things, that, (i) (a) as of the date specified in the
related Prospectus Supplement (the "CUT-OFF DATE"), or as of the date of the
designation of Additional Accounts, each applicable Account in which was an
Eligible Account (as defined below) and (b) as of the Closing Date of the
initial Series of Certificates issued by such Trust, each of the Receivables
then existing in the Applicable Accounts is an Eligible Receivable (as defined
below) and (ii) as of the date of creation of any new Receivable, such
Receivable is an Eligible Receivable and the representation and warranty set
forth in clause (b) in the immediately following paragraph is true and correct
with respect to such Receivable. In the event (i) of a breach of any
representation and warranty set forth in this paragraph, within 60 days, or
such longer period as may be agreed to by the Trustee, of the earlier to occur
of the discovery of such breach by the Transferor or Servicer or receipt by the
Transferor of written notice of such breach given by the Trustee, or, with
respect to certain breaches relating to prior liens, immediately upon the
earlier to occur of such discovery or notice and (ii) that as a result of such
breach, the Receivables in the related Accounts are charged off as
uncollectible, the Trust's rights in, to or under the Receivables or its
proceeds are impaired or the proceeds of such Receivables are not available for
any reason to the Trust free and clear of any lien, the Transferor shall accept
reassignment of each Principal Receivable as to which such breach relates (an
"INELIGIBLE RECEIVABLE") on the terms and conditions set forth below; provided,
however, that no such reassignment shall be required to be made with respect to
such Ineligible Receivable if, on any day within the applicable period (or such
longer period as may be agreed to by the Trustee), the representations and
warranties with respect to such Ineligible Receivable shall then be true and
correct in all material respects. The Transferor shall accept reassignment of
each such Ineligible Receivable by directing the Servicer to deduct the amount
of each such Ineligible Receivable from the aggregate amount of Principal
Receivables used to calculate the Transferor Interest. In the event that the
exclusion of an Ineligible Receivable from the calculation of the Transferor
Interest would cause the Transferor Interest to be a negative number, on the
date of reassignment of such Ineligible Receivable the Transferor shall make a
deposit in the Principal Account in immediately available funds in an amount
equal to the amount by which the Transferor Interest would be reduced below
zero. Any such deduction or deposit shall be considered a repayment in full of
the Ineligible Receivable. The obligation of the Transferor to accept
reassignment of any Ineligible Receivable is the sole remedy respecting any
breach of the representations and warranties set forth in this paragraph with
respect to such Receivable available to the Certificateholders or the Trustee
on behalf of Certificateholders.
Unless otherwise specified in the Prospectus Supplement relating to a Series of
Certificates, the Transferor will make in each Agreement representations and
warranties to the related Trust to the effect, among other things, that as of
the Closing Date of the initial Series of Certificates issued by such Trust (a)
the related Agreement will constitute a legal, valid and binding obligation of
the Transferor and (b) the transfer of Receivables by it to the Trust under the
Agreement will constitute either a valid transfer and assignment to the Trust
of all right, title and interest of the Transferor in and to the Receivables
(other than Receivables in Additional Accounts), whether then existing or
thereafter created and the proceeds thereof (including amounts in any of the
accounts established for the benefit of Certificateholders) or the grant of a
first priority perfected security interest in such Receivables (except for
certain tax liens) and the proceeds thereof (including amounts in any of the
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accounts established for the benefit of Certificateholders), which is effective
as to each such Receivable upon the creation thereof. In the event of a breach
of any of the representations and warranties described in this paragraph,
either the Trustee or the Holders of Certificates evidencing undivided
interests in the Trust aggregating more than 50% of the aggregate Investor
Interest of all Series outstanding under such Trust may direct the Transferor
to accept reassignment of the Trust Portfolio within 60 days of such notice, or
within such longer period specified in such notice. The Transferor will be
obligated to accept reassignment of such Receivables on a Distribution Date
occurring within such applicable period. Such reassignment will not be required
to be made, however, if at any time during such applicable period, or such
longer period, the representations and warranties shall then be true and
correct in all material respects. The deposit amount for such reassignment will
be equal to the Investor Interest and Enhancement Invested Amount, if any, for
each Series outstanding under such Trust on the last day of the Monthly Period
preceding the Distribution Date on which the reassignment is scheduled to be
made less the amount, if any, previously allocated for payment of principal to
such Certificateholders or such holders of the Enhancement Invested Amount or
the Collateral Interest, if any, on such Distribution Date, plus an amount
equal to all accrued and unpaid interest less the amount, if any, previously
allocated for payment of such interest on such Distribution Date. The payment
of the reassignment deposit amount and the transfer of all other amounts
deposited for the preceding month in the Distribution Account will be
considered a payment in full of the Investor Interest and the Enhancement
Invested Amount, if any, for each such Series required to be repurchased and
will be distributed upon presentation and surrender of the Certificates for
each such Series. The obligation of the Transferor to make any such deposit
will constitute the sole remedy respecting a breach of the representations and
warranties described in this paragraph available to the Trustee or such
Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, with respect
to each Series of Certificates, an "ELIGIBLE ACCOUNT" will mean, as of the
relevant Cut-Off Date (or, with respect to Additional Accounts, as of their
date of designation for inclusion in the related Trust), each Account owned by
an Originator (a) which is payable in United States dollars, (b) the obligor of
which has provided, as his most recent billing address, an address located in
the United States or its territories or possessions, (c) which has not been
classified by the applicable Originator as counterfeit, deleted, fraudulent,
stolen or lost, (d) which has either been originated or, with the consent of
the Rating Agencies, acquired by an Originator and subsequently acquired by the
Transferor from such Originator and (e) which has not been charged off by the
applicable Originator in its customary and usual manner for charging off such
Account as of the Cut-Off Date and, with respect to Additional Accounts, as of
their date of designation for inclusion in the Trust. Under each Agreement, the
definition of Eligible Account may be changed by amendment to such Agreement
without the consent of the related Certificateholders if (i) the Transferor
delivers to the Trustee a certificate of an authorized officer to the effect
that, in the reasonable belief of the Transferor, such amendment will not as of
the date of such amendment adversely affect in any material respect the
interest of such Certificateholders and (ii) such amendment will not result in
a withdrawal or reduction of the rating of any outstanding Series under the
related Trust.
Unless otherwise specified in the related Prospectus Supplement, with respect
to each Series of Certificates, an "ELIGIBLE RECEIVABLE" will be defined to
mean each Receivable (a) which has arisen under an Eligible Account, (b) which
was created in compliance, in all material respects, with all
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requirements of law applicable to the respective Originator, and pursuant to a
credit card agreement which complies in all material respects with all
requirements of law applicable to the respective Originator, (c) with respect
to which all consents, licenses or authorizations of, or registrations with,
any governmental authority required to be obtained or given by the respective
Originator in connection with the creation of such Receivable or the execution,
delivery, creation and performance by the respective Originator of the related
credit card agreement have been duly obtained or given and are in full force
and effect as of the date of the creation of such Receivable, (d) as to which,
at the time of its creation, the Transferor has good title free and clear of
all liens and security interests (other than certain tax liens for taxes not
then due or which the Transferor is contesting), (e) which is the legal, valid
and binding payment obligation of the obligor thereon, legally enforceable
against such obligor in accordance with its terms (with certain bankruptcy-
related exceptions) and (f) which constitutes an "account" or "general
intangible" under Article 9 of the UCC as then in effect in the State of
Delaware.
Unless otherwise specified in the Prospectus Supplement relating to a Series of
Certificates, it will not be required or anticipated that the Trustee will make
any initial or periodic general examination of the Receivables or any records
relating to the Receivables for the purpose of establishing the presence or
absence of defects, compliance with the Transferor's representations and
warranties or for any other purpose. The Servicer, however, will deliver to the
Trustee on or before March 31 of each year (or such other date specified in the
related Prospectus Supplement) an opinion of counsel with respect to the
validity of the security interest of the Trust in and to the Receivables and
certain other components of the Trust.
ADDITION OF TRUST ASSETS
As described above under "The Receivables," the Transferor will have the right
to designate for each Trust, from time to time, Additional Accounts to be
included as Accounts with respect to such Trust. In addition, the Transferor
will be required to designate Additional Accounts under the circumstances and
in the amounts specified in the related Prospectus Supplement. The Transferor
will convey to the related Trust its interest in all Receivables of such
Additional Accounts, whether such Receivables are then existing or thereafter
created. The total amount of Receivables in each Trust will fluctuate from day
to day, because the amount of new Receivables arising in the Accounts and the
amount of payments collected on existing Receivables usually differ each day.
Each Additional Account must be an Eligible Account at the time of its
designation. However, Additional Accounts may not be of the same credit quality
as the initial Accounts. Additional Accounts may have been originated by an
Originator using credit criteria different from those which were applied by
such Originator to the initial Accounts or may have been acquired by an
Originator from an institution which may have had different credit criteria.
In addition to or in lieu of Additional Accounts, the Transferor will be
permitted to add to the related Trust participations representing undivided
interests in a pool of assets primarily consisting of receivables arising under
private label consumer revolving credit card accounts owned by the Transferor
and collections thereon ("PARTICIPATIONS"). Participations may be evidenced by
one or more certificates of ownership issued under a separate pooling and
servicing agreement or similar
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agreement (a "PARTICIPATION AGREEMENT") entered into by the Transferor which
entitles the certificateholder to receive percentages of collections generated
by the pool of assets subject to such Participation Agreement from time to time
and to certain other rights and remedies specified therein. Participations may
have their own credit enhancement, pay out events, servicing obligations and
servicer defaults, all of which are likely to be enforceable by a separate
trustee under the Participation Agreement and may be different from those
specified herein. The rights and remedies of the related Trust as the holder of
a Participation (and therefore the Certificateholders) will be subject to all
the terms and provisions of the related Participation Agreement. Each Agreement
may be amended to permit the addition of a Participation in a Trust without the
consent of the related Certificateholders if (i) the Transferor delivers to the
Trustee a certificate of an authorized officer to the effect that, in the
reasonable belief of the Transferor, such amendment will not as of the date of
such amendment adversely affect in any material respect the interest of such
Certificateholders, and (ii) such amendment will not result in a withdrawal or
reduction of the rating of any outstanding Series under the related Trust. To
the extent required pursuant to the Securities Act, any Participations
transferred to a Trust (a) will have been (i) registered under the Securities
Act or (ii) held for at least the Rule 144(k) holding period, and (b) will be
acquired in secondary market transactions not from the issuer or an affiliate.
Except as described in the following paragraph, a conveyance by the Transferor
to a Trust of Receivables in Additional Accounts or Participations is subject
to the following conditions, among others: (i) the Transferor shall give the
Trustee, each Rating Agency and the Servicer written notice that such
Additional Accounts or Participations will be included, which notice shall
specify the approximate aggregate amount of the Receivables or interests
therein to be transferred; (ii) the Transferor shall have delivered to the
Trustee a written assignment (including an acceptance by the Trustee on behalf
of the Trust for the benefit of the Certificateholders) as provided in the
Agreement relating to such Additional Accounts or Participations (the
"ASSIGNMENT") and, the Transferor shall have delivered to the Trustee a
computer file or microfiche list, dated the date of such Assignment, containing
a true and complete list of such Additional Accounts or Participations; (iii)
the Transferor shall represent and warrant that (x) each Additional Account is,
as of the date the Receivables in such Account are first added to the Trust
(the "ADDITION DATE"), an Eligible Account, and each Receivable in such
Additional Account is, as of the Addition Date, an Eligible Receivable, (y) no
selection procedures believed by the Transferor to be materially adverse to the
interests of the Certificateholders were utilized in selecting the Additional
Accounts from the available Eligible Accounts from the applicable Originator,
and (z) as of the Addition Date, the Transferor is not insolvent; (iv) the
Transferor shall deliver an opinion of counsel with respect to the security
interest of the Trust in the Receivables in the Additional Accounts or the
Participations transferred to the Trust and (v) under certain circumstances, if
any, specified in the related Prospectus Supplement with respect to Additional
Accounts and to Participations, each Rating Agency then rating any Series of
Certificates outstanding under such Trust shall have consented to the addition
of such Additional Accounts or Participations.
If specified in the related Prospectus Supplement, Additional Accounts may be
automatically added to the Accounts on an ongoing basis; provided, however,
that such automatic inclusion and transfer shall not occur with respect to any
such account if: (i) such account does not qualify as an Eligible Account or
(ii) the Transferor otherwise designates such account as an account which is
not to be
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included as an Account. The Transferor will deliver to the Trustee a computer
file or microfiche list of all such included Accounts. In connection with any
such automatic addition of Additional Accounts, the Transferor will be required
to satisfy the conditions specified in clause (iii) in the preceding paragraph.
In addition to the periodic reports otherwise required to be filed by the
Servicer with the SEC pursuant to the Exchange Act, the Servicer intends to
file, on behalf of each Trust, a Report on Form 8-K with respect to any
addition to a Trust of Receivables in Additional Accounts or Participations
that would have a material effect on the composition of the assets of such
Trust.
REMOVAL OF ACCOUNTS
Unless otherwise specified in the Prospectus Supplement relating to a Series of
Certificates, subject to the conditions set forth in the next succeeding
sentence, the Transferor may, but shall not be obligated to, designate from
time to time (which may be restricted to certain periods if so specified in the
related Prospectus Supplement) certain Accounts to be Removed Accounts, all
Receivables in which shall be subject to deletion and removal from the related
Trust; provided, however, that the Transferor shall not make more than one such
designation in any Monthly Period. The Transferor will be permitted to
designate and require reassignment to it of the Receivables from Removed
Accounts only upon satisfaction of the following conditions: (i) the removal of
any Receivables of any Removed Accounts shall not, in the reasonable belief of
the Transferor, cause a Pay Out Event for any Series to occur; (ii) the
Transferor shall have delivered to the related Trustee for execution a written
assignment and a computer file or microfiche list containing a true and
complete list of all Removed Accounts identified by account number and the
aggregate amount of the Receivables in such Removed Accounts; (iii) the
Transferor shall represent and warrant that no selection procedures believed by
the Transferor to be materially adverse to the interests of the holders of any
Series of Certificates outstanding under such Trust were utilized in selecting
the Removed Accounts to be removed from such Trust; (iv) each Rating Agency
then rating each Series of Certificates outstanding under such Trust shall have
received notice of such proposed removal of Accounts and the Transferor shall
have received notice from each such Rating Agency that such proposed removal
will not result in a downgrade of its then current rating for any such Series
and (v) such other conditions as are specified in the related Prospectus
Supplement; and (vi) the Transferor shall have delivered to the Trustee a
certificate confirming the items set forth in clauses (i) through (v) above.
Notwithstanding the above, the Transferor will be permitted to designate as a
Removed Account without the consent of the related Trustee, Certificateholders
or Rating Agencies any Account that has a zero balance and which the Transferor
will remove from its computer file.
COLLECTION AND OTHER SERVICING PROCEDURES
For each Series of Certificates, the Servicer will be responsible for servicing
and administering the Receivables in accordance with the Servicer's policies
and procedures for servicing credit card receivables comparable to the
Receivables. Servicing functions to be performed with respect to the
Receivables include processing statements and mailing, collecting and recording
payments, investigating payment delinquencies and communicating with Obligors.
The Servicer may delegate some or all of these servicing functions to one or
more subservicers who agree to perform these functions in accordance with the
Servicer's policies and procedures. Currently, the Servicer has appointed MCC,
an affiliate of DNB, as a subservicer for the Mercantile Accounts.
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DISCOUNT OPTION
The Transferor may at any time designate a specified fixed or variable
percentage as specified in the related Prospectus Supplement (the "DISCOUNT
PERCENTAGE") of the amount of Receivables arising in the Accounts with respect
to the related Trust on and after the date such option is exercised that
otherwise would have been treated as Principal Receivables to be treated as
Finance Charge Receivables (the "DISCOUNT OPTION RECEIVABLES"). Such
designation will become effective upon satisfaction of the requirements set
forth in the related Agreement, including confirmation by each Rating Agency in
writing of its then current rating on each outstanding Series of the related
Trust. Collections of Receivables to which such Discount Option is applicable
that otherwise would be Principal Receivables will be deemed collections of
Finance Charge Receivables and will be applied accordingly, unless otherwise
provided in the related Prospectus Supplement.
TRUST ACCOUNTS
Unless otherwise specified in the Prospectus Supplement relating to a Trust,
the related Trustee will establish and maintain in the name of the Trust two
separate accounts in a segregated trust account (which need not be a deposit
account), a "FINANCE CHARGE ACCOUNT" and a "PRINCIPAL ACCOUNT," for the benefit
of the Certificateholders of all related Series, including any Series offered
pursuant to this Prospectus. Each Agreement will provide that the Trustee shall
have the power to establish series accounts in Series Supplements, including an
Interest Funding Account, a Principal Funding Account, a Pre-Funding Account or
such other account specified in the related Series Supplement, each of which
series accounts shall be held for the benefit of the Certificateholders of the
related Series and for the purposes set forth in the related Prospectus
Supplement. The Trustee will also establish one or more "DISTRIBUTION ACCOUNTS"
each of which shall be Eligible Deposit Accounts. The Servicer will establish
and maintain, in the name of the Trust, for the benefit of Certificateholders
of all Series issued thereby including any Series offered pursuant to this
Prospectus, a Collection Account, which will be an Eligible Deposit Account.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States or any one of the states thereof, including the District of Columbia (or
any domestic branch of a foreign bank), and acting as a trustee for funds
deposited in such accounts, so long as any of the securities of such depository
institution shall have a credit rating from each Rating Agency in one of its
generic credit rating categories which signifies investment grade. "ELIGIBLE
INSTITUTION" means (a) so long as the Rating Agency Condition would be
satisfied, the Servicer, (b) a depository institution (which may be the Trustee
or an affiliate) organized under the laws of the United States or any one of
the states thereof which at all times (i) has a certificate of deposit rating
of "P-1" by Moody's Investors Service, Inc. ("MOODY'S"), (ii) has either (x) a
long-term unsecured debt rating of "AAA" by Standard & Poor's or (y) a
certificate of deposit rating of "A-1+" by Standard & Poor's Ratings Service
("STANDARD & POOR'S") and (iii) is a member of the FDIC or (c) any other
institution that is acceptable to the Rating Agencies. Unless otherwise
specified in the related Prospectus Supplement, funds in the Principal Account
and the Finance Charge Account for each Trust will be invested, at the
direction of the Servicer, in (i) obligations fully guaranteed by the United
States of America, (ii) demand deposits, time deposits or certificates of
deposit of depository institutions or trust companies, the certificates of
deposit of which have a rating in the highest rating category from Moody's and
Standard & Poor's (unless otherwise specified in the related Prospectus
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Supplement), (iii) commercial paper having, at the time of the Trust's
investment, a rating in the highest rating category from Moody's and Standard
& Poor's (unless otherwise specified in the related Prospectus Supplement),
(iv) bankers' acceptances issued by any depository institution or trust
company described in clause (ii) above, (v) certain repurchase agreements
transacted with either (a) an entity subject to the United States federal
bankruptcy code or (b) a financial institution insured by the FDIC or any
broker-dealer with "retail customers" that is under the jurisdiction of the
Securities Investors Protection Corp. and (vi) any other investment that by
its terms converts to cash within a finite time period if the Rating Agency
confirms in writing that such investment will not adversely affect its then
current rating or ratings of the Certificates (such investments, "PERMITTED
INVESTMENTS"). Unless otherwise specified in the related Prospectus
Supplement, any earnings (net of losses and investment expenses) on funds in
the Finance Charge Account or the Principal Account will be paid to the
Transferor. Funds in any other series account established by a Series
Supplement may be invested in Permitted Investments or otherwise as provided
in the related Prospectus Supplement. The Servicer will have the revocable
power to withdraw funds from the Collection Account and to instruct the
Trustee to make withdrawals and payments from the Finance Charge Account and
the Principal Account for the purpose of carrying out the Servicer's duties
under the Agreement. The related Prospectus Supplement will identify the
paying agent (the "PAYING AGENT"). The Paying Agent will have the revocable
power to withdraw funds from the Distribution Account for the purpose of
making distributions to the Certificateholders.
FUNDING PERIOD
For any Series of Certificates, the related Prospectus Supplement may specify
that during a period beginning on the Closing Date and ending on a specified
date before the commencement of an Amortization Period or the Accumulation
Period with respect to such Series (the "FUNDING PERIOD") the aggregate amount
of Principal Receivables in the related Trust allocable to such Series may be
less than the aggregate principal amount of the Certificates of such Series
and that the amount of such deficiency, which may be up to 100% of the
aggregate principal amount of the Certificates of such Series, (the "PRE-
FUNDING AMOUNT") will be held in a trust account established with the related
Trustee for the benefit of Certificateholders of such Series (the "PRE-FUNDING
ACCOUNT") pending the transfer of additional Receivables to the Trust or
pending the reduction of the Investor Interests of other Series issued by the
related Trust. The Prospectus Supplement relating to a Series of Certificates
will specify that the Funding Period for such Series will end on a specified
date certain or earlier under certain circumstances, such as the commencement
of the Rapid Amortization Period. The actual length of a Funding Period for a
Series may be contingent upon another event such as the generation by the
Transferor of additional Principal Receivables or the term of the Amortization
Period or Accumulation Period of a related Companion Series. Generally, the
Amortization Period or Accumulation Period of a related Companion Series will
depend upon the payment rate of the Receivables in the Trust. See "Maturity
Considerations." Until the end of the Funding Period of a Series paired with a
related Companion Series, the Certificates of such Series will evidence an
undivided interest in Receivables to the extent of the Investor Interest in
such Series and in funds on deposit in the Pre-Funding Account and Permitted
Investments of such funds to the extent of the difference between the
aggregate principal amount of the Certificate of such Series (the "FULL
INVESTOR INTEREST") and the initial Investor Interest. The related Prospectus
Supplement will specify the initial Investor Interest with respect to such
Series, the Full Investor Interest and the date by
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which the Investor Interest is expected to equal the Full Investor Interest.
The Investor Interest will increase as Receivables are delivered to the related
Trust as the Investor Interests of other Series of the related Trust are
reduced. The Investor Interest may also decrease due to Investor Charge-Offs.
During the Funding Period, funds on deposit in the Pre-Funding Account for a
Series of Certificates will be withdrawn and paid to the Transferor to the
extent of any increases in the Investor Interest. In the event that the
Investor Interest does not for any reason equal the Full Investor Interest by
the end of the Funding Period, any amount remaining in the Pre-Funding Account
and any additional amounts specified in the related Prospectus Supplement will
be payable to the Certificateholders of such Series in the manner and at such
time as set forth in the related Prospectus Supplement. Such event will result
in an early repayment of Certificate principal and the Certificateholders of
such Series will not receive the benefit of the Certificate Rate for the period
of time originally expected on the amount of such early repayment.
If so specified in the related Prospectus Supplement, monies in the Pre-Funding
Account will be invested by the Trustee in Permitted Investments or will be
subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Pre-Funding Account during the
related Monthly Period will be withdrawn from the Pre-Funding Account and
deposited, together with any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement, into the Finance Charge
Account for distribution in respect of interest on the Certificates of the
related Series in the manner specified in the related Prospectus Supplement.
COMPANION SERIES
If so specified in the related Prospectus Supplement, a Series of Certificates
may be paired with one or more other Series issued by the related Trust (each,
a "COMPANION SERIES") on or prior to the commencement of the Amortization
Period or Accumulation Period for such Series. As the Investor Interest of the
Series having a Companion Series is reduced, the Investor Interest in the
related Trust of the Companion Series will be increased. If a Pay Out Event
occurs with respect to the Series having a Companion Series or with respect to
the Companion Series when the Series is in an Amortization Period, the Investor
Percentage in respect of collections of Principal Receivables for the Series
and the Investor Percentage in respect of collections of Principal Receivables
for the Companion Series may be reset as provided in the related Prospectus
Supplement. Resetting of such Investor Percentage may have the effect of
reducing the amount of collections of Principal Receivables allocable to the
Series that is paired with the Companion Series. While the issuance of a
Companion Series will be subject to the conditions described under "--
Exchanges," there can be no assurance that the terms of a Companion Series
might not have an impact on the timing or amount of payments received on the
Series with which it is paired. See "Maturity Considerations."
INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
For each Trust, the Servicer will allocate between the Investor Interest of
each Series issued by such Trust (and between each Class of each Series) and
the Transferor Interest, and, in certain circumstances, the interest of certain
Credit Enhancement Providers, all amounts collected on Finance Charge
Receivables, all amounts collected on Principal Receivables and all Receivables
in Defaulted
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Accounts. The Servicer will make each allocation by reference to the applicable
Investor Percentage of each Series and the Transferor Percentage, and, in
certain circumstances, the percentage interest of certain Credit Enhancement
Providers (the "CREDIT ENHANCEMENT PERCENTAGE") with respect to such Series.
The Prospectus Supplement relating to a Series will specify the Investor
Percentage and, if applicable, the Credit Enhancement Percentage (or the method
of calculating such percentage) with respect to the allocations of collections
of Principal Receivables, Finance Charge Receivables and Receivables in
Defaulted Accounts during the Revolving Period, any Amortization Period and the
Accumulation Period, as applicable. In addition, for each Series of
Certificates having more than one Class, the related Prospectus Supplement will
specify the method of allocation between each Class.
The Transferor Percentage will, in all cases, be equal to 100% minus the
aggregate Investor Percentages and, if applicable, the Credit Enhancement
Percentages, for all Series then outstanding.
APPLICATION OF COLLECTIONS
Unless otherwise specified in the related Prospectus Supplement, except as
otherwise provided below, the Servicer will deposit into an account required to
be established for such purpose by the related Agreement (the "COLLECTION
ACCOUNT") for the related Trust, no later than the second business day (or such
other day specified in the related Prospectus Supplement) following the date of
processing, any payment collected by the Servicer on the Receivables. On the
same day as any such deposit is made, the Servicer will make the deposits and
payments to the accounts and parties as indicated below; provided, however,
that for as long as DNB remains the Servicer under the related Agreement, and
(a)(i) the Servicer provides to the Trustee a letter of credit or other credit
support acceptable to each Rating Agency and (ii) the Transferor shall not have
received a notice from the Rating Agency that such letter of credit would
result in the lowering of such Rating Agency's then existing rating of the
related Series (and if a Trust has issued more than one Series, any Series of
certificates then issued and outstanding thereunder), or (b) Dillard's (so long
as the Servicer is wholly-owned by Dillard's) has and maintains a long-term
unsecured debt rating in one of the four highest categories assigned by each of
Moody's and Standard & Poor's, or (c) such other arrangement is made by the
Servicer which is approved in writing by the Rating Agencies, then the Servicer
may make such deposits and payments on a monthly or other periodic basis on the
Transfer Date in an amount equal to the net amount of such deposits and
payments which would have been made had the conditions of this proviso not
applied.
Unless otherwise specified in the related Prospectus Supplement,
notwithstanding anything in the related Agreement to the contrary, whether the
Servicer is required to make monthly or daily deposits from the Collection
Account into the Finance Charge Account or the Principal Account, with respect
to any Monthly Period, (i) the Servicer will only be required to deposit
collections from the Collection Account into the Finance Charge Account, the
Principal Account or any series account established by a related Series
Supplement up to the required amount to be deposited into any such account or,
without duplication, distributed on or prior to the related Distribution Date
to Certificateholders or to the provider of Enhancement and (ii) if at any time
prior to such Distribution Date the amount of collections deposited in the
Collection Account exceeds the amount required to be deposited pursuant to
clause (i) above, the Servicer will be permitted to withdraw the excess from
the Collection Account.
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Unless otherwise specified in the related Prospectus Supplement, the Servicer
will withdraw the following amounts from the Collection Account for application
as indicated:
(a) an amount equal to the Transferor Percentage of the aggregate amount of
such deposits in respect of Principal Receivables and Finance Charge
Receivables, respectively, will be paid or held for payment to the holder
of the Transferor Certificate, provided that if after giving effect to the
inclusion in the related Trust of all Receivables on or prior to such date
of processing the Transferor Interest would be reduced below the Minimum
Transferor Interest the excess will be deposited in the Principal Account
or other specified account and will be used as described in the related
Prospectus Supplement, including for payment to other Series of
Certificates issued by the related Trust;
(b) a defeasance amount equal to the applicable Investor Percentage of the
aggregate amount of such deposits in respect of Finance Charge Receivables
will be deposited into the Finance Charge Account for allocation and
distribution as described in the related Prospectus Supplement;
(c) during the Revolving Period, an amount equal to the applicable Investor
Percentage of the aggregate amount of such deposits in respect of Principal
Receivables will be invested or held for investment in Principal
Receivables, provided that if after giving effect to the inclusion in the
related Trust of all Receivables on or prior to such date of processing the
Transferor Interest would be reduced below the Minimum Transferor Interest
the excess will be deposited in the Principal Account or other specified
account and will be used as described in the related Prospectus Supplement,
including for payment to other Series of Certificates issued by the related
Trust;
(d) during the Controlled Amortization Period or Accumulation Period, as
applicable, an amount equal to the applicable Investor Percentage of such
deposits in respect of Principal Receivables up to the amount, if any, as
specified in the related Prospectus Supplement will be deposited in the
Principal Account or Principal Funding Account, as applicable, for
allocation and distribution to Certificateholders as described in the
related Prospectus Supplement, provided that if collections of Principal
Receivables exceed the principal payments which may be allocated or
distributed to Certificateholders, the amount of such excess will be paid
to the holder of the Transferor Certificate until the Transferor Interest
is reduced to the Minimum Transferor Interest, and thereafter will be
deposited in the Principal Account or other specified account and will be
used as described in the related Prospectus Supplement, including for
payment to other Series of Certificates issued by the related Trust; and
(e) during the Principal Amortization Period, if applicable, and the Rapid
Amortization Period, an amount equal to the applicable Investor Percentage
of such deposits in respect of Principal Receivables will be deposited into
the Principal Account for application and distribution as provided in the
related Prospectus Supplement.
In the case of a Series of Certificates having more than one Class, the amounts
in the Collection Account will be allocated and applied to each Class in the
manner and order of priority described in the related Prospectus Supplement.
Any amounts collected in respect of Principal Receivables and not paid to the
Transferor because the Transferor Interest is zero as described above (with
respect to each Series, "UNALLOCATED PRINCIPAL
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COLLECTIONS"), together with any adjustment payments as described below, will
be paid to and held in the Principal Account and paid to the Transferor if and
to the extent that the Transferor Interest is equal to or greater than zero. If
an Amortization Period or Accumulation Period has commenced, Unallocated
Principal Collections will be held for distribution to the Certificateholders
on the related Distribution Date or accumulated for distribution on the
Scheduled Payment Date, as applicable, and distributed to the
Certificateholders of each Class or held for and distributed to the
Certificateholders of other Series of Certificates issued by the related Trust
in the manner and order of priority specified in the related Prospectus
Supplement.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any Series offered hereby may be included in a Group of Series (each, a
"GROUP"). The Prospectus Supplement relating to a Series will specify whether
such Series will be included in a Group and will identify any previously issued
Series included in such Group. If so specified in the related Prospectus
Supplement, the Certificateholders of a Series within a Group or any Class
thereof may be entitled to receive all or a portion of Excess Finance Charge
Collections with respect to another Series within such Group to cover any
shortfalls with respect to amounts payable from collections of Finance Charge
Receivables allocable to such Series or Class. Unless otherwise provided in the
related Prospectus Supplement, with respect to any Series, "EXCESS FINANCE
CHARGE COLLECTIONS" for any Monthly Period will equal the excess of collections
of Finance Charge Receivables, annual membership fees and certain other amounts
allocated to the Investor Interest of such Series or Class over the sum of (i)
interest accrued for the current month ("MONTHLY INTEREST") and overdue Monthly
Interest on the Certificates of such Series or Class (together with, if
applicable, interest on overdue Monthly Interest at the rate specified in the
related Prospectus Supplement ("ADDITIONAL INTEREST")), (ii) accrued and unpaid
Investor Servicing Fees with respect to such Series or Class payable from
collections of Finance Charge Receivables, (iii) the Investor Default Amount
with respect to such Series or Class, (iv) unreimbursed Investor Charge-Offs
with respect to such Series or Class and (v) other amounts specified in the
related Prospectus Supplement. The term "INVESTOR SERVICING FEE" for any Series
of Certificates or Class thereof means the Servicing Fee allocable to the
Investor Interest with respect to such Series or Class, as specified in the
related Prospectus Supplement. The term "INVESTOR DEFAULT AMOUNT" means, for
any Monthly Period and for any Series or Class thereof, the aggregate amount of
the applicable Investor Percentage of Principal Receivables in Defaulted
Accounts. The term "INVESTOR CHARGE-OFF" means, for any Monthly Period, and for
any Series or Class thereof, the amount by which (a) the related Monthly
Interest and overdue Monthly Interest (together with, if applicable, Additional
Interest), the accrued and unpaid Investor Servicing Fees payable from
collections of Finance Charge Receivables, the Investor Default Amount and any
other required fees exceeds (b) amounts available to pay such amounts out of
collections of Finance Charge Receivables, available Credit Enhancement
amounts, if any, and other sources specified in the related Prospectus
Supplement, if any, but not more than such Investor Default Amount. See "--
Application of Collections" and "--Defaulted Receivables; Rebates and
Fraudulent Charges; Investor Charge-Offs."
SHARED PRINCIPAL COLLECTIONS
If so specified in the related Prospectus Supplement, to the extent that
collections of Principal Receivables and certain other amounts that are
allocated to the Investor Interest of any Series are not
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needed to make payments or deposits with respect to such Series, such
collections ("SHARED PRINCIPAL COLLECTIONS") will be applied to cover principal
payments due to or for the benefit of Certificateholders of other Series. If so
specified in the related Prospectus Supplement, the allocation of Shared
Principal Collections may be among Series within a Group. Any such reallocation
will not result in a reduction in the Investor Interest of the Series to which
such collections were initially allocated.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES; INVESTOR CHARGE-OFFS
Unless otherwise specified in the related Prospectus Supplement, for each
Series of Certificates, on the fourth business day preceding each Transfer Date
(the "DETERMINATION DATE"), the Servicer will calculate the aggregate Investor
Default Amount for the preceding Monthly Period, which will be equal to the
aggregate amount of the Investor Percentage of Principal Receivables in
Defaulted Accounts; that is, Accounts which in such Monthly Period were written
off as uncollectible in accordance with the Servicer's or the related
Originator's policies and procedures for servicing credit card receivables,
comparable to the Receivables. In the case of a Series of Certificates having
more than one Class, the Investor Default Amount will be allocated among the
Classes in the manner described in the related Prospectus Supplement. If so
provided in the related Prospectus Supplement, an amount equal to the Investor
Default amount for any Monthly Period may be paid from other amounts, including
collections in the Finance Charge Account or from Credit Enhancement, and
applied to pay principal to Certificateholders or the holder of the Transferor
Certificate, as appropriate. In the case of a Series of Certificates having one
or more Classes of Subordinated Certificates, the related Prospectus Supplement
may provide that all or a portion of amounts otherwise allocable to such
Subordinated Certificates may be paid to the Holders of Senior Certificates to
make up any Investor Default Amount allocable to such Holders of Senior
Certificates.
With respect to each Series of Certificates, the Investor Interest with respect
to such Series will be reduced by the amount of Investor Charge-Offs for any
Monthly Period. Investor Charge-Offs will be reimbursed on any Distribution
Date to the extent amounts on deposit in the Finance Charge Account and
otherwise available therefor exceed such interest, fees and any aggregate
Investor Default Amount payable on such date. Such reimbursement of Investor
Charge-Offs will result in an increase in the Investor Interest with respect to
such Series. In the case of a Series of Certificates having more than one
Class, the related Prospectus Supplement will describe the manner and priority
of allocating Investor Charge-Offs and reimbursements thereof among the
Investor Interests of the several Classes.
If the Servicer or related Originator adjusts the amount of any Principal
Receivable because of transactions occurring in respect of a rebate or refund
to a cardholder, or because such Principal Receivable was created in respect of
merchandise which was refused or returned by a cardholder, then the amount of
the Transferor Interest in the related Trust will be reduced, on a net basis,
by the amount of the adjustment. In addition, the Transferor Interest in such
Trust will be reduced, on a net basis, as a result of transactions in respect
of any Principal Receivable which was discovered as having been created through
a fraudulent or counterfeit charge. In the event that the exclusion of such
Receivables from the calculation of the Transferor Interest at such time would
cause the Transferor Interest to be less than the Minimum Transferor Interest,
the Transferor will be required to pay an amount equal to such deficiency.
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If so specified in the Prospectus Supplement relating to a Series, the
Transferor may terminate its substantive obligations in respect of such Series
or the related Trust by depositing with the Trustee, from amounts representing,
or acquired with, collections of Receivables, money or Permitted Investments
sufficient to make all remaining scheduled interest and principal payments on
such Series or all outstanding Series of Certificates of such Trust, as the
case may be, on the dates scheduled for such payments and to pay all amounts
owing to any Credit Enhancement Provider with respect to such Series or all
outstanding Series, as the case may be, if such action would not result in a
Pay Out Event for any Series. Prior to its first exercise of its right to
substitute money or Permitted Investments for Receivables, the Transferor will
deliver to the Trustee (i) an opinion of counsel to the effect that such
deposit and termination of obligations will not result in the related Trust
being required to register as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended and (ii) a Tax Opinion.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
With respect to each Series, the Certificates will be subject to optional
repurchase by the Transferor on any Distribution Date after the total Investor
Interest of such Series and the Enhancement Invested Amount, if any, with
respect to such Series, is reduced to an amount less than or equal to 5% of the
initial Investor Interest, if any (or such other amount specified in the
related Prospectus Supplement), if certain conditions set forth in the related
Agreement are met. Unless otherwise specified in the related Prospectus
Supplement, the repurchase price will be equal to the total Investor Interest
of such Series (less the amount, if any, on deposit in any Principal Funding
Account with respect to such Series), plus the Enhancement Invested Amount, if
any, with respect to such Series, plus accrued and unpaid interest on the
Certificates and interest or other amounts payable on the Enhancement Invested
Amount or the Collateral Interest, if any, through the day preceding the
Distribution Date on which the repurchase occurs.
The Certificates of each Series will be retired on the day following the
Distribution Date on which the final payment of principal is scheduled to be
made to the Certificateholders, whether as a result of optional reassignment to
the Transferor or otherwise. Each Prospectus Supplement will specify the final
date on which principal and interest with respect to the related Series of
Certificates will be scheduled to be distributed (the "SERIES TERMINATION
DATE"); provided, however, that the Certificates may be subject to prior
termination as provided above. If the Investor Interest is greater than zero on
the Series Termination Date, the Trustee or Servicer may be required to sell or
cause to be sold certain Receivables in the manner provided in the related
Agreement and Series Supplement and to pay the net proceeds of such sale and
any collections on the Receivables, in an amount at least equal to the sum of
the Investor Interest and the Enhancement Invested Amount, if any, with respect
to such Series plus accrued interest due thereon.
Unless the Servicer and the holder of the Transferor Certificate instruct the
Trustee otherwise, each Trust will terminate on the earliest of (a) the day
after the Distribution Date on which the aggregate Investor Interest and
Enhancement Invested Amount or Collateral Interest, if any, with respect to
each Series outstanding is zero, (b) August 31, 2016, or (c) if the Receivables
are sold, disposed of or liquidated following the occurrence of an Insolvency
Event, immediately following such sale, disposition or liquidation (such date,
the "TRUST TERMINATION DATE"). Upon the termination of each
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Trust and the surrender of the Transferor Certificate, the Trustee shall convey
to the holder of the Transferor Certificate all right, title and interest of
the Trust in and to the Receivables and other funds of the Trust.
PAY OUT EVENTS
Unless otherwise specified in the related Prospectus Supplement, as described
above, the Revolving Period will continue through the date specified in the
related Prospectus Supplement unless a Pay Out Event occurs prior to such date.
A Pay Out Event occurs with respect to all Series issued by a Trust upon the
occurrence of either of the following events:
(a) certain events of insolvency or receivership relating to the Transferor
or Dillard's;
(b) the Transferor is unable for any reason to transfer Receivables to such
Trust in accordance with the provisions of the related Agreement; or
(c) such Trust becomes subject to regulation as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
In addition, a Pay Out Event may occur with respect to any Series upon the
occurrence of any other event specified in the related Prospectus Supplement.
On the date on which a Pay Out Event is deemed to have occurred, the Rapid
Amortization Period will commence. If, because of the occurrence of a Pay Out
Event, the Rapid Amortization Period begins earlier than the scheduled
commencement of an Amortization Period or prior to a Scheduled Payment Date,
Certificateholders will begin receiving distributions of principal earlier than
they otherwise would have, which may shorten the average life of the
Certificates.
In addition to the consequences of a Pay Out Event discussed above, unless
otherwise specified in the related Prospectus Supplement, if pursuant to
certain provisions of federal law, the Transferor voluntarily enters
liquidation or a receiver is appointed for the Transferor, on the day of such
event the Transferor will immediately cease to transfer Principal Receivables
to the Trust and promptly give notice to the Trustee of such event. Within 15
days, the Trustee will publish a notice of the liquidation or the appointment
stating that the Trustee intends to sell, dispose of, or otherwise liquidate
the Receivables in a commercially reasonable manner. Unless otherwise
instructed within a specified period by Certificateholders representing
undivided interests aggregating more than 50% of the Investor Interest of each
such Series (or if any Series has more than one Class, of each Class, and any
other Person specified in the related Agreement or a Series Supplement) issued
and outstanding, the Trustee will sell, dispose of, or otherwise liquidate the
Receivables in a commercially reasonable manner and on commercially reasonable
terms. The proceeds from the sale, disposition or liquidation of the
Receivables will be treated as collections of the Receivables and applied as
specified above in "--Application of Collections" and in the related Prospectus
Supplement.
If the only Pay Out Event to occur is either the insolvency of the Transferor
or the appointment of a conservator or receiver for the Transferor, the
conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Rapid
Amortization Period. In addition, a conservator or receiver may have the power
to cause the early sale of the Receivables and the early retirement of the
Certificates. See "Certain Legal Aspects of the Receivables--Certain Matters
Relating to Receivership."
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SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, for each
Series of Certificates, the Servicer's compensation for its servicing
activities and reimbursement for its expenses will take the form of the payment
to it of a fee (the "SERVICING FEE") payable at the times and in the amounts
specified in the related Prospectus Supplement. The Investor Servicing Fee will
be funded from collections of Finance Charge Receivables allocated to the
Investor Interest and will be paid each month, or on such other specified
periodic basis, from amounts so allocated and on deposit in the Finance Charge
Account or, in certain limited circumstances, from amounts available from
Enhancement and other sources, if any. The remainder of the servicing fee for
each Trust will be allocable to the Transferor Interest, the Investor Interests
of any other Series issued by such Trust and the interest represented by the
Enhancement Invested Amount or the Collateral Interest, if any, with respect to
such Series, as described in the related Prospectus Supplement. Neither the
Trust nor the Certificateholders will have any obligation to pay the portion of
the servicing fee allocable to the Transferor Interest.
The Servicer will pay from its servicing compensation certain expenses incurred
in connection with servicing the Receivables including, without limitation,
payment of the fees and disbursements of the Trustee and independent certified
public accountants and other fees which are not expressly stated in the
Agreement to be payable by the related Trust or the Certificateholders other
than federal, state and local income and franchise taxes, if any, of the Trust.
CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
Dillard National Bank, a wholly-owned banking subsidiary of the Corporation,
initially will service the Receivables. The Servicer may appoint any affiliate
as a sub-servicer (a "SUB-SERVICER") to service any or all of the Receivables.
In certain limited circumstances, the Servicer or Sub-Servicer may resign or be
removed, in which event the Trustee or a third party servicer may be appointed
as successor servicer (the Servicer, or any such successor servicer, is
referred to herein as the "SERVICER"). The principal executive office of the
Servicer is located at 396 N. William Dillard Drive, Gilbert, Arizona 85233,
telephone number (602) 503-5504. The Servicer will receive a fee as servicing
compensation from the related Trust in respect of each Series in the amounts
and at the times specified in the related Prospectus Supplement (the "SERVICING
FEE"). The Servicing Fee may be payable from Finance Charge Receivables or
other amounts as specified in the related Prospectus Supplement.
With respect to each Series of Certificates, the Servicer may not resign from
its obligations and duties under the related Agreement, except upon
determination that performance of its duties is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or
a successor to the Servicer has assumed the Servicer's responsibilities and
obligations under the related Agreement. DNB has delegated some of its
servicing duties to MCC; however, such delegation does not relieve it of its
obligation to perform such duties in accordance with the related Agreement.
Each Agreement will provide that the Servicer will indemnify the related Trust
and Trustee from and against any reasonable loss, liability, expense, damage or
injury suffered or sustained by reason of any acts or omissions or alleged acts
or omissions of the Servicer or any Sub-Servicer with respect
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to the activities of the Trust or the Trustee; provided, however, that the
Servicer shall not indemnify (a) the Trustee for liabilities imposed by reason
of fraud, negligence, or willful misconduct by the Trustee in the performance
of its duties under the Agreement, (b) the Trust, the Certificateholders or the
Certificate Owners for liabilities arising from actions taken by the Trustee at
the request of Certificateholders, (c) the Trust, the Certificateholders or the
Certificate Owners for any losses, claims, damages or liabilities incurred by
any of them in their capacities as investors, including without limitation,
losses incurred as a result of defaulted Receivables or Receivables which are
written off as uncollectible or (d) the Trust, the Certificateholders or the
Certificate Owners for any liabilities, costs or expenses of the Trust, the
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation, any federal, state or local income or franchise
tax or any other tax imposed on or measured by income (or any interest or
penalties with respect thereto or arising from a failure to comply therewith)
required to be paid by the Trust, the Certificateholders or the Certificate
Owners in connection with the Agreement to any taxing authority.
In addition, each Agreement will provide that, subject to certain exceptions,
the Transferor will indemnify an injured party for any losses, claims, damages
or liabilities (other than those incurred by a Certificateholder as an investor
in the Certificates or those which arise from any action of a
Certificateholder) arising out of or based upon the arrangement created by the
Agreement as though the Agreement created a partnership under the New York
Revised Limited Partnership Act in which the Transferor is a general partner.
Each Agreement will provide that neither the Transferor nor the Servicer nor
any of their respective directors, officers, employees or agents will be under
any other liability to the related Trust, Trustee, Certificateholders or any
other person for any action taken, or for refraining from taking any action, in
good faith pursuant to the Agreement. Neither the Transferor, the Servicer, nor
any of their respective directors, officers, employees or agents will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence of the Transferor, the
Servicer or any such person in the performance of its duties or by reason of
reckless disregard of obligations and duties thereunder. In addition, each
Agreement will provide that neither the Servicer nor any Sub-Servicer is under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Agreement and which in
its opinion may expose it to any expense or liability.
Each Agreement will provide that, in addition to Exchanges, if applicable, the
Transferor may transfer its interest in all or a portion of the Transferor
Certificate, provided that prior to any such transfer (a) the Trustee receives
written notification from each Rating Agency that such transfer will not result
in a lowering of its then existing rating of the Certificates of each
outstanding Series rated by it and (b) the Trustee receives a Tax Opinion.
Any person into which, in accordance with each Agreement, the Transferor or the
Servicer may be merged or consolidated or any person resulting from any merger
or consolidation to which the Transferor or the Servicer is a party, or any
person succeeding to the business of the Transferor or the Servicer, upon
execution of a supplement to the Agreement and delivery of an opinion of
counsel with respect to the compliance of the transaction with the applicable
provisions of the Agreement, will be the successor to the Transferor or the
Servicer, as the case may be, under the Agreement.
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SERVICER GUARANTEE
If so provided in the Prospectus Supplement related to a Series of
Certificates, the obligations of the Servicer under the Agreement may be
guaranteed (a "SERVICER GUARANTEE") by Dillard's or any of its subsidiaries
pursuant to a guarantee agreement in favor of the Trustee.
SERVICER DEFAULT
Unless otherwise specified in the related Prospectus Supplement, in the event
of any Servicer Default (as defined below), either the Trustee or
Certificateholders representing undivided interests aggregating more than 50%
of the Investor Interests for all Series of Certificates of the related Trust,
by written notice to the Servicer (and to the Trustee if given by the
Certificateholders), may terminate all of the rights and obligations of the
Servicer as servicer under the Agreement and in and to the Receivables and the
proceeds thereof and the Trustee may appoint a new Servicer (a "SERVICE
TRANSFER"). The rights and interest of the Transferor under the related
Agreement and in the Transferor Interest will not be affected by such
termination. The related Trustee shall as promptly as possible appoint a
successor Servicer. If no such Servicer has been appointed and has accepted
such appointment by the time the Servicer ceases to act as Servicer, all
authority, power and obligations of the Servicer under the Agreement shall pass
to and be vested in the Trustee. If the Trustee is unable to obtain any bids
from eligible servicers and the Servicer delivers an officer's certificate to
the effect that it cannot in good faith cure the Servicer Default which gave
rise to a transfer of servicing, and if the Trustee is legally unable to act as
successor Servicer, then the Trustee shall give the Transferor the right of
first refusal to purchase the Receivables on terms equivalent to the best
purchase offer as determined by the Trustee.
Unless otherwise specified in the related Prospectus Supplement, "SERVICER
DEFAULT" under any Agreement refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or deposit, or to
give instructions to the Trustee to make certain payments, transfers or
deposits, on the date the Servicer is required to do so under the related
Agreement or any Series Supplement (or within the applicable grace period,
which shall not exceed 10 business days);
(b) failure on the part of the Servicer duly to observe or perform in any
respect any other covenants or agreements of the Servicer which has a
material adverse effect on the Certificateholders of any Series issued and
outstanding under such Trust and which continues unremedied for a period of
60 days after written notice and continues to have a material adverse
effect on such Certificateholders; or the delegation by the Servicer of its
duties under the Agreement, except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the Servicer in
the Agreement, or in any certificate delivered pursuant to the Agreement,
proves to have been incorrect when made which has a material adverse effect
on the Certificateholders of any Series issued and outstanding under such
Trust, and which continues to be incorrect in any material respect for a
period of 60 days after written notice and continues to have a material
adverse effect on such Certificateholders;
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of the Servicer, or
(e) such other event specified in the related Prospectus Supplement.
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Unless otherwise stated in the related Prospectus Supplement, notwithstanding
the foregoing, a delay in or failure of performance referred to in clause (a)
above for a period of 10 business days, or referred to under clause (b) or (c)
for a period of 60 business days, 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 Agreement,
and the Servicer shall provide the Trustee, any provider of Enhancement and/or
any issuer of any third-party Credit Enhancement (a "CREDIT ENHANCEMENT
PROVIDER"), the Transferor and the holders of Certificates of each Series
issued and outstanding under the related Trust prompt notice of such failure or
delay by it, together with a description of the cause of such failure or delay
and its efforts to perform its obligations.
In the event of a Servicer Default, if a conservator or receiver is appointed
for the Servicer and to Servicer Default other than such conservatorship or
receivership or the insolvency of the Servicer exists, the conservator or
receiver may have the power to prevent either Trustee or the majority of the
Certificateholders from effecting a Service Transfer.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, for each
Series of Certificates, on each Distribution Date, or as soon thereafter as is
practicable, as specified in the related Prospectus Supplement, the Paying
Agent will forward to each Certificateholder of record a statement prepared by
the Servicer setting forth, among other things: (a) the total amount
distributed, (b) the amount of distribution on such Distribution Date allocable
to principal on the Certificates, (c) the amount of such distribution allocable
to interest on the Certificates, (d) the amount of collections of Principal
Receivables processed during the preceding month or months since the last
Distribution Date and allocated in respect of the Certificates, (e) the
aggregate amount of Principal Receivables, the Investor Interest and the
Investor Interest as a percentage of the aggregate amount of the Principal
Receivables in the Trust as of the end of the last day of the preceding Monthly
Period or Periods since the last Distribution Date, (f) the aggregate
outstanding balance of Accounts which are at least a specified number of days
delinquent by class of delinquency as of the end of the last day of the
preceding Monthly Period or Periods since the last Distribution Date, (g) the
aggregate Investor Default Amount for the preceding Monthly Period or Periods
since the last Distribution Date, (h) the amount of Investor Charge-Offs for
the preceding Monthly Period or Periods since the last Distribution Date and
the amount of reimbursements of previous Investor Charge-Offs for the preceding
Monthly Period or Periods since the last Distribution Date, (i) the amount of
the Investor Servicing Fee for the preceding Monthly Period or Periods since
the last Distribution Date, (j) the amount available under any Enhancement and
Credit Enhancement, if any, as of the close of business on such Distribution
Date, (k) the "pool factor" as of the end of the related Record Date
(consisting of a seven-digit decimal expressing the ratio of the Investor
Interest to the initial Investor Interest), (l) the aggregate amount of
collections on Finance Charge Receivables and annual membership fees processed
during the preceding Monthly Period or Periods since the last Distribution
Date, (m) the Portfolio Yield (as such term is defined in the related
Prospectus Supplement and relating to such Series) for the preceding Monthly
Period or Periods since the last Distribution Date and (n) certain
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information relating to the floating or variable Certificate Rates, if
applicable, for the Monthly Period or Periods ending on such Distribution Date.
In the case of a Series of Certificates having more than one Class, the
statements forwarded to Certificateholders will provide information as to each
Class of Certificates, as appropriate.
On or before January 31 of each calendar year or such other date as specified
in the related Prospectus Supplement, the Paying Agent will furnish to each
person who at any time during the preceding calendar year was a
Certificateholder of record, a statement prepared by the Servicer containing
the information required to be contained in the regular monthly report to
Certificateholders, as set forth in clauses (a), (b) and (c) above aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder, together with such other customary information
(consistent with the treatment of the Certificates as debt) as the Trustee or
the Servicer deems necessary or desirable to enable the Certificateholders to
prepare their United States tax returns.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related Prospectus Supplement, each Agreement
will provide that on or before March 31 of each calendar year, or such other
date as specified in the related Prospectus Supplement, the Servicer will cause
a firm of independent certified public accountants to furnish (i) a report to
the effect that such accounting firm has examined management's assertion that,
as of the date of such report, the system of internal control over servicing of
securitized credit card receivables met the criteria for effective internal
control described in the report entitled "Internal Control-Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and that in their opinion, management's assertion is fairly
stated, in all material respects and (ii) a report, prepared using generally
accepted attestation standards to the effect that such accountants have
compared the amounts set forth in at least two of the monthly certificates
forwarded by the Servicer during the period covered by such report (which shall
be the twelve-month period ending on December 31 of the preceding calendar
year) with the Servicer's computer reports which were the source of such
amounts and found them to be in agreement or shall disclose any exceptions
noted and that such firm has recalculated the mathematical accuracy of amounts
derived in the monthly certificates.
Each Agreement will provide for delivery to the Trustee on or before August 31
of each calendar year, or such other date as specified in the related
Prospectus Supplement, of an annual statement signed by an officer of the
Servicer to the effect that the Servicer has fully performed its obligations
under the Agreement throughout the preceding year, or, if there has been a
default in the performance of any such obligation, specifying the nature and
status of the default.
AMENDMENTS
Unless otherwise specified in the related Prospectus Supplement, each Agreement
and any Series Supplement may be amended by the Transferor, the Servicer and
the related Trustee, without the consent of Certificateholders of any Series
then outstanding, to cure any ambiguity, to revise certain exhibits and
schedules, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, or to add any other provisions
with respect to matters or questions
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arising thereunder which are not inconsistent with the provisions of such
Agreement or Series Supplement. No such amendment, however, may adversely
affect in any material respect the interests of the Certificateholders of any
Series then outstanding.
Each Agreement and any related Series Supplement may be amended by the
Transferor, the Servicer and the related Trustee without the consent of any of
the Certificateholders of any Series then outstanding for the purpose of
adding, changing or eliminating any provision thereof or any right of the
holders of Certificates thereunder, provided that (i) the Servicer shall have
furnished the Trustee with an officer's certificate to the effect that the
amendment will not materially and adversely affect the interests of any
Certificateholder, (ii) such amendment will not cause the Trust to be
characterized as a corporation for federal income tax purposes or otherwise
have a material adverse effect on the federal income taxation of any Series and
(iii) the Servicer shall have given each Rating Agency ten business days' prior
written notice of such amendment and shall have received written confirmation
from each Rating Agency that the rating of the Certificates of any Series will
not be reduced or withdrawn as a result of such amendment. No such amendment,
however, may effect any of the amendments that require unanimous
Certificateholder consent as set forth in the next paragraph, or (i) reduce in
any manner the amount of, or delay the timing of, distributions which are
required to be made on Certificates of any Series, (ii) change the definition
of or the manner of calculating the interest of any Certificateholder of any
Series, (iii) alter the requirements for changing the percentage by which the
Minimum Transferor Interest for Certificates of any Series is determined, (iv)
change the manner in which the Transferor Interest of any Series is determined
or (v) reduce the percentage required in the following paragraphs to consent to
such amendment.
Each Agreement may also be amended by the Transferor, the Servicer and the
related Trustee with the consent of the holders of the Certificates evidencing
undivided interests aggregating more than 50% of the Investor Interest of each
Series adversely affected for the purpose of adding any provisions to, changing
in any manner or eliminating any of the provisions of the Agreement or of
modifying in any manner the rights of holders of Certificates. No such
amendment, however, may (a) reduce in any manner the amount of, or delay the
timing of, distributions required to be made on any Certificate of such Series
without the consent of all the related Certificateholders, (b) change the
definition of or the manner of calculating the Investor Interest, the Investor
Percentage or the Investor Default Amount of such Series without the consent of
each holder of Certificates adversely affected thereby or (c) reduce the
aforesaid percentage of undivided interests the holders of which are required
to consent to any such amendment, without the consent of each holder of
Certificates of all Series affected thereby.
LIST OF CERTIFICATEHOLDERS
With respect to each Series of Certificates, upon written request of
Certificateholders of record representing undivided interests in the Trust
aggregating not less than 10% (or such other percentage specified in the
related Prospectus Supplement) of the Investor Interest, the Trustee after
having been adequately indemnified by such Certificateholders for its costs and
expenses, and having given the Servicer notice that such request has been made,
will afford such Certificateholders access during business hours to the current
list of Certificateholders of the Trust for purposes of communicating with
other Certificateholders with respect to their rights under the Agreement. See
"--Book-Entry Registration" and "--Definitive Certificates" above.
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THE TRUSTEE
The Prospectus Supplement for each Series will specify the Trustee under the
related Agreement. The Transferor, the Servicer and their respective affiliates
may from time to time enter into normal banking and trustee relationships with
the Trustee and its affiliates. The Trustee, the Transferor, the Servicer and
any of their respective affiliates may hold Certificates in their own names. In
addition, for purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee shall have the power to appoint a co-trustee or
separate trustees of all or any part of the Trust. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Agreement shall be conferred or imposed upon the
Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
The Trustee may resign at any time, in which event the Transferor will be
obligated to appoint a successor Trustee. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Transferor will be obligated to appoint a successor Trustee. Any resignation or
removal of the Trustee and appointment of a successor Trustee does not become
effective until acceptance of the appointment by the successor Trustee.
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DESCRIPTION OF THE PURCHASE AGREEMENTS
GENERAL
The Transferor will obtain its interest in the Receivables pursuant to one or
more Purchase Agreements between the Transferor and one or more Originators.
Pursuant to a Purchase Agreement the Originator party thereto will transfer to
the Transferor all Receivables in specified Accounts as of the Cut-Off Date
specified therein. The Transferor has entered into the following receivables
purchase agreements: (i) the DIC Receivables Purchase Agreement dated as of
August 14, 1998 with DIC; (ii) the MFI Receivables Purchase Agreement dated as
of August 14, 1998 with Mersco Factors; (iii) the DNB Receivables Purchase
Agreement dated as of August 14, 1998 with DNB; and (iv) the MSNB Receivables
Purchase Agreement dated as of August 14, 1998 with DNB-La. (collectively, the
"Purchase Agreements"). Pursuant to the Purchase Agreements, each of DIC,
Mersco Factors, DNB and DNB-La. transferred to the Transferor all then existing
and thereafter arising receivables in each account identified on a list of
accounts delivered to the Transferor, and all monies due or to become due with
respect thereto as of the close of business on August 12, 1998. In addition,
pursuant to their Purchase Agreements, each of DNB and DNB-La. transferred to
the Transferor all receivables then existing and thereafter arising in each
account created after August 12, 1998, and all monies due or to become due with
respect thereto as of the date of creation of such receivables. With respect to
any Series of Certificates, the transferor will transfer to the related Trust
the Receivables identified in the related Prospectus Supplement and Agreement
and will assign to the Trust its rights in, to and under the Purchase
Agreements with respect to such Receivables.
The Transferor may enter into additional Purchase Agreements with one or more
additional Originators, or may modify the Existing Purchase Agreements to the
extent described in the prospectus Supplement related to a Series of
Certificates. Each Purchase Agreement will contain substantially similar terms,
or, with respect to any Series of Certificates, such other terms as shall have
been approved by the rating agencies rating such Series. The terms of the
Purchase Agreements are generally described below. A form of the Purchase
Agreements has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
REPRESENTATIONS AND WARRANTIES
In each Purchase Agreement, the related Originator will represent and warrant
that, among other things, (i) it is duly organized and is validly existing and
is in good standing under the laws of the jurisdiction of its incorporation
with power, authority and legal right to acquire and own the Receivables
transferred by it thereunder, (ii) such Purchase Agreement constitutes a legal,
valid and binding obligation of such Originator, enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability is considered
in a proceeding in equity or at law, (iii) such Purchase Agreement constitutes
either (a) valid transfer, assignment, set-over and conveyance to the
Transferor of all right, title and interest of such Originator in, to and under
the Receivables transferred by it thereunder and all proceeds of such
Receivables, and such Receivables and proceeds will be held by the Transferor
free and clear of any lien of any Person claiming through or under such
Originator or any of its affiliates; or (b) a grant of a perfected, first
priority, security
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interest (as defined in the UCC) in such property to the Transferor (subject to
certain exceptions), (iv) each existing Account is an Eligible Account and no
selection procedures adverse to the Transferor have been employed in selecting
the Accounts from among the Eligible Accounts in such Originator's portfolio,
(v) each Receivable transferred thereunder is an Eligible Receivable, (vi) each
Receivable transferred thereunder has been or will be conveyed to the
Transferor (1) free and clear of any lien of any Person claiming through or
under such Originator or any of its affiliates and (2) in compliance, in all
material respects, with all requirements of law applicable to such Originator,
(vii) all consents, licenses, approvals or authorizations of, or registrations
or declarations with, any governmental authority required to be obtained,
effected or given by such Originator in connection with the conveyance of
Receivables to the Transferor under such Purchase Agreement have been duly
obtained, effected or given and are in full force and effect, (viii) such
Originator has the corporate power and authority to (a) execute and deliver
such Purchase Agreement and to perform its obligations thereunder and (b) sell
and assign to the Transferor the Receivables transferred and to be transferred
thereunder and has duly authorized such transfers by all necessary corporate
action on the part of such Originator and (ix) such Originator is, and after
giving effect to the transfers contemplated to occur on any date under such
Purchase Agreement, will be, solvent.
CERTAIN COVENANTS
Each Originator will agree, among other things, (i) to execute and file such
financing statements, and cause to be executed and filed such continuation and
other statements, all in such manner and in such places as may be required by
law fully to perfect and preserve the sale to the Transferor of the Receivables
transferred by such Originator and not to change its name, identity or
corporate structure in any manner that would, could or might make any financing
statement or continuation statement filed by it seriously misleading unless it
shall have given the Transferor at least 60 days prior written notice thereof
and shall file such financing statements or amendments as may be necessary to
continue the perfection of the Transferor's interest in all Receivables sold
transferred by such Originator, (ii), except for the conveyances under the
Purchase Agreements and as contemplated by the Pooling and Servicing Agreement,
not to sell, pledge, assign or transfer to any other Person any of the assets
transferred by such Originator to the Transferor under its Purchase Agreement,
and not to grant, create, incur, assume or suffer to exist any Lien thereon,
and to shall defend the right, title and interest of the Transferor in, to and
under all such transferred assets against all claims of third parties claiming
through or under such Originator and (iii) not to make any change or
modification to the credit criteria applied in respect of the origination of
Receivables by it or the credit review process followed in connection with the
origination of such Receivables (collectively, the "CREDIT AND COLLECTION
POLICY"), that could reasonably be expected to have a material adverse effect
on the Transferor, as Transferor thereof.
REPURCHASE EVENTS
Each Originator will agree with the Transferor that in the event of (i) a
breach of any of such Originator's representations and warranties contained in
clauses (iv), (v), (vi) and (vii) above under the description "Representations
and Warranties", unless such breach shall have been cured in all material
respects within a period acceptable to the Transferor (but not more than 150
days), or (ii) a breach by such Originator of its covenant described in clause
(ii) above under the description "Certain Covenants", which breach has a
material adverse effect on the Transferor's interest in such
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Receivable or (iii) a breach of any of such Originator's representations and
warranties contained in clause (iii) above under the description
"Representations and Warranties" (any such Receivable, a "WARRANTY
RECEIVABLE"), such Originator will, upon request by the Transferor, repurchase
such Warranty Receivable from the Transferor by delivering to the Transferor an
amount equal to the unpaid principal amount of such Receivable as of the close
of business on the second Business Day preceding such date of reassignment (the
"WARRANTY PAYMENT"). The obligation of each Originator to repurchase any
Warranty Receivable transferred by it as to which a breach has occurred and is
continuing shall, if such obligation is fulfilled, constitute the sole remedy
against such Originator for such breach available to the Transferor or the
Trustee. Upon receipt by the Transferor of the Warranty Payment, the Transferor
will assign, without recourse, representation or warranty, to the applicable
Originator all of the Transferor's right, title and interest in, to and under
such Warranty Receivable and all monies due thereon.
If so provided in the Prospectus Supplement related to a Series of
Certificates, the obligations of the Originators, or any of them, to repurchase
Receivables under the circumstances described in the preceding paragraph may be
guaranteed (a "REPURCHASE GUARANTEE") by Dillard's or any of its subsidiaries
pursuant to a guarantee agreement in favor of the Transferor. In such cases,
the rights of the Transferor under such Repurchase Guarantee will be assigned
to the Trustee for the benefit of the Certifcateholders of such Series.
MERGER AND CONSOLIDATION
Any Person (a) into which an Originator may be merged or consolidated, (b)
resulting from any merger, conversion or consolidation to which such Originator
is a party, (c) succeeding to the business of such Originator, or (d) more than
50% of the voting stock of which is owned, directly or indirectly, by
Dillard's, which Person in any of the foregoing cases executes an agreement of
assumption to perform every obligation of such Originator under its Purchase
Agreement will succeed to such Originator under its Purchase Agreement without
the execution or filing of any paper or any further act on the party of any of
the parties to this Agreement; provided, however, that such Originator shall
have delivered to the Transferor and the Trustee an opinion of counsel either
(A) stating that, in the opinion of such counsel, all financing statements and
continuation statements and amendments thereto have been executed and filed
that are necessary fully to preserve and protect the interest of the Transferor
and the Trustee, respectively, in the Receivables transferred by such
Originator and reciting the details of such filings or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interests.
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CREDIT ENHANCEMENT
GENERAL
For any Series, "CREDIT ENHANCEMENT" may be provided with respect to one or
more Classes thereof. Credit Enhancement may be in the form of the
subordination of one or more Classes of the Certificates of such Series, a
letter of credit, the establishment of a cash collateral guaranty or account, a
collateral interest, a surety bond, an insurance policy, a spread account, a
reserve account, the use of cross support features or another method of Credit
Enhancement described in the related Prospectus Supplement, or any combination
of the foregoing. If so specified in the related Prospectus Supplement, any
form of Credit Enhancement may be structured so as to be drawn upon by more
than one Class to the extent described therein.
The type, characteristics and amount of the Credit Enhancement for any Series
or Class will be determined based on several factors, including the
characteristics of the Receivables and Accounts included in the Trust Portfolio
as of the Closing Date with respect to such Series and the desired rating for
each Class, and will be established on the basis of requirements of each Rating
Agency rating the Certificates of such Series or Class.
Unless otherwise specified in the related Prospectus Supplement for a Series,
the Credit Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by the Credit Enhancement or which are not covered by the Credit
Enhancement, Certificateholders will bear their allocable share of
deficiencies.
If Credit Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable
under such Credit Enhancement, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
payable under such Credit Enhancement may be reduced and under which such
Credit Enhancement may be terminated or replaced and (d) any material provision
of any agreement relating to such Credit Enhancement. Additionally, the related
Prospectus Supplement may set forth information with respect to any Credit
Enhancement Provider, including (i) a brief description of its principal
business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to
do business, (iii) if applicable, the identity of regulatory agencies which
exercise primary jurisdiction over the conduct of its business and (iv) its
total assets, and its stockholders' or policy holders' surplus, if applicable,
and other appropriate financial information as of the date specified in the
Prospectus Supplement. If so specified in the related Prospectus Supplement,
Credit Enhancement with respect to a Series may be available to pay principal
of the Certificates of such Series following the occurrence of certain Pay Out
Events with respect to such Series. In such event, the Credit Enhancement
Provider may have an interest in certain cash flows in respect of the
Receivables to the extent described in such Prospectus Supplement (the
"ENHANCEMENT INVESTED AMOUNT").
SUBORDINATION
If so specified in the related Prospectus Supplement, one or more of any Series
will be subordinated as described in the related Prospectus Supplement to the
extent necessary to fund payments with
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respect to the Senior Certificates. The rights of the holders of any such
Subordinated Certificates to receive distributions of principal and/or interest
on any Distribution Date for such Series will be subordinated in right and
priority to the rights of the holders of Senior Certificates, but only to the
extent set forth in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, subordination may apply only in the event of
certain types of losses not covered by another Credit Enhancement. The related
Prospectus Supplement will also set forth information concerning the amount of
subordination of a Class or Classes of Subordinated Certificates in a Series,
the circumstances in which such subordination will be applicable, the manner,
if any, in which the amount of subordination will be applicable, the manner, if
any, in which the amount of subordination will decrease over time, and the
conditions under which amounts available from payments that would otherwise be
made to holders of such Subordinated Certificates will be distributed to
Holders of Senior Certificates. If collections of Receivables otherwise
distributable to Holders of a subordinated Class of a Series will be used as
support for a Class of another Series, the related Prospectus Supplement will
specify the manner and conditions for applying such a cross-support feature.
LETTER OF CREDIT
If so specified in the related Prospectus Supplement, support for a Series or
one or more Classes thereof will be provided by one or more letters of credit.
A letter of credit may provide limited protection against certain losses in
addition to or in lieu of other Credit Enhancement. The issuer of the letter of
credit (the "L/C BANK") will be obligated to honor demands with respect to such
letter of credit, to the extent of the amount available thereunder, to provide
funds under the circumstances and subject to such conditions as are specified
in the related Prospectus Supplement.
CASH COLLATERAL GUARANTY OR ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series or
one or more Classes thereof will be provided by a guaranty (the "CASH
COLLATERAL GUARANTY") secured by the deposit of cash or certain permitted
investments in an account (the "CASH COLLATERAL ACCOUNT") reserved for the
beneficiaries of the Cash Collateral Guaranty or by a Cash Collateral Account
alone. The amount available pursuant to the Cash Collateral Guaranty or the
Cash Collateral Account will be the lesser of amounts on deposit in the Cash
Collateral Account and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments are made to beneficiaries of the Cash Collateral Guaranty
from the Cash Collateral Account or from the Cash Collateral Account directly.
COLLATERAL INTEREST
If so specified in the related Prospectus Supplement, support for a Series or
one or more Classes thereof will be provided initially by an undivided interest
in the Trust (the "COLLATERAL INTEREST") in an amount initially equal to a
percentage of the Certificates of such Series as specified in the Prospectus
Supplement. Such Series may also have the benefit of a Cash Collateral Guaranty
or Cash Collateral Account with an initial amount on deposit therein, if any,
as specified in the Prospectus Supplement which will be increased (i) to the
extent the Transferor elects, subject to certain conditions specified in the
related Prospectus Supplement, to apply collections of Principal Receivables
allocable to the Collateral Interest to decrease the Collateral Interest, (ii)
to the extent
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collections of Principal Receivables allocable to the Collateral Interest are
required to be deposited into the Cash Collateral Account as specified in the
related Prospectus Supplement and (iii) to the extent excess collections of
Finance Charge Receivables are required to be deposited into the Cash
Collateral Account as specified in the related Prospectus Supplement. The total
amount of the Credit Enhancement available pursuant to the Collateral Interest
and, if applicable, the Cash Collateral Guaranty or Cash Collateral Account
will be the lesser of the sum of the Collateral Interest and the amount on
deposit in the Cash Collateral Account and an amount specified in the related
Prospectus Supplement. The related Prospectus Supplement will set forth the
circumstances under which payments which otherwise would be made to holders of
the Collateral Interest will be distributed to holders of Certificates and, if
applicable, the circumstances under which payment will be made under the Cash
Collateral Guaranty or under the Cash Collateral Account.
SURETY BOND OR INSURANCE POLICY
If so specified in the related Prospectus Supplement, insurance with respect to
a Series or one or more Classes thereof will be provided by one or more
insurance companies. Such insurance will guarantee, with respect to one or more
Classes of the related Series, distributions of interest or principal in the
manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond will be
purchased for the benefit of the holders of any Series or Class or such Series
to assure distributions of interest or principal with respect to such Series or
Class of Certificates in the manner and amount specified in the related
Prospectus Supplement.
SPREAD ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series or
one or more Classes thereof will be provided by the periodic deposit of certain
available excess cash flow from the Trust assets into an account (the "SPREAD
ACCOUNT") intended to assist with subsequent distribution of interest and
principal on the Certificates of such Class or Series in the manner specified
in the related Prospectus Supplement.
RESERVE ACCOUNT
If so specified in the related Prospective Supplement, support for a Series or
one or more Classes thereof will be provided by the establishment of a reserve
account (the "RESERVE ACCOUNT"). The Reserve Account may be funded, to the
extent provided in the related Prospectus Supplement, by an initial cash
deposit, the retention of certain periodic distributions of principal or
interest or both otherwise payable to one or more Classes or Certificates,
including the Subordinated Certificates, or the provision of a letter of
credit, guarantee, insurance policy or other form of credit or any combination
thereof. The Reserve Account will be established to assist with the subsequent
distribution of principal or interest on the Certificates of such Series or
Class in the manner provided in the related Prospectus Supplement.
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CERTIFICATE RATINGS
Any rating of the Certificates by a Rating Agency will indicate:
. its view on the likelihood that Certificateholders will receive required
interest and principal payments; and
. its evaluation of the Receivables and the availability of any Enhancement
for the Certificates.
Among the things a rating will not indicate are:
. the likelihood that interest or principal payments will be paid on a
scheduled date;
. the likelihood that a Pay Out Event will occur;
. the likelihood that a United States withholding tax will be imposed on
non-U.S. Certificateholders;
. the marketability of the Certificates;
. the market price of the Certificates; or
. whether the Certificates are an appropriate investment for any purchaser.
A rating will not be a recommendation to buy, sell or hold the Certificates. A
rating may be lowered or withdrawn at any time by a Rating Agency.
The Transferor will request a rating of the Certificates offered by this
Prospectus and the Prospectus Supplement from at least one Rating Agency. It
will be a condition to the issuance of the Certificates of each Series or Class
offered pursuant to this Prospectus and the related Prospectus Supplement
(including each Series that includes a Pre-Funding Account) that they be rated
in one of the four highest rating categories by at least one nationally
recognized rating organization (each such rating agency selected by the
Transferor to rate any Series, a "Rating Agency"). The rating or ratings
applicable to the Certificates of each Series or Class offered hereby will be
set forth in the related Prospectus Supplement. Rating agencies other than
those requested could assign a rating to the Certificates and such a rating
could be lower than any rating assigned by a Rating Agency chosen by the
Transferor.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor will represent and warrant in each Agreement that the transfer
of Receivables by it to the related Trust is either a valid transfer and
assignment to such Trust of all right, title and interest of the Transferor in
and to the related Receivables, except for the interest of the Transferor as
holder of the Transferor Certificate, or the grant to the Trust of a security
interest in such Receivables. The Transferor will also represent and warrant in
each Agreement that, in the event the transfer of Receivables by the Transferor
to the related Trust is deemed to create a security interest under the Uniform
Commercial Code as in effect in the State of Delaware (the "UCC") there will
exist a valid, subsisting and enforceable first priority perfected security
interest in such Receivables created thereafter in favor of such Trust on and
after their creation, except for certain tax and other governmental liens,
subject to the limitations described below. For a discussion of the Trust's
rights arising from a breach of these warranties, see "Description of the
Certificates--Representations and Warranties."
The Transferor will represent as to Receivables to be conveyed, that the
Receivables are "accounts" or "general intangibles" for purposes of the UCC.
Both the transfer and assignment of accounts and chattel paper and the transfer
of accounts as security for an obligation are treated under Article 9 of the
UCC as creating a security interest therein and are subject to its provisions,
and the filing of an appropriate financing statement is required to perfect the
security interest of the related Trust. If a transfer of general intangibles is
deemed to create a security interest, the UCC applies and filing an appropriate
financing statement or statements is also required in order to perfect the
Trust's security interest. Financing statements covering the Receivables have
been and will be filed with the appropriate governmental authority to protect
the interests of the related Trust in the Receivables. If a transfer of general
intangibles is deemed to be a sale, then the UCC is not applicable and no
further action under the UCC is required to protect the Trust's interest from
third parties.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after a Closing Date
could have an interest in such Receivables with priority over such Trust's
interest. Under each Agreement, however, the Transferor will represent and
warrant that it transferred the Receivables to the Trust free and clear of the
lien of any third party. In addition, the Transferor has covenanted and 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 Trust. A tax or
government lien or other nonconsensual lien on property of the Transferor
arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable. While DNB is the
Servicer, collections will be commingled with Dillard's general funds and used
for Dillard's benefit prior to each Distribution Date. Accordingly, in the
event of the insolvency of Dillard's, DNB or other subsidiaries of Dillard's,
the Trust may not have a perfected security interest in such collections. So
long as DNB, however, remains the Servicer under the related Agreement, unless
(a)(i) the Servicer has provided to the Trustee a letter of credit or other
credit support acceptable to each Rating Agency and (ii) the Transferor shall
not have received a notice from the Rating Agency that such letter of credit
would result in the lowering of such Rating Agency's then existing rating of
the related Series (and if a Trust has issued more than one Series, any Series
of certificates then issued and outstanding thereunder), or (b) Dillard's (so
long as the
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Servicer is wholly-owned by Dillard's) has and maintains a long-term unsecured
debt rating in one of the four highest categories assigned by each of Moody's
and Standard & Poor's, or (c) such other arrangement is made by the Servicer
which is approved in writing by the Rating Agencies, DNB will be obligated to
cease commingling collections and commence depositing collections into the
Collection Account within two business days after the date of processing.
CERTAIN MATTERS RELATING TO BANK RECEIVERSHIP
DNB and DNB-La. may be Originators of some or all of the Receivables. In
addition, DNB is the initial Servicer. DNB and DNB-La. are chartered as
national banking associations and are subject to regulation and supervision by
the Comptroller. If either DNB or DNB-La. becomes insolvent or is in an unsound
condition or if certain other circumstances occur, the Comptroller is
authorized to appoint the FDIC as receiver.
In connection with the issuance of a Series of Certificates which is supported
by Receivables transferred by DNB or DNB-La. to the Transferor, counsel will
advise the Trustee, based upon the assumptions and limitations contained in a
written legal opinion, that the sale of Receivables by DNB or DNB-La., as
appropriate, would constitute either a valid sale or a grant of a security
interest (as defined in the UCC) in such property to the Transferor which, upon
the filing of specified financing statements will be a perfected security
interest.
FIRREA sets forth certain powers that the FDIC may exercise as receiver for DNB
or DNB-La. To the extent that (i) either such Originator granted a security
interest in its Receivables to the Transferor, which security interest is
subsequently assigned to the Trust, (ii) the interest was validly perfected
before such Originator's insolvency, (iii) the interest was not taken or
granted in contemplation of such Originator's insolvency or with the intent to
hinder, delay or defraud such Originator or its creditors, (iv) the Agreement
is continuously a record of such Originator, and (v) the Agreement represent a
bona fide and arm's length transaction undertaken for adequate consideration in
the ordinary course of business and that the Trustee is the secured party and
is not an insider or affiliate of such Originator, such valid perfected
security interest of the Trustee would be enforceable (to the extent of the
Trust's "actual direct compensatory damages") notwithstanding the insolvency
of, or the appointment of a receiver or conservator for, such Originator and
payments to the Trust with respect to the Receivables (up to the amount of such
damages) should not be subject to an automatic stay of payment or to recovery
by the FDIC as conservator or receiver of such Originator. If, however, the
FDIC were to assert that the security interest in favor of either the
Transferor or the Trust was unperfected or unenforceable or were to require
either the Transferor or the Trustee to establish its right to those payments
by submitting to and completing the administrative claims procedure established
under FIRREA, or the conservator or receiver were to request a stay of
proceedings with respect to an Originator as provided under FIRREA, delays in
payments on the Certificates and possible reductions in the amount of those
payments could occur. The FDIA provides that actual, direct compensatory
damages shall be measured as of the date of the appointment of the conservator
or receiver.
Upon the appointment of a conservator or receiver or upon a voluntary
liquidation with respect to DNB or DNB-La. a termination event under the
applicable Purchase Agreement will occur and, with respect to DNB, a Servicer
Default will occur. If no Servicer Default other than the conservatorship
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or receivership of the Servicer exists, the conservator or receiver for the
Servicer may have the power to prevent either the Trustee or the
Certificateholders from appointing a successor Servicer under the related
Agreement. In addition, if DNB or DNB-La. is an Originator of Receivables, a
conservator or receiver may have the power to prohibit the continued transfer
of Principal Receivables to the Trust. If, as a result of such event, the
applicable Originator is no longer able to transfer Receivables to the
Transferor, a Pay Out Event may, if specified in the related Prospectus
Supplement, occur with respect to a Series of Certificates under the related
Trust. Pursuant to each Purchase Agreement, newly created Principal Receivables
will not be transferred to the Transferor on and after any such appointment or
voluntary liquidation, and the Trustee will proceed to sell, dispose of or
otherwise liquidate the Receivables originated by such Originator in a
commercially reasonable manner and on commercially reasonable terms, unless
otherwise instructed within a specified period by holders of Certificates
representing undivided interests aggregating more than 50% of the Investor
Interest of each Series (or if any Series has more than one Class, of each
Class, and any other Person specified in the related Agreement or a Series
Supplement), or unless otherwise required by the FDIC as receiver or
conservator of DNB. Under the Agreement, the proceeds from the sale of the
Receivables would be treated as collections of the Receivables and the Investor
Percentage of such proceeds would be distributed to the Certificateholders.
However, if the only Pay Out Event to occur is either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Rapid
Amortization Period. See "Description of the Certificates--Pay Out Events."
The occurrence of certain events of insolvency, conservatorship or receivership
with respect to the Servicer will result in a Servicer Default, which Servicer
Default, in turn, could result in a Pay Out Event. If no other Servicer Default
other than the commencement of such bankruptcy or similar event exists, a
conservator or receiver of the Servicer may have the power to prevent the
Trustee and the Securityholders from appointing a successor Servicer,
CERTAIN MATTERS RELATING TO INSOLVENCY OF THE TRANSFEROR
The Transferor will not engage in any activities except purchasing accounts
receivable from Dillard's and certain of Dillards' subsidiaries, forming
trusts, transferring such accounts Receivable to such trusts and engaging in
activities incident to, or necessary or convenient to accomplish, the
foregoing. The Transferor has no intention of filing, and Condev Nevada Inc.
has no intention of causing the filing of a voluntary petition under the United
States federal bankruptcy code or any similar applicable state law with respect
to the Transferor so long as the Transferor is solvent and does not reasonably
foresee becoming insolvent.
The voluntary or involuntary application for relief under the United States
federal bankruptcy code or any similar applicable state law with respect to
Dillard's or any of its affiliates (other than the Transferor) (Dillard's and
its affiliates, other than the transferor, each a "DILLARD'S ENTITY") should
not necessarily result in a similar voluntary application with respect to the
Transferor so long as the Transferor is solvent and does not reasonably foresee
becoming insolvent either by reason of the insolvency of a Dillard's Entity or
otherwise. In connection with the issuance of a Series of Certificates, counsel
will advise the Trustee, based upon the assumptions and limitations contained
in
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a written legal opinion, that (i) the assets and liabilities of the Transferor
would not be substantively consolidated with the assets and liabilities of any
Dillard's Entity in the event of an application for relief under the United
States federal bankruptcy code with respect to such Dillard's Entity. In
addition, in connection with the issuance of a Series of Certificates, counsel
will advise the Trustee, based upon the assumptions and limitations contained
in a written legal opinion, that the sale of Receivables by a Originator other
than DNB or DNB-La. would constitute a valid sale and, therefore, such
Receivables would not be property of such Originator in the event of the filing
of an application for relief by or against such Originator under the United
States federal bankruptcy code. The foregoing conclusions are reasoned
conclusions, based upon various assumptions regarding factual matters and
future events, as to which there necessarily can be no assurance. If a
bankruptcy trustee for a Dillard's Entity , or such Dillard's Entity as debtor-
in- possession, or a creditor of such Dillard's Entity were to take the view
that such Dillard's Entity and the Transferor should be substantively
consolidated then delays in payments on the Certificates of each Series or
(should the bankruptcy court rule in favor of any such trustee, debtor-in-
possession or creditor) reductions in such payments on such Certificates could
result. In addition, if a bankruptcy trustee for an Originator (other than DNB-
La. or DNB), or such Originator as debtor-in-possession, or a creditor of such
Originator were to take the view that the transfer of the Receivables from such
Originator to the Transferor should be recharacterized as a pledge of such
Receivables, then delays in payments on the Certificates of each Series or
(should the bankruptcy court rule in favor of any such trustee, debtor-in-
possession or creditor) reductions in such payments on such Certificates could
result.
The Pooling and Servicing Agreement provides that, upon the bankruptcy or
appointment of a receiver for the Transferor or Dillard's, a Pay Out Event with
respect to all Series will occur, and under the Pooling and Servicing
Agreement, no new Principal Receivables will be transferred to the Trust. If
the only Pay Out Event to occur is either the insolvency of the Transferor or
the appointment of a bankruptcy trustee or receiver for the Transferor, the
receiver or bankruptcy trustee for the Transferor may have the power to
continue to require the Transferor to transfer new Principal Receivables to the
Trust and to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of the Early Amortization Period. See
"Description of the Certificates--Pay Out Events."
CONSUMER PROTECTION LAWS
The relationships of the cardholder and credit card issuer and the lender are
extensively regulated by federal and state consumer protection laws. With
respect to credit cards issued by an Originator, the most significant laws
include the federal Truth-in-Lending, Equal Credit Opportunity, Fair Credit
Reporting, Fair Debt Collection Practice and Electronic Funds Transfer Acts.
These statutes impose disclosure requirements when a credit card account is
advertised, when it is opened, at the end of monthly billing cycles, and at
year end. In addition, these statutes limit customer liability for unauthorized
use, prohibit certain discriminatory practices in extending credit, and impose
certain limitations on the type of account-related charges that may be
assessed. Cardholders are entitled under these laws to have payments and
credits applied to the credit card accounts promptly, to receive prescribed
notices and to require billing errors to be resolved promptly. A Trust may be
liable for certain violations of consumer protection laws that apply to the
related Receivables, either as assignee from the Transferor with respect to
obligations arising before transfer of the Receivables
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to such Trust or as a party directly responsible for obligations arising after
the transfer. In addition, a cardholder may be entitled to assert such
violations by way of set-off against his obligation to pay the amount of
Receivables owing. The Transferor will warrant in each Agreement that all
related Receivables have been and will be created in compliance with the
requirements of such laws. The Servicer will also agree in each Agreement to
indemnify the Trust, among other things, for any liability arising from such
violations caused by the Servicer. For a discussion of the Trust's rights
arising from the breach of these warranties, see "Description of the
Certificates--Representations and Warranties."
Various proposed laws and amendments to existing laws have from time to time
been introduced in Congress and certain state and local legislatures that, if
enacted, would further regulate the credit card industry, certain of which
would, among other things, impose a ceiling on the rate at which a financial
institution may assess finance charges and fees on credit card accounts that
would be substantially below the rates of the finance charges and fees the
Originators currently assesses on its accounts. In particular, on June 19,
1997, a proposal to amend the Federal Truth-in-Lending Act was introduced in
the House of Representatives and referred to the Committee on Banking and
Financial Services, which would, among other things, prohibit the imposition of
certain minimum finance charges and other fees, prohibit certain methods of
calculating finance charges, require prior notice of any increase in the
interest rate assessed with respect to a credit card account and limit the
amount of certain fees. Although such proposed legislation has not been
enacted, there can be no assurance that such a bill will not become law in the
future. The potential effect of any legislation which limits the amount of
finance charges and fees that may be charged on credit cards could be to reduce
the portfolio yield on the Accounts. If such portfolio yield is reduced, a Pay
Out Event may occur, and the Rapid Amortization Period would commence.
Application of federal and state bankruptcy and debtor relief laws would affect
the interests of the Certificateholders if such laws result in any related
Receivables being written off as uncollectible when the amount available under
any Credit Enhancement is equal to zero. See "Description of the Certificates--
Defaulted Receivables; Rebates and Fraudulent Charges; Investor Charge-Offs."
CLAIMS AND DEFENSES OF CARDHOLDERS AGAINST THE TRUST
The UCC provides that (a) unless an Obligor has made an enforceable agreement
not to assert defenses or claims arising out of a transaction, the rights of
the Trust, as assignee, are subject to all the terms of the Contract between
the Originator and such Obligor and any defense or claim arising therefrom, to
rights of set-off and to any other defense or claim of such Obligor against the
Originator that accrues before such Obligor receives notification of the
assignment and (b) any such Obligor is authorized to continue to pay the
Originator until (i) the Obligor receives notification, reasonably identifying
the rights assigned, that the amount due or to become due has been assigned and
that payment is to be made to the Trustee or successor Servicer and (ii) if
requested by the Obligors, the Trustee or successor Servicer has furnished
reasonable proof of assignment. No such agreement not to assert defenses has
been entered into and no notice of the assignment of the Receivables to the
Trust will be sent to the cardholders obligated on the Accounts in connection
with the transfer of the Receivables to the Trust.
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TAX MATTERS
GENERAL
The following is a general discussion of the material United States ("U.S.")
federal income tax consequences relating to the purchase, ownership and
disposition of a Certificate. Unless otherwise indicated, this summary deals
only with U.S. Certificate Owners who acquire Certificates at their original
issue price pursuant to the original issuance of such Certificates and who hold
such Certificates as capital assets. This discussion is based on present
provisions of the Internal Revenue Code of 1986 as amended (the "CODE"), the
final, temporary and proposed Treasury regulations promulgated thereunder, and
administrative and judicial decisions or rulings, all of which are subject to
change, which change may be retroactive. The discussion does not address all of
the tax consequences relevant to a particular Certificate Owner in light of
that Certificate Owner's circumstances, nor does it address the U.S. federal
income tax consequences that may be relevant to certain types of Certificate
Owners, such as banks, financial institutions, dealers in securities, regulated
investment companies, real estate investment trusts or life insurance
companies, that are subject to special treatment under the Code. Moreover, this
summary does not address the U.S. federal alternative minimum tax consequences
(if any) of an investment in the Certificates or any state, local or foreign
tax laws that may be applicable to the Certificates, or to a Certificate Owner.
Each prospective Certificate Owner is urged to consult its own tax adviser in
determining the federal, state, local and foreign income and any other tax
consequences of the purchase, ownership and disposition of a Certificate. No
ruling on any of the issues discussed below will be sought from the Internal
Revenue Service (the "IRS").
For purposes of this discussion, a "U.S. CERTIFICATE OWNER" means a Certificate
Owner that is (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or any political subdivision thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust which is subject to the supervision of
a court within the United States one or more United States persons (within the
meaning of section 7701(a)(30) of the Code) have the authority to control all
substantial decisions of such trust. For purposes of this discussion, the term
"NON-U.S. CERTIFICATE OWNER" means any Certificate Owner other than a U.S.
Certificate Owner.
TREATMENT OF THE CERTIFICATES AS DEBT
The Transferor will express in each Agreement its intent that the Certificates
will be debt for all U.S. and foreign income and franchise tax purposes, and
the Transferor, by entering into an Agreement, and each investor, by the
acceptance of a beneficial interest in a Certificate, will agree to treat the
Certificates as debt for such purposes. However, each Agreement generally
refers to the transfer of Receivables as a "transfer, assignment and
conveyance," and because different criteria are used in determining the non-tax
accounting treatment of the transaction, the Transferor will treat each
Agreement, for certain non-tax accounting purposes, as causing a transfer of an
ownership interest in the Receivables and not as creating a debt obligation.
A basic premise of U.S. federal income tax law is that the economic substance
of a transaction generally determines its tax consequences. The form of a
transaction, while a relevant factor, is not
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conclusive evidence of the economic substance of the transaction. In
appropriate circumstances, the courts have allowed taxpayers, as well as the
IRS, to treat a transaction in accordance with its economic substance, as
determined under U.S. federal income tax law, even though the participants in
the transaction have characterized it differently for non-tax purposes.
The determination of whether the economic substance of a purported sale of an
interest in property is, instead, a loan secured by such transferred property
has been made by the IRS and the courts on the basis of numerous factors
designed to determine whether the seller has relinquished (and the purchaser
has obtained) substantial incidents of ownership in the transferred property.
Among those factors, the primary factors examined are whether the purchaser has
the opportunity to gain if the property increases in value, and has the risk of
loss if the property decreases in value. Simpson Thacher & Bartlett ("TAX
COUNSEL"), will deliver an opinion that, although no transaction closely
comparable to that contemplated herein has been the subject of any Treasury
regulation, revenue ruling or judicial decision, the Certificates will properly
be characterized as indebtedness for U.S. federal income tax purposes. In
addition, Tax Counsel will deliver an opinion that the Trust will not be
classified as an association or publicly traded partnership taxable as a
corporation for such purposes. Except where indicated to the contrary, the
following discussion assumes that the Certificates will be considered debt for
U.S. federal income tax purposes.
TAXATION OF INTEREST INCOME OF U.S. CERTIFICATE OWNERS
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will not be issued at a discount from their stated principal
amount in excess of the statutory de minimis amount. Consequently, unless
otherwise disclosed in a related Prospectus Supplement, the Certificates will
not be considered to have been issued with an "original issue discount"'
("OID") within the meaning of Section 1273 of the Code and a U.S. Certificate
Owner generally will include the stated interest on a Certificate in gross
income at the time such interest income is received or accrued in accordance
with such U.S. Certificate Owner's regular method of tax accounting, provided
that such stated interest is considered to be "unconditionally payable" for
U.S. federal income tax purposes.
Under the applicable Treasury regulations, the stated interest on the
Certificates will be considered "unconditionally payable" only if the terms and
conditions of the Certificates make the likelihood of late payment or non-
payment of such stated interest a "remote contingency." Since each Trust and
Trustee will have no discretion to withhold, delay or otherwise defer scheduled
monthly payments of stated interest on the Certificates (provided such Trust
has sufficient cash on hand to allow the Trustee to make such interest
payments) the Transferor intends to take the position that late payment or non-
payment of stated interest on the Certificates is a remote contingency and,
therefore, the stated interest is "unconditionally payable."
If, however, the stated interest on the Certificates is not considered
"unconditionally payable", the stated interest on the Certificates will be
considered original issue discount ("OID") within the meaning of section
1273(a) of the Code and a U.S. Certificate Owner will be required to include
such stated interest in income (as OID) on a daily economic accrual basis
regardless of the U.S. Certificate Owner's regular method of tax accounting and
in advance of receipt of the cash related to such income. In addition, if the
stated interest on the Certificates is not paid in full on a Distribution Date,
the Certificates may at such time, and at all times thereafter, be considered
to be issued with OID and
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all Certificate Owners would be required to include such stated interest in
income as OID on an economic accrual basis.
SALE, EXCHANGE OR RETIREMENT OF CERTIFICATES
Upon a sale, exchange, retirement or other disposition of a Certificate, a U.S.
Certificate Owner generally will recognize gain or loss equal to the difference
between the amount realized on the sale, exchange, retirement or other
disposition (less any accrued but unpaid interest which the U.S. Certificate
Owner has not included in gross income previously) and the U.S. Certificate
Owner's adjusted basis in the Certificate. Such gain or loss will be capital
gain or loss. Capital gains of individuals derived in respect of capital assets
held for more than one year are eligible for reduced rates of taxation. Capital
losses generally may be used only to offset capital gains.
POSSIBLE ALTERNATIVE CHARACTERIZATIONS
Although, as described above, it is the opinion of Tax Counsel that the
Certificates will be properly characterized as debt for U.S. federal income tax
purposes, such opinion is not binding on the IRS and thus no assurance can be
given that such a characterization will prevail. If the IRS were to contend
successfully that some or all of the Certificates or any Collateral Interest
were not debt obligations for U.S. federal income tax purposes, all or a
portion of a Trust could be classified as a partnership or a publicly traded
partnership taxable as a corporation for such purposes. Because in the opinion
of Tax Counsel the Certificates will be characterized as debt for U.S. federal
income tax purposes and because any holder of an interest in a Collateral
Interest will agree to treat that interest as debt, no attempt will be made to
comply with any IRS reporting or other requirements that would apply if all or
a portion of a Trust were treated as a partnership or a corporation.
If a Trust were treated in whole or in part as a partnership (other than a
publicly traded partnership taxable as a corporation) for U.S. federal income
tax purposes, such partnership would not be subject to U.S. federal income tax.
Rather, each item of income, gain, loss and deduction of the partnership
generated through the ownership of the related Receivables would be taken into
account directly in computing the taxable income of the Transferor (or the
holder of the Transferor Certificate) and any Certificate Owners treated as
partners in such partnership in accordance with their respective partnership
interests therein. The amount and timing of income reportable by any
Certificate Owners treated as partners in such partnership would likely differ
from that reportable by such Certificate Owners had they been treated as owning
debt. Moreover, unless the partnership were treated as engaged in a trade or
business, an individual's (and, under certain circumstances, a trust's) share
of expenses of such partnership would be miscellaneous itemized deductions
that, in the aggregate, are allowed as deductions only to the extent that they
exceed two percent of the individual's adjusted gross income, and would be
subject to reduction if the individual's adjusted gross income exceeded certain
limits. As a result, the individual may be taxed on a greater amount of income
than the stated rate on the Certificates. In addition, all or a portion of any
taxable income allocated to a Certificate Owner that is a pension, profit
sharing or employee benefit plan or other tax exempt entity (including an
individual retirement account) generally would constitute "unrelated business
taxable income" which generally would be taxable to such Certificate Owner
under the Code.
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Alternatively, if a Trust were treated in whole or in part as a publicly traded
partnership taxable as a corporation, such Trust would be subject to U.S.
federal income tax at corporate tax rates on the taxable income generated by
its ownership of the Receivables. Such entity-level tax could result in reduced
distributions to Certificate Owners. In addition, the distributions from such
Trust would not be deductible in computing the taxable income of such deemed
corporation, except to the extent that any Certificates were treated as debt of
such corporation and distributions to the related Certificate Owners were
treated as payments of interest thereon. Moreover, distributions to Certificate
Owners not treated as holding debt would be treated as "dividends" for U.S.
federal income tax purposes to the extent of the current and accumulated
earnings and profits of the deemed corporation.
NON-U.S. CERTIFICATE OWNERS
Assuming the Certificates are considered to be debt for U.S. federal income tax
purposes, under present U.S. federal income and estate tax law, and subject to
the discussion below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required with respect
to the payment by the Transferor or any other person that is required to
withhold U.S. taxes (each a "WITHHOLDING AGENT") of principal or interest
on a Certificate owned by a non-U.S. Certificate Owner, provided (i) that
the beneficial owner does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Transferor
entitled to vote within the meaning of section 871(h)(3) of the Code and
the regulations thereunder, (ii) the beneficial owner is not a controlled
foreign corporation that is related to the Transferor through stock
ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on a Certificate is described in section 881(c)(3)(A) of the Code
and (iv) the beneficial owner satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c)
of the Code and the regulations thereunder; and
(b) a Certificate beneficially owned by an individual who at the time of
death is a non-U.S. Certificate Owner will not be subject to U.S. federal
estate tax as a result of such individual's death, provided that such
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Transferor entitled to
vote within the meaning of section 871(h)(3) of the Code and provided that
the interest payments with respect to such Certificate would not have been,
if received at the time of such individual's death, effectively connected
with the conduct of a United State trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial owner
of such Certificate, or a financial institution holding the Certificate on
behalf of such owner, must provide, in accordance with specified procedures,
the Transferor and/or any Withholding Agent with a statement to the effect that
the beneficial owner is not a U.S. Certificate Owner. Currently, these
requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a U.S.
Certificate Owner (which certification may be made on an IRS Form W-8 or
successor form), or (2) a financial institution holding the Certificate on
behalf of the beneficial owner certifies, under penalties of perjury, that such
statement has been received by it and furnishes the Transferor or any
Withholding Agent with a copy thereof. Under recently finalized Treasury
regulations (the "FINAL REGULATIONS"), the statement requirement referred to in
(a)(iv) above may also be satisfied
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with other documentary evidence for interest paid after December 31, 1999 with
respect to an offshore account or through certain foreign intermediaries.
If a non-U.S. Certificate Owner cannot satisfy the requirements of the
"portfolio interest" exception of paragraph (a) above, payments of interest
made to such non-U.S. Certificate Owner will be subject to a 30% withholding
tax unless the beneficial owner of the Certificate provides the Transferor or
any Withholding Agent with a properly executed (1) IRS Form 1001 (or successor
form) claiming an exemption from such withholding tax under the benefit of a
tax treaty or (2) IRS Form 4224 (or successor form) stating that interest paid
on the Certificate is not subject to such withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or
business in the United States. Under the Final Regulations, non-U.S.
Certificate Owners will generally be required to provide IRS Form W-8 in lieu
of IRS Form 1001 and IRS Form 4224, although alternative documentation may be
applicable in certain situations.
If a non-U.S. Certificate Owner is engaged in a trade or business in the United
States and interest on the Certificate is effectively connected with the
conduct of such trade or business, the non-U.S. Certificate Owner, although
exempt from the withholding tax discussed above, will be subject to U.S.
federal income tax on such interest income on a net income basis in the same
manner as if it were a U.S. Certificate Owner. In addition, if such non-U.S.
Certificate Owner is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or lower treaty rate) of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, such interest income will be included in such foreign corporation's
earnings and profits.
Any gain realized upon the sale, exchange, retirement or other disposition of a
Certificate by a non-U.S. Certificate Owner generally will not be subject to
U.S. federal income tax unless (i) such gain is effectively connected with a
trade or business carried on by the non-U.S. Certificate Owner in the United
States, (ii) in the case of a non-U.S. Certificate Owner who is an individual,
such individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met or (iii) in the case of any gain that
represents accrued but unpaid interest, the requirements described in (a) above
are satisfied.
If the Certificates were treated as an equity interest in a partnership (other
than a publicly traded partnership taxable as a corporation), such
recharacterization could cause a non-U.S. Certificate Owner to be treated as
engaged in a trade or business in the United States. In that event, the non-
U.S. Certificate Owner would be required to file a U.S. federal income tax
return and, in general, would be subject to U.S. federal income tax (including,
in the case of a non-U.S. Certificate Owner that is a corporation, the branch
profits tax) on its allocable share of the net income from the partnership.
Further, certain withholding obligations would apply with respect to income
allocable, or distributions made, to a foreign partner. That withholding would
be at the highest applicable rate in effect with respect to the non-U.S.
Certificate Owner. Alternatively, if some or all of the Certificates were
treated as equity interests in a publicly traded partnership taxable as a
corporation, any related dividend distributions to a non-U.S. Certificate Owner
generally would be subject to withholding tax at the rate of 30 percent, unless
that rate were reduced under an applicable tax treaty. See "--Possible
Alternative Characterizations" above.
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Special rules may apply to certain non-U.S. Certificate Owners, such as
"controlled foreign corporations", "passive foreign investment companies" and
"foreign personal holding companies", that are subject to special treatment
under the Code. Such entities should consult their own tax advisors to
determine the U.S. federal, state, local and other tax consequences that may be
relevant to them.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain payments
of principal and interest paid on Certificates and to the proceeds of sale of a
Certificate made to U.S. Certificate Owners other than certain exempt
recipients (such as corporations). A 31% backup withholding tax will apply to
such payments if the U.S. Certificate Owner fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
Backup withholding and information reporting may apply to the proceeds of the
sale of a Certificate by a non-U.S. Certificate Owner within the United States
or conducted through certain U.S. related financial intermediaries unless the
statement described in (a)(iv) above under "--Non-U.S. Certificate Owners" has
been received (and the payor does not have actual knowledge that the beneficial
owner is a United States person) or the holder otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such Certificate Owner's U.S. federal income tax
liability provided the required information is furnished to the IRS.
FASIT CONSIDERATIONS
The Agreement may be amended to provide that an election may be made to treat
the Trust as a "financial asset securitization investment trust" (a "FASIT").
Prior to any such amendment, the Transferor will be required to deliver to the
Trustee an opinion of counsel to the effect that, for U.S. federal income tax
purposes, (i) the issuance of FASIT regular interests will not adversely affect
the tax characterization as debt of Certificates of any outstanding Series or
Class that were characterized as debt at the time of their issuance, (ii)
following such issuance the Trust will not be deemed to be an association (or
publicly traded partnership) taxable as a corporation and (iii) such issuance
will not cause or constitute an event in which gain or loss would be recognized
by any Certificate Owner or the Trust.
STATE AND LOCAL TAXATION
The discussion above does not address the tax consequences of the purchase,
ownership or disposition of a Certificate under any state or local tax law.
Each investor should consult its own tax adviser regarding state and local tax
consequences.
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EMPLOYEE BENEFIT PLAN CONSIDERATIONS
The Employee Retirement Income Security Act of 1979, as amended ("ERISA") and
the Code impose certain requirements on those employee benefit plans to which
they apply ("PLANS") and on those persons who are fiduciaries with respect to
such Plans. In accordance with ERISA's general fiduciary standards, before
investing in Certificates, a Plan fiduciary should determine whether such an
investment (i) is permitted under the governing Plan instruments; (ii) is
appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio; and (iii) is prudent
considering the factors discussed in this Prospectus.
Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions
involving the assets of a Plan and persons who have certain specified
relationships to the Plan ("parties in interest" within the meaning of ERISA or
"disqualified persons" within the meaning of the Code). Prohibited transactions
may generate excise taxes and other liabilities. Thus, a Plan fiduciary
considering an investment in offered Certificates should also consider whether
such an investment might constitute or give rise to a prohibited transaction
under ERISA or the Code.
For example, regardless of whether the Trust was deemed to hold "plan assets"
of Plans that are Certificate Owners (as discussed below), the purchase of
Certificates by a Plan with respect to which the Transferor, the Trustee, or
underwriters or any of their affiliates is a "party in interest" under ERISA or
a "disqualified person" under the Code could constitute a prohibited
transaction under the Code or ERISA unless an exemption is applicable.
Accordingly, fiduciaries of a Plan with respect to which the Transferor, the
Trustee, or underwriters or any of their affiliates is a "party in interest" or
"disqualified person" should consult their own counsel concerning the propriety
of the investment prior to making the purchase.
Certain transactions involved in the operation of the Trust might also be
deemed to constitute prohibited transactions under ERISA and the Code, if
assets of the Trust were deemed to be assets of an investing Plan. The U.S.
Department of Labor (the "DOL") has issued a regulation (the "REGULATION")
concerning whether or not a Plan's assets would be deemed to include an
interest in the underlying assets of an entity (such as the Trust) for purposes
of the reporting and disclosure and fiduciary responsibility provisions of
ERISA. If assets of the Trust were deemed to be assets of an investing Plan,
any person who is a "fiduciary," as described in the preceding paragraph, with
respect to Trust assets will be a fiduciary of the investing Plan, thus
increasing the scope of activities which could be considered prohibited
transactions under ERISA and the Code. If investments by Plans are made in the
Trust, the Trust could be deemed to hold plan assets unless one of the
exceptions contained in the Regulation is applicable to the Trust.
The Regulation contains an exception which provides that if a Plan acquires a
"publicly-offered security," the issuer of the security is not deemed to hold
plan assets solely by reason of such acquisition. A publicly-offered security
is a security that is (i) freely transferable, (ii) part of a class of
securities that is owned by 100 or more investors independent of the issuer and
of one another and (iii) either (A) part of a class of securities registered
under section 12(b) or 12(g) of the Exchange Act, or (B) sold to the plan as
part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by
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the SEC) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. Although it is anticipated
that the conditions of this exception may be met with respect to certain
Classes of Certificates, no assurance can be given, and no monitoring or other
measures will be taken to ensure that the exception will be met with respect to
any such Class.
The Regulation also states that an entity's assets will not be deemed to be
plan assets if equity participation in the entity by "benefit plan investors"
(e.g. employee welfare benefit plans and employee pension benefit plans defined
pursuant to Section 3(3) of ERISA, trusts described in Section 401(a) of the
Code or a plan described in Section 403(a) of the Code, which trust or plan is
exempt from tax under Section 501(a) of the Code, an individual retirement
account or annuity under Section 408 of the Code and any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity) is not "significant." Equity participation in an entity by benefit plan
investors is not significant on any date if, immediately after the most recent
acquisition of any equity interests in the entity, less than 25% of the value
of each class of equity interests in the entity (excluding the value of any
equity interests held by the Transferor, the Trustee or its affiliates) is held
by benefit plan investors. No assurance can be given as to whether the value of
any class of equity interests in the Trust held by benefit plan investors will
be less than 25%, or whether the value will remain below 25%.
If the Trust were deemed to hold "plan assets" of Plans that are Certificate
Owners, transactions involving the Trust and "parties in interest" or
"disqualified persons" with respect to such Plans might be prohibited under
Section 406 of ERISA and Section 4975 of the Code unless an exemption is
applicable.
In light of the foregoing, fiduciaries of a Plan considering the purchase of
Certificates should consult their own counsel regarding whether the assets of
the Trust which are represented by the Certificates would be considered plan
assets, the consequences that would apply if the Trust's assets were considered
plan assets and the applicability of exemptive relief from the prohibited
transaction rules.
In particular, insurance companies considering the purchase of Certificates of
any Series should consult their own employee benefits counsel or other
appropriate counsel with respect to the United States Supreme Court's decision
in John Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 114
S. Ct. 517 (1993) ("JOHN HANCOCK"). In John Hancock, the Supreme Court held
that assets held in an insurance company's general account may be deemed to be
"plan assets" of plans that were issued policies supported by such general
account under certain circumstances; however, the Small Business Job Protection
Act of 1996 added a new Section 401(c) of ERISA relating to the status of the
assets of insurance company general accounts under ERISA and Section 4975 of
the Code. Section 401(c) provides that assets underlying general account
policies issued before December 31, 1998 will not be considered "plan assets"
to the extent criteria set forth in DOL regulations are satisfied. Section
401(c) also requires the DOL to issue regulations establishing such criteria.
On December 22, 1997, the DOL published proposed regulations (the "GENERAL
ACCOUNT REGULATIONS") for this purpose. The General Account Regulations provide
that when a plan acquires a transition policy issued by an insurance company on
or before December 31, 1998, which is supported by assets of the insurance
company's general account, the plan's assets will include the policy but not
the underlying assets of the general account to the extent the requirements set
forth in
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the General Account Regulations are satisfied. The General Account Regulations
also require an independent fiduciary who has the authority to manage the
plan's assets to expressly authorize the acquisition of such a transition
policy. If adopted as proposed, the General Account Regulations would not apply
to any general account policies issued after December 31, 1998. Accordingly,
investors should analyze whether John Hancock, Section 401(c) and the General
Account Regulations may have an impact with respect to their purchase of the
Certificates of any Series.
PLAN OF DISTRIBUTION
The Transferor may sell Certificates (a) through underwriters or dealers, (b)
directly to one or more purchasers, or (c) through agents. The related
Prospectus Supplement will set forth the terms of the offering of any
Certificates offered hereby, including, without limitation, the names of any
underwriters, the purchase price of such Certificates and the proceeds to the
Transferor from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers.
If underwriters are used in a sale of any Certificates of a Series offered
hereby, such Certificates will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of
commitment therefor. Such Certificates may be offered to the public either
through underwriting syndicates represented by managing underwriters or by
underwriters without a syndicate. Unless otherwise set forth in the related
Prospectus Supplement, the obligations of the underwriters to purchase such
Certificates will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of such Certificates if any of
such Certificates are purchased. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
Certificates may also be sold directly by the Transferor or through agents
designated by the Transferor from time to time. Any agent involved in the offer
or sale of Certificates will be named, and any commissions payable by the
Transferor to such agent will be set forth, in the related Prospectus
Supplement. Unless otherwise indicated in the related Prospectus Supplement,
any such agent will act on a best efforts basis for the period of its
appointment.
Any underwriters, agents or dealers participating in the distribution of
Certificates may be deemed to be underwriters, and any discounts or commissions
received by them on the sale or resale of Certificates may be deemed to be
underwriting discounts and commissions, under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Transferor
to indemnification by the Transferor against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments that the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be affiliates or customers of, engage in
transactions with, or perform services for, the Transferor or its affiliates in
the ordinary course of business.
Each underwriting agreement will provide that the Transferor will indemnify the
related underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
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LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Transferor by Simpson Thacher & Bartlett, New York, New
York. Certain legal matters relating to the issuance of the Certificates will
be passed upon for the Underwriters by Underwriter's Counsel as specified in
the related Prospectus Supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
reports, containing information concerning each Trust and prepared by the
Servicer, will be sent on behalf of such Trust to Cede as nominee of DTC and
registered holder of the related Certificates, pursuant to the related
Agreement. See "Description of the Certificates--Book-Entry Registration," "--
Reports to Certificateholders" and "--Evidence as to Compliance." Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Servicer does not intend to send any
financial reports of Dillard's or any of its affiliates to Certificateholders
or to the Certificate Owners. The Servicer will file or will cause to be filed
with the SEC such periodic reports with respect to each Trust as are required
under the Exchange Act and the rules and regulations of the SEC thereunder.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement relating to the Certificates with the SEC.
This Prospectus is part of the registration statement, but the registration
statement includes additional information.
The Servicer will file with the SEC all required annual, monthly and special
SEC reports and other information about each Trust.
You may read and copy any reports, statements or other information we file at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at (800) SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings are
also available to the public on the SEC Internet site (http://www.sec.gov.).
The SEC allows us to "incorporate by reference" information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this Prospectus. Information that we file later with the SEC will
automatically update the information in this Prospectus. In all cases, you
should rely on the later information over different information included in
this Prospectus or the Prospectus Supplement. We incorporate by reference any
future annual, monthly and special SEC reports and proxy materials filed by or
on behalf of the Trust until we terminate our offering of the Certificates.
As a recipient of this Prospectus, you may request a copy of any document we
incorporate by reference, except exhibits to the documents (unless the exhibits
are specifically incorporated by reference), at no cost, by writing or calling
us at: Dillard Asset Funding Company, c/o Chase Manhattan Bank Delaware, 1201
Market Street, Wilmington, Delaware 19801, (302) 984-3300.
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INDEX OF TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accumulation Period........................................................ 9
Addition Date.............................................................. 20
Additional Accounts........................................................ 9
Additional Interest........................................................ 24
Agreement.................................................................. 2
Assignment................................................................. 20
Cash Collateral Account.................................................... 32
Cash Collateral Guaranty................................................... 32
Cede....................................................................... 11
Cedel...................................................................... 13
Cedel Participants......................................................... 13
Certificate Owner.......................................................... 11
Certificate Rate........................................................... 10
Certificateholders......................................................... 9
Certificates............................................................... 2
Class...................................................................... 9
Closing Date............................................................... 9
Code....................................................................... 36
Collateral Interest........................................................ 32
Collection Account......................................................... 22
Companion Series........................................................... 22
Comptroller................................................................ 2
Controlled Accumulation Amount............................................. 15
Controlled Amortization Amount............................................. 15
Controlled Amortization Period............................................. 15
Controlled Deposit Amount.................................................. 15
Controlled Distribution Amount............................................. 15
Cooperative................................................................ 13
COSO....................................................................... 28
Credit Cards............................................................... 4
Credit Enhancement......................................................... 31
Credit Enhancement Percentage.............................................. 22
Credit Enhancement Provider................................................ 28
Cut-Off Date............................................................... 9
Defaulted Accounts......................................................... 11
Definitive Certificates.................................................... 11
Depositaries............................................................... 11
Depository................................................................. 11
Determination Date......................................................... 24
Dillards Store............................................................. 3
Disclosure Document........................................................ 17
Discount Option Receivables................................................ 21
Discount Percentage........................................................ 21
Distribution Accounts...................................................... 21
Distribution Date.......................................................... 14
DOL........................................................................ 40
DTC........................................................................ A-1
DTC Participants........................................................... 12
Eligible Account........................................................... 19
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Eligible Deposit Account................................................... 21
Eligible Institution....................................................... 21
Eligible Receivable........................................................ 19
Enhancement................................................................ 9
Enhancement Invested Amount................................................ 31
ERISA...................................................................... 39
Euroclear.................................................................. 13
Euroclear Operator......................................................... 13
Euroclear Participants..................................................... 13
Excess Finance Charge Collections.......................................... 24
Exchange................................................................... 17
Exchange Act............................................................... 12
FASIT...................................................................... 39
Final Regulations.......................................................... 38
Finance Charge Account..................................................... 21
Finance Charge Receivables................................................. 9
Full Investor Interest..................................................... 22
Funding Period............................................................. 21
General Account Regulations................................................ 40
Group...................................................................... 24
Holders.................................................................... 13
Indirect Participants...................................................... 12
Ineligible Receivable...................................................... 18
Interest Funding Account................................................... 14
Investor Charge-Off........................................................ 24
Investor Default Amount.................................................... 24
Investor Interest.......................................................... 10
Investor Percentage........................................................ 11
Investor Servicing Fee..................................................... 24
IRS........................................................................ 36
John Hancock............................................................... 40
L/C Bank................................................................... 32
Minimum Transferor Interest................................................ 17
Monthly Interest........................................................... 24
Monthly Period............................................................. 14
Moody's.................................................................... 21
non-U.S. Certificate Owner................................................. 36
OID........................................................................ 37
Originators................................................................ 3
Participation Agreement.................................................... 19
Participations............................................................. 19
Pay Out Event.............................................................. 16
Paying Agent............................................................... 21
Permitted Investments...................................................... 21
Plans...................................................................... 39
Pre-Funding Account........................................................ 21
Pre-funding Amount......................................................... 21
Principal Account.......................................................... 21
Principal Amortization Period.............................................. 15
Principal Commencement Date................................................ 14
Principal Funding Account.................................................. 14
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Principal Receivables.................................................... 9
Principal Terms.......................................................... 17
Prospectus Supplement.................................................... 2
Purchase Agreement....................................................... 16
Rapid Accumulation Period................................................ 16
Rapid Amortization Period................................................ 16
Rating Agency............................................................ 17
Receivables.............................................................. 3
Receivables Purchase Agreements.......................................... 3
Record Date.............................................................. 11
Regulation............................................................... 40
Removed Accounts......................................................... 9
Reserve Account.......................................................... 33
Revolving Period......................................................... 15
Scheduled Payment Date................................................... 14
SEC...................................................................... 12, 20
Securities Act........................................................... 17
Senior Certificates...................................................... 10
Series................................................................... 2, A-1
Series Supplement........................................................ 10
Series Termination Date.................................................. 25
Service Transfer......................................................... 27
Servicer................................................................. 2, 26
Servicer Default......................................................... 27
Servicing Fee............................................................ 26
Shared Principal Collections............................................. 24
Spread Account........................................................... 32
Standard & Poor's........................................................ 21
Sub-Servicer............................................................. 26
Subordinated Certificates................................................ 10
Tax Counsel.............................................................. 37
Tax Opinion.............................................................. 17
Terms and Conditions..................................................... 13
Transfer Date............................................................ 15
Transferor............................................................... 2, 10
Transferor Certificate................................................... 2
Transferor Interest...................................................... 10
Transferor Percentage.................................................... 11
Trust.................................................................... 2
Trust Agreement.......................................................... 2
Trust Portfolio.......................................................... 9
Trust Termination Date................................................... 25
Trustee.................................................................. 2
U.S...................................................................... 36
U.S. Certificate Owner................................................... 36
U.S. Person.............................................................. A-3
UCC...................................................................... 33
Unallocated Principal Collections........................................ 23
Withholding Agent........................................................ 38
</TABLE>
77
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Dillard Credit
Card Master Trusts Asset Backed Certificates (the "Global Securities") to be
issued in Series from time to time (each, a "SERIES") will be available only in
book-entry form. Investors in the Global Securities may hold 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 of procedures applicable to U.S.
corporate obligations.
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' interest 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.
Custody accounts of investors electing to hold their Global Securities through
DTC 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.
A-1
<PAGE>
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled 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 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. Payment will then be made by the
respective depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or
Euroclear Participant's account. The Global Securities credit will appear the
next day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which would
be the preceeding day when settlement occurred in New York). If settlement is
not completed on the intended value (i.e., the trade fails), the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position 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 pre-position
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 Participants'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
A-2
<PAGE>
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 bonds to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment date to and excluding the settlement
date. 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
back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Cedel Participant or Euroclear
Participant have a line of credit with its respective clearing system and elect
to be in debit in anticipation of receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft charges incurred over that
one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date. Finally, day traders that use Cedel or Euroclear
and that purchase Global Securities from DTC Participants for delivery to Cedel
Participants or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(1) 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 procedure.
(2) 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
(3) 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 document) 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
Certificates 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.
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<PAGE>
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 Owner 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 Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
The term "U.S. PERSON" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized in the United States or
under the laws of the United States or of any state, (iii) an estate the income
of which is subject to United States federal income taxation regardless of its
source or (iv) a trust the income of which is subject to United States federal
income taxation regardless of its source; provided, however, that for tax years
beginning after December 31, 1996 (and, if a trustee so elects, for tax years
ending after August 20, 1996), a "U.S. PERSON" shall include any trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust. 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.
A-4
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee............................................................ *
Printing and Engraving...................................................... *
Trustee's Fees.............................................................. *
Legal Fees and Expenses..................................................... *
Blue Sky Fees and Expenses.................................................. *
Accountants' Fees and Expenses.............................................. *
Rating Agency Fees.......................................................... *
Miscellaneous Fees.......................................................... *
---
Total..................................................................... *
===
</TABLE>
- --------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is amended to the Underwriting Agreement which is filed as Exhibit
1.1 to this Registration Statement.
Under the Trust Agreement, each Trust will agree to indemnify the Trustee or
any predecessor Trustee for, and to hold the Trustee harmless against any loss,
damage, claim, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or admission of
such Trust Agreement, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance
of any of its powers or duties under such Trust Agreement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement*
4.1 --Form of Pooling and Servicing Agreement*
4.2 --Form of Series Supplement for Pooling and Servicing Agreement*
5.1 --Opinion of Simpson Thacher & Bartlett*
8.1 --Opinion of Simpson Thacher & Bartlett with respect to certain tax
matters included in opinion to be filed as Exhibit 5.1*
10.1 --Form of Receivables Purchase Agreement**
99.1 --Form of Prospectus Supplement**
</TABLE>
- --------
* To be filed by amendment.
** Previously filed
(B) FINANCIAL STATEMENTS
All financial statements, schedules and historical financial information have
been omitted as they are not applicable.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant on behalf of the Dillard Credit Card Master Trust
(the "TRUST") hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made, a post-
effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the
"ACT"); notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; (ii) to reflect in the
prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in aggregate, represent a fundamental change in the
information set forth in the Registration Statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement; provided, however, that (a)(i) and
(a)(ii) will not apply if the information required to be included in a post-
effective amendment thereby is contained in periodic reports filed pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(b) That, for the purpose of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any of
the securities being registered that remain unsold at the termination of the
offering.
(d) That, for purposes of determining any liability under the Act, each filing
of the Trust's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(e) That insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
II-2
<PAGE>
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(f) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Act shall be deemed to be part of this Registrant Statement as of the time it
was declared effective.
(g) That, for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUND TO BELIEVE THAT IT MEETS ALL
THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS PRE-EFFECTIVE
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WILMINGTON, STATE OF
DELAWARE, ON DECEMBER 2, 1998.
Dillard Asset Funding Company as
originator of the Trust
By: Chase Manhattan Bank Delaware,
as Owner Trustee
/s/ Denis Kelly
By: _________________________________
AUTHORIZED SIGNATORY
II-4
