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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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 (I.R.S. EMPLOYER
JURISDICTION OF DELAWARE IDENTIFICATION NUMBER)
INCORPORATION OR 1201 MARKET STREET
ORGANIZATION) WILMINGTON, DELAWARE 19801
(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
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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. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(1) FEE
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<S> <C> <C> <C> <C>
Asset Backed Certificates.. $1,000,000 100% $1,000,000 $278
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(1) Estimated solely for the purpose of computing the registration fee.
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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]
<PAGE>
TABLE OF CONTENTS
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
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
<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.
4
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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.
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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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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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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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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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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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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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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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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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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>
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<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.
A-3
<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.
(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 REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF WILMINGTON, STATE OF DELAWARE, ON NOVEMBER 12, 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
<PAGE>
DNB RECEIVABLES PURCHASE AGREEMENT
BETWEEN
DILLARD ASSET FUNDING COMPANY
as Purchaser
AND
DILLARD NATIONAL BANK
DATED AS OF AUGUST 14, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS.............................. 1
SECTION 1.1 Certain Defined Terms.......................................... 1
---------------------
SECTION 1.2 Other Definitional Provisions.................................. 1
-----------------------------
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES................... 2
SECTION 2.1 Purchase and Sale of Receivables............................... 2
--------------------------------
SECTION 2.2 The Closings................................................... 2
------------
SECTION 2.3 The Purchase Price............................................. 2
------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES AND COVENANTS.......... 3
SECTION 3.1 Representations and Warranties Regarding Purchased Assets...... 3
---------------------------------------------------------
SECTION 3.2 Representations and Warranties Regarding DNB................... 4
--------------------------------------------
SECTION 3.3 Representations and Warranties of the Purchaser................ 6
-----------------------------------------------
ARTICLE IV
CONDITIONS................................ 8
SECTION 4.1 Conditions Precedent to the Purchaser's Initial
-----------------------------------------------
Purchase of DNB Receivables............................................ 8
---------------------------
SECTION 4.2 Conditions Precedent to the Purchaser's Purchase of DNB
-------------------------------------------------------
Receivables............................................................ 8
-----------
SECTION 4.3 Conditions to Obligation of DNB................................ 9
-------------------------------
ARTICLE V
ADDITIONAL AGREEMENTS........................ 9
SECTION 5.1 Initial UCC Filings............................................ 9
-------------------
SECTION 5.2 Computer Files Marked.......................................... 9
---------------------
SECTION 5.3 Protection of Title............................................ 10
-------------------
SECTION 5.4 Other Liens or Interests....................................... 10
------------------------
SECTION 5.5 Indemnification................................................ 10
---------------
SECTION 5.6 Credit and Collection Policy................................... 11
----------------------------
SECTION 5.7 Reserved....................................................... 11
--------
SECTION 5.8 Repurchase Events.............................................. 11
-----------------
SECTION 5.9 Further Assignments............................................ 11
-------------------
SECTION 5.10 Sale Treatment................................................ 12
--------------
ARTICLE VI
MISCELLANEOUS PROVISIONS....................... 12
SECTION 6.1 Amendment...................................................... 12
---------
-i-
<PAGE>
Page
----
SECTION 6.2 Survival....................................................... 12
--------
SECTION 6.3 Notices........................................................ 12
-------
SECTION 6.4 GOVERNING LAW.................................................. 13
-------------
SECTION 6.5 Waivers........................................................ 13
-------
SECTION 6.6 Costs and Expenses............................................. 13
------------------
SECTION 6.7 Confidential Information....................................... 13
------------------------
SECTION 6.8 Headings....................................................... 14
--------
SECTION 6.9 Counterparts................................................... 14
------------
SECTION 6.10 Severability of Provisions.................................... 14
--------------------------
SECTION 6.11 Further Assurances............................................ 14
------------------
SECTION 6.12 No Third-Party Beneficiaries.................................. 14
----------------------------
SECTION 6.13 Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, DNB.................................................... 14
-------------------
SECTION 6.14 Merger and Integration........................................ 15
----------------------
SECTION 6.15 No Petition Covenants......................................... 15
---------------------
SECTION 6.16 No Recourse to Owner Trustee.................................. 15
----------------------------
-ii-
<PAGE>
DNB RECEIVABLES PURCHASE AGREEMENT
This DNB Receivables Purchase Agreement (the "Agreement") is made as
of August 14, 1998 by and between DILLARD ASSET FUNDING COMPANY, a Delaware
business trust (the "Purchaser"), and DILLARD NATIONAL BANK, a national banking
association ("DNB").
W I T N E S S E T H:
WHEREAS, the Purchaser desires to purchase Receivables and related
assets from DNB from time to time; and
WHEREAS, DNB is willing, on the terms, and subject to the conditions
set forth herein, to sell such Receivables and related assets to the Purchaser.
NOW, THEREFORE, in consideration of the foregoing, the other good and
valuable consideration and the mutual terms and covenants herein contained, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Defined Terms. Unless otherwise defined herein,
---------------------
capitalized terms used in the above recitals and in this Agreement shall have
the respective meanings assigned them the Pooling and Servicing Agreement, dated
as of August 1, 1998 (as supplemented by the VFC 1998 Supplement, dated August
14, 1998, among the Purchaser as transferor (in such capacity, the
"Transferor"), Dillard National Bank, as master servicer (in such capacity, the
"Master Servicer") and The Chase Manhattan Bank, as trustee (in such capacity,
the "Trustee"), the "Pooling and Servicing Agreement"), among the Transferor,
the Master Servicer and the Trustee, unless otherwise defined herein.
SECTION 1.2 Other Definitional Provisions. Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Pooling and Servicing Agreement or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein and in the Pooling and Servicing Agreement, and in
any certificate or other document made or delivered pursuant hereto, accounting
terms not defined in Section 1.1, and accounting terms partly defined in Section
1.1, to the extent not defined, shall have the respective meanings given to them
under GAAP.
(c) The words "thereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section and subsection
references are to this Agreement unless otherwise specified.
<PAGE>
2
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
SECTION 2.1 Purchase and Sale of Receivables. Subject to the
--------------------------------
satisfaction of the conditions specified in Article IV, DNB hereby sells,
transfers, assigns and otherwise conveys to the Purchaser, without recourse, and
------- --------
the Purchaser hereby purchases from DNB, all right, title and interest in, to
and under all Receivables then existing (and not previously sold, transferred,
assigned or otherwise conveyed) and thereafter created and arising under the
Accounts identified in the list of Accounts (an "Account List") previously
delivered to the Purchaser (such Receivables, the "Designated DNB Receivables")
and all monies, due or to become due with respect thereto as of the close of the
second Business Day preceding the date hereof (such as of date, the "Initial
Cutoff Date"), all Finance Charge Receivables relating to such Accounts, all
proceeds of such Receivables and all Insurance Proceeds relating to such
Receivables (collectively, the "Existing Purchased Assets").
After the Initial Cutoff Date, each newly created account (each, an
"Additional Account") shall be automatically included as an "Account" hereunder
and on the day of creation thereof (each, an "Addition Date") DNB shall sell,
transfer, assign and otherwise convey to the Purchaser, without recourse, and
------- --------
the Purchaser shall purchase from DNB, all right, title and interest in, to and
under all Receivables then existing and thereafter created and arising under
such Accounts (collectively, with the Designated DNB Receivables, the "DNB
Receivables") and all monies, due or to become due with respect thereto as of
such date of creation (such as of date, the "Additional Cutoff Date"), including
all Finance Charge Receivables relating to such Receivables, all proceeds of
such Receivables and all Insurance Proceeds relating to such Receivables
(collectively, the "Subsequent Purchased Assets"; together with the Existing
Purchased Assets, the "Purchased Assets"). From time to time DNB shall, at the
request of the Purchaser, deliver to the Purchaser an Account List as of an
agreed upon date setting forth such information regarding the Accounts and the
Receivables therein as the Purchaser may reasonably request.
SECTION 2.2 The Closings. The consummation of each purchase and sale
------------
contemplated by Section 2.1 shall take place at such place and at such time as
DNB and the Purchaser may agree upon. This Agreement shall be effective as of
the date hereof (the "Closing Date") upon its execution by DNB and the
Purchaser.
SECTION 2.3 The Purchase Price. In consideration for the sale to the
------------------
Purchaser of the Existing Purchased Assets on the Closing Date, the Purchaser
shall pay to DNB, on such Closing Date, an amount equal to the aggregate unpaid
principal balance of the Receivables included in such Purchased Assets as of the
Initial Cutoff Date for such Receivables. Such purchase price shall be paid to
DNB in immediately available funds. Thereafter, on the second Business Day
following the date on which a DNB Receivable a created, the Purchaser shall pay
to DNB, on such day, an amount equal to the aggregate unpaid principal balance
of such
<PAGE>
3
Receivable as of such date of creation. Such purchase price shall be paid to DNB
in immediately available funds.
ARTICLE III
REPRESENTATIONS AND WARRANTIES AND COVENANTS
SECTION 3.1 Representations and Warranties Regarding Purchased
--------------------------------------------------
Assets. (a) DNB represents and warrants to the Purchaser as follows with
- -------
respect to the Designated DNB Receivables:
(i) Eligible Accounts. As of the Initial Cutoff Date, each existing
-----------------
Account is an Eligible Account and no selection procedures adverse to the
Purchaser have been employed in selecting the Accounts from among the
Eligible Accounts in the Bank Portfolio.
(ii) Eligible Receivables. (w) as of the Closing Date, each DNB
--------------------
Receivable in an existing Account is an Eligible Receivable;
(x) as of the Closing Date, each DNB Receivable in an existing
Account has been conveyed to the Purchaser (1) free and clear of any
Lien of any Person claiming through or under DNB or any of its
Affiliates and (2) in compliance, in all material respects, with all
Requirements of Law applicable to DNB;
(y) as of the Closing Date, with respect to each DNB Receivable
in an existing Account, all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or given by
DNB in connection with the conveyance of such DNB Receivable to the
Purchaser have been duly obtained, effected or given and are in full
force and effect; and
(z) as of the Closing Date, the information regarding such DNB
Receivables and the Accounts related thereto set forth in the related
Account List is true and correct in all material respects.
(b) On each day on which a new DNB Receivable is created, DNB shall be
deemed to represent and warrant to the Purchaser as follows:
(i) Eligible Receivables. (w) each such DNB Receivable created on
--------------------
such day is an Eligible Receivable;
(x) each such DNB Receivable created on such day has been
conveyed to the Purchaser (1) free and clear of any Lien of any Person
claiming through or
<PAGE>
4
under DNB or any of its Affiliates and (2) in compliance, in all
material respects, with all Requirements of Law applicable to DNB;
(y) with respect to each such DNB Receivable created on such day,
all consents, licenses, approvals or authorizations of, or
registrations or declarations with, any Governmental Authority
required to be obtained, effected or given by DNB in connection with
the conveyance of such DNB Receivable to the Purchaser have been duly
obtained, effected or given and are in full force and effect; and
(z) the information regarding such DNB Receivable and the
Accounts related thereto set forth in the related Account List is true
and correct in all material respects.
(c) On each Addition Date, DNB shall be deemed to represent and
warrant to the Purchaser that, as of such date each Account created on such date
is an Eligible Account and no selection procedures adverse to the Purchaser have
been employed in selecting such Account from among the Eligible Accounts in the
Bank Portfolio.
(d) This Agreement, when duly executed and delivered, constitutes
either:
(i) a valid transfer, assignment, set-over and conveyance to the
Purchaser of all right, title and interest of DNB in, to and under the
DNB Receivables now existing and hereafter created and arising in
connection with the Accounts, and all proceeds of such DNB Receivables
and Insurance Proceeds relating thereto, and such DNB Receivables and
all proceeds thereof and Insurance Proceeds relating thereto will be
held by the Purchaser free and clear of any Lien of any Person
claiming through or under DNB or any of its Affiliates; or
(ii) a grant of a security interest (as defined in the UCC) in
such property to the Purchaser, which is enforceable with respect to
the Designated DNB Receivables, the proceeds thereof and Insurance
Proceeds relating thereto upon execution and delivery of this
Agreement, and which will be enforceable with respect to DNB
Receivables hereafter created, the proceeds thereof and Insurance
Proceeds relating thereto, upon such creation. If this Agreement
constitutes the grant of a security interest to the Purchaser in such
property, upon the filing of the financing statement described in
Section 5.1, and in the case of the DNB Receivables hereafter created
and proceeds thereof and Insurance Proceeds relating thereto, upon
such creation, the Purchaser shall have a first priority perfected
security interest in such property (subject to Section 9-306 of the
UCC).
SECTION 3.2 Representations and Warranties Regarding DNB. DNB
--------------------------------------------
represents and warrants to the Purchaser as of the date hereof and as of each
Purchase Date (as defined below and, as applicable, with respect to the DNB
Receivables sold, transferred, assigned or otherwise conveyed to the Purchaser
on such date), that:
<PAGE>
5
(a) Organization and Good Standing. DNB has been duly organized and
------------------------------
is validly existing as a national banking association in good standing
under the laws of the United States of America, with power and authority to
own its properties and to conduct its business as such properties are
presently owned and such business is presently conducted, and had at all
relevant times, and now has, power, authority and legal right to acquire
and own the DNB Receivables.
(b) Due Qualification. DNB is duly qualified to do business as a
-----------------
foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business requires such
qualification except to the extent that the failure to comply therewith
would not, in the aggregate, have a material adverse effect with respect to
DNB.
(c) Power and Authority. DNB has the corporate power and authority
-------------------
to execute and deliver this Agreement and to perform its obligations
hereunder and the execution, delivery and performance of this Agreement
have been duly authorized by DNB by all necessary corporate action on the
part of DNB. DNB has the corporate power and authority to sell and assign
to the Purchaser the Purchased Assets and has duly authorized such
transfers by all necessary corporate action on the part of DNB.
(d) Binding Obligation. This Agreement, when duly executed and
------------------
delivered, shall constitute a legal, valid and binding obligation of DNB
enforceable against DNB 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.
(e) No Violation. The execution and delivery of this Agreement by
------------
DNB and its performance of its obligations hereunder will not violate any
Requirements of Law or contractual obligation of DNB, and will not result
in, or require, the creation or imposition of any Lien upon any of its
property or assets pursuant to any such Requirements of Law or contractual
obligation.
(f) No Proceedings. There are no actions, proceedings or, to DNB's
--------------
knowledge, investigations pending or, to DNB's knowledge, threatened,
before any Governmental Authority (i) asserting the invalidity of this
Agreement, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement, or (iii) seeking any
determination or ruling that would reasonably be expected to have a
material adverse effect with respect to DNB.
(g) No Consent. Except as expressly contemplated by the Pooling and
----------
Servicing Agreement, no consent or authorization of, filing with, or other
act by or in respect of, any Governmental Authority or any other Person is
required in connection with the execution, delivery, performance, validity
or enforceability against DNB of this Agreement.
<PAGE>
6
(h) No Default. DNB is not in default under or with respect to any
----------
of its contractual obligations which would have a material adverse effect
with respect to it.
(i) Taxes. No notice of any Lien in respect of unpaid taxes or
-----
assessments has been filed by any taxing authority against, or otherwise
affecting the assets of, DNB or any of its subsidiaries and remains in
effect.
(j) ERISA. No notice of a Lien arising under Title I or Title IV of
-----
ERISA has been filed under Section 6323(a) of the Code (or any successor
provision) against, or otherwise affecting the assets of DNB.
(k) Solvency. DNB is, and after giving effect to the transactions
--------
contemplated to occur on such date, will be, solvent and DNB is paying its
debts as they become due. In addition, DNB after giving effect to the
transactions contemplated by this Agreement will have adequate capital to
conduct its business.
(l) Principal Place of Business. DNB's principal place of business is
---------------------------
located at 396 North William Dillard Drive, Gilbert, AZ 85233. During the
previous five years, DNB's only other principal place of business was
located at 9809 N. Metro Parkway West, Phoenix, AZ 85051.
(m) Name. DNB's legal name is as set forth herein, there has been no
----
name change in the last two years and DNB has no tradenames, fictitious
names, assumed names or "doing business as" names.
SECTION 3.3 Representations and Warranties of the Purchaser. The
-----------------------------------------------
Purchaser hereby represents and warrants to DNB as of the date hereof and as of
each Purchase Date (and, as applicable, with respect to the DNB Receivables
sold, transferred, assigned or otherwise conveyed to the Purchaser on such
date), that:
(a) Organization and Good Standing. The Purchaser has been duly
------------------------------
organized and is validly existing as a business trust under the laws of the
State of Delaware, with power and authority to own its properties and to
conduct its business as such properties are presently owned and such
business is presently conducted, and has the power, authority and legal
right to acquire and own the Purchased Assets.
(b) Due Qualification. The Purchaser is duly qualified to do
-----------------
business as a foreign [corporation] in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions, in which the
ownership or lease of property or the conduct of its business requires such
qualification except to the extent that the failure to comply therewith
would not have a material adverse effect with respect to the Purchaser.
(c) Power and Authority. The Purchaser has the power and authority
-------------------
to execute and deliver this Agreement and to perform its obligations
hereunder and the execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of the
Purchaser.
<PAGE>
7
(d) Binding Obligation. This Agreement constitutes a legal, valid
------------------
and binding obligation of the Purchaser enforceable against the Purchaser
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, 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.
(e) No Violation. The execution and delivery of this Agreement by
------------
the Purchaser and its performance of its obligations hereunder will not
violate any Requirements of Law or contractual obligation of the Purchaser,
and will not result in, or require, the creation or imposition of any Lien
upon any of its property or assets pursuant to any such Requirements of Law
or contractual obligation, other than as contemplated by the Pooling and
Servicing Agreement.
(f) No Material Litigation. No litigation or proceeding or, to the
----------------------
knowledge of the Purchaser, investigation of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Purchaser,
threatened by or against the Purchaser or against any of its properties or
revenues (i) with respect to the Pooling and Servicing Agreement or any of
the transactions contemplated thereby or hereby or (ii) which would
reasonably be expected to have a material adverse effect with respect to
the Purchaser.
(g) No Consent. Except as expressly contemplated by the Pooling and
----------
Servicing Agreement, no consent or authorization of, or filing with, or
other act by or in respect of, any Governmental Authority or any other
Person is required in connection with the execution, delivery, performance,
validity or enforceability against the Purchaser of this Agreement.
(h) Injunction. There is no injunction, writ, restraining order or
----------
any other type of order which would adversely affect the Purchaser's
ability to perform its obligations hereunder.
(i) Solvency. The Purchaser is solvent and after giving effect to
--------
the transactions contemplated herein will be solvent and the Purchaser is
paying all debts as they become due and after giving effect to the
transactions contemplated herein the Purchaser will have adequate capital
to conduct its business.
(j) Name. The Purchaser's legal name is as set forth herein and the
----
Purchaser has no tradenames, fictitious names, assumed names or "doing
business as" names.
ARTICLE IV
CONDITIONS
<PAGE>
8
SECTION 4.1 Conditions Precedent to the Purchaser's Initial Purchase of
-----------------------------------------------------------
DNB Receivables. The obligation of the Purchaser to purchase from DNB the
- ---------------
Purchased Assets on the Closing Date is subject to the satisfaction of the
following conditions:
(a) Agreements. The Purchaser shall have received (i) this
----------
Agreement, duly executed and delivered by DNB and (ii) the Dillard
Termination Agreement, dated as of the date hereof, between Dillard
Investment Co., Inc. and DNB.
(b) Certificate of Incorporation; By-laws. The Purchaser shall have
-------------------------------------
received a true and complete copy of the certificate of organization of
DNB, certified as a true and correct copy thereof by the Office of the
Comptroller of the Currency, and a true and complete copy of the by-laws of
DNB, certified as a true and correct copy thereof by the Secretary or an
Assistant Secretary of DNB.
(c) Resolutions. The Purchaser shall have received copies of duly
-----------
adopted resolutions of the Board of Directors of DNB in form and substance
reasonably satisfactory to the Purchaser, authorizing the execution,
delivery and performance of this Agreement and the Pooling and Servicing
Agreement, the documents to be delivered by DNB hereunder and thereunder
and the transactions contemplated hereby and thereby, certified by the
Secretary or an Assistant Secretary of DNB.
(d) Incumbency Certificate. The Purchaser shall have received a
----------------------
certificate as to the incumbency and signature of the officers of DNB
authorized to sign this Agreement on behalf of DNB, together with evidence
of the incumbency of such Secretary or Assistant Secretary, certified by
the Secretary or Assistant Secretary of DNB.
(e) Representations and Warranties. The representations and
------------------------------
warranties of DNB contained in Sections 3.1 and 3.2 of this Agreement or in
any certificate delivered in connection with this Agreement (other than
those made as of a specified date specified therein) are true and correct
in all material respects and with the same force and effect as though such
representations and warranties had been made as of such date.
SECTION 4.2 Conditions Precedent to the Purchaser's Purchase of DNB
-------------------------------------------------------
Receivables. The obligation of the Purchaser to purchase Receivables and the
- -----------
related Purchased Assets to be purchased hereunder on any date after the Closing
Date is subject to the satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
-----------------------------------
warranties of DNB hereunder with respect to such Purchased Assets shall be
true and correct on and as of such date with the same effect as if then
made, and DNB shall have performed all obligations with respect to such
Purchased Assets to be performed by it hereunder on or prior to such date.
(b) Nonoccurrence of Certain Events. No VFC Series 1998 Pay Out
-------------------------------
Event or Master Servicer Default (unless such Master Servicer Default shall
have been waived as
<PAGE>
9
provided in the Pooling and Servicing Agreement) shall have occurred on or
prior to such Purchase Date.
(c) Documents to be Delivered. DNB shall have provided such other
-------------------------
documents as the Purchaser may reasonably request.
SECTION 4.3 Conditions to Obligation of DNB. The obligation of DNB to
-------------------------------
sell to the Purchaser the Purchased Assets to be sold hereunder on any date is
subject to the satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
-----------------------------------
warranties of the Purchaser hereunder shall be true and correct on such
date with the same effect as if then made.
(b) Purchase Price. The Purchaser shall have paid to DNB the related
--------------
purchase price as provided in Section 2.3 of this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Initial UCC Filings. Within two Business Days of the
-------------------
Closing Date, DNB shall record and file, at its own expense, a UCC-1 financing
statement in each jurisdiction in which required by applicable law, executed by
DNB as seller or debtor, naming the Purchaser as purchaser or secured party,
naming as collateral the Purchased Assets to be purchased and sold hereunder
from time to time, meeting the requirements of the laws of each such
jurisdiction and in such manner as is necessary to perfect under the UCC the
sale, transfer, assignment and conveyance to the Purchaser of such Purchased
Assets (to the extent constituting UCC collateral). DNB shall deliver a file-
stamped copy, or other evidence reasonably satisfactory to the Purchaser of such
filings, to the Purchaser as soon as available after such filings.
SECTION 5.2 Computer Files Marked. DNB shall, at its own expense,
---------------------
within 10 Business Days of each date on which Purchased Assets are sold
hereunder (each, a "Purchase Date"), indicate in its computer files that such
Purchased Assets have been sold to the Purchaser pursuant to this Agreement.
SECTION 5.3 Protection of Title.
-------------------
(a) DNB shall 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 hereunder to the Purchaser of the DNB Receivables and the related Purchased
Assets and in the proceeds thereof and hereby authorizes the Purchaser to file
financing statements and amendments thereto and continuation statements relative
to all or any part thereof without the signature of DNB where permitted by
<PAGE>
10
law. DNB shall deliver to (or cause to be delivered) to the Purchaser file-
stamped copies of, or filing receipts for, any document filed as provided above,
as soon as available following such filing.
(b) DNB shall not change its name, identity or corporate structure in
any manner that would, could or might make any financing statement or
continuation statement filed by DNB in accordance with Section 5.1 or 5.3(a)
seriously misleading within the meaning of Section 9-402(7) of the UCC, unless
it shall have given the Purchaser 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 Purchaser's interest in all Purchased Assets sold
hereunder.
(c) DNB hereby represents and warrants that its chief place of business
and principal executive office, and the place where its principal records
pertaining to the DNB Receivables and the related Purchased Assets are kept, is
located at 396 North William Dillard Drive, Gilbert, AZ 85233 and there are no
other such locations. DNB shall give the Purchaser at least 60 days prior
written notice of any relocation of its principal executive office if, as a
result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement. DNB shall at all times maintain
each office from which it services Receivables and its principal executive
office within the United States of America.
SECTION 5.4 Other Liens or Interests. Except for the conveyances
------------------------
hereunder and as contemplated by the Pooling and Servicing Agreement, DNB shall
not sell, pledge, assign or transfer any Purchased Assets to any other Person,
or grant, create, incur, assume or suffer to exist any Lien thereon and DNB
shall defend the right, title and interest of the Purchaser in, to and under all
Purchased Assets sold hereunder against all claims of third parties claiming
through or under DNB.
SECTION 5.5 Indemnification. DNB shall indemnify the Purchaser for any
---------------
liability as a result of the failure of a Receivable transferred hereunder to be
originated in compliance with all requirements of law and for any breach of any
of its representations and warranties with respect thereto contained herein
unless such breach shall be cured in all material respects. This indemnity
obligation shall be in addition to any obligation that DNB may otherwise have.
SECTION 5.6 Credit and Collection Policy.
----------------------------
From and after the Closing Date, DNB shall not make any change or
modification to the credit criteria applied in respect of the origination of DNB
Receivables or the credit review process followed in connection with the
origination of DNB Receivables (collectively, the "Credit and Collection
Policy"), that could reasonably be expected to have a material adverse effect on
the Purchaser, as purchaser thereof.
SECTION 5.7 Reserved.
--------
<PAGE>
11
SECTION 5.8 Repurchase Events. (a) DNB hereby covenants and agrees with
-----------------
the Purchaser that in the event of (i) a breach of any of DNB's representations
and warranties contained in Sections 3.1(a), (b) or (c) hereof with respect to
any DNB Receivable, unless such breach shall have been cured in all material
respects within a period acceptable to the Purchaser (but not more than 150
days), or (ii) a breach by DNB of Section 5.4 hereof with respect to any DNB
Receivable, which breach has a material adverse effect on the Purchaser's
interest in such DNB Receivable or (iii) a breach of any of DNB's
representations and warranties contained in Section 3.1(d) (such DNB Receivable,
in either event, a "Warranty Receivable"), DNB will, upon request by the
Purchaser, repurchase such Warranty Receivable from the Purchaser by delivering
to the Purchaser an amount equal to the unpaid principal amount of such DNB
Receivable as of the close of business on the second Business Day preceding such
date of reassignment (the "Warranty Payment"). A breach by DNB of any of its
representations contained in Section 3.1(d) hereof with respect to any DNB
Receivable shall constitute a breach with respect to all DNB Receivables. It is
understood and agreed that the obligation of DNB to repurchase any Warranty
Receivable as to which a breach has occurred and is continuing shall, if such
obligation is fulfilled, constitute the sole remedy against DNB for such breach
available to the Purchaser or the Trustee.
(b) Upon receipt by the Purchaser of the Warranty Payment, the
Purchaser shall assign, without recourse, representation or warranty, to DNB all
of the Purchaser's right, title and interest in, to and under (i) such Warranty
Receivable and all monies due thereon, (ii) any proceeds from any Insurance
Policies with respect to such Warranty Receivable, (iii) any proceeds from any
guaranties of such Warranty Receivable, (iv) proceeds of the property described
in clauses (i) through (iii) above and (v) this Agreement with respect to such
Warranty Receivable, such assignment being an assignment outright and not for
security. Upon the assignment of such Warranty Receivable and related rights,
DNB shall own such Warranty Receivable and all such security and documents, free
of any further obligations to the Purchaser with respect thereto. If in any
proceeding it is held that DNB may not enforce a Warranty Receivable on the
ground that it is not a real party in interest or a holder entitled to enforce
the Warranty Receivable, the Purchaser shall, at DNB's expense, take such steps
as DNB deems necessary to enforce the Warranty Receivable, including bringing
suit in the name of such Person.
SECTION 5.9 Further Assignments. DNB acknowledges that the Purchaser
-------------------
shall from time to time, sell, pledge, assign or transfer all of its right,
title and interest in the Purchased Assets and its rights hereunder to the
Trustee pursuant to the Pooling and Servicing Agreement. DNB consents to such
assignment and agrees that the Trustee, to the extent provided in the Pooling
and Servicing Agreement, shall be entitled to enforce the terms of this
Agreement and the rights (including, without limitation, the right to grant or
withhold any consent or waiver) of the Purchaser directly against DNB. In each
case, DNB further agrees that, in respect of its obligations hereunder, it will
act at the direction of and in accordance with all requests and instructions
from the Trustee delivered pursuant to the Pooling and Servicing Agreement until
the satisfaction of all obligations thereunder. Except as otherwise
contemplated by the Pooling and Servicing Agreement, the Trustee shall have the
rights of third-party beneficiary under this Agreement. DNB shall deliver
copies of all notices, requests, demands and other documents to be delivered by
it to the Purchaser pursuant to the terms hereof to the Trustee.
<PAGE>
12
SECTION 5.10 Sale Treatment. DNB and the Purchaser intend to treat the
--------------
transfer and assignment described herein as a sale for accounting and tax
purposes.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 Amendment. This Agreement may be amended from time to time
---------
by a written amendment duly executed and delivered by DNB and the Purchaser,
with the prior written consent of the Trustee; provided, however, that no
-------- -------
amendment shall be made without a confirmation by each of the Rating Agencies
that such action will not result in a withdrawal or downgrade of its then
current ratings of the outstanding Commercial Paper.
SECTION 6.2 Survival. The representations, warranties and covenants of
--------
DNB set forth in Article V of this Agreement shall remain in full force and
effect and shall survive each sale of Receivables under Article II hereof and
any related transfer under the Pooling and Servicing Agreement.
SECTION 6.3 Notices. Except where telephonic instructions or notices
-------
are authorized herein to be given, all notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered by hand or by overnight courier, or, in the case of telecopy
notice, when received, addressed as follows or to such address or other address
as may be hereafter notified by the respective parties hereto:
Purchaser: DILLARD ASSET FUNDING COMPANY
c/o Chase Manhattan Bank Delaware,
as Owner Trustee
1201 Market Street
Wilmington, DE 19801
Attention: Corporate Trust Administration Department
Telecopy: 302-984-4903
with a copy to
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, NY 10001
Attn: Structured Finance Services
DNB: Dillard National Bank
396 North William Dillard Drive
Gilbert, AZ 85233
Attention: Randal L. Hankins, President
Telecopy:
<PAGE>
13
Moody's: Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
Attention:
Telecopy:
S&P: Standard & Poors Rating Group
25 Broadway
New York, NY 10004
Attention:
Telecopy:
SECTION 6.4 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
SECTION 6.5 Waivers. No failure or delay on the part of any party in
-------
exercising any power, right or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or remedy preclude any other or further exercise thereof or the exercise
of any other power, right or remedy.
SECTION 6.6 Costs and Expenses. DNB agrees to pay all reasonable out-
------------------
of-pocket costs and expenses of the Purchaser, including fees and expenses of
counsel, in connection with the perfection as against third parties of the
Purchaser's right, title and interest in, to and under all Receivables purchased
hereunder and the enforcement of any obligation of DNB hereunder.
SECTION 6.7 Confidential Information. The Purchaser agrees that it
------------------------
shall neither use nor disclose to any person the names and addresses of the
obligors with respect to any Receivables purchased hereunder, except in
connection with the enforcement of the Purchaser's rights hereunder, under the
DNB Receivables, under the Pooling and Servicing Agreement or as required by
law.
SECTION 6.8 Headings. The various headings in this Agreement are for
--------
purposes of reference only and shall not affect the meaning or interpretation of
any provision of this Agreement.
SECTION 6.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, and by different parties on separate counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
<PAGE>
14
SECTION 6.10 Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed enforceable to the fullest extent permitted, and if not
so permitted, shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect the
validity or enforceability of the other provisions of this Agreement or the
Pooling and Servicing Agreement or rights of any party thereto.
SECTION 6.11 Further Assurances. DNB and the Purchaser agree to do and
------------------
perform, from time to time, any and all acts and to execute any and all further
instruments required or reasonably requested by the other more fully to effect
the purposes of this Agreement, including the execution of any financing
statements or continuation statements relating to any Receivables purchased
hereunder for filing under the provisions of the UCC of any applicable
jurisdiction.
SECTION 6.12 No Third-Party Beneficiaries. Except as specifically set
----------------------------
forth herein, this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns;
provided that, except as provided in Section 6.13, DNB shall not assign or
- --------
transfer any or all of its rights and obligations hereunder without the prior
written consent of the Purchaser. The Purchaser shall give written notice to
the Rating Agencies of any such consent that it grants. Except as otherwise
expressly provided in this Agreement, no other Person shall have any right or
obligation hereunder.
SECTION 6.13 Merger or Consolidation of, or Assumption of the Obligations
------------------------------------------------------------
of, DNB. Any Person (a) into which DNB may be merged or consolidated, (b)
- -------
resulting from any merger, conversion or consolidation to which DNB shall be a
party, (c) succeeding to the business of DNB, or (d) more than 50% of the voting
stock of which is owned, directly or indirectly, by Dillard's Inc., which Person
in any of the foregoing cases executes an agreement of assumption to perform
every obligation of DNB under this Agreement shall be the successor to DNB under
this 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
-------- -------
DNB shall have delivered to the Purchaser, the Trustee, Park Avenue Receivables
Corporation, as purchaser under the Certificate Purchase Agreement, and the
Funding Agent on behalf of the APA Banks 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 Purchaser and
the Trustee, respectively, in the DNB Receivables 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.
SECTION 6.14 Merger and Integration. Except as specifically stated
----------------------
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived, or supplemented except as provided herein.
<PAGE>
15
SECTION 6.15 No Petition Covenants. Notwithstanding any prior
---------------------
termination of this Agreement, DNB shall not, prior to the date which is one
year and one day after payment in full of all obligations hereunder, acquiesce,
petition or otherwise invoke or cause the Purchaser to invoke or join any other
Person in instituting the process of any court or government authority for the
purpose of commencing or sustaining a case against the Purchaser any bankruptcy,
reorganization, arrangement, insolvency, liquidation proceeding, or similar law
of the United States or any state of the United States. Nothing in this Section
6.15 shall preclude, or be deemed to estop, DNB from taking or omitting to take
any action prior to such date in (i) any case or proceeding voluntarily filed or
commenced by or on behalf of the Purchaser under or pursuant to any such law or
(ii) any involuntary case or proceeding pertaining to the Purchaser which is
filed or commenced by or on behalf of a Person other than the Purchaser (or any
Person to which the Purchaser shall have assigned, transferred or otherwise
conveyed any part of the obligations of the Purchaser hereunder) under or
pursuant to any such law.
SECTION 6.16 No Recourse to Owner Trustee. It is expressly understood
----------------------------
and agreed by and between the parties hereto (i) that this Agreement is executed
and delivered by Chase Manhattan Bank Delaware, not in its individual capacity
but solely as owner trustee (in such capacity, the "Owner Trustee"), under the
Trust Agreement, dated as of the date hereof (the "Trust Agreement"), among
Condev Nevada, Inc., the Owner Trustee and [James Freeman and David Helm as
Administrators], in the exercise of the power and authority conferred and vested
in it as such Owner Trustee, (ii) each of the representations, undertakings and
agreements made herein by the Purchaser are not personal representations,
undertakings and agreements of Chase Manhattan Bank Delaware, but are binding
only on the Purchaser created pursuant to the Trust Agreement, (iii) nothing
contained herein shall be construed as creating any liability on Chase Manhattan
Bank Delaware, individually or personally, to perform any covenant of the
Purchaser either expressed or implied contained herein, all such liability, if
any, being expressly waived by the parties hereto and by any person claiming by,
through or under any such party, and (iv) under no circumstances shall Chase
Manhattan Bank Delaware be personally liable for the payment of any indebtedness
or expense of the Purchaser or be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the
Purchaser under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date and year first above written.
DILLARD ASSET FUNDING COMPANY
By: CHASE MANHATTAN BANK DELAWARE,
as Owner Trustee
By:
--------------------------------
Name:
Title:
DILLARD NATIONAL BANK
By:
-----------------------------------
Name:
Title:
DNB RECEIVABLES PURCHASE AGREEMENT
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus Supplement to Prospectus, Dated ____, 1998
Dillard Credit Card Master Trust
Issuer
Dillard Asset Funding Company
Transferor
Dillard National Bank
Servicer
- --------------------------------------------------------------------------------
A certificate is not a deposit and neither the certificates nor the underlying
accounts or receivables are insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
The certificates will represent interests in the Trust only and will not
represent interests in or obligations of Dillard Asset Funding Company, the
servicer or any of their affiliates.
This prospectus supplement may be used to offer and sell the specified series of
certificates only if accompanied by the prospectus.
- --------------------------------------------------------------------------------
$_______ Class A Floating Rate Asset Backed Certificates, Series 1998-___
$_______ Class B Floating Rate Asset Backed Certificates, Series 1998-____
<TABLE>
<CAPTION>
Class A Certificates Class B Certificates
<S> <C> <C>
Principal Amount $____________ $_____________
Price $______ (___%) $______ (___%)
Underwriters' Commissions $______ (___%) $______ (___%)
Proceeds to the Issuer $______ (___%) $______ (___%)
Certificate Rate one-month LIBOR + one-month LIBOR +
___% p.a. ___% p.a.
Interest Payment Dates monthly on the ___ monthly on the ___
First Interest Payment Date __________, 19__ ___________, 19__
Scheduled Principal Payment Date __________, ___ ___________, ____
</TABLE>
The Class B Certificates are subordinated to the Class A Certificates.
These securities are interests in Dillard Credit Card Master Trust, and are
backed only by the assets of the trust. Neither these securities nor the assets
of the trust are obligations of Dillard Asset Funding Company, Dillard National
Bank or any of their affiliates, or obligations insured by the FDIC.
These securities are highly structured. Before you purchase these securities, be
sure you understand the structure and the risks. See "Risk Factors" on pages
S-[9] of this prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the disclosures in this supplement and the attached
prospectus. Any representation to the contrary is a criminal offense.
These securities are offered subject to availability.
Underwriters of the Class A Certificates
[insert list of Class A underwriters]
Underwriter of the Class B Certificates
[insert list of Class B underwriters]
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Selected Trust Portfolio Data ....................................................................... S-3
Trust Payment Data .................................................................................. S-4
Summary of Terms .................................................................................... S-5
Structural Summary .................................................................................. S-6
Risk Factors ........................................................................................ S-9
Certificates Backed Only
by the Assets of the Trust ............................................................ S-9
Potential Early
Repayment or Delayed
Payment due to Reduced
Portfolio Yield ....................................................................... S-9
Basis Risk ............................................................................... S-11
Effects of Consumer Protection Laws on Certificateholders and Collections ................ S-11
Timing of Principal Payments ............................................................. S-12
Allocations of Charged-Off
Receivables and Dilutions
Could Reduce Payments
to Certificateholders ................................................................. S-12
Limited Ability to
Resell Certificates ................................................................... S-13
Certain Liens Could
Be Given Priority
Over Your Securities .................................................................. S-13
Insolvency or Bankruptcy of DAFC
or an Originator Could Result
in Accelerated, Delayed or
Reduced Payments to Certificateholders ............................................... S-14
Issuance of Additional
Series by the Trust
May Affect the Timing
of Payments ........................................................................... S-16
Limited Control
of Trust Actions ...................................................................... S-16
Class B Bears Additional
Credit Risk ........................................................................... S-17
Dependence on Dillard's .................................................................. S-17
Social, Technological
and Economic Factors .................................................................. S-17
Calculation of
Finance Charges ....................................................................... S-17
Dillard's Credit Card Portfolio ..................................................................... S-19
General .................................................................................. S-19
Delinquency and Loss Experience .......................................................... S-19
Recoveries ............................................................................... S-20
The Receivables ..................................................................................... S-21
General .................................................................................. S-21
Dilution Experience ...................................................................... S-24
Additional Trust Portfolio Information ................................................... S-26
Maturity Considerations ............................................................................. S-27
Controlled Accumulation Period ........................................................... S-27
Rapid Amortization Period ................................................................ S-27
Pay Out Events ........................................................................... S-28
Payment Rates ............................................................................ S-28
Receivable Yield Considerations ..................................................................... S-29
Use of Proceeds ..................................................................................... S-31
Description of the Certificates ..................................................................... S-31
General .................................................................................. S-31
Exchanges ................................................................................ S-33
Status of the Certificates ............................................................... S-33
Interest Payments ........................................................................ S-33
Principal Payments ....................................................................... S-34
Postponement of Controlled Accumulation Period ........................................... S-35
Subordination ............................................................................ S-36
Allocation Percentages ................................................................... S-36
Reallocation of Cash Flows ............................................................... S-38
Application of Collections ............................................................... S-39
Shared Excess Finance Charge Collections ................................................. S-48
Shared Principal Collections ............................................................. S-48
Required Collateral Interest ............................................................. S-48
Defaulted Receivables; Dilutions; Investor Charge-Offs ................................... S-49
Servicer Guarantee ....................................................................... S-50
Principal Funding Account ................................................................ S-50
[Reserve Account ......................................................................... S-51
Issuance of Additional Certificates ...................................................... S-52
Companion Series ......................................................................... S-52
Pay Out Events ........................................................................... S-53
Servicing Compensation and Payment of Expenses ........................................... S-54
Reports to Certificateholders ............................................................ S-55
Description of the Purchase Agreements .............................................................. S-55
General .................................................................................. S-55
Representations and Warranties ........................................................... S-56
Certain Covenants ........................................................................ S-56
Repurchase Events ........................................................................ S-56
Merger and Consolidation ................................................................. S-57
Listing And General Information ..................................................................... S-57
ERISA Considerations ................................................................................ S-58
Class A Certificates ..................................................................... S-58
Class B Certificates ..................................................................... S-59
Consultation with Counsel ................................................................ S-59
Underwriting ........................................................................................ S-59
Exchange Listing .................................................................................... S-61
Legal Matters ....................................................................................... S-61
</TABLE>
S-2
<PAGE>
Where to Find Information in These Documents
The attached prospectus provides general information about Dillard Credit Card
Master Trust, including terms and conditions that are generally applicable to
the securities issued by the trust. The specific terms of Series 1998-___ are
described in this supplement.
This supplement begins with several introductory sections describing your series
and Dillard Credit Card Master Trust in abbreviated form:
. Summary of Terms provides important amounts, dates and other terms of your
series;
. Structural Summary, gives a brief introduction of the key structural features
of your series directions for locating further information;
. Selected Trust Portfolio Summary Data gives certain financial information
about the assets of the Trust; and
. Risk Factors, describes risks that apply to your series.
As you read through these sections, cross-references will direct you to more
detailed descriptions in the attached prospectus and elsewhere in this
supplement. You can also directly reference key topics by looking at the table
of contents pages in this supplement and the attached prospectus.
Capitalized terms are defined in the attached prospectus or in this supplement.
Definitions are indicated by boldface type. Both the attached prospectus and
this supplement contain an index of terms listing the page numbers where
definitions can be found.
TO UNDERSTAND THE STRUCTURE OF THESE SECURITIES, YOU MUST READ CAREFULLY THE
ATTACHED PROSPECTUS AND THIS SUPPLEMENT IN THEIR ENTIRETY.
S-3
<PAGE>
Selected Trust Portfolio Data
GRAPHIC DISTRIBUTION OF RECEIVABLES IN TRUST PORTFOLIO AS OF _________, ______.
[Pie chart with accompanying key showing the following: 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 chart above shows the geographic distribution of the receivables in the
Trust portfolio among the 50 states. Other than the states specifically shown in
the chart, no state accounts for more than 5% of receivables in the Trust
portfolio.
AGE OF ACCOUNTS IN TRUST PORTFOLIO AS OF ________, ____.
[Bar chart showing the following: 0-12 months since the account was opened-__%;
13 - 24 months-__%; 25 - 36 months-__%; 37 - 48 months-__%; 49 - 60 months-__%;
61 - 120 months-__%; 121 + months-__%].
The chart above shows the percentages of the receivables in the Trust Portfolio
arising under accounts within the age brackets shown.
S-4
<PAGE>
Trust Payment Data
The chart above shows the total yield, payment rate and net charge-off rate for
the Trust Portfolio for each month from _______ 19__ to ____________ 19__.
"Trust yield" for any month means the total amount of collected finance charges
allocated to Dillard Credit Card Master Trust for the month, expressed as a
percentage of total outstanding receivables at the beginning of the month.
The "payment rate" for any month is the aggregate amount collected on
receivables during the month, including recoveries on previously charged off
receivables, expressed as a percentage of total outstanding receivables at the
beginning of the month.
The amount of "net charge-offs" for any month is the amount of charged off
receivables recorded in the month, net of any recoveries from earlier
charge-offs on receivables in the Trust Portfolio, expressed as a percentage of
total outstanding receivables at the beginning of the month.
S-5
<PAGE>
Summary of Terms
Transferor: Dillard Asset Funding Company ("DAFC")
Originators: Dillard National Bank ("DNB"); Dillard National
Bank (formerly known as Mercantile Stores
National Bank) ("DNB-La.")
Servicer: DNB
Trustee:
Pricing Date: _________, ____
Closing Date: _________, ____
Clearance and Settlement: DTC/Cedel/Euroclear
Trust Assets: receivables originated in private label revolving
credit accounts, [including recoveries on
charged-off receivables]
<TABLE>
<CAPTION>
Series Structure: Amount % of Total Series
<S> <C> <C>
Class A $___________ __%
Class B $___________ __%
Collateral Interest $___________ __%
Annual Servicing Fee: ___%
Class A Class B
Anticipated Ratings:*
(Moody's / S&P / Fitch IBCA) [ ] [ ]
Credit Enhancement: subordination of Class B subordination of collateral
and the collateral interest interest
Minimum Transferor
Interest: __% __%
Interest Rate: [1-month LIBOR + ___% [1-month LIBOR + ___%
p.a.] p.a.]
Interest Accrual Method: actual / 360 actual / 360
Interest Payment Dates: monthly (___) monthly (___)
Interest Rate Index Reset Date: [2 business days before each [2 business days before
each interest payment date] each interest payment date]
First Interest Payment Date: _________, ___ _________, ___
Scheduled Payment Date: _________, ___ _________, ___
Commencement of Controlled [Accumulation]
[Amortization] Period (subject to adjustment): _________, ___ N/A
Series 1998-___ Legal Final Maturity: _________, ___ _________, ___
Application for Exchange Listing: Luxembourg Luxembourg
CUSIP Number ______________ ______________
ISIN Number ______________ ______________
Common Code ______________ ______________
</TABLE>
- ----------
* It is a condition to issuance that one of these ratings be obtained.
To understand the structure of these securities, you must re ad carefully the
attached prospectus and this supplement.
S-6
<PAGE>
Structural Summary
This summary briefly describes certain major structural components of Series
1998-__. To fully understand the terms of Series 1998 -__ you will need to read
both this supplement and the attached prospectus in their entirety.
The Series 1998-__ Certificates
Dillard Credit Card Master Trust is issuing the Series 1998-__ asset backed
certificates in two classes: Class A Floating Rate Asset Backed Certificates and
Class B Floating Rate Asset Backed Certificates.
For a more detailed discussion of the certificates, see "Description of the
Certificates" in this supplement.
The certificates are backed by interests in a pool of private label revolving
credit card receivables. These receivables are generated in accounts owned by
the Originators in connection with the sale of Merchandise and Services by
retail stores owned and operated by Dillard's Inc. and its Subsidiaries. These
accounts are serviced by DNB and certain DNB Subservicers and transferred to
DAFC by DNB, DNB-La., Dillard Investment Co., Inc. and Mersco Factors, Inc.
pursuant to certain receivables purchase agreements.
For further information about the receivables supporting your certificates, see
"The Receivables" and "Receivable Yield Considerations" in this supplement.
Your certificates represent the right to a portion of collections on the
underlying receivables. Your certificates will also be allocated a portion of
net losses on receivables, if any. Any collections allocated to your series in
excess of the amount owed to you or DNB as servicer will be shared with other
series of certificates issued by Dillard Credit Card Master Trust, or returned
to the Transferor. In no case will you receive more than the principal and
interest owed to you under the terms described in this Supplement.
For further information on allocations and payments, see "Description of the
Certificates--Allocation Percentages" and "--Application of Collections" in this
supplement.
Your certificates feature credit enhancement by means of the subordination of
other interests, which is intended to protect you from net losses and shortfalls
in cash flow. Credit enhancement is provided to Class A by the following:
. subordination of Class B
. subordination of the collateral interest
Credit enhancement is provided to Class B by the following:
. subordination of the collateral interest
The effect of subordination is that the more subordinated interests will absorb
any net losses allocated to Series 1998-__, and make up any shortfalls in cash
flow, before the more senior interests are affected. On the closing date the
collateral interest will be $__________, or ____% of Series 1998-__.
For a more detailed description of the subordination provisions of Series
1998-__, see "Description of the Certificates--Subordination" in this
supplement. For a discussion of losses see "Description of the
Certificates--Defaulted Receivables; Investor Charge-Offs" in this supplement.
See "Risk Factors" in this supplement for more detailed discussions of the risks
of investing in Series 1998-__.
Dillard Credit Card Master Trust
Dillard Credit Card Master Trust is maintained by ________, as trustee, for the
benefit of:
. certificateholders of Series 1998-__;
. certificateholders of other series issued by Dillard Credit Card
Master Trust [(_____ other series are currently outstanding)];
. providers of credit enhancements for Series 1998-__ and other
series issued by Dillard Credit Card Master Trust; and
. the Transferor.
Each series has a claim to a fixed dollar amount of Dillard Credit Card Master
Trust's assets, regardless of the total amount of receivables in the trust at
any time. DAFC holds the remaining claim to Dillard Credit Card Master Trust's
assets, which fluctuates with the total amount of receivables in the Trust.
DAFC, as the holder of that
S-7
<PAGE>
remainder, will have the right to purchase the outstanding Series 1998-__
certificates at any time when the outstanding amount of the Series 1998-__
certificateholders' interest in Dillard Credit Card Master Trust is less than 5%
of the original amount of that interest.
For more information on the Dillard Credit Card Master Trust's assets, see
"Dillard's Credit Card Portfolio" and "The Receivables" in this supplement and
"Dillard's Credit Card Activities" and "The Receivables" in the attached
prospectus.
Scheduled Principal Payments and Potential Later Payments
Dillard Credit Card Master Trust expects to pay the entire principal amount of
Class A in [one] payment on _________, ____, and the entire principal amount of
Class B in [one] payment on __________, ____. [In order to accumulate the funds
to pay Class A on its scheduled payment date, the trust will conduct a
controlled accumulation by setting aside principal collections in a principal
funding account. The trust will deposit funds into the principal funding account
during a "controlled accumulation period." The length of the controlled
accumulation period may be as long as twelve months, but will be shortened if
DAFC expects that a shorter period will suffice for the accumulation of the
Class A payment amount. The accumulation period will end on the scheduled
payment date for Class A, when the funds on deposit in the principal funding
account will be paid to Class A.]
If Class A is not fully repaid on its scheduled payment date, Class A will begin
to receive monthly payments of principal until it is fully repaid.
After Class A is fully repaid the Trust will use principal collections allocated
to Series 1998-__ to repay Class B. [Because of the relatively small principal
payment required to repay Class B, the Trust expects to pay the Class B
principal in full in one month.] If Class B is not fully repaid on its scheduled
payment date, Class B will begin to receive monthly payments of principal after
Class A is fully repaid.
For more information on scheduled principal payments, the controlled
accumulation period and Class B principal payments, see "Maturity
Considerations" and "Description of the Certificates--Principal Payments ,"
"--Postponement of the Controlled Accumulation Period" and "--Application of
Collections; Payments of Principal" in this supplement and "Description of the
Certificates--Principal Payments" and "--Accumulation Period" in the attached
prospectus.
Prior to the commencement of an accumulation or amortization period for Series
1998-__, principal collections will be paid to DAFC or shared with other series
that are amortizing or in an accumulation period.
Minimum Yield on the Receivables; Possible Early Principal Repayment of Series
1998-__
If the average trust portfolio yield is less than the average "base rate" for
Series 1998-__ for any three-month period, a "pay out event" will have occurred
and Series 1998-__ will begin to amortize (a "rapid amortization"). The trust
portfolio yield is generally the sum of collections of finance charges and
related amounts minus default amounts as a percentage of the Series 1998-__
principal balance. The "base rate" is an annualized rate equal to the average
certificate rate for Series 1998-__ plus the servicing fee percentage for Series
1998-__.
For more information on pay out events and the portfolio yield and base rate for
Series 1998-__, See "Maturity Considerations--Pay Out Events" in this
Supplement.
Series 1998-__ is also subject to several other pay out events, which could
cause Series 1998-__ to amortize, and which are summarized under the heading
"Description of the Certificates--Pay Out Events " in this supplement. If Series
1998-__ begins to amortize, Class A will receive monthly payments of principal
until it is fully repaid; Class B will then receive monthly payments of
principal until it is fully repaid. In that event, your certificates may be
repaid prior to the scheduled payment date.
The final payment of principal and interest will be made no later than
__________, ____, which is the Series 1998-__ final payment date.
For more information on early principal repayment and rapid amortization, see
"Maturity Considerations," "Description of the Certificates--Principal Payments"
and "--Pay Out Events" in this supplement and "Description of the
Certificates--Principal Payments," "--Rapid Amortization Period" and "--Final
Payment of Principal; Termination" in the attached prospectus.
Tax Status of Class A, Class B and Dillard Credit Card Master Trust
Simpson Thacher & Bartlett, as tax counsel to DAFC, is of the opinion that under
existing law the Class A and Class B certificates will be characterized as debt
for U.S.
S-8
<PAGE>
federal income tax purposes and that Dillard Credit Card Master Trust will not
be an association or publicly traded partnership taxable as a corporation for
U.S. federal income tax purposes.
For further information regarding the application of U.S. federal income tax
laws, see "Tax Matters" in the attached prospectus.
ERISA Considerations
Class A Certificates: The Underwriters anticipate that the Class A Certificates
will meet the criteria for treatment as "publicly-offered securities." If so,
subject to important considerations described under "ERISA Considerations" in
this prospectus supplement and in the attached prospectus, the Class A
Certificates will be eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts.
Class B Certificates: Pension plans and other investors subject to ERISA can not
acquire Class B certificates. Prohibited investors include:
. "employee benefit plans" as defined in section 3(3) of ERISA.
. any "plan" as defined in section 4975 of the U.S. Internal Revenue
Code; and
. any entity whose underlying assets may be deemed to include "plan
assets" under ERISA by reason of any such plan's investment in the
entity, including insurance company general accounts.
By purchasing any Class B Certificates, you certify that you are not within any
of those categories.
For further information regarding the application of ERISA, see "ERISA
Considerations" in this supplement and the attached prospectus.
S-9
<PAGE>
Risk Factors
You should consider the following risk factors in deciding whether to
purchase the asset backed certificates described herein.
Certificates Backed Only by the Assets of the Trust
The Certificates are interests in Dillard Credit Card Master Trust and are
backed only by the assets of the trust. Neither the Certificates nor the assets
of the trust are obligations of DAFC, the Originators, the Initial Seller or any
of their affiliates, or obligations insured by the FDIC and the
Certificateholders may not look to any of them if payments of interest or
principal are not paid on a timely basis. Consequently, Certificateholders must
rely only on payments on the Receivables for distribution of principal of and
interest on the Certificates. Furthermore, under the Agreement, the Certificates
have an interest in the Receivables [and collections] only to the extent of the
Class A Investor Interest and Class B Investor Interest and, to the limited
extent described in this prospectus supplement, the Transferor Interest.
Potential Early Repayment or Delayed Payment due to Reduced Portfolio Yield
Class A or Class B may be repaid earlier than its scheduled principal repayment
date if collections on the underlying receivables, together with other amounts
available for payment to securityholders, are too low. The minimum amount that
must be available for payment to Series 1998-__ in any month, referred to as the
"base rate," is the sum of the interest payable to Class A, the interest payable
to Class B and the interest payable to the holder of the collateral interest, in
each case for the related interest period, plus the servicing fee for the
related month. If the average trust portfolio yield for Series 1998-__ for any
three consecutive months is less than the average base rate for the same three
consecutive months, a "pay out event" will occur with respect to Series 1998-__
and the trust will commence a rapid amortization of Series 1998-__, and holders
of Series 1998-__ certificates will receive principal payments earlier than the
scheduled principal repayment date. In determining trust portfolio yield,
[collections in an amount equal to a fixed percentage of the balance of
Receivables originated by DNB and DNB-La.][collections in an amount equal to the
amount of finance charges billed for the preceding month] will be deemed to
constitute finance charges on these Receivables. Moreover, if principal
collections on receivables allocated to other series are available for
application to a rapid amortization of any outstanding securities, the period
during which that rapid amortization occurs may be substantially shortened.
Because of the potential for early repayment if collections on the receivables
fall below the minimum amount, any circumstances that tend to reduce collections
may increase the risk of early repayment of Series 1998-__.
Conversely, any reduction in colle ctions may cause the period during which
collections are accumulated in the principal funding account for payment of
Class A to be longer than otherwise would have been the case.
The following factors could result in circumstances that tend to reduce
collections:
DNB or DNB-La. May Change the Terms and Conditions of the Accounts
DAFC will transfer to Dillard Credit Card Master Trust receivables arising under
specified credit card accounts, but the Originators will continue to own those
accounts. As the
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owner of those accounts, the Originators retain the right to change various
terms and conditions of those accounts (including finance charges and other fees
it charges and the required monthly minimum payment). Either Originator may
change the terms of its respective accounts to maintain the competitive position
of Dillards' department stores. Changes in the terms of the accounts may reduce
the amount of receivables arising under the accounts, reduce the amount of
collections on those receivables, or otherwise alter payment patterns.
[Each Originator will agree that it will not reduce the periodic finance charges
it charges on the receivables or other fees on any account if that action would
cause it to reasonably expect that the net yield on the trust's portfolio of
accounts would be insufficient to make interest payments on Series 1998-__ or
any other interest issued by the trust and pay the servicing fee payable by that
trust, unless it is required by law to reduce those charges or determines that
reductions are necessary to maintain the competitiveness of Dillard's department
stores, based on its good faith assessment of Dillards' business competition.]
[Each Originator will agree that it will not change the terms of its accounts or
its policies relating to the operation of its credit card business (including
the reduction of the required minimum monthly payment and the calculation of the
amount or the timing of finance charges, other fees and charge offs) unless it
reasonably believes a pay out event would not occur for any series and takes the
same action on its other substantially similar accounts, to the extent permitted
by those accounts.]
Neither Originator has restrictions on its ability to change the terms of its
accounts except as described above or in the attached prospectus.
Certain Payment Terms under Mercantile Cards No Longer Available.
On August 18, 1998, Dillard's 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. DNB-La.
and MCC are subsidiaries of Mercantile. After Dillards' acquisition of
Mercantile and its subsidiaries, DNB-La. adopted the account origination,
underwriting and administration procedures of DNB on October 17, 1998. Prior to
October 17, 1998, Mercantile offered it own credit card (the "Mercantile Card")
and the accounts associated with the Mercantile Cards were originated under
policies and procedures which differed from those currently applied by DNB and
DNB-La. to the creation of accounts and issuances of credit cards (the
"Dillard's Card"). As of [____________], the terms and conditions of the
accounts originated by DNB-La. before and after October 17, 1998 have not
changed except as described below.
Prior to October 17, 1998, holders of Mercantile Cards were able to select from
certain payment terms for larger purchases and specialty items which terms (the
"Prior Mercantile Options") are no longer available for new purchases. However,
the purchases of merchandise or services made by holders of the Mercantile Card
prior to October 17, 1998 under the Prior Mercantile Options will be unaffected
by DNB-La.'s adoption of DNB's origination, underwriting and administration
policies and procedures. [While holders of the Mercantile Card may currently
select from certain payment terms for larger purchases and specialty items
available to holders of the Dillard's Card, the unavailability of the Prior
Mercantile Options may reduce the amount of Receivables arising under the
accounts originated by DNB-La. prior to October 17, 1998 or otherwise alter
payment patterns.
DAFC May Add Accounts to the Trust Portfolio.
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In addition to the accounts already designated for Dillard Credit Card Master
Trust, DAFC is permitted to designate additional accounts for the trust
portfolio and to transfer the receivables in those accounts to the Trust. Any
new accounts and receivables may have different terms and conditions than the
accounts and receivables already in the trust. Credit card accounts purchased by
Dillard's or its Subsidiaries may be included as additional accounts if certain
conditions are satisfied. Credit card accounts purchased by Dillard's or its
Subsidiaries and transferred to DAFC may have been originated using criteria
different from the criteria used by the Originators. The new accounts and
receivables may perform differently over time than the accounts and receivables
already in the trust and could tend to reduce the amount of collections
allocated to Series 1998-__.
Also, if DAFC's percentage interest in the accounts of the trust falls to .% or
less, DAFC will be required to maintain that level by designating additional
accounts for the trust portfolio and transferring the receivables in those
accounts to the trust. If DAFC is required to add accounts to the trust, it may
not have any accounts to be added to the trust. If DAFC fails to add accounts
when required, a "pay out event" will occur and you could receive payment of
principal sooner than expected. See "Description of the Certificates --Addition
of Trust Assets" in the attached prospectus.
Basis Risk
Finance charges on the accounts in the trust accrue at a fixed rate. If LIBOR
increases, the amounts of interest on your certificate and other amounts
required to be funded out of collections of finance charge receivables will
increase, while the amount of collections of finance charge receivables on the
accounts will remain the same unless and until the rates on the accounts are
reset.
A decrease in the spread between collections of finance charge receivables and
interest payments on your certificate could increase the risk of early
repayment.
DNB does not separately identify collections on account of the payment of
finance charges. For any monthly period, collections in an amount equal to [.%
of the collections received by the Servicer on account of these accounts] [the
amount billed as finance charges for the preceding month for these accounts]
will be deemed to be finance charges.
Effects of Consumer Protection Laws on Certificateholders and Collections
Federal and state consumer protection laws regulate the creation and enforcement
of consumer loans, including credit card accounts and receivables. Changes or
additions to those regulations could make it more difficult for the servicer of
the receivables to collect payments on the receivables or reduce the finance
charges and other fees that an Originator can charge on credit card account
balances, resulting in reduced collections. See "Description of the
Certificates-Pay Out Events" in the attached prospectus.
Receivables that do not comply with consumer protection laws may not be valid or
enforceable in accordance with their terms against the obligors on those
receivables. DAFC and each Originator makes representations and warranties
relating to the validity and enforceability of the receivables arising under the
accounts in the trust portfolio. Subject to certain conditions described under
"Description of the Certificates-Representations and Warranties," DAFC must
accept reassignment of each receivable that does not comply in all material
respects with all requirements of applicable
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law and the applicable Originator must accept reassignment of each such
receivable from DAFC. However, we do not anticipate that the trustee under the
pooling and servicing agreement will make any examination of the receivables or
the related records for the purpose of determining the presence or absence of
defects, compliance with representations and warranties, or for any other
purpose. The only remedy if any representation or warranty is violated, and the
violation continues beyond the period of time DAFC has to correct the violation,
is that DAFC must accept reassignment of the receivables affected by the
violation and the applicable Originator must accept reassignment of each such
receivable from DAFC (subject to certain conditions described under "Description
of the Certificates-Representations and Warranties" in the attached prospectus).
See also "Certain Legal Aspects of the Receivables-Consumer Protection Laws" in
the attached prospectus.
If a cardholder sought protection under federal or state bankruptcy or debtor
relief laws, a court could reduce or discharge completely the cardholder's
obligations to repay amounts due on its account and, as a result, the related
receivables would be written off as uncollectible. See "Description of the
Certificates -- Defaulted Receivables; Investor Charge-Offs" in this Supplement
and "Description of the Certificates--Defaulted Receivables; Rebates and
Fraudulent Charges; Investor Charge-offs" in the attached prospectus.
Timing of Principal Payments
The receivables transferred to Dillard Credit Card Master Trust may be paid at
any time. We cannot assure the creation of additional receivables in those
accounts or that any particular pattern of cardholder payments will occur. A
significant decline in the amount of new receivables generated by the accounts
in the trust could result in reduced collections on those receivables. The
financial condition of Dillard's department stores will affect the ability of
the Originators to generate and transfer new receivables and might also affect
payment patterns on the receivables. See "Maturity Considerations."
Allocations of Charged-Off Receivables and Dilutions Could Reduce Payments to
Certificateholders
Each Originator anticipates that it will write off as uncollectible some portion
of the receivables arising in its accounts in the trust portfolio. Each class of
Series 1998-__ will be allocated a portion of those charged-off receivables. See
"Description of the Certificates-Allocation Percentages" and "Dillard's Credit
Card Portfolio-Delinquency and Loss Experience." If the amount of charged-off
receivables allocated to any class of certificates exceeds the amount of other
funds available for reimbursement of those charge-offs (which could occur if the
limited amount of credit enhancement for those certificates is reduced to zero)
the holders of those certificates may not receive the full amount of principal
and interest due to them. See "Description of the Certificates-Reallocation of
Cash Flows," "--Application of Collections" and "--Defaulted Receivables;
Dilutions; Investor Charge-offs" herein.
In addition, some portion of the receivables will be adjusted as a result of
rebates, exchanges, write-downs and similar occurrences. The Transferor will be
obligated to make certain allocations and payments to the Trust to compensate
the holders of each class of Series 1998-__ for the amount of such adjustments.
To the extent the transferor fails to
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make any such payment, the amount of such insufficiency will be allocated to
each class of certificates. If the amount of such unpaid adjustments allocated
to any class of certificates exceeds the amount of other funds available for
reimbursement of those adjustments (which could occur if the limited amount of
credit enhancement for those certificates is reduced to zero) the holders of
those certificates may not receive the full amount of principal and interest due
to them. See "Description of the Certificates-Reallocation of Cash Flows,"
"-Application of Collections" and "-Defaulted Receivables; Dilutions; Investor
Charge-offs" herein.
Limited Ability to Resell Certificates
The underwriters may assist in resales of Class A and Class B certificates but
they are not required to do so. A secondary market for any such securities may
not develop. If a secondary market does develop, it might not continue or it
might not be sufficiently liquid to allow you to resell any of your securities.
Certain Liens Could Be Given Priority Over Your Securities
DAFC accounts for the transfer of receivables to the trust as a sale. However, a
court could conclude that DAFC still owns the Receivables and that the trust
holds only a security interest. It is possible that the risk of a court arriving
at such a conclusion may be increased by the retention by DAFC of the Transferor
Certificate and any other class of Certificates of this or any other Series
issued and retained by DAFC. DAFC will take steps to give the trustee a "first
priority perfected security interest" in the Receivables in the event a court
concludes DAFC still owns the Receivables. If a court concludes that the
transfer to the trust is only a grant of a security interest in the Receivables,
a tax or government lien (or other lien permitted under the law without the
consent of DAFC) on DAFC's property arising before new Receivables come into
existence may get paid before the trust's interests in those Receivables. In
addition, in the event of the bankruptcy of DAFC, certain administrative
expenses may also have priority over the trust's interest in the Receivables.
See "Certain Legal Aspects of the Receivables--Transfer of Receivables" and
"Description of the Certificates--Representations and Warranties" in the
attached prospectus.
Likewise while each of DNB, DNB-La., Dillard's Investment Co. ("DIC") and Mersco
Factors Inc. ("MFI", collectively with DNB, DNB-La. and DIC, the "Initial
Sellers") accounts for the transfer of receivables to DAFC under its respective
Receivables Purchase Agreement as a sale, a court could conclude that any or all
of the Initial Sellers still own their receivables and that DAFC holds only a
security interest. Each Initial Seller will take steps to give DAFC a "first
priority perfected security interest" in its receivables sold to DAFC pursuant
to its Receivables Purchase Agreement in the event a court concludes that it
still owns those receivables. In a receivership or conservatorship of DNB or
DNB-La. or in a bankruptcy proceeding involving DIC or MFI, if the conveyance
of the receivables is not treated as a sale, but is deemed to create a security
interest in the Receivables, DAFC's interest in the Receivables may be subject
to tax or other governmental liens relating to an Initial Seller, as applicable,
arising before new Receivables come into existence and to certain administrative
expenses of the receivership, convservatorship or bankruptcy proceeding. These
amounts may get paid before DAFC's interests in those Receivables. See "Certain
Legal Aspects of the Receivables--Transfer of Receivables" and "Description of
the Certificates--Representations and Warranties" in the attached prospectus.
Insolvency or
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Bankruptcy of DAFC or an Originator Could Result in Accelerated, Delayed or
Reduced Payments to Certificateholders
Bank Insolvency
DNB and DNB-La. are 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 office of the
Comptroller of the Currency (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 Federal
Deposit Insurance Corporation ("FDIC") as receiver. Under the Federal Deposit
Insurance Act, as amended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, DAFC's security interest in the receivables arising
under the accounts originated by DNB and DNB-La. in the trust portfolio should
be respected by the FDIC where-
. an Originator's transfer of the receivables to DAFC is the grant of a valid
security interest in the receivables to DAFC;
. an Originator becomes insolvent and the FDIC is appointed conservator or
receiver of that Originator;
. the security interest (a) is validly perfected before an Originator's
insolvency and (b) was not taken in contemplation of an Originator's
insolvency or with the intent to hinder, delay or defraud an Originator or its
creditors; and
. the relevant Receivables Purchase Agreement establishing DAFC under the
Federal Deposit Insurance Act is continuously an official record of an
Originator and represents a bona fide and arm's length transaction undertaken
for adequate consideration in the ordinary course of business.
Under the Federal Deposit Insurance Act, the FDIC could--
. assert that the security interest was unperfected or unenforceable;
. require______ , as owner trustee for the trust, to go through an
administrative claims procedure to establish its right to payments collected
on the receivables in the trust;
. request a stay of proceedings with respect to an Originator; or
. repudiate the trust agreement establishing the trust and limit the trust's
resulting claim to "actual direct compensatory damages" measured as of the
date of receivership." See "Certain Legal Aspects of the Receivables --
Certain Matters Relating to Receivership" in the attached prospectus.
If the FDIC were to take any of those actions your payments of outstanding
principal and interest could be delayed and possibly reduced.
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If a conservator or receiver were appointed for [DNB or DNB-La.], then a "pay
out event" could occur for all outstanding series. Under the terms of the
pooling and servicing agreement new principal receivables would not be
transferred to the trust and the trustee would sell the receivables (unless
holders of more than 50% of the investor interest of each class of outstanding
certificates gave the trustee other instructions). The trust would then
terminate earlier than was planned and you could have a loss if the sale of the
receivables produced insufficient net proceeds to pay you in full. The
conservator or receiver may nonetheless have the power--
. regardless of the terms of the pooling and servicing agreement, (a) to prevent
the beginning of a rapid amortization period, (b) to prevent the early sale of
the receivables and termination of the trust or (c) to require new principal
receivables to continue being transferred to the trust; or
. regardless of the instructions of the certificateholders, (a) to require the
early sale of the trust's receivables, (b) to require termination of the trust
and retirement of the trust's certificates (including Series 1998-__) or (c)
to prohibit the continued transfer of principal receivables to the trusts.
In addition, if DNB, as servicer, defaults on its obligations under the pooling
and servicing agreement solely because a conservator or receiver is appointed
for an Originator, the conservator or receiver might have the power to prevent
either the trustee or the holders of securities issued by the trust from
appointing a new servicer under the related pooling and servicing agreement. See
"Certain Legal Aspects of the Receivables-Certain Matters Relating to
Receivership" in the attached prospectus.
Non-Bank Bankruptcy
If either DIC or MFI voluntarily file for bankruptcy or are forced into
bankruptcy by its creditors and a bankruptcy trustee for DIC or MFI as debtor-
in-possession, or a creditor of DIC or MFI were to take the view that DIC or
MFI, as the case may be, should be substantively consolidated with DAFC or that
the transfer of the receivables from DIC or MFI, as the case may be, to DAFC
should be recharacterized as a pledge of the receivables, then delays in
payments on the securities issued by the trust or (if the applicable bankruptcy
court were to rule in favor of such bankruptcy trustee, debtor-in-possession or
creditor) reductions in these payments could result.
To the extent that DAFC is deemed to have granted a security interest in the
Receivables to the trust and such security interest was validly perfected before
any insolvency of DAFC and was not granted or taken in contemplation of
insolvency or with the intent to hinder, delay, or defraud DAFC or its
creditors, such security interest should not be subject to avoidance in the
event of insolvency or receivership of DAFC, and payments to the trust with
respect to the Receivables should not be subject to recovery by a bankruptcy
trustee or receiver of DAFC. If, however, a bankruptcy trustee or receiver were
to assert a contrary position, delays in payments on the Offered Securities and
possible reductions in the amount of those payments could occur.
In Octagon Gas Systems, Inc. V. Rimmer; 995 F.2d 948 (10th Cir. 1993), cert
denied, 114 S.Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If DAFC, DIC or
MFI were to become subject to a bankruptcy proceeding or if
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DNB or DNB-La. were to become subject to a receivership and a court were to
follow the 10th Circuit's reasoning, holders of the securities issued by the
trust might experience delays in payment or possibly losses in their investment
in the securities. Counsel to DAFC has advised DAFC that the facts of Octagon
are distinguishable from those in the sale transactions between each of the
Initial Sellers and DAFC and DAFC and the trust and the reasoning of the 10th
Circuit appears to be inconsistent with established precedent and the UCC. See
"Certain Legal Aspects of the Receivables-Certain Matters Relating to Bankruptcy
or Receivership in the attached prospectus."
If a bankruptcy trustee were appointed for DAFC, causing a pay out event with
respect to all Series then outstanding, new Principal Receivables would not be
transferred to the trust pursuant to the Agreement and DAFC would sell the
portion of the Receivables allocable in accordance with the Agreement to each
Series (unless holders of more than 50% of the principal amount of each class of
each Series, excluding any class or portion thereof held by DAFC, and the holder
(other than DAFC or an affiliate thereof) of any other interest in the
Transferor Certificate instruct otherwise), thereby causing early termination of
the trust and a loss to the Certificateholders if the net proceeds allocable to
the Certificateholders from such sale, if any, were insufficient to pay the
Certificateholders in full. The net proceeds of any such sale of the portion of
the Receivables allocated in accordance with the Agreement to Series 1998-___
will first be used to pay amounts due to the Class A Certificateholders, will
thereafter be used to pay amounts due to the Class B Certificateholders, and
will thereafter be used to pay amounts due to the Collateral Interest. If the
only pay out event to occur is either the insolvency of DAFC or the appointment
of a bankruptcy trustee for DAFC, the bankruptcy trustee may have the power to
continue to require DAFC to transfer new Receivables to the trust and to prevent
the early sale, liquidation, or disposition of the Receivables and the
commencement of the Rapid Amortization Period. In addition, a bankruptcy trustee
for DAFC may have the power to cause early payment of the Certificates. In the
event of an early payment of principal on the Certificates, Certificateholders
may realize a lower yield on their reinvestment of such early payment and may be
required to incur costs associated with reinvesting such funds. See "Certain
Legal Aspects of the Receivables-Certain Matters Relating to Bankruptcy or
Receivership in the attached prospectus."
Issuance of Additional Series by the Trust May Affect the Timing of Payments
Dillard Credit Card Master Trust, as a master trust, may issue series of
certificates from time to time. The trust may issue additional series with terms
that are different from your series without the prior review or consent of any
certificateholders. It is a condition to the issuance of each new series that
each rating agency that has rated an outstanding series confirm in writing that
the issuance of the new series will not result in a reduction or withdrawal of
its rating of any class of any outstanding series.
However, the terms of a new series could affect the timing and amounts of
payments on any other outstanding series. See "Description of the Certificates--
Exchange" in the attached prospectus.
Limited Control of Trust Actions
Certificateholders of any series or any class within a series may need the
consent or approval of a specified percentage of the investor interest of other
series or a class of such other series to take or direct certain actions,
including to require the appointment of a
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successor servicer after DNB, as servicer, defaults on its obligations under the
pooling and servicing agreement, to amend the pooling and servicing agreement in
some cases, and to direct a repurchase of all outstanding series after certain
violations of DAFC's representations and warranties. The interests of the
certificateholders of any such series may not coincide with yours, making it
more difficult for any particular certificateholder to achieve the desired
results from such vote.
Class B Bears Additional Credit Risk
Because Class B is subordinated to Class A, principal payments to Class B will
not begin until Class A is repaid. Additionally, if collections of finance
charge receivables allocated to Series 1998-__ are insufficient to cover amounts
due to Class A, the investor interest for Class B might be reduced. This would
reduce the amount of the collections of finance charge receivables available to
Class B in future periods and could cause a possible delay or reduction in
principal and interest payments on Class B. If receivables had to be sold, the
net proceeds of that sale available to pay principal would be paid first to
Class A and any remaining net proceeds would be paid to Class B. See
"Description of the Certificates--Subordination" in this Supplement.
Dependence on Dillard's
All new Receivables currently arise from the extension of credit by an
Originator in connection with the sale of merchandise, services and financial
service products by Dillard's department stores. The trust is therefore
dependent on Dillard's for the retail sales from which the Originators generate
Receivables. The retail department store sector, in general, is highly
competitive. Generally, Dillard's competes not only with other department stores
but with direct marketers and numerous types of retail outlets, including
variety stores and discount stores. Neither the Agreement nor any other
transaction document prohibits Dillard's from selling all or any portion of its
business or assets. Accordingly, there can be no assurance that Dillard's will
continue to generate Receivables at the same rate as prior years.
Social, Technological and Economic Factors
Changes in purchase and payment patterns by obligors under the accounts and the
related Receivables may result from a variety of social, technological and
economic factors. Social factors include potential changes in consumers'
attitudes toward financing purchases with debt. Technological factors include
new methods of payment. Economic factors include the rate of inflation,
unemployment levels and relative interest rates. In addition, obligors are
currently concentrated in certain regions of the United States. Accordingly,
social, technological and economic factors affecting these regions may differ
from those affecting the United States generally. There is no basis to predict
whether, or to what extent, social technological or economic factors on a
nationwide or regional level will affect future use of credit or repayment
patterns.
[Calculation of Finance Charges
Under the Agreement, a fixed percentage (the "Finance Charge Percentage") of the
balance of Receivables originated by DNB and DNB-La. will be deemed to
constitute finance charges on those Receivables. [DAFC may, without notice or
consent of the Certificateholders, from time to time, increase or reduce this
percentage]. An increase in the Finance Charge Percentage used to calculate
finance charges will increase the percentage of collections on the Receivables
that are treated as collections of Finance Charge Receivables, which will
increase the Portfolio Yield to a level higher than it would be in the absence
of such an increase. As a result, such an increase in the Finance Charge
Percentage would decrease the likelihood of the occurrence of a pay out event
based upon a reduction of the average Portfolio Yield for any three-month period
to a rate below the average Base Rate for that period. However, increase in the
Finance Charge Percentage would also reduce the total amount of Principal
Receivables, which could
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increase the likelihood of a pay out event occurring if the total Principal
Receivables fall below the Minimum Aggregate Principal Receivables. A reduction
in the Finance Charge Percentage could reduce the Portfolio Yield and may
increase the possibility that a pay out event would occur if the average
Portfolio Yield for any three-month period is less than the Base Rate for that
period. The ability of DAFC to adjust the Finance Charge Percentage to change
the amount of Receivables that otherwise would be treated as Principal
Receivables to be treated as Finance Charge Receivables is limited under certain
circumstances. [DAFC may, following written notice to the Rating Agencies,
increase the Finance Charge Percentage by up to M percentage points over the
amounts described in this prospectus supplement or other amounts approved by the
Rating Agencies. In addition, DAFC may make other adjustments to the Finance
Charge Percentage if those changes would not cause a pay out event to occur and
also satisfy the Rating Agency Condition with respect to any Series. For more
information on pay out events and the portfolio yield and base rate for Series
1998-__, See "Maturity Considerations--Pay Out Events" in this Supplement.]
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Dillard's Credit Card Portfolio
General
November 4, 1998
The receivables (the "Receivables") conveyed or to be conveyed to the
Trust pursuant to a pooling and servicing agreement (as the same may be amended
from time to time, the "Agreement"), among Dillard Asset Funding Company ("DAFC"
or the "Transferor"), DNB, as Servicer of the Receivables, and ______ as
trustee (the "Trustee"), as supplemented by the supplement relating to the
Certificates (the "Series 1998-__ Supplement") (the term "Agreement," unless the
context requires otherwise, refers to the Agreement as supplemented by the
Series 1998-__ Supplement) have been or will be generated from transactions made
by holders of private label revolving credit card accounts ("Accounts") selected
by each Originator from its entire portfolio of such accounts. Each Class A
Floating Rate Asset Backed Certificate, Series 1998-_ (collectively, the "Class
A Certificates") and each Class B _.__% Asset Backed Certificate, Series 1998-3
(collectively, the "Class B Certificates" and, together with the Class A
Certificates, the "Certificates" or the "Series 1998-_ Certificates") will
represent the right to receive certain payments from the Trust, created pursuant
to the Agreement. As used in this prospectus supplement, the term
"Certificateholders" refers to holders of the Certificates, the term "Class A
Certificateholders" refers to holders of the Class A Certificates and the term
"Class B Certificateholders" refers to holders of the Class B Certificates.
Delinquency and Loss Experience
Each Originator considers an account delinquent if a payment due
thereunder is not received by the relevant Originator by the date of the
statement following the statement on which the amount is first stated to be
due.
Efforts to collect delinquent credit card receivables are made by the
Servicer's account management department, collection agencies and attorneys
retained by the Servicer. Efforts to collect delinquent credit card receivables
may also be made by the account management department of certain subservicers
retained by the Servicer, including MCC, and collection agents and attorneys
retained by these subservicers. For a description of the Servicer's collection
practices and policies, see "Dillard's Credit Card Activities--Collection of
Delinquent Accounts" in the attached prospectus.
It is the policy of DNB and DNB-La. to charge off an account during the
billing cycle immediately following the cycle in which such account became seven
payments (210 days from the initial billing date) delinquent. If DNB or DNB-La.
receives notice that a cardholder is the subject of a bankruptcy proceeding, DNB
or DNB-La., as the case may be, 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 an internal recovery unit, collection agencies or attorneys.
The following tables set forth the delinquency and loss experience as
of the dates and for each of the periods shown for the Dillard's Portfolio. As
of the beginning of the day on [________], 1998, the Receivables in the Trust
Portfolio represented approximately .% of the Dillard's Portfolio. Because the
Trust Portfolio represents only a portion of the Dillard's Portfolio, actual
delinquency and loss experience with respect to the Receivables may be different
from that set forth below. See "The Receivables--Additional Trust Portfolio
Information." In particular, reported loss and delinquency percentages for each
portfolio may be reduced as a result of the addition of receivables. Receivables
in newly originated accounts generally have lower delinquency and loss levels
than receivables in more seasoned accounts and the addition of these receivables
to a portfolio increases the outstanding receivables balance for such portfolio
which, for the Dillard's Portfolio, is the denominator used to calculate the
percentages set forth below. Whereas all newly originated and newly acquired
accounts become part of the Dillard's Portfolio when originated or acquired,
newly originated or acquired accounts do not automatically become part of the
Trust Portfolio but may be added from time to time at the option of the
Transferor.
S-20
<PAGE>
<TABLE>
<CAPTION>
Delinquency Experience
Dillard's Portfolio
(Dollars in thousands)
[ ] December 31,
------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
---------------------- -------------------------------------------------------------------------------
Percentage of Percentage of Percentage of Percentage of
Number of Delinquent Total Delinquent Total Delinquent Total Delinquent Total
Days Delinquent(1) Amount Receivables(2) Amount Receivables(2) Amount Receivables(2) Amount Receivables(2)
- --------------------- ---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59 Days ....... $
60 to 89 Days .......
90 Days or More .....
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
TOTAL ....
========== ============== ========== ============== ========== ============== ========== ==============
</TABLE>
(1) Number of days delinquent means the number of days after the first billing
date following the original billing date. For example, 30 days delinquent
means that no payment was received within 60 days after the original
billing date.
(2) Delinquencies are calculated as a percentage of outstanding receivables as
of the end of the month.
<TABLE>
<CAPTION>
Loss Experience
Dillard's Portfolio
(Dollars in millions)
Year Ended December 31,
-----------------------------------
[ ] Months Ended
__________, 1998 1997 1996 1995
--------------------- -------- -------- ---------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1) ...........................
Gross Charge-Offs(2)(3) ......................................
Recoveries ...................................................
Net Charge-Offs ..............................................
Net Charge-Offs as a Percentage of Average
Receivables Outstanding(4) ................................
</TABLE>
- -----------------------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Gross Charge-Offs shown include only the principal portion of charged-off
receivables.
(3) Gross Charge-Offs do not include the amount of any reductions in Average
Receivables Outstanding due to fraud, returned goods or customer disputes.
Gross Charge-Offs exclude charges relating to changes in the Servicer's
charge-off policies.
(4) The percentage reflected for the three months ended March 31, 1998 is an
annualized figure.
[The increase in Net Charge-Offs as a Percentage of Average Receivables
Outstanding for the Dillard's Portfolio for the year ended December 31, 1996,
the year ended December 31, 1997, and for the annualized [nine] months ended
[September 30, 1998], when compared with prior years, reflects, among other
factors, higher levels of personal bankruptcies. Because the Receivables do not
constitute all of the Dillard's Portfolio, actual delinquency and loss
experience with respect to Receivables may be different from that applicable to
the Dillard's Portfolio as a whole. See "The Receivables--Additional Trust
Portfolio Information" for information with respect to net charge-offs as a
percentage of the average Principal Receivables outstanding in the Trust.]
Recoveries
DAFC will be required, pursuant to the terms of the Agreement, to
transfer to the Trust a percentage of the recoveries on charged-off accounts in
the Dillard's Portfolio ("Recoveries"). For each Monthly Period, Recoveries
will be allocated to the Certificates on the basis of the percentage equivalent
of the ratio which the amount of Receivables in Defaulted Accounts for such
Monthly Period bears to the amount of receivables in defaulted accounts recorded
in the Dillard's Portfolio for such Monthly Period. Recoveries allocated to the
Trust will be treated as collections of Finance Charge Receivables. See
"Dillard's Credit Card Portfolio--Delinquency and Loss Experience" herein and
"Dillard's Credit Card Activities--Collection of Delinquent Accounts" in the
attached prospectus.
S-21
<PAGE>
The Receivables
General
The Receivables conveyed to the Trust arise in Accounts originated by
an Originator and selected by DAFC on the basis of criteria set forth in the
Agreement as applied on [____________] (the "Cut-Off Date") and, with respect
to Additional Accounts, as of the related dates of their designations (the
"Trust Portfolio"). Pursuant to the Agreement, DAFC has the right, subject to
certain limitations and conditions set forth therein, to designate from time to
time Additional Accounts and to transfer to the Trust all Receivables of such
Additional Accounts, whether such Receivables are then existing or thereafter
created. Any Additional Accounts designated pursuant to the Agreement must be
Eligible Accounts as of the date DAFC designates such accounts as Additional
Accounts. Additional Accounts will be originated by an Originator and
transferred to DAFC. DAFC will be required to designate Additional Accounts, to
the extent available, (a) to maintain the Transferor Interest so that during any
period of 30 consecutive days, the Transferor Interest averaged over that period
equals or exceeds the Minimum Transferor Interest for the same period and (b) to
maintain, for so long as certificates of any Series (including the Certificates)
remain outstanding, the sum of (i) the aggregate amount of Principal Receivables
and (ii) the principal amount on deposit in the Excess Funding Account equal to
or greater than the Minimum Aggregate Principal Receivables. "Minimum
Transferor Interest" for any period means .% of the sum of (i) the average
Principal Receivables for such period and (ii) the average principal amount on
deposit in the Excess Funding Account, the Principal Funding Account and any
other account specified from time to time pursuant to the Agreement or the
Series Supplement for such period; provided, however, that DAFC may reduce the
Minimum Transferor Interest to not less than .% of the sum of the amounts
specified in clauses (i) and (ii) above upon satisfaction of the Rating Agency
Condition and certain other conditions set forth in the Agreement. "Minimum
Aggregate Principal Receivables" means an amount equal to the sum of the
numerators used to calculate the Investor Percentages with respect to the
allocation of collections of Principal Receivables for each Series then
outstanding minus the amount on deposit in the Excess Funding Account as of the
date of determination; provided, that the Minimum Aggregate Principal
Receivables may be reduced to a lesser amount at any time if the Rating Agency
Condition is satisfied. DAFC will convey the Receivables then existing or
thereafter created under such Additional Accounts to the Trust. Further,
pursuant to the Agreement, DAFC will have the right (subject to certain
limitations and conditions) to designate certain Accounts and to require the
Trustee to reconvey all Receivables in such Accounts (the "Removed Accounts")
to DAFC, whether such Receivables are then existing or thereafter created.
Throughout the term of the Trust, the Accounts from which the Receivables arise
will be the Accounts designated by DAFC on the Cut-Off Date plus any Additional
Accounts minus any Removed Accounts. As of the Cut-Off Date and, with respect to
Receivables in Additional Accounts, as of the related date of their conveyance
to the Trust, and on the date any new Receivables are created, DAFC will
represent and warrant to the Trust that the Receivables meet the eligibility
requirements specified in the Agreement. See "Description of the
Certificates--Representations and Warranties" in the attached prospectus.
The Receivables in the Trust Portfolio, as of the beginning of the day
on ________________, 1998, included approximately $____ billion of Principal
Receivables and approximately $___ billion of Finance Charge Receivables. The
Accounts had an average Principal Receivable balance of $________ and an average
credit limit of $________. The percentage of the aggregate total Receivable
balance to the aggregate total credit limit was approximately __%. The average
age of the Accounts was approximately __ months. As of the beginning of the day
on [________], 1998, cardholders whose Accounts are included in the Trust
Portfolio had billing addresses in . states [and the District of Columbia].
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
the attached prospectus. Prior to the addition of any Accounts which are
acquired but not originated by an Originator, the Rating Agency Condition must
be satisfied with respect to such additional Accounts.
S-22
<PAGE>
The following tables summarize the Trust Portfolio by various criteria
as of the beginning of the day on _______, 1998. Because the future composition
of the Trust Portfolio may change over time, these tables are not necessarily
indicative of the composition of the Trust Portfolio at any subsequent time.
<TABLE>
<CAPTION>
Composition by Account Balance
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
Account Balance Accounts of Accounts Outstanding Receivables
- -------------------------------------------------- -------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Credit Balance ..................................
No Balance ......................................
$0.01 to $1,500.00 ..............................
$1,500.01 to $5,000.00 ..........................
$5,000.01 to $10,000.00 .........................
$10,000.01 to $20,000.00 ........................
Over $20,000.00 .................................
-------------- --------------- ------------------ --------------
TOTAL ...................................... 100% 100%
============== =============== ================== ==============
<CAPTION>
Composition by Credit Limit
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
Account Balance Accounts of Accounts Outstanding Receivables
- -------------------------------------------------- -------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
$0.00 ...........................................
$0.01 to $1,500.00 ..............................
$1,500 to $5,000.00 .............................
$5,000.01 to $10,000.00 .........................
Over $10,000.00 .................................
-------------- --------------- ------------------ --------------
TOTAL ...................................... 100% 100%
============== =============== ================== ==============
<CAPTION>
Composition by Period of Delinquency
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
Account Balance Accounts of Accounts Outstanding Receivables
- -------------------------------------------------- -------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Current to 29 days delinquent ...................
30 to 59 days delinquent ........................
60 to 89 days delinquent ........................
90 to 119 days delinquent .......................
120 days delinquent or more .....................
-------------- --------------- ------------------ --------------
TOTAL .................................. 100.00% 100.00%
============== =============== ================== ==============
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
Composition by Account Seasoning(1)
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
Account Age Accounts of Accounts Outstanding Receivables
- ---------------------------------------------------- ------------ -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Not More than 6 Months ............................
Over 6 Months to 12 Months ........................
Over 12 Months to 24 Months .......................
Over 24 Months to 36 Months .......................
Over 36 Months to 48 Months .......................
Over 48 Months to 60 Months .......................
Over 60 Months to 120 Months ......................
Over 120 Months ...................................
------------ -------------- ------------------ ---------------
TOTAL 100.0% 100.0%
============ ============== ================== ===============
</TABLE>
(1) Account age is determined by the number of months elapsed since the account
was originally opened, except that with respect to the Dillard's Portfolio
accounts which were converted from standard to premium accounts, account
age is determined by the number of months since the account was converted.
<TABLE>
<CAPTION>
Geographic Distribution of Accounts
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
State Accounts of Accounts Outstanding Receivables
- ---------------------------------------------------- ----------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Total Number Receivables Total
State Accounts of Accounts Outstanding Receivables
- ---------------------------------------------------- ----------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Other .............................................
----------- -------------- ------------------ ---------------
TOTAL =========== 100.00% ================== 100.00%
============== ===============
</TABLE>
Dilution Experience
A factor used to evaluate a portfolio of receivables is Dilution. "Dilution"
occurs if a Receivable is adjusted because of a rebate, billing error, return,
exchange, allowance (including adjustments because of the selection of a cash
price payment option) or certain other non-cash items, or if a Receivable is
canceled due to goods that have been refused by an obligor. The table below sets
forth dilution experience for Receivables originated by DNB and DNB-La. [but
does not include Receivables with respect to the initial orders of Dillard's
Customers, which became eligible for inclusion in the Trust as of
______________,1998]. The amount of such Receivables is not material and DAFC
does not believe that the performance of such Receivables would be materially
different than the historical data set forth in the following tables. [For
purposes of the following table, the middle fiscal month of each fiscal quarter
is a five week fiscal month and the first and third fiscal month of each fiscal
quarter is a four week fiscal month.] There can be no assurance that the actual
dilution experience in the future will be similar to the historical experience
set forth in this table.
Dilution Experience
Monthly
Dilution
Monthly Period Percentage
- -------------- ----------
[1994]
January ........................................................
February .......................................................
S-25
<PAGE>
Monthly
Dilution
Monthly Period Percentage
- -------------- ----------
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
[1995]
January ........................................................
February .......................................................
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
[1996]
January ........................................................
February .......................................................
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
S-26
<PAGE>
Monthly
Dilution
Monthly Period Percentage
- -------------- ----------
[1997]
January ........................................................
February .......................................................
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
[1998]
January ........................................................
February .......................................................
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
Additional Trust Portfolio Information
The loss experience for the Trust Portfolio has generally been
different from the loss experience for the Dillard's Portfolio due to the
different composition of such portfolios. In particular, reported loss and
delinquency percentages for each portfolio may be reduced as a result of the
addition of receivables. Receivables in newly originated accounts generally have
lower delinquency and loss levels than receivables in more seasoned accounts and
the addition of these receivables to a portfolio increases the outstanding
Principal Receivables balance for such portfolio which, for the Trust Portfolio,
is the denominator used to calculate the percentages set forth below. Whereas
all newly originated accounts become part of the Dillard's Portfolio when
created, newly originated accounts do not become part of the Trust Portfolio but
may be added from time to time at the option of DAFC. The net charge-offs as a
percentage of the average Principal Receivables outstanding in the Trust were
____%, on an annualized basis, for the three months ended ________, 1998, and .%
and .% for the years ended December 31, 1997 and December 31, 1996,
respectively.
S-27
<PAGE>
Maturity Considerations
The Agreement provides that Class A Certificateholders will not receive
payments of principal until the _______ Distribution Date (the "Class A
Scheduled Payment Date"), or earlier in the event of a Pay Out Event which
results in the commencement of the Rapid Amortization Period. The Agreement also
provides that Class B Certificateholders will not receive payments of principal
until the _______ Distribution Date (the "Class B Scheduled Payment Date")
Class B Scheduled Payment Date, or earlier in the event of a Pay Out Event which
results in the commencement of the Rapid Amortization Period (in either case,
only after the Class A Investor Interest has been paid in full). The Class B
Certificateholders will not begin to receive payments of principal until the
final principal payment on the Class A Certificates has been made.
Controlled Accumulation Period
[The Controlled Accumulation Period with respect to the Certificates is
scheduled to begin at the close of business of the last day of the _________
Monthly Period (the "Controlled Accumulation Period"). Subject to the
conditions set forth under "--Postponement of Controlled Accumulation Period,"
the day on which the Revolving Period ends and the Controlled Accumulation
Period Begins may be delayed to no later than the close of business on the last
day of the ______ Monthly Period. On each Transfer Date during the Controlled
Accumulation Period prior to the payment of the Class A Investor Interest in
full, an amount equal to, for each Monthly Period, the least of (a) the
Available Investor Principal Collections, (b) the "Controlled Deposit Amount"
for such Monthly Period, which is equal to the sum of the Controlled
Accumulation Amount for such Monthly Period and the Accumulation Shortfall, if
any, for such Monthly Period and (c) the Class A Adjusted Investor Interest
prior to any deposits on such day, will be deposited in the Principal Funding
Account until the principal amount on deposit in the Principal Funding Account
(the "Principal Funding Account Balance") equals the Class A Investor Interest.
After the Class A Investor Interest has been paid in full, or following the
first Transfer Date upon which the Principal Funding Account Balance has
increased to the amount of the Class A Investor Interest, Available Investor
Principal Collections, to the extent required, will be distributed to the Class
B Certificateholders on each Distribution Date beginning, during the Controlled
Accumulation Period, on the Class B Scheduled Payment Date, until the earlier of
the date the Class B Investor Interest has been paid in full and the Series
1998-__ Termination Date. After the Class A Investor Interest and the Class B
Investor Interest have each been paid in full, Available Investor Principal
Collections, to the extent required, will be distributed to the Collateral
Interest Holder on each Transfer Date until the earlier of the date the
Collateral Interest has been paid in full and the Series 1998-__ Termination
Date. Amounts in the Principal Funding Account are expected to be available to
pay the Class A Investor Interest on the Class A Scheduled Payment Date. After
the payment of the Class A Investor Interest in full, Available Investor
Principal Collections are expected to be available to pay the Class B Investor
Interest on the Class B Scheduled Payment Date. Although it is anticipated that
collections of Principal Receivables will be available on each Transfer Date
during the Controlled Accumulation Period to make a deposit of the applicable
Controlled Deposit Amount and that the Class A Investor Interest will be paid to
the Class A Certificateholders on the Class A Scheduled Payment Date and the
Class B Investor Interest will be paid to the Class B Certificateholders on the
Class B Scheduled Payment Date, respectively, no assurance can be given in this
regard. If the amount required to pay the Class A Investor Interest or the Class
B Investor Interest in full is not available on the Class A Scheduled Payment
Date or the Class B Scheduled Payment Date, respectively, a Pay Out Event will
occur and the Rapid Amortization Period will commence.]
If a Pay Out Event occurs, the Rapid Amortization Period will commence
and any amounts on deposit in the Principal Funding Account will be paid to the
Class A Certificateholders on the Distribution Date in the month following the
commencement of the Rapid Amortization Period. In addition, to the extent that
the Class A Investor Interest has not been paid in full, the Class A
Certificateholders will be entitled to monthly payments of principal equal to
the Available Investor Principal Collections until the earlier of the date on
which the Class A Certificates have been paid in full and the Series 1998-__
Termination Date. After the Class A Certificates have been paid in full and if
the Series 1998-__ Termination Date has not occurred, Available Investor
Principal Collections will be paid to the Class B Certificates on
S-28
<PAGE>
each Distribution Date until the earlier of the date on which the Class B
Certificates have been paid in full and the Series 1998-__ Termination Date.
Pay Out Events
A Pay Out Event with respect to Series 1998- occurs, either
automatically or after specified notice, upon (a) the failure of DAFC to make
certain payments or transfers of funds for the benefit of the Certificateholders
within the time periods stated in the Agreement, (b) material breaches of
certain representations, warranties or covenants of DAFC, (c) certain insolvency
events involving DAFC or Dillards, (d) a reduction of the average of the
Portfolio Yields for any three consecutive Monthly Periods to a rate that is
less than the average of the Base Rates for such period, (e) the Trust becoming
subject to regulation as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, (f) the failure of DAFC to convey
Receivables arising under Additional Accounts or Participations to the Trust
when required by the Agreement, (g) the occurrence of a Servicer Default which
would have a material adverse effect on the Certificateholders, (h) insufficient
funds in the Distribution Account to pay the Class A Investor Interest or the
Class B Investor Interest in full on the Class A Scheduled Payment Date or the
Class B Scheduled Payment Date, respectively,(i) the Transferor Interest
becoming less than the Minimum Transferor Interest, or (j) DAFC becomes unable
for any reason to transfer Receivables to the Trust in accordance with the
provisions of the Agreement. See "Description of the Certificates--Pay Out
Events." The term "Base Rate" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is the
sum of the Class A Monthly Interest, the Class B Monthly Interest and the
Collateral Monthly Interest, each for the related Interest Period, and the
Investor Servicing Fee for such Monthly Period, and the denominator of which is
the Investor Interest as of the close of business on the last day of such
Monthly Period. The term "Portfolio Yield" means, with respect to any Monthly
Period, the annualized percentage equivalent of a fraction, the numerator of
which is the sum of collections of Finance Charge Receivables, Principal Funding
Investment Proceeds and amounts withdrawn from the Reserve Account deposited
into the Finance Charge Account and allocable to the Certificates, Adjustment
Payments made by the Transferor with respect to Adjustment Payments required to
be made but not made in prior Monthly Periods, if any, and the Collateral
Interest for such Monthly Period, calculated on a cash basis after subtracting
the Investor Default Amount for such Monthly Period, and the denominator of
which is the Investor Interest as of the close of business on the last day of
such Monthly Period.
Payment Rates
The following table sets forth the highest and lowest cardholder
monthly payment rates for the Dillard's Portfolio during any month in the period
shown and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of total opening monthly
account balances during the periods shown. Payment rates shown in the table are
based on amounts which would be deemed payments of Principal Receivables and
Finance Charge Receivables with respect to the Accounts.
Cardholder Monthly Payment Rates
Dillard's Portfolio
<TABLE>
<CAPTION>
_____ Months Year Ended December 31,
Ended -----------------------------------
________,1998 1997 1996 1995
---------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Highest Month ................
Lowest Month ................
Monthly Average (1) ..........
</TABLE>
- -------------------------------------------------------------
(1) Monthly Averages shown are expressed as an arithmetic average of the
payment rate for each month during the period indicated, each such
month's payment rate representing total payments collected during the
given month expressed as a percentage of the prior month's ending
outstanding receivables.
S-29
<PAGE>
DNB generally determines the minimum monthly payment with respect to
its accounts by multiplying the combined new balance of purchases and cash
advances, less any disputed amounts, by 10% (1/10 expressed as a percentage). If
the amount so calculated is less than $20.00, it is increased to $20.00. The sum
of such amount and any past due amounts equals the minimum payment amount. The
minimum payment amount, however, is never more than the new balance. It should
be noted that DNB does offer different minimum monthly payment terms with
respect to certain purchases under its Extended Revolving, Reduced Rate
Revolving and Silver Club Revolving terms. See Billing and Payments--Customer
Terms--Dillard's Credit Cards.
DNB-La. generally determines the minimum monthly payment with respect
to its accounts by multiplying the combined new balance of purchases and cash
advances, less any disputed amounts, by 8.33% (1/12 expressed as a percentage).
If the amount so calculated is less than $10.00, it is increased to $10.00. The
sum of such amount and any past due amounts equals the minimum payment amount.
The minimum payment amount, however, is never more than the new balance. Like
DNB, DNB-La. does offer different minimum monthly payment terms with respect to
certain purchases under the Extended Revolving, Reduced Rate Revolving and
Silver Club Revolving terms in addition to other programs which are no longer
available for current and future purchases. See Billing and Payments--Customer
Terms--Mercantile Credit Cards.
There can be no assurance that the cardholder monthly payment rates in
the future will be similar to the historical experience set forth above. In
addition, 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 the Trust Portfolio will be similar to the
historical experience set forth above or that deposits into the Principal
Funding Account or the Distribution Account, as applicable, will be made in
accordance with the applicable Controlled Accumulation Amount. If a Pay Out
Event occurs, the average life of the Certificates could be significantly
reduced or increased.
Because there may be a slowdown in the payment rate below the payment
rates used to determine the Controlled Accumulation Amounts, 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
the Class A Certificates and the Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. As described under
"Description of the Certificates-Postponement of Controlled Accumulation
Period," the Servicer may shorten the Controlled Accumulation Period. There can
be no assurance that there will be sufficient time to accumulate all amounts
necessary to pay the Class A Investor Interest and the Class B Investor Interest
on the Class A Scheduled Payment Date and the Class B Scheduled Payment Date,
respectively. See "Risk Factors--Certificate Rating," "Maturity Considerations"
and "Payments and Maturity" herein.
Receivable Yield Considerations
The gross revenues from finance charges and fees billed to accounts in
the Dillard's Portfolio for each of the three calendar years contained in the
period ended December 31, 1997 and for the _____-month period ended ________,
1998, are set forth in the following table. The historical yield figures in the
following tables are calculated on an accrual basis. Collections of Receivables
included in the Trust will be on a cash basis and may not reflect the historical
yield experience in the table. In addition, Collections on account of Finance
Charges will be equal to [__% of the total amount of collections received] [the
amount billed as finance charges in the billing statement to which each payment
relates]. During periods of increasing delinquencies or periodic payment
deferral programs, accrual yields may exceed cash amounts accrued and billed to
cardholders. Conversely, cash yields may exceed accrual yields as amounts
collected in a current period may include amounts accrued during prior periods.
[However, DAFC believes that during the three calendar years contained in the
period ended December 31, 1997 and for the three-month period ended ________,
1998, the yield on an accrual basis closely approximated the yield on a cash
basis. The yield on both an accrual and a cash basis will be affected by
numerous factors, including the monthly periodic finance charges on the
Receivables, the amount of the annual membership fees and other fees, changes in
the delinquency rate on the Receivables and the
S-30
<PAGE>
percentage of cardholders who pay their balances in full each month and do not
incur monthly periodic finance charges. Additionally, the monthly yield on a
cash basis will be affected by the number of collection days in such month. See
"Risk Factors".]
S-31
<PAGE>
<TABLE>
<CAPTION>
_____ Months
Ended (dollar amounts in millions)
___________, Year Ended December 31,
---------------- ----------------------------------------
1998 1997 1996 1995
---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Finance Charges and Fees Billed (1)(2) ..................
Average Receivables Outstanding (3) .....................
Yield from Finance charges and Fees Billed (4)(5) .......
</TABLE>
- ------
(1) Finance Charges and Fees Billed include periodic and minimum finance
charges, [annual membership fees], late charges and fees for returned
checks.
(2) Finance Charges and Fees Billed are presented net of adjustments made
pursuant to the DNB's and DNB-La.'s normal servicing procedures,
including removal of incorrect or disputed finance charges and reversal
of finance charges accrued on charged-off accounts.
(3) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(4) Yield from Finance Charges and Fees Billed is calculated as a percentage
of Average Receivables Outstanding.
(5) The percentage reflected for the three months ended ________, 1998 is an
annualized figure.
Revenues vary for each account based on the type and volume of activity
for each account. Because the Trust Portfolio represents only a portion of the
Dillard's Portfolio, actual yield with respect to Receivables may be different
from that set forth above. See "Dillard's Credit Card Portfolio" and "The
Receivables--Additional Trust Portfolio Information" herein and "Dillard's
Credit Card Activities" in the attached prospectus.
Use of Proceeds
The net proceeds from the sale of the Certificates will be (i) [used to
make an initial deposit to the Finance Charge Account in the amount of $_______
for the payment of interest on the Certificates with respect to the first
Distribution Date, (ii)] if so required, used to make an initial deposit to an
account for the benefit of the Collateral Interest Holder and (iii) paid to
DAFC. DAFC will use such balance together with funds received from Condev
Nevada, Inc. as a contribution to its capital to pay the Originators for the
purchase of the Receivables held by the Trust.
Description of the Certificates
The Certificates will be issued pursuant to the Agreement, and the
Series 1998-__ Supplement. Pursuant to the Agreement, DAFC and the Trustee may
execute further Series Supplements in order to issue additional Series. The
following summary of the Certificates does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Agreement and the Series 1998-__ Supplement. See "Description
of the Certificates" in the attached prospectus for additional information
concerning the Certificates and the Agreement.
General
The Certificates will represent the right to receive certain payments
from the assets of the Trust, including the right to the applicable allocation
percentage of all cardholder payments on the Receivables in the Trust. Each
Class A Certificate represents the right to receive payments of interest at the
Class A Certificate Rate for the related Interest Period and payments of
principal on the Class A Scheduled Payment Date or, to the extent of the Class A
Investor Interest, on each Distribution Date during the Rapid Amortization
Period, funded from collections of Finance Charge Receivables and Principal
Receivables, respectively, allocated to the Class A Investor Interest and
certain other available amounts. The "Interest Period" with respect to any
Distribution Date, will be the period from and including the previous
Distribution Date through the day preceding such Distribution Date, except the
initial Interest Period will be the
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the period from and including the Closing Date through ______, 1998. Each Class
B Certificate represents the right to receive payments of interest at the Class
B Certificate Rate, and payments of principal on the Class B Scheduled Payment
Date or, to the extent of the Class B Investor Interest, on each Distribution
Date during the Rapid Amortization Period after the Class A Certificates have
been paid in full, funded from collections of Finance Charge Receivables and
Principal Receivables, respectively, allocated to the Class B Investor Interest
and certain other available amounts. In addition to representing the right to
payment from collections of Finance Charge Receivables and Principal
Receivables, each Class A Certificate also represents the right to receive
payments from Excess Spread, funds on deposit in the Principal Funding Account
and the Reserve Account and certain investment earnings thereon, Reallocated
Principal Collections and Shared Principal Collections and certain other
available amounts (including, under certain circumstances, amounts on deposit in
the Excess Funding Account). In addition to representing the right to payment
from collections of Finance Charge Receivables and Principal Receivables, each
Class B Certificate also represents the right to receive payments from Excess
Spread, Reallocated Collateral Principal Collections and Shared Principal
Collections and certain other available amounts (including, under certain
circumstances, amounts on deposit in the Excess Funding Account). Payments of
interest and principal will be made, to the extent of funds available therefor,
on each Distribution Date on which such amounts are due to Certificateholders in
whose names the Certificates were registered on the last business day of the
calendar month preceding such Distribution Date (each, a "Record Date").
DAFC initially will own the "Transferor Certificate". The Transferor
Certificate will represent the right to receive certain payments from the assets
of the Trust, including the right to a percentage (the " Transferor Percentage")
of all cardholder payments on the Receivables in the Trust equal to 100% minus
the sum of the applicable Investor Percentages for all Series of certificates
then outstanding. The Transferor Certificate may be transferred in whole or in
part subject to certain limitations and conditions set forth in the Agreement.
See "Description of the Certificates--Certain Matters Regarding the Transferor
and the Servicer" in the attached prospectus.
Beneficial interests in the Certificates will be offered for purchase
in minimum denominations of $1,000 and integral multiples thereof.
Application will be made to list the Certificates on the Luxembourg
Stock Exchange.
The Class A Certificates and the Class B Certificates initially will be
represented by certificates registered in the name of Cede, as nominee of The
Depository Trust Company ("DTC"). Unless and until Definitive Certificates are
issued, all references herein to actions by Class A Certificateholders and/or
Class B Certificateholders shall refer to actions taken by DTC upon instructions
from DTC Participants and all references herein to distributions, notices,
reports and statements to Class A Certificateholders and/or Class B
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Class A Certificates and the
Class B Certificates, as the case may be, for distribution to Certificate Owners
in accordance with DTC procedures. Certificateholders may hold their
Certificates through DTC in the United States ("US") or Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System ("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 which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
See "Description of the Certificates-General," "--Book-Entry Registration" and
"--Definitive Certificates" in the attached prospectus.
The Series 1998-__ Supplement and the Certificates will provide that
any money paid by the Trust to any Paying Agent for the payment of principal or
interest which remains unclaimed for two years after such principal or interest
shall have become due and payable will be repaid to the Trust, and thereafter
any Certificateholder may look only to the Trust for payment thereof. The Paying
Agents for the Series 1998-__ Certificates will be ___________ and the Trustee.
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Exchanges
The Transferor Certificate is transferable only as provided in the
Agreement. The Agreement also provides that the holder of the Transferor
Certificate may tender the Transferor Certificate to the Trustee in exchange for
one or more new Series and a reissued Transferor Certificate as described under
"Description of the Certificates-Exchanges" in the attached prospectus.
Status of the Certificates
Upon issuance, the Certificates will rank pari passu with all other
outstanding Series. Payments on the Class B Certificates are subordinated to
payments on the Class A Certificates as described herein.
Interest Payments
Interest will accrue on the Class A Certificates at the Class A
Certificate Rate and on the Class B Certificates at the Class B Certificate Rate
from _______, 1998 (the "Closing Date"). Interest will be distributed to
Certificateholders on _______, 1998 and on the day of each following month (or,
if such day is not a business day, the next succeeding business day)(each, a
"Distribution Date"). Interest payments on the Class A Certificates and the
Class B Certificates on any Distribution Date will be calculated on the
outstanding principal balance of the Class A Certificates and the outstanding
principal balance of the Class B Certificates, as applicable, as of the
preceding Record Date, except that interest for the first Distribution Date will
accrue at the applicable Certificate Rate on the initial outstanding principal
balance of the Class A Certificates and the initial outstanding principal
balance of the Class B Certificates, as applicable, from the Closing Date.
[Interest due on the Certificates but not paid on any Distribution Date will be
payable on the next succeeding Distribution Date together with additional
interest (the "Additional Interest") on such amount at the applicable
Certificate Rate plus 2% per annum (such amount with respect to the Class A
Certificates, the "Class A Additional Interest," and such amount with respect
to the Class B Certificates, the "Class B Additional Interest"). Additional
Interest shall accrue on the same basis as interest on the Certificates, and
shall accrue from the Distribution Date on which such overdue interest first
became due, to but excluding the Distribution Date on which such Additional
Interest is paid.] Interest payments on the Class A Certificates on any
Distribution Date will be paid from Class A Available Funds for the related
Monthly Period, and to the extent such Class A Available Funds are insufficient
to pay such interest, from Excess Spread and Reallocated Principal Collections
(to the extent available) for such Monthly Period. Interest payments on the
Class B Certificates on any Distribution Date will be paid from Class B
Available Funds for the related Monthly Period, and to the extent such Class B
Available Funds are insufficient to pay such interest, from Excess Spread and
Reallocated Collateral Principal Collections (to the extent available) remaining
after certain other payments have been made with respect to the Class A
Certificates.
"Class A Available Funds" means, with respect to any Monthly Period,
an amount equal to the sum of (a) the Class A Floating Allocation of collections
of Finance Charge Receivables allocated to the Investor Interest with respect to
such Monthly Period, (b) Principal Funding Investment Proceeds, if any, with
respect to the related Transfer Date and (c) amounts, if any, to be withdrawn
from the Reserve Account which are required to be included in Class A Available
Funds pursuant to the Series 1998-__ Supplement with respect to such Transfer
Date. "Class B Available Funds" means, with respect to any Monthly Period, an
amount equal to the Class B Floating Allocation of collections of Finance Charge
Receivables allocated to the Investor Interest with respect to such Monthly
Period.
The Class A Certificates will bear interest from the Closing Date
through __________, 1998, and with respect to each Interest Period thereafter,
at a rate of ____% per annum above LIBOR as determined on the related LIBOR
Determination Date with respect to each period (the "Class A Certificate
Rate"). The Class B Certificates will bear interest from the Closing Date
through _________, 1998, and with respect to each Interest Period thereafter, at
a rate of ___% per annum above LIBOR prevailing on the related LIBOR
Determination Date with respect to each such period (the "Class B Certificate
Rate").
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The Trustee will determine LIBOR on ________, 1998 for the period from
the Closing Date through ________, 1998 and for each Interest Period thereafter,
on the second business day prior to the Distribution Date on which such Interest
Period commences (each, a "LIBOR Determination Date"). For the purposes of
calculating LIBOR, a business day is any business day on which dealings in
deposits in United States dollars are transacted in the London interbank market.
"LIBOR" means, as of any LIBOR Determination Date, the rate for
deposits in United States dollars for a period equal to the relevant Interest
Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on
such date. If such rate does not appear on Telerate Page 3750, the rate for that
LIBOR Determination Date will be determined on the basis of the rates at which
deposits in United States dollars are offered by the Reference Banks at
approximately 11:00 a.m., London time, on that day to prime banks in the London
interbank market for a period equal to the relevant Interest Period. The Trustee
will request the principal office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for that LIBOR Determination Date will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate for that LIBOR
Determination Date will be the arithmetic mean of the rates quoted by major
banks in New York City, as selected by the Servicer, at approximately 11:00
a.m., New York City time, on that day for loans in United States dollars to
leading European banks for a period equal to the relevant Interest Period.
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank
market selected by the Servicer.
The Class A Certificate Rate and the Class B Certificate Rate
applicable to the current and immediately preceding Interest Period may be
obtained by telephoning the Trustee at its Corporate Trust Office at (212)
[___________]. The Trustee will cause the Class A Certificate Rate and the Class
B Certificate Rate as well as the amount of Class A Monthly Interest and Class B
Monthly Interest applicable to an Interest Period to be provided to the
Luxembourg Stock Exchange as soon as possible after its determination but in no
event later than the first day of such Interest Period. Such information will
also be included in a statement to the certificateholders of record prepared by
the Servicer. See "Description of the Certificates--Reports to
Certificateholders" in the attached prospectus.
Interest on the Certificates will be calculated on the basis of the
actual number of days in the Interest Period and a 360-day year.
Principal Payments
On each Transfer Date relating to the period which begins on the
Closing Date and ends at the commencement of the Controlled Accumulation Period
or, if earlier, the Rapid Amortization Period (the "Revolving Period"), unless
a reduction in the Required Collateral Interest has occurred, collections of
Principal Receivables allocable to the Investor Interest will, subject to
certain limitations, including the allocation of any Reallocated Principal
Collections with respect to the related Monthly Period to pay the Class A
Required Amount and the Class B Required Amount, be treated as Shared Principal
Collections or, under certain circumstances, deposited into an excess funding
account (the "Excess Funding Account").
On each Transfer Date relating to the Controlled Accumulation Period,
the Trustee will deposit in the Principal Funding Account an amount equal to the
least of (a) Available Investor Principal Collections with respect to such
Transfer Date, (b) the applicable Controlled Deposit Amount and (c) the Class A
Adjusted Investor Interest prior to any deposits on such date. Amounts in the
Principal Funding Account will be paid to the Class A Certificateholders on the
Class A Scheduled Payment Date. After the Class A Investor Interest has been
paid in full, on each Transfer Date during the Controlled Accumulation Period,
amounts equal to the lesser of (a) Available Investor Principal Collections with
respect to such Transfer Date and (b) the Class B Investor Interest will be
deposited in the Distribution Account for distribution to the Class B
Certificateholders until the Class B Investor Interest has been paid in full.
Such amounts in
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the Distribution Account will be paid to the Class B Certificateholders on the
Class B Scheduled Payment Date. [On each Transfer Date, if a reduction in the
Required Collateral Interest has occurred, a portion of collections of Principal
Receivables allocable to the Investor Interest will be applied in accordance
with the loan agreement among the Trustee, DAFC, the Servicer and the Collateral
Interest Holder (the "Loan Agreement") to reduce the Collateral Interest to the
Required Collateral Interest. During the Controlled Accumulation Period until
the final principal payment to the Class B Certificateholders, the portion of
Available Investor Principal Collections not applied to Class A Monthly
Principal, Class B Monthly Principal or Collateral Monthly Principal on a
Transfer Date will generally be treated as Shared Principal Collections or,
under certain circumstances, deposited into the Excess Funding Account.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a) (i) collections of Principal
Receivables received during such Monthly Period and certain other amounts
allocable to the Investor Interest, minus (ii) the amount of Reallocated
Principal Collections with respect to such Monthly Period used to fund the
Required Amount, plus (b) any Shared Principal Collections with respect to other
Series that are allocated to Series 1998-__.
"Required Amount" for any Monthly Period shall mean the sum of (a) the
Class A Required Amount and (b) the Class B Required Amount, each for such
Monthly Period.
On each Distribution Date during the Rapid Amortization Period, the
Class A Certificateholders will be entitled to receive Available Investor
Principal Collections for the related Monthly Period in an amount up to the
Class A Investor Interest until the earlier of the date the Class A Certificates
are paid in full and the Series 1998-__ Termination Date. After payment in full
of the Class A Investor Interest, the Class B Certificateholders will be
entitled to receive on each Distribution Date during the Rapid Amortization
Period Available Investor Principal Collections until the earlier of the date
the Class B Certificates are paid in full and the Series 1998-__ Termination
Date. After payment in full of the Class B Investor Interest, the Collateral
Interest Holder will be entitled to receive on each Transfer Date (other than
the Transfer Date prior to the Series 1998-__ Termination Date) and on the
Series 1998-__ Termination Date, Available Investor Principal Collections until
the earlier of the date the Collateral Interest is paid in full and the Series
1998-__ Termination Date. See "--Pay Out Events" below for a discussion of
events which might lead to the commencement of the Rapid Amortization Period.
Postponement of Controlled Accumulation Period
Upon written notice to the Trustee, the Servicer may elect to postpone
the commencement of the Controlled Accumulation Period, and extend the length of
the Revolving Period, subject to certain conditions including those set forth
below. The Servicer may make such election only if the Accumulation Period
Length (determined as described below) is less than twelve months. On the
__________, 200_ Determination Date and on each Determination Date thereafter,
until the Controlled Accumulation Period begins, the Servicer will determine the
"Accumulation Period Length," which is the number of whole months expected to
be required to fund the Principal Funding Account up to the initial outstanding
principal amount of the Class A Certificates no later than the Class A Scheduled
Payment Date, based on (a) the expected monthly collections of Principal
Receivables expected to be distributable to the certificateholders of all Series
(excluding certain other Series), assuming a principal payment rate no greater
than the lowest monthly principal payment rate on the Receivables for the
preceding twelve months and (b) the amount of principal expected to be
distributable to certificateholders of all Series (excluding certain other
Series) which are not expected to be in their revolving periods during the
Controlled Accumulation Period. If the Accumulation Period Length is less than
twelve months, the Servicer may, at its option, postpone the commencement of the
Controlled Accumulation Period such that the number of months included in the
Controlled Accumulation Period will be equal to or exceed the Accumulation
Period Length. The effect of the foregoing calculation is to permit the
reduction of the length of the Controlled Accumulation Period based on the
investor interests of certain other Series which are scheduled to be in their
revolving periods during the Controlled Accumulation Period and on increases in
the principal payment rate occurring after the Closing Date. The length of the
Controlled Accumulation Period will not be determined to be less than one month.
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Subordination
The Class B Certificates and the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class A Certificates. In addition, the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. Certain principal payments otherwise allocable to the
Class B Certificateholders may be reallocated to cover amounts in respect of the
Class A Certificates and the Class B Investor Interest may be reduced if the
Collateral Interest is equal to zero. Similarly, certain principal payments
allocable to the Collateral Interest may be reallocated to cover amounts in
respect of the Class A Certificates and the Class B Certificates and the
Collateral Interest may be reduced. To the extent the Class B Investor Interest
is reduced, the percentage of collections of Finance Charge Receivables
allocated to the Class B Certificates in subsequent Monthly Periods will be
reduced. Moreover, to the extent the amount of such reduction in the Class B
Investor Interest is not reimbursed, the amount of principal and interest
distributable to the Class B Certificateholders will be reduced. No principal
will be paid to the Class B Certificateholders until the Class A Investor
Interest is paid in full. See "--Allocation Percentages," "--Reallocation of
Cash Flows" and "-- Application of Collections -- Excess Spread."
Allocation Percentages
Pursuant to the Agreement, with respect to each Monthly Period the
Servicer will allocate among the Investor Interest, the investor interest for
all other Series issued and outstanding and the interest of DAFC (the
"Transferor Interest"), all amounts collected on Finance Charge Receivables, all
amounts collected on Principal Receivables and all Default Amounts with respect
to such calendar month (each such month, a "Monthly Period").
Collections of Finance Charge Receivables and Default Amounts at any
time and collections of Principal Receivables during the Revolving Period will
be allocated to the Investor Interest based on the Floating Investor Percentage.
The "Floating Investor Percentage" means, with respect to any Monthly Period,
the percentage equivalent of a fraction, the numerator of which is the Adjusted
Investor Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, the initial
Investor Interest) and the denominator of which is the greater of (x) the sum of
(A) the aggregate amount of Principal Receivables as of the close of business on
the last day of the preceding Monthly Period (or with respect to the first
Monthly Period, the aggregate amount of Principal Receivables as of the close of
business on the day immediately preceding the Closing Date) and (B) the
principal amount on deposit in the Excess Funding Account as of the close of
business on such day and (y) the sum of the numerators used to calculate the
Investor Percentages for allocations with respect to Finance Charge Receivables,
Default Amounts or Principal Receivables, as applicable, for all outstanding
Series on such date of determination; provided, however, that with respect to
any Monthly Period in which an addition of Accounts occurs or in which a removal
of Accounts occurs, the amount in clause (x)(A) above shall be (i) the aggregate
amount of Principal Receivables in the Trust as of the close of business on the
last day of the prior Monthly Period for the period from and including the first
day of such Monthly Period to but excluding the related date of the first
addition to the Trust of Receivables in certain designated Accounts ("Addition
Date") or the date of the removal from the Trust of Receivables in certain
designated Accounts (the "Removal Date") and (ii) the aggregate amount of
Principal Receivables in the Trust as of the beginning of the day on the related
Addition Date or Removal Date after adjusting for the aggregate amount of
Principal Receivables added to or removed from the Trust on the related Addition
Date or Removal Date, as the case may be, for the period from and including the
related Addition Date or Removal Date to and including the last day of such
Monthly Period. The amounts so allocated will be further allocated among the
Class A Certificateholders, Class B Certificateholders and the Collateral
Interest Holder based on the Class A Floating Allocation, the Class B Floating
Allocation and the Collateral Floating Allocation, respectively. The "Class A
Floating Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class A Adjusted Investor Interest as of the
close of business on the last day of the preceding Monthly Period (or with
respect to the first Monthly Period, as of the Closing Date) and the denominator
of which is equal to the Adjusted Investor Interest as of the close of business
on such day. The "Class B Floating Allocation" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the preceding Monthly
Period (or with respect to the first Monthly Period, as of the Closing Date) and
the
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denominator of which is equal to the Adjusted Investor Interest as of the close
of business on such day. The "Collateral Floating Allocation" means, with
respect to any Monthly Period, the percentage equivalent (which percentage shall
never exceed 100%) of a fraction, the numerator of which is equal to the
Collateral Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, as of the Closing
Date) and the denominator of which is equal to the Adjusted Investor Interest as
of the close of business on such day.
Collections of Principal Receivables during the Controlled Accumulation
Period and the Rapid Amortization Period will be allocated to the Investor
Interest based on the Fixed Investor Percentage. The "Fixed Investor
Percentage" means, with respect to any Monthly Period, the percentage equivalent
of a fraction, the numerator of which is the Investor Interest as of the close
of business on the last day of the Revolving Period and the denominator of which
is the greater of (x) the sum of (A) the aggregate amount of Principal
Receivables as of the close of business on the last day of the prior Monthly
Period and (B) the principal amount on deposit in the Excess Funding Account as
of the close of business on such day and (y) the sum of the numerators used to
calculate the Investor Percentages for allocations with respect to Principal
Receivables for all outstanding Series for such Monthly Period; provided,
however, that with respect to any Monthly Period in which an Addition Date
occurs or in which a Removal Date occurs, the amount in clause (x)(A) above
shall be (i) the aggregate amount of Principal Receivables in the Trust as of
the close of business on the last day of the prior Monthly Period for the period
from and including the first day of such Monthly Period to but excluding the
related Addition Date or Removal Date and (ii) the aggregate amount of Principal
Receivables in the Trust at the beginning of the day on the related Addition
Date or Removal Date after adjusting for the aggregate amount of Principal
Receivables added to or removed from the Trust on the related Addition Date or
Removal Date, as the case may be, for the period from and including the related
Addition Date or Removal Date to and including the last day of such Monthly
Period. The amounts so allocated will be further allocated among the Class A
Certificateholders, the Class B Certificateholders and the Collateral Interest
Holder based on the Class A Fixed Allocation, the Class B Fixed Allocation and
the Collateral Fixed Allocation, respectively. The "Class A Fixed Allocation"
means, with respect to any Monthly Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is
equal to the Class A Investor Interest as of the close of business on the last
day of the Revolving Period, and the denominator of which is equal to the
Investor Interest as of the close of business on the last day of the Revolving
Period. The "Class B Fixed Allocation" means, with respect to any Monthly
Period, the percentage equivalent (which percentage shall never exceed 100%) of
a fraction, the numerator of which is equal to the Class B Investor Interest as
of the close of business on the last day of the Revolving Period, and the
denominator of which is equal to the Investor Interest as of the close of
business on the last day of the Revolving Period. The "Collateral Fixed
Allocation" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is equal to the Collateral Interest as of the close of business on the last day
of the Revolving Period, and the denominator of which is equal to the Investor
Interest as of the close of business on the last day of the Revolving Period.
"Class A Investor Interest" for any date means an amount equal to (a)
the aggregate initial principal amount of the Class A Certificates, minus (b)
the aggregate amount of principal payments made to Class A Certificateholders
prior to such date, minus (c) the excess, if any, of the aggregate amount of
Class A Investor Charge-Offs for all Transfer Dates preceding such date over the
aggregate amount of any reimbursements of Class A Investor Charge-Offs for all
Transfer Dates preceding such date; provided, however, that the Class A Investor
Interest may not be reduced below zero.
"Class A Adjusted Investor Interest" for any date of determination
means an amount equal to the then current Class A Investor Interest, minus the
Principal Funding Account Balance on such date.
"Class B Investor Interest" for any date means an amount equal to (a)
the aggregate initial principal amount of the Class B Certificates, minus (b)
the aggregate amount of principal payments made to Class B Certificateholders
prior to such date, minus (c) the aggregate amount of Class B Investor
Charge-Offs for all prior Transfer Dates, minus (d) the aggregate amount of
Reallocated Class B Principal Collections for all prior Transfer Dates for which
the Collateral Interest has not been reduced, minus (e) an amount equal to the
aggregate amount by which the Class B Investor Interest has been reduced to fund
the Class A Investor Default Amount on all prior Transfer Dates as described
under "-Defaulted Receivables; Investor Charge Offs," and plus (f) the aggregate
amount of Excess Spread allocated and
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available on all prior Transfer Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c), (d) and (e); provided, however,
that the Class B Investor Interest may not be reduced below zero.
["Adjusted Investor Interest" for any date of determination means the
sum of the Class A Adjusted Investor Interest, the Class B Investor Interest,
and the Collateral Interest.]
"Collateral Interest" for any date means an amount equal to (a) the
Initial Collateral Interest, minus (b) the aggregate amount of principal
payments made to the Collateral Interest Holder prior to such date, minus (c)
the aggregate amount of Collateral Charge-Offs for all prior Transfer Dates,
minus (d) the aggregate amount of Reallocated Collateral Principal Collections
for all prior Transfer Dates, minus (e) an amount equal to the aggregate amount
by which the Collateral Interest has been reduced to fund the Class A Investor
Default Amount and the Class B Investor Default Amount on all prior Transfer
Dates as described under "-Defaulted Receivables; Investor Charge-Offs,"plus
(f) the aggregate amount of Excess Spread allocated and available on all prior
Transfer Dates for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c), (d) and (e); provided, however, that the Collateral
Interest may not be reduced below zero. The provider of such Credit Enhancement
is referred to herein as the "Collateral Interest Holder."
"Investor Interest", for any date of determination , means an amount
equal to the sum of the Class A Investor Interest, the Class B Investor
Interest, and the Collateral Interest.
Reallocation of Cash Flows
With respect to each Transfer Date, the Servicer will determine the
amount (the "Class A Required Amount"), which will be equal to the amount, if
any, by which the sum of (a) Class A Monthly Interest due on the related
Distribution Date and overdue Class A Monthly Interest and Class A Additional
Interest thereon, if any, (b) the Class A Servicing Fee for the related Monthly
Period and overdue Class A Servicing Fee, if any, and (c) the Class A Investor
Default Amount, if any, for the related Monthly Period exceeds the Class A
Available Funds for the related Monthly Period. If the Class A Required Amount
is greater than zero, Excess Spread allocated to Series 1998-__ and available
for such purpose will be used to fund the Class A Required Amount with respect
to such Transfer Date. If such Excess Spread is insufficient to fund the Class A
Required Amount, first, Reallocated Collateral Principal Collections and, then,
Reallocated Class B Principal Collections will be used to fund the remaining
Class A Required Amount. If Reallocated Principal Collections with respect to
the related Monthly Period, together with Excess Spread, are insufficient to
fund the remaining Class A Required Amount for such related Monthly Period, then
the Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and Reallocated Principal Collections on such Transfer Date) will be
reduced by the amount of such excess (but not by more than the Class A Investor
Default Amount for such Monthly Period). In the event that such reduction would
cause the Collateral Interest to be a negative number, the Collateral Interest
will be reduced to zero, and the Class B Investor Interest (after giving effect
to reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections for which the Collateral Interest was not reduced on such
Transfer Date) will be reduced by the amount by which the Collateral Interest
would have been reduced below zero (but not by more than the excess of the Class
A Investor Default Amount, if any, for such Monthly Period over the amount of
such reduction, if any, of the Collateral Interest with respect to such Monthly
Period). In the event that such reduction would cause the Class B Investor
Interest to be a negative number, the Class B Investor Interest will be reduced
to zero and the Class A Investor Interest will be reduced by the amount by which
the Class B Investor Interest would have been reduced below zero (but not by
more than the excess, if any, of the Class A Investor Default Amount for such
Monthly Period over the amount of the reductions, if any, of the Collateral
Interest and the Class B Investor Interest with respect to such Monthly Period).
Any such reduction in the Class A Investor Interest will have the effect of
slowing or reducing the return of principal and interest to the Class A
Certificateholders. In such case, the Class A Certificateholders will bear
directly the credit and other risks associated with their interests in the
Trust. See "--Defaulted Receivables; Investor Charge-Offs."
With respect to each Transfer Date, the Servicer will determine the
amount (the "Class B Required Amount"), which will be equal to the sum of (a)
the amount, if any, by which the sum of (i) Class B Monthly Interest due on the
S-39
<PAGE>
related Distribution Date and overdue Class B Monthly Interest and Class B
Additional Interest thereon, if any, and (ii) the Class B Servicing Fee for the
related Monthly Period and overdue Class B Servicing Fee, if any, exceeds the
Class B Available Funds for the related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related Monthly Period. If the Class B
Required Amount is greater than zero, Excess Spread allocated to Series 1998-__
not required to pay the Class A Required Amount or reimburse Class A Investor
Charge-Offs will be used to fund the Class B Required Amount with respect to
such Transfer Date. If such Excess Spread is insufficient to fund the Class B
Required Amount, Reallocated Collateral Principal Collections not required to
fund the Class A Required Amount for the related Monthly Period will be used to
fund the remaining Class B Required Amount. If such Reallocated Collateral
Principal Collections with respect to the related Monthly Period are
insufficient to fund the remaining Class B Required Amount, then the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date and after any
adjustments made thereto for the benefit of the Class A Certificateholders) will
be reduced by the amount of such deficiency (but not by more than the Class B
Investor Default Amount for such Monthly Period). In the event that such a
reduction would cause the Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero, and the Class B Investor Interest
will be reduced by the amount by which the Collateral Interest would have been
reduced below zero (but not by more than the excess of the Class B Investor
Default Amount for such Monthly Period over the amount of such reduction of the
Collateral Interest), and the Class B Certificateholders will bear directly the
credit and other risks associated with their interests in the Trust. See "--
Defaulted Receivables; Investor Charge-Offs."
Reductions of the Class A Investor Interest or Class B Investor
Interest described above shall be reimbursed by, and the Class A Investor
Interest or Class B Investor Interest increased to the extent of, Excess Spread
available for such purposes on each Transfer Date. See "-- Application of
Collections-Excess Spread." When such reductions of the Class A Investor
Interest and Class B Investor Interest have been fully reimbursed, reductions of
the Collateral Interest shall be reimbursed until reimbursed in full in a
similar manner.
"Reallocated Class B Principal Collections" for any Monthly Period
means collections of Principal Receivables allocable to the Class B Investor
Interest for the related Monthly Period in an amount not to exceed the amount
applied to fund the Class A Required Amount, if any; provided, however, that
such amount will not exceed the Class B Investor Interest after giving effect to
any Class B Investor Charge-Offs for the related Transfer Date.
"Reallocated Collateral Principal Collections" for any Monthly Period
means collections of Principal Receivables allocable to the Collateral Interest
for the related Monthly Period in an amount not to exceed the amount applied to
fund the Class A Required Amount and the Class B Required Amount, if any;
provided, however, that such amount will not exceed the Collateral Interest
after giving effect to any Collateral Charge-Offs for the related Transfer Date.
"Reallocated Principal Collections" for any Monthly Period means the
sum of (a) the Reallocated Class B Principal Collections for such Monthly
Period, if any, and (b) the Reallocated Collateral Principal Collections for
such Monthly Period, if any.
Application of Collections
Allocations. Except as otherwise provided below, the Servicer will
deposit into the Collection Account, no later than the second business day
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
Agreement and (a) (i) the Servicer provides to the Trustee a letter of credit or
other credit enhancement covering the risk of collection of the Servicer
acceptable to the Rating Agency and (ii) DAFC shall not have received a notice
from the Rating Agency that reliance on such letter of credit or other credit
enhancement would result in the lowering of such Rating Agency's then-existing
rating of any Series then outstanding 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 each
S-40
<PAGE>
Rating Agency rating any Series then outstanding, then the Servicer may make
such deposits and payments on the business day immediately prior to the
Distribution Date (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.
With respect to the Certificates and any Monthly Period, and
notwithstanding anything in the 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, (i) the Servicer will only
be required to deposit collections from the Collection Account into the Finance
Charge Account or the Principal Account up to the required amount to be
deposited into any such deposit account or, without duplication, distributed on
or prior to the related Distribution Date to Certificateholders or to the
Collateral Interest Holder 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.
Payment of Interest, Fees and Other Items. On each Transfer Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply the Class A
Available Funds, Class B Available Funds and Collateral Available Funds in the
Finance Charge Account in the following manner:
(a) On each Transfer Date, an amount equal to the Class A
Available Funds will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for the
related Distribution Date, plus the amount of any overdue Class A
Monthly Interest and Class A Additional Interest thereon, if any, will
be deposited into the Distribution Account for distribution to Class A
Certificateholders on such Distribution Date;
(ii) an amount equal to the Class A Servicing Fee for the
related Monthly Period, plus the amount of any overdue Class A
Servicing Fee, will be paid to the Servicer;
(iii) an amount equal to the Class A Investor Default
Amount, if any, for the related Monthly Period will be treated as a
portion of Available Investor Principal Collections and deposited into
the Principal Account for such Transfer Date; and
(iv) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as described under
"-Excess Spread."
(b) On each Transfer Date, an amount equal to the Class B
Available Funds will be distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for the
related Distribution Date, plus the amount of any overdue Class B
Monthly Interest and Class B Additional Interest thereon, if any, will
be deposited into the Distribution Account for distribution to Class B
Certificateholders on such Distribution Date;
(ii) an amount equal to the Class B Servicing Fee for the
related Monthly Period, plus the amount of any overdue Class B
Servicing Fee, will be paid to the Servicer; and
(iii) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as described under
"-Excess Spread."
(c) On each Transfer Date, an amount equal to the Collateral
Available Funds will be distributed in the following priority:
S-41
<PAGE>
(i) if neither DNB nor [the Trustee] is the Servicer, an
amount equal to the Collateral Interest Servicing Fee for the related
Monthly Period, plus the amount of any overdue Collateral Interest
Servicing Fee, will be paid to the Servicer; and
(ii) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as described under
"-Excess Spread."
"Class A Monthly Interest" means, with respect to any Distribution
Date, an amount equal to the product of (i) the Class A Certificate Rate for
related Interest Period, (ii) the actual number of days in such Interest Period
divided by 360 and (iii) the outstanding principal balance of the Class A
Certificates as of the related Record Date; provided, however, that with respect
to the first Distribution Date, Class A Monthly Interest will be equal to the
interest accrued on the initial outstanding principal balance of the Class A
Certificates at the applicable Class A Certificate Rate for the period from the
Closing Date through _____ , 1998 (calculated as though there were 30 days in
_____).
"Class B Monthly Interest" means, with respect to any Distribution
Date, the product of (i) the Class B Certificate Rate for the related Interest
Period, (ii) the actual number of days in such Interest Period divided by 360
and (iii) the outstanding principal balance of the Class B Certificates as of
the related Record Date; provided, however, with respect to the first
Distribution Date, Class B Monthly Interest will be equal to the interest
accrued on the initial outstanding principal balance of the Class B Certificates
at the applicable Class B Certificate Rate for the period from the Closing Date
through ____ , 1998 (calculated as though there were 30 days in _____).
"Collateral Available Funds" means, with respect to any Monthly
Period, an amount equal to the Collateral Floating Allocation of collections of
Finance Charge Receivables allocated to the Investor Interest with respect to
such Monthly Period (excluding the portion of collections of Finance Charge
Receivables attributable to Interchange that is allocable to Servicer
Interchange).
"Excess Spread" means, with respect to any Transfer Date, an amount
equal to the sum of the amounts described in clause (a) (iv), clause (b) (iii)
and clause (c) (ii) above. To the extent such amounts are insufficient to make
the distributions required by subparagraphs (a) through (j) below under "-Excess
Spread," Excess Spread shall also be deemed to include any Excess Finance Charge
Collections allocable to other Series available to Series 1998-__ in accordance
with the Agreement. See "--Shared Excess Finance Charge Collections."
Excess Spread. On each Transfer Date, the Trustee, acting pursuant to
the Servicer's instructions, will apply Excess Spread with respect to the
related Monthly Period, to make the following distributions in the following
priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to such Transfer Date will be used to fund the Class A Required
Amount; provided, that in the event the Class A Required Amount for
such Transfer Date exceeds the amount of Excess Spread, such Excess
Spread shall be applied first to pay amounts due with respect to such
Transfer Date pursuant to clause (a) (i) above under "--Payment of
Interest, Fees and Other Items," second to pay amounts due with respect
to such Transfer Date pursuant to clause (a) (ii) above under "--
Payment of Interest, Fees and Other Items" and third to pay amounts due
with respect to such Transfer Date pursuant to clause (a) (iii) above
under "--Payment of Interest, Fees and Other Items;"
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed (after giving
effect to the allocation on such Transfer Date of certain other amounts
applied for that purpose) will be deposited into the Principal Account
and treated as a portion of Available Investor Principal Collections
for such Transfer Date as described under "--Payments of Principal"
below;
(c) an amount equal to the Class B Required Amount, if any, with
respect to such Transfer Date will be used to fund the Class B Required
Amount and will be applied first to pay amounts due with respect to
such Transfer Date pursuant to clause (b) (i) above under "--Payment of
Interest, Fees and Other Items," second to pay amounts due with respect
to such Transfer Date pursuant to clause (b) (ii) above under
S-42
<PAGE>
"--Payment of Interest, Fees and Other Items" and third, the amount
remaining, up to the Class B Investor Default Amount, will be deposited
into the Principal Account and treated as a portion of Available
Investor Principal Collections for such Transfer Date as described
under "--Payments of Principal" below;
(d) an amount equal to the aggregate amount by which the Class B
Investor Interest has been reduced below the initial Class B Investor
Interest for reasons other than the payment of principal to the Class B
Certificateholders (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will be deposited
into the Principal Account and treated as a portion of Available
Investor Principal Collections for such Transfer Date as described
under "--Payments of Principal" below;
(e) an amount equal to the Collateral Monthly Interest for such
Transfer Date, plus the amount of any Collateral Monthly Interest
previously due but not distributed to the Collateral Interest Holder on
a prior Transfer Date, will be distributed to the Collateral Interest
Holder for distribution in accordance with the Loan Agreement;
(f) if DNB or [the Trustee] is the Servicer, an amount equal to
the Collateral Interest Servicing Fee for the related Monthly Period,
plus the amount of any overdue Collateral Interest Servicing Fee, will
be paid to the Servicer;
(g) an amount equal to the aggregate Collateral Default Amount,
if any, for such Transfer Date will be deposited into the Principal
Account and treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under "--Payments of
Principal" below;
(h) an amount equal to the aggregate amount by which the
Collateral Interest has been reduced below the Required Collateral
Interest for reasons other than the payment of principal to the
Collateral Interest Holder (but not in excess of the aggregate amount
of such reductions which have not been previously reimbursed) will be
deposited into the Principal Account and treated as a portion of
Available Investor Principal Collections for such Transfer Date as
described under "--Payments of Principal" below;
(i) on each Transfer Date from and after the Reserve Account
Funding Date, but prior to the date on which the Reserve Account
terminates as described under "--Reserve Account," an amount up to the
excess, if any, of the Required Reserve Account Amount over the
Available Reserve Account Amount will be deposited into the Reserve
Account;
(j) an amount equal to the amounts determined to be payable
pursuant to the Loan Agreement shall be paid to the Collateral Interest
Holder; and
(k) the balance, if any, after giving effect to the payments
made pursuant to subparagraphs (a) through (j) above, will constitute
Excess Finance Charge Collections to be applied with respect to other
Series in accordance with the Agreement.
"Collateral Monthly Interest" with respect to any Transfer Date will
equal the product of (a) an amount equal to LIBOR plus ____% per annum, or such
lesser amount as may be designated in the Loan Agreement (the "Collateral
Rate"), (b) the actual number of days in the related Interest Period divided by
360 and (c) the Collateral Interest as of the related Record Date or, with
respect to the first Transfer Date, the Initial Collateral Interest.
The figure on the next page demonstrates the application of collections
of Finance Charge Receivables allocated to Series 1998-_. The figure is a
simplified demonstration of certain allocation and payment provisions and is
qualified by the full descriptions of these provisions in this prospectus
supplement and the attached prospectus.
S-43
<PAGE>
Allocations of Collections of Finance Charge Receivables
<TABLE>
<CAPTION>
---------------------------------------------
Collections of Finance Charge
Receivables Allocated to Your Series
---------------------------------------------
<S> <C> <C> <C>
- ---------- -------------------- -------------------- -----------------------
Step 1 Class A Investor Class B Investor Collateral Interest
- ---------- Interest Interest
-------------------- -------------------- -----------------------
-------------------------------
- ---------- 1. Class A Interest Payment ------------------------------- --------------------------------
Step 2 2. Class A Servicing Fee 1. Class B Interest Payment 1. Collateral Interest
- ---------- 3. Class A Default Amount 2. Class B Servicing Fee Servicing Fee
------------------------------- ------------------------------- --------------------------------
- ---------- ---------------------- --------------------------------
Step 3 Excess Collections Excess Finance Charge
- ---------- of Finance Charges Collections from Other
Series
---------------------- --------------------------------
------------------------------------------------------
1. Class A Interest Payment
2. Class A Servicing Fee
3. Class A Default Amount
4. Reimburse Class A Investor Interest
5. Class B Interest Payment
6. Class B Servicing Fee
7. Class B Default Amount
8. Reimburse Class B Investor Interest
9. Collateral Interest and Other Items as
Described Above in the Accompanying Text
10. Other Series of Certificates
------------------------------------------------------
</TABLE>
Payments of Principal. On each Transfer Date, the Trustee, acting
pursuant to the Servicer's instructions, will distribute Available Investor
Principal Collections (see "--Principal Payments" above) on deposit in the
Principal Account in the following manner:
(a) on each Transfer Date with respect to the Revolving Period,
all such Available Investor Principal Collections will be distributed
or deposited in the following priority:
(i) an amount equal to the Collateral Monthly Principal will
be paid to the Collateral Interest Holder in accordance with the Loan
Agreement; and
(ii) the balance will be treated as Shared Principal
Collections and applied as described under "Description of the
Certificates-Shared Principal Collections" herein and in the attached
prospectus;
S-44
<PAGE>
(b) on each Transfer Date with respect to the Controlled
Accumulation Period or the Rapid Amortization Period, all such
Available Investor Principal Collections will be distributed or
deposited in the following priority:
(i) an amount equal to Class A Monthly Principal will be (i)
during the Controlled Accumulation Period, deposited in the Principal
Funding Account (up to the Controlled Deposit Amount for such Transfer
Date) or (ii) during the Rapid Amortization Period, distributed to the
Class A Certificateholders; and
(ii) for each Transfer Date after the Class A Investor
Interest has been paid in full (after taking into account payments to
be made on the related Distribution Date), an amount equal to the Class
B Monthly Principal for such Transfer Date will be distributed to the
Class B Certificateholders;
(c) on each Transfer Date with respect to the Controlled
Accumulation Period and the Rapid Amortization Period in which a
reduction in the Required Collateral Interest has occurred, Available
Investor Principal Collections not applied to Class A Monthly Principal
or Class B Monthly Principal will be applied to reduce the Collateral
Interest to the Required Collateral Interest; and
(d) on each Transfer Date with respect to the Controlled
Accumulation Period and the Rapid Amortization Period, the balance of
Available Investor Principal Collections not applied pursuant to (b)
and (c) above, if any, will be treated as Shared Principal Collections
and applied as described under "Description of the Certificates-Shared
Principal Collections" herein and in the attached prospectus.
The final distribution of principal and interest on the Certificates
will be made no later than the ______ Distribution Date in the manner provided
in "Description of the Certificates-Final Payment of Principal; Termination" in
the attached prospectus. Series 1998-_ will terminate on the earliest to occur
of (a) the Distribution Date on which the Investor Interest is paid in full, (b)
the _________ Distribution Date or (c) the Trust Termination Date (such earliest
to occur, the "Series 1998-_ Termination Date"). After the Series 1998-_
Termination Date, the Trust will have no further obligation to pay principal or
interest on the Certificates.
"Class A Monthly Principal" means, with respect to any Transfer Date
relating to the Controlled Accumulation Period or the Rapid Amortization Period,
prior to the payment in full of the Class A Investor Interest, an amount equal
to the least of (i) the Available Investor Principal Collections on deposit in
the Principal Account with respect to such Transfer Date, (ii) for each Transfer
Date with respect to the Controlled Accumulation Period, prior to the payment in
full of the Class A Investor Interest, and on or prior to the Class A Scheduled
Payment Date, the applicable Controlled Deposit Amount for such Transfer Date
and (iii) the Class A Adjusted Investor Interest prior to any deposits on such
Transfer Date.
"Class B Monthly Principal" means, with respect to any Transfer Date
relating to the Controlled Accumulation Period or the Rapid Amortization Period,
after the Class A Certificates have been paid in full (after taking into account
payments to be made on the related Distribution Date), an amount equal to the
lesser of (i) the Available Investor Principal Collections on deposit in the
Principal Account with respect to such Transfer Date (minus the portion of such
Available Investor Principal Collections applied to Class A Monthly Principal on
such Transfer Date) and (ii) the Class B Investor Interest for such Transfer
Date.
"Collateral Monthly Principal" means (a) with respect to any Transfer
Date relating to the Revolving Period following any reduction of the Required
Collateral Interest pursuant to clause (3) of the proviso in the definition
thereof, an amount equal to the lesser of (i) the excess, if any, of the
Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and Reallocated Principal Collections on such Transfer Date and
after giving effect to any adjustments thereto for the benefit of the Class A
Certificateholders and the Class B Certificateholders on such Transfer Date)
over the Required Collateral Interest on such Transfer Date, and (ii) the
Available Investor Principal Collections on such Transfer Date or (b) with
respect to any Transfer Date relating to the Controlled Accumulation Period or
Rapid
S-45
<PAGE>
Amortization Period, an amount equal to the lesser of (i) the excess, if
any, of the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and Reallocated Principal Collections on such Transfer
Date and after giving effect to any adjustments thereto for the benefit of the
Class A Certificateholders and the Class B Certificateholders on such Transfer
Date) over the Required Collateral Interest on such Transfer Date, and (ii) the
excess, if any, of (A) the Available Investor Principal Collections on such
Transfer Date over (B) the sum of the Class A Monthly Principal and the Class B
Monthly Principal for such Transfer Date.
"Controlled Accumulation Amount" means (a) for any Transfer Date with
respect to the Controlled Accumulation Period, prior to the payment in full of
the Class A Investor Interest, $ ; provided, however, that if the commencement
of the Controlled Accumulation Period is delayed as described above under
"-Postponement of Controlled Accumulation Period," the Controlled Accumulation
Amount may be higher than the amount stated above for each Transfer Date with
respect to the Controlled Accumulation Period and will be determined by the
Servicer in accordance with the Agreement based on the principal payment rates
for the Accounts and on the investor interests of other Series (other than
certain excluded Series) which are scheduled to be in their revolving periods
and then scheduled to create Shared Principal Collections during the Controlled
Accumulation Period and (b) for any Transfer Date with respect to the Controlled
Accumulation Period after the payment in full of the Class A Investor Interest,
an amount equal to the Class B Investor Interest on such Transfer Date.
"Accumulation Shortfall" means (a) on the first Transfer Date with
respect to the Controlled Accumulation Period, the excess, if any, of the
Controlled Accumulation Amount for such Transfer Date over the amount
distributed from the Principal Account as Class A Monthly Principal for such
Transfer Date and (b) on each subsequent Transfer Date with respect to the
Controlled Accumulation Period, the excess, if any, of the applicable Controlled
Accumulation Amount for such subsequent Transfer Date plus any Accumulation
Shortfall for the prior Transfer Date over the amount distributed from the
Principal Account as Class A Monthly Principal for such subsequent Transfer
Date.
The figure on the next page demonstrates the manner in which collections of
Principal Receivables are allocated and applied to Series 1998-_. The figure is
a simplified demonstration of certain allocation and payment provisions and is
qualified by the full descriptions of these provisions in this prospectus
supplement and the prospectus.
S-46
<PAGE>
Allocations of Collections of Principal Receivables
<TABLE>
<CAPTION>
---------------------------------------------
Collections of Principal Receivables
Allocated to Your Series
---------------------------------------------
<S> <C> <C> <C>
- ---------- -------------------- -------------------- -----------------------
Step 1 Class A Investor Class B Investor Collateral Interest
- ---------- Interest Interest
-------------------- -------------------- -----------------------
------------------------------- --------------------------------
- ---------- Reallocation to unpaid: Reallocation to unpaid:
Step 2 1. Class A Interest Payment 1. Class A Interest Payment
- ---------- 2. Class A Servicing Fee 2. Class A Servicing Fee
3. Class A Default Amount 3. Class A Default Amount
------------------------------- 4. Class B Interest Payment
5. Class B Servicing Fee
6. Class B Default Amount
--------------------------------
- ---------- ------------------------------- --------------------------------
Step 3 Available Investor Principal Shared Principal Collections
- ---------- Collections from Other Series
------------------------------- --------------------------------
------------------------------------------------------
During accumulation or amortization period
1. Class A Principal Payment or Deposit
2. Class B Principal Payment
3. Collateral Interest Principal Payment
------------------------------------------------------
- ---------- ------------------------------------------------------
Step 4 Shared Principal Collections to
- ---------- Other Series if necessary
------------------------------------------------------
-------------------
DAFC
-------------------
</TABLE>
S-47
<PAGE>
Shared Excess Finance Charge Collections
Any Series may be included in a Group of Series ("Group I") which may be
issued by the Trust from time to time. There are currently no series included in
Group I. Group I is currently the only Group in the Trust. Each Series in Group
I will be entitled to share Excess Finance Charge Collections in the manner, and
to the extent, described below with each other Series, if any, in Group I. The
Series Supplement with respect to each Series will specify whether such Series
will be included in a Group. Collections of Finance Charge Receivables and
certain other amounts allocable to the Investor Interest of any Series that is
included in Group I in excess of the amounts necessary to make required payments
with respect to such Series (including payments to any related Credit
Enhancement Providers) that are payable out of collections of Finance Charge
Receivables (any such excess, the "Excess Finance Charge Collections") will be
applied to cover any shortfalls with respect to amounts payable from collections
of Finance Charge Receivables allocable to any other Series included in Group I,
pro rata based upon the amount of the shortfall, if any, with respect to each
other Series in Group I. In all cases, any Excess Finance Charge Collections
remaining after covering shortfalls with respect to all outstanding Series in a
Group will be paid to the holder of the Transferor Certificate. While any Series
offered hereby may be included in a Group, there can be no assurance that (a)
any other Series will be included in such Group or (b) there will be any Excess
Finance Charge Collections with respect to such Group for any Monthly Period.
Excess Finance Charge Collections permit coverage of shortfalls with respect to
amounts payable from collections of Finance Charge Receivables allocable to
Series 1998-__ using Excess Finance Charge Collections from other Series which
would otherwise be paid to DAFC to cover shortfalls in amounts payable from
Excess Spread as described above under "--Application of Collections-Excess
Spread." While DAFC believes that, based upon applicable rules and regulations
as currently in effect, the sharing of Excess Finance Charge Collections among
Series in a Group will not have adverse regulatory implications for it, there
can be no assurance that this will continue to be true in the future.
Shared Principal Collections
Collections of Principal Receivables for any Monthly Period allocated to
the Investor Interest will first be used to cover, with respect to any Monthly
Period during the Controlled Accumulation Period, deposits of the applicable
Controlled Deposit Amount to the Principal Funding Account or the Distribution
Account, and during the Rapid Amortization Period, payments to the
Certificateholders and then under certain circumstances payments to the
Collateral Interest Holder. The Servicer will determine the amount of
collections of Principal Receivables for any Monthly Period allocated to the
Investor Interest remaining after covering required payments to the
Certificateholders and any similar amount remaining for any other Series
("Shared Principal Collections"). The Servicer will allocate the Shared
Principal Collections to cover any scheduled or permitted principal
distributions to certificateholders and deposits to principal funding accounts,
if any, for any Series entitled thereto which have not been covered out of the
collections of Principal Receivables allocable to such Series and certain other
amounts for such Series ("Principal Shortfalls"). Shared Principal Collections
will not be used to cover investor charge-offs for any Series. If Principal
Shortfalls exceed Shared Principal Collections for any Monthly Period, Shared
Principal Collections will be allocated pro rata among the applicable Series
based on the relative amounts of Principal Shortfalls. To the extent that Shared
Principal Collections exceed Principal Shortfalls, the balance will be paid to
the holder of the Transferor Certificate or, under certain circumstances,
deposited into the Excess Funding Account.
Required Collateral Interest
The "Required Collateral Interest" with respect to any Transfer Date means
(i) initially $________ (the "Initial Collateral Interest") and (ii) thereafter
on each Transfer Date an amount equal to ____% of the sum of the Class A
Adjusted Investor Interest, the Class B Investor Interest and the Collateral
Interest on such Transfer Date, after taking into account deposits into the
Principal Funding Account on such Transfer Date and payments to be made on the
related Distribution Date, and the Collateral Interest on the prior Transfer
Date after any adjustments made on such Transfer Date, but not less than
$________; provided, however, (1) that if certain reductions in the Collateral
Interest are made or if a Pay Out Event occurs, the Required Collateral Interest
for such Transfer Date shall equal the Required Collateral Interest for the
Transfer Date immediately preceding the occurrence of such reduction or Pay Out
Event, (2) in no event
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shall the Required Collateral Interest exceed the unpaid principal amount of the
Certificates as of the last day of the Monthly Period preceding such Transfer
Date after taking into account payments to be made on the related Distribution
Date and (3) the Required Collateral Interest may be reduced to a lesser amount
at any time if the Rating Agency Condition is satisfied.
"Rating Agency Condition" means the notification in writing by each Rating
Agency that a proposed action will not result in such Rating Agency reducing or
withdrawing its then-existing rating of the investor certificates of any
outstanding Series or class with respect to which it is a Rating Agency.
With respect to any Transfer Date, if the Collateral Interest is less than
the Required Collateral Interest, certain Excess Spread, if available, will be
allocated to increase the Collateral Interest to the extent of such shortfall.
Any of such Excess Spread not required to be so allocated or deposited into the
Reserve Account with respect to any Transfer Date will be applied in accordance
with the Loan Agreement. See "-- Application of Collections-Excess Spread."
Adjustment Payments
If on any business day the Servicer adjusts the amount of any Principal
Receivable due to a Dilution, then the amount of the Transferor Interest in the
Trust will be reduced, on a net basis, by the amount of such adjustment on such
business day. In the event the Transferor Interest would be reduced below the
Minimum Transferor Interest, the Transferor will be required to pay to the Trust
the amount by which the Transferor Interest would be reduced below the Minimum
Transferor Interest (an "Adjustment Payment"). Adjustment Payments made by the
transferor will be treated as Excess Spread. If the Transferor fails to pay such
amount when due, Excess Spread and Reallocated Principal Collections with
respect to Series 1998- may be applied for such purpose. To the extent such
amounts are insufficient to cover the portion of the unpaid Adjust Payments
allocated to Series 1998-, there will be an Investor charge-off as described
below.
Defaulted Receivables; Dilutions; Investor Charge-Offs
On or before each Transfer Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (a) the Floating Investor
Percentage with respect to such Monthly Period and (b) the sum of (x) the
aggregate amount of Receivables in Defaulted Accounts (the "Default Amount")
for such Monthly Period and (y) the aggregate amount of unpaid Adjustment
Payments for such Monthly Period. A portion of the Investor Default Amount will
be allocated to the Class A Certificateholders (the "Class A Investor Default
Amount") on each Transfer Date in an amount equal to the product of the Class A
Floating Allocation applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Class B Certificateholders (the
"Class B Investor Default Amount") on each Transfer Date in an amount equal to
the product of the Class B Floating Allocation applicable during the related
Monthly Period and the Investor Default Amount for such Monthly Period. A
portion of the Investor Default Amount will be allocated to the Collateral
Interest Holder (the "Collateral Default Amount") on each Transfer Date in an
amount equal to the product of the Collateral Floating Allocation applicable
during the related Monthly Period and the Investor Default Amount for such
Monthly Period.
On each Transfer Date, if the Class A Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Principal
Collections available to fund such amount with respect to the Monthly Period
immediately preceding such Transfer Date, the Collateral Interest (after giving
effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date) will be reduced by the amount of
such excess, but not more than the lesser of the Class A Investor Default Amount
and the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and any Reallocated Principal Collections on such
Transfer Date) for such Transfer Date. In the event that such reduction would
cause the Collateral Interest to be a negative number, the Collateral Interest
will be reduced to zero, and the Class B Investor Interest (after giving effect
to reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections on such Transfer Date) will be reduced by the amount by
which the Collateral Interest would have been reduced below zero. In the event
that such reduction
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would cause the Class B Investor Interest to be a negative number, the Class B
Investor Interest will be reduced to zero, and the Class A Investor Interest
will be reduced by the amount by which the Class B Investor Interest would have
been reduced below zero, but not more than the Class A Investor Default Amount
for such Transfer Date (a "Class A Investor Charge-Off"), which will have the
effect of slowing or reducing the return of principal and interest to the Class
A Certificateholders. If the Class A Investor Interest has been reduced by the
amount of any Class A Investor Charge-Offs, it will be reimbursed on any
Transfer Date (but not by an amount in excess of the aggregate Class A Investor
Charge-Offs) by the amount of Excess Spread allocated and available for such
purpose as described under "--Application of Collections-Excess Spread."
On each Transfer Date, if the Class B Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Collateral
Principal Collections which are allocated and available to fund such amount with
respect to the Monthly Period preceding such Transfer Date, the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Principal Collections on such Transfer Date and after giving
effect to any adjustments with respect thereto as described in the preceding
paragraph) will be reduced by the amount of such excess but not more than the
lesser of the Class B Investor Default Amount and the Collateral Interest (after
giving effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date and after giving effect to any
adjustments with respect thereto as described in the preceding paragraph) for
such Transfer Date. In the event that such reduction would cause the Collateral
Interest to be a negative number, the Collateral Interest will be reduced to
zero and the Class B Investor Interest will be reduced by the amount by which
the Collateral Interest would have been reduced below zero, but not more than
the Class B Investor Default Amount for such Transfer Date (a "Class B Investor
Charge-Off"). The Class B Investor Interest will also be reduced by the amount
of Reallocated Class B Principal Collections in excess of the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Collateral Principal Collections on such Transfer Date) and the
amount of any portion of the Class B Investor Interest allocated to the Class A
Certificates to avoid a reduction in the Class A Investor Interest. The Class B
Investor Interest will thereafter be reimbursed (but not in excess of the unpaid
principal balance of the Class B Certificates) on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "-- Application of Collections -- Excess Spread."
On each Transfer Date, if the Collateral Default Amount for such Transfer
Date exceeds the amount of Excess Spread which is allocated and available to
fund such amount as described under "-- Application of Collections -- Excess
Spread," the Collateral Interest will be reduced by the amount of such excess
but not more than the lesser of the Collateral Default Amount and the Collateral
Interest for such Transfer Date (a "Collateral Charge-Off"). The Collateral
Interest will also be reduced by the amount of Reallocated Principal Collections
and the amount of any portion of the Collateral Interest allocated to the Class
A Certificates to avoid a reduction in the Class A Investor Interest or to the
Class B Certificates to avoid a reduction in the Class B Investor Interest. The
Collateral Interest will thereafter be reimbursed on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "-- Application of Collections -- Excess Spread."
Servicer Guarantee
The obligations of the Servicer under the Agreement will be guaranteed (the
"Servicer Guarantee") by Dillard's pursuant to a guarantee agreement in favor of
[the Trustee].
Principal Funding Account
Pursuant to the Series 1998-__ Supplement, the Trustee at the direction of
the Servicer will establish and maintain an Eligible Deposit Account held for
the benefit of the Certificateholders (the "Principal Funding Account"). During
the Controlled Accumulation Period, the Trustee at the direction of the Servicer
will transfer collections in respect of Principal Receivables (other than
Reallocated Principal Collections) and Shared Principal Collections from other
Series, if any, allocated to Series 1998-__ from the Principal Account to the
Principal Funding Account as described under "-Application of Collections." Such
collections will be retained in the Principal Funding Account and ultimately
used to
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pay the principal of the Class A Certificates on the Class A Scheduled Payment
Date or the first Distribution Date with respect to the Rapid Amortization
Period, whichever occurs earlier.
Funds on deposit in the Principal Funding Account will be invested to the
following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment losses and
expenses) on funds on deposit in the Principal Funding Account (the "Principal
Funding Investment Proceeds") will be applied on each Transfer Date as Class A
Available Funds. If, for any Transfer Date, the Principal Funding Investment
Proceeds are less than an amount equal to the product of (a) (i) a fraction, the
numerator of which is the actual number of days in the related Interest Period
and the denominator of which is 360, times (ii) the Class A Certificate Rate in
effect with respect to such Interest Period and (b) the Principal Funding
Account Balance as of the Record Date preceding such Transfer Date (the "Class
A Covered Amount"), the amount of such deficiency (the "Class A Principal
Funding Investment Shortfall") shall be withdrawn, to the extent available, from
the Reserve Account and deposited in the Finance Charge Account and included in
collections of Finance Charge Receivables to be applied to the payment of Class
A Monthly Interest.
[Reserve Account
Pursuant to the Series 1998-__ Supplement, the Trustee will establish and
maintain an Eligible Deposit Account held for the benefit of the
Certificateholders (the "Reserve Account"). The Reserve Account is established
to assist with the subsequent distribution of interest on the Certificates
during the Controlled Accumulation Period. On each Transfer Date from and after
the Reserve Account Funding Date, but prior to the termination of the Reserve
Account, the Trustee, acting pursuant to the Servicer's instructions, will apply
Excess Spread allocated to the Certificates (to the extent described above under
"-Application of Collections-Excess Spread") to increase the amount on deposit
in the Reserve Account (to the extent such amount is less than the Required
Reserve Account Amount). The "Reserve Account Funding Date" will be the
Transfer Date with respect to the Monthly Period which commences no later than
three months prior to the commencement of the Controlled Accumulation Period, or
such earlier date as the Servicer may determine. The "Required Reserve Account
Amount" for any Transfer Date on or after the Reserve Account Funding Date will
be equal to (a) .% of the outstanding principal balance of the Class A
Certificates or (b) any other amount designated by DAFC; provided, that if such
designation is of a lesser amount, DAFC shall have provided the Servicer, the
Collateral Interest Holder and the Trustee with evidence that the Rating Agency
Condition has been satisfied and DAFC shall have delivered to the Trustee a
certificate of an authorized officer to the effect that, based on the facts
known to such officer at such time, in the reasonable belief of DAFC, such
designation will not cause a Pay Out Event or an event that, after the giving of
notice or the lapse of time, would cause a Pay Out Event to occur with respect
to Series 1998-__. On each Transfer Date, after giving effect to any deposit to
be made to, and any withdrawal to be made from, the Reserve Account on such
Transfer Date, the Trustee will withdraw from the Reserve Account an amount
equal to the excess, if any, of the amount on deposit in the Reserve Account
over the Required Reserve Account Amount and distribute such excess to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement.
Provided that the Reserve Account has not terminated as described below,
all amounts on deposit in the Reserve Account on any Transfer Date (after giving
effect to any deposits to, or withdrawals from, the Reserve Account to be made
on such Transfer Date) will be invested to the following Transfer Date by the
Trustee at the direction of the Servicer in Permitted Investments. The interest
and other investment income (net of investment expenses and losses) earned on
such investments will be retained in the Reserve Account (to the extent the
amount on deposit is less than the Required Reserve Account Amount) or deposited
in the Finance Charge Account and treated as Class A Available Funds.
On or before each Transfer Date with respect to the Controlled Accumulation
Period and on the first Transfer Date with respect to the Rapid Amortization
Period, a withdrawal will be made from the Reserve Account, and the amount of
such withdrawal will be deposited in the Finance Charge Account and included in
collections of Finance Charge Receivables to be applied to the payment of the
Class A Monthly Interest for such Transfer Date in an amount equal to the lesser
of (a) the Available Reserve Account Amount with respect to such Transfer Date
and (b) the Class A Principal
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Funding Investment Shortfall with respect to such Transfer Date; provided, that
the amount of such withdrawal shall be reduced to the extent that funds
otherwise would be available to be deposited in the Reserve Account on such
Transfer Date. On each Transfer Date, the amount available to be withdrawn from
the Reserve Account (the "Available Reserve Account Amount") will be equal to
the lesser of the amount on deposit in the Reserve Account (before giving effect
to any deposit to be made to the Reserve Account on such Transfer Date) and the
Required Reserve Account Amount for such Transfer Date.
The Reserve Account will be terminated upon the earlier to occur of (a) the
termination of the Trust pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (i) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled Payment Date. Upon the termination of the Reserve Account,
all amounts on deposit therein (after giving effect to any withdrawal from the
Reserve Account on such date as described above) will be distributed to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement. Any amounts withdrawn from the Reserve Account and distributed
to the Collateral Interest Holder as described above will not be available for
distribution to the Certificateholders.]
Issuance of Additional Certificates
The Series 1998-__ Supplement provides that, from time to time during the
Revolving Period, DAFC may, subject to certain conditions described below, cause
the Trustee to issue additional Certificates ("Additional Certificates") and to
increase the size of the Collateral Interest (each such issuance, an
"Additional Issuance"). When issued, the Additional Certificates of each Class
will be identical in all respects to the other outstanding Certificates of that
Class and will be equally and ratably entitled to the benefits of the Agreement
without preference, priority or distinction.
In connection with each Additional Issuance, a pro rata principal amount of
each Class of Certificates will be issued and there will be a pro rata increase
in the Collateral Interest.
As of the date of any Additional Issuance, the Collateral Interest, the
Controlled Accumulation Amount and the Investor Interest for each Class of this
Series will be increased proportionately to reflect the aggregate face amount of
the Additional Certificates.
Additional Certificates may be issued only upon the satisfaction of certain
conditions provided in the Series 1998-__ Supplement, including the following:
(a) on or before the fifth Business Day immediately preceding
the date on which the Additional Certificates are to be issued, DAFC will
have given the Trustee, the Servicer and the Rating Agencies notice of such
issuance and the date upon which it is to occur, (b) after giving effect to
the Additional Issuance, the total amount of Principal Receivables will be
greater than or equal to the Minimum Aggregate Principal Receivables, (c)
DAFC shall have delivered evidence of the proportional increase in the
Collateral Interest to the Trustee and the Rating Agencies, (d) the Rating
Agency Condition shall have been satisfied with respect to the Additional
Issuance, (e) DAFC shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of DAFC,
such Additional Issuance will not have a material adverse effect on any
outstanding Class of this Series, (f) as of the date of the Additional
Issuance there shall be no Investor Charge-Offs with respect to any Class
of this Series and (g) DAFC shall have delivered to the Trustee a Tax
Opinion with respect to the Additional Issuance. There are no restrictions
on the timing or amount of any Additional Issuance other than the foregoing
conditions.
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Companion Series
The Series 1998-__ Certificates may be paired with one or more other Series
(each a "Companion Series"). Each Companion Series either will be prefunded
with an initial deposit to a prefunding account in an amount up to the initial
principal balance of such Companion Series, funded primarily from the proceeds
for the sale of such Companion Series, or will have a variable principal amount.
Any such prefunding account will be held for the benefit of such Companion
Series and not for the benefit of Certificateholders. As principal is paid with
respect to the Series 1998-__ Certificates, either (i) in the case of a
prefunded Companion Series, an equal amount of funds on deposit in any
prefunding account for such prefunded Companion Series will be released (which
funds will be distributed to DAFC) or (ii) in the case of a Companion Series
having a variable principal amount, an interest in such variable Companion
Series in an equal or lesser amount may be sold by the Trust (and the proceeds
thereof will be distributed to DAFC) and, in either case, the invested amount in
the Trust of such Companion Series will increase by up to corresponding amount.
The issuance of a Companion Series will be subject to the conditions described
under "Description of the Certificates-Exchanges" in the attached prospectus.
There can be no assurance, however, that the terms of any Companion Series might
not have an impact on the timing or amount of payments received by a Series
1998-__ Certificateholder. In particular, the denominator of the Fixed Investor
Percentage may be increased upon the occurrence of a Pay Out Event with respect
to a Companion Series resulting in a possible reduction of the percentage of
collections of Principal Receivables allocated to Series 1998-__ if such event
allowed the payment of principal at such time to the Companion Series and
required reliance by Series 1998-__ on clause (y) of the denominator of the
Fixed Investor Percentage for Series 1998-__. See "Maturity Considerations,"
"--Allocation Percentages," "Master Trust Considerations" and "Maturity
Assumptions."
Pay Out Events
As described above, the Revolving Period will continue through the close of
business on the last day of the ____ Monthly Period (unless such date is
postponed as described under "-Postponement of Controlled Accumulation Period"),
unless a Pay Out Event occurs prior to such date. A "Pay Out Event" refers to
any of the following events:
(a) failure on the part of DAFC (i) to make any payment or
deposit on the date required under the Agreement (or within the applicable
grace period which shall not exceed five days) or (ii) to observe or
perform in any material respect any other covenants or agreements of DAFC
set forth in the Agreement or the Series 1998-__ Supplement, which failure
has a material adverse effect on the Certificateholders (which
determination shall be made without regard to the existence of the
Collateral Interest) and which continues unremedied for a period of 60 days
after written notice and continues to materially and adversely affect the
interests of the Certificateholders (which determination shall be made
without regard to the existence of the Collateral Interest) for such
period;
(b) any representation or warranty made by DAFC in the
Agreement or the Series 1998-__ Supplement, or any information required to
be given by DAFC to the Trustee to identify the Accounts proves to have
been incorrect in any material respect when made and which continues to be
incorrect in any material respect for a period of 60 days after written
notice and as a result of which the interests of the Certificateholders are
materially and adversely affected (which determination shall be made
without regard to the existence of the Collateral Interest) and continue to
be materially and adversely affected for such period; provided, however,
that a Pay Out Event pursuant to this clause (b) shall not be deemed to
occur thereunder if DAFC has accepted reassignment of the related
Receivable or all such Receivables, if applicable, during such period (or
such longer period as the Trustee may specify) in accordance with the
provisions of the Agreement;
(c) any reduction of the average of the Portfolio Yields for
any three consecutive Monthly Periods to a rate which is less than the
average of the Base Rates for such period;
(d) a failure by DAFC to convey Receivables arising under
Additional Accounts, or Participations, to the Trust when required by the
Agreement;
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(e) any Servicer Default occurs which would have a material
adverse effect on the Certificateholders;
(f) insufficient funds in the Distribution Account to pay the
Class A Investor Interest in full on the Class A Scheduled Payment Date or
the Class B Investor Interest in full on the Class B Scheduled Payment
Date;
(g) certain events of bankruptcy, insolvency, conservatorship
or receivership relating to DAFC;
(h) DAFC becomes unable for any reason to transfer Receivables
to the Trust in accordance with the provisions of the Agreement; or
(i) the Trust is subject to regulation as an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
In the case of any event described in clause (a), (b) or (e) above, a Pay
Out Event will be deemed to have occurred with respect to the Certificates only
if, after any applicable grace period, either the Trustee or Certificateholders
and the Collateral Interest Holder evidencing undivided interests aggregating
more than 50% of the Investor Interest, by written notice to DAFC and the
Servicer (and to the Trustee if given by the Certificateholders) declare that a
Pay Out Event has occurred with respect to the Certificates as of the date of
such notice. In the case of any event described in clause (g), (h) or (i), a Pay
Out Event with respect to all Series then outstanding, and in the case of any
event described in clause (c), (d) or (f), a Pay Out Event with respect to only
the Certificates, will be deemed to have occurred without any notice or other
action on the part of the Trustee, the Certificateholders, the Collateral
Interest Holder or all certificateholders, as appropriate, immediately upon the
occurrence of such event. On the date on which a Pay Out Event is deemed to have
occurred, the Rapid Amortization Period will commence. In such event,
distributions of principal to the Certificateholders will begin on the first
Distribution Date following the month in which such Pay Out Event occurred. If,
because of the occurrence of a Pay Out Event, the Rapid Amortization Period
begins earlier than the close of business on the last day of the ___ Monthly
Period Certificateholders will begin receiving distributions of principal
earlier than they otherwise would have, which may shorten the average life of
the Certificates.
See "Description of the Certificates--Pay Out Events" in the attached
prospectus for an additional discussion of the consequences of an insolvency,
conservatorship or receivership of DAFC.
Servicing Compensation and Payment of Expenses
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, Interchange or other amounts as
specified in the related prospectus supplement. The share of the Servicing Fee
allocable to the Investor Interest with respect to any Transfer Date (the
"Investor Servicing Fee") shall be equal to [ ] of the product of (a) .% and (b)
the Adjusted Investor Interest as of the last day of the Monthly Period
preceding such Transfer Date; provided, however, with respect to the first
Transfer Date, the Investor Servicing Fee shall be equal to the product of (i) a
fraction the numerator of which is the number of days from and including the
Closing Date to and including the last day of the _________ Monthly Period and
the denominator of which is 360, (ii) .% and (iii) the Investor Interest on the
Closing Date. In the case of any insufficiency of Servicer Interchange on
deposit in the Finance Charge Account, a portion of the Investor Servicing Fee
with respect to such Monthly Period will not be paid to the extent of such
insufficiency and in no event shall the Trust, the Trustee, the
Certificateholders or the Collateral Interest Holder be liable for the share of
the Servicing Fee to be paid out of Servicer Interchange.
The share of the Investor Servicing Fee allocable to the Class A
Certificateholders with respect to any Transfer Date (the "Class A Servicing
Fee") shall be equal to [one-twelfth] of the product of (a) the Class A Floating
Allocation, (b) .% (the "Net Servicing Fee Rate") and (c) the Adjusted Investor
Interest as of the last day of the Monthly Period
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preceding such Transfer Date; provided, however, that with respect to the first
Transfer Date, the Class A Servicing Fee shall be equal to the product of (i)
the Class A Floating Allocation, (ii) a fraction, the numerator of which is the
number of days from and including the Closing Date to and including the last day
of the _____, 1998 Monthly Period and the denominator of which is 360, (iii) the
Net Servicing Fee Rate and (iv) the Investor Interest on the Closing Date. The
share of the Investor Servicing Fee allocable to the Class B Certificateholders
with respect to any Transfer Date (the "Class B Servicing Fee") shall be equal
to [one-twelfth] of the product of (a) the Class B Floating Allocation, (b) the
Net Servicing Fee Rate and (c) the Adjusted Investor Interest as of the last day
of the Monthly Period preceding such Transfer Date; provided, however, that with
respect to the first Transfer Date, the Class B Servicing Fee shall be equal to
the product of (i) the Class B Floating Allocation, (ii) a fraction, the
numerator of which is the number of days from and including the Closing Date to
and including the last day of the _____ 1998 Monthly Period and the denominator
of which is 360, (iii) the Net Servicing Fee Rate and (iv) the Investor Interest
on the Closing Date. The share of the Investor Servicing Fee allocable to the
Collateral Interest Holder with respect to any Transfer Date (the "Collateral
Interest Servicing Fee") shall be equal to [one-twelfth] of the product of (a)
the Collateral Floating Allocation, (b) the Net Servicing Fee Rate and (c) the
Adjusted Investor Interest as of the last day of the Monthly Period preceding
such Transfer Date; provided, however, that with respect to the first Transfer
Date, the Collateral Interest Servicing Fee shall be equal to the product of (i)
the Collateral Floating Allocation, (ii) a fraction, the numerator of which is
the number of days from and including the Closing Date to and including the last
day of the _____ 1998 Monthly Period and the denominator of which is 360, (iii)
the Net Servicing Fee Rate and (iv) the Investor Interest on the Closing Date.
Pursuant to the Agreement, the amount by which the Servicing Fee exceeds the
Investor Servicing Fee will be paid from amounts allocable to the Transferor
Certificate and to other Series. In no event shall the Trust, the Trustee, the
Certificateholders or the Collateral Interest Holder be liable for the share of
the Servicing Fee to be paid out of Servicer Interchange. The Class A Servicing
Fee and the Class B Servicing Fee shall be payable to the Servicer solely to the
extent amounts are available for distribution in respect thereof as described
under "-- Application of Collections."
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 Trust or the Certificateholders other than
federal, state and local income and franchise taxes, if any, of the Trust.
Reports to Certificateholders
On each Transfer Date, the Trustee will forward to each Certificateholder
of record, a statement prepared by the Servicer setting forth the items
described in "Description of the Certificates-Reports to Certificateholders" in
the attached prospectus. In addition, such statement will include (a) the
amount, if any, withdrawn from the Principal Funding Account for such Transfer
Date, and (b) the Collateral Interest, if any, for such Transfer Date. So long
as the Certificates are listed on the Luxembourg Stock Exchange, notice to
Certificateholders will be given by publication in a daily newspaper in
Luxembourg (expected to be the Luxemburger Wort). In the event that Definitive
Certificates are issued, notices to Certificateholders will also be given by
mail to their addresses as they appear on the register maintained by the
Trustee.
Description of the Purchase Agreements
General
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 closed of business on August [12], 1998. In addition, pursuant
to their Purchase Agreements, each of DNB and DNB-
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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 ben 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 Existing Purchase Agreement, the related Originator
has, and in each additional 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 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
In each Existing Purchase Agreement the related Originator
has, and in each additional Purchase Agreement the related 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,
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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
In each Existing Purchase Agreement the related Originator
has, and in each additional Purchase Agreement the related 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 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.
The obligations of the Originators, or any of them, to
repurchase Receivables under the circumstances described in the preceding
paragraph will be guaranteed (a "Repurchase Guarantee") by Dillard's pursuant to
a guarantee agreement in favor of the Transferor. The rights of the Transferor
under such Repurchase Guarantee will be assigned to the Trustee for the benefit
of the Certifcateholders of Series 1998-__.
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.
Listing And General Information
Application will be made to list the Class A Certificates and the Class B
Certificates on the Luxembourg Stock Exchange. In connection with the listing
application, the Organization Certificate and By-laws of the Bank, as well as
legal notice relating to the issuance of the Class A Certificates and the Class
B Certificates will be deposited prior to listing with the Chief Registrar of
the District Court of Luxembourg, where copies thereof may be obtained upon
request.
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The Class A and the Class B Certificates have been accepted for clearance
through the facilities of DTC, Cedel and Euroclear. The CUSIP numbers for the
Class A Certificates and the Class B Certificates are _______ and __________,
respectively; the International Securities Identification Numbers (ISIN) for the
Class A Certificates and the Class B Certificates are US________ and US
_________respectively; the Common Code numbers for the Class A Certificates and
the Class B Certificates are __________ and ________, respectively.
[Copies of the Pooling and Servicing Agreement the annual report of
independent public accountants described in "Description of the
Certificates-Evidence as to Compliance" in the attached prospectus, the
documents listed under "Available Information" and the reports to
Certificateholders referred to under "Reports to Certificateholders" and
"Description of the Certificates-Reports to Certificateholders" in the attached
prospectus will be available free of charge at the office of Banque Generale du
Luxembourg, S.A. (the "Listing Agent"), 50 Avenue J.F. Kennedy, L-2951,
Luxembourg. Financial information regarding the Transferor is included in the
consolidated financial statements of Dillard's Inc. in its Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and Quarterly Report on Form
10-Q for the quarter ended September 30, 1998. Such report is available, and
reports for subsequent years will be available, at the office of the Listing
Agent.
So long as there is no Paying Agent and Transfer Agent in Luxembourg,
Banque Generale du Luxembourg, S.A. will act as intermediary agent in
Luxembourg. In the event that Definitive Certificates are issued, a Paying Agent
and Transfer Agent will be appointed in Luxembourg.
The Certificates, the Agreement and the Series 1998-__ Supplement are
governed by the laws of the State of New York.
ERISA Considerations
Section 406 of the Employee Retirement Income Security Act of 1979, as
amended ("ERISA") and Section 4975 of the Code prohibit certain pension, profit
sharing or other employee benefit plans, individual retirement accounts or
annuities and employee annuity plans and Keogh plans (collectively, "Plans")
from engaging in certain transactions involving "plan assets" with persons that
are "parties in interest" under ERISA or "disqualified persons" under the Code
(collectively, "Parties in Interest") with respect to the Plan. A violation of
these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and Section 4975 of the Code for such persons, unless a
statutory, regulatory or administrative exemption is available. Plans that are
governmental plans (as defined in section 3(32) of ERISA) and certain church
plans (as defined in section 3(33) of ERISA) are not subject to ERISA
requirements.
Class A Certificates
A violation of the prohibited transaction rules could occur if the Class A
Certificates were to be purchased with assets of any Plan if the Transferor, the
Trustee, any underwriters of such Series or any of their affiliates were a Party
in Interest with respect to such Plan, unless a statutory, regulatory or
administrative exemption is available or an exemption applies under a regulation
(the "Plan Asset Regulation") issued by the Department of Labor ("DOL"). The
Transferor, the Trustee, any underwriters of a Series and their affiliates are
likely to be Parties in Interest with respect to many Plans. Before purchasing
the Class A Certificates, a Plan fiduciary or other Plan investor should
consider whether a prohibited transaction might arise by reason of the
relationship between the Plan and the Transferor, the Trustee, any underwriters
of such Series or any of their affiliates and consult their counsel regarding
the purchase in light of the considerations described below and in the
accompanying prospectus.
Under certain circumstances, the Plan Asset Regulation treats the assets of
an entity in which a Plan holds an equity interest as "plan assets" of such
Plan. Because the Class A Certificates will represent beneficial interests in
the Trust, and despite the agreement of the Transferor and the Certificate
Owners to treat the Class A Certificates as debt instruments, the Class A
Certificates are likely to be considered equity interests in the Trust for
purposes of the Plan Asset Regulation, with the result that the assets of the
Trust are likely to be treated as "plan assets" of the investing Plans
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for purposes of ERISA and Section 4975 of the Code, unless the exception for
"publicly-offered securities" is applicable as described in the accompanying
prospectus. The Underwriters anticipate that the Class A Certificates will meet
the criteria for treatment as "publicly-offered securities" as described in the
accompanying prospectus. No restrictions will be imposed on the transfer of the
Class A Certificates. It is expected that the Class A Certificates will be held
by at least 100 or more investors who were independent of the issuer and of one
another (" Independent Investors") at the conclusion of the initial public
offering although no assurance can be given, and no monitoring or other measures
will be taken to ensure, that such condition is met. The Class A Certificates
will be sold as part of an offering pursuant to an effective registration
statement under the Act and then will be timely registered under the Exchange
Act.
If the foregoing exception under the Plan Asset Regulation were not
satisfied, transactions involving the Trust and Parties in Interest with respect
to a Plan that purchases or holds Class A Certificates might be prohibited under
Section 406 of ERISA and/or Section 4975 of the Code and result in excise tax
and other liabilities under ERISA and Section 4975 of the Code unless an
exemption were available. The five DOL class exemptions described in the
accompanying prospectus may not provide relief for all transactions involving
the assets of the Trust even if they would otherwise apply to the purchase of a
Class A Certificate by a Plan.
Class B Certificates
The Underwriter currently does not expect that the Class B Certificates
will be held by at least 100 Independent Investors and, therefore, does not
expect that such Class B Certificates will qualify as publicly-offered
securities under the regulation referred to in the preceding paragraph.
Accordingly, the Class B Certificates may not be acquired or held by (a) any
employee benefit plan that is subject to ERISA, (b) any plan or other
arrangement (including an individual retirement account or Keogh plan) that is
subject to Section 4975 of the Code, or (c) any entity whose underlying assets
include "plan assets" under the regulation by reason of any such plan's
investment in the entity. By its acceptance of a Class B Certificate, each Class
B Certificateholder will be deemed to have represented and warranted that it is
not and will not be subject to the foregoing limitation.
Consultation with Counsel
In light of the foregoing, fiduciaries or other persons contemplating
purchasing the Certificates on behalf or with "plan assets" of any Plan should
consult their own counsel regarding whether the Trust assets 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 possibility
of exemptive relief from the prohibited transaction rules.
Finally, Plan fiduciaries and other Plan investors should consider the
fiduciary standards under ERISA or other applicable law in the context of the
Plan's particular circumstances before authorizing an investment of a portion of
the Plan's assets in the Certificates. Accordingly, among other factors, Plan
fiduciaries and other Plan investors should consider whether the investment (i)
satisfies the diversification requirement of ERISA or other applicable law, (ii)
is in accordance with the Plan's governing instruments, and (iii) is prudent in
light of the "Risk Factors" and other factors discussed in this prospectus
supplement.
Underwriting
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between DAFC and the underwriters named below
(the "Underwriters"), DAFC has agreed to sell to the Underwriters of the Class
A Certificates (the "Class A Underwriters") and the Underwriter of the Class B
Certificates (the "Class B Underwriter"), and each of the Underwriters has
severally agreed to purchase, the principal amount of the Class A Certificates
and the Class B Certificates, as applicable, set forth opposite its name:
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Principal Amount of
Class A Underwriters Class A Certificates
$
- ---------------------- ------------------
$
- ---------------------- ------------------
Total $
----------------- ------------------
Principal Amount of
Class B Underwriter Class B Certificates
$
- ------------------------ ------------------
The price to public, Underwriters' discounts and commissions, the
concessions that the Underwriters may allow to certain dealers, and the
discounts that such dealers may reallow to certain other dealers, each expressed
as a percentage of the principal amount of the Class A and Class B Certificates,
respectively, shall be as follows:
<TABLE>
<CAPTION>
Price to Underwriting Selling Reallowance,
public: discount and concessions, not not to exceed:
commissions: to exceed:
<S> <C> <C> <C> <C>
Class A (%) (%) (%) (%)
Certificates
Class B (%) (%) (%) (%)
Certificates
</TABLE>
After the offering is completed, DAFC will receive the proceeds, after
deduction of the underwriting and other expenses, listed below:
<TABLE>
<CAPTION>
Proceeds to Proceeds to Transferor (as % of Underwriting Additional
Transferor the principal amount of the discounts and offering expenses
Certificates) concessions
<S> <C> <C> <C> <C>
Class A Certificates ($) (%) ($) ($)
Class B Certificates ($) (%) ($) ($)
</TABLE>
After the public offering, the public offering price and other selling
terms may be changed by the Class A Underwriters and Class B Underwriters, as
the case may be.
Each Underwriter has represented and agreed that (a) it only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Certificates to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or who is a person to whom
the document may otherwise lawfully be issued or passed on, (b) it has complied
and will
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comply with all applicable provisions of the Financial Services Act 1986 of
Great Britain with respect to anything done by it in relation to the
Certificates in, from or otherwise involving the United Kingdom and (c) if that
Underwriter is an authorized person under the Financial Services Act 1986, it
has only promoted and will only promote (as that term is defined in Regulation
1.02 of the Financial Services (Promotion of Unregulated Schemes) Regulations
1991) to any person in the United Kingdom the scheme described herein if that
person is of a kind described either in Section 76(2) of the Financial Services
Act 1986 or in Regulation 1.04 of the Financial Services (Promotion of
Unregulated Schemes) Regulations 1991.
DAFC will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or contribute to payments the Underwriters
may be required to make in respect thereof.
The Underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Certificates in accordance with Regulation M under the Exchange Act. Over-
allotment transactions involve syndicate sales in excess of the offering size
creating a syndicate short position. Stabilizing transactions permit bids to
purchase the Certificates so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Certificates in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the Certificates
originally sold by such syndicate member are purchased in a syndicate covering
transaction. Such over-allotment transactions, stabilizing transactions,
syndicate covering transactions and penalty bids may cause prices of the
Certificates to be higher than they would otherwise be in the absence of such
transactions. Neither the Trust nor any of the Underwriters represent that the
Underwriters will engage in any such transactions nor that such transactions,
once commenced, will not be discontinued without notice.
[This prospectus supplement and the attached prospectus may be used by
[Underwriter] in connection with offers and sales related to market-making
transactions in the Certificates. [Underwriter] may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale. [Underwriter] has no obligation to make a
market in the Certificates and any such market-making may be discontinued at any
time without notice, in its sole discretion. [Underwriter] is among the
Underwriters participating in the initial distribution of the Certificates.]
Exchange Listing
We will apply to list the Certificates on the Luxembourg Stock Exchange. We
cannot guaranty that the application for the listing will be accepted. You
should consult with Banque Generale du Luxembourg, S.A., the Luxembourg listing
agent for the Certificates, 50 Avenue J.F. Kennedy, L-2951 Luxembourg, phone
number (352) 42421, to determine whether or not the Certificates are listed on
the Luxembourg Stock Exchange.
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 ____________________, [New York, New
York].
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Prospectus Supplement
Dillard Credit
Card Master Trust
Issuer
SERIES ______ - __
$
Class A Floating Rate
Asset Backed Certificates
$
Class B Floating Rate
Asset Backed Certificates
Dillard Asset Funding Company
Transferor
Dillard National Bank
Servicer
Underwriters of the Class A Certificates
[Name of Underwriters]
Underwriter of the Class B Certificates
[Name of Underwriter]
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the Prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Certificates in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this Prospectus
Supplement and the Prospectus as of any date other than the dates stated on
their respective covers.
Dealers will deliver a Prospectus Supplement and Prospectus when acting as
underwriters of the Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the
Certificates will deliver a Prospectus Supplement and Prospectus until
________, ____.
---------------
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