<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999
REGISTRATION NO. 333-67855
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DILLARD CREDIT CARD MASTER TRUST
(ISSUER OF THE CERTIFICATES)
DILLARD ASSET FUNDING COMPANY
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME AS SPECIFIED IN REGISTRANT'S CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE DILLARD ASSET FUNDING COMPANY 880352714
(STATE OR OTHER JURISDICTION OF C/O CHASE MANHATTAN BANK DELAWARE (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 1201 MARKET STREET IDENTIFICATION NUMBER)
WILMINGTON, DELAWARE 19801
(302) 984-3300
</TABLE>
(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:
DAVID EISENBERG, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective as determined by
market conditions.
If the only securities registered on this form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 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 , 1999
DILLARD CREDIT CARD MASTER TRUST
Issuer
DILLARD ASSET FUNDING COMPANY, Transferor
DILLARD NATIONAL BANK, Servicer
$ CLASS A FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1999-
$ CLASS B FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1999-
<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 + % p.a. one-month LIBOR + % 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.
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT.
THESE CERTIFICATES ARE INTERESTS IN THE DILLARD CREDIT CARD MASTER TRUST, AND
ARE BACKED ONLY BY THE ASSETS OF THE TRUST. NEITHER THESE CERTIFICATES 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.
[WE HAVE APPLIED TO HAVE THE CERTIFICATES LISTED ON THE LUXEMBOURG STOCK
EXCHANGE.]
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.
UNDERWRITERS of the CLASS A CERTIFICATES
[INSERT LIST OF CLASS A UNDERWRITERS]
UNDERWRITERS of the CLASS B CERTIFICATES
[INSERT LIST OF CLASS B UNDERWRITERS]
<PAGE>
TO UNDERSTAND THE STRUCTURE OF THESE SECURITIES, YOU MUST READ CAREFULLY THE
ATTACHED PROSPECTUS AND THIS SUPPLEMENT IN THEIR ENTIRETY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms............................... S-3
Structural Summary............................. S-4
Selected Trust Portfolio Summary Data.......... S-6
Dillard's Portfolio Payment Data............... S-7
Risk Factors................................... S-8
You May Receive Principal Payments Earlier or
Later than the Scheduled Payment Date if
the Portfolio Yield Is Reduced............ S-8
The Transferor May Not Be Able to Add
Accounts to Trust Portfolio............... S-9
Allocations of Charged-Off Receivables Could
Result in a Loss to You................... S-10
Adjustments Due to Rebates, Exchanges and
Writedowns Could Reduce Payments to You... S-10
You May Not Be Able to Resell Your
Certificates.............................. S-10
Insolvency or Bankruptcy of the Transferor,
an Originator or an Initial Seller of
Receivables Could Result in Accelerated,
Delayed or Reduced Payments to You........ S-10
The Timing of Payments to You May Be Affected
by the Issuance of Additional Series by
the Trust................................. S-11
You Will Have Limited Control of Trust
Actions................................... S-11
Class B Certificateholders Bear Additional
Credit Risk............................... S-11
Changes in Social, Technological and Economic
Factors May Affect Purchase and Payment
Patterns and Could Affect the Timing of
Interest and Principal Payments to You.... S-12
Calculation of Finance Charges May Change
Without Notice and May Affect Portfolio
Yield Which May Impact the Timing of
Payments to You........................... S-12
Geographic Concentrations in the Receivables
Pool May Impact the Timing and Amount of
Payments to You........................... S-13
Dillard's Credit Card Portfolio................ S-14
General...................................... S-14
Delinquency and Loss Experience.............. S-14
Recoveries................................... S-15
Management Discussion and Analysis............. S-16
The Receivables................................ S-17
<CAPTION>
PAGE
----
<S> <C>
General...................................... S-17
Dilution Experience.......................... S-20
Maturity Considerations........................ S-21
Controlled Accumulation Period............... S-21
Rapid Amortization Period.................... S-21
Pay Out Events............................... S-21
Payment Rates................................ S-22
Receivable Yield Considerations................ S-23
Use of Proceeds................................ S-24
Description of the Certificates................ S-24
General...................................... S-24
Status of the Certificates................... S-25
Interest Payments............................ S-26
Principal Payments........................... S-27
Postponement of Controlled Accumulation
Period.................................... S-28
Subordination................................ S-28
Allocation Percentages....................... S-29
Reallocation of Cash Flows................... S-29
Application of Collections................... S-31
Allocations of Collections of Finance Charge
Receivables............................... S-34
Allocations of Collections of Principal
Receivables............................... S-36
Shared Excess Finance Charge Collections..... S-36
Shared Principal Collections................. S-37
Required Collateral Interest................. S-37
Adjustment Payments.......................... S-37
Defaulted Receivables; Dilutions; Investor
Charge-Offs............................... S-38
Servicer Guarantee........................... S-39
Principal Funding Account.................... S-39
[Reserve Account]............................ S-40
Issuance of Additional Certificates.......... S-41
Companion Series............................. S-41
Pay Out Events............................... S-42
Servicing Compensation and Payment of
Expenses.................................. S-42
The Certificates............................. S-43
Exchanges.................................... S-43
Reports to Certificateholders................ S-43
Listing and General Information................ S-44
ERISA Considerations........................... S-44
Class A Certificates......................... S-44
Class B Certificates......................... S-45
Consultation with Counsel.................... S-45
Underwriting................................... S-46
Legal Matters.................................. S-47
Glossary of Terms.............................. S-48
</TABLE>
S-2
<PAGE>
SUMMARY OF TERMS
<TABLE>
<S> <C>
Transferor: Dillard Asset Funding Company
Originators: Dillard National Bank; Dillard National Bank (formerly known as Mercantile Stores
National Bank)
Servicer: Dillard National Bank
Trustee: The Chase Manhattan Bank
Pricing Date: ,
Closing Date: ,
Clearance and Settlement: DTC/Cedelbank/Euroclear
Trust Assets: receivables originated in private label revolving credit accounts, [including
recoveries on charged-off receivables]
</TABLE>
<TABLE>
<S> <C> <C>
Series Structure: Amount % of Total Series
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 and the subordination of collateral interest
collateral 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 each [2 business days before each
interest payment date] interest payment date]
First Interest Payment Date: , ,
Scheduled Payment Date: , ,
Commencement of Controlled
[Accumulation]
[Amortization] Period (subject to , N/A
adjustment):
Series 1999-[ ] 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.
S-3
<PAGE>
STRUCTURAL SUMMARY
This summary briefly describes major structural components of the offering. The
remainder of this prospectus supplement and the prospectus provide much more
detailed information about the certificates and the trust. To fully understand
the terms of the certificates you need to read both this supplement and the
attached prospectus in their entirety.
THE SERIES 1999 - CERTIFICATES
The certificates are backed by interests in a pool of credit card receivables
that are generated when an individual uses his or her Dillard's credit card to
make a purchase of a good or service in a retail store owned by Dillard's Inc.
or any of its subsidiaries. Those receivables are originated by Dillard National
Bank or another Dillard's subsidiary and then sold to the transferor who in turn
sells the receivables to the trust. Dillard National Bank and other subsidiaries
service the receivables sold to the trust as well as the receivables that have
not been transferred to the trust.
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 the servicers of the receivables will be
shared with other series of certificates issued by the trust or returned to
Dillard Asset Funding Company, the transferor. In no case will you receive more
than the principal and interest owed to you under the terms described 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 certificates by the
following:
o subordination of Class B certificates
o subordination of the collateral interest
Credit enhancement is provided to Class B certificates by the following:
o subordination of the collateral interest
The effect of subordination is that the more subordinated interests will absorb
any net losses allocated to the certificates, 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 your series.
DILLARD CREDIT CARD MASTER TRUST
The Chase Manhattan Bank, as trustee, maintains the trust for the benefit of:
o you and other certificateholders of this series;
o certificateholders of other series issued by the trust [(other series are
currently outstanding and a summary of each is described in Annex I to
this supplement)];
o providers of credit enhancements for your series and other series issued
by the trust; and
o the transferor.
Each series has a claim to a fixed dollar amount of the trust's assets,
regardless of the total amount of receivables in the trust at any time. The
transferor of the receivables to the trust holds the remaining claim to the
trust's assets. This claim fluctuates with the total amount of receivables in
the trust. The transferor, as the holder of that claim, will have the right to
purchase your certificates at any time when the outstanding amount of the
certificateholders' interest in the trust is less than 5% of the original amount
of that interest. The price the transferor will pay for the outstanding amount
of that interest will be equal to at least the entire unpaid balance of that
amount plus accrued and unpaid interest.
SCHEDULED PRINCIPAL PAYMENTS AND POTENTIAL LATER PAYMENTS
The trust expects to pay the entire principal amount due to Class A
certificateholders in [one] payment on , , and the entire
principal amount due to Class B certificateholders in [one] payment on
, . [In order to accumulate the funds to pay Class A
certificateholders on the 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
S-4
<PAGE>
months, but will be shortened if the transferor 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 or
upon the occurence of a payout event.]
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 this series 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.
Prior to the commencement of an accumulation or amortization period for this
series, principal collections will be paid to the transferor or shared with
other series that are amortizing or in an accumulation period.
MINIMUM YIELD ON THE RECEIVABLES; POSSIBLE EARLY PRINCIPAL REPAYMENT OF YOUR
SERIES-
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 certificateholders, are too low. The minimum amount
that must be available for payment to your series in any month, referred to as
the base rate, is the sum of the interest payable to Class A certificateholders,
the interest payable to Class B certificateholders 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 your series for any three consecutive months is less than
the average base rate for the same three consecutive months, a pay out event
will occur and the trust will commence a rapid amortization and holders of your
series will receive principal payments earlier than the scheduled principal
repayment date.
Your series is also subject to several other pay out events, which could cause
your series to amortize. If your series 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 final payment date for your
series.
TAX STATUS OF CLASS A, CLASS B AND DILLARD CREDIT CARD MASTER TRUST
Simpson Thacher & Bartlett, as tax counsel to the transferor, is of the opinion
that:
o under existing law, the Class A and Class B certificates will be
characterized as debt for U.S. federal income tax purposes and
o The trust will not be an association or publicly traded partnership
taxable as a corporation for U.S. federal income tax purposes.
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 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: The underwriters do not anticipate that the Class B
certificates will meet the requirements to be considered publicly offered
securities and therefore pension plans and other investors subject to ERISA may
not acquire or hold Class B certificates.
MAILING ADDRESS AND TELEPHONE NUMBER OF REGISTRANT
The mailing address of Dillard Asset Funding Company is c/o Chase Manhattan Bank
Delaware, 1201 Market Street, Wilmington, Delaware 19801 and the telephone
number is (302) 984-3300.
S-5
<PAGE>
SELECTED TRUST PORTFOLIO SUMMARY DATA
[PIE CHART]
GEOGRAPHIC DISTRIBUTION OF RECIVABLES IN TRUST PORTFOLIO
State Percentage
----- ----------
Texas 26.6
Florida 9.9
Louisiana 7.1
Ohio 5.9
Alabama 4.7
Missouri 4.1
Tennessee 4
Oklahoma 3.9
Kentucky 3.7
Arizona 3.5
Arkansas 3.4
Other 23.2
The chart above shows the geographic distribution by state of receivables
in the trust portfolio as of the billing cycles ended in June 1999. Other than
the states specifically shown in the chart, no state represents more than 3% of
receivables in the trust portfolio.
[BAR CHART]
AGE OF ACCOUNTS IN TRUST PORTFOLIO
(MONTHS)
Age in months Percentage
------------- ----------
0-6 2.7
7-18 9
19-30 9.4
31-42 7.9
43-54 6.4
55-66 4.7
67+ 60
The chart above shows the age of accounts in the trust portfolio as of the
billing cycles ended in June 1999. This chart shows that 60% of the accounts in
the trust portfolio have been open for more than 66 months.
S-6
<PAGE>
DILLARD'S PORTFOLIO PAYMENT DATA
[LINE CHART]
PAYMENT DATA
<TABLE>
<CAPTION>
(A) Dillard's Portfolio Yield (B) Payment Rate (C) Net Charge-off Rate
----------------------------- ---------------- -----------------------
<S> <C> <C> <C>
Jan-97 17.4 19 4.7
Feb-97 18.9 18.9 4.4
Mar-97 18.1 21.8 4.5
Apr-97 18 17.7 4
May-97 18 17.9 4.8
Jun-97 17.9 21 4.9
Jul-97 18.1 17.5 5.7
Aug-97 17.9 17.2 4.9
Sep-97 17.9 20.9 5.2
Oct-97 18.5 17.4 4.5
Nov-97 18.7 18.8 5.6
Dec-97 18.9 21.5 5.2
Jan-98 18.4 18.9 4.7
Feb-98 18.8 18.9 4.6
Mar-98 19 21.7 4.8
Apr-98 18.9 17.8 5.3
May-98 18.9 17.8 5
Jun-98 19 20.8 5
Jul-98 19.2 17.9 5.9
Aug-98 19.2 17.5 5.3
Sep-98 18.7 20.2 5.8
Oct-98 18.6 17.4 5.4
Nov-98 18.4 17.1 6.7
Dec-98 18.3 19.3 7.3
Jan-99 17.6 17.3 6
Feb-99 18.3 17.4 6.5
Mar-99 17.9 21.2 6.6
Apr-99 17.6 16.3 6.2
May-99 17.9 17.2 5.8
Jun-99 18.1 19.7 5.4
</TABLE>
(A) Portfolio yield for any month means the total amount of collected finance
charges and fees for the month, expressed as a percentage of total
outstanding receivables at the beginning of the month.
(B) 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.
(C) Net default rate 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-7
<PAGE>
RISK FACTORS
The following is a summary of all material risk factors applicable to an
investment in the certificates. The remainder of this prospectus supplement and
the prospectus provide much more detailed information about these risks. You
should consider these risk factors in light of your investment strategy in
deciding whether to purchase certificates.
<TABLE>
<S> <C>
YOU MAY RECEIVE PRINCIPAL PAYMENTS EARLIER If a pay out event occurs with respect to your series, your series
OR LATER THAN THE SCHEDULED PAYMENT DATE will commence a rapid amortization, and you will receive principal
IF THE PORTFOLIO YIELD IS REDUCED payments earlier than the scheduled principal repayment date. Any
circumstances that tend to reduce collections of receivables may
increase the risk of early repayment of your series. Conversely, any
reduction in collections 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 reduced collections:
o ORIGINATORS OF THE RECEIVABLES MAY CHANGE THE TERMS AND CONDITIONS
OF THE ACCOUNTS
The transferor will transfer to the trust receivables arising under
specified credit card accounts, but the originators of the
receivables will continue to own those accounts. As the owner of
those accounts, the originators retain the right to change various
terms and conditions of those accounts, including finance charges and
other fees and the monthly minimum payment. For example, originators
may change the terms of 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.
o THE TRANSFEROR MAY ADD ACCOUNTS TO THE TRUST PORTFOLIO.
The transferor is permitted to designate additional accounts for the
trust portfolio and to transfer the receivables in those accounts to
the trust. [The designation of additional accounts [may not] [do not]
require a confirmation from rating agencies that the additional
accounts will not result in a suspension, downgrade or withdrawal of
its rating for the certificates.] Any new accounts and receivables
may have different terms and conditions than the accounts and
receivables already in the trust. [In addition, credit card accounts
purchased by Dillard's or its subsidiaries may be included as
additional accounts if eligibility conditions are satisfied. Credit
card accounts purchased by Dillard's or its subsidiaries and
transferred to the transferor 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 your series. For
example, the new accounts may have lower payment rates or higher
credit losses.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
THE TRANSFEROR MAY NOT BE ABLE TO ADD If the transferor's percentage interest in the accounts of the trust
ACCOUNTS TO TRUST PORTFOLIO falls to % or less, it 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. The
transferor may not have any additional accounts to add. If the
transferor fails to add accounts when required, a pay out event will
occur and you could receive payment of principal sooner than
expected.
o FINANCE CHARGES ACCRUE AT A FIXED RATE
Finance charges on the receivables in the trust accrue at a fixed
rate. We adjust the interest rate on your certificates periodically
based upon an index. Interest rate increases on your certificates may
not be offset by increases in collections of finance charge
receivables. A decrease in the spread between collections of finance
charge receivables and interest payments on your certificate could
cause a pay out event to occur.
o CONSUMER PROTECTION LAWS MAY IMPEDE COLLECTION EFFORTS
Federal and state consumer protection laws regulate the creation and
enforcement of credit card accounts and receivables. Changes or
additions to those laws or failure to comply with those laws could
make it more difficult to collect payments on the receivables or
reduce the finance charges and other fees that an originator can
charge on credit card account balances or could render the
receivables uncollectible. No representative of the trust 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.
o CARDHOLDERS MAY MAKE PRINCIPAL PAYMENTS AT ANY TIME
The receivables transferred to the trust may be paid at any time. We
cannot assure the creation of additional receivables in underlying
accounts or that any particular pattern of cardholder payments will
occur. 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. No
transaction document prohibits Dillard's from selling all or any
portion of its business or assets. In addition, Dillard's no longer
offers extended payment terms previously available to private label
credit card holders of the recently acquired Mercantile Stores
department store chain. A significant decline in the amount of new
receivables generated by the accounts in the trust could result in
reduced portfolio yield. 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.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
ALLOCATIONS OF CHARGED-OFF RECEIVABLES Each originator anticipates that it will write off as uncollectible
COULD RESULT IN A LOSS TO YOU some portion of the receivables arising in its accounts in the trust
portfolio. Each class of certificates will be allocated a portion of
those charged-off receivables. 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.
ADJUSTMENTS DUE TO REBATES, EXCHANGES AND A portion of the receivables will be not be collected as a result of
WRITEDOWNS COULD REDUCE PAYMENTS TO YOU rebates, exchanges, write-downs and similar occurrences. The
transferor will be obligated to make payments to compensate the
holders of the certificates for the amount of receivables which
become uncollectible for these reasons. If the transferor fails to
make any of these payments, the amount of the resulting insufficiency
will be allocated to the transferor's interest. If the amount of the
transferor's interest does not cover this insufficiency, the
available credit enhancement will be reduced and you may not receive
the full amount of principal and interest due.
YOU MAY NOT BE ABLE TO RESELL YOUR The underwriters may, but are not required to, assist in resales of
CERTIFICATES your certificates. A secondary market for these 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 certificates.
INSOLVENCY OR BANKRUPTCY OF THE The receivables in which you have an interest are conveyed to the
TRANSFEROR, AN ORIGINATOR OR AN INITIAL trust by the transferor. The transferor acquires them from the
SELLER OF RECEIVABLES COULD RESULT IN originators and from non-bank affiliates of Dillard's which in turn
ACCELERATED, DELAYED OR REDUCED PAYMENTS acquired the receivables from the originators. In each instance, the
TO YOU conveyances are intended to be treated as sales. However, in a
bankruptcy or bank receivership proceeding, the conveyances may not
be treated as sales but as creations of security interests in the
receivables. The receivables may then be subject to tax or other
governmental liens and to administrative expenses of the bankruptcy
or bank receivership proceeding of a predecessor in interest of those
receivables. Furthermore, a bankruptcy trustee or a creditor may
attempt to cause a predecessor in interest of the receivables or the
transferor to be substantively consolidated with the transferor or
the trust, respectively. Recharacterization as a pledge or
substantive consolidation can delay or even reduce payments on your
certificates.
In addition, if a bankruptcy trustee, conservator or receiver is
appointed for the transferor, a pay out event for all series will
occur and new principal receivables will not be transferred to the
trust. The transferor will then sell the receivables, unless holders
of more than 50% of the investor interest of each class of
outstanding certificates gives the trustee other instructions. The
trust would 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.
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
A bankruptcy trustee, conservator or receiver with authority over the
receivables may have the power--
o regardless of the terms of the pooling and servicing agreement,
o to prevent the beginning of a rapid amortization period,
o to prevent the early sale of the receivables and termination of the
trust,
o to require new principal receivables to continue being transferred
to the trust,
o require the trustee of the trust to go through an administrative
claims procedure to establish its right to payments collected on
the receivables in the trust,
o repudiate the pooling and servicing agreement which establishes the
trust and limit the trust's resulting claim; or
o regardless of the instructions of the certificateholders,
o to require the early sale of the trust's receivables,
o to require termination of the trust and retirement of the trust's
certificates including your series, or
o to prohibit the continued transfer of principal receivables to the
trusts.
THE TIMING OF PAYMENTS TO YOU MAY BE The trust, as a master trust, may issue series of certificates from
AFFECTED BY THE ISSUANCE OF ADDITIONAL time to time. The trust may issue additional series with terms that
SERIES BY THE TRUST 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.
YOU WILL HAVE LIMITED CONTROL OF TRUST Certificateholders of any series or any class within a series may
ACTIONS need the consent or approval of a specified percentage of the
investor interest of other series or a class of the other series to
take or direct actions, including:
o appointing a successor servicer if Dillard National Bank defaults
on its obligations under the pooling and servicing agreement,
o amending the pooling and servicing agreement in some cases and
o directing a repurchase of all outstanding series after violations
of the transferor's representations and warranties.
The interests of the certificateholders of any of the other series
may not coincide with yours, making it more difficult for any
particular certificateholder to achieve the desired results from such
vote.
CLASS B CERTIFICATEHOLDERS BEAR ADDITIONAL Because Class B is subordinated to Class A, principal payments to
CREDIT RISK Class B will not begin until Class A is repaid. Additionally, if
collections of finance charge receivables allocated to the
certificates 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
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
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.
CHANGES IN SOCIAL, TECHNOLOGICAL AND Changes in purchase and payment patterns by obligors under the
ECONOMIC FACTORS MAY AFFECT PURCHASE AND accounts may result from a variety of social, and technological and
PAYMENT PATTERNS AND COULD AFFECT THE economic factors. Social factors include potential changes in
TIMING OF INTEREST AND PRINCIPAL PAYMENTS consumers' attitudes toward financing purchases with debt.
TO YOU Technological factors include new methods of payment. Economic
factors include the rate of inflation, unemployment levels and
relative interest rates. Each of these factors may have a disparate
impact on the payment by obligors and the generation of new
receivables under Dillard's credit card accounts, which may result in
a loss to you. For example, Dillard's department stores generally
accept third party revolving credit cards such as VISA and MasterCard
cards issued by various financial institutions, charge cards such as
the American Express Card and debit cards. Changes in interest rates
charged by or incentives offered to use these other cards, or greater
use of debit cards, could lead to fewer purchases with Dillard's
charge cards even though overall sales at Dillard's department stores
remain the same or increase.
[CALCULATION OF FINANCE CHARGES MAY CHANGE Under the pooling and servicing agreement, a fixed percentage of the
WITHOUT NOTICE AND MAY AFFECT PORTFOLIO balance of receivables originated by the originators will be deemed
YIELD WHICH MAY IMPACT THE TIMING OF to constitute finance charges on those receivables. [The transferor
PAYMENTS TO YOU 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. However, an increase in the finance charge
percentage would also reduce the total amount of principal
receivables, which could increase the likelihood of a pay out event
occurring if the total principal receivables fall below the
prescribed 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 declines below a specific floor. In addition,
the transferor may make other adjustments to the finance charge
percentage if those changes would not cause a pay out event to occur
and also satisfy any rating agency conditions with respect to any
series. The occurrence of a pay out event as a result of these
factors will affect the timing of principal payments to you and could
result in a loss to you.]
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
GEOGRAPHIC CONCENTRATIONS IN THE The receivables in the trust portfolio as of the billing cycles ended
RECEIVABLES POOL MAY IMPACT THE TIMING AND in June 1999 were obligations of Dillard's credit card holders with
AMOUNT OF PAYMENTS TO YOU primary addresses in states. Holders residing in the states of Texas,
Florida and Louisiana represent 26.6%, 9.9% and 7.1%, respectively,
of receivables in the trust portfolio. If there are adverse economic
conditions in those states, cardholders living there may make fewer
purchases with their Dillard's cards or may not be able to make
timely payments on their Dillard's cards which may affect the amount
of receivables available to the trust to make payments of interest
and principal on the certificates.
</TABLE>
S-13
<PAGE>
DILLARD'S CREDIT CARD PORTFOLIO
This prospectus supplement uses terms that are defined in the "Glossary of
Terms" in this prospectus supplement and in the prospectus. We indicate defined
terms in bold.
GENERAL
The receivables in the trust are generated from transactions made by
holders of private label revolving credit card accounts selected by each
originator from its entire portfolio of accounts.
DELINQUENCY AND LOSS EXPERIENCE
The originators consider an account delinquent if a payment is not received
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 subservicers retained
by the servicer, and collection agents and attorneys retained by these
subservicers.
It is the policy of the originators to charge off an account during the
billing cycle immediately following the cycle in which the account became seven
payments (210 days from the initial billing date) delinquent. If an originator
receives notice that a cardholder is the subject of a bankruptcy proceeding, it
charges off the cardholder's account upon the earlier of the end of the month in
which notice of the bankruptcy is received and the time period described in the
previous sentence. Charged-off accounts are sent to an internal recovery unit,
collection agencies or attorneys.
The following tables describe delinquency and loss experience for the six
months ended June 30, 1999 and for the years ended December 31, 1998, 1997 and
1996, respectively. Since the trust was created in 1998, the tabular
presentation contains trust portfolio data for June 30, 1999 and December 31,
1998. All other periods contain Dillard's portfolio data. As of the billing
cycles ended in June 1999, the receivables in the trust portfolio represented
approximately 95% of the Dillard's portfolio.
In the table below, "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. In addition, delinquencies are calculated as a percentage
of outstanding receivables as of the end of the month.
PORTFOLIO DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
JUNE 30, 1999 1998 1997 1996
-------------------------- -------------------------- -------------------------- ----------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
NUMBER OF DAYS DELINQUENT TOTAL DELINQUENT TOTAL DELINQUENT TOTAL DELINQUENT
DELINQUENT AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT
- --------------------- ---------- ------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
30 to 59 Days........ $ 49,881 3.8% $ 50,742 3.3% $ 57,820 3.4% $ 53,385
60 to 89 Days........ 18,973 1.4 25,816 1.7 22,446 1.3 21,925
90 Days or More...... 45,431 3.5 58,663 3.8 44,184 2.6 46,029
-------- --- -------- ----- -------- ----- --------
Total............ $114,285 8.7% $135,221 8.8% $124,450 7.3% $121,339
-------- --- -------- ----- -------- ----- --------
-------- --- -------- ----- -------- ----- --------
<CAPTION>
DECEMBER 31,
-------------
1996
-------------
PERCENTAGE OF
NUMBER OF DAYS TOTAL
DELINQUENT RECEIVABLES
- --------------------- -------------
<S> <C>
30 to 59 Days........ 3.2%
60 to 89 Days........ 1.3
90 Days or More...... 2.8
-----
Total............ 7.3%
-----
-----
</TABLE>
In the table below, "average receivables outstanding" means the average of
the daily receivable balance during the period indicated. The gross charge-offs
shown below include only the principal portion of charged-off receivables, do
not include the amount of any reductions in average receivables outstanding due
to fraud, returned goods or customer disputes and exclude charges relating to
changes in the servicer's charge-off policies. The net charge-offs as a
percentage of average receivables outstanding for the six months ended June 30,
1999 is an annualized figure.
S-14
<PAGE>
PORTFOLIO LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------------
JUNE 30, 1999 1998 1997 1996
---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding...................... $1,488,656 $1,601,806 $1,621,623 $1,595,213
Gross Charge-Offs.................................... 55,466 102,426 94,066 105,221
Recoveries........................................... 10,140 12,497 13,060 12,871
Net Charge-Offs...................................... 45,326 89,929 81,006 92,350
Net Charge-Offs as a Percentage of Average
Receivables Outstanding............................ 6.1% 5.6% 5.0% 5.8%
</TABLE>
RECOVERIES
The transferor is required to transfer to the trust a percentage of
recoveries on defaulted accounts. 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 in a monthly period
bears to the amount of receivables in defaulted accounts recorded in the
Dillard's portfolio. 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-15
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
The level of credit card portfolio delinquencies and charge-offs is
dependent on a variety of factors, including
o Overall credit quality of cardholders
o Credit underwriting standards
o Success of collection efforts
o Availability of other sources of credit used by consumers to purchase
goods in Dillard's stores
o General economic conditions, and
o Seasonal variations in consumer spending and borrowing patterns.
The Delinquency Experience table presented above indicates that accounts in
the credit card portfolio, 60 days or more delinquent, totaled 4.9% and 5.5% of
total receivables at June 30, 1999 and December 31, 1998, respectively,
representing an 11% reduction in delinquencies. Accounts in the credit card
portfolio, 60 days or more delinquent, at December 31, 1997 and 1996 were 3.9%
and 4.1% of total receivables, respectively.
The Loss Experience table presented above indicates that net charge-offs,
as a percent of average credit card receivables, were 6.1% (annualized) and 5.6%
for the six month period ended June 30, 1999 and the year ended December 31,
1998, respectively, representing a 9% increase in credit card portfolio net
charge-offs as a percent of average receivables. Net charge-offs as a percent of
average receivables for the years ended December 31, 1997 and 1996 were 5.0% and
5.8%, respectively.
Seasonal reductions in average receivables together with seasonal increases
in charge-offs contributed to the increase in net charge-offs as a percent of
average receivables for the period ended June 30, 1999. Additionally, the
integration process of converting Mercantile's credit and collections systems to
Dillard's credit and collection systems produced higher net charge-off levels in
1998 and 1999 than the net charge-off levels experienced by Dillard's in
previous years.
S-16
<PAGE>
THE RECEIVABLES
GENERAL
The receivables conveyed to the trust arise in accounts originated by an
originator. The transferor has selected them on the basis of criteria outlined
in the pooling and servicing agreement and described in the prospectus. As of
the CUT-OFF DATE, approximately 79% and 21% of the accounts conveyed to the
trust were originated or acquired by the originators, DNB and DNB-LA.,
respectively. Pursuant to the pooling and servicing agreement, the transferor
has the right, subject to some limitations and conditions, to designate from
time to time additional accounts and to transfer to the trust all existing and
future receivables from these additional accounts. Any additional accounts
designated pursuant to the pooling and servicing agreement must be eligible
accounts as of the date the transferor designates them as additional accounts.
Additional accounts will be originated or acquired by an originator and
transferred to the transferor. The transferor will be required to designate
additional accounts, to the extent available,
o to maintain the transferor interest in the trust 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
o to maintain, for so long as certificates of any series remain
outstanding, the sum of
o the aggregate amount of principal receivables; and
o the principal amount on deposit in the excess funding account equal
to or greater than the MINIMUM AGGREGATE PRINCIPAL RECEIVABLES.
The transferor will convey existing and future receivables from these
additional accounts to the trust. Furthermore, the transferor will have the
qualified right under the pooling and servicing agreement to designate removed
accounts and to require the trustee to reconvey all existing and future
receivables from these removed accounts. As of the CUT-OFF DATE and, for
receivables in additional accounts, as of the related date of their conveyance
to the trust, on the date any new receivables are created, the transferor will
represent and warrant to the trust that the receivables meet the eligibility
requirements specified in the pooling and servicing agreement. See "Description
of the Certificates--Representations and Warranties" in the attached prospectus.
As of the billing cycles ended in June 1999, the trust portfolio had
o total balances of
o $1.3 billion in principal receivables; and
o $18.5 million in finance charge receivables;
o accounts with an average
o principal balance of $430, excluding accounts without an outstanding
principal balance; and
o credit limit of $1,950, excluding corporate accounts which have no
pre-set credit limits;
o percentage of total receivable balance to total credit limit of 8.4%; and
o cardholders with billing addresses in the 50 states and the District of
Columbia.
Accounts which are acquired and not originated by an originator may have
been originated under policies and procedures which differ from those of the
originators. We do 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. [Prior to the addition of any accounts
which are acquired but not originated by an originator, the rating agencies then
rating the certificates must confirm that the addition of acquired accounts will
not result in a lower rating on the certificates]. See "Description of the
Certificates--Collection and Other Servicing Procedures" in the attached
prospectus.
S-17
<PAGE>
The following tables summarize the trust portfolio by various criteria as
of the billing cycles ended in June 1999. 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.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
ACCOUNT BALANCE ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Credit Balance..................................... 280,239 2.9% $ (4,583) (0.3)%
No Balance......................................... 6,549,993 68.2 -- --
$0.01 to $500.00................................... 1,928,292 20.1 367,701 27.9
$500.01 to $1,000.00............................... 515,188 5.4 359,915 27.3
$1,000.01 to $3,000.00............................. 294,398 3.1 463,945 35.2
$3,000.01 to $5,000.00............................. 27,091 0.3 99,090 7.5
Over $5,000.00..................................... 5,067 -- 31,650 2.4
--------- ----- ----------- -----
Total......................................... 9,600,268 100.0% $ 1,317,718 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
CREDIT LIMIT ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
$0.00.............................................. 1,559,947 16.3% $ 192,035 14.6%
$0.01 to $1,000.00................................. 3,303,264 34.4 222,619 16.9
$1,000.01 to $3,000.00............................. 3,598,623 37.5 484,169 36.7
$3,000.01 to $5,000.00............................. 1,048,876 10.9 298,759 22.7
$5,000.01 to $10,000.00............................ 88,868 0.9 119,585 9.1
Over $10,000.00.................................... 690 -- 551 --
--------- ----- ----------- -----
Total......................................... 9,600,268 100.0% $ 1,317,718 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
PERIOD OF DELINQUENCY ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Current to 29 days delinquent...................... 9,422,814 98.2% $ 1,203,433 91.3%
30 to 59 days delinquent........................... 79,803 0.8 49,881 3.8
60 to 89 days delinquent........................... 31,220 0.3 18,973 1.4
90 days delinquent or more......................... 66,431 0.7 45,431 3.5
--------- ----- ----------- -----
Total......................................... 9,600,268 100.0% $ 1,317,718 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
S-18
<PAGE>
COMPOSITION BY ACCOUNT SEASONING
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
ACCOUNT AGE (MONTHS SINCE ACCOUNT OPENING) ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Not More than 6 Months............................. 282,935 2.9% $ 35,288 2.7%
Over 6 Months to 18 Months......................... 1,155,177 12.0 118,030 9.0
Over 18 Months to 30 Months........................ 1,134,649 11.8 123,265 9.3
Over 30 Months to 42 Months........................ 1,063,578 11.1 103,729 7.9
Over 42 Months to 54 Months........................ 563,626 5.9 84,731 6.4
Over 54 Months to 66 Months........................ 389,940 4.1 61,883 4.7
Over 66 Months..................................... 5,010,363 52.2 790,792 60.0
--------- ----- ----------- -----
Total......................................... 9,600,268 100.0% $ 1,317,718 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
STATE ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Alabama............................................ 334,466 3.5% $ 62,233 4.7%
Arizona............................................ 324,107 3.4 46,771 3.5
Arkansas........................................... 215,830 2.2 44,311 3.4
California......................................... 64,203 0.7 6,760 0.5
Colorado........................................... 348,161 3.6 31,498 2.4
Florida............................................ 1,097,969 11.4 130,125 9.9
Georgia............................................ 235,976 2.5 31,764 2.4
Idaho.............................................. 31,129 0.3 1,559 0.1
Illinois........................................... 111,525 1.2 10,153 0.8
Indiana............................................ 77,481 0.8 7,522 0.6
Iowa............................................... 43,124 0.4 2,967 0.2
Kansas............................................. 296,976 3.1 32,634 2.5
Kentucky........................................... 343,847 3.6 48,333 3.7
Louisiana.......................................... 603,635 6.3 93,185 7.1
Mississippi........................................ 205,043 2.1 33,229 2.5
Missouri........................................... 530,358 5.5 54,060 4.1
Montana............................................ 30,512 0.3 3,200 0.2
Nebraska........................................... 103,425 1.1 9,561 0.7
Nevada............................................. 85,375 0.9 13,743 1.0
New Mexico......................................... 112,262 1.2 16,421 1.3
North Carolina..................................... 315,861 3.3 33,654 2.6
Ohio............................................... 747,292 7.8 78,139 5.9
Oklahoma........................................... 312,973 3.3 51,432 3.9
South Carolina..................................... 311,289 3.2 35,302 2.7
Tennessee.......................................... 471,106 4.9 52,448 4.0
Texas.............................................. 1,722,449 17.9 350,524 26.6
Utah............................................... 72,224 0.8 6,878 0.5
Virginia........................................... 305,721 3.2 19,301 1.5
Wyoming............................................ 17,987 0.2 1,854 0.1
Other.............................................. 127,962 1.3 8,157 0.6
--------- ----- ----------- -----
Total......................................... 9,600,268 100.0% $ 1,317,718 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
S-19
<PAGE>
DILUTION EXPERIENCE
A factor used to evaluate a portfolio of receivables is dilution. Dilution
occurs if the balance of a receivable is reduced because of a rebate, billing
error, return, exchange, allowance (including reductions because of the
selection of a cash price payment option) or other non-cash items, or if a
receivable is canceled due to goods that have been refused by a cardholder. The
table below provides dilution experience for receivables originated by the
originators, excluding any dilutive effect from the Mercantile Stores during the
period from January 1996 through September 1998. The Mercantile Stores did not
maintain dilution experience information prior to the acquisition by Dillard's
in August 1998. For purposes of the following table, March, June, September and
December are five week fiscal months. All other months are four week fiscal
months. There can be no assurance that the actual dilution experience in the
future will be similar to the historical experience provided in this table.
DILUTION EXPERIENCE
<TABLE>
<CAPTION>
MONTHLY DILUTION
MONTHLY PERIOD PERCENTAGE
- ------------------------------------ ----------------
<S> <C>
1996
January............................. 2.8%
February............................ 2.1
March............................... 3.0
April............................... 2.5
May................................. 2.6
June................................ 3.0
July................................ 2.2
August.............................. 2.3
September........................... 3.3
October............................. 2.5
November............................ 2.6
December............................ 5.2
1997
January............................. 2.3
February............................ 2.2
March............................... 3.1
April............................... 2.5
May................................. 2.7
June................................ 3.1
July................................ 2.3
August.............................. 2.4
September........................... 3.1
October............................. 2.6
November............................ 2.8
December............................ 4.8
1998
January............................. 2.4
February............................ 2.0
March............................... 3.1
April............................... 2.6
May................................. 2.5
June................................ 2.9
July................................ 2.1
August.............................. 2.2
September........................... 3.0
October............................. 2.2
November............................ 2.7
December............................ 4.6
1999
January............................. 2.3
February............................ 2.0
March............................... 3.0
April............................... 2.4
May................................. 2.4
June................................ 2.7
</TABLE>
S-20
<PAGE>
MATURITY CONSIDERATIONS
Class A certificateholders will receive payments of principal on the
earlier of
o the Class A scheduled payment date; and
o a PAY OUT EVENT which results in the commencement of the RAPID
AMORTIZATION PERIOD;
Class B certificateholders will receive payments of principal on the
earlier of
o the Class B scheduled payment date; and
o a PAY OUT EVENT which results in the commencement of the RAPID
AMORTIZATION PERIOD after the final principal payment on the Class A
certificates has been made.
CONTROLLED ACCUMULATION PERIOD
The CONTROLLED ACCUMULATION PERIOD for the certificates is scheduled to
begin at the close of business of the last day of the o monthly period. The day
on which the REVOLVING PERIOD ends and the CONTROLLED ACCUMULATION PERIOD begins
generally may be delayed to no later than the close of business on the last day
of the o monthly period.
During the CONTROLLED ACCUMULATION PERIOD, the trust will accumulate cash
in the principal funding account to be used to make later principal payments in
certificateholders.
o 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.
o 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.
o If the amount required to pay a class of certificates is not available on
the scheduled payment date, a PAY OUT EVENT will occur and the RAPID
AMORTIZATION PERIOD will commence. No assurance can be given that
sufficient amounts will be available to pay a class of certificates.
See "Description of the Certificates--Principal Payments--Controlled
Accumulation Period" and "--Postponement of Controlled Accumulation Period" for
a more detailed discussion of the Controlled Accumulation Period and events
which may cause a postponement of the Controlled Accumulation Period.
RAPID AMORTIZATION PERIOD
A RAPID AMORTIZATION PERIOD begins when a PAY OUT EVENT occurs and
continues until the trust has fully paid the principal of this Series or until
the Series 1999- termination date. During the RAPID AMORTIZATION PERIOD,
PRINCIPAL COLLECTIONS WILL BE USED TO PAY THE CLASS A INVESTOR INTEREST first
followed by the CLASS B INVESTOR INTEREST.
See "Description of the Certificates--Principal Payments--Rapid Amortization
Period" for a more detailed discussion of the Rapid Amortization Period.
PAY OUT EVENTS
A PAY OUT EVENT for your series occurs, either automatically or after
specified notice, upon
o the failure of the transferor to make payments or transfers of funds for
the benefit of the certificateholders within the time periods stated in
the pooling and servicing agreement;
o material breaches of representations, warranties or covenants of the
transferor;
o bankruptcy or insolvency events involving the transferor, Dillard's or an
originator;
o 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 that period;
S-21
<PAGE>
o the trust becoming subject to regulation as an investment company within
the meaning of the Investment Company Act of 1940, as amended;
o the failure of the transferor to convey receivables arising under
additional accounts when required by the pooling and servicing agreement;
o the occurrence of a servicer default which would have a material adverse
effect on the certificateholders;
o 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;
o the transferor's interest in the trust becoming less than the MINIMUM
TRANSFEROR INTEREST; or
o the transferor becomes unable for any reason to transfer receivables to
the trust in accordance with the provisions of the pooling and servicing
agreement.
See "Description of the Certificates--Pay Out Events."
PAYMENT RATES
The following table provides the highest and lowest cardholder monthly
payment rates during any month in the period shown and the average cardholder
monthly payment rates for all months during the periods shown for (a) each of
the calendar years ended December 31, 1996 and December 31, 1997 for the
Dillard's portfolio and (b) the calendar year ended December 31, 1998 and for
the six calendar months ended June 30, 1999 for the trust portfolio. In each
case these rates are 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 treated as payments of principal receivables and finance
charge receivables.
In the table below, monthly averages shown are expressed as an arithmetic
average of the payment rate for each month during the period indicated and each
month's payment rate representing total payments collected during the given
month is expressed as a percentage of the prior month's ending outstanding
receivables.
CARDHOLDER MONTHLY PAYMENT RATES
DILLARD'S PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------
JUNE 30, 1999 1998 1997 1996
---------------- ---- ---- ----
<S> <C> <C> <C> <C>
Highest Month.................................................. 21.2% 21.7% 21.6% 21.8%
Lowest Month................................................... 16.3 17.1 17.2 17.3
Monthly Average................................................ 18.2 18.8 19.1 19.4
</TABLE>
DNB generally determines the minimum monthly payment for 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 this amount is
less than $20.00, it is increased to $20.00. This 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 for selected purchases under its
extended revolving, reduced rate revolving and silver club revolving terms. See
"Billing and Payments--Customer Terms--Dillard's Credit Cards" in the attached
prospectus.
DNB-LA. generally determines the minimum monthly payment for 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 this amount is
less than $10.00, it is increased to $10.00. The sum of this 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 for selected purchases under the
extended revolving, reduced rate revolving and silver club revolving
S-22
<PAGE>
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" in the attached prospectus.
There can be no assurance that the cardholder monthly payment rates in the
future will be similar to the historical experience 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 for the trust portfolio will be similar to the historical experience
described 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
elsewhere in this prospectus supplement, 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 "Certificate Rating" and
"Maturity Considerations" in the attached prospectus.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts for
(a) each of the calendar years ended December 31, 1996 and December 31, 1997 in
the Dillard's portfolio and (b) the calendar year ended December 31, 1998 and
for the six calendar months ended June 30, 1999 in the trust portfolio are
provided 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.
The yield on both an accrual and a cash basis will be affected by numerous
factors, including
o monthly periodic finance charges on the receivables;
o fees charged;
o changes in the delinquency rate on the receivables; and
o the percentage of cardholders who pay their balances in full each month
and do not incur 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".
In the table below, finance charges and fees billed include periodic and
minimum finance charges, [annual membership fees], late charges and fees for
returned checks. Finance charges and fees billed are presented net of
adjustments made pursuant to 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. Average receivables outstanding
means the average of the daily receivable balance during the period indicated.
Yield from finance charges and fees billed is calculated as a percentage of
average receivables outstanding. The percentage reflected for the six months
ended June 30, 1999 is an annualized figure.
S-23
<PAGE>
PORTFOLIO YIELD
DILLARD'S PORTFOLIO
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------------
JUNE 30, 1999 1998 1997 1996
---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Finance Charges and Fees Billed...................... $ 133,024 $ 300,743 $ 314,609 $ 292,332
Average Receivables Outstanding...................... 1,488,656 1,601,806 1,621,624 1,595,213
Yield from Finance charges and Fees Billed........... 18.0% 18.8% 19.4% 18.3%
</TABLE>
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 described above. See "Dillard's Credit Card Portfolio" and "The
Receivables--Additional Trust Portfolio Information" in this supplement 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 on 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 the transferor. The
transferor will use the balance together with funds received from Condev Nevada,
Inc. as a contribution to its capital to pay the originators [and the other
receivables sellers] for the purchase of the receivables held by the trust.
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued pursuant to the pooling and servicing
agreement, among the transferor, the servicer and the trustee as supplemented by
the supplement for this series. Unless noted otherwise, references to the
"pooling and servicing agreement" or the "agreement" are to the pooling and
servicing agreement as supplemented by the series supplement. The transferor and
the trustee may execute further series supplements in order to issue additional
series if the conditions for the issuance of additional series in the agreement
are satisfied.
While this summary discloses the material terms of the certificates, it is
not a complete description. You should refer to the pooling and servicing
agreement and the series supplement for a complete description. You should also
refer to the "Description of the Certificates" in the attached prospectus for
additional information concerning the certificates and the agreement.
GENERAL
The certificates represent the right to receive 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:
o payments of interest on each distribution date at the Class A certificate
rate from finance charge receivables,
o payments of principal on , 20 in an amount equal to the
principal amount of the certificates from principal receivables or on
other dates following the occurrence of a PAY OUT EVENT, and
o collections allocated to the Class A Investor Interest from:
o EXCESS SPREAD, which represents the balance remaining after money
available in the finance charge account is allocated to the CLASS A
AVAILABLE FUNDS, CLASS B AVAILABLE FUNDS and COLLATERAL AVAILABLE
FUNDS;
S-24
<PAGE>
o funds on deposit in the principal funding account and the reserve
account, including investment earnings on those accounts;
o REALLOCATED PRINCIPAL COLLECTIONS, which represent amounts available
from another class of certificates of this series;
o SHARED PRINCIPAL COLLECTIONS, which represent amounts available from
other series of certificates; and
o other available amounts, possibly including amounts on deposit in
the excess funding account established under the agreement.
Each Class B certificate represents the right to receive:
o payments of interest on each distribution date at the Class B certificate
rate from finance charge receivables;
o payments of principal on , 20 in an amount equal to the
principal amount of the certificates from principal receivables, and
o collections allocated to the CLASS B INVESTOR INTEREST from:
o EXCESS SPREAD;
o REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS, which represent
amounts allocable to the Collateral Interest;
o SHARED PRINCIPAL COLLECTIONS; and
o other available amounts, possibly including amounts on deposit in
the excess funding account established under the agreement.
Payments of interest and principal will be made on each distribution date
on which payments are due. You will be paid on a distribution date if you were a
registered certificateholder on the last business day of the calendar month
preceding the distribution date.
The transfer or will initially own the transferor certificate, which
represents the right to a percentage of all cardholder payments on the
receivables in the trust. The transferor may transfer the transferor certificate
in whole or in part subject to limitations and conditions under the agreement.
See "Description of the Certificates--Matters Regarding the Transferor and the
Servicer" 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 in this prospectus supplement.
S-25
<PAGE>
INTEREST PAYMENTS
The distribution date for your series will be the 15th day of each month
(or, if that day is not a business day, the next succeeding business day);
except that the first distribution date will be , 1999. The interest
period for any distribution date will be the period from and including the
previous distribution date through the day preceding the distribution date for
which the interest period is being determined; except that the interest period
for the first distribution date will be the period from the closing date for
your series through , 1999. The record date for a distribution date
will be the last business day of the calendar month preceding that distribution
date. The transfer date for your series is the business day immediately
preceding each distribution date.
Interest on the Class A certificates will:
o accrue at the Class A certificate rate from the closing date;
o be calculated at the Class A certificate rate
o from the closing date through , 1999; and
o for each subsequent interest period;
o be calculated on the
o initial outstanding principal balance of the Class A certificates
from the closing date for the first distribution date; and
o outstanding principal balance of the Class A certificates as of the
preceding record date on each subsequent distribution date;
o be paid from
o CLASS A AVAILABLE FUNDS for the related monthly period; and
o to the extent CLASS A AVAILABLE FUNDS are insufficient to pay the
interest, from
o EXCESS SPREAD; and
o REALLOCATED PRINCIPAL COLLECTIONS (to the extent available)
for the related monthly period; and
o be distributed to Class A certificateholders on each distribution date.
Interest on the Class B certificates will:
o accrue at the Class B certificate rate from the closing date;
o be calculated at the Class B certificate rate
o from the closing date through , 1999; and
o for each subsequent interest period;
o be calculated on the
o initial outstanding principal balance of the Class B certificates
from the closing date for the first distribution date; and
o outstanding principal balance of the Class B certificates as of the
preceding record date on each subsequent distribution date;
o be paid from
o CLASS B AVAILABLE FUNDS for the related monthly period; and
o to the extent CLASS B AVAILABLE FUNDS are insufficient to pay the
interest, from
o EXCESS SPREAD; and
o REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS (to the extent
available)
for the related monthly period remaining after selected other
payments have been made on the Class A certificates; and
o be distributed to Class B certificateholders on each distribution 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. Additional interest will accrue on the same basis as interest on the
certificates, and will accrue from the distribution date on which the overdue
interest first became due, to but excluding the distribution date on which the
additional interest is paid.
The trustee will determine LIBOR on , 1999 for the period from
the closing date through , 1999 and for each interest period, on
each LIBOR determination date which will be the second London business day prior
to the distribution date on which that interest period begins. 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.
S-26
<PAGE>
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 the relevant interest period.] This 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
You will receive payments of principal in one payment on the Class A
expected maturity date or the Class B expected maturity date, as applicable, in
an amount equal to the principal amount of the certificates and subject to the
conditions and exceptions set forth below. The trust will not pay principal to
Class B certificateholders until it has made the final principal payment to
Class A certificateholders.
Revolving Period.
The revolving period begins on the closing date and ends with the
commencement of an AMORTIZATION PERIOD or an ACCUMULATION PERIOD. During this
period, the trust will not pay principal to you. During the revolving period and
on each transfer date, the business day immediately preceding a distribution
date, collections under principal receivables will generally be treated as
SHARED PRINCIPAL COLLECTIONS or deposited into an excess funding account. This
treatment is subject to limitations, including the allocation of any REALLOCATED
PRINCIPAL COLLECTIONS for a given monthly period to pay the CLASS A REQUIRED
AMOUNT and the CLASS B REQUIRED AMOUNT.
Controlled Accumulation Period.
On each transfer date during the CONTROLLED ACCUMULATION PERIOD, the
trustee will deposit into the principal funding account an amount equal to the
least of the following amounts:
o the AVAILABLE INVESTOR PRINCIPAL COLLECTIONS for the transfer date,
o the applicable CONTROLLED DEPOSIT AMOUNT, which, for that monthly
period, is an amount equal to the CONTROLLED ACCUMULATION AMOUNT
plus the ACCUMULATION SHORTFALL, if any, and
o the CLASS A ADJUSTED INVESTOR INTEREST prior to any deposits on the
transfer date.
The trust will pay Class A certificateholders principal in a single
payment on the Class A scheduled maturity date using funds from the principal
funding account. After the CLASS A INVESTOR INTEREST has been paid in full, the
trust will pay into the distribution account, until the CLASS B INVESTOR
INTEREST has been paid in full, an amount equal to the least of the following
amounts:
o AVAILABLE INVESTOR PRINCIPAL COLLECTIONS for the transfer date, for
the and
o the CLASS B INVESTOR INTEREST.
The trust will pay Class B certificateholders principal in a single
payment on the Class B scheduled maturity date using funds from the distribution
account.
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 deposited into the excess funding account.
Rapid Amortization 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. Certificateholders will receive payments until the
earlier of the date the Class A certificates are paid in full and the
Series 1999- termination date.
After payment in full of the CLASS A INVESTOR INTEREST, the Class B
certificateholders will be entitled to receive AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS on each distribution date in an amount up to the CLASS B
S-27
<PAGE>
INVESTOR INTEREST. Certificateholders will receive payments until the earlier of
the date the Class B Certificates are paid in full and the Series 1999-
termination date.
After payment in full of the CLASS B INVESTOR INTEREST, the collateral
interest holder will be entitled to receive AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS on each transfer date other than the transfer date prior to the
Series 1999- termination date and on the Series 1999- termination date. The
collateral interest holders will receive payments until the earlier of the date
the collateral interest is paid in full and the Series 1999- 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 described below.
The servicer may make this election only if the number of whole months needed to
fund the principal funding account based on expected collections of principal on
the receivables available to pay your series and those needed to pay other
series is less than twelve months. On the , 200 determination date
and on each subsequent determination date which will be the fourth business day
before each transfer date until the CONTROLLED ACCUMULATION PERIOD begins, the
servicer will review the amount of available Principal Collections and may elect
to postpone the commencement of the CONTROLLED ACCUMULATION PERIOD. In making
this determination, the servicer will assume that the principal payment rate
will be no greater than the lowest monthly payment rate for the preceding
12 months.
The effect of the preceding calculation is to permit the reduction of the
length of the CONTROLLED ACCUMULATION PERIOD based on the investor interests of
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.
SUBORDINATION
Class B Certificates
o The Class B certificates will be subordinated to the extent
necessary to fund payments to the Class A certificates;
o Principal payments allocable to the Class B certificates may be
reallocated to cover amounts in respect of the Class A certificates;
and
o The CLASS B INVESTOR INTEREST may be reduced if the Collateral
Interest is equal to zero resulting in a reduced percentage of
finance charge receivables being allocated to the CLASS B INVESTOR
INTEREST. To the extent the reduction 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."
Collateral Interest.
o The collateral interest will be subordinated to the extent necessary
to the Class A and Class B certificates;
o Principal payments allocable to the collateral interest may be
reallocated to cover payments to the Class A and Class B
certificates; and
o The collateral interest may be reduced.
S-28
<PAGE>
ALLOCATION PERCENTAGES
For each monthly period the servicer will allocate among the investor
interest for your series, the investor interest for all other series issued and
outstanding and the transferor interest, all amounts collected on finance charge
receivables, all amounts collected on principal receivables and all default
amounts.
Collections of Finance Charge Receivables and Default Amounts
At any time, collections of finance charge receivables and default amounts
will be allocated to the investor interest based on the FLOATING INVESTOR
PERCENTAGE. Allocations to the
o Class A certificateholders will be based on the CLASS A FLOATING
ALLOCATION;
o Class B certificateholders will be based on the CLASS B FLOATING
ALLOCATION; and
o collateral interest holder will be based on the COLLATERAL FLOATING
ALLOCATION.
Collections of Principal Receivables
During the REVOLVING PERIOD, collections of principal receivables will be
allocated to the
o Class A certificateholders based on the CLASS A FLOATING ALLOCATION;
o Class B certificateholders based on the CLASS B FLOATING ALLOCATION;
and
o collateral interest holder based on the COLLATERAL FLOATING
ALLOCATION.
During the CONTROLLED ACCUMULATION PERIOD and the RAPID AMORTIZATION
PERIOD, collections of principal receivables will be allocated to the investor
interest based on the FIXED INVESTOR PERCENTAGE. Allocations to the
o Class A certificateholders will be based on the CLASS A FIXED
ALLOCATION;
o Class B certificateholders will be based on the CLASS B FIXED
ALLOCATION; and
o collateral interest holder will be based on the COLLATERAL FIXED
ALLOCATION.
REALLOCATION OF CASH FLOWS
Class A Required Amount
With respect to each transfer date, the servicer will determine the
CLASS A REQUIRED AMOUNT, which will be equal to the amount, if any, by which the
sum of
o CLASS A MONTHLY INTEREST due on the related distribution date and
overdue CLASS A MONTHLY INTEREST and Class A additional interest, if
any,
o the Class A servicing fee for the related monthly period and overdue
Class A servicing fee, if any; and
o 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, the following sources will
be used to fund this amount in the order in which they appear:
o funds available for this purpose from the EXCESS SPREAD allocated to
Series 1999- for that transfer date; then
o REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS for the related monthly
period; then
o REALLOCATED CLASS B PRINCIPAL COLLECTIONS for the related monthly
period; then
S-29
<PAGE>
o collateral interest collections will be reduced by the amount of the
insufficiency until the collateral interest collections are reduced
to zero; then
o after giving effect to reductions for any COLLATERAL CHARGE-OFFS
and REALLOCATED PRINCIPAL COLLECTIONS on the transfer date; and
then
o provided that the reduction will not be by more than the CLASS A
INVESTOR DEFAULT AMOUNT for that monthly period; then
o CLASS B INVESTOR INTEREST will be reduced by the remaining
insufficiency until the CLASS B INVESTOR INTEREST is reduced to
zero;
o 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 that transfer
date; and then
o provided that the reduction will not be by more than the CLASS A
INVESTOR DEFAULT AMOUNT for that monthly period over the amount
of the reduction, if any, of the collateral interest with respect
to the relevant monthly period; and then
o CLASS A INVESTOR INTEREST will be reduced by the remaining
insufficiency;
o provided that, the CLASS A INVESTOR INTEREST will not be reduced
by more than the excess, if any, of the CLASS A INVESTOR DEFAULT
AMOUNT for the relevant monthly period over the amount of the
reductions, if any, of the collateral interest and the CLASS B
INVESTOR INTEREST with respect to the relevant monthly period.
Any 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 that 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."
Class B Required Amount
With respect to each transfer date, the servicer will determine the
CLASS B REQUIRED AMOUNT, which will be equal to the sum of
o the amount, if any, by which the sum of
o CLASS B MONTHLY INTEREST due on the related distribution date and
overdue CLASS B MONTHLY INTEREST and Class B additional interest,
if any; and
o the Class B servicing fee for the related monthly period and
overdue Class B servicing fee, if any; and
o the CLASS B INVESTOR DEFAULT AMOUNT, if any, for the related monthly
period.
If the CLASS B REQUIRED AMOUNT is greater than zero, the following sources will
be used to fund this amount in the order in which they appear:
o EXCESS SPREAD allocated to Series 1999- not required to pay the
CLASS A REQUIRED AMOUNT or reimburse CLASS A INVESTOR CHARGE-OFFS
for that transfer date; then
o REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS not required to fund
the CLASS A REQUIRED AMOUNT for the related monthly period; then
o collateral interest collected on the transfer date will be reduced
by the remaining insufficiency until the collateral interest
collections are reduced to zero;
o after any adjustments made thereto for the benefit of the
Class A certificateholders;
o after giving effect to reductions for any COLLATERAL CHARGE-OFFS
and REALLOCATED PRINCIPAL; and
S-30
<PAGE>
o provided that the reduction will not be more than the CLASS B
INVESTOR DEFAULT AMOUNT for the monthly period; then
o CLASS B INVESTOR INTEREST collections on the transfer date will be
reduced by the remaining insufficiency; then
o after giving effect to reductions for any COLLATERAL CHARGE-OFFS
and REALLOCATED PRINCIPAL COLLECTIONS; and
o provided that the reduction will not be more than the CLASS B
INVESTOR DEFAULT AMOUNT for that monthly period.
The reduction of the CLASS B INVESTOR INTEREST will not be 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 will be reimbursed by, and the CLASS A INVESTOR INTEREST or
CLASS B INVESTOR INTEREST increased to the extent of, EXCESS SPREAD available
for that purpose on each transfer date. When reductions of the CLASS A INVESTOR
INTEREST and CLASS B INVESTOR INTEREST have been fully reimbursed, reductions of
the collateral interest will be reimbursed until reimbursed in full in a similar
manner. See "--Application of Collections--Excess Spread."
APPLICATION OF COLLECTIONS
Allocations.
Except as otherwise provided below, the servicer will deposit any payment
collected on the receivables into the collection account no later than the
second business day following the date of processing. On the same day as the
deposit is made, the servicer will make the deposits and payments to the
accounts and parties below. However, as long as DNB remains the servicer, it may
make deposits and payments on each transfer date in an amount equal to the net
amount of deposits and payments which would otherwise have been made as long as
one of the following conditions is satisfied:
o 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 agencies and reliance on the letter of
credit or other credit enhancement will not result in the lowering
of any rating agency's then existing rating of any outstanding
series;
o 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
o some other arrangement is made by the servicer which is approved in
writing by each rating agency rating any outstanding series.
Regardless of anything to the contrary in the pooling and servicing
agreement and whether the servicer is required to make monthly or daily deposits
from the collection account, the servicer will only be required to deposit
collections from the collection account up to the required amount to be
deposited into any deposit account or, without duplication, distributed on or
prior to the related distribution date to certificate holders or to the
collateral interest holder. If at any time prior to the related distribution
date the amount of collections deposited in the collection account exceeds the
amount required to be deposited from the collection account to a deposit account
or distributed to a certificate holder or the collateral interest holder, the
servicer will be permitted to withdraw the excess from the collection account.
S-31
<PAGE>
Payment of Interest, Fees and Other Items.
On each transfer date, the trustee will apply the CLASS A AVAILABLE FUNDS,
CLASS B AVAILABLE FUNDS and COLLATERAL AVAILABLE FUNDS in the finance charge
account in the following manner:
On each transfer date, an amount equal to CLASS A AVAILABLE FUNDS will
be distributed in the following priority:
o First, an amount equal to the CLASS A MONTHLY INTEREST for the
related distribution date, plus the amount of any overdue
CLASS A MONTHLY INTEREST and Class A additional interest, if any,
will be deposited into the distribution account for distribution
to Class A certificateholders on the related distribution date;
o Second, 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;
o Third, 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 the transfer date; and
o Fourth, the balance, if any, will constitute a portion of EXCESS
SPREAD and will be allocated and distributed as described under
"--Excess Spread."
On each transfer date, an amount equal to CLASS B AVAILABLE FUNDS will
be distributed in the following priority:
o First, an amount equal to the CLASS B MONTHLY INTEREST for the
related distribution date, plus the amount of any overdue
CLASS B MONTHLY INTEREST and Class B additional interest, if any,
will be deposited into the distribution account for distribution
to Class B certificate holders on the related distribution date;
o Second, 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
o Third, the balance, if any, will constitute a portion of EXCESS
SPREAD and will be allocated and distributed as described under
"--Excess Spread. "
On each transfer date, an amount equal to COLLATERAL AVAILABLE FUNDS
will be distributed in the following priority:
o First, 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 fees, will be paid to the servicer, and
o Second, the balance, if any, will constitute a portion of EXCESS
SPREAD and will be allocated and distributed as described under
"--Excess Spread."
Excess Spread.
On each transfer date, the trustee, acting under the servicer's
instructions, will apply EXCESS SPREAD for the related monthly period, to
make the following distributions in the following priority:
o an amount equal to the CLASS A REQUIRED AMOUNT, if any, for the
transfer date will be applied to pay amounts due on the transfer
date relating to CLASS A AVAILABLE FUNDS above under "--Payment
of Interest, Fees and Other Items."
o an amount equal to the total amount of CLASS A INVESTOR
CHARGE-OFFS which have not been previously reimbursed (after
giving effect to the allocation on the transfer date of other
amounts applied for that purpose) will be deposited into the
principal account and treated as a portion of AVAILABLE INVESTOR
PRINCIPAL COLLECTIONS for the transfer date as described under
"--Payments of Principal" below;
S-32
<PAGE>
o an amount equal to the CLASS B REQUIRED AMOUNT, if any, for the
transfer date will be used to pay
o amounts due on the transfer date in accordance with the first
two priorities relating to Class B Available Funds above under
"--Payment of Interest, Fees and Other Items;" and
o then, 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 the transfer date as described under
"--Payments of Principal" below;
o an amount equal to the total 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 the 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 the transfer date as described under "--Payments of
Principal" below;
o an amount equal to the COLLATERAL MONTHLY INTEREST for the
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 pooling and servicing agreement;
o 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;
o an amount equal to the total COLLATERAL DEFAULT AMOUNT, if any,
for the transfer date will be deposited into the principal
account and treated as a portion of AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS for the transfer date as described under "--Payments
of Principal" below;
o an amount equal to the total 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
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 the transfer date as
described under "--Payments of Principal" below;
o 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;
o the amounts determined to be payable pursuant to the pooling and
servicing agreement shall be paid to the collateral interest
holder; and
o the balance, if any, after giving effect to the payments made
pursuant to subparagraphs above, will constitute EXCESS FINANCE
CHARGE COLLECTIONS to be applied with respect to other series.
The diagram on the next page demonstrates the application of collections of
finance charge receivables allocated to Series 1999- . The diagram is a
simplified demonstration of allocation and payment provisions and is qualified
by the full descriptions of these provisions in this prospectus supplement and
the attached prospectus.
S-33
<PAGE>
ALLOCATIONS OF COLLECTIONS OF FINANCE CHARGE RECEIVABLES
[FLOW CHART]
<TABLE>
<S> <C>
Collections of Finance Charge Receivables
Allocated to Your Series
|
|-----------------------------------------|--------------------------------------------|
Arrow Down Arrow Down Arrow Down
| | |
Class A Investor Interest Class B Investor Interest Collateral Interest
| | |
Arrow Down Arrow Down Arrow Down
| | |
1. Class A Interest Payments 1. Class B Interest Payments 1. Collateral Interest
2. Class A Servicing Fee 2. Class B Servicing Fee Servicing Fee
3. Class A Default Amount | |
| | |
|-----------------------------------------|--------------------------------------------
Arrow Down
|
Excess Collections of ---- Arrow Left --- Excess Finance Charge
Finance Charges Collections from
| Other Series
|
Arrow Down
|
|
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 certain other items
10. Other Series of Certificates
</TABLE>
Payments of Principal. On each transfer date, the trustee, acting on the
servicer's instructions, will distribute AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS (see "--Principal Payments" above) on deposit in the principal
account in the following manner:
o on each transfer date during the REVOLVING PERIOD, all AVAILABLE
INVESTOR PRINCIPAL COLLECTIONS will be distributed or deposited in
the following priority:
o an amount equal to the COLLATERAL MONTHLY PRINCIPAL will be paid
to the collateral interest holder in accordance with the pooling
and servicing agreement; and
o the balance will be treated as SHARED PRINCIPAL COLLECTIONS and
applied as described under "Description of the
Certificates--Shared Principal Collections" in this prospectus
supplement and in the attached prospectus;
o on each transfer date during the CONTROLLED ACCUMULATION PERIOD or
the RAPID AMORTIZATION PERIOD, all AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS will be distributed or deposited in the following
priority:
o CLASS A MONTHLY PRINCIPAL will be
o during the CONTROLLED ACCUMULATION PERIOD, deposited in the
principal funding account (up to the CONTROLLED DEPOSIT AMOUNT
for the transfer date) or
S-34
<PAGE>
o during the RAPID AMORTIZATION PERIOD, distributed to the
Class A certificateholders; and
o 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), the CLASS B MONTHLY PRINCIPAL
for the transfer date will be distributed to the Class B
certificateholders;
o on each transfer date during 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
o on each transfer date during the CONTROLLED ACCUMULATION PERIOD and
the RAPID AMORTIZATION PERIOD, the balance of AVAILABLE INVESTOR
PRINCIPAL COLLECTIONS not applied according to the two paragraphs
relating to the CONTROLLED ACCUMULATION PERIOD and the RAPID
AMORTIZATION PERIOD above, if any, will be treated as SHARED
PRINCIPAL COLLECTIONS and applied as described under "Description of
the Certificates--Shared Principal Collections" in this prospectus
supplement 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.
The Series 1999- termination date will be the earliest of:
o the distribution date on which the investor interest is paid in
full;
o the o distribution date; or
o the TRUST TERMINATION DATE.
After the Series 1999- termination date, the trust will have no further
obligation to pay principal or interest on the certificates.
The diagram below demonstrates the manner in which collections of principal
receivables are allocated and applied to Series 1999- . The diagram is a
simplified demonstration of allocation and payment provisions and is qualified
by the full descriptions of these provisions in this prospectus supplement and
the prospectus.
S-35
<PAGE>
ALLOCATIONS OF COLLECTIONS OF PRINCIPAL RECEIVABLES
[FLOW CHART]
<TABLE>
<S> <C>
Collections of Principal Receivables
Allocated to Your Series
|
-------------------------------------------------------------
| |
| Arrow Down
| |
| Class B Investor Interest
| |
| Arrow Down
| |
Arrow Down Reallocation to unpaid:
| 1. Class A Interest Payments
Class A Investor Interest 2. Class A Servicing Fee
| 3. Class A Default Amount
| |
| |------------------------------
------------------------------|
|
Arrow Down
|
|
Available Investor Principal --- Arrow Left ------- Shared Principal Collections
Collections from Other Series
|
Arrow Down
|
During Accumulation or amortization period:
1. Class A Principal Payment or Deposit
2. Class B Principal Payment
3. Collateral Interest Principal Payment
|
Arrow Down
|
Shared Principal Collections to
Other Series, if necessary
|
Arrow Down
|
Dillard Asset Funding Company
</TABLE>
SHARED EXCESS FINANCE CHARGE COLLECTIONS
This series will be included in Group I. Any other series which may be
issued by the trust from time to time, may also be included in Group I. [There
are currently no other series included in Group I. Group I is currently the only
group in the trust.] The series supplement for each series will specify whether
a given series will be included in a group.
Each series in Group I will:
o share EXCESS FINANCE CHARGE COLLECTIONS with each other series, if
any, in Group I;
o apply pro rata, EXCESS FINANCE CHARGE COLLECTIONS to cover any
shortfalls of amounts payable from collections of finance charge
receivables allocable to any other series included in Group I; and
S-36
<PAGE>
o pay the holder of the transferor certificate, EXCESS FINANCE CHARGE
COLLECTIONS, if any, remaining after covering shortfalls on all
outstanding series in the group.
While this series is included in Group I, there can be no assurance that:
o any other series will be included in the group; or
o there will be any EXCESS FINANCE CHARGE COLLECTIONS for the group
for any monthly period.
While the transferor 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 cover:
o during the CONTROLLED ACCUMULATION PERIOD:
o deposits of the applicable CONTROLLED DEPOSIT AMOUNT to
o the principal funding account; or
o the distribution account; and
o during the RAPID AMORTIZATION PERIOD:
o first, payments to the certificateholders; and
o second, payments to the collateral interest holder.
For any monthly period, the servicer will allocate the SHARED PRINCIPAL
COLLECTIONS:
o first, to cover PRINCIPAL SHORTFALLS, on a pro rata basis among the
applicable series (but not investor charge-offs for any series); and
o second, to the extent SHARED PRINCIPAL COLLECTIONS exceed PRINCIPAL
SHORTFALLS, to:
o the holder of the transferor certificate; or
o the excess funding account;
REQUIRED COLLATERAL INTEREST
On any transfer date, if the collateral interest is less than the REQUIRED
COLLATERAL INTEREST, some EXCESS SPREAD, if available, will be allocated to
increase the collateral interest to the extent of the shortfall. Any of the
EXCESS SPREAD not required to be so allocated or deposited into the reserve
account on any transfer date will be applied in accordance with the pooling and
servicing 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 that
business day. In the event the transferor interest would fall below the MINIMUM
TRANSFEROR INTEREST, the transferor will be required to pay the trust an
ADJUSTMENT PAYMENT. ADJUSTMENT PAYMENTS made by the transferor will be treated
as EXCESS SPREAD. If the transferor fails to pay when due, EXCESS SPREAD and
REALLOCATED PRINCIPAL COLLECTIONS for Series 1999- may be applied. To the
extent these amounts are insufficient to cover the portion of the unpaid
ADJUSTMENT PAYMENTS allocated to Series 1999- , there will be an INVESTOR
CHARGE-OFF as described below.
S-37
<PAGE>
DEFAULTED RECEIVABLES; DILUTIONS; INVESTOR CHARGE-OFFS
On or before each transfer date, the servicer will:
o calculate the INVESTOR DEFAULT AMOUNT for the preceding monthly
period;
o allocate the CLASS A INVESTOR DEFAULT AMOUNT to the Class A
certificateholders;
o allocate the CLASS B INVESTOR DEFAULT AMOUNT to the Class B
certificateholders; and
o allocate the COLLATERAL DEFAULT AMOUNT to the collateral interest
holder.
Class A Certificates
If the CLASS A INVESTOR DEFAULT AMOUNT exceeds the available amount of
o EXCESS SPREAD and
o REALLOCATED PRINCIPAL COLLECTIONS; then
the following reductions will occur to the extent necessary and in the order in
which they appear:
o the collateral interest, after giving effect to reductions for any
COLLATERAL CHARGE-OFFS and any REALLOCATED PRINCIPAL COLLECTIONS on
the transfer date, will be reduced by the lesser of:
o the CLASS A INVESTOR DEFAULT AMOUNT; and
o the collateral interest
until the collateral interest is zero; then
o the CLASS B INVESTOR INTEREST will be reduced until the CLASS B
INVESTOR INTEREST is reduced to zero, after giving effect to
reductions for any CLASS B INVESTOR CHARGE-OFFS and any REALLOCATED
CLASS B PRINCIPAL COLLECTIONS on the transfer date; and then
o the CLASS A INVESTOR INTEREST will be reduced by the CLASS A
INVESTOR CHARGE-OFFS.
Any reduction in the CLASS A INVESTOR INTEREST, will
o slow or even reduce the return of principal and interest to the
Class A certificateholders; and
o be reimbursed up to the total amount of CLASS A INVESTOR CHARGE-OFFS
on any transfer date by the amount of EXCESS SPREAD allocated and
available for that purpose.
Class B Certificates
If the CLASS B INVESTOR DEFAULT AMOUNT exceeds the available amount of
o EXCESS SPREAD and
o REALLOCATED PRINCIPAL COLLECTIONS; then
the following reductions will occur to the extent necessary and in the order in
which they appear:
o collateral interest, after giving effect to reductions for any
COLLATERAL CHARGE-OFFS and any REALLOCATED PRINCIPAL COLLECTIONS on
the transfer date and after giving effect to any adjustments due to
the preceding paragraph, will be reduced by the lesser of:
o the CLASS B INVESTOR DEFAULT AMOUNT; and
o the collateral interest
until the collateral interest is zero; and then
o the CLASS B INVESTOR INTEREST will be reduced by the CLASS B
INVESTOR CHARGE-OFF.
Any reduction in the CLASS B INVESTOR INTEREST, will
o slow or even reduce the return of principal and interest to the
Class B certificateholders; and
S-38
<PAGE>
o be reimbursed up to 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.
Collateral Interest
If the COLLATERAL DEFAULT AMOUNT exceeds the available amount of EXCESS
SPREAD which is allocated and available to fund the amount as described under
"--Application of Collections--Excess Spread," then the collateral interest will
be reduced by the COLLATERAL CHARGE-OFFS. Any reduction in the collateral
interest reduced by:
o COLLATERAL CHARGE-OFFS; or
o allocations to Class A or Class B certificates;
will be reimbursed on any later transfer date by the amount of EXCESS SPREAD
allocated and available for that purpose.
SERVICER GUARANTEE
The obligations of the servicer under the pooling and servicing agreement
will be guaranteed by Dillard's under a servicer guarantee.
PRINCIPAL FUNDING ACCOUNT
Under the Series 1999- supplement, the trustee at the direction of the
servicer will:
o establish and maintain the principal funding account;
o during the CONTROLLED ACCUMULATION PERIOD and RAPID AMORTIZATION
PERIOD, transfer collections from the principal account to the
principal funding account as described underb "--Application of
Collections." related to
o principal receivables (other than REALLOCATED PRINCIPAL
COLLECTIONS) and
o SHARED PRINCIPAL COLLECTIONS from other series, if any, allocated
to Series 1999- ; and
o ultimately use these collections to pay the principal of the
Class A certificates on the earlier of
o the Class A scheduled payment date or
o the first distribution date during the RAPID AMORTIZATION PERIOD.
Funds on deposit in the principal funding account will be invested until
the following transfer date by the trustee at the direction of the servicer in
permitted investments. The proceeds from these investments will be applied on
each transfer date as CLASS A AVAILABLE FUNDS. If, for any transfer date, these
proceeds are less than an amount equal to the product of
o (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 for the interest
period; and
o the principal funding account balance as of the record date
preceding the transfer date;
an amount up to the shortfall will be
o withdrawn from the reserve account;
o deposited in the finance charge account and
o included in collections of finance charge receivables to be applied
to the payment of CLASS A MONTHLY INTEREST.
S-39
<PAGE>
[RESERVE ACCOUNT
On each transfer date, the trustee, acting on the servicer's instructions,
will fund the reserve account
o from and after the RESERVE ACCOUNT FUNDING DATE;
o prior to the termination of the reserve account;
o from EXCESS SPREAD allocated to the certificates to the extent
described above under "--Application of Collections--Excess
Spread"; and
o up to the REQUIRED RESERVE ACCOUNT AMOUNT.
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 the transfer date,
the trustee
o will distribute to the collateral interest holder 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 AMOUNT;
o provided that the reserve account has not terminated as described
below,
o may invest at the direction of the servicer amounts in the
reserve account in permitted investments until the following
transfer date, and
o retain the net investment income in the reserve account or deposited
in the finance charge account and treated as CLASS A AVAILABLE
FUNDS;
o on or before each transfer date during the CONTROLLED ACCUMULATION
PERIOD and on the first transfer date during the RAPID AMORTIZATION
PERIOD,
o withdraw from the reserve account and deposit in the finance
charge account and include in collections of finance charge
receivables to be applied to the payment of the Class A monthly
interest for the transfer date an amount equal to the lesser of
o the AVAILABLE RESERVE ACCOUNT AMOUNT and
o the CLASS A PRINCIPAL FUNDING INVESTMENT SHORTFALL;
provided, that the amount withdrawn will be reduced to the extent
that funds otherwise would be available to be deposited in the
reserve account on the transfer date.
The reserve account will be terminated upon the earlier to occur of
o the termination of the trust pursuant to the pooling and servicing
agreement; and
o if the CONTROLLED ACCUMULATION PERIOD has not commenced, the first
transfer date during the RAPID AMORTIZATION PERIOD or,
o if the CONTROLLED ACCUMULATION PERIOD has commenced,
o the earlier to occur of
o the first transfer date during the RAPID AMORTIZATION PERIOD;
and
o the transfer date immediately preceding the Class A scheduled
payment date.
Upon the termination of the reserve account, all remaining amounts on deposit
will be distributed to the collateral interest holder for application in
accordance with the terms of the pooling and servicing 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.]
S-40
<PAGE>
ISSUANCE OF ADDITIONAL CERTIFICATES
The Series 1999- supplement provides that, from time to time during the
REVOLVING PERIOD, the transferor may, subject to the conditions described below,
cause the trustee to issue additional certificates and to increase the size of
the collateral interest. 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 pooling
and servicing 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 the
conditions provided in the Series 1999- supplement, including the following:
o on or before the fifth business day immediately preceding the date
on which the additional certificates are to be issued, the
transferor will have given the trustee, the servicer and the rating
agencies notice of the issuance and the date upon which it is to
occur,
o after giving effect to the additional issuance, the total amount of
principal receivables will be greater than or 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 this amount may be reduced to a lesser amount at any time if
the RATING AGENCY CONDITION is satisfied.
o the transferor will have delivered evidence of the proportional
increase in the collateral interest to the trustee and the Rating
Agencies,
o the RATING AGENCY CONDITION will have been satisfied for the
additional issuance,
o the transferor will have delivered to the trustee a certificate of
an authorized officer to the effect that, in the reasonable belief
of the transferor, the additional issuance will not have a material
adverse effect on any outstanding class of this series,
o as of the date of the additional issuance there are no INVESTOR
CHARGE-OFFS for any class of this series; and
o the transferor will have delivered to the trustee a tax opinion for
the additional issuance.
There are no restrictions on the timing or amount of any additional issuance
other than the conditions described above.
COMPANION SERIES
The certificates may be paired with one or more companion series. Each
companion series will require an initial deposit to a prefunding account in an
amount up to the initial principal balance of the companion series, funded
primarily from the proceeds for the sale of the companion series, or will have a
variable principal amount. Any prefunding account will be held for the benefit
of the companion series and not for the benefit of certificateholders. As
principal is paid on the certificates, either
o in the case of a prefunded companion series, an equal amount of
funds on deposit in any prefunding account for the prefunded
companion series will be released (which funds will be distributed
to the transferor) or
o in the case of a companion series having a variable principal
amount, an interest in the variable companion series in an equal or
lesser amount may be sold by the trust (with the proceeds
distributed to the transferor) in either case, the invested amount
in the trust of the companion series will increase by up to the
corresponding amount.
S-41
<PAGE>
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
certificateholder. In particular, the denominator of the FIXED INVESTOR
PERCENTAGE may be increased if a PAY OUT EVENT occurs to a companion series
resulting in a possible reduction of the percentage of collections of principal
receivables allocated to this series if the event allowed the payment of
principal at that time to the companion series and required reliance by this
series on the second clause of the denominator in the definition of FIXED
INVESTOR PERCENTAGE for this series. See "Maturity Considerations" and
"--Allocation Percentages" in this supplement.
PAY OUT EVENTS
As described above, the REVOLVING PERIOD will continue through the close of
business on the last day of the o monthly period (unless postponed as described
under "--Postponement of Controlled Accumulation Period"), unless a PAY OUT
EVENT occurs beforehand.
A PAY OUT EVENT will occur,
o on the certificates if,
o in the case of any event described in clauses marked with an
asterisk (*) in the definition of PAY OUT EVENT,
o any applicable grace period has expired, and
o either the trustee or certificateholders and the collateral
interest holder evidencing undivided interests totaling more
than 50% of the investor interest, by written notice to the
transferor and the servicer (and to the trustee if given by
the certificateholders) declare that a PAY OUT EVENT has
occurred on the certificates as of the date of the notice; and
o in the case of any event described in clause (c), (d) or (f) of
the definition of PAY OUT EVENT, the event occurs without any
notice or other action on the part of the trustee, the
certificateholders, the collateral interest holder or all
certificateholders, as appropriate; and
o for all series then outstanding
o in the case of any event described in clause (g), (h) or (i) of
the definition of PAY OUT EVENT, the event occurs without any
notice or other action on the part of the trustee, the
certificateholders, the collateral interest holder or all
certificateholders, as appropriate.
On the date on which a PAY OUT EVENT is deemed to have occurred,
o the RAPID AMORTIZATION PERIOD will begin; and
o distributions of principal to the certificateholders will begin on
the next distribution date.
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 o
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 the transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
[The servicer will receive a servicing fee as servicing compensation for
each series it services. The servicing fee may be payable from finance charge
receivables or other amounts as specified in this prospectus supplement.
Pursuant to the pooling and servicing 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. The servicing fee
for Class A and the servicing fee for Class B will be payable to the servicer
only as described under "--Application of Collections."]
S-42
<PAGE>
The servicer will pay from its servicing compensation expenses incurred
from servicing the receivables including payment of the fees and disbursements
of the trustee and independent certified public accountants and other fees which
are not expressly stated in the pooling and servicing agreement to be payable by
the trust or the certificateholders other than federal, state and local income
and franchise taxes, if any, payable by the trust.
THE CERTIFICATES
[You may purchase the certificates only in minimum denominations of $1,000
and integral multiples of $1,000.]
[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 DTC.
Unless and until definitive certificates are issued, all references in this
prospectus supplement to actions by Class A certificateholders and/or Class B
certificateholders refers to actions taken by DTC upon instructions from DTC
participants. All references in this prospectus supplement to distributions,
notices, reports and statements to Class A certificateholders and/or Class B
certificateholders refers to distributions, notices, reports and statements to
DTC or CEDE, as the registered holder of the Class A certificates and the Class
B certificates for distribution to certificate owners in accordance with DTC
procedures. Certificateholders may hold their certificates through DTC in the
U.S. or CEDELBANK or EUROCLEAR in Europe if they are participants of these
systems, or indirectly through organizations that are participants in these
systems. CEDE, as nominee for DTC, will hold the global certificates. CEDELBANK
and EUROCLEAR will hold omnibus positions on behalf of the CEDELBANK customers
and the EUROCLEAR Participants, respectively, through customers' securities
accounts in CEDELBANK's and EUROCLEAR's names on the books of their respective
depositaries. The depositaries 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 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 the payment becomes due will be repaid to the
trust, and any certificateholder may then look only to the trust for payment.
The paying agents for the certificates will be and the
trustee.
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 in the
attached prospectus.
REPORTS TO CERTIFICATEHOLDERS
On each transfer date, the trustee will forward to each certificateholder
of record, a statement prepared by the servicer containing the items described
in "Description of the Certificates--Reports to Certificateholders" in the
attached prospectus. In addition, the statement will include
o the amount, if any, withdrawn from the principal funding account for
the transfer date, and
o the collateral interest, if any, for the transfer date.
So long as the certificates are listed on the Luxembourg Stock Exchange, notice
to certificateholders will be published in a daily newspaper in Luxembourg which
is 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.
S-43
<PAGE>
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 organizational documents of the transferor, 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 may be obtained upon request.
The Class A and the Class B certificates have been accepted for clearance
through the facilities of DTC, CEDELBANK 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 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 "Where You
Can Find More 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, 1998 [and Quarterly Report on Form 10-Q for the quarter
ended , 1999]. The 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 pooling and servicing agreement and the Series
1999- supplement are governed by the laws of the State of New York.
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.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986,
as amended, prohibit PLANS from engaging in certain transactions involving PLAN
ASSETS with persons that are 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 the 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 PLAN ASSET
REGULATION issued by the 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
S-44
<PAGE>
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 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
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.
S-45
<PAGE>
UNDERWRITING
Subject to the terms of the underwriting agreement between the transferor
and the underwriters, the transferor has agreed to sell to the Class A
underwriters and the Class B underwriter the principal amount of the Class A
certificates and the Class B certificates, as applicable, and the underwriters
listed below have in turn agreed to purchase the respective principal amounts of
certificates set forth opposite the underwriters' name:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS A
CLASS A UNDERWRITERS CERTIFICATES
- ------------------------------------------------------------------------------------ -------------------
<S> <C>
Total...............................................................................
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS B
CLASS B UNDERWRITERS CERTIFICATES
- ------------------------------------------------------------------------------------ -------------------
<S> <C>
</TABLE>
[We have entered into an Underwriting Agreement dated [ ] with the
underwriters. The agreement provides that the underwriters will purchase from us
$[ ] principal amount of the certificates in the amounts indicated in the
tables above. The underwriters will purchase all of the certificates if any of
the certificates are purchased. They need not purchase any certificates unless
the conditions in the Underwriting Agreement are satisfied. We have agreed to
indemnify the underwriters against liabilities, including civil liabilities
under the Securities Act of 1933, or to contribute to payments which the
underwriters may be required to make for those liabilities.
We must also pay the expenses of this offering, which are expected to be
$[ ]. Those expenses will reduce the proceeds of this offering received by
us.
The underwriters advise us that they propose to offer the certificates to
the public initially at the respective offering prices indicated on the cover
page of this prospectus supplement. The Class A underwriters may offer the Class
A certificates to selected dealers at that price less a concession of [ ]%. The
Class A underwriters or those dealers may allow a discount of [ ]% on sales to
other dealers. The Class B underwriters may offer the Class B certificates to
selected dealers at that price less a concession of [ ]%. The Class B
underwriters or those dealers may allow a discount of [ ]% on sales to other
dealers. After the initial public offering of the certificates, the underwriters
may change the public offering price, concession to dealers and discount.
The certificates are a new issue of securities with no established trading
market. The underwriters have advised us that they intend to act as market
makers for the certificates. They are not obligated to do so, however, and they
may discontinue any market making at any time without notice. Neither we nor the
underwriters can assure the liquidity of any trading market for the
certificates.
The Underwriters and their affiliates engage in transactions with or
perform services for us in the ordinary course of business. Those services
include investment and commercial banking transactions and services, including
serving as an agent and/or lender on some of our credit agreements.]
[Each underwriter has represented and agreed that
o 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;
S-46
<PAGE>
o it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 with respect to anything done by it in relation to
the Certificates in, from or otherwise involving the United Kingdom;
o if that underwriter is an authorized person under Chapter III of
Part I of the Financial Services Act 1986, it has only promoted and
will only promote (as that term is defined in Regulation 1.02 of the
Financial Services (Promotion of Unregulated 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; and
o it is a person of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996.
To facilitate the offering of the certificates, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of the
certificates including the following:
o the underwriters may overallot in connection with any offering of
certificates, creating a short position in the certificates for
their own accounts;
o the underwriters may bid for, and purchase, the certificates in the
open market to cover overallotments or to stabilize the price of the
certificates; and
o in any offering of the certificates through a syndicate of
underwriters, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing
the certificates in the offering if the syndicate repurchases
previously distributed certificates in transactions to cover
syndicate short positions, in stabilization transactions or
otherwise.
Any of these activities may stabilize or maintain the market price of the
certificates above independent market levels. The underwriters are not required
to engage in these activities, and may end any of these activities at any time.]
[This prospectus supplement and the attached prospectus may be used by
in connection with offers and sales related to market-making transactions
in the certificates. 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. 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. is among the underwriters
participating in the initial distribution of the certificates.]
LEGAL MATTERS
Simpson Thacher & Bartlett will give opinions on the legality of the
certificates, the tax consequences of issuance of the certificates and certain
creditor's rights matters for the registrant.
[ ] will also give opinions on the legality of the certificates
for the underwriters.
S-47
<PAGE>
GLOSSARY OF TERMS
The following glossary of terms is not complete. You should refer to the
prospectus for additional definitions.
Unless the context requires otherwise, the definitions contained in this
glossary of terms apply only to this series of certificates and will not
necessarily apply to any other series of certificates the trust may issue.
"ADJUSTED INVESTOR INTEREST" means for any date of determination the
investor interest minus the principal funding account balance on that date.
"ADJUSTMENT PAYMENT" means the amount by which the transferor interest is
below the Minimum Transferor Interest which amount the transferor is required to
pay to the trust.
"AVAILABLE INVESTOR PRINCIPAL COLLECTIONS" means, with respect to any
monthly period, an amount equal to the sum of
o collections of principal receivables received during the monthly period
and other amounts allocable to the investor interest, minus
o the amount of Reallocated Principal Collections for the monthly period
used to fund the Required Amount, plus
o any Shared Principal collections for other series that are allocated
to Series 1999- .
"AVAILABLE RESERVE ACCOUNT AMOUNT" means with respect to each transfer
date, the amount 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 the transfer
date.
"BASE RATE" means, with respect to any monthly period, the annualized
percentage equivalent of a fraction,
o 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
o the denominator of which is the investor interest as of the close of
business on the last day of such monthly period.
"CLASS A ADJUSTED INVESTOR INTEREST" means, for any date of determination,
an amount equal to the then current Class A investor interest minus the
principal funding account balance on that date.
"CLASS A AVAILABLE FUNDS" means, with respect to any monthly period, an
amount equal to the sum of
o the Class A Floating Allocation of collections of finance charge
receivables allocated to the investor interest for the monthly period,
o Principal Funding Investment Proceeds, if any, for the related transfer
date and
o amounts, if any, to be withdrawn from the reserve account which are
required to be included in Class A Available Funds under the Series
1999- supplement on that transfer date.
"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.
"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 for 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 that day.
S-48
<PAGE>
"CLASS A INVESTOR CHARGE-OFF" means the amount by which the Class B
Investor Interest would have been reduced by the Class A Investor Default Amount
below zero, but not more than the Class A Investor Default Amount for the
related transfer date.
"CLASS A INVESTOR DEFAULT AMOUNT" means on each transfer date an amount
equal to the product of the Class A Floating Allocation applicable during the
related monthly period and the Investor Default Amount for that monthly period.
"CLASS A INVESTOR INTEREST" for any date means an amount equal to
o the aggregate initial principal amount of the Class A certificates,
o minus the aggregate amount of principal payments made to Class A
certificateholders prior to that date,
o minus the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs for all transfer dates preceding that date over the aggregate
amount of any reimbursements of Class A Investor Charge-Offs for all
transfer dates preceding that date;
provided, however, that the Class A Investor Interest may not be reduced below
zero.
"CLASS A MONTHLY INTEREST" means, for any distribution date, an amount
equal to the product of
o the Class A certificate rate for related interest period,
o the actual number of days in that interest period divided by 360 and
o the outstanding principal balance of the Class A certificates as of the
related record date;
provided, however, for 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 , 1999.
"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
o the Available Investor Principal Collections on deposit in the principal
account with respect to that transfer dates,
o 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 that transfer date and
o the Class A Adjusted Investor Interest prior to any deposits on that
transfer date.
"CLASS A REQUIRED AMOUNT" means, an amount, if any, equal to the sum of
o Class A Monthly Interest due on the related Distribution Date and overdue
Class A Monthly Interest and Class A additional interest on the overdue
amount, if any,
o the Class A servicing fee for the related monthly period and overdue
Class A servicing fee, if any, and
o the Class A Investor Default Amount, if any, for the related monthly
period exceeds the Class A Available Funds for the related monthly
period.
"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.
"CLASS B FIXED ALLOCATION" means, with respect to any monthly period, the
percentage equivalent (which percentage will 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.
"CLASS B FLOATING ALLOCATION" means, with respect to any monthly period,
the percentage equivalent (which percentage will 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
S-49
<PAGE>
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
that day.
"CLASS B INVESTOR CHARGE-OFF" means the amount by which the collateral
interest would have been reduced below zero by the Class B Investor Default
Amount, but not more than the Class B Investor Default Amount for that transfer
date.
"CLASS B INVESTOR DEFAULT AMOUNT" means, on each transfer date, an amount
equal to the product of the Class B Floating Allocation applicable during the
related monthly period times the Investor Default Amount for that monthly
period.
"CLASS B INVESTOR INTEREST" for any date means an amount equal to
o the aggregate initial principal amount of the Class B certificates,
minus
o the aggregate amount of principal payments made to Class B
certificateholders prior to that date, minus
o the aggregate amount of Class B Investor Charge-Offs for all prior
transfer dates*, minus
o the aggregate amount of Reallocated Class B Principal Collections for all
prior transfer dates for which the collateral interest has not been
reduced*, minus
o 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* plus
o the aggregate amount of Excess Spread allocated and available on all
prior transfer dates for the purpose of reimbursing amounts deducted
according to clauses marked with an asterisk (*) above;
provided, that the Class B Investor Interest may not be reduced below zero.
"CLASS B MONTHLY INTEREST" means, with respect to any distribution date,
the product of
o the Class B certificate rate for the related interest period,
o the actual number of days in that interest period divided by 360 and
o the outstanding principal balance of the Class B certificates as of the
related record date;
provided, for 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 , 1999.
"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
o the Available Investor Principal Collections on deposit in the principal
account for that transfer date (minus the portion of the Available
Investor Principal Collections applied to Class A Monthly Principal on
that transfer date) and
o the Class B Investor Interest for that transfer date.
"CLASS B REQUIRED AMOUNT" means the sum equal to
o the amount, if any, by which the sum of
-- Class B Monthly Interest due on the related distribution date and
overdue Class B Monthly Interest and Class B additional interest on
the overdue amount, if any, and
-- 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 that monthly period and
o the Class B Investor Default Amount, if any, for that related monthly
period.
"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 for that monthly period.
S-50
<PAGE>
"COLLATERAL CHARGE-OFF" means the excess of the Collateral Default Amount
over the amount of Excess Spread available to fund such amount but not greater
than the lesser of the Collateral Default Amount and the collateral interest for
that transfer date.
"COLLATERAL DEFAULT AMOUNT" means on each transfer date an amount equal to
the product of the Collateral Floating Allocation applicable during the related
monthly period and the Investor Default Amount for that monthly period
"COLLATERAL FIXED ALLOCATION" means, for any monthly period, the percentage
equivalent (which percentage will never exceed 100%) of a fraction, the
numerator 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.
"COLLATERAL FLOATING ALLOCATION" means, with respect to any monthly period,
the percentage equivalent (which percentage will never exceed 100%) of a
fraction, the numerator 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 equal to the
Adjusted Investor Interest as of the close of business on that day.
"COLLATERAL MONTHLY INTEREST" means with respect to any transfer date the
product of
o an amount equal to LIBOR plus % per annum, or such lesser amount as
may be designated in the respective loan agreement;
o the actual number of days in the related interest period divided by 360;
and
o the collateral interest as of the related record date or, with respect to
the first transfer date, the Initial Collateral Interest.
"COLLATERAL MONTHLY PRINCIPAL" means:
o with respect to any transfer date relating to the Revolving Period
following any reduction of the Required Collateral Interest, an amount
equal to the lesser of
-- the excess, if any, of the collateral interest (after giving effect
to reductions for any Collateral Charge-Offs and Reallocated
Principal Collections on that transfer date and after giving effect
to any adjustments thereto for the benefit of the Class A
certificateholders and the Class B certificateholders on that
transfer date) over the Required Collateral Interest on that
transfer date, and
-- the Available Investor Principal Collections on that transfer
date or
o with respect to any transfer date relating to the Controlled Accumulation
Period or Rapid Amortization Period, an amount equal to the lesser of
-- the excess, if any, of the collateral interest (after giving effect
to reductions for any Collateral Charge-Offs and Reallocated
Principal Collections on that transfer date and after giving effect
to any adjustments thereto for the benefit of the Class A
certificateholders and the Class B Certificateholders on that
transfer date) over the Required Collateral Interest on that
transfer date, and
-- the excess, if any, of
-- the Available Investor Principal Collections on that transfer
date over
-- the sum of the Class A Monthly Principal plus the Class B
Monthly Principal for that transfer date.
"CONTROLLED ACCUMULATION AMOUNT" means
o for any transfer date with respect to the Controlled Accumulation Period,
prior to the payment in full of the Class A Investor Interest $ ;
provided, that if the commencement of the Controlled Accumulation Period
is delayed 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 pooling and servicing agreement based on the principal payment
rates for the accounts and on the investor interests of other series
(other than certain
S-51
<PAGE>
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
o 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 that transfer date.
"DTC" means the Depository Trust Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EUROCLEAR" means the Euroclear System.
"EXCESS FINANCE CHARGE COLLECTIONS" means the collections of finance charge
receivables and certain other amounts allocable to the investor interest of any
series that is included in Group I greater than the amounts necessary to make
required payments for that series (including payments to any related credit
enhancement providers) that are payable out of collections of finance charge
receivables.
"EXCESS SPREAD" means the balance, if any, remaining after the trustee
allocates the money available in the finance charge account to pay interest,
servicing fees and other amounts from the Class A Available Funds, Class B
Available Funds and Collateral Available Funds.
"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
o the sum of
-- the aggregate amount of principal receivables as of the close of
business on the last day of the prior monthly period and*
-- the principal amount on deposit in the excess funding account as of
the close of business on such day and
o 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 account addition date occurs or in which
an account removal date occurs, the amount in the clause marked with an
asterisk (*) above will be the quotient of
-- the sum of
-- 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 account addition
date or account removal date and
-- the aggregate amount of principal receivables in the trust at
the beginning of the day on the related account addition date
or account removal date after adjusting for the aggregate
amount of principal receivables added to or removed from the
trust on the related account addition date or account removal
date, as the case may be, for the period from and including
the related account addition date or account removal date to
and including the last day of such monthly period over
-- the actual number of days in the monthly period.
"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
o the sum of
-- 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
S-52
<PAGE>
-- the principal amount on deposit in the excess funding account as of
the close of business on such day and
o 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 marked with an asterisk (*) above will be the quotient of
-- the sum of
-- 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 account addition date or
account removal date and
-- the aggregate amount of principal receivables in the trust as
of the beginning of the day on the related account addition
date or account removal date after adjusting for the aggregate
amount of principal receivables added to or removed from the
trust on the related account addition date or account removal
date, as the case may be, for the period from and including
the related account addition date or account removal date to
and including the last day of such monthly period over
-- the actual number of days in the monthly period.
"INITIAL COLLATERAL INTEREST" means $ .
"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 that date. If
that 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, 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.
"PLAN ASSET REGULATION" means 29 CFR Section 2510.3-101 issued by the DOL
relating to plan assets.
"PORTFOLIO YIELD" means, for 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.
"PRINCIPAL FUNDING INVESTMENT PROCEEDS" means investment earnings (net of
investment losses and expenses) on funds on deposit in the principal funding
account.
"PRINCIPAL SHORTFALLS" means the scheduled or permitted principal
distributions to certificateholders and deposits to principal funding accounts,
if any, for any series which have not been covered out of the collections of
principal receivables allocable to such series and certain other amounts for
that series.
"REALLOCATED CLASS B PRINCIPAL COLLECTIONS" means, for any monthly period,
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, the amount will not
S-53
<PAGE>
exceed the Class B Investor Interest after giving effect to any Class B Investor
Charge-Offs for that transfer date.
"REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS" means, for any monthly
period, collections of principal receivables allocable to the collateral
interest for the related monthly period in an amount not greater than the amount
applied to fund the Class A Required Amount and the Class B Required Amount, if
any; provided, the amount will not exceed the collateral interest after giving
effect to any Collateral Charge-Offs for the related transfer date.
"REALLOCATED PRINCIPAL COLLECTIONS" means, for any monthly period,
o the Reallocated Class B Principal Collections for such monthly period,
if any, plus
o the Reallocated Collateral Principal Collections for that monthly
period, if any.
"RECOVERIES" means recoveries on charged-off accounts in the trust
portfolio.
"REQUIRED AMOUNT" means, for any monthly period,
o the Class A Required Amount plus
o the Class B Required Amount, each for that monthly period.
"REQUIRED COLLATERAL INTEREST" with respect to any transfer date means
o the Initial Collateral Interest and
o 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 that transfer date, after taking into account
deposits into the principal funding account on that 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 that
transfer date, but not less than $ ;
provided,
o 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 will equal the Required Collateral Interest for the transfer date
immediately preceding the occurrence of that reduction or Pay Out Event,
o in no event will the Required Collateral Interest exceed the unpaid
principal amount of the certificates as of the last day of the monthly
period preceding that transfer date after taking into account payments to
be made on the related distribution date and
o the Required Collateral Interest may be reduced to a lesser amount at any
time if the Rating Agency Condition is satisfied.
"REQUIRED RESERVE ACCOUNT AMOUNT" means, for any transfer date, on or after
the Reserve Account Funding Date will be equal to
o % of the outstanding principal balance of the Class A certificates or
o any other amount designated by the transferor; provided, if the
designation is of a lesser amount, the transferor will have provided the
servicer, the collateral interest holder and the trustee with evidence
that the Rating Agency Condition has been satisfied and the transferor
will have delivered to the trustee a certificate of an authorized officer
to the effect that, based on the facts known to that officer at that
time, in the reasonable belief of the transferor, the 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 1999- .
"RESERVE ACCOUNT FUNDING DATE" means 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 an earlier date the
servicer may determine.
S-54
<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 any offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 1999
Prospectus
<TABLE>
<S> <C>
DILLARD CREDIT CARD MASTER TRUST A certificate is not a deposit and
Issuer neither the certificates nor the
underlying accounts or receivables
DILLARD ASSET FUNDING COMPANY are insured or guaranteed by the
Transferor Federal Deposit Insurance Corporation
or any other governmental agency.
DILLARD NATIONAL BANK
Servicer This prospectus may be used to offer
and sell any series of certificates
ASSET BACKED CERTIFICATES only if accompanied by the prospectus
supplement for that series.
</TABLE>
THE TRUST--
o may periodically issue asset backed certificates in one or more series with
one or more classes; and
o will own--
o receivables in a portfolio of private label consumer revolving
credit card accounts;
o payments due on those receivables; and
o other property described in this prospectus and in the prospectus
supplement.
THE CERTIFICATES--
o will represent interests in the trust only, will be paid only from the
assets of the trust and will not represent interests in or obligations of
Dillard Asset Funding Company, the servicer or any of their affiliates;
o offered by this prospectus will be rated in one of the four highest rating
categories by at least one nationally recognized rating organization;
o may have one or more forms of enhancement; and
o will be issued as part of a designated series which may include one or more
classes of certificates and enhancement.
THE CERTIFICATEHOLDERS--
o 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.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust and Related Parties.................. 1
The Trust.................................... 1
Dillard's Inc................................ 1
Mercantile Stores Company, Inc............... 1
Dillard National Bank........................ 2
Mercantile Stores National Bank.............. 2
Dillard Asset Funding Company................ 2
Dillard's Credit Card Activities............... 3
General...................................... 3
Origination of Credit Card Accounts.......... 4
Underwriting................................. 5
Billing and Payments......................... 6
Collection of Delinquent Accounts............ 9
Recoveries................................... 11
Year 2000 Compliance......................... 11
The Receivables................................ 13
Maturity Considerations........................ 14
Use of Proceeds................................ 16
Description of the Certificates................ 16
General...................................... 16
Book-Entry Registration...................... 18
Definitive Certificates...................... 21
Interest Payments............................ 21
Principal Payments........................... 22
Revolving Period............................. 23
Controlled Amortization Period............... 23
Principal Amortization Period................ 24
Accumulation Period.......................... 24
Rapid Accumulation Period.................... 25
Rapid Amortization Period.................... 26
Transfer and Assignment of
Receivables............................... 27
Exchanges.................................... 27
Representations and Warranties............... 29
Addition of Trust Assets..................... 32
Removal of Accounts.......................... 34
Collection and Other Servicing
Procedures ................ .............. 35
Discount Option.............................. 35
Trust Accounts............................... 35
Funding Period............................... 36
Companion Series............................. 38
Investor Percentage and Transferor
Percentage................................ 38
Application of Collections................... 39
Shared Excess Finance Charge
Collections............................... 41
Shared Principal Collections................. 41
Defaulted Receivables; Rebates and Fraudulent
Charges; Investor Charge-Offs............. 42
Final Payment of Principal; Termination...... 43
Pay Out Events............................... 44
<CAPTION>
PAGE
--
<S> <C>
Servicing Compensation and Payment of
Expenses.................................. 45
Matters Regarding the Transferor and the
Servicer.................................. 45
Servicer Guarantee........................... 47
Servicer Default............................. 47
Reports to Certificateholders................ 48
Evidence as to Compliance.................... 49
Amendments................................... 50
List of Certificateholders................... 51
The Trustee.................................. 51
Description of the Purchase Agreements......... 52
General...................................... 52
Representations and Warranties............... 52
Covenants.................................... 53
Repurchase Events............................ 54
Merger and Consolidation..................... 54
Credit Enhancement............................. 55
General...................................... 55
Subordination................................ 56
Letter of Credit............................. 56
Cash Collateral Guaranty or Account.......... 56
Collateral Interest.......................... 57
Surety Bond or Insurance Policy.............. 57
Spread Account............................... 58
Reserve Account.............................. 58
Certificate Ratings............................ 58
Legal Aspects of the Receivables............... 59
Transfer of Receivables...................... 59
Matters Relating to Bank Receivership........ 60
Matters Relating to Bankruptcy of the
Transferor, DIC and MFI................... 61
Consumer Protection Laws..................... 62
Claims and Defenses of Cardholders Against
the Trust................................. 63
Federal Income Tax Consequences................ 64
General...................................... 64
Treatment of the Certificates as Debt........ 65
Taxation of Interest Income of U.S.
Certificate Owners........................ 66
Sale, Exchange or Retirement of
Certificates.............................. 66
Possible Alternative Characterizations....... 66
Non-U.S. Certificate Owners.................. 67
Information Reporting and Backup
Withholding............................... 69
State and Local Taxation..................... 69
Plan of Distribution........................... 69
Legal Matters.................................. 70
Reports to Certificateholders.................. 70
Where You Can Find More Information............ 71
Glossary of Terms.............................. 72
</TABLE>
i
<PAGE>
OVERVIEW OF THE 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:
o this prospectus, which provides general information, some of which
may not apply to a particular series of certificates, including your
series, and
o the prospectus supplement, which will describe the specific terms of
your series of certificates, including:
o the timing and amount of interest and principal payments;
o information about the receivables;
o information about credit enhancement for each class;
o credit ratings; and
o 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 table of contents included in this prospectus and the
prospectus supplement provide the pages on which these captions are located.
This prospectus uses terms that are defined in the "Glossary of Terms" in
this prospectus. We indicate defined terms in bold.
ii
<PAGE>
THE TRUST AND RELATED PARTIES
THE TRUST
The Dillard Credit Card Master Trust was formed pursuant to a pooling and
servicing agreement in accordance with the laws of the State of New York among
Dillard Asset Funding Company, Dillard National Bank, as servicer, and The Chase
Manhattan Bank, as trustee. Certificates of one or more series representing
interests in the trust in amounts, at prices and on terms to be determined at
the time of sale and to be provided in supplements to this prospectus are to be
offered under the agreement. A summary of previously issued and outstanding
series will be provided in each prospectus supplement. The trust will not engage
in any business activity other than
o acquiring and holding receivables;
o issuing series of certificates and the transferor certificate that
evidences the transferor interest;
o making payments on the certificates and engaging in related
activities, including, with respect to any series, obtaining any
credit enhancement; and
o entering into a related credit enhancement agreement.
As a consequence, the trust is not expected to have any need for additional
capital resources other than the assets of the trust.
DILLARD'S INC.
Dillard's Inc. is a regional group of conventional department stores
operating, as of July 1, 1999, stores in
o Alabama
o Arizona
o Arkansas
o California
o Colorado
o Florida
o Georgia
o Idaho
o Illinois
o Indiana
o Iowa
o Kansas
o Kentucky
o Louisiana
o Mississippi
o Missouri
o Montana
o Nebraska
o Nevada
o New Mexico
o North Carolina
o Ohio
o Oklahoma
o South Carolina
o Tennessee
o Texas
o Virginia
o Utah
o 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.
Dillard's operates its stores under the following names:
o Dillard's o Bacon's
o J.B. White o Lion
The company is incorporated under the laws of the State of Delaware. The
executive offices of the company are located at 1600 Cantrell Road, Little Rock,
Arkansas 77201, telephone number: 501-376-5200.
The company is currently subject to the periodic reporting and other
financial requirements of the Securities Exchange Act of 1934, as amended, in
accordance with which it files reports and other information with the Securities
Exchange Commission. You may inspect and copy the reports and other information
filed with the Commission 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. You may obtain copies of this material from the public reference section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. This material may also be accessed electronically by means of
the Commission's website at http://www.sec.gov.
MERCANTILE STORES COMPANY, INC.
On August 18, 1998 the company acquired the stock of Mercantile Stores
Company, Inc., a Delaware corporation. Mercantile is a conventional department
store retailer engaged in the general merchandising business.
1
<PAGE>
DILLARD NATIONAL BANK
Dillard National Bank, a wholly-owned banking subsidiary of Dillard's, was
formed in 1991 and is headquartered in Gilbert, Arizona. DNB is currently
chartered as a national bank and is regulated primarily by the US Comptroller of
the Currency. DNB'S activities are predominantly related to credit card lending
and the origination, acquisition and administration of private label revolving
credit card accounts. Upon organization of DNB, Dillard's transferred its credit
operations from Little Rock, Arkansas to DNB'S headquarters.
MERCANTILE STORES NATIONAL BANK
Dillard National Bank, formerly known as Mercantile Stores National Bank, a
wholly-owned banking subsidiary of Dillard's, was formed in 1997 and is
headquartered in Baton Rouge, Louisiana. DNB-LA. is currently chartered as a
national bank and 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.
DNB-LA. historically originated and acquired accounts created for use in
Mercantile's stores. An affiliate, Mercantile Credit Corp., a Louisiana
corporation provides servicing for Mercantile's private label credit card
program.
DILLARD ASSET FUNDING COMPANY
Dillard Asset Funding Company, 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 its administrators. DNB and DNB-LA. have transferred
their interests in substantially all of the receivables they own to Dillard
Asset Funding Company. In turn, Dillard Asset Funding Company has transferred
its interests in those transferred receivables to the trust. The trust will
offer certificates of beneficial interest in the receivables from time to time
through a prospectus supplement. In this prospectus and in the related
prospectus supplement, we will refer to Dillard Asset Funding Company as the
transferor. 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 of the transferor is located at 1201 Market
Street, Wilmington, Delaware 19801, telephone number (302) 984-3300.
The transferor also maintains an interest in the receivables in the trust
because it will hold the transferor certificate. The balance of the transferor
certificate will change as the balances of the underlying receivables increase
and decrease as customers of Dillard's and other affiliated stores purchase
additional goods and services with their DILLARD'S CARDS and as customers make
monthly payments and other adjustments to the balances they maintain on their
DILLARD'S CARDS. The principal balance of the certificates you purchase will
decrease only as the terms of the pooling and servicing agreement dictate.
2
<PAGE>
DILLARD'S CREDIT CARD ACTIVITIES
GENERAL
The receivables which the transferor has conveyed to the trust represent
amounts due by holders of revolving credit card accounts offered by DNB and
DNB-LA. to purchase merchandise and services sold by retail stores owned and
operated by Dillard's and its subsidiaries. DNB and DNB-LA. will originate or
open the accounts for Dillard's customers. In this prospectus and in the
prospectus supplement DNB and DNB-LA. as originators. DNB and DNB-LA. have sold
the receivables in substantially all of those accounts to the transferor under
the terms of the purchase agreements described elsewhere in this prospectus. See
"Description of the Purchase Agreements" 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.
Currently, DNB services the Dillard's accounts at its facilities located in
Gilbert, Arizona and MCC services the Mercantile accounts 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
trust. There can be no assurance, however, that additional accounts will be
added or that, if added, the receivables in the additional accounts will
constitute a material portion of the receivables in the trust.
Accounts which are acquired, but not originated by DNB or DNB-LA. may be
originated under policies and procedures which differ from those of DNB or
DNB-LA. Dillard's does not expect any of these differences to have a material
adverse effect on the credit quality of the receivables in the trust or on the
interests of the certificateholders. See "Description of the
Certificates--Collection and Other Servicing Procedures" in this prospectus.
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 its own credit card known as the MERCANTILE CARD.
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. Unless
otherwise specified in the related prospectus supplement receivables in acquired
accounts may only be added to the trust if the rating agencies selected to rate
the certificates confirm that the then-current ratings of the certificates will
not be affected by the addition. Dillard's does not expect any of these
differences to have a material adverse effect on the credit quality of the
receivables in the trust 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
department store:
o Regular Revolving o Reduced Rate
o Extended Revolving o Silver Club
The detailed terms of the Dillard's Card are described in "Billing and
Payments--Customers Terms--Dillard's Cards" section in this prospectus.
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:
o Regular Option o Special Option
o Prestige Option o Home Option
3
<PAGE>
The detailed terms of the Mercantile Card are described in "Billing and
Payments--Customers Terms--Mercantile Cards" section in this prospectus.
MERCANTILE CARD holders currently can choose only the Regular Option in
connection with new purchases of merchandise or services at any Dillard's or
Mercantile 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.
Dillard's may from time to time offer its customers incentives to either
open an account or to use a Dillard's 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 trust or on the interests of the
certificateholders.
Each DILLARD'S or MERCANTILE CARD holder is subject to an agreement
governing the terms and conditions of his or her account. Pursuant to that
agreement, DNB or DNB-LA. 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 the accounts to another
creditor.
ORIGINATION OF CREDIT CARD ACCOUNTS
Currently, DNB originates all new accounts for all Dillard's and Mercantile
department stores. While no new accounts are originated by DNB-LA. at this time,
DNB-LA. may acquire or originate accounts in the future. As a result,
receivables generated under accounts originated by DNB should gradually increase
as a percentage of Dillard's entire portfolio of accounts.
The DILLARD'S and MERCANTILE CARDS can be used to purchase merchandise and
services from any Dillard's or Mercantile department store. Amounts due for the
purchases will be included in the receivables.
The accounts were principally generated through:
o telemarketing and direct-mail solicitation for accounts on a pre-approved
credit basis,
o in-store applications made available to prospective cardholders at
department stores and
o applications mailed directly to prospective cardholders or generated on
the internet.
The majority of the accounts have historically been generated through
pre-approved telemarketing solicitations and in-store applications, although
this emphasis may change from time to time in the future. Dillard's does not
expect any change in emphasis to have a material adverse effect on the credit
quality of the receivables in the trust or on the interests of the
certificateholders.
o Pre-Approved Telemarketing and Direct Mail Solicitations
The originators obtain lists of prospects located within a specified radius
of a Dillard's department store from independent consumer credit reporting
agencies. The lists identify individuals who live within the specified areas and
satisfy credit criteria established by the respective 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 DILLARD'S 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.
o In-Store Instant Credit Applications
Instant credit is also offered to qualifying applicants at the time of
purchase. An applicant is required to complete an application and present
acceptable identification. The information is subsequently phoned into a
processing center where a representative of the originator 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.
4
<PAGE>
o Mail-in and Internet Applications
In addition to instant credit in-store applications, the originators also
offer a mail-in form which can be completed at the leisure of the prospective
customer. A credit evaluation is conducted using a proprietary underwriting
model and an independent credit bureau report. The same application is also
available on the Internet.
o Campus Programs
The originators also originate new accounts through campaigns targeted at
college students. Tables are set up at 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 establish an account for and issue a DILLARD'S
CARD to a customer, the originators use underwriting procedures which use a
purely quantitative approach. There is no subjective decision making process
utilized. DNB and DNB-LA. rely heavily upon credit scores obtained from
independent credit bureaus and underwriting models developed specifically for
DNB and DNB-LA. Underwriting methods differ depending on the type of application
submitted by a prospective customer.
o Instant Credit Model/Neutral Network Score
For in-store instant credit, a sales clerk submits the information provided
by an applicant to an originator's 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, also known as a 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.
o Application Scorecard
The originators 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.
o 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 cardholder'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 general limit increases
are considered based upon the length of time an account has been open and the
credit score ranking.
o 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
5
<PAGE>
independent credit bureaus and either a likelihood to file for bankruptcy 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. 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 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
originators or their servicers to cardholders. The following information
reflects the current billing and payment characteristics of the accounts.
The originators or their servicers 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:
LETTER RANGE BILLING DATE
------------- ------------
A-B 6th
C-D 9th
E-G 12th
H-K 15th
L-M 18th
N-R 21st
S-T 24th
U-Z 27th
On the billing date for a billing cycle, the activity in the related
accounts during the month ending on the billing date are processed and billed to
cardholders.
Customer Terms--Dillard's Credit Cards
Dillard's currently issues 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 Dillard's department store with a
DILLARD'S CARD: Regular Revolving, Extended Revolving, Reduced Rate and Silver
Club.
6
<PAGE>
o 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 purchases are the greater of $20 or 1/10 of the outstanding
balance.
o 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 and are subject to a minimum purchase.
The monthly payment terms for these purchases are the greater of $20 or
1/20 of the highest balance.
o Reduced Rate Revolving. Reduced Rate Revolving terms are sometimes
offered in connection with special promotions on the same type of
merchandise for which the Extended Revolving terms are used. Reduced Rate
Revolving purchases offer lower finance charges, but generally require a
greater minimum purchase. The minimum monthly payment for Reduced Rate
Revolving purchases is the greater of $20 or 1/12 of the highest balance.
o Silver Club Revolving. Silver Club Revolving terms are sometimes offered
for specialty items such as china and silver purchases. The required
minimum purchase is greater than what is needed to be eligible for
Extended Revolving or Reduced Rate Revolving terms and require a minimum
monthly payment of 1/12 of the highest balance. Silver Club Revolving
purchases do not carry any finance charges as long as the minimum monthly
payments are made by the due dates.
Credit Card Finance Charges--DNB
A fixed monthly finance charge is assessed on the average daily balance in
each account owned by DNB for each billing cycle. Monthly periodic finance
charges for a billing cycle are not assessed on new purchases made during the
billing cycle if
o on the first day of the billing cycle there was no balance outstanding;
o if the balance outstanding on the first day of the billing cycle is paid
in full during the billing cycle; or
o if on the last day of the billing cycle there is no balance outstanding.
The monthly periodic finance charge assessed on outstanding balances is
calculated by multiplying
o the average daily balance during the billing cycle by
o 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 under 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 the periodic finance charges on a
limited number of accounts may be either greater than or less than those
assessed by the originators generally. To the extent that the amount of any
finance charge applicable to a balance is less than $0.50, it is increased to
$0.50. Periodic finance charges may be changed from current levels in the
future.
Customer Terms--Mercantile Credit Cards
Prior to October 17, 1998, DNB-LA. issued the Mercantile Card. While DNB
began issuing DILLARD'S CARDS for all Dillard's and Mercantile customers on
October 17, 1998, the previously issued MERCANTILE CARDS and the related
Mercantile accounts remained outstanding. There were historically four types of
customer payment terms under the MERCANTILE CARD which could be used in
connection with the purchase of merchandise or services at any Mercantile store.
However, MERCANTILE CARD holders currently can choose only the Regular Option in
addition to any of the DILLARD'S CARD special or extended customer terms in
connection with new purchases of merchandise or services at any Dillard's or
Mercantile 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.
7
<PAGE>
o 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 purchases
are the greater of $10 or 1/12of the outstanding balance. A finance
charge is assessed on the unpaid balance.
o 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 a 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 is not exercised, the required minimum monthly
payment is equal to the greater of $10 or 1/24 of the highest new
balance.
o 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 required a minimum purchase. The
required minimum monthly payment is the higher of $15 or 1/12 of the
highest new balance. No interest accrues on the balance so long as the
minimum monthly payment is made.
o Home Option. Home Option terms were available only at Mercantile's
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 is 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-La.
A fixed monthly finance charge is assessed on the average daily balance in
each account owned by DNB-LA. for each billing cycle. Monthly periodic finance
charges for a billing cycle are not assessed on new purchases made during the
billing cycle if
o on the first day of such billing cycle there was no balance
outstanding; or
o if the balance outstanding on the first day of such billing cycle is
paid in full during such billing cycle; or
o 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
o the average daily balance during the billing cycle by
o the applicable monthly periodic finance charge.
The current annual percentage rates for MERCANTILE CARDS 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, 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 originators generally. To the extent that the
amount of any finance charge applicable to a balance is less than $0.50, it is
increased to $0.50. Periodic finance charges may be changed from current levels
in the future.
Fees
While the originators do not currently charge membership fees to
cardholders, except for VIP annual fees in the case of some MERCANTILE CARD
holders, they may charge accounts certain other fees including:
o a late fee, currently $20 for Dillard's accounts and $10 for Mercantile
accounts, if at least the required minimum monthly payment by the 15th
day after the next statement billing date on the monthly billing
statement is not received; and
o a fee of $15.00 for each check submitted by a cardholder in payment of an
account which is dishonored.
8
<PAGE>
Payments by a cardholder in connection with a DNB account are processed and
applied
o first to any billed fees; and
o then to billed and unpaid balances in the order determined by DNB.
Any excess is applied to unbilled balances in the order determined by DNB.
Payments by a cardholder in connection with a DNB-LA. account are processed
and applied
o first to any billed fees;
o next to billed and unpaid finance charges; and
o then to billed and unpaid balances in the order determined by such
DNB-LA.
Any excess is applied to unbilled balances in the order determined by such
DNB-LA.
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 personnel
and collection agencies of the originators and attorneys retained by the
originators. Collection efforts include the mailing of delinquency notices,
telephone calls and the referral of delinquent accounts to collection agencies
depending upon the length an account is delinquent. The following describes the
current collection procedures utilized by the originators.
DNB
DNB considers an account delinquent if a payment due 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:
o Front-end delinquencies, which are accounts that are one payment past
due, up to 30 days past due; and
o Back-end delinquencies, which are accounts that are more than one payment
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 are transferred
to the recovery unit which has its own dedicated employees.
Back-end collectors utilize an automated dialing system to telephone
delinquent accounts. The system leaves pre-recorded messages on answering
machines when customers are not home. In addition, Back-end collectors attempt
to contact the customer by regular mail and making manual phone calls. 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. If the customer answers the phone, the Back-end collector talks to
the customer from a provided script. All Back-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 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.
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.
9
<PAGE>
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 role 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.
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 a 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, DNB 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 his or her
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 the account became seven payments, 180
days past due, 210 days past billing cycle or delinquent. If DNB receives notice
that a cardholder is the subject of a bankruptcy proceeding, DNB charges off the
cardholder's account upon the earlier of the end of the month in which notice of
the bankruptcy is received and the time period described in the previous
sentence. Charged-off accounts are sent to the recovery unit, collection
agencies or attorneys.
Mercantile Credit Corporation
MCC forwards an account to its collections department if it is two
payments, or 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
that used by DNB. If the balance of a delinquent account is greater than $200
but less than $1,300, the account is put into a 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 he or she identified on the credit application.
Accounts are removed from the predictive dialer list after they are 5 payments
or 120 days past due or after 15 days of no contact.
New collectors undergo approximately 10 days of training upon hiring. They
are familiarized with the computer systems, screen layouts and MCC'S collection
philosophy, in addition to using role 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 his or her
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
10
<PAGE>
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, or
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 the
notice is received. Accounts are sent to collection agencies or attorneys. If a
collection agency has not succeeded in collecting on within six months, the
account is assigned to another collection agency.
RECOVERIES
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
The Year 2000 issue relates to the inability of information systems to
properly recognize dates beyond December 31, 1999 when processing date-sensitive
information. Many computer systems and software products may not be able to
correctly interpret dates after December 31, 1999 because the year value in a
date in these systems and products is represented by only two digits. Many of
these programs may fail to perform calculations correctly for date values of
January 1, 2000 and later and produce erroneous results. This could temporarily
prevent Dillard's and its subsidiaries from processing business transactions.
The management of Dillard's has recognized the need to address the Year
2000 issue within the internal operational systems of Dillard's and its
subsidiaries as well as with suppliers and other third parties. As with many
other companies, a significant number of Dillard's information systems have
required and will require modification over the next year in order to render
these systems Year 2000 compliant. Dillard's recognizes that failure to timely
resolve internal Year 2000 issues could result in
o an inability of Dillard's to order merchandise;
o to receive and distribute merchandise to its stores;
o to pay for merchandise received;
o to process credit card purchases made with, and payments made with
respect to, private label credit cards issued by the originators; and
o in the worst case, the total inability to sell merchandise and to
otherwise process its daily business for an indeterminate period of time
which could result in default or other events permitting Dillard's
lenders to terminate and accelerate Dillard's credit and accounts
receivable facilities;
each of which could materially and adversely affect Dillard's financial
condition and results of operations. However, Dillard's management presently
believes these scenarios are unlikely based on the progress Dillard's has made
in its Year 2000 compliance process.
Dillard's began initial efforts to address the Year 2000 issue in 1996.
Currently, the computer systems, including both information technology systems
and non-information technology systems, have been assessed and work is in the
final stages of remediation, testing and implementation of appropriate
modifications or replacements for systems which were evaluated as not being Year
2000 compliant.
Year 2000 remediation, testing and implementation for approximately 90% of
the information technology systems has been completed at this time. The
remediation of the remaining information technology systems is expected to be
complete no later than October 1999. Additionally, Dillard's has obtained
letters of certification from its mission-critical computer system hardware and
software vendors indicating that such systems are Year 2000 compliant.
11
<PAGE>
Non-information technology systems are primarily systems with embedded
processors such as elevators, telephone systems and security systems. At the
present time, the non-information technology systems within the reasonable
control of Dillard's have been substantially remediated, tested and applicable
corrections implemented.
There are significant risks associated with the Year 2000 issue, many of
which, such as those associated with generating electrical power and
telecommunications, are beyond the reasonable control of Dillard's. Also, the
failure of a significant number of the company's business partners could have a
material adverse impact on the its operations. These risks also are largely
outside the control of Dillard's. Although the company believes its remediation
and contingency planning efforts adequately identify and address the Year 2000
issues that are within its reasonable control, there can be no assurance that
the company's efforts will be fully effective. Due to these significant risks,
Dillard's management is monitoring these efforts very closely. The Audit
Committee of the Board of Directors of Dillard's is periodically updated
concerning the status of the Corporation's Year 2000 efforts.
Dillard's is also addressing the Year 2000 issue with its non-information
technology systems. These systems include among other things, security, fire
prevention, and climate control. The review of these systems is substantially
complete.
With the exception of programs and applications of DNB and DNB-LA., and
based on the company's Year 2000 compliance efforts and project status to date,
Dillard's does not expect to need a significant contingency plan, and none has
been developed. Contingency plans for DNB and DNB-LA. are substantially
complete. However, Dillard's will continue to evaluate the need for contingency
plans as the Year 2000 project continues and will develop and implement
appropriate plans as needed and identified.
The external cost, including payments to equipment and service vendors, of
remediating noncompliant systems incurred thus far is approximately
$1.4 million in total. Dillard's believes the external costs to remediate all
systems will not exceed $2.5 million in total. Additionally, the company will
incur internal costs in connection with its remediation efforts. These internal
costs relate principally to the payroll costs of the information systems group
and other costs related to the normal operation of the company's data centers.
The company does not track these costs separately. All costs associated with
Year 2000 issues will be funded from the company's existing sources of
liquidity.
The company's cost of the Year 2000 project, and the dates on which the
company believes it will substantially complete Year 2000 modifications, are
based on management's best estimates. There is no certainty or guarantee that
these estimates will be achieved, and actual costs could be materially greater
than anticipated. Specific factors that might cause increased costs include, but
are not limited to, the availability and cost of personnel trained in Year 2000
remediation specialties, the ability to locate and correct all relevant computer
programs, non-compliance by merchandise and other suppliers and other third
parties, and similar uncertainties.
12
<PAGE>
THE RECEIVABLES
The assets of the trust will include
o receivables arising under private label revolving credit card
accounts selected from Dillard's entire portfolio of accounts and
owned by the originators;
o all monies due or to become due in payment of the receivables;
o all proceeds of the receivables;
o all proceeds of any credit insurance policies relating to the
receivables;
o the right to receive recoveries, if any, allocable to the trust if
specified in the prospectus supplement relating to your series;
o all monies on deposit in bank accounts of the trust including:
o any investments in which any monies are invested; and
o investment earnings on these amounts if specified in the
prospectus supplement relating to your series; and
o any credit enhancement for any particular series or class specified
in the prospectus supplement relating to your series.
The receivables will consist of
o principal receivables representing amounts charged by cardholders
for goods and services; and
o finance charge receivables representing
o related periodic finance charges;
o amounts charged or billed to the accounts for credit card fees
including
o late fees; and
o fees for dishonored checks; and
o any recoveries allocable to the trust.
A receivable is deemed to have been created at the end of the day on the
date of processing of that receivable. In calculating the aggregate amount of
principal receivables on any day, the amount of principal receivables is reduced
by the aggregate amount of credit balances in the accounts on that day.
The transferor may treat as finance charge receivables a portion of the
receivables arising in the related accounts that would otherwise be treated as
principal receivables. The fixed or variable percentage of principal receivables
that can be treated as finance charge receivables is specified in the prospectus
supplement relating to your series. If described in the prospectus supplement
relating to your series, finance charges for that series may be equal to, but
not greater than, a fixed percentage of the outstanding balance of some or all
receivables in the trust. See "Description of the Certificates--Discount Option"
and "Dillard's Credit Card Activities--Recoveries."
The receivables conveyed to the trust will arise in accounts selected
according to criteria provided in the pooling and servicing agreement
o as applied initially on the CUT-OFF DATE; and
o for additional ELIGIBLE ACCOUNTS to added to the trust, as of the
related date of their designation by the originators.
The transferor will have the right, subject to limitations and conditions
contained in the agreement, and in some circumstances will be obligated, to
o designate additional accounts from time to time;
o transfer to the trust all existing and future receivables of the
additional accounts; or
13
<PAGE>
o transfer to the trust participations in lieu of or in addition to those
receivables.
Any additional accounts must be ELIGIBLE ACCOUNTS as of the date the transferor
designates them as additional accounts. See "Description of the
Certificates--Representations and Warranties."
Furthermore, the transferor has the right, subject to limitations and
conditions contained in the agreement, to
o designate accounts for removal from the trust;
o accept the transfer of all existing and future receivables in the
accounts designated for removal; and
o require the trustee to reconvey all existing and future receivables
in the removed accounts to the transferor.
Throughout the term of the trust, the related accounts from which the
receivables arise will be
o the accounts designated by the transferor on the CUT-OFF DATE;
o plus any additional accounts;
o minus any removed accounts.
For each series of certificates, the transferor will represent and warrant to
the trust that, as of the closing date for each series and the date receivables
are conveyed to the trust, the receivables meet eligibility requirements. See
"Description of the Certificates--Representations and Warranties."
The prospectus supplement relating to each series of certificates will
provide information about the trust portfolio as of the date specified. This
information will include, but not be limited to
o the amount of principal receivables;
o the amount of finance charge receivables;
o the range and average of principal balances of the accounts;
o the range and average of credit limits of the accounts;
o the geographic distribution of the accounts;
o the types of accounts; and
o delinquency statistics relating to the accounts.
A maximum of 5% of the aggregate principal balance of the accounts in the
Dillard's portfolio will have characteristics that vary in a manner materially
unfavorable to certificateholders as of the date you make your investment
decision to purchase the certificates.
MATURITY CONSIDERATIONS
Collections of principal receivables for each series are expected to be
o distributed to you as a certificateholder on the distribution date
specified in the prospectus supplement relating to your series
during the CONTROLLED AMORTIZATION PERIOD or the PRINCIPAL
AMORTIZATION PERIOD; or
o accumulated for distribution to you on a scheduled payment date to
one or more classes of certificateholders during an ACCUMULATION
PERIOD consisting of
o a CONTROLLED ACCUMULATION PERIOD and
o under limited circumstances, if specified in the prospectus
supplement relating to your series, a RAPID ACCUMULATION PERIOD.
However, if a PAY OUT EVENT occurs and the RAPID AMORTIZATION PERIOD begins,
collections of principal receivables will be paid to you as a certificateholder
in the manner described below and in the prospectus supplement relating to your
series.
14
<PAGE>
The related prospectus supplement will specify
o when the CONTROLLED AMORTIZATION PERIOD, PRINCIPAL AMORTIZATION
PERIOD, or ACCUMULATION PERIOD, as applicable, will begin;
o the principal payments expected or available to be received or
accumulated during the CONTROLLED AMORTIZATION PERIOD, PRINCIPAL
AMORTIZATION PERIOD, ACCUMULATION PERIOD, or on the scheduled
payment date;
o the manner and order of principal accumulations and payments among
the classes of a series of certificates;
o the payment rate assumptions on which the expected principal
accumulations and payments are based; and
o the PAY OUT EVENTS which, if any were to occur, would lead to the
commencement of a
o RAPID AMORTIZATION PERIOD; or
o if specified in the related prospectus supplement, a RAPID
ACCUMULATION PERIOD.
No assurance can be given, however, that the principal receivables allocated to
be paid to certificateholders or any specified class of certificateholders will
be available for distribution or accumulation for payment to certificateholders
on each distribution date during the CONTROLLED AMORTIZATION PERIOD, PRINCIPAL
AMORTIZATION PERIOD, 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,
the related prospectus supplement will provide historical data on
o payments by cardholders;
o total charge-offs; and
o other related information concerning Dillard's portfolio of
accounts.
There can be no assurance that future events will be consistent with the
historical data.
The amount of collections of receivables may vary from month to month due
to
o seasonal variations;
o general economic conditions; and
o payment habits of individual cardholders.
There can be no assurance that collections of principal receivables relating to
the trust portfolio of accounts, and thus the rate at which the related
certificateholders can 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 provided in the prospectus supplement relating to your series. If a
PAY OUT EVENT occurs, the average life and maturity of a 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
o the amount of collections of principal receivables scheduled or
available to be distributed during the CONTROLLED AMORTIZATION
PERIOD or PRINCIPAL AMORTIZATION PERIOD; or
o accumulated for later payment to certificateholders or any specified
class of certificateholders during an ACCUMULATION PERIOD or on the
scheduled payment date, as applicable.
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 your series of certificates to the final
distribution date for 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
certificateholders of the companion series may be delayed. See "Description
of the Certificates--Companion Series."
15
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of each series of certificates will be used
in the manner specified in the related prospectus supplement.
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued in series. Each series will represent an
interest in the trust other than the interests represented by any other series
of certificates issued by the trust or the transferor certificate. Each series
will be issued pursuant to the pooling and servicing agreement and a series
supplement to the agreement. The following is a summary of the material
provisions of the agreement and those common to each series of certificates.
GENERAL
The assets of the trust will be allocated among the
o certificateholders of each series of the trust;
o holder of the transferor certificate of the trust; and
o the credit enhancement provider, if any, described in the prospectus
supplement relating to your series.
The transferor certificate
o will be owned initially by the transferor;
o will represent the undivided interest in the trust not represented
by
o the certificates issued and outstanding under the trust or
o the rights, if any, of any credit enhancement providers to
receive payments from the trust;
o will entitle its holder to a percentage equal to this individual
interest of all cardholder payments from the receivables in the
trust; and
o may, if provided in the related prospectus supplement, be
transferred in whole or in part subject to limitations and
conditions in the agreement.
The certificates of each series
o will represent interests in the trust only;
o will not represent interests in or obligations of the transferor,
Dillard's or any of its affiliates;
o are not insured or guaranteed by the FDIC or any other governmental
agency;
o will represent the right to receive, on a monthly basis, the
respective certificateholder's portion of the collections of
o finance charge receivables;
o principal receivables; and
o defaulted accounts;
o to the extent needed to make required payments under the
agreement and the related series supplement relating to your
series; and
o subject to any reallocation of such amounts if provided in the
series supplement relating to your series;
o will be paid interest and principal
o on distribution dates;
16
<PAGE>
o to certificateholders in whose names the certificates were
registered on the record dates; and
o in the amounts, for the periods and on the dates specified in the
related prospectus supplement;
o will be represented by certificates registered in the name of the
nominee of DTC unless otherwise specified in the prospectus
supplement relating to your series and except as described below;
o will be available for beneficial ownership in minimum denominations
and integral multiples of $1,000; and
o will be available in book-entry form only unless otherwise specified
in the prospectus supplement relating to your series.
The investor interest
o in the trust will remain constant for each series of certificates
during the REVOLVING PERIOD except under limited circumstances or as
otherwise specified in the related prospectus supplement; and
o for a series will decline while the series is amortizing as customer
payments of principal receivables are collected and distributed to
or accumulated for distribution to the certificateholders.
The transferor interest
o will fluctuate each day to reflect the changes in the amount of the
principal receivables in the trust which will vary each day as new
principal receivables in the applicable accounts are created and
others are paid;
o will generally increase to reflect reductions in the investor
interest for such series; and
o may also be reduced as the result of an exchange.
The related prospectus supplement will specify the investor percentages for
the allocation of collections of
o principal receivables;
o finance charge receivables; and
o receivables in defaulted accounts
during the REVOLVING PERIOD, any AMORTIZATION PERIOD and any ACCUMULATION
PERIOD, as applicable. If the offered certificates of a series include more than
one class of certificates, the assets of the trust allocable to the certificates
may be further allocated among each class in the series as described in the
prospectus supplement.
See "Description of the Certificates--Investor Percentage and Transferor
Percentage; --Matters Regarding the transferor and the Servicer; --Defaulted
Receivables; --Rebates and Fraudulent Charges;
- --Investor Charge-Offs; and --Exchanges."
The transferor has been informed by DTC that DTC's nominee will be Cede.
Accordingly, Cede is expected to be the holder of record of each series of
certificates. No owner of beneficial interests in the certificates will be
entitled to receive a certificate representing the person's interest in the
certificates. Unless and until certificates in fully registered, certificated
form are issued for any series under the limited circumstances described in this
prospectus, all references to actions by certificateholders will refer to
actions taken by DTC upon instructions from the DTC participants, and all
references to distributions, notices, reports and statements to
certificateholders will refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the certificates for distribution to
certificate owners as required by DTC procedures. See "--Book-Entry
Registration" and "--Definitive Certificates."
17
<PAGE>
If so specified in the prospectus supplement relating to a series,
application will be made to list one or more classes of the certificates of the
series on the Luxembourg Stock Exchange, or all or a portion of one or more
classes of the series on any other exchange specified in the prospectus
supplement.
BOOK-ENTRY REGISTRATION
Certificateholders may hold their certificates through DTC in the United
States, or Cedelbank or Euroclear in Europe if they are participants of these
systems, or indirectly through organizations that are participants in such
systems or as otherwise described in the prospectus supplement relating to your
series.
Cede & Co., as nominee for DTC, will hold the certificates in global form.
Cedelbank and Euroclear will hold omnibus positions on behalf of the Cedelbank
customers and the Euroclear participants through customers' securities accounts
in Cedelbank's and Euroclear's names on the books of their depositaries which in
turn will hold these 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 and a clearing agency registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended. DTC holds securities for its 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, eliminating the need for physical
movement of securities certificates. DTC participants include securities brokers
and dealers, banks, trust companies, clearing corporations and 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. The rules applicable to DTC and the DTC participants are
on file with the Securities and Exchange Commission.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Cedelbank customers 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 Cedelbank customers 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, the cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in the system in accordance
with its rules and procedures and within its established European time
deadlines. 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. Cedelbank customers and Euroclear participants may not deliver instructions
directly to the depositaries.
Because of time-zone differences, credits of securities in Cedelbank 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
Cedelbank customer or Euroclear participant on such day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank customer or a Euroclear participant will be received with value on the
DTC settlement date but will be available in the relevant Cedelbank 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
18
<PAGE>
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 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 which is identified in an attached listing.
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 the
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 the 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.
Cedelbank is incorporated under the laws of Luxembourg as a professional
depository. Cedelbank holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedelbank customers through electronic book-entry changes in accounts of
Cedelbank customers, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedelbank in any of 36 currencies,
including United States dollars. Cedelbank provides to its Cedelbank customers,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedelbank deals with domestic markets in over 30 countries through
established depository and custodial relationships. Cedelbank has established an
electronic bridge with Morgan Guaranty Trust as the Operator of the Euroclear
System in Brussels to facilitate settlement of trades between Cedelbank and
Morgan Guaranty Trust. Cedelbank currently accepts over 110,000 securities
issues on its books. As a professional depository, Cedelbank is subject to
regulation by the Luxembourg Commission for the Supervision of the Financial
Sector, Which supervises Luxembourg
19
<PAGE>
banks. Cedelbank customers are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations and may include the
underwriters of any series of certificates. Cedelbank customers in the United
States are limited to securities brokers and dealers and banks. Currently,
Cedelbank has approximately 2,000 customers located in over 80 countries,
including all major European countries, Canada and the United States. Indirect
access to Cedelbank is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Cedelbank customer, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System 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 the Euroclear Operator,
Morgan Guaranty Trust Company of New York's Brussels, Belgium office, under
contract with Euro-clear Clearance System, S.C., a Belgian cooperative
corporation. 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.
These 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 these terms and conditions only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Distributions for certificates held through Cedelbank or Euroclear will be
credited to the cash accounts of Cedelbank customers or Euroclear participants
in accordance with the relevant system's rules and procedures, to the extent
received by its depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See "Federal
Income Tax Consequences." Cedelbank or the Euroclear Operator, as the case may
be, will take any other action permitted to be taken by a certificateholder
under the pooling and servicing agreement on behalf of a Cedelbank customer 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, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
20
<PAGE>
DEFINITIVE CERTIFICATES
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
o the transferor advises the trustee for the series in writing that
o DTC is no longer willing or able to discharge properly its
responsibilities as depository for the series of certificates;
and
o the trustee or the transferor is unable to locate a qualified
successor;
o the transferor, at its option, advises the trustee in writing that
it elects to terminate the book-entry system through DTC;
o after the occurrence of a servicer default, certificate owners
representing not less than 50%, or a percentage specified in the
prospectus supplement relating to your series, 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
its successor is no longer in the best interest of the certificate
owners; or
o otherwise specified in the related prospectus supplement.
Once any of the events described in the immediately preceding paragraph
occurs, 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 the
trustee will then recognize the holders of the definitive certificates as
holders under the pooling and servicing agreement.
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 described here and in the pooling and servicing 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 the holder holds more than an aggregate
principal amount of such definitive certificates to be specified in the pooling
and servicing agreement, by wire transfer to the 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 its presentation and surrender at the office or agency specified
in the notice of final distribution to certificateholders. The trustee will
provide such notice to registered certificateholders not later than the fifth
day of the month of the 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 will 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 will
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 on the
definitive certificates.
INTEREST PAYMENTS
For each series and class of certificates, interest will
o accrue from the date specified in the prospectus supplement relating
to your series 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 prospectus supplement relating to your
series;
21
<PAGE>
o be distributed to certificateholders in the amounts and on the
distribution dates, which may be monthly, quarterly, semiannually or
as otherwise specified in the prospectus supplement relating to your
series; and
o be funded from:
o collections of finance charge receivables allocated to the
investor interest during the preceding monthly period or monthly
periods;
o one or more interest funding accounts used to deposit collections
or other amounts pending distribution to the certificateholders
of the series or class as described in the prospectus supplement
relating to your series, or the portion allocable to the class,
if the distribution dates for payment of interest for the series
or class occur less frequently than monthly; and
o some of the investment earnings on funds held in accounts of the
trust and from any applicable credit enhancement, if necessary,
or other amounts as specified in the prospectus supplement
relating to your series.
The prospectus supplement relating to your series will specify
o whether your series, if it has more than one class of certificates,
will have a separate interest funding account for each class; and
o describe for your series and class
o the amounts and sources of interest payments to be made to you;
o the certificate rate for each class; and
o for a series or each class bearing interest at a floating
certificate rate
o the initial certificate rate;
o the dates and the manner for determining later certificate
rates;
o the formula, index or other method for determining the
certificate rates; and
o any cap or other limitations on any certificate rate.
PRINCIPAL PAYMENTS
The principal of the certificates of each offered series
o will be scheduled to be repaid either
o in installments commencing on a principal commencement date
specified in the prospectus supplement relating to your series in
which case the series will have either a
o CONTROLLED AMORTIZATION PERIOD or
o PRINCIPAL AMORTIZATION PERIOD; or
o on an expected scheduled payment date specified in, or determined
in the manner specified in, the prospectus supplement relating to
your series in which case the series will have an ACCUMULATION
PERIOD, as described below;
o will not be repaid to certificateholders during the Revolving Period
unless otherwise provided for in the prospectus supplement relating
to your series; and
o will be repaid from collections of principal receivables received
during the related monthly period or periods as specified in the
prospectus supplement relating to your series and allocated to the
22
<PAGE>
series or class and from other sources specified in the prospectus
supplement relating to your series which will be:
o distributed to the certificateholders in the amounts and on
distribution dates specified in the prospectus supplement
relating to your series; or
o accumulated in a principal funding account established for the
benefit of the certificateholders for later distribution to
certificateholders on the scheduled payment date in the amounts
specified in the prospectus supplement relating to your series.
If a PAY OUT EVENT occurs and the RAPID AMORTIZATION PERIOD begins for
the series or class or under other circumstances described here, principal:
o may begin to be repaid earlier than the applicable principal
commencement date or scheduled payment date; and
o may be repaid in full later than the applicable expected payment
date, scheduled payment date or other expected date.
If a series has more than one class of certificates, each class may have a
different:
o method of paying principal;
o principal commencement date; or
o scheduled payment date.
The prospectus supplement relating to your series will describe the manner,
timing and priority of payments of principal to certificateholders of each
class.
REVOLVING PERIOD
o The REVOLVING PERIOD will begin on the closing date and end with the
commencement of an AMORTIZATION PERIOD or an ACCUMULATION PERIOD.
o No principal will be payable to certificateholders until the principal
commencement date or the scheduled payment date for the series or class,
as described below, unless otherwise provided for in the related
prospectus supplement.
o As described in this prospectus and in the prospectus supplement relating
to your series, collections of principal receivables not allocable to the
investor interest will, subject to limitations in the agreement,
o be paid from the trust to the holder of the transferor certificate;
or
o if specified in the prospectus supplement relating to your series,
will be treated as SHARED PRINCIPAL COLLECTIONS and paid to the
holders of other series of certificates issued by the trust.
See "Description of the Certificates--Pay Out Events" in this prospectus and the
prospectus supplement relating to your series for a discussion of the events
which might lead to early termination of the Revolving Period.
CONTROLLED AMORTIZATION PERIOD
The prospectus supplement relating to your series or class of certificates
may specify a CONTROLLED AMORTIZATION PERIOD:
o which will commence at the close of business on a date specified in
the related prospectus supplement and continue until the earliest of
o the commencement of the RAPID AMORTIZATION PERIOD;
o payment in full of the investor interest of the certificates of
such series or class and, if so specified in the prospectus
supplement relating to your series, of the collateral interest,
if any, for the series; and
23
<PAGE>
o the SERIES TERMINATION DATE for your series; and
o during which the CONTROLLED AMORTIZATION AMOUNT will be distributed
to certificateholders then scheduled to receive distributions
consisting of principal distributions
o on each distribution date from:
o collections of principal receivables allocable to the
respective investor interest; and
o other amounts if so specified in the prospectus supplement;
o in an amount equal to
o the CONTROLLED AMORTIZATION AMOUNT specified in the related
prospectus supplement;
o plus any existing deficit CONTROLLED AMORTIZATION AMOUNT
arising from prior distribution dates; and
o in the priority among the classes as provided for in the
prospectus supplement relating to your series.
PRINCIPAL AMORTIZATION PERIOD
The prospectus supplement relating to your series or class of certificates
may specify a PRINCIPAL AMORTIZATION PERIOD:
o which will commence at the close of business on a date specified in
the related prospectus supplement and continue until the earliest of
o the commencement of the RAPID AMORTIZATION PERIOD;
o payment in full of the investor interest of the certificates of
such series or class and, if specified in the prospectus
supplement relating to your series, of the collateral interest,
if any, for the series; and
o the SERIES TERMINATION DATE for your series; and
o during which principal distributions will be made to
certificateholders then scheduled to receive principal payments in
amounts and in the order among the classes determined in the manner
specified in the prospectus supplement relating to your series on
each distribution date from
o collections of principal receivables allocable to the respective
investor interest; and
o other amounts if specified in the prospectus supplement relating
to your series.
ACCUMULATION PERIOD
The prospectus supplement relating to your series or class of certificates
may specify an ACCUMULATION PERIOD:
o which will commence at the close of business on a date specified in
or determined in the manner specified in the prospectus supplement
relating to your series and continue until the earliest of
o the commencement of the RAPID AMORTIZATION PERIOD, or, if so
specified in the related prospectus supplement, the RAPID
ACCUMULATION PERIOD;
o payment in full of the investor interest of the certificates of
the series or class and, if so specified in the prospectus
supplement relating to your series, of the collateral interest,
if any, for the series; and
o the SERIES TERMINATION DATE for the series; and
o during which distributions of principal will be made to
certificateholders of the series or class on the scheduled payment
date
24
<PAGE>
o from the PRINCIPAL FUNDING ACCOUNT:
o representing collections of
o principal receivables allocable to the investor
interest of the series; and
o other amounts if specified in the prospectus
supplement relating to your series;
o deposits into which will be made on the business day
immediately prior to each distribution date or other business
day specified in the related prospectus supplement which, for
each transfer date, will be limited to the CONTROLLED DEPOSIT
AMOUNT which is equal to:
o the CONTROLLED ACCUMULATION AMOUNT specified in the
prospectus supplement relating to your series;
o plus any deficit CONTROLLED ACCUMULATION AMOUNT from
prior distribution dates;
o funds in which may be
o 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; and
o investment earnings from which may be applied to pay interest
on the series of certificates; and
o in the order among the classes as provided for in the prospectus
supplement relating to your series.
Your series or class may be subject to a principal payment guaranty or other
similar arrangement in order to enhance the likelihood of payment in full of
principal at the end of an ACCUMULATION PERIOD if specified in the prospectus
supplement relating to your series. If a series has more than one class of
certificates, each class may have a separate principal funding account and an
account for the CONTROLLED ACCUMULATION AMOUNT. In addition, the related
prospectus supplement may describe priorities among the classes with respect to
deposits of principal into the principal funding accounts.
RAPID ACCUMULATION PERIOD
The prospectus supplement relating to a series or a class with a CONTROLLED
ACCUMULATION PERIOD may specify a RAPID ACCUMULATION PERIOD which will commence
from the day on which a PAY OUT EVENT has occurred and continue until the
earliest of:
o the commencement of the RAPID AMORTIZATION PERIOD;
o payment in full of the investor interest of the certificates of the
series and, if so specified in the prospectus supplement relating to
your series, of the collateral interest, if any, for the series; and
o the related SERIES TERMINATION DATE.
During this period distributions of principal will be made to
certificateholders of the series or class on the scheduled payment date from
deposits in the principal funding account.
o representing collections of
o principal receivables allocable to the investor interest of the
series; and
o other amounts if specified in the prospectus supplement relating
to your series; and
o deposits into which will be made on the business day immediately
prior to each distribution date or other business day specified in
the prospectus supplement relating to your series which will not be
limited to the CONTROLLED DEPOSIT AMOUNT.
25
<PAGE>
o funds in which 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; and
o investment earnings from which may be applied to pay interest on the
series of certificates.
The series or class may be subject to a principal payment guaranty or other
similar arrangement in order to enhance the likelihood of payment in full of
principal at the end of a respective RAPID ACCUMULATION PERIOD.
See "Description of the Certificates--Pay Out Events" in this prospectus and the
prospectus supplement relating to your series for a discussion of the events
which might lead to commencement of a Rapid Accumulation Period.
RAPID AMORTIZATION PERIOD
There will be a RAPID AMORTIZATION PERIOD
o beginning on
o the day on which a PAY OUT EVENT has occurred for a series; or
o if so specified in the prospectus supplement relating to a series
with a CONTROLLED ACCUMULATION PERIOD, from the time specified in
the related prospectus supplement
o after a PAY OUT EVENT has occurred; and
o the RAPID ACCUMULATION PERIOD has commenced;
o until the earlier of
o the date on which the investor interest of the certificates of
the series and the ENHANCEMENT INVESTED AMOUNT or the collateral
interest, if any, for the series have been paid in full; and
o the related SERIES TERMINATION DATE
o during which distributions of principal will be made
o to certificateholders of the series or class and, when
applicable, to the CREDIT ENHANCEMENT provider
o monthly on or before each distribution date for the series in the
manner and order set out in the prospectus supplement relating to
your series
o from collections of principal receivables allocable to the
series' investor interest and other amounts if specified in the
prospectus supplement relating to your series
o without being limited by any
o CONTROLLED DEPOSIT AMOUNT or
o CONTROLLED AMORTIZATION AMOUNT; and
o the first distribution date during which any and all funds on
deposit in a principal funding account for the series or any class
will be paid to the certificateholders of the series or class.
See "Description of the Certificates-Pay Out Events" in this prospectus and the
prospectus supplement relating to your series for a discussion of the events
which might lead to commencement of the Rapid Amortization Period.
26
<PAGE>
TRANSFER AND ASSIGNMENT OF RECEIVABLES
The transferor transferred and assigned at the time of formation of the
trust all of its right, title and interest in and to all
o existing receivables in the related accounts; and
o unless otherwise specified in the prospectus supplement relating to
your series, future receivables in the accounts.
The transferor obtained its interest in these receivables under the PURCHASE
AGREEMENTS.
See "Description of the Purchase Agreements" in this prospectus.
In connection with each initial transfer and in connection with each
subsequent transfer of receivables to the trust, the transferor
o has indicated in its computer files that the related receivables
have been conveyed to the trust;
o has provided to the trustee computer files or microfiche lists,
containing a true and complete list showing each account, identified
by account number and by total outstanding balance on the date of
transfer;
o will not deliver to the trustee any other records or agreements
relating to the accounts or the receivables, except in connection
with additions or removals of accounts;
o except as stated above, will not segregate the records and
agreements relating to the accounts and the receivables maintained
by the transferor or the servicer from other documents and
agreements relating to other credit card accounts and receivables;
o except as stated above, will not stamp or mark to reflect the
transfer of the receivables to the trust; and
o will file UNIFORM COMMERCIAL CODE financing statements for the
receivables meeting the requirements of applicable state law.
See "Risk Factors--Transfer of Receivables" in the prospectus supplement
relating to your series and "Legal Aspects of the Receivables" for a description
of the risks associated with these transfer procedures and the impact on your
certificates.
EXCHANGES
For each series, the pooling and servicing agreement will provide for the
trustee to issue two types of certificates:
o one or more series of certificates which are
o transferable; and
o have the characteristics described below; and
o the transferor certificate which
o evidences the transferor interest;
o initially will be held by the transferor; and
o will be transferable only as provided in the pooling and
servicing agreement.
The prospectus supplement relating to your series may also provide that the
holder of the transferor certificate may
o exchange
o the transferor certificate; or
o the transferor certificate and the certificates evidencing any
series of certificates issued by the trust;
27
<PAGE>
o for
o one or more new series which may include series offered pursuant
to this prospectus; and
o a reissued transferor certificate;
o pursuant to any one or more series supplements; and
o without obtaining any consent from any certificateholder of any
series previously outstanding from the trust.
For each exchange, the transferor will
o specify all the principal terms of the new series to be issued;
o deliver to the trustee confirmation that the exchange will not
result a rating agency lowering any rating of any previously issued
series and comply with the other exchange requirements in the
agreement;
o offer the new series under a prospectus or other disclosure document
in offerings pursuant to this prospectus or in transactions either
registered under or exempt from the Securities Act of 1933, as
amended directly, through one or more other underwriters or
placement agents, in fixed-price offerings or in negotiated
transactions or other method;
o establish 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 the period for
any other series;
The pooling and servicing agreement also provides that
o the trustee will hold any form of credit enhancement only on behalf
of the series with respect to which it relates;
o the holder of the transferor certificate may
o deliver a different form of credit enhancement agreement for each
series;
o specify different certificate rates and monthly servicing fees
for each series or a particular class within the series; and
o vary between series the terms upon which a series or a particular
class within a series may be repurchased by the transferor;
o one or more series may
o be in their amortization or accumulation periods while other
series are not; and
o have the benefit of a credit enhancement which is available only
to that series;
o some series may be subordinated to other series, or classes within a
series may have different priorities;
o there will be no limit to the number of exchanges that may be
performed;
o the holder of the transferor certificate may perform an exchange by
notifying the trustee at least three days in advance of the date
upon which the exchange is to occur:
o the designation of any series to be issued on the date of the
exchange; and
o with respect to each series and, if applicable, each class of
each series:
o its initial principal amount, or method for calculating the
amount, which amount may not be greater than the current
principal amount of the transferor certificate;
o its certificate rate or method of calculating the rate; and
o the provider of credit enhancement, if any, which is expected
to provide support with respect to it;
28
<PAGE>
o the trustee will authenticate any series only upon delivery to it of
the following items,
o a series supplement specifying the principal terms of the series;
o an opinion of counsel that states, unless otherwise stated in the
series supplement, the certificates of the series will be
characterized as indebtedness for federal income tax purposes;
and
o an opinion of counsel that states, for federal income tax
purposes,
o the 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
their issuance;
o following such issuance, the trust will not be deemed to be an
association or publicly traded partnership taxable as a
corporation;
o the issuance will not cause or constitute an event in which
gain or loss would be recognized by any certificateholder or
the trust;
o if required by the related series supplement, the form of credit
enhancement;
o 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;
o written confirmation from each rating agency that the exchange
will not result in the rating agency's reducing or withdrawing
its rating on any then outstanding series rated by it;
o 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 pooling and
servicing agreement and the transferor interest would be at least
equal to at a specified minimum transferor interest; and
o the existing transferor certificate and, if applicable, the
certificates representing the series to be exchanged;
o upon satisfaction of the above 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
Subject to limited and specified exceptions and limitations, the transferor
makes representations and warranties to the trust in the pooling and servicing
agreement to the effect that, among other things:
o the transferor
o is duly organized and in good standing;
o has or had the power and authority to:
o execute, deliver and perform its obligations under the pooling
and servicing agreement and PURCHASE AGREEMENTS; and
o transfer the receivables to the trust; and
o consummate the other transactions contemplated by the pooling
and servicing agreement and the PURCHASE AGREEMENTS.
o the execution, delivery and performance of the transferor's
obligations under the pooling and servicing agreement and PURCHASE
AGREEMENTS:
o will not materially conflict with or constitute a material
default under any instrument, contract or agreement to which the
transferor is a party; and
o will not violate any requirements of law applicable to the
transferor; and
o no proceedings are pending or, to the best of the transferor's
knowledge, threatened, against the transferor before any court
29
<PAGE>
o asserting the invalidity of the certificates of the series;
o seeking to prevent the consummation of the transactions
contemplated by the pooling and servicing agreement or PURCHASE
AGREEMENTS; or
o seeking any determination or ruling that would materially and
adversely affect the validity or enforceability of the agreement
or PURCHASE AGREEMENTS.
If any of these representations and warranties
o proves to have been incorrect in any material respect when made;
o 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
o as a result the interests of the certificateholders are materially
and adversely affected and continue to be materially and adversely
affected during the 60 day 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 and commencing the
RAPID AMORTIZATION PERIOD.
The transferor makes representations and warranties to the trust relating
to the receivables in the trust including that,
o as of the CUT-OFF DATE, or as of the date of the designation of
additional accounts, each applicable account was an ELIGIBLE
ACCOUNT;
o as of the closing date of the initial transfer of the receivables to
the trust, each of the receivables then existing in the applicable
accounts is an ELIGIBLE RECEIVABLE; and
o as of the date of creation of any new receivable, the new receivable
is an ELIGIBLE RECEIVABLE and the representations and warranties
below relating to the transfer of the receivables constituting
either a valid transfer and assignment or a grant of a first
priority perfected security interest is true and correct with
respect to the receivable.
If as a result of a breach of any representation and warranty set out in the
paragraph above:
o the receivables in the related accounts are charged off as
uncollectible;
o the trust's rights in, to or under the receivables or its proceeds
are impaired; or
o the proceeds of the receivables are not available for any reason to
the trust free and clear of any lien;
then
o within 60 days, or a longer period as may be agreed to by the
trustee, of the earlier to occur of
o the discovery of the breach by the transferor or servicer; or
o receipt by the transferor of written notice of the breach given
by the trustee; or
o with respect to breaches relating to prior liens, immediately upon
the earlier to occur of the discovery or notice; and
the transferor will accept reassignment of each principal receivable of the
INELIGIBLE RECEIVABLE on the terms and conditions set out below; provided that
no such reassignment shall be required to be made with respect to the INELIGIBLE
RECEIVABLE if, on any day within the applicable period or a longer period as may
be agreed to by the trustee, the representations and warranties for the
INELIGIBLE RECEIVABLE will then be true and correct in all material respects.
The transferor will accept reassignment of each INELIGIBLE RECEIVABLE by
o directing the servicer to deduct the amount of each INELIGIBLE
RECEIVABLE from the aggregate amount of principal receivables used
to calculate the transferor interest until the transferor interest
is zero; and
30
<PAGE>
o the transferor making a deposit in the principal account in
immediately available funds in an amount equal to the amount by
which the transferor interest would have been reduced below zero.
Any deduction or deposit will 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 for any breach of the
representations and warranties set out above for the receivable available to the
certificateholders or the trustee on behalf of certificateholders.
The transferor makes representations and warranties to the trust to the
effect, among other things, that as of the closing date of the initial series of
certificates issued by the trust
o the agreement will constitute a legal, valid and binding obligation
of the transferor; and
o the transfer of receivables by the transferor to the trust will
constitute either
o a valid transfer and assignment to the trust of all right, title
and interest of the transferor in and to existing and future
receivables, other than receivables in additional accounts, and
the proceeds of receivables, including amounts in any of the
accounts established for the benefit of certificateholders; or
o the grant of a first priority perfected security interest in the
receivables, except for tax liens, and the proceeds of
receivables, including amounts in any of the accounts established
for the benefit of certificateholders, which is effective as to
each receivable upon the creation of the security interest.
In the event of a breach of any of the representations and warranties described
immediately above, either
o the trustee; or
o the holders of certificates evidencing undivided interests in the
trust aggregating more than 50% of the aggregate investor interest
of all series outstanding under the trust
may direct the transferor to accept reassignment of the trust portfolio within
60 days of the notice, or within a longer period specified in the notice.
The transferor will be obligated to accept reassignment of the receivables
on a distribution date occurring within the applicable period. The reassignment
will not be required to be made, however, if at any time during the applicable
period, or some longer period provided, the representations and warranties will
then be true and correct in all material respects. The deposit amount for the
reassignment will be equal to
o the investor interest and ENHANCEMENT INVESTED AMOUNT, if any for
each series outstanding under the trust on the last day of the
monthly period preceding the distribution date on which the
reassignment is scheduled to be made
o less the amount, if any, previously allocated for payment of
principal to the certificateholders on the distribution date;
o plus an amount equal to all accrued and unpaid interest;
o less the amount, if any, previously allocated for payment of the
interest on the 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
o considered a payment in full of the investor interest and the
ENHANCEMENT INVESTED AMOUNT, if any, for each series required to be
repurchased; and
o distributed upon presentation and surrender of the certificates for
each of the series.
The obligation of the transferor to make this deposit will constitute the sole
remedy for a breach of the representations and warranties described in this
paragraph available to the trustee or the certificateholders.
The definition of ELIGIBLE ACCOUNT may be changed by amendment to the
agreement without the consent of the related certificateholders if
31
<PAGE>
o the transferor delivers to the trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of
the transferor, the amendment will not as of the date of the
amendment adversely affect in any material respect the interest of
the certificateholders; and
o the amendment will not result in a withdrawal or reduction of the
rating of any outstanding series under the trust.
Unless otherwise specified in the prospectus supplement relating to your
series, 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
o the presence or absence of defects;
o compliance with the transferor's representations and warranties; or
o for any other purpose.
The servicer, however, will deliver to the trustee on or before March 31 of each
year or another date specified in the related prospectus supplement an opinion
of counsel as to the validity of the security interest of the trust in and to
the receivables and other components of the trust specified in the opinion.
ADDITION OF TRUST ASSETS
As described above under "The Receivables" additional accounts will be
included as accounts for the trust:
o from time to time at the option of the transferor; and
o as required under the circumstances and in the amounts specified in
the prospectus supplement for a particular series;
o without satisfying the RATING AGENCY CONDITION so long as the net
account additions to the trust on a quarterly or annual basis do not
exceed pre-set limits specified in the pooling and servicing
agreement;
o at which time, the transferor will convey to the trust its interest
in all existing and future receivables of the additional accounts.
The total amount of receivables in the 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
o must be an ELIGIBLE ACCOUNT at the time of its designation;
o may not be of the same credit quality as the initial accounts;
o may have been originated by an originator using credit criteria
different from those which were applied by the originator to the
initial accounts; or
o 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 PARTICIPATIONS to the trust.
PARTICIPATIONS
o may be evidenced by one or more certificates of ownership issued
under a separate PARTICIPATION AGREEMENT entered into by the
transferor;
o will entitle the certificateholder to receive percentages of
collections generated by the pool of assets from time to time other
than the receivables originally sold to the trust and to other
rights and remedies specified in the PARTICIPATION AGREEMENT;
o may have their own credit enhancement, pay out events, servicing
obligations and servicer defaults;
32
<PAGE>
o all of which are likely to be enforceable by a separate trustee
under the PARTICIPATION AGREEMENT; and
o may be different from those specified here.
The rights and remedies of the 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.
The pooling and servicing agreement may be amended to permit the addition
of a PARTICIPATION in the trust without the consent of the related
certificateholders if
o the transferor delivers to the trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of
the transferor, the amendment will not as of the date of the
amendment adversely affect in any material respect the interest of
such certificateholders; and
o the amendment will not result in a withdrawal or reduction of the
rating of any outstanding series under the trust.
To the extent required under the Securities Act, any PARTICIPATIONS
transferred to the trust
o will have been
o registered under the Securities Act; or
o held for at least the Rule 144(k) holding period, and
o will be acquired in secondary market transactions not from the
issuer or an affiliate.
If the transferor chooses to add PARTICIPATIONS to the trust, the
prospectus supplement relating to your series will contain a brief discussion,
to the extent such discussion is material, of the business of and availability
of information for each underlying issuer of PARTICIPATIONS and information
concerning market prices of the underlying securities.
Except as described in the following paragraph, a conveyance by the
transferor to the trust of receivables in additional accounts or PARTICIPATIONS
IS SUBJECT TO THE FOLLOWING CONDITIONS, AMONG OTHERS:
o the transferor will
o give the trustee, each rating agency and the servicer written
notice that the additional accounts or PARTICIPATIONS will be
included, specifying the approximate aggregate amount of the
receivables or interests to be transferred;
o 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, relating to the additional accounts or
PARTICIPATIONS;
o have delivered to the trustee a computer file or microfiche list,
dated the date of the assignment, containing a true and complete
list of the additional accounts or PARTICIPATIONS;
o represent and warrant that
o each additional account is, as of the date the receivables in
the account are first added to the trust, an ELIGIBLE ACCOUNT,
and each receivable in the additional account is, as of the
addition date, an ELIGIBLE RECEIVABLE;
o 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
o as of the addition date, the transferor is not insolvent;
o deliver an opinion of counsel on the security interest of the
trust in the receivables in the additional accounts or the
participations transferred to the trust; and
o unless otherwise specified in the prospectus supplement relating to
your series, the addition of additional accounts or PARTICIPATIONS
will generally not require the consent of any rating agency then
rating any series of certificates outstanding under the trust if the
net addition of accounts or PARTICIPATIONS do not exceed pre-set
limits specified in the pooling and servicing agreement.
33
<PAGE>
Subject to these pre-set limits, additional accounts will be automatically added
to the accounts on an ongoing basis; provided, however, that automatic inclusion
and transfer will not occur for an account if:
o the account does not qualify as an ELIGIBLE ACCOUNT or
o the transferor otherwise designates the account as an account which
is not to be included as an account in the trust.
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 make the
representations and warranties described 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 the trust, a Report on Form 8-K with respect to any addition
to the trust of receivables in additional accounts or PARTICIPATIONS that would
have a material effect on the composition of the assets of the trust.
REMOVAL OF ACCOUNTS
The transferor may, but will not be obligated to, designate from time to
time accounts to be removed accounts. The designation of accounts to be removed
o will cause the underlying receivables to be subject to deletion and
removal from the trust;
o may be restricted to specified periods or prohibited if so specified
in the related prospectus supplement; and
o may not occur more than once 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:
o the removal of any receivables of any removed accounts will not, in
the reasonable belief of the transferor, cause a PAY OUT EVENT for
any series to occur;
o the transferor will have delivered to the 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 the
removed accounts;
o the transferor will 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 the trust were utilized in selecting the removed
accounts to be removed from the trust;
o each rating agency then rating each series of certificates
outstanding under the trust will have received notice of the
proposed removal of accounts and the transferor will have received
notice from each rating agency that the proposed removal will not
result in a downgrade of its then current rating for any series;
o the satisfaction of any other conditions as are specified in the
prospectus supplement relating to your series; and
o the transferor will have delivered to the trustee a certificate
confirming the items set out above.
Notwithstanding the above, the transferor will be permitted to designate as
a removed account without the consent of the trustee, certificateholders or
rating agencies any account that has a zero balance and which the transferor
will remove from its computer file.
34
<PAGE>
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 for the receivables include:
o processing statements;
o mailing, collecting and recording payments;
o investigating payment delinquencies; and
o 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.
DISCOUNT OPTION
The transferor may at any time designate a percentage of the amount of
receivables arising in the accounts allocated to the trust on and after the date
the option is exercised that otherwise would have been treated as principal
receivables to be treated as finance charge receivables. The designation will
become effective upon satisfaction of the requirements set out in the pooling
and servicing agreement, including confirmation by each rating agency in writing
of its then current rating on each outstanding series of the trust. Collections
of receivables to which this option is applicable that otherwise would be
principal receivables will be deemed collections of finance charge receivables
and will be applied as such, unless otherwise provided in the prospectus
supplement relating to your series.
TRUST ACCOUNTS
Unless otherwise specified in a prospectus supplement, the trustee will
establish and maintain in the name of the trust
o a finance charge account;
o a principal account;
o one or more distribution accounts; and
o a collection account.
These accounts will be separate accounts in a segregated trust account for the
benefit of the certificateholders of all related series, including any series
offered pursuant to this prospectus. The distribution accounts and the
collection account will be ELIGIBLE DEPOSIT ACCOUNTS. The trustee will have the
power to establish series accounts in series supplements, including
o an interest funding account;
o a principal funding account;
o a pre-funding account; or
o or other accounts specified in the related series supplement.
Each of the series accounts will be held for the benefit of the
certificateholders of the related series and for the purposes set out in the
related prospectus supplement.
Unless otherwise specified in the related prospectus supplement, funds in
the principal account and the finance charge account for the trust will be
invested, at the direction of the servicer, in the following permitted
investments:
o obligations fully guaranteed by the U.S.;
35
<PAGE>
o 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 Investors Service, Inc. and Standard & Poor's Rating Service
unless otherwise specified in the prospectus supplement relating to
your series and bankers' acceptances issued by any of these
depository institutions or trust companies;
o commercial paper having, at the time of the trust's investment, a
rating in the highest rating category from Moody's Investors
Service, Inc. and Standard & Poor's Rating Services unless otherwise
specified in the prospectus supplement relating to your series;
o banker's acceptances from the highest-rated financial institutions;
o repurchase agreements transacted with either
o an entity subject to the United States federal bankruptcy code or
o 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
o any other investments which convert to cash within a finite period,
if agreed to by the rating agencies rating the related series.
Unless specified in the 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 prospectus supplement relating to your series. 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 a paying agent. The paying agent will have the revocable power to
withdraw funds from the distribution account for the purpose of making
distributions to you.
FUNDING PERIOD
For any series of certificates, the prospectus supplement relating to your
series may specify that during a FUNDING PERIOD beginning on the closing date
and ending on a specified date before the commencement of an AMORTIZATION PERIOD
or the ACCUMULATION PERIOD for the series;
o the aggregate amount of principal receivables in the trust allocable
to the series may be less than the aggregate principal amount of the
certificates of the series;
o the PRE-FUNDING AMOUNT, which may be up to 100% of the aggregate
principal amount of the certificates of the series, will be held in
a pre-funding account pending
o the transfer of additional receivables to the trust; or
o the reduction of the investor interests of other series issued by
the trust.
The prospectus supplement relating to your series will specify that the FUNDING
PERIOD for the series will
o end on a specified date or earlier under circumstances described in
the prospectus supplement, such as the commencement of the RAPID
AMORTIZATION PERIOD;
o have a length that may be contingent upon another event such as
o the generation by the transferor of additional principal
receivables or
o the term of the AMORTIZATION PERIOD or ACCUMULATION PERIOD of a
related companion series; and
o in any case have an actual length no longer than one year.
36
<PAGE>
Generally, the AMORTIZATION PERIOD or ACCUMULATION PERIOD of a related companion
series will depend upon the payment rate of the receivables in the trust. Until
the end of the FUNDING PERIOD of a series paired with a related companion
series, the certificates of the series will evidence an undivided interest in:
o receivables to the extent of the investor interest in the series;
and
o funds on deposit in the pre-funding account and permitted
investments of the funds to the extent of the difference between
o the aggregate principal amount of the certificates of the series and
o the initial investor interest.
See "Maturity Considerations."
The related prospectus supplement will specify:
o the initial investor interest for the series;
o the aggregate principal amount of the certificates of the series;
and
o the date by which the investor interest is expected to equal the
aggregate principal amount of the certificates of the series.
The investor interest will increase as receivables are delivered to the trust as
the investor interests of other series of the trust are reduced. The investor
interest may also decrease due to INVESTOR CHARGE-OFFS.
During the FUNDING PERIOD,
o 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; and
o if so specified in the related prospectus supplement;
o monies in the pre-funding account will be
o invested by the trustee in permitted investments; or
o subject to a guaranteed rate or investment agreement or other
similar arrangement; and
o in connection with each distribution date during the FUNDING
PERIOD;
o investment earnings on funds in the pre-funding
account during the related monthly period; and
o any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement
will be withdrawn from the pre-funding account and
deposited into the finance charge account for distribution
in respect of interest on the certificates of the related
series in the manner specified in the prospectus supplement
relating to your series.
In the event that the investor interest does not for any reason equal the
aggregate principal amount of the certificates of the series by the end of the
FUNDING PERIOD;
o any amount remaining in the pre-funding account and any additional
amounts specified in the prospectus supplement relating to your
series will be payable to the certificateholders of the series in
the manner and at such time as set out in that prospectus
supplement;
o an early repayment of certificate principal will result; and
o the certificateholders of the series will not receive the benefit of
the certificate rate for the period of time originally expected on
the amount of such early repayment.
37
<PAGE>
COMPANION SERIES
If specified in the prospectus supplement relating to your series that your
series of certificates may be paired with one or more companion series issued by
the trust on or prior to the commencement of the AMORTIZATION PERIOD or
ACCUMULATION PERIOD for the series.
o As the investor interest of the series having a companion series is
reduced, the investor interest in the trust of the companion series will
be increased.
o If a PAY OUT EVENT occurs for the series having a companion series or for
the companion series when the series is in an AMORTIZATION PERIOD,
o the investor percentage for collections of principal receivables for
the series and
o the investor percentage for collections of principal receivables for
the companion series
may be reset as provided in the related prospectus supplement.
o Resetting of the 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
The servicer will allocate
o all amounts collected on finance charge receivables;
o all amounts collected on principal receivables; and
o all receivables in defaulted accounts
among
o the investor interest of each series issued by the trust and between
each class of each series;
o the transferor interest; and
o the interest of credit enhancement providers if provided for in the
related prospectus supplement.
The servicer will make each allocation by reference to:
o the applicable investor percentage of each series;
o the transferor percentage; and
o the credit enhancement provider's percentage for your series if
provided for in the related prospectus supplement.
The prospectus supplement relating to your series will specify
o the investor percentage; and
o if applicable, the credit enhancement provider's percentage or the
method of calculating the percentage for the allocations of
collections of
o principal receivables;
o finance charge receivables; and
o receivables in defaulted accounts
during, as applicable,
o the REVOLVING PERIOD;
38
<PAGE>
o any AMORTIZATION PERIOD; and
o the ACCUMULATION PERIOD; and
o for each series of certificates having more than one class, the
method of allocation between each class.
The transferor percentage will, in all cases, be equal to
o 100%
o minus the aggregate investor percentages for all series then
outstanding;
o minus, if applicable, the credit enhancement provider's percentages,
for all series then outstanding.
APPLICATION OF COLLECTIONS
The servicer will
o deposit any payment it collects on the receivables into the
collection acount:
o no later than the second business day following the date of
processing;
o unless otherwise specified in the prospectus supplement relating
to your series; and
o except as otherwise provided below; and
o make the deposits and payments to the accounts and parties as
indicated below on the same day as any deposit is made; provided,
however,
o that for as long as DNB remains the servicer under the agreement,
and
o the servicer provides to the trustee a letter of credit or
other credit support acceptable to each rating agency; and
o the transferor has not received a notice from the rating
agency that the letter of credit would result in the lowering
of the rating agency's then existing rating of the related
series, and if the trust has issued more than one series, any
series of certificates then issued and outstanding thereunder,
or
o 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
o some other arrangement is made by the servicer which is approved
in writing by the rating agencies,
then the servicer may make the deposits and payments on a monthly or
other periodic basis on the respective transfer date in an amount equal
to the net amount of the deposits and payments which would have been
made had the conditions of this section not applied.
Unless otherwise specified in the prospectus supplement relating to your series
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;
o the servicer will only be required to deposit collections from the
collection account into
o the finance charge account;
o the principal account; or
o any series account established by a related series supplement
up to
o the required amount to be deposited into any account; or
39
<PAGE>
o without duplication, distributed on or prior to the related
distribution date to certificateholders or to the provider of
credit enhancement; and
o if at any time prior to the distribution date the amount of
collections deposited in the collection account exceeds the amount
required to be deposited pursuant to this section above, the
servicer will be permitted to withdraw the excess from the
collection account.
Unless otherwise specified in the prospectus supplement relating to your
series, the servicer will withdraw the following amounts from the collection
account for application as indicated:
o an amount equal to the transferor percentage of the aggregate amount
of the deposits in respect of principal receivables and finance
charge receivables will be paid or held for payment to the holder of
the transferor certificate, provided that
o if after giving effect to the inclusion in the trust of all
receivables on or prior to the date of processing the transferor
interest would be reduced below the minimum transferor interest;
o then 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 trust;
o a defeasance amount equal to the applicable investor percentage of
the aggregate amount of the 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;
o during the REVOLVING PERIOD, an amount equal to the applicable
investor percentage of the aggregate amount of the deposits in
respect of principal receivables will be invested or held for
investment in [principal receivables], provided that
o if after giving effect to the inclusion in the trust of all
receivables on or prior to the date of processing the transferor
interest would be reduced below the minimum transferor interest;
o then 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 trust;
o 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
o if collections of principal receivables exceed the principal
payments which may be allocated or distributed to
certificateholders,
o then the excess amount will be paid to the holder of the
transferor certificate until the transferor interest is reduced
to the minimum transferor interest, and then 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 trust; and
o 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.
40
<PAGE>
Any principal collections not paid to the transferor because the transferor
interest is zero, together with any adjustment payments as described below,
o 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; or
o if an AMORTIZATION PERIOD or ACCUMULATION PERIOD has commenced, will
o be held for distribution to the certificateholders on the related
distribution date or
o 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 trust in the manner
and order of priority specified in the related prospectus
supplement.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any series may be included in a group of series. The prospectus supplement
relating to your series will specify whether the series will be included in a
group and will identify any previously issued series included in the group. If
so specified in the prospectus supplement relating to your series, the
certificateholders of a series or class within a group may be entitled to
receive all or a portion of shared excess finance charge collections for another
series within the group to cover any shortfalls for amounts payable from
collections of finance charge receivables allocable to the series or class.
Unless otherwise provided in the related prospectus supplement, with
respect to any series, shared excess finance charge collections for any monthly
period will equal the excess of collections of
o finance charge receivables;
o annual membership fees, if any; and
o other amounts allocated to the investor interest of the series or
class
over the sum of
o interest accrued for the current month and overdue monthly interest
on the certificates of the series or class;
o accrued and unpaid investor servicing fees for the series or class
payable from collections of finance charge receivables;
o the INVESTOR DEFAULT AMOUNT for the series or class;
o unreimbursed INVESTOR CHARGE-OFFS for the series or class; and
o other amounts specified in the prospectus supplement relating to
your series.
See "--Application of Collections" and "--Defaulted Receivables; Rebates and
Fraudulent Charges; Investor Charge-Offs."
SHARED PRINCIPAL COLLECTIONS
If specified in the prospectus supplement relating to your series,
principal collections allocated to the investor interest of a series but not
needed to make payments or deposits for that series will be applied to cover
principal payments due to or for the benefit of certificateholders of other
series and the allocation of SHARED PRINCIPAL COLLECTIONS may be among series
within a group. Any reallocation will not result in a reduction in the investor
interest of the series to which the collections were initially allocated.
41
<PAGE>
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES; INVESTOR CHARGE-OFFS
Unless specified in the prospectus supplement relating to your series, for
each series of certificates the INVESTOR DEFAULT AMOUNT
o will be calculated by the servicer on the fourth business day before
the transfer date for the preceding monthly period;
o will be equal to the aggregate amount of the investor percentage of
principal receivables in accounts which in the 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; and
o in the case of a series of certificates having more than one class,
will be allocated among the classes in the manner described in the
prospectus supplement relating to your series.
If so provided in the prospectus supplement relating to your series, an
amount equal to the INVESTOR DEFAULT AMOUNT for any monthly period may be paid
from other amounts, including:
o collections in the finance charge account; or
o credit enhancements;
and applied to pay principal to certificateholders or the holder of the
transferor certificate. In the case of a series of certificates having one or
more classes of subordinated certificates, the prospectus supplement relating to
your series may provide that all or a portion of amounts otherwise allocable to
the subordinated certificates may be paid to the holders of senior certificates
to make up any INVESTOR DEFAULT AMOUNT allocable to the holders of senior
certificates.
For each series of certificates, INVESTOR CHARGE-OFFS
o will reduce the investor interest for the series for any monthly
period;
o will be reimbursed on any distribution date to the extent amounts on
deposit in the finance charge account and otherwise available for
reimbursement exceed interest, fees and any aggregate INVESTOR
DEFAULT AMOUNT payable on that date; and
o in the case of a series of certificates having more than one class,
will be allocated among the several classes in the manner and
priority set out in the related prospectus supplement.
The transferor interest will be reduced, on a net basis, by the amount of
any principal receivable adjusted by the servicer or related originator because
o of transactions occurring in respect of a rebate or refund to a
cardholder; or
o the principal receivable was created in respect of merchandise which
was refused or returned by a cardholder; and
o any principal receivable which is discovered to have been created
through a fraudulent or counterfeit charge.
In the event that the exclusion of these receivables from the calculation of the
transferor interest would cause the transferor interest to be less than the
minimum transferor interest, the transferor will be required to pay an amount
equal to the deficiency.
If so specified in the prospectus supplement relating to a series, the
transferor may terminate its substantive obligations in respect of the series or
the trust by:
o depositing with the trustee, from amounts representing, or acquired
with, collections of receivables, money or permitted investments
sufficient to:
o make all remaining scheduled interest and principal payments on
the series or all outstanding series of certificates of the
trust, as the case may be on the dates scheduled for such
payments; and
42
<PAGE>
o pay all amounts owing to any credit enhancement provider for the
series or all outstanding series, as the case may be;
o 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
o an opinion of counsel to the effect that such deposit and
termination of obligations will not result in the trust being
required to register as an investment company within the meaning of
the Investment Company Act of 1940, as amended; and
o a TAX OPINION.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
With respect to each series, the transferor may repurchase the certificates
o on any distribution date
o after the total investor interest of the series and the
ENHANCEMENT INVESTED AMOUNT is reduced to an amount less than or
equal to 5% or a different amount specified in the related
prospectus supplement of the initial investor interest; and
o if conditions set out in the pooling and servicing agreement are
met.
Unless otherwise specified in the related prospectus supplement, the repurchase
price will be equal to
o the total investor interest of the series less the amount, if any,
on deposit in any principal funding account with respect to the
series;
o plus the ENHANCEMENT INVESTED AMOUNT, if any, for the series;
o 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 a 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
o sell or cause to be sold receivables in the manner provided in the
pooling and servicing agreement and series supplement; and
o pay the net proceeds of the sale and any collections on the
receivables, in an amount at least equal to the sum of
o the investor interest;
o the ENHANCEMENT INVESTED AMOUNT, if any, for the series; and
o accrued interest due on the above.
Unless the servicer and the holder of the transferor certificate instruct
the trustee otherwise, the TRUST TERMINATION DATE will be the earliest of:
o the day after the distribution date on which the aggregate investor
interest and ENHANCEMENT INVESTED AMOUNT or collateral interest, if any,
for each outstanding series is zero;
o July 15, 2021, or
43
<PAGE>
o if the receivables are sold, disposed of or liquidated following the
occurrence of an insolvency event, immediately following such sale,
disposition or liquidation.
Upon the termination of the trust and the surrender of the transferor
certificate, the trustee will 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 specified in the prospectus supplement relating to your series, the
REVOLVING PERIOD will continue through the date specified in the prospectus
supplement relating to your series unless a PAY OUT EVENT occurs prior to that
date. A PAY OUT EVENT occurs for all series issued by the trust upon the
occurrence of any of the following events:
o specified events of insolvency or receivership relating to the
transferor or Dillard's, DNB or DNB-LA.;
o the transferor is unable for any reason to transfer receivables to
the trust in accordance with the provisions of the pooling and
servicing agreement; or
o the 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 for any series upon the occurrence
of any other event specified in the prospectus supplement relating to your
series.
On the date on which a PAY OUT EVENT is deemed to have occurred, the RAPID
AMORTIZATION PERIOD will begin. 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 principal 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 prospectus supplement relating to your series if
pursuant to provisions of federal law, the transferor voluntarily enters
liquidation or a receiver is appointed for the transferor on the day of the
event,
o the transferor will immediately cease to transfer principal
receivables to the trust;
o promptly give notice to the trustee of the event;
o 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;
o unless otherwise instructed within a specified period by
certificateholders representing undivided interests aggregating more
than 50% of the investor interest of each the series, or if any
series has more than one class, of each class, and any other person
specified in the pooling and servicing agreement or the 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; and
o 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 "Legal Aspects of the Receivables--Matters Relating to Bank
Receivership."
44
<PAGE>
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the prospectus supplement, for your 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
servicing fee payable at the times and in the amounts specified in the
prospectus supplement.
The investor servicing fee will be
o funded from collections of finance charge receivables allocated to
the investor interest; and
o paid each month, or on such other specified periodic basis, from
o amounts allocated and on deposit in the finance charge account;
or
o in limited circumstances, from amounts available from credit
enhancement and other sources, if any.
The remainder of the servicing fee for the trust will be allocable to
o the transferor interest;
o the investor interests of any other series issued by the trust; and
o the interest represented by the ENHANCEMENT INVESTED AMOUNT or the
collateral interest, if any, for the series, as described in the
prospectus supplement relating to your series.
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 expenses incurred in
connection with servicing the receivables including, without limitation, payment
of
o the fees and disbursements of the trustee and independent certified
public accountants; and
o other fees which are not expressly stated in the pooling and
servicing agreement to be payable by the trust or the
certificateholders other than the trust's federal, state, and local
income and franchise taxes, if any.
MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
Dillard National Bank, a wholly-owned banking subsidiary of Dillard's,
initially will service the receivables. The servicer may appoint any affiliate
as a sub-servicer to service any or all of the receivables. In 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 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 servicing fee from the trust in respect of each
series in the amounts and at the times specified in the prospectus supplement
relating to your series. The servicing fee may be payable from finance charge
receivables or other amounts as specified in the prospectus supplement relating
to your series.
With respect to each series of certificates, the servicer may not resign
from its obligations and duties under the pooling and servicing agreement,
except upon determination that performance of its duties is no longer
permissible under applicable law. No resignation will become effective until the
trustee or a successor to the servicer has assumed the servicer's
responsibilities and obligations under the pooling and servicing agreement. DNB
has delegated some of its servicing duties to MCC; however, delegation does not
relieve it of its obligation to perform its duties in accordance with the
agreement.
The servicer will indemnify the trust and trustee from and against any
reasonable
o loss;
o liability;
o expense;
o damage; or
o injury
45
<PAGE>
suffered or sustained by reason of any acts or omissions or alleged acts or
omissions of the servicer or any sub-servicer with respect to the activities of
the trust or the trustee; provided, however, that the servicer will not
indemnify,
o the trustee for liabilities imposed by reason of fraud, negligence,
or willful misconduct by the trustee in the performance of its
duties under the pooling and servicing agreement; or
o the trust, the certificateholders or the certificate owners for
o liabilities arising from actions taken by the trustee at the
request of certificateholders;
o 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
o 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 on or arising
from a failure to comply with such taxes, the certificateholders
or the certificate owners required to be paid by the trust in
connection with the pooling and servicing agreement to any taxing
authority.
In addition, subject to limited 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 pooling and servicing agreement as though the
pooling and servicing agreement created a partnership under the New York Revised
Limited Partnership Act in which the transferor is a general partner.
Neither the transferor nor the servicer nor any of their respective
directors, officers, employees or agents will be
o 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
pooling and servicing agreement; or
o 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 respective person in the performance
of its duties or by reason of reckless disregard of obligations and
duties thereunder.
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 pooling and servicing agreement and which
in its opinion may expose it to any expense or liability.
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 transfer the trustee receives
o written notification from each rating agency that the transfer will
not result in a lowering of its then existing rating of the
certificates of each outstanding series rated by it; and
o a TAX OPINION.
Any person
o into which, in accordance with the agreement, the transferor or the
servicer may be merged or consolidated; or
o resulting from any merger or consolidation to which the transferor
or the servicer is a party; or
o succeeding to the business of the transferor or the servicer,
will be the successor to the transferor or the servicer, as the case may be,
under the pooling and servicing agreement upon
46
<PAGE>
o execution of a supplement to the pooling and servicing agreement;
and
o delivery of an opinion of counsel as to the compliance of the
transaction with the applicable provisions of the pooling and
servicing agreement.
SERVICER GUARANTEE
If so provided in the prospectus supplement related to your series, the
obligations of the servicer under the agreement may be guaranteed by Dillard's
or any of its subsidiaries pursuant to a servicer guarantee in favor of the
trustee.
SERVICER DEFAULT
Unless otherwise specified in the prospectus supplement relating to your
series, in the event of any servicer default, either
o the trustee; or
o certificateholders representing undivided interests aggregating more
than 50% of the investor interests for all series of certificates of
the trust,
may, by written notice to the servicer and to the trustee if given by the
certificateholders
o terminate all of the rights and obligations of the servicer as
servicer under the agreement and in and to the receivables and the
proceeds of the receivables; and
o appoint a new servicer.
The rights and interest of the transferor under the agreement and in the
transferor interest will not be affected by the termination. The trustee will as
promptly as possible appoint a successor servicer. If no successor servicer has
been appointed and has accepted its appointment by the time the servicer ceases
to act as servicer, all authority, power and obligations of the servicer under
the pooling and servicing agreement shall pass to and be vested in the trustee.
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 if:
o the trustee is unable to obtain any bids from eligible successor
servicers;
o 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
o the trustee is legally unable to act as successor servicer.
Unless otherwise specified in the prospectus supplement relating to your
series, a servicer default under the agreement refers to any of the following
events:
o failure by the servicer to make any payment, transfer or deposit, or
to give instructions to the trustee to make payments, transfers or
deposits, on the date the servicer is required to do so under the
agreement or any series supplement or within the applicable grace
period, which will not exceed 10 business days;
o failure on the part of the servicer 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 the trust and which continues
unremedied for a period of 60 days after written notice and
continues to have a material adverse effect on the
certificateholders; or the delegation by the servicer of its duties
under the agreement, except as specifically permitted;
o 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
47
<PAGE>
the 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 the certificateholders;
o the occurrence of events of bankruptcy, insolvency or receivership
of the servicer, or
o such other event specified in the prospectus supplement relating to
your series.
Unless otherwise stated in the related prospectus supplement, a delay in or
failure of performance described in the first three paragraphs above that does
not exceed the applicable grace period will not constitute a servicer default if
the delay or failure could not be prevented by the exercise of reasonable
diligence by the servicer and the delay or failure was caused by an act of God
or other similar occurrence.
Upon the occurrence of any such event, the servicer will
o not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the
pooling and servicing agreement; and
o provide the trustee, any credit enhancement provider, the transferor
and the holders of certificates of each series issued and
outstanding under the trust prompt notice of the failure or delay by
it, together with a description of the cause of the 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 no 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 engaging a successor servicer.
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 including, among other things:
o the total amount distributed;*
o the amount of the distribution on the distribution date allocable to
principal on the certificates;*
o the amount of the distribution allocable to interest on the
certificates;*
o 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;
o the aggregate amount of
o principal receivables;
o the investor interest; and
o 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;
o 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;
o the aggregate INVESTOR DEFAULT AMOUNT for the preceding monthly
period or periods since the last distribution date;
o the amount of INVESTOR CHARGE-OFFS and reimbursements of previous
INVESTOR CHARGE-OFFS for the preceding monthly period or periods
since the last distribution date;
48
<PAGE>
o the amount of the investor servicing fee for the preceding monthly
period or periods since the last distribution date;
o the amount available under any enhancement and credit enhancement,
if any, as of the close of business on the distribution date;
o 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;
o 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;
o the portfolio yield, as the term is used in the related prospectus
supplement and relating to the series, for the preceding monthly
period or periods since the last distribution date;
o information relating to the floating or variable certificate rates,
if applicable, for the monthly period or periods ending on such
distribution date; and
o if a series of certificates uses a pre-funding account, the amounts
on deposit in the pre-funding account.
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 on another date specified
in the prospectus supplement relating to your series, 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 out in clauses marked with a * above aggregated for
the calendar year or the applicable portion of the year during which the person
was a certificateholder, together with 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 prospectus supplement relating to your
series, 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
o a report to the effect that the accounting firm has examined
management's assertion that
o as of the date of the 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; and
o in their opinion, management's assertion is fairly stated, in all
material respects; and
o 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 will 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 will disclose any
exceptions noted and that such firm has recalculated the
mathematical accuracy of amounts derived in the monthly
certificates.
The agreement will provide for delivery to the trustee on or before
August 31 of each calendar year, or some other date as specified in the
prospectus supplement relating to your series, of an annual statement signed by
an officer of the servicer to the effect that
49
<PAGE>
o the servicer has fully performed its obligations under the agreement
throughout the preceding year; or
o if there has been a default in the performance of any obligation,
specifying the nature and status of the default.
AMENDMENTS
Unless otherwise specified in the prospectus supplement, the agreement and
any series supplement may be amended by the transferor, the servicer and the
trustee, without the consent of certificateholders of any series then
outstanding to,
o cure any ambiguity;
o revise exhibits and schedules;
o correct or supplement any provision which may be inconsistent with
any other provision in the agreement; or
o add any other provisions with respect to matters or questions
arising under and which are not inconsistent with the provisions of
the pooling and servicing agreement or series supplement.
No amendment described above, however, may adversely affect in any material
respect the interests of the certificateholders of any series then outstanding.
The agreement and any series supplement may be amended by the transferor,
the servicer and the trustee without the consent of any of the
certificateholders of any series then outstanding for the purpose of adding,
changing or eliminating any provision of or any right of the holders of
certificates under the agreement, provided that
o the servicer has 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;
o the 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
o the servicer has given each rating agency ten business days' prior
written notice of the amendment and will 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 the amendment.
No amendment described above, however, may effect any of the amendments
that require unanimous certificateholder consent as set forth in the next
paragraph, or
o reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on certificates of any
series;
o change the definition of or the manner of calculating the interest
of any certificateholder of any series;
o alter the requirements for changing the percentage by which the
minimum transferor interest for certificates of any series is
determined;
o change the manner in which the transferor interest of any series is
determined; or
o reduce the percentage required in the following paragraphs to
consent to such amendment.
The pooling and servicing agreement may also be amended by the transferor, the
servicer and the 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
o adding any provisions to;
o changing in any manner; or
50
<PAGE>
o 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
o reduce in any manner the amount of, or delay the timing of,
distributions required to be made on any certificate of the series
without the consent of all the related certificateholders;
o change the definition of or the manner of calculating
o the investor interest;
o the investor percentage; or
o the INVESTOR DEFAULT AMOUNT
of the series without the consent of each holder of certificates
adversely affected by the change; or
o reduce the percentage of undivided interests the holders of which
are required to consent to any such amendment, without the consent
of each affected holder of certificates.
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 some other percentage specified in the
prospectus supplement of the investor interest, the trustee
o after having been adequately indemnified by such certificateholders
for its costs and expenses; and
o having given the servicer notice that a request has been made;
will afford the certificateholders access during business hours to the current
list of certificateholders of the trust for purposes of communicating with other
certificateholders regarding their rights under the agreement.
See "--Book-Entry Registration" and "--Definitive Certificates" above.
THE TRUSTEE
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
affiliates may hold certificates in their own names. In addition, for purposes
of meeting the legal requirements of applicable local jurisdictions, the trustee
will have the power to appoint a co-trustee or separate trustees of all or any
part of the trust. In the event of such an appointment,
o all rights, powers, duties and obligations conferred or imposed on
the trustee by the pooling and servicing agreement will be conferred
or imposed on the trustee and separate trustee or co-trustee
jointly; or
o in any jurisdiction in which the trustee will be incompetent or
unqualified to perform required acts, singly upon the separate
trustee or co-trustee who will exercise and perform those 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
o the trustee ceases to be eligible to continue as trustee under the
agreement; or
o 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.
51
<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENTS
GENERAL
The transferor will obtain its interest in the receivables under purchase
agreements between the transferor and one or more originators or other persons.
Pursuant to a PURCHASE AGREEMENT, the respective RECEIVABLES SELLER will
transfer to the transferor all receivables in specified accounts as of the
specified cut-off date. The transferor has entered into the following PURCHASE
AGREEMENTS:
o the DIC Purchase Agreement dated as of August 14, 1998 with DIC;
o the MFI Purchase Agreement dated as of August 14, 1998 with MERSCO
FACTORS;
o the DNB Purchase Agreement dated as of August 14, 1998 with DNB; and
o the MSNB Purchase Agreement dated as of August 14, 1998 with DNB-LA.
Under the PURCHASE AGREEMENTS, each of DIC, MERSCO FACTORS, DNB and DNB-LA.
transferred to the transferor
o all then existing and thereafter arising receivables in each account
identified on a list of accounts delivered to the transferor; and
o all monies due or to become due with respect to the receivables and
respective accounts as of the close of business on August 12, 1998.
Under the DIC Purchase Agreement and the MFI Purchase Agreement, DIC and
MERSCO FACTORS sold receivables arising under accounts originated by and
previously purchased from DNB and DNB-LA., respectively. Neither DIC nor MERSCO
FACTORS has originated or currently originates accounts and no additional
receivables or interests in receivables are expected to be transferred to either
entity in the future.
In addition, under their PURCHASE AGREEMENTS, each of DNB and DNB-LA.
transferred to the transferor
o all receivables then existing and thereafter arising in each account
created after August 12, 1998; and
o all monies due or to become due with respect to the receivables as
of the date of creation of the receivables.
With respect to any series of certificates, the transferor will transfer to
the trust the receivables identified in the related prospectus supplement and
pooling and servicing agreement and will assign to the trust its rights in, to
and under the PURCHASE AGREEMENTS with respect to the receivables.
The transferor may enter into additional PURCHASE AGREEMENTS with one or
more additional originators, or may modify the existing PURCHASE AGREEMENTS as
described in the prospectus supplement relating to the series of certificates
purchased by you. Each PURCHASE AGREEMENT will contain substantially similar
terms, or, for any series of certificates, other terms approved by the rating
agencies rating the series. The material terms of the PURCHASE AGREEMENTS are
summarized below. This summary is not a complete description of the terms of the
PURCHASE AGREEMENTS. You should refer to the form of the PURCHASE AGREEMENT for
a complete description.
REPRESENTATIONS AND WARRANTIES
In each PURCHASE AGREEMENT, the related RECEIVABLES SELLER will represent
and warrant that, among other things,
o 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;
o the PURCHASE AGREEMENT constitutes a legal, valid and binding
obligation of the RECEIVABLES SELLER, enforceable against the
RECEIVABLES SELLER in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws
52
<PAGE>
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;
o the PURCHASE AGREEMENT constitutes either**
o a valid transfer, assignment and conveyance to the transferor of
all right, title and interest of the RECEIVABLES SELLER in, to
and under the receivables transferred by the RECEIVABLES SELLER
and all proceeds of the receivables, and the receivables and
proceeds will be held by the transferor free and clear of any
lien of any person claiming through or under the RECEIVABLES
SELLER or any of its affiliates; or
o a grant of a perfected, first priority, security interest as
defined in the UCC in the property to the transferor, subject to
specified exceptions.
o each existing account is an ELIGIBLE ACCOUNT and the transferor in
did not use an adverse selection procedure in selecting the accounts
to be added to the trust from among the ELIGIBLE ACCOUNTS in the
RECEIVABLES SELLER'S portfolio;*
o each receivable transferred is an ELIGIBLE RECEIVABLE;*
o each receivable transferred has been or will be conveyed to the
transferor*
o free and clear of any lien of any person claiming through or
under the RECEIVABLES SELLER or any of its affiliates; and
o in compliance, in all material respects, with all requirements of
law applicable to the RECEIVABLES SELLER;
o all consents, licenses, approvals or authorizations of, or
registrations or declarations with, any governmental authority
required to be obtained, effected or given by the RECEIVABLES SELLER
in connection with the conveyance of receivables to the transferor
under the PURCHASE AGREEMENT have been duly obtained, effected or
given and are in full force and effect;*
o the RECEIVABLES SELLER has the corporate power and authority to
o execute and deliver and perform its obligations under the
PURCHASE AGREEMENT; and
o sell and assign to the transferor the receivables transferred and
to be transferred and has duly authorized the transfers by all
necessary corporate action on the part of the RECEIVABLES SELLER;
and
o the RECEIVABLES SELLER is, and after giving effect to the transfers
contemplated to occur on any date under the PURCHASE AGREEMENT, will
be, solvent.
COVENANTS
Each RECEIVABLES SELLER will agree, among other things,
o to execute and file financing statements, and cause to be executed
and filed continuation and other statements, all in such manner and
in places as may be required by law fully to perfect and preserve
the sale to the transferor of the receivables transferred by the
RECEIVABLES SELLER;
o 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
gives the transferor at least 60 days prior written notice and files
financing statements or amendments as may be necessary to continue
the perfection of the transferor's interest in all receivables sold
transferred by the RECEIVABLES SELLER;
o 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 the RECEIVABLES SELLER to the transferor under its
PURCHASE AGREEMENT and not to grant, create, incur, assume or suffer
to exist any lien thereon;*
53
<PAGE>
o to defend the right, title and interest of the transferor in, to and
under all transferred assets against all claims of third parties
claiming through or under the RECEIVABLES SELLER;* and
o not to make any change or modification to its credit and collection
policy, that could reasonably be expected to have a material adverse
effect on the transferor, as transferor.
REPURCHASE EVENTS
Each RECEIVABLES SELLER will agree with the transferor that in the event of
o a breach of any of the RECEIVABLES SELLER'S representations and
warranties contained in clauses marked with an * above under the
description "Representations and Warranties," unless the breach is
cured in all material respects within a period acceptable to the
transferor, but not more than 150 days, or
o a breach by the RECEIVABLES SELLER of its covenant described in
clauses marked with an * above under the description "Covenants,"
which breach has a material adverse effect on the transferor's
interest in the receivable, or
o a breach of any of the RECEIVABLES SELLER'S representations and
warranties contained in clause marked with ** above under the
description "Representations and Warranties,"
the RECEIVABLES SELLER will, upon request by the transferor, repurchase the
WARRANTY RECEIVABLE from the transferor by delivering the respective WARRANTY
PAYMENT.
The obligation of each RECEIVABLES SELLER to repurchase any WARRANTY
RECEIVABLE transferred by it as to which a breach has occurred and is continuing
will, if the obligation is fulfilled, constitute the sole remedy against the
RECEIVABLES SELLER for the 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
RECEIVABLES SELLER all of the transferor's right, title and interest in, to and
under and all monies due on the WARRANTY RECEIVABLE.
If so provided in the prospectus supplement related to a series of
certificates, the obligations of the RECEIVABLES SELLERS, or any of them, to
repurchase receivables under the circumstances described in the preceding
paragraph may be guaranteed by DILLARD'S or any of its subsidiaries under a
REPURCHASE GUARANTEE in favor of the transferor. In such cases, the rights of
the transferor under a REPURCHASE GUARANTEE will be assigned to the trustee for
the benefit of the certificateholders of the series.
MERGER AND CONSOLIDATION
Any Person
o into which a RECEIVABLES SELLER may be merged or consolidated
o resulting from any merger, conversion or consolidation to which
the RECEIVABLES SELLER is a party,
o succeeding to the business of the RECEIVABLES SELLER, or
o more than 50% of the voting stock of which is owned, directly or
indirectly, by DILLARD'S; and
o which person in any of the foregoing cases executes an agreement of
assumption to perform every obligation of the RECEIVABLES SELLER
under its PURCHASE AGREEMENT;
will succeed to the RECEIVABLES SELLER 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 the PURCHASE AGREEMENT; provided, however, that the RECEIVABLES
SELLER will have delivered to the transferor and the trustee an opinion of
counsel either stating that:
o in the opinion of counsel, all financing statements and continuation
statements and amendments have been executed and filed that are
necessary to fully preserve and protect the interest of the
54
<PAGE>
transferor and the trustee, respectively, in the receivables
transferred by the RECEIVABLES SELLER and reciting the details of
the filings; or
o stating that, in the opinion of counsel, no such action is necessary
to preserve and protect these interests.
CREDIT ENHANCEMENT
GENERAL
For any series, credit enhancement may be provided for one or more classes.
Credit enhancement may be in the form of
o the subordination of one or more classes of the certificates of the
series;
o a letter of credit;
o the establishment of a cash collateral guaranty or account;
o a collateral interest;
o a surety bond;
o an insurance policy;
o a spread account;
o a reserve account;
o the use of cross support features;
o another method of credit enhancement described in the related
prospectus supplement; or
o any combination of the foregoing.
If so specified in the prospectus supplement relating to your series, any
form of credit enhancement may be structured so as to be drawn upon by more than
one class.
The type, characteristics and amount of the credit enhancement for any
series or class will be determined based on several factors, including
o the characteristics of the receivables and accounts included in the
trust portfolio as of the closing date for the series;
o and the desired rating for each class; and
o the requirements of each rating agency rating the certificates of
the series or class.
Unless otherwise specified in the prospectus supplement for your series,
the credit enhancement will not
o provide protection against all risks of loss; and
o guarantee repayment of the entire principal balance of the
certificates and interest.
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 prospectus
supplement relating to your series will include a description of
o the amount payable under the credit enhancement;
o any conditions to payment not otherwise described here;
o the conditions, if any, under which the amount payable under the
credit enhancement may be reduced and under which the credit
enhancement may be terminated or replaced; and
o any material provision of any agreement relating to the credit
enhancement.
55
<PAGE>
Additionally, the prospectus supplement relating to your series may set out
information for any credit enhancement provider, including
o a brief description of its principal business activities;
o its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business;
o if applicable, the identity of regulatory agencies which exercise
primary jurisdiction over the conduct of its business;
o its total assets, and its stockholders' or policy holders' surplus,
if applicable; and
o other appropriate financial information as of the date specified in
the prospectus supplement.
If so specified in the related prospectus supplement, credit enhancement
for a series may be available to pay principal of the certificates of the series
following the occurrence of PAY OUT EVENTS for the series. In such event, the
credit enhancement provider may have an interest in cash flows in respect of the
receivables to the extent described in the prospectus supplement relating to
your series.
SUBORDINATION
If so specified in the prospectus supplement relating to your series, one
or more of any series will be subordinated as described in the prospectus
supplement to the extent necessary to fund payments to senior certificates. The
rights of the holders of any subordinated certificates to receive distributions
of principal and/or interest on any distribution date for the series will be
subordinated in right and priority to the rights of the holders of senior
certificates, but only to the extent described in the prospectus supplement. If
so specified in the prospectus supplement relating to your series, subordination
may apply only in the event of losses not covered by another form of credit
enhancement. The prospectus supplement relating to your series will also set out
information concerning
o the amount of subordination of a class or classes of subordinated
certificates in a series;
o the circumstances in which the subordination will be applicable;
o the manner, if any, in which the amount of subordination will be
applicable;
o the manner, if any, in which the amount of subordination will
decrease over time; and
o the conditions under which amounts available from payments that
would otherwise be made to holders of the 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 specified in the prospectus supplement relating to your series, 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
losses in addition to or in lieu of other credit enhancement. The issuer of the
letter of credit will be obligated to honor demands under the letter of credit,
to the extent of the amount available under the letter of credit, 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 prospectus supplement relating to your series,
support for a series or one or more classes thereof will be provided by
o a cash collateral guaranty
-- secured by the deposit of cash or permitted investments in a
segregated cash collateral account; and
56
<PAGE>
- -- reserved for the beneficiaries of the Cash Collateral Guaranty; or
o by a segregated cash collateral account alone.
The amount available under the Cash Collateral Guaranty or the cash collateral
account will be the lesser of
o amounts on deposit in the cash collateral account; and
o an amount specified in the prospectus supplement.
The prospectus supplement will set out 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 specified in the prospectus supplement, support for a series or one or
more classes thereof will be provided initially by collateral interest in an
amount initially equal to a percentage of the certificates of the series as
specified in the prospectus supplement. The series may also have the benefit of
a Cash Collateral Guaranty or cash collateral account with an initial amount on
deposit, if any, as specified in the prospectus supplement which will be
increased
o to the extent the transferor elects, subject to conditions specified
in the related prospectus supplement, to apply collections of
principal receivables allocable to the collateral interest to
decrease the collateral interest;
o to the extent 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
o 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
o the sum of the collateral interest;
o the amount on deposit in the cash collateral account; and
o an amount specified in the related prospectus supplement.
The related prospectus supplement will set out the circumstances under which
holders of certificates will receive payments
o under a Cash Collateral Guaranty;
o under a cash collateral account; or
o which otherwise would be made to holders of the collateral interest.
SURETY BOND OR INSURANCE POLICY
If specified in the prospectus supplement relating to your series,
insurance for a series or one or more classes will be provided by one or more
insurance companies. The insurance will guarantee, for one or more classes of
the related series, distributions of interest or principal in the manner and
amount specified in the prospectus supplement.
If specified in the prospectus supplement relating to your series, a surety
bond will be purchased for the benefit of the holders of any series or class of
a series to assure distributions of interest or principal for the series or
class of certificates in the manner and amount specified in the prospectus
supplement.
57
<PAGE>
SPREAD ACCOUNT
If specified in the prospectus supplement relating to your series, support
for a series or one or more classes will be provided by the periodic deposit of
available excess cash flow from the trust assets into a Spread Account intended
to assist with subsequent distribution of interest and principal on the
certificates of the class or series in the manner specified in the prospectus
supplement.
RESERVE ACCOUNT
If specified in the related prospectus supplement relating to your series,
support for a series or one or more classes will be provided by the
establishment of a reserve account. The reserve account may be funded, to the
extent provided in the related prospectus supplement, by
o an initial cash deposit;
o the retention of periodic distributions of principal or interest or
both otherwise payable to one or more classes or certificates,
including any subordinated certificates; or
o the provision of a letter of credit, guarantee, insurance policy or
other form of credit or any combination of the above.
The reserve account will be established to assist with the subsequent
distribution of principal or interest on the certificates of the series or class
in the manner provided in the prospectus supplement relating to your series.
CERTIFICATE RATINGS
Any rating of the certificates by a rating agency will indicate:
o its view on the likelihood that certificateholders will receive
required interest and principal payments; and
o its evaluation of the receivables and the availability of any credit
enhancement for the certificates.
Among the things a rating will not indicate are:
o the likelihood that interest or principal payments will be paid on a
scheduled date;
o the likelihood that a PAY OUT EVENT will occur;
o the likelihood that a United States withholding tax will be imposed
on non-U.S. Certificateholders;
o the marketability of the certificates;
o the market price of the certificates; or
o 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 designation of additional accounts without prior rating agency
confirmation may result in a suspension, downgrade or withdrawal of its rating
for the certificates.
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 agency. The rating or ratings applicable to the certificates of each
series or class offered will be disclosed in the related prospectus supplement.
Rating agencies other than those requested could assign a rating to the
certificates and such ratings could be lower than any rating assigned by a
rating agency chosen by the transferor.
58
<PAGE>
LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The transferor will represent and warrant in the agreement that the
transfer of receivables by it to the trust is either
o a valid transfer and assignment to the 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
o the grant to the trust of a security interest in such receivables.
The transferor will also represent and warrant in the agreement that, in the
event the transfer of receivables by the transferor to the trust is deemed to
create a security interest under the Delaware UCC there will exist a valid,
subsisting and enforceable first priority perfected security interest in the
receivables created in favor of the trust on and after their creation, except
for 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 and are subject to its provisions, and the filing
of an appropriate financing statement is required to perfect the security
interest of the 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 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 limited circumstances under the UCC in which a prior or
subsequent buyer of receivables coming into existence after a closing date could
have an interest in the receivables with priority over the trust's interest.
Under the pooling and servicing 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 in any receivable 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 the 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, unless
o the servicer has provided to the trustee a letter of credit or other
credit support acceptable to each rating agency and the transferor
shall not have received a notice from the rating agency that the
letter of credit would result in the lowering of the rating agency's
then existing rating of the related series and, if the trust has
issued more than one series, any series of certificates then issued
and outstanding,
o 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
o some 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.
59
<PAGE>
MATTERS RELATING TO BANK RECEIVERSHIP
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
Comptroller. If either DNB or DNB-LA. becomes insolvent or is in an unsound
condition or if other similar 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 the property to the transferor
which, upon the filing of specified financing statements will be a perfected
security interest.
To the extent that
o an originator granted a security interest in its receivables to the
transferor, which security interest is subsequently assigned to the
trust,
o the interest was validly perfected before the originator's
insolvency,
o the interest was not taken or granted in contemplation of the
originator's insolvency or with the intent to hinder, delay or
defraud the originator or its creditors,
o the pooling and servicing agreement is continuously a record of the
originator, and
o the pooling and servicing 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 the originator,
the 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, the
originator and payments to the trust for 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 the originator. If, however,
the FDIC
o were to assert that the security interest in favor of either the
transferor or the trust was unperfected or unenforceable;
o 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
o 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 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 receivables purchase agreement will occur and, with respect to DNB, a
servicer default will occur. If no servicer default other than the
conservatorship 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. 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, 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 for a series of certificates under the trust.
Pursuant to each originator's purchase agreement, newly created principal
receivables will not be transferred to the transferor on and after any
receivables appointment or voluntary liquidation, and the trustee will proceed
to sell, dispose of or otherwise liquidate the receivables originated by the
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
60
<PAGE>
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 pooling and servicing agreement or a related series supplement, or unless
otherwise required by the FDIC as receiver or conservator of DNB. Under the
pooling and servicing agreement, the proceeds from the sale of the receivables
would be treated as collections of the receivables and the investor percentage
of the 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 most 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.
MATTERS RELATING TO BANKRUPTCY OF THE TRANSFEROR, DIC AND MFI
The transferor will not engage in any activities except
o purchasing accounts receivable from DILLARD'S and DILLARD'S
subsidiaries,
o forming the trust,
o transferring accounts receivable to the trust, and
o 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 but including DIC
and MFI, 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 a written legal opinion, that 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 the
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 receivables seller other than DNB or DNB-LA. would constitute a valid sale
and, therefore, the receivables would not be property of the receivables seller
in the event of the filing of an application for relief by or against the
receivables seller 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 the
DILLARD'S ENTITY as debtor-in-possession, or a creditor of the DILLARD'S ENTITY
were to take the view that the 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 a
receivables seller other than DNB-LA. or DNB, or the receivables seller as
debtor-in-possession, or a creditor of the receivables seller were to take the
view that the transfer of the receivables from the receivables seller to the
transferor should be recharacterized as a pledge of the receivables, then delays
in payments on the certificates of each series or, should the bankruptcy court
rule in favor of any the trustee, debtor-in-possession or creditor, reductions
in the payments on the certificates could result.
61
<PAGE>
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 the
transferor, DIC or MFI were to become subject to a bankruptcy proceeding or if
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 the transferor has advised it that the facts of
Octagon are distinguishable from those in the sale transactions between each of
the receivables sellers and the transferor and the transferor and the trust and
the reasoning of the 10th Circuit appears to be inconsistent with established
precedent and the UCC.
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
o Truth-in-Lending, Equal Credit Opportunity,
o Fair Credit Reporting,
o Fair Debt Collection Practice, and
o Electronic Funds Transfer Acts.
These statutes impose disclosure requirements when a credit card account is
advertised and when it is opened,
o at the end of monthly billing cycles, and
o at year end.
In addition, these statutes
o limit customer liability for unauthorized use,
o prohibit discriminatory practices in extending credit, and
o impose specific limitations on the type of account-related charges
that may be assessed.
Cardholders are entitled under these laws to
o have payments and credits applied to the credit card accounts
promptly,
o to receive prescribed notices, and
o to require billing errors to be resolved promptly.
The trust may be liable for violations of consumer protection laws that apply to
the receivables, either as assignee from the transferor with respect to
obligations arising before transfer of the receivables to the trust or as a
party directly responsible for obligations arising after the transfer. In
addition, a cardholder may be entitled to assert the violations by way of
set-off against his obligation to pay the amount of receivables owing. The
transferor will warrant that all related receivables have been and will be
created in compliance with the requirements of the laws. The servicer will also
agree to indemnify the trust, among other things, for
62
<PAGE>
any liability arising from the 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 state and local legislatures that, if
enacted, would further regulate the credit card industry. Among other things,
the proposed law would 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,
o prohibit the imposition and amount of minimum finance charges and
other fees,
o specify methods of calculating finance charges, and
o require prior notice of any increase in the interest rate assessed
with respect to a credit card account.
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 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 it results 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
o unless an obligor under an account 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
o all the terms of the contract between the originator and the
obligor and
o any defense or claim arising under the contract, to rights of
set-off and to any other defense or claim of the obligor against
the originator that accrues before the obligor receives
notification of the assignment; and
o any obligor is authorized to continue to pay the originator until
o 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
o if requested by the obligors, the trustee or successor servicer
has furnished reasonable proof of assignment.
No 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.
63
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a discussion of the material 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 the certificates and who hold the
certificates as capital assets.
This discussion is based on present provisions of the Internal Revenue Code
of 1986 as amended, 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 some certificate owners that are subject to special treatment under
the Code, such as
o banks,
o financial institutions,
o dealers in securities,
o regulated investment companies,
o real estate investment trusts,
o tax-exempt entities,
o persons holding certificates as part of a hedging, integrated, conversion
or constructive sale transaction or a straddle,
o persons whose functional currency is not the U.S. dollar, or
o life insurance companies.
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.
Prospective investors should note that no ruling will be sought from the
Internal Revenue Service with respect to any of the U.S. federal income tax
consequences discussed here, and opinions of counsel, such as those described
below, are not binding on the IRS or the courts. Consequently, no assurance can
be given that the IRS will not take positions contrary to those described below.
In addition, the opinions of Simpson Thacher & Bartlett described below are
based upon the representations and assumptions in the opinions, including, but
not limited to, the assumption that all of the relevant parties will comply with
the terms of the pooling and servicing agreement and the other related
documents. If such representations are inaccurate and/or the relevant parties
fail to comply with the terms of the pooling and servicing agreement or the
other related documents, the conclusions of tax counsel described in the
opinions and the discussion of the U.S. federal income tax consequences here may
not be accurate.
For purposes of this discussion, a U.S. Certificate Owner means a
certificate owner that is
o a citizen or resident of the United States,
o a corporation or partnership created or organized in the United
States or under the laws of the United States or any political
subdivision thereof,
64
<PAGE>
o an estate the income of which is subject to United States federal
income taxation regardless of its source, or
o a trust if it is subject to the supervision of a court within the
United States and 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 the trust or it has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a United States person.
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 the pooling and servicing agreement its
intent that the certificates will be debt for all U.S. and foreign income and
franchise tax purposes. The transferor, by entering into the pooling and
servicing 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, the pooling and servicing agreement generally refers to the
transfer of receivables as a "transfer, assignment and conveyance," and the
transferor will treat the pooling and servicing agreement, for some non-tax
accounting purposes, as causing a transfer of an ownership interest in the
receivables and not as creating a debt obligation.
For U.S. federal income purposes, the economic substance of a transaction
often determines its tax consequences. The form of a transaction, while a
relevant factor, is generally not conclusive evidence of the economic substance
of the transaction. In appropriate circumstances, the courts have allowed the
IRS, as well as taxpayers, in more limited circumstances, 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. In Commissioner v. Danielson,
378 F.2d 771 (3d Cir. 1967), the Third Circuit Court of Appeals substantially
limited the circumstances in which a taxpayer for tax purposes could ignore the
form of a transaction. Some courts have followed this decision while others have
not. The Danielson case related to the treatment of a bargained-for allocation
of purchase price, which various taxpayers were characterizing in different
ways, and the application of the Danielson rationale to the certificates, where
all of the parties have agreed on a consistent tax characterization of the
transaction, is arguably not appropriate. However, in United States v. Scharrer,
1999 WL 39131 (M.D. Fla. 1999), the District Court, citing Danielson, reversed a
bankruptcy court's decision that a purported sale of lease payments was a
borrowing, on the grounds that the form of the transaction was a sale rather
than a borrowing. While the facts of the case differ from those involving the
certificates, the case extends Danielson to sale/borrowing transactions.
Nevertheless, tax counsel has advised that in a properly presented case the
Danielson doctrine would not prevent a determination of the tax characterization
of the certificates based on the economic substance of the transaction.
President Clinton's Fiscal 2000 Budget Proposal includes a legislative
proposal that would codify the Danielson rule if tax indifferent parties are
involved. The proposal would only apply to transactions entered into on or after
the date of first committee action. As currently drafted, it is unclear whether
the proposal would apply to securities such as the certificates. It is
impossible to predict whether the proposed legislation will be enacted and, if
so, in what form. Prospective investors should consult their own tax advisors
regarding the proposed legislation.
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. Tax counsel is of the 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 is of the 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
65
<PAGE>
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 a statutory de minimis amount. Consequently, unless otherwise
disclosed in a related prospectus supplement, the certificates will not be
considered to have been issued with Original Issue Discount 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 the interest
income is received or accrued in accordance with the U.S. Certificate Owner's
regular method of tax accounting, provided that the 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 the trust and
trustee will have no discretion to withhold, delay or otherwise defer scheduled
monthly payments of stated interest on the certificates, provided the trust has
sufficient cash on hand to allow the trustee to make the 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 and a U.S. Certificate Owner will be required
to include the stated interest in income, as original issue discount, 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 later times, be
considered to be issued with original issue discount and all certificate owners
would be required to include such stated interest in income as original issue
discount 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
o the amount realized on the sale, exchange, retirement or other
disposition, less an amount equal to any accrued but unpaid interest that
the U.S. Certificate Owner has not included in gross income previously,
which will be taxable as such, and
o the U.S. Certificate Owner's adjusted tax basis in the certificate.
Such gain or loss generally 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, its 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 the 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 beneficial owner 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 the trust were treated as a partnership or a corporation.
66
<PAGE>
If the 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, the 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
beneficial owner of the transferor certificate and any certificate owners
treated as partners in the partnership in accordance with their respective
partnership interests. The amount and timing of income reportable by any
certificate owners treated as partners in the partnership would likely differ
from that reportable by the 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 some 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 specified limits.
As a result, a certificate owner subject to the limitations 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, may, under some circumstances,
constitute unrelated business taxable income which generally would be taxable to
the certificate owner under the Code.
Alternatively, if the trust were treated in whole or in part as a publicly
traded partnership taxable as a corporation, the 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. Entity-level tax action could result in reduced
distributions to certificate owners. In addition, the distributions from the
trust would not be deductible in computing the taxable income of the deemed
corporation, except to the extent that any certificates were treated as debt of
the corporation and distributions to the related certificate owners were treated
as payments of interest. 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 all of the certificates are considered to be debt of the transferor 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 for the payment
by the transferor or any 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 the individual's death, provided that
(i) the 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
67
<PAGE>
(ii) the interest payments on the 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 the certificate, or a financial institution holding the certificate on
behalf of the 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
o 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
o a financial institution holding the certificate on behalf of the
beneficial owner certifies, under penalties of perjury, that the
statement has been received by it and furnishes the transferor or
any withholding agent with a copy.
Under recently finalized Treasury regulations, the statement requirement
referred to in (a)(iv) above may also be satisfied with other documentary
evidence for interest paid after December 31, 2000 for an offshore account or
through some 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
o IRS Form 1001, or successor forms, claiming an exemption from, or
reduction in the rate of, the withholding tax under the benefit of a tax
treaty, or
o IRS Form 4224 , or successor forms, stating that interest paid on the
certificate is not subject to the withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or
business in the United States.
Under the recently finalized Treasury 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 some
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 a 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 or withholding unless
o the gain is effectively connected with a trade or business carried on by
the non-U.S. Certificate Owner in the United States,
o 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 the sale, exchange, retirement or other disposition, and
other conditions are met, or
o 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, the
recharacterization could cause a non-U.S. Certificate Owner to be
68
<PAGE>
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, some withholding obligations may apply 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%, unless that
rate were reduced under an applicable tax treaty. See "--Possible Alternative
Characterizations" above.
Special rules may apply to non-U.S. Certificate Owners, such as controlled
foreign corporations, passive foreign investment companies and foreign personal
holding companies, as defined and 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 some 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 some 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 exempt status or fails to report in full dividend and
interest income.
No information reporting or backup withholding will be required for
payments made by the transferor or any withholding agent to a non-U.S.
Certificate Owner if a 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 U.S. Certificate Owner.
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 some 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 the certificate owner's U.S. federal income tax
liability provided the required information is furnished to the IRS.
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.
PLAN OF DISTRIBUTION
The transferor may sell certificates
o through underwriters or dealers,
o directly to one or more purchasers, or
o through agents.
The prospectus supplement relating to your series will describe the terms
of the offering of any certificates offered, including, without limitation, the
names of any underwriters, the purchase price of the certificates and the
proceeds to the transferor from the sale, any underwriting discounts and other
items
69
<PAGE>
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, the
certificates
o will be acquired by the underwriters for their own account, and
o may be resold from time to time in one or more transactions,
including
o negotiated transactions,
o at a fixed public offering price and
o at varying prices to be determined at the time of sale or at the
time of commitment.
The certificates may be offered to the public either through underwriting
syndicates represented by managing underwriters or by underwriters without a
syndicate. Unless otherwise provided in the prospectus supplement, the
obligations of the underwriters to purchase the certificates will be subject to
the satisfaction of specified conditions, and the underwriters will be obligated
to purchase all of the certificates if any of the 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 the agent will be disclosed, in the related prospectus supplement.
Unless otherwise indicated in the 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 for
respective payments that the agents or underwriters may be required to make.
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 liabilities, including liabilities under the
federal securities laws, or contribute to any amounts the underwriters are
required to pay with respect to those liabilities.
LEGAL MATTERS
Unless otherwise specified in the related prospectus supplement, the
legality of the investor certificates and certain legal matters relating to the
tax consequences of the issuance of the investor certificates will be passed
upon for the transferor by Simpson Thacher & Bartlett and certain matters
concerning creditors' rights will be passed upon for the transferor by Simpson
Thacher & Bartlett. The legality of the investor certificates will be passed
upon for any underwriters by underwriter's counsel specified in the related
prospectus supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless and until definitive certificates are issued, monthly and annual
reports, containing information concerning the trust and prepared by the
servicer, will be sent on behalf of the trust to Cede as nominee of DTC and
registered holder of the related certificates, pursuant to the pooling and
servicing agreement. See "Description of the Certificates--Book-Entry
Registration," "--Reports to Certificateholders" and "--Evidence as to
Compliance." The 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
70
<PAGE>
cause to be filed with the SEC the periodic reports of the trust required under
the Exchange Act and the rules and regulations of the SEC.
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 the 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.
71
<PAGE>
GLOSSARY OF TERMS
The following glossary of terms is not complete. You should refer to the
prospectus supplement for additional definitions.
Some of the definitions contained in this glossary of terms may not
necessarily apply to your series of certificates.
"ACCUMULATION PERIOD" means either a Controlled Accumulation Period or a
Rapid Accumulation Period.
"AMORTIZATION PERIOD" means a Controlled Amortization Period, a Principal
Amortization Period or a Rapid Amortization Period.
"BENEFIT PLAN INVESTORS" has the meaning attributed to the term under
ERISA.
"CEDE" means Cede & Co., as DTC Nominee.
"CEDELBANK" means Cedelbank, societe anonyme, an institution administering
a book-entry settlement system for trading of securities in Europe.
"COMPANION SERIES" means:
o a series which has been paired with a previously issued series and has an
investor interest that increases as the investor interest of the
previously issued series decreases; or
o any series designated as a Companion Series in the related series
supplement.
"CONTROLLED ACCUMULATION PERIOD" means a period:
o beginning on a date specified in the related supplement after the
Revolving Period and
o ending on the earliest of
-- the start of the Rapid Accumulation Period,
-- the start of the Rapid Amortization Period, and
-- the Series Termination Date; and
during which collections of principal receivables up to the amount specified in
the related supplement are deposited monthly into the principal funding account.
"CONTROLLED AMORTIZATION AMOUNT" means a designated amount scheduled to be
paid on each distribution date during the Controlled Amortization Period as
specified in the related prospectus supplement.
"CONTROLLED AMORTIZATION PERIOD" means a period:
o beginning on a date specified in the related supplement and
o ending on the earlier of
-- the start of the Rapid Amortization Period and
-- the Series Termination Date; and
during which collections of principal receivables up to an amount specified in
the related prospectus supplement are paid to certificateholders on each
distribution date.
"CONTROLLED DEPOSIT AMOUNT" has the meaning described under "Description of
the Certificates--Accumulation Period."
"CREDIT ENHANCEMENT" has the meaning described under "Credit Enhancement--
General."
"CUT-OFF DATE" means [ ].
"DIC" means Dillard Investment Co., Inc. a Delaware corporation.
72
<PAGE>
"DILLARD'S" means Dillard's, Inc., a corporation organized under the laws
of Delaware.
"DILLARD'S CARDS" means the private label credit card program offered by
Dillard's.
"DILLARD'S ENTITY" means Dillard's or any of its affiliates (including
DIC and MFI)
"DISQUALIFIED PERSON" has the meaning attributed to such term under ERISA.
"DNB" means Dillard National Bank, a national banking association organized
and existing under the laws of the United States and having its headquarters in
Gilbert, AZ.
"DNB-LA." means Dillard National Bank (formerly known as Mercantile Stores
National Bank) a national banking association organized and existing under the
laws of the United States and having its headquarters in Baton Rouge, LA.
"DOL" means the U.S. Department of Labor.
"EARLY AMORTIZATION PERIOD" means such period which may be commenced by the
receiver or bankruptcy trustee for the transferor upon a the occurrence of a Pay
Out Event.
"ELIGIBLE ACCOUNT" means as of the Cut-Off Date (or, with respect to
additional accounts as of the relevant addition date),each account owned by an
originator
o which is payable in dollars,
o for which the obligor has provided, as its most recent billing
address, an address which is located in the United States or its
territories or possessions,
o which the originator has not classified on its electronic records as
counterfeit, deleted, fraudulent, stolen or lost, and
o which has not been charged off by the originator in its customary
and usual manner for charging off such accounts as of the Cut-Off
Date (or, with respect to additional accounts, as of the relevant
addition date).
"ELIGIBLE DEPOSIT ACCOUNT" means, either
o a segregated account with an Eligible Institution or
o 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, including the District of Columbia (or any
domestic branch of a foreign bank), acting as a trustee for funds
deposited in that account, so long as any of the securities of that
depository institution have an investment grade credit rating from
each rating agency.
"ELIGIBLE INSTITUTION" means
o the servicer so long as the RATING AGENCY CONDITION is satisfied,
o 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 which at all times
-- has either
-- a long-term unsecured debt rating of "A2" or better by
Moody's or
-- a certificate of deposit rating of "P-1" by Moody's,
-- has either
-- a long-term unsecured debt rating of "AAA" by Standard &
Poor's or
-- a certificate of deposit rating of "A-l+" by Standard &
Poor's and
-- is a member of the FDIC or
o any other institution that is acceptable to the rating agencies.
73
<PAGE>
"ELIGIBLE RECEIVABLE" means a receivable:
o under an Eligible Account (in the case of accounts conveyed to the
trust on the initial closing date and in the case of additional
accounts conveyed to the trust on the relevant addition date);
o which was created in compliance, in all material respects, with all
legal requirements of law applicable to the originator and pursuant
to a credit card agreement which complies, in all material respects,
with all legal requirements applicable to that originator;
o with respect to which all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
governmental authority required to be obtained, effected or given by
that originator in connection with the creation of that receivable
or the execution, delivery and performance by that originator of the
credit card agreement pursuant to which that receivable was created,
have been duly obtained, effected or given and are in full force and
effect as of such date of creation;
o as of the related closing date, or in the case of receivables in
additional accounts as of the relevant addition date, the transferor
had good title, free and clear of all liens, except for permitted
liens, arising under or through the transferor or any of its
affiliates;
o which is the legal, valid and binding payment obligation of the
obligor, enforceable against that obligor in accordance with its
terms, except as affected by bankruptcy, insolvency, reorganization,
moratorium and other similar laws, now or hereafter in effect,
relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a suit in equity or at
law) and an implied covenant of good faith and fair dealing; and
o which constitutes an "account" under and as defined in Article 9
of the UCC.
"ENHANCEMENT INVESTED AMOUNT" means a subordinated investor interest in
cash flows in respect of the receivables to the extent described in the related
supplement.
"ERISA" means, the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"FINAL REGULATIONS" has the meaning attributed to such term as defined
in the Code.
"FUNDING PERIOD" means the period beginning on the closing date and ending
on a specified date before the commencement of an Amortization Period or
Accumulation Period.
"GENERAL ACCOUNT REGULATIONS" has the meaning attributed to such term under
ERISA.
"INELIGIBLE RECEIVABLE" means a principal receivable that upon a breach of
any representation or warranty, is ineligible because the receivables in the
related account is reassigned and charged off as uncollectible, the trust's
rights in, to or under the receivable or its proceeds are impaired or the
proceeds of the receivable is not available for any reason to the trust free and
clear of any lien.
"INVESTOR CHARGE-OFF" means, for any monthly period, for any series or
class, the amount by which the related monthly interest and overdue monthly
interest (together with, if applicable, additional interest due on the overdue
amount), the accrued and unpaid investor servicing fees payable from collections
of finance charge receivables, the Investor Default Amount and any other
required fees exceeds 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 supplement, if any, but not more than
such Investor Default Amount.
"INVESTOR DEFAULT AMOUNT" means, for any monthly period, and for any series
or class, the aggregate amount of the applicable investor percentage of
principal receivables in default accounts.
"MCC" means Mercantile Credit Corporation, a corporation organized and
existing under the laws of Louisiana.
"MERCANTILE ACCOUNTS" means the revolving credit card accounts originated
by DNB-La. prior to October 17, 1998.
74
<PAGE>
"MERCANTILE CARDS" means the Mercantile private label credit card program
offered by Mercantile prior to Dillard's acquisition of Mercantile Stores.
"MERSCO FACTORS" means Mersco Factors, Inc., a Delaware corporation.
"MINIMUM TRANSFEROR INTEREST" means, for any period, the interest of the
sum of
o the average principal receivables for that period;
o the average principal amount on deposit in the excess funding
account; and
o the principal funding account and any other account specified from
time to time pursuant to the pooling and servicing agreement or the
series supplement for that period;
provided, however, that the transferor may reduce the Minimum Transferor
Interest to not less than the interest of the sum of the amounts specified in
the first two clauses above upon satisfaction of the Rating Agency Condition and
other conditions in the pooling and servicing agreement.
"PARTICIPATIONS" means trust participants added by the transferor,
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.
"PARTICIPATION AGREEMENT" means a separate pooling and servicing agreement
or similar agreement entered into by the transferor which entitles the
certificateholder to receive percentages of collections generated by the pool of
assets subject to that participation agreement and other specified rights and
remedies.
"PARTIES IN INTEREST" means persons that are "parties in interest" under
ERISA or disqualified persons under the Code.
"PAY OUT EVENT" means either automatically or after specified notice, upon
o the failure of the transferor to make payments or transfers of funds
for the benefit of the certificateholders within the time periods
stated in the pooling and servicing agreement*,
o material breaches of representations, warranties or covenants of
the transferor*,
o bankruptcy or insolvency events involving the transferor,
Dillard's or an originator,
o 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,
o the trust becoming subject to regulation as an investment company
within the meaning of the Investment Company Act of 1940, as
amended*,
o the failure of the transferor to convey receivables arising under
additional accounts when required by the pooling and servicing
agreement,
o the occurrence of a servicer default which would have a material
adverse effect on the certificateholders,
o 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,
o the transferor's interest in the trust becoming less than the
Minimum Transferor Interest, or
o the transferor becomes unable for any reason to transfer receivables
to the trust in accordance with the provisions of the pooling and
servicing agreement.
"PLAN" means:
o an employee benefit plan within the meaning of Section 3(3) of
ERISA;
o a plan within the meaning of Section 4975 of the tax code; or
o any entity which may be deemed to hold the assets of any of those
plans under ERISA or the regulations promulgated under ERISA
(including, without limitation, an insurance company general
account).
75
<PAGE>
"PLAN ASSETS" has the meaning attributed to the term under ERISA.
"PRE-FUNDING AMOUNT" means for any series of certificates specified in the
related prospectus supplement during the Funding Period, the amount by which the
aggregate amount of principal receivables in the trust allocable to such series
is less than the aggregate principal amount of the certificates of such series.
"PRINCIPAL AMORTIZATION PERIOD" means the period, if applicable, when an
amount equal to the applicable investor percentage of the deposits in respect of
principal receivables will be deposited into the principal account for
application and distribution as provided in the related prospectus supplement.
"PRINCIPAL AMOUNT" means the principal amount held in a trust account
established by the trustee, equaling the deficiency, if any, between the amount
of principal receivables in trust allocable to a series and the aggregate
principal amount of the certificates of the series.
"PURCHASE AGREEMENTS" means
o the DIC Receivables Purchase Agreement, dated as of August 14, 1998,
between DIC and the transferor;
o the MFI Receivables Purchase Agreement, dated as of August 14, 1998,
between Mersco Factors and the transferor;
o the DNB Receivables Purchase Agreement, dated as of August 14, 1998,
between DNB and the transferor; and
o the MSNB Receivables Purchase Agreement, dated as of August 14,
1998, between DNB-La. and the transferor; or
o any agreement whereby a Receivables Seller transfers to the
transferor all receivables then existing and thereafter arising in
and all monies due or to become due with respect to a specified
account(s) as of the specified cut-off date.
"RAPID ACCUMULATION PERIOD" means, with respect to any series, or any class
within a series, a period commencing from the day on which a Pay Out Event
occurred and continuing until the earliest of the
o commencement of the Rapid Amortization Period,
o payment in full of the investor interest (and the collateral
interest if so specified in the related prospectus supplement) or
o related Series Termination Date.
During the Rapid Accumulation Period, distributions to the certificateholders on
the scheduled payment dates will be made from deposits in the principal funding
account, from deposits made on the business day immediately prior to each
distribution date or from funds which may be invested in permitted investments.
"RAPID AMORTIZATION PERIOD" means the period from the day on which a Pay
Out Event has occurred with respect to a series or, if so specified in the
supplement relating to a series with a Controlled Accumulation Period, from the
time specified in the related supplement after a Pay Out Event has occurred and
the Rapid Accumulation Period has commenced, to the earlier of
o the date on which the investor interest of the certificates of that
series and the Enhancement Invested Amount or the collateral
interest, if any, with respect to such series have been paid in full
and
o the related Series Termination Date, during which collections of
principal receivables allocable to the investor interest of such
series (and other amounts if so specified in the related supplement)
will be distributed as principal payments to the certificateholders
of that series and, in some circumstances, to the credit enhancement
provider, monthly on or before each distribution date with respect
to that series in the manner and order of priority specified in the
related supplement.
"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 for which it is a rating agency.
76
<PAGE>
"RECEIVABLES SELLER" means one or more of the originators or a party to a
Purchase Agreement or other Purchase Agreement with the transferor whereby the
transferor obtains the interest to receivables.
"REGULATION" has the meaning attributed to such term under ERISA.
"REVOLVING PERIOD" means the period beginning on the relevant closing date
and ending with the commencement of an Amortization Period or an Accumulation
Period.
"SERIES TERMINATION DATE" means, as specified in the related prospectus
supplement, the final date on which the principal and interest with respect of
the related series of certificates will be scheduled to be distributed, unless
the certificates are subject to prior termination.
"SERVICER TRANSFER" means, unless otherwise specified in the related
supplement, the termination of all of the rights and obligations of the servicer
under the pooling and servicing agreement in and the receivables and the
proceeds thereof and the appointment of a new servicer by the trustee in the
event of a servicer default and delivery of written notice to the servicer (and
to the trustee if given by the certificateholders) by either the trustee or
certificateholders representing undivided interests aggregating more than 50% of
the investor interests for all series of certificates of the trust.
"SHARED PRINCIPAL COLLECTIONS" means collections applied to cover principal
payments due to or for the benefit of certificateholders of other series to the
extent that collections of principal receivables and other amounts allocated to
the Investor Interest of any series are not needed to make payments or deposits
for that series.
"TAX OPINION" means, with respect to any action, an opinion of counsel
delivered to the trust and the trustee to the effect that, for U.S. federal
income tax purposes,
o such action will not adversely affect the tax characterization as
debt of investor certificates of any outstanding series or class
that were characterized as debt at the time of their issuance,
o following such action the trust will not be deemed to be an
association (or a "publicly traded partnership" within the meaning
of Section 7704(b) of the Code) taxable as a corporation and
o such action will not cause or constitute a taxable event in which
gain or loss would be recognized by any investor certificateholder
or the trust.
"TRUST TERMINATION DATE" means
o if a trust extension shall not have occurred, the earlier to occur
of
-- the first business day after the distribution date following the
date on which funds shall have been deposited in the
distribution account or the applicable series account for the
payment of investor certificateholders of each series then
issued and outstanding sufficient to pay in full such
certificates,
-- the date specified in the pooling and servicing agreement and
-- July 15, 2021, and
o if a trust extension has occurred, the date specified in the trust
extension.
"UCC" means the Uniform Commercial Code as in effect in the State of
Delaware.
"WARRANTY PAYMENT" means the payment from the Receivables Seller to the
transferor in connection with the Receivables Seller's repurchase of the
Warranty Receivables.
"WARRANTY RECEIVABLE" means receivables initially transferred by the
Receivables Seller to the transferor which must be repurchased by the
Receivables Seller, upon the request of the transferor, due to breach of the
Receivables Seller's representations and warranties in connection with such
receivables.
"WITHHOLDING AGENT" has the meaning attributed to such term as defined in
the Code.
77
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except under limited circumstances, the globally offered Dillard Credit
Card Master Trust Asset Backed Certificates to be issued in series from time to
time 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, Cedelbank 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 Cedelbank 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.
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 Cedelbank or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedelbank 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 specified 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, Cedelbank 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 Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary market
trading between Cedelbank Customers or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedelbank or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Customer or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Customer or
Euroclear Participant at least one business day prior to settlement. Cedelbank
or Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will
78
<PAGE>
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 Cedelbank
Customer's or Euroclear Participant's account. The Global Securities credit will
appear the next day, European time, and the cash debit will be back-valued to,
and the interest on the Global Securities will accrue from, the value date,
which would be the preceding day when settlement occurred in New York. If
settlement is not completed on the intended value, the Cedelbank or Euroclear
cash debit will be valued instead as of the actual settlement date.
Cedelbank Customers 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 Cedelbank or Euroclear. Under this approach,
they may take on credit exposure to Cedelbank or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Customers 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, Cedelbank Customers 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 Cedelbank
Customer'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 Cedelbank Customers 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 Cedelbank or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedelbank Customers and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Customer or Euroclear
Participant at least one business day prior to settlement. In these cases,
Cedelbank 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 Cedelbank Customer or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedelbank
Customer'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 Cedelbank Customer 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 Cedelbank Customer's or Euroclear Participant's account
would instead be valued as of the actual settlement date. Finally, day traders
that use Cedelbank or Euroclear and that purchase Global Securities from DTC
Participants for delivery to Cedelbank Customers 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 Cedelbank or Euroclear for one day until the
purchase side of the day trade is reflected in their Cedelbank or
Euroclear accounts in accordance with the clearing system's
customary procedure.
79
<PAGE>
(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
Cedelbank 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
Cedelbank Customer or Euroclear Participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedelbank 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:
(1) 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.
(2) 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.
(3) 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 C 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.
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.
80
<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
Under the Trust Agreement, the 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>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
3.1 -- Trust 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
filed as Exhibit 5.1)*
10.1 -- Pooling and Servicing Agreement, dated as of August 1, 1998, among DAFC, DNB and The Chase
Manhattan Bank, as trustee*
10.2 -- Amended and Restated VFC Series 1998 Supplement, dated as of January 1, 1998, among DAFC, DNB and
The Chase Manhattan Bank, as trustee*
10.3 -- DIC Purchase Agreement, dated as of August 14, 1998, between DAFC and DIC*
10.4 -- MFI Purchase Agreement, dated as of August 14, 1998, between DAFC and Mersco Factors*
10.5 -- DNB Purchase Agreement, dated as of August 14, 1998, between DAFC and DNB*
10.6 -- MSNB Purchase Agreement, dated as of August 14, 1998, between DAFC and DNB-La.*
23 -- Consent of Simpson Thacher & Bartlett (included in opinion filed as Exhibit 5.1)*
</TABLE>
- ------------------
* Filed herewith
** Previously filed
(B) FINANCIAL STATEMENTS
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant on behalf of the Dillard Credit Card Master
Trust (the "Trust") hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933 (the "ACT"); (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; 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; (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 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-2
<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, REASONABLY BELIEVES THAT THE SECURITY
RATING REQUIREMENT CONTAINED IN TRANSACTION REQUIREMENT B.5 OF FORM S-3 WILL BE
MET BY THE TIME OF THE SALE OF THE SECURITIES REGISTERED HEREUNDER AND HAS DULY
CAUSED THIS PRE-EFFECTIVE AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED AS OF OCTOBER
22, 1999.
DILLARD ASSET FUNDING COMPANY
as Originator of the Trust
By: /s/ David Helm
--------------------------------
David Helm
Administrator
DILLARD NATIONAL BANK,
as Servicer on behalf of the Trust
By: /s/ Randal L. Hankins
---------------------------------
Randal L. Hankins
Authorized Signatory
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
3.1 -- Trust 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 filed as Exhibit 5.1)*
10.1 -- Pooling and Servicing Agreement, dated as of August 1, 1998, among DAFC, DNB and The
Chase Manhattan Bank, as trustee*
10.2 -- Amended and Restated VFC Series 1998 Supplement, dated as of January 1, 1998, among
DAFC, DNB and The Chase Manhattan Bank, as trustee*
10.3 -- DIC Purchase Agreement, dated as of August 14, 1998, between DAFC and DIC*
10.4 -- MFI Purchase Agreement, dated as of August 14, 1998, between DAFC and Mersco Factors*
10.5 -- DNB Purchase Agreement, dated as of August 14, 1998, between DAFC and DNB*
10.6 -- MSNB Purchase Agreement, dated as of August 14, 1998, between DAFC and DNB-La.*
23 -- Consent of Simpson Thacher & Bartlett (included in opinion filed as Exhibit 5.1)*
</TABLE>
- ------------------
* Filed herewith
** Previously filed
<PAGE>
- --------------------------------------------------------------------------------
DILLARD ASSET FUNDING COMPANY
Transferor
DILLARD NATIONAL BANK
Servicer
and
THE CHASE MANHATTAN BANK
Trustee
on behalf of the Certificateholders
of Dillard Master Credit Card Trust
-------------------------------------------------
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
Dated as of __________ __, 199_
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS..............................................................................................1
Section 1.1 Definitions.................................................................................1
Section 1.2 Other Definitional Provisions..............................................................20
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF CERTIFICATES
.......................................................................................................21
Section 2.1 Conveyance of Receivables..................................................................21
Section 2.2 Acceptance by Trustee......................................................................23
Section 2.3 Representations and Warranties of the Transferor...........................................23
Section 2.4 Representations and Warranties of the Transferor Relating to the Agreement
and the Receivables............................................................................25
Section 2.5 Covenants of the Transferor................................................................30
Section 2.6 Addition of Accounts.......................................................................32
Section 2.7 Removal of Accounts........................................................................36
Section 2.8 Discount Option............................................................................37
ARTICLE III
ADMINISTRATION AND
SERVICING OF RECEIVABLES................................................................................37
Section 3.1 Acceptance of Appointment and Other Matters Relating to the Servicer.......................37
Section 3.2 Servicing Compensation.....................................................................39
Section 3.3 Representations and Warranties of the Servicer.............................................40
Section 3.4 Reports and Records for the Trustee........................................................41
Section 3.5 Annual Servicer's Certificate..............................................................42
Section 3.6 Annual Independent Accountants' Servicing Report...........................................42
Section 3.7 Tax Treatment..............................................................................43
Section 3.8 Notices to the Transferor..................................................................43
Section 3.9 Sub-Servicing..............................................................................43
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS...............................................................44
Section 4.1 Rights of Certificateholders...............................................................44
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 4.2 Establishment of Accounts..................................................................44
Section 4.3 Collections and Allocations................................................................46
Section 4.4 Allocations During Funding Period..........................................................48
Section 4.5 Certain Fees...............................................................................48
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED
IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]...........................................................49
ARTICLE VI
THE CERTIFICATES........................................................................................49
Section 6.1 The Certificates...........................................................................49
Section 6.2 Authentication of Certificates.............................................................50
Section 6.3 Registration of Transfer and Exchange of Certificates......................................50
Section 6.4 Mutilated, Destroyed, Lost or Stolen Certificates..........................................53
Section 6.5 Persons Deemed Owners......................................................................53
Section 6.6 Appointment of Paying Agent................................................................54
Section 6.7 Access to List of Certificateholders' Names and Addresses..................................55
Section 6.8 Authenticating Agent.......................................................................55
Section 6.9 Tender of Transferor Certificate...........................................................56
Section 6.10 Book-Entry Certificates...................................................................58
Section 6.11 Notices to Clearing Agency................................................................59
Section 6.12 Definitive Certificates...................................................................59
Section 6.13 Global Certificate........................................................................60
Section 6.14 Meetings of Certificateholders............................................................60
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR................................................................60
Section 7.1 Liability of the Transferor................................................................60
Section 7.2 Merger or Consolidation of, or Assumption of the Obligations of, the Transferor............60
Section 7.3 Limitation of Liability....................................................................61
Section 7.4 Liabilities................................................................................62
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER..................................................................62
Section 8.1 Liability of the Servicer..................................................................62
Section 8.2 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer..............63
Section 8.3 Limitation of Liability of the Servicer and Others.........................................63
Section 8.4 Servicer Indemnification of the Trust and the Trustee......................................64
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 8.5 The Servicer Not to Resign.................................................................64
Section 8.6 Access to Certain Documentation and Information Regarding the Receivables..................65
Section 8.7 Delegation of Duties.......................................................................65
Section 8.8 Examination of Records.....................................................................65
Section 8.9 Securities Act Filings.....................................................................65
ARTICLE IX
PAY OUT EVENTS..........................................................................................66
Section 9.1 Pay Out Events.............................................................................66
Section 9.2 Additional Rights Upon the Occurrence of Certain Events....................................67
ARTICLE X
SERVICER DEFAULTS.......................................................................................68
Section 10.1 Servicer Defaults.........................................................................68
Section 10.2 Trustee to Act; Appointment of Successor..................................................70
Section 10.3 Notification to Certificateholders........................................................71
Section 10.4 Waiver of Past Defaults...................................................................71
ARTICLE XI
THE TRUSTEE.............................................................................................72
Section 11.1 Duties of Trustee.........................................................................72
Section 11.2 Certain Matters Affecting the Trustee.....................................................74
Section 11.3 Trustee Not Liable for Recitals in Certificates...........................................75
Section 11.4 Trustee May Own Certificates..............................................................75
Section 11.5 The Servicer to Pay Trustee's Fees and Expenses...........................................75
Section 11.6 Eligibility Requirements for Trustee......................................................76
Section 11.7 Resignation or Removal of Trustee.........................................................76
Section 11.8 Successor Trustee.........................................................................76
Section 11.9 Merger or Consolidation of Trustee........................................................77
Section 11.10 Appointment of Co-Trustee or Separate Trustee............................................77
Section 11.11 Tax Returns..............................................................................78
Section 11.12 Trustee may Enforce Claims Without Possession of Certificates............................79
Section 11.13 Suits for Enforcement....................................................................79
Section 11.14 Rights of Certificateholders to Direct Trustee...........................................79
Section 11.15 Representations and Warranties of Trustee................................................79
Section 11.16 Maintenance of Office or Agency..........................................................80
ARTICLE XII
TERMINATION.............................................................................................80
</TABLE>
iii
PAGE>
<TABLE>
<S> <C>
Section 12.1 Termination of Trust......................................................................80
Section 12.2 Optional Purchase.........................................................................81
Section 12.3 Final Payment with Respect to any Series..................................................81
Section 12.4 Termination Rights of Holder of Transferor Certificate....................................83
Section 12.5 Defeasance................................................................................83
ARTICLE XIII
MISCELLANEOUS PROVISIONS................................................................................84
Section 13.1 Amendment............................................................................84
Section 13.2 Protection of Right, Title and Interest to Trust..........................................85
Section 13.3 Limitation on Rights of Certificateholders................................................86
Section 13.4 GOVERNING LAW.............................................................................87
Section 13.5 Notices...................................................................................87
Section 13.6 Severability of Provisions................................................................88
Section 13.7 [RESERVED]................................................................................88
Section 13.8 Certificates Non-Assessable and Fully Paid................................................88
Section 13.9 Further Assurances........................................................................88
Section 13.10 No Waiver; Cumulative Remedies...........................................................88
Section 13.11 Counterparts.............................................................................88
Section 13.12 Third-Party Beneficiaries................................................................89
Section 13.13 Actions by Certificateholders............................................................89
Section 13.14 Rule 144A Information....................................................................89
Section 13.15 Merger and Integration...................................................................89
Section 13.16 Headings.................................................................................89
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A Form of Transferor Certificate
Exhibit B Form of Assignment of Receivables in Additional Accounts
Exhibit C Form of Monthly Servicer's Certificate
Exhibit D Form of Annual Servicer's Certificate
Exhibit E Form of Opinion of Counsel Regarding Additional Accounts
Exhibit F Form of Annual Opinion of Counsel
Exhibit G Form of Reassignment of Receivables
Exhibit H Form of Reconveyance of Receivables
SCHEDULES
Schedule 1 List of Accounts [Deemed Incorporated]
v
<PAGE>
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT,
dated as of __________ __, 1999, by and among DILLARD ASSET FUNDING COMPANY, a
Delaware business trust, as Transferor, DILLARD NATIONAL BANK, a national
banking association, as Servicer, and THE CHASE MANHATTAN BANK, as Trustee.
WHEREAS, the Transferor, the Servicer and the Trustee are
parties to the Pooling and Servicing Agreement, dated as of August 1, 1998 (the
"Original Agreement");
WHEREAS, the parties desire to amend and restate the Original
Agreement to read in its entirety as set forth below;
NOW, THEREFORE, pursuant to Section 13.01(b) of the Original
Agreement, the parties hereto hereby agree that effective on and as of the date
hereof, the Original Agreement is hereby amended to read in its entirety as
follows:
In consideration of the mutual agreements herein contained,
each party agrees as follows for the benefit of the other parties and the
Certificateholders:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this Agreement,
the following words and phrases shall have the following meanings:
"Account" shall mean each credit card account established
pursuant to a Credit Card Agreement between an Originator (whether originated or
acquired by such Originator), and any Person identified by account number and by
the Receivable balance as of the Cut-Off Date and as of each Addition Date in
each computer file or microfiche list delivered to the Trustee by the Transferor
pursuant to Section 2.1 or 2.6. The definition of Account shall include each
Transferred Account. The term "Account" shall be deemed to refer to an
Additional Account only from and after the Addition Date with respect thereto,
and the term "Account" shall be deemed to refer to any Removed Account only
prior to the Removal Date with respect thereto.
"Account Information" shall have the meaning specified in
subsection 2.2(b).
"Accumulation Period" shall mean, with respect to any Series,
or any Class within a Series, a period following the Revolving Period during
which Collections of Principal Receivables are accumulated in an account for the
benefit of the Investor Certificateholders of a Series, or a Class within such
Series, which shall be the controlled accumulation period, the rapid
accumulation period or other accumulation period, in each case as defined with
respect to such Series in the related Supplement.
<PAGE>
2
"Addition Date" shall mean each date as of which Additional
Accounts will be included as Accounts pursuant to Section 2.6.
"Additional Accounts" shall have the meaning specified in
subsection 2.6(a).
"Affiliate" of any Person shall mean any other Person
controlling, controlled by or under common control with such Person.
"Aggregate Investor Default Amount" shall have, with respect
to any Series of Certificates, the meaning stated in the related Supplement.
"Aggregate Investor Interest" shall mean, as of any date of
determination, the sum of the Investor Interests of all Series of Certificates
issued and outstanding on such date of determination.
"Aggregate Investor Percentage" with respect to Principal
Receivables, Finance Charge Receivables and Receivables in Defaulted Accounts,
as the case may be, shall mean, as of any date of determination, the sum of such
Investor Percentages of all Series of Certificates issued and outstanding on
such date of determination; provided, however, that the Aggregate Investor
Percentage shall not exceed 100%.
"Agreement" shall mean this Amended and Restated Pooling and
Servicing Agreement and all amendments hereof and supplements hereto, including
any Supplement.
"Amortization Period" shall mean, with respect to any Series,
or any Class within a Series, a period following the Revolving Period during
which principal is distributed to Investor Certificateholders, which shall be
the controlled amortization period, the principal amortization period, the rapid
amortization period, or other amortization period, in each case as defined with
respect to such Series in the related Supplement.
"Annual Membership Fee" shall have the meaning specified in
the Credit Card Agreement applicable to each Account for annual membership fees
or similar terms.
"Annual Net Account Additions" shall mean on any date of
determination, (i) the number of Accounts the Receivables of which have been
added to the Trust pursuant to subsection 2.6(b) and (d), in the case of Monthly
Periods ending prior to |X|, 2000, from and including |X|, 1999 and in the case
of Monthly Periods ending thereafter, from and including the first day of the
eleventh Monthly Period preceding such date of determination; plus (ii) the
number of Accounts, if any, the Receivables of which have been designated to be
added to the Trust pursuant to subsection 2.6(a), in the case of Monthly Periods
ending prior to |X|, 2000, from and including |X|, 1999 and in the case of
Monthly Periods ending thereafter, from and including the first day of the
eleventh Monthly Period preceding such date of determination; minus (iii) any
Removed Accounts removed, in the case of Monthly Periods ending prior to |X|,
2000, from and including |X|, 1999 and in the case of Monthly
<PAGE>
3
Periods ending thereafter, from and including the first day of the eleventh
Monthly Period preceding such date of determination.
"Annual Quotient" shall have the meaning specified in
subsection 2.6(c)(ii).
"Applicants" shall have the meaning specified in Section 6.7.
"Appointment Day" shall have the meaning specified in
subsection 9.2(a).
"Assignment" shall have the meaning specified in subsection
2.6(c)(iii).
"Authorized Newspaper" shall mean a newspaper of general
circulation in the Borough of Manhattan, The City of New York printed in the
English language and customarily published on each Business Day, whether or not
published on Saturdays, Sundays and holidays.
"Average Principal Receivables" shall mean, for any period, an
amount equal to (a) the sum of the aggregate amount of Principal Receivables at
the end of each day during such period divided by (b) the number of days in such
period.
"Bankruptcy Code" shall mean the United States federal
Bankruptcy Code, Title 11 of the United States Code, as amended.
"Base Amount" shall mean, at any date of determination, with
reference to Annual Net Account Additions or Quarterly Net Account Additions,
the number of Accounts included in the Trust on the first day of the relevant
measurement period before giving effect to any Accounts added to the Trust on
such first day.
"Base Rate" shall have the meaning, with respect to any
Series, specified in the related Supplement.
"Bearer Certificates" shall have the meaning specified in
Section 6.1.
"Bearer Rules" shall mean the provisions of the Internal
Revenue Code, in effect from time to time, governing the treatment of bearer
obligations, including sections 163(f), 871, 881, 1441, 1442 and 4701, and any
regulations thereunder including, to the extent applicable to any Series,
Proposed or Temporary Regulations.
"Book-Entry Certificates" shall mean certificates evidencing a
beneficial interest in the Investor Certificates, ownership and transfers of
which shall be made through book entries by a Clearing Agency as described in
Section 6.10; provided, however, that after the occurrence of a condition
whereupon book-entry registration and transfer are no longer authorized and
Definitive
<PAGE>
4
Certificates are to be issued to the Certificate Owners, such certificates shall
no longer be "Book- Entry Certificates."
"Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in New York, New York (or, with
respect to any Series, any additional city specified in the related Supplement)
are authorized or obligated by law or executive order to be closed.
"Cedel" shall mean Cedelbank.
"Certificate" shall mean any one of the Investor Certificates
of any Series or the Transferor Certificate.
"Certificateholder" or "Holder" shall mean the Person in whose
name a Certificate is registered in the Certificate Register and, if applicable,
the holder of any Bearer Certificate or Coupon, as the case may be.
"Certificate Interest" shall mean interest payable in respect
of the Investor Certificates of any Series pursuant to Article IV of the
Supplement for such Series.
"Certificate Owner" shall mean, with respect to a Book-Entry
Certificate, the Person who is the beneficial owner of such Book-Entry
Certificate, as may be reflected on the books of the Clearing Agency, or on the
books of a Person maintaining an account with such Clearing Agency (directly or
as an indirect participant, in accordance with the rules of such Clearing
Agency).
"Certificate Principal" shall mean principal payable in
respect of the Investor Certificates of any Series pursuant to Article IV of
this Agreement.
"Certificate Rate" shall mean, with respect to any Series of
Certificates (or, for any Series with more than one Class, for each Class of
such Series), the percentage (or formula on the basis of which such rate shall
be determined) stated in the related Supplement.
"Certificate Register" shall mean the register maintained
pursuant to Section 6.3, providing for the registration of the Certificates and
transfers and exchanges thereof.
"Class" shall mean, with respect to any Series, any one of the
classes of Certificates of that Series as specified in the related Supplement.
"Clearing Agency" shall mean an organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act of
1934, as amended.
"Clearing Agency Participant" shall mean a broker, dealer,
bank, other financial institution or other Person for whom from time to time a
Clearing Agency or Foreign Clearing Agency
<PAGE>
5
effects book-entry transfers and pledges of securities deposited with the
Clearing Agency or Foreign Clearing Agency.
"Closing Date" shall mean, with respect to any Series, the
date of issuance of such Series of Certificates, as specified in the related
Supplement.
"Collateral Interest" shall have the meaning, with respect to
any Series, specified in the related Supplement.
"Collection Account" shall have the meaning specified in
subsection 4.2(a).
"Collections" shall mean all payments (including Insurance
Proceeds) received by the Servicer in respect of the Receivables, in the form of
cash, checks, wire transfers, ATM transfers or other form of payment in
accordance with the Credit Card Agreement in effect from time to time. A
Collection processed on an Account in excess of the aggregate amount of
Receivables in such Account as of the Date of Processing of such Collection
shall be deemed to be a payment in respect of Principal Receivables to the
extent of such excess. Collections with respect to any Monthly Period shall
include the amount of Recoveries (if any) allocable to the Trust with respect to
such Monthly Period, to be applied as if such amounts were Collections of
Finance Charge Receivables for all purposes. Collections with respect to any
Monthly Period shall also include the amount deposited by the Transferor into
the Finance Charge Account (or Series Account if provided in any supplement)
pursuant to Section 2.8.
"Commission" shall mean the Securities and Exchange
Commission.
"Companion Series" shall mean (i) each Series which has been
paired with another series (which Series may be prefunded in whole or in part),
such that the reduction of the Investor Interest of such Series results in the
increase of the Investor Interest of such other Series, as described in the
related Supplements, and (ii) such other Series, as described in the related
Supplements.
"Controlled Distribution Amount," with respect to any Series,
shall have the meaning specified in the related Supplement.
"Corporate Trust Office" shall mean the principal office of
the Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date of the execution of this Agreement is
located at 450 West 33rd Street, New York, New York 10001, Attention: Structured
Finance Services, except that for purposes of subsection 6.3(d) and Section
11.16, such term shall mean the office or agency of the Trustee in the Borough
of Manhattan, the City of New York, which office at the date hereof is located
at 55 Water Street, New York, New York 10041.
"Coupon" shall have the meaning specified in Section 6.1.
<PAGE>
6
"Credit Adjustment" shall have the meaning specified in
subsection 4.3(c).
"Credit Card Agreement" shall mean the agreement and Federal
Truth in Lending Statement for credit card accounts between any Obligor and an
Originator (whether such accounts are originated or acquired by such
Originator), as such agreement may be amended, modified or otherwise changed
from time to time.
"Credit Card Guidelines" shall mean the Transferor's policies
and procedures relating to the operation of its credit card business, including,
without limitation, the policies and procedures for determining the
creditworthiness of credit card customers, the extension of credit to credit
card customers, and relating to the maintenance of credit card accounts and
collection of credit card receivables, as such policies and procedures may be
amended from time to time.
"Credit Card Portfolio" shall mean the Receivables owned by
the Transferor arising under the Accounts.
"Credit Enhancement" shall mean, with respect to any Series,
the subordination, the cash collateral guaranty or account, collateral interest,
letter of credit, surety bond, insurance policy, spread account, reserve
account, cross-support feature or any other contract or agreement for the
benefit of the Certificateholders of such Series (or Certificateholders of a
Class within such Series) as designated in the applicable Supplement.
"Credit Enhancement Provider" shall mean, with respect to any
Series, the Person, if any, designated as such in the related Supplement.
"Cut-Off Date" shall mean July 31, 1998.
"Date of Processing" shall mean, with respect to any
transaction, the date on which such transaction is first recorded on the
Servicer's computer master file of Dillard's or Mercantile accounts (without
regard to the effective date of such recordation).
"Default Amount" shall mean, with respect to any Defaulted
Account, the amount of Principal Receivables (other than Ineligible Receivables)
in such Defaulted Account on the day such Account became a Defaulted Account.
"Defaulted Account" shall mean each Account with respect to
which, in accordance with the Credit Card Guidelines or the Servicer's or the
related Originator's customary and usual servicing procedures for servicing
credit card receivables comparable to the Receivables, the Servicer has charged
off the Receivables in such Account as uncollectible. An Account shall become a
Defaulted Account on the day on which such Receivables are recorded as charged
off as uncollectible on the computer master file of the respective Originator's
accounts. Notwithstanding any other
<PAGE>
7
provision hereof, any Receivables in a Defaulted Account that are Ineligible
Receivables shall be treated as Ineligible Receivables rather than Receivables
in Defaulted Accounts.
"Definitive Certificate" shall have the meaning specified in
Section 6.10.
"Depository" shall have the meaning specified in Section 6.10.
"Depository Agreement" shall mean, with respect to a Series
having Book-Entry Certificates, the agreement among the Transferor, the Trustee
and the Clearing Agency, or as otherwise provided in the related Supplement.
"Determination Date" shall mean, unless otherwise specified in
the related Series Supplement, the fourth calendar day of each month, or if such
day is not a Business Day, the next preceding Business Day.
"Dillard's" shall mean Dillard's Inc., a corporation organized
under the laws of Delaware.
"Discount Option Receivables" shall mean, on any date on and
after the date on which the Transferor's exercise of its discount option
pursuant to Section 2.8 takes effect, the sum of (a) the aggregate Discount
Option Receivables at the end of the prior day (which amount, prior to the date
on which the Transferor's exercise of its discount option takes effect and with
respect to Receivables generated prior to such date, shall be zero) plus (b) any
New Discount Option Receivables created on such day minus (c) any Discount
Option Receivables Collections received on such Date of Processing.
"Discount Option Receivables Collections" shall mean on any
Date of Processing on and after the date on which the Transferor's exercise of
its discount option pursuant to Section 2.8 takes effect, the product of (a) a
fraction the numerator of which is the amount of the Discount Option Receivables
and the denominator of which is the sum of the Principal Receivables plus the
amount of Discount Option Receivables in each case (for both numerator and
denominator) at the end of the prior Monthly Period and (b) Collections of
Principal Receivables, prior to any reduction for Finance Charge Receivables
which are Discount Option Receivables, received on such Date of Processing.
"Discount Percentage" shall have the meaning specified in
Section 2.8.
"Distribution Account" shall have the meaning specified in
subsection 4.2(c).
"Distribution Date" shall mean, with respect to each Series,
the dates specified in the related Supplement.
"DNB" shall mean Dillard National Bank, a national banking
association organized and existing under the laws of the United States and
having its headquarters in Gilbert, AZ.
<PAGE>
8
"DNB-La." shall mean Dillard National Bank (formerly known as
Mercantile Stores National Bank) a national banking association organized and
existing under the laws of the United States and having its headquarters in
Baton Rouge, LA.
"Dollars", "$" or "U.S. $" shall mean United States dollars.
"Eligible Account" shall mean, as of the Cut-Off Date (or,
with respect to Additional Accounts as of the relevant Addition Date), each
Account owned by an Originator:
(a) which is payable in Dollars;
(b) the Obligor on which has provided, as its most recent
billing address, an address which is located in the United States or
its territories or possessions;
(c) which such Originator has not classified on its electronic
records as counterfeit, deleted, fraudulent, stolen or lost;
(d) which such Originator has not charged off in its customary
and usual manner for charging off such Accounts as of the Cut-Off Date
(or, with respect to Additional Accounts, as of the relevant Addition
Date); and
(e) the Obligor of which has not been identified by such
Originator on its electronic records as being involved in a voluntary
or involuntary bankruptcy proceeding.
"Eligible Deposit Account" shall mean either (a) a segregated
account with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States or any one of the states thereof, including the District of
Columbia (or any domestic branch of a foreign bank), and acting as a trustee for
funds deposited in such account, so long as any of the 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" shall mean (a), the Servicer so long as
the Rating Agency Condition is satisfied, (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 either (x) a
long-term unsecured debt rating of "A2" or better by Moody's or (y) a
certificate of deposit rating of "P-1" by 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-l+" by Standard & Poor's and (iii) is a
member of the FDIC or (c) any other institution that is acceptable to the Rating
Agencies.
<PAGE>
9
"Eligible Receivable" shall mean each Receivable:
(a) which has arisen under an Eligible Account (in the case of
Accounts conveyed to the Trust on the Initial Closing Date and in the
case of Additional Accounts conveyed to the Trust on the relevant
Addition Date);
(b) which was created in compliance, in all material respects,
with all Requirements of Law applicable to the Originator thereof and
pursuant to a Credit Card Agreement which complies, in all material
respects, with all Requirements of Law applicable to such Originator;
(c) with respect to which 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 creation of such Receivable or
the execution, delivery and performance by such Originator of the
Credit Card Agreement pursuant to which such Receivable was created,
have been duly obtained, effected or given and are in full force and
effect as of such date of creation;
(d) as to which, as of the Closing Date, or in the case of
Receivables in Additional Accounts as of the relevant Addition Date,
the Transferor had good title thereto, free and clear of all Liens
arising under or through the Transferor or any of its Affiliates (other
than Liens permitted pursuant to subsection 2.5(b));
(e) which is the legal, valid and binding payment obligation
of the Obligor thereon, enforceable against such Obligor in accordance
with its terms, except as affected by bankruptcy, insolvency,
reorganization, moratorium and other similar laws, now or hereafter in
effect, relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a suit in equity or at law)
and an implied covenant of good faith and fair dealing; and
(f) which constitutes an "account" under and as defined in
Article 9 of the UCC as then in effect in the State of Delaware.
"Enhancement Invested Amount" shall have the meaning, with
respect to any Series, specified in the related Supplement.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Euroclear Operator" shall mean Morgan Guaranty Trust Company
of New York, Brussels, Belgium office, as operator of the Euroclear System.
"Excess Funding Account" shall have the meaning specified in
subsection 4.2(d).
<PAGE>
10
"Excess Funding Amount" shall mean, as of any date of
determination, the principal amount on deposit in the Excess Funding Account.
"Exchange" shall mean either of the procedures described under
Section 6.9.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, or any successor legislation.
"Exchange Date" shall have the meaning, with respect to any
Series issued pursuant to an Exchange, specified in Section 6.9.
"Exchange Notice" shall have the meaning, with respect to any
Series issued pursuant to an Exchange, specified in Section 6.9.
"Extended Trust Termination Date" shall have the meaning
specified in subsection 12.1(a).
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Fee Determination Date" shall have the meaning specified in
Section 4.5(a).
"Finance Charge Account" shall have the meaning specified in
subsection 4.2(b).
"Finance Charge Receivables" shall mean Receivables created in
respect of the Periodic Finance Charges and Late Fees and similar fees and
charges, Annual Membership Fees and Special Fees to the extent such Special Fees
are categorized as Finance Charge Receivables. Finance Charge Receivables with
respect to any Monthly Period shall include the amount of Recoveries (if any),
Discount Option Receivables (if any), Insurance Proceeds and investment earnings
from any of the Trust Accounts, and other amounts allocable to any Series of
Certificates pursuant to any Supplement with respect to such Monthly Period that
are to be treated as Finance Charge Receivables but shall exclude charges for
credit insurance. For purposes of this Agreement, the amounts of Late Fees,
similar fees and charges, and Special Fees to be included in Finance Charge
Collections shall be determined in accordance with Sections 4.5 and 4.6 hereof.
If so provided in the related Supplement, Finance Charge Receivables for the
Series issued pursuant to such Supplement may be equal to, or may not be greater
than, a fixed percentage of the outstanding balance of some or all Receivables
in the applicable Trust.
"Foreign Clearing Agency" shall mean Cedel and the Euroclear
Operator.
"Funding Period" shall have the meaning specified in Section
4.4.
"Global Certificate" shall have the meaning specified in
Section 6.13.
<PAGE>
11
"Governmental Authority" shall mean the United States of
America, any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Group" shall mean, with respect to any Series, the group of
Series in which the related Supplement specifies that such Series shall be
included.
"Ineligible Receivable" shall have the meaning specified in
subsection 2.4(d)(iii).
"Initial Closing Date" shall mean August 14, 1998.
"Initial Investor Interest" shall mean, with respect to any
Series of Certificates, the amount stated in the related Supplement.
"Insolvency Event" shall have the meaning specified in
subsection 9.2(a).
"Insurance Proceeds" shall mean any amounts recovered by the
Servicer pursuant to any credit insurance policies covering any Obligor with
respect to Receivables under such Obligor's Account.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time.
"Investment Company Act" shall mean the Investment Company Act
of 1940, as amended from time to time.
"Investor Account" shall mean each of the Finance Charge
Account, the Principal Account, the Excess Funding Account and the Distribution
Account.
"Investor Certificate" shall mean any one of the certificates
(including, without limitation, the Bearer Certificates, the Registered
Certificates or the Global Certificates) issued by the Trust, executed by the
Transferor and authenticated by the Trustee substantially in the form (or forms
in the case of a Series with multiple Classes) of the investor certificate
attached to the related Supplement.
"Investor Certificateholder" shall mean each holder of record
of an Investor Certificate.
"Investor Charge-Off" shall have, with respect to each Series,
the meaning specified in the applicable Supplement.
"Investor Default Amount" shall have, with respect to any
Series of Certificates, the meaning stated in the related Supplement.
<PAGE>
12
"Investor Exchange" shall have the meaning specified in
subsection 6.9(b).
"Investor Interest" shall have, with respect to any Series of
Certificates, the meaning stated in the related Supplement.
"Investor Percentage" shall have, with respect to Principal
Receivables, Finance Charge Receivables and Receivables in Defaulted Accounts,
and any Series of Certificates, the meaning stated in the related Supplement.
"Investor Servicing Fee" shall have, with respect to each
Series, the meaning specified in Section 3.2.
"Late Fees" shall have the meaning specified in the Credit
Card Agreement applicable to each Account for late fees or similar terms.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever, including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing or comparable law
of any jurisdiction to evidence any of the foregoing; provided, however, that
any assignment pursuant to Section 7.2 shall not be deemed to constitute a Lien.
"MCC" shall mean Mercantile Credit Corporation, a corporation
organized and existing under the laws of Louisiana.
"Mercantile" shall mean Mercantile Stores Company, Inc., a
corporation organized under the laws of Delaware.
"Minimum Aggregate Principal Receivables" shall mean, as of
any date of determination, the sum of the numerators used on such date to
calculate the Investor Percentage with respect to Principal Receivables for all
Series outstanding on such date, less the amount on deposit in the Excess
Funding Account as of such date of determination.
"Minimum Transferor Interest" shall mean, with respect to any
Monthly Period, an amount equal to the product of the Minimum Transferor
Interest Percentage and the sum of (i) the Average Principal Receivables for
such Monthly Period, (ii) the Excess Funding Amount and (iii) any amounts on
deposit in any Principal Funding Account and any other Series Account (if so
specified in the applicable Supplement).
"Minimum Transferor Interest Percentage" shall mean the
highest percentage specified as the "Minimum Transferor Interest Percentage" in
any Supplement; provided, however, that the
<PAGE>
13
Transferor may reduce the Minimum Transferor Interest Percentage upon (w) 30
days' prior notice to the Trustee, each Rating Agency and any Credit Enhancement
Provider entitled to receive such notice pursuant to the relevant Supplement,
(x) written confirmation from each Rating Agency that such action will satisfy
the Rating Agency Condition, (y) delivery to the Trustee and each such Credit
Enhancement Provider of an Officer's Certificate stating that the Transferor
reasonably believes that such reduction will not, based on the facts known to
such officer at the time of such certification, then or thereafter cause a Pay
Out Event to occur with respect to any Series and (z) delivery to the Trustee of
a Tax Opinion; provided further that the Minimum Transferor Interest Percentage
shall not at any time be less than [0%].
"Monthly Period" shall mean, unless otherwise defined in any
Supplement, the period from and including the first day of a calendar month to
and including the last day of a calendar month.
"Moody's" shall mean Moody's Investors Service, Inc.
"New Discount Option Receivables" shall mean, as of any date
of determination, the product of the Discount Percentage and the amount of
Principal Receivables (before subtracting out Finance Charge Receivables which
are Discount Option Receivables) arising on such date of determination.
"Notice Date" shall have the meaning specified in subsection
2.6(c)(i).
"Obligor" shall mean, with respect to any Account, the Person
or Persons obligated to make payments with respect to such Account, including
any guarantor thereof.
"Officer's Certificate" shall mean a certificate signed by any
Vice President or more senior officer of the Transferor or Servicer and
delivered to the Trustee.
"Original Purchase Agreements" shall mean the Receivables Sale
Agreement, dated as of June 30, 1998, between DIC and DNB and the Receivables
Purchase Agreement, dated as of May 29, 1997, between MFI and DNB-La.
"Originators" shall mean DNB and DNB-La.
"Opinion of Counsel" shall mean a written opinion of counsel,
who may be counsel for or an employee of the Person providing the opinion, and
who shall be reasonably acceptable to the Trustee.
"Participation" shall have the meaning specified in subsection
2.6(a)(ii).
"Paying Agent" shall mean any paying agent appointed pursuant
to Section 6.6 and identified in the related Supplement.
<PAGE>
14
"Pay Out Commencement Date" shall mean, (a) with respect to
each Series, the date on which a Trust Pay Out Event is deemed to occur pursuant
to Section 9.1 or (b) with respect to any Series, a Series Pay Out Event is
deemed to occur pursuant to the Supplement for such Series.
"Pay Out Event" shall mean, with respect to each Series, a
Trust Pay Out Event or a Series Pay Out Event.
"Periodic Finance Charges" shall have the meaning specified in
the Credit Card Agreement applicable to each Account for finance charges (due to
periodic rate) or any similar term.
"Permitted Investments" shall mean, unless otherwise provided
in the Supplement with respect to any Series:
(a) book-entry securities or negotiable instruments or
securities represented by instruments in bearer or registered form
which evidence (i) obligations of or fully guaranteed by the United
States of America; (ii) demand deposits, time deposits or certificates
of deposit of any depositary institution or trust company incorporated
under the laws of the United States of America or any state thereof (or
domestic branches of foreign banks) and subject to supervision and
examination by federal or state banking or depositary institution
authorities; provided, however, that at the time of the Trust's
investment or contractual commitment to invest therein, the
certificates of deposit or short-term deposits of such depositary
institution or trust company shall have a credit
rating from Moody's and Standard & Poor's of "P-1" and "A-1+",
respectively; (iii) commercial paper having, at the time of the Trust's
investment or contractual commitment to invest therein, a rating from
Moody's and Standard & Poor's of "P-1" and "A-l+", respectively and
(iv) bankers' acceptances issued by any depository institution or trust
company described in clause (a)(ii) above;
(b) demand deposits in the name of the Trust or the Trustee in
any depositary institution or trust company referred to in clause
(a)(ii) above;
(c) repurchase agreements transacted with either:
(i) an entity subject to the United States federal
bankruptcy code, provided that (A) the repurchase agreement
matures prior to the next Distribution Date or is due on
demand, (B) the Trustee or a third party acting solely as
agent for the Trustee has possession of the collateral, (C)
the Trustee on behalf of the Trust has a security interest in
the collateral, (D) the market value of the collateral is
maintained at the requisite collateral percentage of the
obligation in accordance with standards of the Rating
Agencies, (E) the failure to maintain the requisite collateral
level will obligate the Trustee to liquidate the collateral
immediately, (F) the securities subject to the repurchase
agreement are either obligations of, or fully guaranteed as to
principal and interest by, the United States of America or any
instrumentality or agency thereof,
<PAGE>
15
certificates of deposit or bankers acceptances and (G) the
securities subject to the repurchase agreement are free and
clear of any third party lien or claim; or
(ii) 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.
("SIPC"), provided that (A) the market value of the collateral
is maintained at the requisite collateral percentage of the
obligation in accordance with the standards of the Rating
Agencies, (B) the Trustee or a third party (with a short-term
debt rating of P-1 or higher by Moody's) acting solely as
agent for the Trustee has possession of the collateral, (C)
the Trustee on behalf of the Trust has a security interest in
the collateral, (D) the collateral is free and clear of third
party liens and, in the case of an SIPC broker, was not
acquired pursuant to a repurchase or reverse repurchase
agreement and (E) the failure to maintain the requisite
collateral percentage will obligate the Trustee to liquidate
the collateral; provided, however, that at the time of the
Trust's investment or contractual commitment to invest in any
repurchase agreement, the short-term deposits or commercial
paper rating of such entity or institution in subsections (i)
and (ii) shall have a credit rating of "P-1" from Moody's and
"A-1+" from Standard & Poor's; and
(d) any other investment that by its terms converts to cash
within a finite time period if the Rating Agency Condition is satisfied
with respect thereto.
"Person" shall mean any legal person, including any
individual, corporation, limited liability company, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
governmental entity or other entity of similar nature.
"Pool Factor" shall mean, except with respect to any Series
issued in more than one Class, a number carried out to seven decimals
representing the ratio of the applicable Investor Interest as of such Record
Date (determined after taking into account any reduction in the Investor
Interest which will occur on the following Distribution Date) to the applicable
Initial Investor Interest, and with respect to a Series having more than one
Class, as specified in the Supplement relating to such Series.
"Portfolio Yield" shall have the meaning, with respect to any
Series, specified in the related Supplement.
"Pre-Funding Account" shall have the meaning specified in
Section 4.4.
"Principal Account" shall have the meaning specified in
subsection 4.2(b).
"Principal Receivable" shall mean each Receivable other than
(i) Finance Charge Receivables, and (ii) Receivables in Defaulted Accounts. A
Receivable shall be deemed to have been created at the end of the day on the
Date of Processing of such Receivable. In calculating the
<PAGE>
16
aggregate amount of Principal Receivables on any day, the amount of Principal
Receivables shall be reduced by the aggregate amount of credit balances in the
Accounts on such day. Any Receivables which the Transferor is unable to transfer
as provided in subsection 2.5(e) shall not be included in calculating the
aggregate amount of Principal Receivables.
"Principal Sharing Series" shall mean a Series, that, pursuant
to the related Supplement, is entitled to Shared Principal Collections.
"Principal Shortfalls" shall mean, with respect to a Transfer
Date, the aggregate amount for all outstanding Series that the related
Supplements specify are "Principal Shortfalls" for such Transfer Date.
"Principal Terms" shall have the meaning, with respect to any
Series issued pursuant to an Exchange, specified in subsection 6.9(c).
"Purchase Agreements" shall mean (i) the DIC Receivables
Purchase Agreement, dated as of August 14, 1998, between Dillard Investment
Company and the Transferor; (ii) the MFI Receivables Purchase Agreement, dated
as of August 14, 1998, between Mersco Factors, Inc. and the Transferor; (iii)
the DNB Receivables Purchase Agreement, dated as of August 14, 1998, between DNB
and the Transferor; and (iv) the MSNB Receivables Purchase Agreement, dated as
of August 14, 1998, between DNB-La. and the Transferor;
"Quarterly Net Account Additions" shall mean on any date of
determination, the number of Accounts the Receivables of which have been added
to the Trust pursuant to subsection 2.6(b) and (d) during the current calendar
quarter plus the number of Accounts, if any, the Receivables of which have been
designated to be added to the Trust during such calendar quarter pursuant to
subsection 2.6(a) minus any Removed Accounts removed during such calendar
quarter.
"Quarterly Quotient" shall have the meaning specified in
subsection 2.6(c)(ii).
"Rating Agency" shall mean, with respect to each Series, the
rating agency or agencies, if any, specified in the related Supplement.
"Rating Agency Condition" shall mean, at any time with respect
to a Series, the written confirmation of the Rating Agency that a specified
event or modification of the terms of such Series will not result in the
withdrawal or downgrade of the rating of the Certificates of any Series then in
effect.
"Reassignment" shall have the meaning specified in subsection
2.7(b)(ii).
"Reassignment Date" shall have the meaning specified in
subsection 2.4(e).
<PAGE>
17
"Receivable" shall mean any amount owing by any Obligor under
an Account including, without limitation, amounts owing for the payment of goods
and services, Annual Membership Fees, Periodic Finance Charges, Late Fees and
Special Fees, if any but excluding credit insurance premiums.
"Record Date" shall mean, with respect to any Distribution
Date, the last Business Day of the preceding Monthly Period.
"Recoveries" shall mean, (i) with respect to any Monthly
Period or any shorter period commencing on or after the Recovery Determination
Date, the product of (a) all amounts recorded as recoveries on the Credit Card
Portfolio by the Servicer during such Monthly Period or such shorter period, as
the case may be, and (b) the Trust Percentage; and (ii) with respect to any
Monthly Period or any shorter period ending prior to the Recovery Determination
Date, Recoveries shall include all amounts recorded as recoveries with respect
to the Accounts by the Servicer during such period.
"Recovery Determination Date" shall mean the date specified by
the Servicer in an Officer's Certificate delivered to the Trustee as the date
upon which the Servicer will begin to calculate Recoveries.
"Registered Certificates" shall have the meaning specified in
Section 6.1.
"Removal Date" shall mean the date on which Receivables in
certain designated Removed Accounts will be reassigned by the Trustee to the
Transferor.
"Removal Notice Date" shall mean the day no later than the
fifth Business Day prior to a Removal Date.
"Removed Accounts" shall have the meaning specified in
subsection 2.7(a).
"Requirements of Law" for any Person shall mean the
certificate of incorporation or articles of association and bylaws or other
organizational or governing documents of such Person, and any law, treaty, rule
or regulation, or determination of an arbitrator or Governmental Authority, in
each case applicable to or binding upon such Person or to which such Person is
subject, whether federal, state or local (including, without limitation, usury
laws, the federal Truth in Lending Act and Regulation Z and Regulation B of the
Board of Governors of the Federal Reserve System).
"Responsible Officer" shall mean any officer within the
Corporate Trust Office (or any successor group of the Trustee), including any
Vice President, any Assistant Secretary or any other officer of the Trustee
customarily performing functions similar to those performed by any person who at
the time shall be an above designated officer and also, with any particular
officer to whom any corporate trust matter is referred because of such Officer's
knowledge of and familiarity with the particular subject.
<PAGE>
18
"Revolving Period" shall have, with respect to each Series,
the meaning specified in the related Supplement.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Series" shall mean any Series of Investor Certificates, which
may include within any such Series a Class or Classes of Investor Certificates
subordinate to another such Class or Classes of Investor Certificates.
"Series Account" shall mean any account or accounts
established pursuant to a Supplement for the benefit of such Series.
"Series Pay Out Event" shall have, with respect to any Series,
the meaning specified pursuant to the Supplement for the related Series.
"Series Servicing Fee Percentage" shall mean, with respect to
any Series, the amount specified in the related Supplement.
"Series Termination Date" shall mean, with respect to any
Series of Certificates, the date stated in the related Supplement.
"Servicer" shall mean initially DNB, and its permitted
successors and assigns and thereafter any Person appointed as successor as
herein provided to service the Receivables.
"Servicer Default" shall have the meaning specified in Section
10.1.
"Servicing Fee" shall have the meaning specified in Section
3.2.
"Servicing Officer" shall mean any officer of the Servicer
involved in, or responsible for, the administration and servicing of the
Receivables whose name appears on a list of servicing officers furnished to the
Trustee by the Servicer, as such list may from time to time be amended.
"Shared Excess Finance Charge Collections" shall mean, with
respect to any Transfer Date, the aggregate amount for all outstanding Series
that the related supplements specify are to be treated as "Shared Excess Finance
Charge Collections" for such Transfer Date.
"Shared Principal Collections" shall mean, with respect to any
Transfer Date, the aggregate amount for all outstanding Series that the related
Supplements specify are to be treated as "Shared Principal Collections" for such
Transfer Date.
"Special Fees" shall mean any fees which are not now but from
time to time may be assessed on the Accounts. On or after the date on which any
of such Special Fees begin to be
<PAGE>
19
assessed on the Accounts, the Transferor may designate in an Officer's
Certificate whether such Special Fees shall be treated as Principal Receivables
or Finance Charge Receivables.
"Standard & Poor's" shall mean Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Companies, Inc.
"Successor Servicer" shall have the meaning specified in
subsection 10.2(a).
"Supplement" or "Series Supplement" shall mean, with respect
to any Series, a supplement to this Agreement complying with the terms of
Section 6.9 of this Agreement, executed in conjunction with any issuance of any
Series of Certificates (or, in the case of the issuance of Certificates on the
Initial Closing Date, the supplement executed in connection with the issuance of
such Certificates).
"Tax Opinion" shall mean with respect to any action, an
Opinion of Counsel delivered to the Trust and the Trustee to the effect that,
for U.S. federal income tax purposes, (a) such action will not adversely affect
the tax characterization as debt of Investor Certificates of any outstanding
Series or Class that were characterized as debt at the time of their issuance,
(b) following such action the Trust will not be deemed to be an association (or
a "publicly traded partnership" within the meaning of Section 7704(b) of the
Code) taxable as a corporation and (c) such action will not cause or constitute
a taxable event in which gain or loss would be recognized by any Investor
Certificateholder or the Trust.
"Termination Notice" shall have, with respect to any Series,
the meaning specified in subsection 10.1(d).
"Transfer Agent and Registrar" shall have the meaning
specified in Section 6.3 and shall initially be the Trustee.
"Transfer Date" shall mean, unless otherwise specified in the
related Supplement, with respect to any Series, the Business Day immediately
prior to each Distribution Date.
"Transferor" shall mean Dillard Asset Funding Company and its
successors in interest and permitted assigns.
"Transferor Certificate" shall mean the certificate executed
by the Transferor and authenticated by the Trustee, substantially in the form of
Exhibit A and exchangeable as provided in Section 6.9; provided, however, that
at any time there shall be only one Transferor Certificate.
"Transferor Exchange" shall have the meaning specified in
subsection 6.9(b).
"Transferor Interest" shall mean, on any date of
determination, the aggregate amount of Principal Receivables and the principal
amounts on deposit in the Excess Funding Account, any
<PAGE>
20
Principal Funding Account and any other Series Account (if so provided in the
applicable Supplement) at the end of the day immediately prior to such date of
determination, minus the Aggregate Investor Interest at the end of such day,
minus the aggregate Enhancement Invested Amounts (if such amounts are not
included in the Investor Interest in the applicable Supplement), if any, for
each Series outstanding at the end of such day.
"Transferor Percentage" shall mean, on any date of
determination, when used with respect to Principal Receivables, Finance Charge
Receivables and Receivables in Defaulted Accounts, a percentage equal to 100%
minus the Aggregate Investor Percentage with respect to such categories of
Receivables.
"Transferor Servicing Fee" shall have the meaning specified
in Section 3.2.
"Transferred Account" shall mean (a) an Account with respect
to which a new credit account number has been issued by the Servicer or the
Transferor under circumstances resulting from a lost or stolen credit card or
from the transfer from one affinity group to another affinity group and not
requiring standard application and credit evaluation procedures under the Credit
Card Guidelines or (b) an Eligible Account resulting from the conversion of an
Account that was a standard account to a premium account or from a premium
account to a standard account, and which in either case can be traced or
identified by reference to or by way of the computer files or microfiche lists
delivered to the Trustee pursuant to Section 2.1 or 2.6 as an account into which
an Account has been transferred.
"Trust" shall mean the trust created by this Agreement, the
corpus of which shall consist of the Receivables now existing or hereafter
created and arising in connection with the Accounts, all monies due or to become
due with respect to the Receivables, all proceeds (as defined in Section 9-306
of the UCC) of the Receivables and Insurance Proceeds relating to the
Receivables, the right to receive certain amounts paid or payable as Recoveries,
such funds as from time to time are deposited in the Collection Account, the
Finance Charge Account, the Principal Account, the Distribution Account, the
Excess Funding Account and any Series Account and the rights to any Credit
Enhancement with respect to any Series. The name of such Trust shall be "Dillard
Master Credit Card Trust" or any other name at the option of the Transferor;
provided, however, that at least 5 Business Days prior to any change in the name
of Trust, the Transferor shall give written notice of such change to the
Servicer, the Trustee, each Rating Agency, any Credit Enhancement Provider and
all Certificateholders.
"Trust Accounts" shall mean the Collection Account, the
Principal Account, the Finance Charge Account, the Distribution Account and
the Excess Funding Account.
"Trust Extension" shall have the meaning specified in
subsection 12.1(a).
"Trust Pay Out Event" shall have, with respect to each Series,
the meaning specified in Section 9.1.
<PAGE>
21
"Trust Percentage" shall mean, with respect to any Monthly
Period, a fraction expressed as a percentage, the numerator of which is the
aggregate principal amount of Principal Receivables (prior to giving effect to
any reduction thereof for Finance Charge Receivables which are Discount Option
Receivables) as of the close of business on the last day of the prior Monthly
Period and the denominator of which is the aggregate principal balance of the
Credit Card Portfolio as of the close of business on the last day of the prior
Monthly Period.
"Trust Portfolio" shall mean the Receivables owned by the
Trust arising under the Accounts.
"Trust Termination Date" shall mean (i) if a Trust Extension
shall not have occurred, the earlier to occur of (a) the first Business Day
after the Distribution Date following the date on which funds shall have been
deposited in the Distribution Account or the applicable Series Account for the
payment of Investor Certificateholders of each Series then issued and
outstanding sufficient to pay in full such certificates, (b) the date specified
in subsection 9.2(b) and (c) July 15, 2021, and (ii) if a Trust Extension shall
have occurred, the Extended Trust Termination Date.
"Trustee" shall mean The Chase Manhattan Bank, a New York
banking corporation, and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a
party and any successor trustee appointed as herein provided.
"UCC" shall mean the Uniform Commercial Code, as amended from
time to time, as in effect in the State of Arizona, Delaware, Louisiana or New
York, as applicable.
"Undivided Interest" shall mean the undivided interest in the
Trust evidenced by an Investor Certificate.
Section 1.2 Other Definitional Provisions.
(a) All terms defined in any Supplement or this Agreement
shall have the defined meanings when used in any certificate or other document
made or delivered pursuant hereto unless otherwise defined therein.
(b) As used herein and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
Section 1.1, and accounting terms partially defined in Section 1.1 to the extent
not defined, shall have the respective meanings given to them under generally
accepted accounting principles or regulatory accounting procedures applicable to
the Transferor, as applicable. To the extent that the definitions of accounting
terms herein are inconsistent with the meanings of such terms under generally
accepted accounting principles or such regulatory accounting procedures, the
definitions contained herein shall control.
<PAGE>
22
(c) The agreements, representations and warranties of DNB in
this Agreement and in any Supplement in its capacity as Servicer shall be deemed
to be the agreements, representations and warranties of DNB solely in such
capacity for the time periods during which DNB acts in such capacity under this
Agreement and the agreements, representations and warranties of Dillard Asset
Funding Company in this Agreement and in any Supplement in its capacity as
Transferor shall be deemed to be the agreements, representations and warranties
of Dillard Asset Funding Company solely in such capacity for the time periods
and for so long as Dillard Asset Funding Company acts in such capacity under
this Agreement.
(d) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to any Supplement or this
Agreement as a whole and not to any particular provision of this Agreement or
any Supplement; and Section, subsection, Schedule and Exhibit references
contained in this Agreement or any Supplement are references to Sections,
subsections, Schedules and Exhibits in or to this Agreement or any Supplement
unless otherwise specified. The Monthly Servicer Report, the form of which is
attached as Exhibit C, shall be in substantially the form of Exhibit C, with
such changes as the Servicer may determine to be necessary or desirable;
provided, however, that no such change shall serve to exclude information
required by the Agreement or any Supplement. The Servicer shall, upon making
such determination, deliver to the Trustee and each Rating Agency an Officer's
Certificate to which shall be annexed the form of the related Exhibit, as so
changed. Upon the delivery of such Officer's Certificate to the Trustee, the
related Exhibit, as so changed, shall for all purposes of this Agreement
constitute such Exhibit. The Trustee may conclusively rely upon such Officer's
Certificate in determining whether the related Exhibit, as changed, conforms to
the requirements of this Agreement.
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF CERTIFICATES
Section 2.1 Conveyance of Receivables. The Transferor does hereby transfer,
assign, set over, and otherwise convey to the Trust for the benefit of the
Certificateholders, without recourse, all of its right, title and interest in
and to (i) the Receivables existing as of the Cut-Off Date and thereafter
created and arising in connection with the Accounts (other than Additional
Accounts), (ii) all monies due or to become due with respect to such
Receivables, (iii) all proceeds of such Receivables, (iv) Insurance Proceeds
relating to such Receivables and (v) Recoveries.
In connection with such transfer, assignment, set-over and
conveyance, the Transferor agrees to file, at its own expense, a financing
statement (including any continuation statements with respect to such financing
statement when applicable) with respect to the Receivables now existing and
hereafter created for the perfection of a security interest (as defined in the
UCC) in accounts and general intangibles (as defined in Section 9-106 of the
UCC) meeting the requirements of applicable
<PAGE>
23
state law in such manner and in such jurisdictions as are necessary to perfect
such security interest in favor of the Trust, and to deliver a file-stamped copy
of such financing statement or continuation statement or other evidence of such
filing (which may, for purposes of this Section 2.1, consist of telephone
confirmation of such filing) to the Trustee as soon as practicable after the
date of issuance of the Certificates, and in the case of any continuation
statements filed pursuant to this Section 2.1, as soon as practicable after
receipt thereof by the Transferor. The foregoing transfer, assignment, set-over
and conveyance to the Trust shall be made to the Trustee, on behalf of the
Trust, and each reference in this Agreement to such transfer, assignment,
set-over and conveyance shall be construed accordingly.
In connection with such transfer, the Transferor agrees, at
its own expense, within 10 Business Days of the Initial Closing Date to indicate
in its records that Receivables created in connection with the Accounts have
been transferred to the Trust. In addition, the Transferor agrees to cause each
of the Originators, within 10 Business Days of the Initial Closing Date to (a)
indicate in the computer files of the Originators that Receivables created in
connection with the Accounts as of the Initial Closing Date have been
transferred to the Trust pursuant to this Agreement for the benefit of the
Certificateholders and (b) to deliver to the Trustee a computer file or
microfiche list containing a true and complete list of all such Accounts,
identified by account number and setting forth the Receivable balance as of the
Cut-Off Date. Such file or list shall be marked as Schedule 1 to this Agreement,
delivered to the Trustee as confidential and proprietary, and is hereby
incorporated into and made a part of this Agreement. The Transferor further
agrees to cause each of the Originators not to remove such indication in the
file referenced in clause (i) of this paragraph with respect to any Account
during the term of this Agreement unless and until such Account becomes a
Removed Account or a Defaulted Account.
The Transferor hereby grants to the Trustee a security
interest in all of the Transferor's right, title and interest in, to and under
the Receivables existing as of the Cut-Off Date and thereafter created and
arising in connection with the Accounts (other than Additional Accounts), all
moneys due or to become due with respect to such Receivables, all proceeds of
such Receivables and all Insurance Proceeds relating to such Receivables and all
Recoveries and all proceeds thereof to secure a loan in an amount equal to the
unpaid principal amount of the Investor Certificates issued hereunder or to be
issued pursuant to this Agreement and the interest accrued at the related
Certificate Rate, and this Agreement shall constitute a security agreement under
applicable law.
Pursuant to the request of the Transferor, the Trustee shall
cause Certificates in authorized denominations evidencing the entire interest in
the Trust to be duly authenticated and delivered to or upon the order of the
Transferor pursuant to Section 6.2.
Section 2.2 Acceptance by Trustee.
(a) The Trustee hereby acknowledges its acceptance, on behalf
of the Trust, of all right, title and interest previously held by the Transferor
in and to the Receivables existing as of the Cut-Off Date and thereafter created
and arising in connection with the Accounts, all monies due or to
<PAGE>
24
become due with respect thereto (including all Finance Charge Receivables), all
proceeds of such Receivables, Insurance Proceeds relating to such Receivables
and all Recoveries and the proceeds thereof, and declares that it shall maintain
such right, title and interest, upon the Trust herein set forth, for the benefit
of all Certificateholders. The Trustee further acknowledges that, prior to or
simultaneously with the execution and delivery of this Agreement, the Transferor
delivered or caused to be delivered to the Trustee the computer file or
microfiche list described in the third paragraph of Section 2.1.
(b) The Trustee hereby agrees not to disclose to any Person
any of the account numbers or other information contained in the computer files
or microfiche lists delivered to the Trustee by the Transferor pursuant to
Sections 2.1, 2.6 and 2.7 ("Account Information") except as required in
connection with the performance of its duties hereunder or in enforcing the
rights of the Certificateholders or to a Successor Servicer appointed pursuant
to Section 10.2, or as mandated pursuant to any Requirement of Law applicable to
the Trustee or as requested by any Person in connection with financing
statements filed with the Trust. The Trustee agrees (i) to take such measures as
shall be reasonably requested by the Transferor or the Servicer to protect and
maintain the security and confidentiality of such information, and, in
connection therewith, shall allow the Transferor and the Servicer to inspect the
Trustee's security and confidentiality arrangements from time to time during
normal business hours and (ii) not to use any of the Account Information to
compete, directly or indirectly, with either Originator or the Servicer. In the
event that the Trustee is required by law to disclose any Account Information,
the Trustee shall provide the Transferor and the Servicer with prompt written
notice, unless such notice is prohibited by law, of any such request or
requirement so that the Transferor or the Servicer may request a protective
order or other appropriate remedy. The Trustee shall use its best efforts to
provide the Transferor and the Servicer with written notice no later than five
Business Days prior to any disclosure pursuant to this subsection 2.2(b).
(c) The Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement.
Section 2.3 Representations and Warranties of the Transferor.
The Transferor hereby represents and warrants to the Trust as of the Initial
Closing Date:
(a) Organization and Good Standing. The Transferor is a
business trust duly organized and validly existing in good standing
under the laws of the jurisdiction of its organization and (i) has full
power, authority and legal right to execute, deliver and perform its
obligations under this Agreement and the Purchase Agreements and to
execute and deliver to the Trustee the Certificates pursuant hereto,
and (ii), in all material respects, to own its properties and conduct
its business as such properties are presently owned and such business
is presently conducted.
(b) Due Qualification. The Transferor is duly qualified to do
business and is in good standing (or is exempt from such requirement)
and has obtained all necessary licenses and
<PAGE>
25
approvals with respect to the Transferor in each jurisdiction in
which failure to so qualify or to obtain such licenses and approvals
would render any Credit Card Agreement relating to an Account or any
Receivable unenforceable by the Transferor or the Trust or would have
a material adverse effect on the Certificateholders; provided, however,
that no representation or warranty is made with respect to any
qualifications, licenses or approvals which the Trustee would have to
obtain to do business in any state in which the Trustee seeks to
enforce any Account or Receivable.
(c) Due Authorization. The execution and delivery of this
Agreement and the execution and delivery to the Trustee of the
Certificates by the Transferor and the consummation of the transactions
provided for in this Agreement and the Purchase Agreements have or had,
as the case may be, have been duly authorized by the Transferor by all
necessary corporate action on its part and this Agreement will remain,
from the time of its execution, an official record of the Transferor.
(d) No Conflict. The execution and delivery of this Agreement,
the Purchase Agreements and the Certificates, the performance of the
transactions contemplated by this Agreement and the Purchase Agreements
and the fulfillment of the terms hereof will not conflict with, result
in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a material
default under, any indenture, contract, agreement, mortgage, deed of
trust, or other instrument to which the Transferor is a party or by
which it or any of its properties are bound, except to the extent that
the same could not reasonably be expected to have a material adverse
effect on the Certificateholders.
(e) No Violation. The execution and delivery of this
Agreement, the Purchase Agreements, any Supplement and the
Certificates, the performance of the transactions contemplated by this
Agreement and the Purchase Agreements and the fulfillment of the terms
hereof and thereof will not conflict with or violate any Requirements
of Law applicable to the Transferor, except to the extent that the same
could not reasonably be expected to have a material adverse effect on
the Certificateholders.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Transferor, threatened against
the Transferor before any court, regulatory body, administrative
agency, or other tribunal or governmental instrumentality (i) asserting
the invalidity of this Agreement or any Purchase Agreement or the
Certificates, (ii) seeking to prevent the issuance of the Certificates
or the consummation of any of the transactions contemplated by this
Agreement, the Purchase Agreements or the Certificates, (iii) seeking
any determination or ruling that, in the reasonable judgment of the
Transferor, would materially and adversely affect the performance by
the Transferor of its obligations under this Agreement or a Purchase
Agreement, (iv) seeking any determination or ruling that would
materially and adversely affect the validity or enforceability of
this Agreement or any Purchase
<PAGE>
26
Agreement or the Certificates or (v) seeking to affect adversely the
income tax attributes of the Trust.
(g) Eligibility of Accounts. As of the Cut-Off Date, each
Account was an Eligible Account and no selection procedures adverse to
the Investor Certificateholders have been employed by the Transferor in
selecting the Accounts from among the Eligible Accounts in the Credit
Card Portfolio.
(h) All Consents Required. All approvals, authorizations,
consents, orders or other actions of any Person or of any governmental
body or official required in connection with the execution and delivery
of this Agreement and the Certificates, the performance of the
transactions contemplated by this Agreement and the fulfillment of the
terms hereof, have been obtained, except where the failure to obtain
such approvals, authorizations, consents, orders or other actions could
not reasonably be expected to have a material adverse effect on the
Certificateholders.
For the purposes of the representations and warranties
contained in this Section 2.3 and made by the Transferor on the Initial Closing
Date, "Certificates" shall mean the Certificates issued on the Initial Closing
Date. The representations and warranties set forth in this Section 2.3 shall
survive the transfer and assignment of the respective Receivables to the Trust
and termination of the rights and obligations of the Servicer pursuant to
Section 10.1. The Transferor hereby represents and warrants to the Trust, with
respect to any Series of Certificates, as of its Closing Date, unless otherwise
stated in such Supplement, that the representations and warranties of the
Transferor set forth in Section 2.3 are true and correct as of such date (for
the purposes of such representations and warranties, "Certificates" shall mean
the Certificates issued on the related Closing Date). Upon discovery by the
Transferor, the Servicer or the Trustee of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the others.
Section 2.4 Representations and Warranties of the Transferor
Relating to the Agreement and the Receivables.
(a) Binding Obligation; Valid Transfer and Assignment. The Transferor
hereby represents and warrants to the Trust that, as of the Initial Closing
Date:
(i) This Agreement constitutes a valid and legally
binding obligation of the Transferor, enforceable against the
Transferor in accordance with its terms, except (A) as may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and the
rights of creditors of business trusts organized under the laws of the
state of its organization, and (B) as may be limited by general
equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing.
<PAGE>
27
(ii) This Agreement constitutes either (A) a valid
transfer, assignment, set over and conveyance to the Trust of all
right, title and interest of the Transferor in and to the Receivables
now existing and hereafter created and arising in connection with the
Accounts (other than Receivables in Additional Accounts), all proceeds
of such Receivables and Insurance Proceeds relating thereto, and such
Receivables and all proceeds thereof and Insurance Proceeds relating
thereto will be held by the Trust free and clear of any Lien of any
Person claiming through or under the Transferor or any of its
Affiliates except for (x) Liens permitted under subsection 2.5(b), (y)
the interest of the Transferor as Holder of the Transferor Certificate
and (z) the Transferor's right, if any, to interest accruing on, and
investment earnings, if any, in respect of the Finance Charge Account,
the Principal Account or any Series Account, as provided in this
Agreement or the related Supplement, or (B) a grant of a security
interest (as defined in the UCC) in such property to the Trust, which
is enforceable with respect to the existing Receivables, the proceeds
thereof and Insurance Proceeds relating thereto upon execution and
delivery of this Agreement, and which will be enforceable with respect
to such 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 Trust in
such property, upon the filing of the financing statement described in
Section 2.1 and in the case of the Receivables hereafter created and
proceeds thereof and Insurance Proceeds relating thereto, upon such
creation, the Trust shall have a first priority perfected security
interest in the Transferor's rights in such property (subject to
Section 9-306 of the UCC), except for Liens permitted under subsection
2.5(b). Neither the Transferor nor any Person claiming through or under
the Transferor shall have any claim to or interest in the Principal
Account, the Finance Charge Account, the Distribution Account or any
Series Account, except for the Transferor's rights to receive interest
accruing on, and investment earnings in respect of, the Finance Charge
Account and Principal Account as provided in this Agreement (or, if
applicable, any Series Account as provided in any Supplement) and, if
this Agreement constitutes the grant of a security interest in such
property, except for the interest of the Transferor in such property as
a debtor for purposes of the UCC.
(b) Eligibility of Receivables. The Transferor hereby
represents and warrants to the Trust as of the Initial Closing Date and as of
each Addition Date, as the case may be, that:
(i) Each Receivable is an Eligible Receivable as of
the Cut-Off Date or the Addition Date, as applicable.
(ii) Each Receivable then existing has been
transferred to the Trust free and clear of any Lien of any Person
claiming through or under the Transferor or any of its Affiliates
(other than Liens permitted under subsection 2.5(b)) and in compliance,
in all material respects, with all Requirements of Law applicable to
the Transferor.
(iii) With respect to each Receivable then existing,
all consents, licenses, approvals or authorizations of or registrations
or declarations with any Governmental Authority
<PAGE>
28
required to be obtained, effected or given by the Transferor in
connection with the conveyance of such Receivable to the Trust have
been duly obtained, effected or given and are in full force and effect.
(iv) On each day on which any new Receivable is
created, the Transferor shall be deemed to represent and warrant to the
Trust that (A) each Receivable created on such day is an Eligible
Receivable, (B) each Receivable created on such day has been conveyed
to the Trust in compliance, in all material respects, with all
Requirements of Law applicable to the Transferor, (C) with respect to
each such Receivable, all consents, licenses, approvals or
authorizations of or registrations or declarations with, any
Governmental Authority required to be obtained, effected or given by
the Transferor in connection with the conveyance of such Receivable to
the Trust have been duly obtained, effected or given and are in full
force and effect and (D) the representations and warranties set forth
in subsection 2.4(a) are true and correct with respect to each
Receivable created on such day as if made on such day.
(v) As of the Initial Closing Date, Schedule 1 to
this Agreement, and as of the applicable Addition Date with respect to
Additional Accounts designated pursuant to Sections 2.6(a) and (b), the
related computer file or microfiche list referred to in Section 2.6, is
an accurate and complete listing in all material respects of all the
Accounts as of the Cut-Off Date, or with respect to Additional
Accounts, as of the applicable Addition Date and the information
contained therein with respect to the identity of such Accounts and the
Receivables existing thereunder is true and correct in all material
respects as of the Cut-Off Date or such applicable Addition Date.
(c) Notice of Breach. The representations and warranties set
forth in this Section 2.4 shall survive the transfer and assignment of the
respective Receivables to the Trust. Upon discovery by the Transferor, the
Servicer or the Trustee of a material breach of any of the representations and
warranties set forth in this Section 2.4, the party discovering such breach
shall give prompt written notice to the other parties mentioned above. The
Transferor agrees to cooperate with the Servicer and the Trustee in attempting
to cure any such breach.
(d) Transfer of Ineligible Receivables.
(i) Automatic Removal. In the event of a breach with respect to a
Receivable of any representations and warranties set forth in subsection
2.4(b)(ii), or in the event that a Receivable is not an Eligible Receivable as a
result of the failure to satisfy the conditions set forth in clause (d) of the
definition of Eligible Receivable, and any of the following three conditions is
met: (A) as a result of such breach or event such Receivable is charged off as
uncollectible or the Trust's rights in, to or under such Receivable or its
proceeds are impaired or the proceeds of such Receivable are not available for
any reason to the Trust free and clear of any Lien; (B) a Lien upon the subject
Receivable (1) arises in favor of the United States of America or any State or
any agency or instrumentality thereof and involves taxes or liens arising under
Title IV of ERISA or (2) has been consented to by the
<PAGE>
29
Transferor, DNB or DNB-La.; or (C) the unsecured short-term debt rating of
Dillard's is not at least "P-1" by Moody's and "A-1" by Standard & Poor's and
the Lien upon the subject Receivable ranks prior to the Lien created pursuant to
this Agreement; then, upon the earlier to occur of the discovery of such breach
or event by the Transferor or the Servicer or receipt by the Transferor of
written notice of such breach or event given by the Trustee or the Servicer,
each such Receivable shall be automatically removed from the Trust on the terms
and conditions set forth in subsection 2.4(d)(iii).
(ii) Removal After Cure Period. In the event of a breach of any of the
representations and warranties set forth in subsection 2.4(b) other than a
breach or event as set forth in clause (d)(i) above, and as a result of such
breach the related Account becomes a Defaulted Account or the Trust's rights in,
to or under the Receivable or its proceeds are impaired or the proceeds of such
Receivable are not available for any reason to the Trust free and clear of any
Lien, then, upon the expiration of 60 days (or such longer period as may be
agreed to by the Trustee in its sole discretion, but in no event later than 120
days) from the earlier to occur of the discovery of any such event by either the
Transferor or the Servicer, or receipt by the Transferor of written notice of
any such event given by the Trustee or Servicer, each such Receivable shall be
removed from the Trust on the terms and conditions set forth in subsection
2.4(d)(iii); provided, however, that no such removal shall be required to be
made if, on any day within such applicable period, such representations and
warranties with respect to such Receivable shall then be true and correct in all
material respects as if such Receivable had been created on such day.
(iii) Procedures for Removal. When the provisions of
subsection 2.4(d)(i) or (ii) above require removal of a Receivable, the
Transferor shall accept reassignment of such Receivable (an "Ineligible
Receivable") by directing the Servicer to deduct the principal balance of each
such Ineligible Receivable from the Principal Receivables in the Trust and to
decrease the Transferor Interest by such amount. On and after the date of such
removal, each Ineligible Receivable shall be deducted from the aggregate amount
of Principal Receivables used in the calculation of any Investor Percentage, the
Transferor Percentage or 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 reduced below the Minimum
Transferor Interest, the Transferor shall immediately, but in no event later
than 10 Business Days after such event, make a deposit in the Excess Funding
Account in immediately available funds in an amount equal to the amount by which
the Transferor Interest would be reduced below the Minimum Transferor Interest.
The portion of such deposit allocated to the Investor Certificates of each
Series shall be distributed to the Investor Certificateholders of each Series in
the manner specified in Article IV, if applicable, on the Distribution Date
relating to the Monthly Period in which such deposit is made. Upon the
reassignment to the Transferor of an Ineligible Receivable, the Trust shall
automatically and without further action be deemed to transfer, assign, set-over
and otherwise convey to the Transferor, without recourse, representation or
warranty, all the right, title and interest of the Trust in and to such
Ineligible Receivable, all monies due or to become due with respect to such
Ineligible Receivable and all proceeds of such Ineligible Receivable and
Insurance Proceeds relating to such Ineligible Receivable allocated to such
Ineligible Receivable pursuant to any Supplement. Such reassigned Ineligible
Receivable shall be treated by the Trust as collected in full as of
<PAGE>
30
the date on which it was transferred. The Trustee shall execute such documents
and instruments of transfer or assignment and take other actions as shall
reasonably be requested by the Transferor to evidence the conveyance of such
Ineligible Receivable pursuant to this subsection 2.4(d)(iii). The obligation of
the Transferor set forth in this subsection 2.4(d)(iii), or the automatic
removal of such Receivable from the Trust, as the case may be, shall constitute
the sole remedy respecting any breach of the representations and warranties set
forth in the above-referenced subsections with respect to such Receivable
available to Certificateholders or the Trustee on behalf of Certificateholders.
(iv) Proceeds Held by Servicer. For the purposes of subsections
2.4(d)(i) and (ii) above, proceeds of a Receivable shall not be deemed to be
impaired hereunder solely because such proceeds are held by the Servicer (if the
Servicer is DNB, DNB-La., Dillard's or a Sub-Servicer) for more than the
applicable period under Section 9-306(3) of the UCC.
(e) Reassignment of Trust Portfolio. In the event of a breach
of any of the representations and warranties set forth in subsection 2.4(a)
which has a material adverse effect on the Holders of the Investor Certificates,
either the Trustee or the Holders of Investor Certificates evidencing Undivided
Interests aggregating more than 50% of the Aggregate Investor Interest, by
notice then given in writing to the Transferor (and to the Trustee and the
Servicer, if given by the Investor Certificateholders), may direct the
Transferor to accept reassignment of an amount of Principal Receivables (as
specified below) within 60 days of such notice (or within such longer period as
may be specified in such notice), and the Transferor shall be obligated to
accept reassignment of such Principal Receivables on a Distribution Date
specified by the Transferor (such Distribution Date, the "Reassignment Date")
occurring within such applicable period on the terms and conditions set forth
below; provided, however, that no such reassignment shall be required to be made
if, at any time during such applicable period, the representations and
warranties contained in subsection 2.4(a) shall then be true and correct in all
material respects. The Transferor shall deposit on the Transfer Date (in New
York Clearing House, next day funds) preceding the Reassignment Date an amount
equal to the reassignment deposit amount for such Receivables in the
Distribution Account or Series Account, as provided in the related Supplement,
for distribution to the Investor Certificateholders pursuant to Article XII. The
reassignment deposit amount with respect to each Series for such reassignment,
unless otherwise stated in the related Supplement, shall be equal to (i) the
Investor Interest and Enhancement Invested Amount, if any, of such Series at the
end of the day on the last day of the Monthly Period preceding the Reassignment
Date, less the amount, if any, previously allocated for payment of principal to
such Certificateholders on the related Distribution Date in the Monthly Period
in which the Reassignment Date occurs, plus (ii) an amount equal to all interest
accrued but unpaid on the Investor Certificates of such Series at the applicable
Certificate Rate through the Reassignment Date, less the amount, if any,
previously allocated for payment of interest to the Certificateholders of such
Series on the related Distribution Date in the Monthly Period in which the
Reassignment Date occurs. Payment of the reassignment deposit amount with
respect to each Series, and all other amounts in the Distribution Account or the
applicable Series Account in respect of the preceding Monthly Period, shall be
considered a prepayment in full of the Receivables represented by the Investor
Certificates on the Distribution Date following the Transfer Date on which such
amount has been deposited in full into the
<PAGE>
31
Distribution Account or the applicable Series Account, the Receivables and all
monies due or to become due with respect to such Receivables and all proceeds of
the Receivables and Insurance Proceeds relating to such Receivables and
Recoveries (if any) allocable to the Series shall be released to the Transferor
after payment of all amounts otherwise due hereunder on or prior to such dates
and the Trustee shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, representation or warranty, as shall
be prepared by and as are reasonably requested by the Transferor to vest in the
Transferor, or its designee or assignee, all right, title and interest of the
Trust in and to the Receivables, all monies due or to become due with respect to
such Receivables and all proceeds of the Receivables and Insurance Proceeds
relating to such Receivables and Recoveries (if any) allocable to the Series. If
the Trustee or the Investor Certificateholders give notice directing the
Transferor to accept reassignment as provided above, the obligation of the
Transferor to accept reassignment of the Receivables and pay the reassignment
deposit amount pursuant to this subsection 2.4(e) shall constitute the sole
remedy respecting a breach of the representations and warranties contained in
subsection 2.4(a) available to the Investor Certificateholders or the Trustee on
behalf of the Investor Certificateholders.
Section 2.5 Covenants of the Transferor. The Transferor hereby
covenants that:
(a) Receivables to be Accounts or General Intangibles. Except
in connection with the enforcement thereof, the Transferor will take no
action to cause any Receivable to be evidenced by any instrument (as
defined in the UCC). Each Receivable shall be payable pursuant to a
contract which does not create a Lien on any goods purchased
thereunder. The Transferor will take no action to cause any Receivable
to be anything other than an "account" or "general intangible" (as
defined in the UCC).
(b) Security Interests. Except for the conveyances hereunder,
the Purchase Agreements and the Original Purchase Agreements, the
Transferor will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on
any Receivable, whether now existing or hereafter created, or any
interest therein; the Transferor will immediately notify the Trustee of
the existence of any Lien on any Receivable, and the Transferor shall
defend the right, title and interest of the Trust in, to and under the
Receivables, whether now existing or hereafter created, against all
claims of third parties claiming through or under the Transferor;
provided, however, that nothing in this subsection 2.5(b) shall prevent
or be deemed to prohibit the Transferor from suffering to exist upon
any of the Receivables any Liens for municipal or other local taxes if
such taxes shall not at the time be due and payable or if the
Transferor shall currently be contesting the validity thereof in good
faith by appropriate proceedings and shall have set aside on its books
adequate reserves with respect thereto.
(c) Finance Charges and Other Fees. The Transferor, except as
otherwise required by any Requirement of Law, or as is deemed by the
Servicer to be necessary in order for an Originator to maintain its
credit card business, based upon a good faith assessment by the
Servicer, in its sole discretion, of the nature of the competition in
the credit card business, shall
<PAGE>
32
not at any time reduce the Periodic Finance Charges assessed on any
Receivable or other fees on any Account if, as a result of such
reduction, the Servicer's reasonable expectation of the Portfolio
Yield as of such date (after giving effect to any concurrent exercise
of a discount option) would be less than the Base Rate.
(d) Credit Card Agreements and Account Guidelines. The
Transferor shall cause the Originators to comply with and perform their
respective obligations under the Credit Card Agreements relating to the
Accounts and the Credit Card Guidelines except insofar as any failure
to comply or perform would not materially and adversely affect the
rights of the Trust or the Certificateholders hereunder or under the
Certificates. The Transferor may permit an Originator to change the
terms and provisions of its Credit Card Agreements or the Credit Card
Guidelines in any respect (including, without limitation, the reduction
of the required minimum monthly payment, the calculation of the amount,
or the timing, of charge offs and the Periodic Finance Charges and
other fees to be assessed thereon) only if such change (i) would not,
in the reasonable belief of such Originator, cause a Pay Out Event to
occur, and (ii) is made applicable to the comparable segment of the
revolving credit card accounts owned by such Originator which have
characteristics the same as, or substantially similar to, the Accounts
that are the subject of such change, except as otherwise restricted by
an endorsement, sponsorship, or other agreement between such Originator
and an unrelated third party or by the terms of the Credit Card
Agreements.
(e) Account Allocations.
(i) In the event that the Transferor is unable for
any reason to transfer Receivables to the Trust in accordance with the
provisions of this Agreement (including, without limitation, by reason
of the application of the provisions of Section 9.2 or an order by any
federal governmental agency having regulatory authority over the
Transferor or any court of competent jurisdiction that the Transferor
not transfer any additional Principal Receivables to the Trust) then,
in any such event, (A) the Transferor agrees to allocate and pay to the
Trust, after the date of such inability, all Collections with respect
to Principal Receivables, and all amounts which would have constituted
Collections with respect to Principal Receivables but for the
Transferor's inability to transfer such Receivables (up to an aggregate
amount equal to the amount of Principal Receivables in the Trust on
such date); (B) the Transferor agrees to have such amounts applied as
Collections in accordance with Article IV; and (C) for only so long as
all Collections and all amounts which would have constituted
Collections are allocated and applied in accordance with clauses (A)
and (B) above, Principal Receivables (and all amounts which would have
constituted Principal Receivables but for the Transferor's inability to
transfer Receivables to the Trust) that are written off as
uncollectible in accordance with this Agreement shall continue to be
allocated in accordance with Article IV, and all amounts that would
have constituted Principal Receivables but for the Transferor's
inability to transfer Receivables to the Trust shall be deemed to be
Principal Receivables for the purpose of calculating (i) the applicable
Investor Percentage with respect to any Series and (ii) the Aggregate
Investor
<PAGE>
33
Percentage thereunder. If the Transferor is unable pursuant to any
Requirement of Law to allocate Collections as described above, the
Transferor agrees that it shall in any such event allocate, after the
occurrence of such event, payments on each Account with respect to
the principal balance of such Account first to the oldest principal
balance of such Account and to have such payments applied as
Collections in accordance with Article IV. The parties hereto agree
that Finance Charge Receivables, whenever created, accrued in respect
of Principal Receivables that have been conveyed to the Trust, or that
would have been conveyed to the Trust but for the above described
inability to transfer such Receivables, shall continue to be a part
of the Trust notwithstanding any cessation of the transfer of
additional Principal Receivables to the Trust and that Collections
with respect thereto shall continue to be allocated and paid in
accordance with Article IV.
(ii) In the event that, pursuant to subsection
2.4(d), the Transferor accepts reassignment of an Ineligible Receivable
as a result of a breach of the representations and warranties in
subsection 2.4(b) relating to such Receivable, then, in any such event,
the Transferor agrees to account for payments received with respect to
such Ineligible Receivable separately from its accounting for
Collections on Principal Receivables retained by the Trust. If payments
received from or on behalf of an Obligor are not specifically
applicable either to an Ineligible Receivable of such Obligor
reassigned to the Transferor or to the Receivables of such Obligor
retained in the Trust, then the Transferor agrees to allocate payments
proportionately based on the total amount of Principal Receivables of
such Obligor retained in the Trust and the total amount owing by such
Obligor on any Ineligible Receivables reassigned to the Transferor, and
the portion allocable to any Principal Receivables retained in the
Trust shall be treated as Collections and deposited in accordance with
the provisions of Article IV.
(f) Conveyance of Accounts. The Transferor shall permit the
transfer of Accounts (i) directly to any Affiliate of an Originator
that executes an agreement assuming with respect to such Accounts the
obligations and duties of such Originator or indirectly to any
Affiliate in one or more substantially simultaneous transactions among
such Originator, such Affiliate and any other Affiliates of such
Originator or (ii) to any other Person, provided that such other Person
executes such an agreement and the Rating Agency Condition is
satisfied; provided, however, that the Transferor shall not prohibit
such Originator from conveying, assigning, exchanging or otherwise
transferring the Accounts in connection with a transaction complying
with the provisions of the DNB Purchase Agreement.
Section 2.6 Addition of Accounts.
(a) (i) If, (A) as of the end of any Monthly Period, the
Transferor Interest is less than the Minimum Transferor Interest for that period
the Transferor shall designate additional eligible accounts from the Originators
("Additional Accounts") to be included as Accounts in a sufficient amount such
that the Transferor Interest after giving effect to such addition will be at
least equal to the Minimum Transferor Interest, or (B) as of the end of any
Monthly Period, the sum of the aggregate amount of
<PAGE>
34
Principal Receivables is less than the Minimum Aggregate Principal Receivables
(as adjusted for any Series having a Companion Series as described in the
Supplement for such Series), the Transferor shall designate Additional Accounts
to be included as Accounts in a sufficient amount such that the aggregate amount
of Principal Receivables will be equal to or greater than the Minimum Aggregate
Principal Receivables. Receivables from such Additional Accounts shall be
transferred to the Trust on or before the tenth Business Day following the end
of such Monthly Period.
(ii) In lieu of, or in addition to, designating
Additional Accounts pursuant to clause (i) above, the Transferor may, subject to
the conditions specified in paragraph (c) below, convey to the Trust
participations representing undivided interests in a pool of assets primarily
consisting of receivables arising under revolving credit card accounts or other
revolving credit accounts owned by the Transferor or any Affiliate of any
Transferor and collections thereon ("Participations"). The addition of
Participations in the Trust pursuant to this paragraph (a) or paragraph (b)
below shall be effected by an amendment hereto, dated the applicable Addition
Date, pursuant to subsection 13.1(a).
(b) In addition to its obligation under subsection 2.6(a), the
Transferor may, but shall not be obligated to, designate from time to time
Additional Accounts of the Transferor to be included as Accounts or
Participations to be included as Trust Assets, in either case as of the
applicable Addition Date.
(c) The Transferor agrees that any such transfer of
Receivables from Additional Accounts, under subsection 2.6(a) or (b) shall
satisfy the following conditions (to the extent provided below):
(i) On or before the fifth Business Day prior to the
Addition Date with respect to additions pursuant to subsection 2.6(a)
and on or before the tenth Business Day prior to the Addition Date with
respect to additions pursuant to subsection 2.6(b) (the "Notice Date"),
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 to be transferred.
(ii) The Transferor (A) shall transfer to the Trust
Receivables only in Eligible Accounts, and (B) shall satisfy the
applicable condition in accordance with subsection 2.6(e) if such
designation of Additional Accounts is made pursuant to subsection
2.6(b) or (d) and if the addition of such Additional Accounts
(1) would cause the quotient (the "Annual Quotient") of (x)
the sum of the Annual Net Account Additions after giving
effect to such addition plus the related Base Amount divided
by (y) the related Base Amount to exceed |X|, or
<PAGE>
35
(2) would cause the quotient (the "Quarterly Quotient") of (x)
the sum of the Quarterly Net Account Additions after giving
effect to such addition plus the related Base Amount divided
by (y) the related Base Amount to exceed |X|;
(iii) On or before the Addition Date, 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
Investor Certificateholders) in substantially the form of Exhibit B
(the "Assignment") and the Transferor shall have indicated in its
computer files that the Receivables created in connection with the
Additional Accounts have been transferred to the Trust and, within five
Business Days thereafter, or as otherwise agreed upon between the
Transferor and the Trustee, the Transferor shall have delivered to the
Trustee a computer file or microfiche list containing a true and
complete list of all Additional Accounts, adequately identified by
billing cycle and/or account number and the aggregate amount of the
Receivables in such Additional Accounts, as of the Addition Date, which
computer file or microfiche list shall be as of the date of such
Assignment incorporated into and made a part of such Assignment and
this Agreement.
(iv) The Transferor shall represent and warrant that
(x) each Additional Account is, as of 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 Investor Certificateholders were utilized in selecting the
Additional Accounts from the available Eligible Accounts from the
Credit Card Portfolio, and (z) as of the Addition Date, the Transferor
is not insolvent.
(v) The Transferor shall represent and warrant that, as
of the Addition Date, the Assignment constitutes either (x) a valid
transfer and assignment to the Trust of all right, title and interest
of the Transferor in and to the Receivables then existing and
thereafter created in the Additional Accounts, and all proceeds (as
defined in the UCC) of such Receivables and Insurance Proceeds relating
thereto and such Receivables and all proceeds thereof and Insurance
Proceeds relating thereto will be held by the Trust free and clear of
any Lien of any Person claiming through or under the Transferor or any
of its Affiliates, except for (i) Liens permitted under subsection
2.5(b), (ii) the interest of the Transferor as Holder of the Transferor
Certificate and (iii) the Transferor's right to receive interest
accruing on, and investment earnings in respect of, the Finance Charge
Account and the Principal Account, or any Series Account as provided in
this Agreement and any related Supplement or (y) a grant of a security
interest (as defined in the UCC), in such property to the Trust, which
is enforceable with respect to then existing Receivables of the
Additional Accounts, the proceeds (as defined in the UCC), thereof and
Insurance Proceeds relating thereto upon the conveyance of such
Receivables to the Trust, and which will be enforceable with respect to
the Receivables thereafter created in respect of Additional Accounts
conveyed on such Addition Date, the proceeds (as defined in the UCC),
thereof and Insurance Proceeds relating thereto upon such creation; and
(z) if the Assignment constitutes the grant of a security interest to
the Trust in such
<PAGE>
36
property, upon the filing of a financing statement as described in
Section 2.1 with respect to such Additional Accounts and in the case
of the Receivables thereafter created in such Additional Accounts and
the proceeds (as defined in the UCC), thereof, and Insurance Proceeds
relating thereto, upon such creation, the Trust shall have a first
priority perfected security interest in such property (subject to
Section 9-306 of the UCC), except for Liens permitted under
subsection 2.5(b). (v) The Transferor shall deliver an Officer's
Certificate substantially in the form of Schedule 2 to Exhibit B to
the Trustee confirming the items set forth in paragraph (iii) above.
(vi) The Transferor shall deliver an Opinion of
Counsel with respect to the Receivables in the Additional Accounts to
the Trustee substantially in the form of Exhibit E.
(vii) With respect to a Participation included as
Trust Assets pursuant to subsection 2.6(b), the Transferor shall
deliver a Tax Opinion.
(d) In addition to the occasional designation of Additional
Accounts as required or permitted pursuant to subsections 2.6(a) and (b) above,
the Transferor agrees that each new Account originated in the normal course of
an Originator's business and purchased by the Transferor pursuant to a Purchase
Agreement shall automatically be included as an Account (and the Receivables
arising thereunder automatically transferred to the Trust) effective on the
tenth Business Day following the end of the Monthly Period in which such account
is originated and purchased; 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, (ii) the inclusion in the Trust
of the Receivables in such Account, if such Accounts had been designated by the
Transferor pursuant to subsection 2.6(b), would have caused the limitations set
forth in subsection 2.6(c)(ii) to be exceeded (unless the Transferor shall have
satisfied any applicable condition to such addition), or (iii) the Transferor
otherwise designates such account as an account which is not to be included as
an Account pursuant to this subsection 2.6(d). On or before the fifth Business
Day of each month next succeeding a calendar month in which Accounts were
included pursuant to the preceding sentence, the Transferor shall (i) indicate
in its books and records, including the computer files of the receivables, that
the Receivables created in connection with such included Accounts have been
transferred to the Trust, and (ii) shall deliver to the Trustee a computer file
or microfiche list containing a true and complete list of all such included
Accounts identified by account number and by the Receivables balance as of the
end of such calendar month, which computer file or microfiche list shall be
delivered to the Trustee as confidential and proprietary and incorporated into
and made a part of this Agreement. The Transferor, at its option, may, by
providing written notice to the Trustee and the Servicer, terminate or suspend
the automatic inclusion of Additional Accounts at any time.
(e) (i) The Rating Agency Condition shall be applicable and
must be satisfied whenever the Quarterly Quotient exceeds the amount set forth
in subsection 2.6(c)(ii)(B)(2) or whenever the Annual Quotient exceeds |X|.
<PAGE>
37
(ii) If the Annual Quotient exceeds |X| but is less than or
equal to |X|, the Transferor may at its option satisfy either the Rating Agency
Condition or the Additional Accounts Enhancement Increase Condition. If no
outstanding Series specifies an Additional Accounts Enhancement Increase
Condition, then this clause (ii) shall not be applicable to the addition of
Additional Accounts.
Section 2.7 Removal of Accounts.
(a) Subject to the conditions set forth below, the Transferor
may, but shall not be obligated to, designate Receivables from Accounts for
deletion and removal ("Removed Accounts") from the Trust; provided, however,
that the Transferor shall not make more than one such designation in any Monthly
Period. On or before the fifth Business Day (the "Removal Notice Date") prior to
the date on which the designated Removed Accounts will be reassigned by the
Trustee to the Transferor (the "Removal Date"), the Transferor shall give the
Trustee and the Servicer written notice that the Receivables from such Removed
Accounts are to be reassigned to the Transferor.
(b) The Transferor shall 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 on any Removal Date shall not, in the reasonable belief of the
Transferor, (a) cause a Pay Out Event to occur; provided, however, that
for the purposes of this subsection 2.7(b)(i), the Receivables of each
Removed Account shall be considered to have been removed as of the
Removal Date, (b) cause the Transferor Interest to be less than the
Minimum Transferor Interest on such Removal Date, (c) cause the sum of
the aggregate amount of Principal Receivables and the Excess Funding
Amount to be less than the Minimum Aggregate Principal Receivables, or
(d) result in the failure to make any payment specified in the related
Supplement with respect to any Series.
(ii) On or prior to the Removal Date, the Transferor
shall have delivered to the Trustee for execution a written assignment
in substantially the form of Exhibit G (the "Reassignment") and, within
five Business Days thereafter, or as otherwise agreed upon between the
Transferor and the Trustee, the Transferor shall have delivered to the
Trustee 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 as of
the Removal Date, which computer file or microfiche list shall as of
the Removal Date modify and amend and be made a part of this Agreement.
(iii) The Transferor shall represent and warrant that
no selection procedures believed by the Transferor to be materially
adverse to the interests of the Certificateholders were utilized in
selecting the Removed Accounts to be removed from the Trust.
(iv) Such other conditions as set forth in the
related Supplement.
<PAGE>
38
(v) On or before the tenth Business Day prior to the
Removal Date, each Rating Agency shall have received notice of such
proposed removal of the Receivables of such Accounts and the Transferor
shall have received written confirmation from each Rating Agency that
such removal will satisfy the Rating Agency Condition; and
(vi) The Transferor shall have delivered to the
Trustee an Officer's Certificate confirming the items set forth in
clauses (i) through (v) above. The Trustee may conclusively rely on
such Officer's Certificate, shall have no duty to make inquiries with
regard to the matters set forth therein and shall incur no liability in
so relying.
Upon satisfaction of the above conditions, the Trustee shall
execute and deliver the Reassignment to the Transferor, and the Receivables from
the Removed Accounts shall no longer constitute a part of the Trust.
Section 2.8 Discount Option. The Transferor shall have the
option to designate at any time a fixed or floating percentage (the "Discount
Percentage"), of the amount of Receivables arising in the Accounts on or after
the date such designation becomes effective that would otherwise constitute
Principal Receivables (prior to subtracting from Principal Receivables, Finance
Charge Receivables that are Discount Option Receivables) to be treated as
Finance Charge Receivables. The Transferor may from time to time increase
(subject to the limitations described below), reduce or eliminate the Discount
Percentage for Discount Option Receivables arising in the Accounts on and after
the date of such change. The Transferor must provide 30 days' prior written
notice to the Servicer, the Trustee, each Credit Enhancement Provider and each
Rating Agency of any such exercise of the discount option or increase, reduction
or elimination of the Discount Percentage, and such exercise of the discount
option or increase, reduction or elimination of the Discount Percentage shall
become effective on the date specified therein only if (i) the Transferor has
delivered to the Trustee an Officer's Certificate to the effect that, based on
the facts known to such officer at the time, the Transferor reasonably believes
that such increase, reduction or elimination shall not at the time of its
occurrence cause a Pay Out Event, or an event which with notice or the lapse of
time would constitute a Pay Out Event, to occur with respect to any Series and
(ii) the Transferor, the Servicer and the Trustee shall have received written
confirmation from each Rating Agency that the Rating Agency Condition is
satisfied.
On each Date of Processing after the date on which the
Transferor's exercise of its discount option takes effect, the Transferor shall
treat Discount Option Receivables Collections as Collections of Finance Charge
Receivables.
ARTICLE III
ADMINISTRATION AND
SERVICING OF RECEIVABLES
<PAGE>
39
Section 3.1 Acceptance of Appointment and Other Matters Relating to the
Servicer.
(a) DNB agrees to act as the Servicer under this Agreement.
The Investor Certificateholders of each Series by their acceptance of the
related Certificates consent to DNB acting as Servicer.
(b) The Servicer shall service and administer the Receivables
and shall collect payments due under the Receivables in accordance with its
customary and usual servicing procedures for servicing credit card receivables
comparable to the Receivables and in accordance with the Credit Card Guidelines
and shall have full power and authority, acting alone or through any party
properly designated by it hereunder, to do any and all things in connection with
such servicing and administration which it may deem necessary or desirable.
Without limiting the generality of the foregoing and subject to Section 10.1,
the Servicer is hereby authorized and empowered (i) to make withdrawals from the
Collection Account as set forth in this Agreement, (ii) unless such power and
authority is revoked by the Trustee on account of the occurrence of a Servicer
Default pursuant to Section 10.1, to instruct the Trustee to make withdrawals
and payments, from the Finance Charge Account, the Principal Account, the Excess
Funding Account and any Series Account, in accordance with such instructions as
set forth in this Agreement, (iii) unless such power and authority is revoked by
the Trustee on account of the occurrence of a Servicer Default pursuant to
Section 10.1, to instruct the Trustee in writing, as set forth in this
Agreement, (iv) to execute and deliver, on behalf of the Trust for the benefit
of the Certificateholders, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Receivables and, after the
delinquency of any Receivable and to the extent permitted under and in
compliance with applicable law and regulations, to commence enforcement
proceedings with respect to such Receivables and (v) to make any filings,
reports, notices, applications, registrations with, and to seek any consents or
authorizations from the Securities and Exchange Commission and any state
securities authority on behalf of the Trust as may be necessary or advisable to
comply with any federal or state securities or reporting requirements. The
Trustee agrees that it shall promptly follow the instructions of the Servicer to
withdraw funds from the Principal Account, the Finance Charge Account, the
Excess Funding Account, or any Series Account and to take any action required
under any Credit Enhancement at such time as required under this Agreement. The
Trustee shall execute at the Servicer's written request such documents prepared
by the Transferor and acceptable to the Trustee as may be necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder.
(c) In the event that the Transferor is unable for any reason
to transfer Receivables to the Trust in accordance with the provisions of this
Agreement (including, without limitation, by reason of the application of the
provisions of Section 9.2 or the order of any federal governmental agency having
regulatory authority over the Transferor or any court of competent jurisdiction
that the Transferor not transfer any additional Principal Receivables to the
Trust) then, in any such event, (A) the Servicer agrees to allocate, after such
date, all collections with respect to Principal Receivables, and all amounts
which would have constituted Collections with respect to Principal Receivables
but for the Transferor's inability to transfer such Receivables (up to an
aggregate
<PAGE>
40
amount equal to the aggregate amount of Principal Receivables in the Trust as of
such date) in accordance with subsection 2.5(e); (B) the Servicer agrees to
apply such amounts as Collections in accordance with Article IV, and (C) for
only so long as all Collections and all amounts which would have constituted
Collections are allocated and applied in accordance with clauses (A) and (B)
above, Principal Receivables and all amounts which would have constituted
Principal Receivables but for the Transferor's inability to transfer Receivables
to the Trust that are written off as uncollectible in accordance with this
Agreement shall continue to be allocated in accordance with Article IV and all
amounts which would have constituted Principal Receivables but for the
Transferor's inability to transfer Receivables to the Trust shall be deemed to
be Principal Receivables for the purpose of calculating the applicable Investor
Percentage thereunder. If the Servicer is unable pursuant to any Requirement of
Law to allocate payments on the Accounts as described above, the Servicer agrees
that it shall in any such event allocate, after the occurrence of such event,
payments on each Account with respect to the principal balance of such Account
first to the oldest principal balance of such Account and to have such payments
applied as Collections in accordance with Article IV. The parties hereto agree
that Finance Charge Receivables, whenever created, accrued in respect of
Principal Receivables which have been conveyed to the Trust, or which would have
been conveyed to the Trust but for the above described inability to transfer
such Receivables, shall continue to be a part of the Trust notwithstanding any
cessation of the transfer of additional Principal Receivables to the Trust and
that Collections with respect thereto shall continue to be allocated and paid in
accordance with Article IV.
(d) In the event that pursuant to subsection 2.4(d), the
Transferor accepts reassignment of an Ineligible Receivable as a result of a
breach of the representations and warranties in subsection 2.4(b) relating to
such Receivable, then, in any such event, the Servicer agrees to account for
payments received with respect to such Ineligible Receivable separately from its
accounting for Collections on Principal Receivables retained by the Trust. If
payments received from or on behalf of an Obligor are not specifically
applicable either to an Ineligible Receivable of such Obligor reassigned to the
Transferor or to Receivables of such Obligor retained in the Trust, then the
Servicer agrees to allocate payments proportionately based on the total amount
of Principal Receivables of such Obligor retained in the Trust and the total
amount owing by such Obligor on any Ineligible Receivables purchased by the
Transferor, and the portion allocable to any Principal Receivables retained in
the Trust shall be treated as Collections and deposited in accordance with the
provisions of Article IV.
(e) The Servicer shall not be obligated to use separate
servicing procedures, offices, employees or accounts for servicing the
Receivables from the procedures, offices, employees and accounts used by the
Servicer in connection with servicing other credit card receivables.
Section 3.2 Servicing Compensation. As compensation for its
servicing activities hereunder and reimbursement for its expenses as set forth
in the immediately following paragraph, the Servicer shall be entitled to
receive a servicing fee prior to the termination of the Trust pursuant to
Section 12.1. The Servicing Fee shall be payable, with respect to each Series,
at the times and in the amounts set forth in the related Supplement. The
Servicing Fee shall be allocated between the Investor
<PAGE>
41
Certificates (the "Investor Servicing Fee") and the Holder of the Transferor
Certificate (the "Transferor Servicing Fee").
The Servicer's expenses include the amounts due to the Trustee
pursuant to Section 11.5 and the reasonable fees and disbursements of
independent public accountants and all other expenses incurred by the Servicer
in connection with its activities hereunder; provided, however that the Servicer
shall not be liable for any liabilities, costs or expenses of the Trust, the
Investor Certificateholders or the Certificate Owners arising under any tax law,
including without limitation any federal, state or local income or franchise
taxes 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).
The Servicer shall be required to pay such expenses for its own account and
shall not be entitled to any payment therefor other than the servicing fee
specified herein.
Section 3.3 Representations and Warranties of the Servicer.
DNB, as initial Servicer, hereby makes, and any successor Servicer by its
appointment hereunder shall make, the following representations and warranties
on which the Trustee has relied in accepting the Receivables in Trust and in
authenticating the Certificates issued on the Initial Closing Date:
(a) Organization and Good Standing. The Servicer is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has full corporate power,
authority and legal right to own its properties and conduct its credit
card business as such properties are presently owned and as such
business is presently conducted, and to execute, deliver and perform
its obligations under this Agreement.
(b) Due Qualification. The Servicer is duly qualified to do
business and is in good standing (or is exempt from such requirement)
and has obtained all necessary licenses and approvals, except to the
extent that the failure so to qualify or register would not have a
material adverse effect on the Servicer's ability to perform its
obligations hereunder.
(c) Due Authorization. The execution, delivery, and
performance of this Agreement have been duly authorized by the Servicer
by all necessary corporate action on the part of the Servicer.
(d) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Servicer, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereinafter in effect, affecting the enforcement of
creditors' rights in general or the rights of creditors of national
banking associations.
(e) No Violation. The execution and delivery of this Agreement
by the Servicer, and the performance of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof applicable to
the Servicer, will not conflict with, violate, result in any breach of
<PAGE>
42
any of the material terms and provisions of, or constitute (with or
without notice or lapse of time or both) a default under, any
Requirement of Law applicable to the Servicer or any indenture,
contract, agreement, mortgage, deed of trust or other instrument to
which the Servicer is a party or by which it is bound except to the
extent that the same could not reasonably be expected to have a
material adverse effect on the Certificateholders or any Credit
Enhancement Provider.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Servicer, threatened against
the Servicer before any court, regulatory body, administrative agency
or other tribunal or governmental instrumentality seeking to prevent
the issuance of the Certificates or the consummation of any of the
transactions contemplated by this Agreement, seeking any determination
or ruling that, in the reasonable judgment of the Servicer, would
materially and adversely affect the performance by the Servicer of its
obligations under this Agreement, or seeking any determination or
ruling that would materially and adversely affect the validity or
enforceability of this Agreement.
(g) Compliance with Requirements of Law. The Servicer shall
duly satisfy all obligations on its part to be fulfilled under or in
connection with each Receivable and the related Account, will maintain
in effect all qualifications required under Requirements of Law in
order to service properly each Receivable and the related Account and
will comply in all material respects with all other Requirements of Law
in connection with servicing each Receivable and the related Account
the failure to comply with which would have a material adverse effect
on the Certificateholders or any Credit Enhancement Provider.
Section 3.4 Reports and Records for the Trustee.
(a) Daily Reports. On each Business Day during any period
during which the Servicer is required to make daily deposits to the Collection
Account pursuant to Section 4.3(a), the Servicer shall prepare and make
available at the office of the Servicer for inspection by the Trustee a record
setting forth (i) the aggregate amount of Collections processed by the Servicer
on the preceding Business Day and (ii) the aggregate amount of Receivables as of
the close of business on the preceding Business Day.
(b) Monthly Servicer's Certificate. Unless otherwise stated in
the related Supplement with respect to any Series, on each Determination Date
the Servicer shall forward, as provided in Section 13.5, to the Trustee, the
Paying Agent, any Credit Enhancement Provider and each Rating Agency, a
certificate of a Servicing Officer in the form of Exhibit C (which includes the
Schedule thereto specified as such in each Supplement) setting forth (i) the
aggregate amount of Collections processed during the preceding Monthly Period,
(ii) the aggregate amount of the applicable Investor Percentage of Collections
of Principal Receivables processed by the Servicer pursuant to Article IV during
the preceding Monthly Period with respect to each Series then outstanding, (iii)
the aggregate amount of the applicable Investor Percentage of Collections of
Finance Charge Receivables processed
<PAGE>
43
by the Servicer pursuant to Article IV during the preceding Monthly Period with
respect to each Series then outstanding, (iv) the aggregate amount of
Receivables processed as of the end of the last day of the preceding Monthly
Period, (v) the balance on deposit in the Finance Charge Account, the Principal
Account or any Series Account applicable to any Series then outstanding on such
Determination Date with respect to Collections processed by the Servicer during
the preceding Monthly Period, (vi) the aggregate amount, if any, of withdrawals,
drawings or payments under any Credit Enhancement, if any, for each Series then
outstanding required to be made with respect to the previous Monthly Period in
the manner provided in the related Supplement, (vii) the sum of all amounts
payable to the Investor Certificateholders of each Series (or for a Series of
more than one Class, each such Class) on the succeeding Distribution Date in
respect of Certificate Principal and Certificate Interest with respect to such
preceding monthly Period and (viii) such other matters as are set forth in
Exhibit C.
Section 3.5 Annual Servicer's Certificate. On or before March
31 of each calendar year, beginning with March 31, 2000, the Servicer will
deliver, as provided in Section 13.5, to the Trustee, any Credit Enhancement
Provider and the Rating Agency, an Officer's Certificate substantially in the
form of Exhibit D stating that (a) a review of the activities of the Servicer
during the twelve month period ending on December 31 of the preceding calendar
year, or for the initial period, from the Closing Date until December 31, 1999,
and of its performance under this Agreement was made under the supervision of
the officer signing such certificate and (b) to the best of such Officer's
knowledge, based on such review, the Servicer has fully performed all its
obligations under this Agreement throughout such period, or, if there has been a
default in the performance of any such obligation, specifying each such default
known to such officer and the nature and status thereof. A copy of such
certificate may be obtained by any Investor Certificateholder by a request in
writing to the Trustee addressed to the Corporate Trust office.
Section 3.6 Annual Independent Accountants' Servicing Report.
(a) On or before March 31 of each calendar year, beginning
with March 31, 2000, the Servicer shall cause a firm of nationally recognized
independent certified public accountants (who may also render other services to
the Servicer, DNB, DNB-La., Dillard's or the Transferor) to furnish, as provided
in Section 13.5, a report addressed to the Trustee, any Credit Enhancement
Provider and the Transferor, to the effect that such 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. A copy of
such report shall be distributed by the Trustee to the Rating Agency and will be
available for distribution to Certificateholders upon written request therefor
addressed to the Trustee at the Corporate Trust Office.
(b) On or before March 31 of each calendar year, beginning
with March 31, 2000, the Servicer shall cause a firm of nationally recognized
independent certified public accountants (who
<PAGE>
44
may also render other services to the Servicer, DNB, DNB-La., Dillard's or the
Transferor) to furnish, as provided in Section 13.5, a report, prepared using
generally accepted attestation standards, addressed to the Trustee, any Credit
Enhancement Provider and the Transferor, to the effect that they have compared
the amounts set forth in the monthly certificates forwarded by the Servicer
pursuant to subsection 3.4(c) during the period covered by such report (which
shall be the twelve-month period ending on December 31 of the preceding calendar
year, or for the initial period, from the Closing Date until December 31, 1999
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.
Additionally, such firm shall recalculate the mathematical accuracy of amounts
derived in the monthly certificates. A copy of such report shall be distributed
by the Trustee to the Rating Agency and will be available for distribution to
Certificateholders upon written request therefor addressed to the Trustee at the
Corporate Trust Office.
Section 3.7 Tax Treatment. The Transferor has structured this
Agreement and the Investor Certificates with the intention that the Investor
Certificates will qualify under applicable federal, state, local and foreign tax
law as indebtedness. The Transferor, the Servicer, the Holder of the Transferor
Certificate, each Investor Certificateholder, and each Certificate Owner, agree
to treat and to take no action inconsistent with the treatment of the Investor
Certificates (or beneficial interest therein) as indebtedness for purposes of
federal, state, local and foreign income or franchise taxes and any other tax
imposed on or measured by income. Each Investor Certificateholder and the Holder
of the Transferor Certificate, by acceptance of its Certificate and each
Certificate Owner, by acquisition of a beneficial interest in a Certificate,
agree to be bound by the provisions of this Section 3.7. Each Certificateholder
agrees that it will cause any Certificate Owner acquiring an interest in a
Certificate through it to comply with this Agreement as to treatment as
indebtedness under applicable tax law, as described in this Section 3.7.
Section 3.8 Notices to the Transferor. In the event that DNB
is no longer acting as Servicer, any Successor Servicer appointed pursuant to
Section 10.2 shall deliver or make available to the Transferor each certificate
and report required to be prepared, forwarded or delivered thereafter pursuant
to Sections 3.4, 3.5 and 3.6.
Section 3.9 Sub-Servicing. The Servicer may appoint any
Affiliate as a sub-servicer (each, a "Sub-Servicer") hereunder, provided,
however, that such appointment shall not relieve the Servicer of its duties
hereunder. Each duly appointed Sub-Servicer is hereby authorized to take any
action which is authorized to be taken by the Servicer hereunder. The Servicer
hereby appoints each of DNB-La. and MCC as a Sub-Servicer hereunder.
Any amounts received by a Sub-Servicer in respect of a
Receivable shall be deemed to have been received by the Servicer whether or not
actually received by it. The Servicer shall supervise, monitor and oversee the
servicing of the Receivables by the Sub-Servicers and the performance by the
Sub-Servicers of all services, duties, responsibilities and obligations that are
to be observed or performed by the Sub-Servicers. Upon the termination or
resignation of the Servicer in accordance with the terms hereof, the services,
duties, responsibilities and obligations of the Sub-Servicers
<PAGE>
45
hereunder shall be terminated. As compensation for the performance of its
obligations as a Sub-Servicer under this Agreement, each Sub-Servicer shall be
entitled to receive a fee from the Servicer in such amounts as shall be
separately agreed between the Servicer and such Sub-Servicer.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Certificateholders. Each Series of
Investor Certificates shall represent Undivided Interests in the Trust,
including the benefits of any Credit Enhancement issued with respect to such
Series and the right to receive the Collections and other amounts at the times
and in the amounts specified in this Article IV to be deposited in the Investor
Accounts and any other Series Account (if so specified in the related
Supplement) or to be paid to the Investor Certificateholders of such Series;
provided, however, that the aggregate interest represented by such Certificates
at any time in the Principal Receivables shall not exceed an amount equal to the
Investor Interest at such time. The Transferor Certificate shall represent the
remaining undivided interest in the Trust, including the right to receive the
Collections and other amounts at the times and in the amounts specified in this
Article IV to be paid to the Holder of the Transferor Certificate; provided,
however, that the aggregate interest represented by such Transferor Certificate
at any time in the Principal Receivables shall not exceed the Transferor
Interest at such time and such Certificate shall not represent any interest in
the Investor Accounts, except as provided in this Agreement, or the benefits of
any Credit Enhancement issued with respect to any Series.
Section 4.2 Establishment of Accounts.
(a) The Collection Account. The Servicer, for the benefit of
the Certificateholders, shall establish and maintain in the name of the Trustee,
on behalf of the Trust, an Eligible Deposit Account bearing a designation
clearly indicating that the funds deposited therein are held in trust for the
benefit of the Certificateholders (the "Collection Account"). Pursuant to
authority granted to it pursuant to subsection 3.1(b), the Servicer shall have
the revocable power to withdraw funds from the Collection Account for the
purposes of carrying out its duties hereunder.
(b) The Finance Charge and Principal Accounts. The Trustee,
for the benefit of the Investor Certificateholders, shall establish and maintain
in the State of New York with the Paying Agent in the name of the Trust two
Eligible Deposit Accounts (the "Finance Charge Account" and the "Principal
Account", respectively), bearing a designation clearly indicating that the funds
therein are held for the benefit of the Investor Certificateholders; provided,
however, that each of such accounts may be established as sub-accounts of the
Collection Account. The Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Finance Charge Account and the
Principal Account and in all proceeds thereof. The Finance Charge Account and
the Principal Account shall be
<PAGE>
46
under the sole dominion and control of the Trustee for the benefit of the
Investor Certificateholders. Pursuant to authority granted to it hereunder, the
Servicer shall have the revocable power to instruct the Trustee to withdraw
funds from the Finance Charge Account and Principal Account for the purpose of
carrying out the Servicer's duties hereunder. The Trustee at all times shall
maintain accurate records reflecting each transaction in the Principal Account
and the Finance Charge Account and that funds held therein shall at all times be
held in trust for the benefit of the Investor Certificateholders.
(c) The Distribution Account. The Trustee, for the benefit of
the Investor Certificateholders, shall cause to be established and maintained in
the name of the Trust, an Eligible Deposit Account bearing a designation clearly
indicating that the funds deposited therein are held in trust for the benefit of
the Investor Certificateholders (the "Distribution Account"). The Trustee shall
possess all right, title and interest in all funds on deposit from time to time
in the Distribution Account and in all proceeds thereof. The Distribution
Account shall be under the sole dominion and control of the Trustee for the
benefit of the Investor Certificateholders.
(d) The Excess Funding Account. The Trustee, for the benefit
of the Investor Certificateholders, shall establish and maintain an Eligible
Deposit Account bearing a designation clearly indicating that the funds therein
are held for the benefit of the Investor Certificateholders (the "Excess Funding
Account"). The Trustee shall possess all right, title and interest in all funds
on deposit from time to time in the Excess Funding Account and in all proceeds
thereof. The Excess Funding Account shall be under the sole dominion and control
of the Trustee for the benefit of the Investor Certificateholders. If, at any
time, the Excess Funding Account ceases to be an Eligible Deposit Account, the
Trustee shall notify the Rating Agency and within 10 Business Days establish a
new Eligible Deposit Account which shall be designated as the new Excess Funding
Account and shall transfer any cash or any investments to such new Excess
Funding Account. From the date such new Excess Funding Account is established,
it shall be the "Excess Funding Account." Pursuant to authority granted to it
hereunder, the Servicer shall have the revocable power to instruct the Trustee
to withdraw funds from the Excess Funding Account for the purpose of carrying
out the Servicer's duties hereunder. The Trustee at all times shall maintain
accurate records reflecting each transaction in the Excess Funding Account and
that funds held therein shall at all times be held in trust for the benefit of
the Investor Certificateholders.
(e) Series Accounts. If so provided in the related Supplement,
the Trustee, for the benefit of the Investor Certificateholders, shall cause to
be established and maintained in the name of the Trust, one or more Series
Accounts. Each such Series Account shall bear a designation clearly indicating
that the funds deposited therein are held for the benefit of the Investor
Certificateholders of such Series. Each such Series Account will be an Eligible
Deposit Account, if so provided in the related Supplement and will have the
other features and be applied as set forth in the related Supplement.
(f) Administration of the Finance Charge, Principal Accounts
and Excess Funding Account. Funds on deposit in the Principal Account, the
Finance Charge Account and the Excess
<PAGE>
47
Funding Account shall at all times be invested in Permitted Investments. Any
such investment shall mature and such funds shall be available for withdrawal on
or prior to the Transfer Date related to the Monthly Period in which such funds
were processed for collection, or if so specified in the related Supplement,
immediately preceding a Distribution Date. The Trustee shall maintain for the
benefit of the Investor Certificateholders possession of the negotiable
instruments or securities evidencing the Permitted Investments described in
clause (a) of the definition thereof from the time of purchase thereof until the
time of sale or maturity; provided, however that no such investment shall be
disposed of prior to its maturity date. At the end of each month, all interest
and earnings (net of losses and investment expenses) on funds on deposit in the
Principal Account and the Finance Charge Account shall be deposited by the
Trustee in an Eligible Deposit Account in the name of the Transferor, or a
Person designated in writing by the Servicer, which shall not constitute a part
of the Trust, or shall otherwise be turned over by the Trustee to the Transferor
not less frequently than monthly, and all interest and earnings (net of losses
and investment expenses) on funds on deposit in the Excess Funding Account shall
be deposited by the Trustee in the Finance Charge Account for application as
Collections of Finance Charge Receivables. Subject to the restrictions set forth
above, the Servicer, or a Person designated in writing by the Servicer, of which
the Trustee shall have received written notification thereof, shall instruct the
Trustee with respect to the investment of funds on deposit in the Principal
Account and the Finance Charge Account. For purposes of determining the
availability of funds or the balances in the Finance Charge Account, the
Principal Account and, except as provided in the second preceding sentence, the
Excess Funding Account, for any reason under this Agreement, all investment
earnings on such funds shall be deemed not to be available or on deposit.
Section 4.3 Collections and Allocations.
(a) Collections. Except as provided below, the Servicer shall
deposit all Collections in the Collection Account as promptly as possible after
the Date of Processing of such Collections, but in no event later than the
second Business Day following such Date of Processing. In the event of the
insolvency of the Servicer, then, immediately upon the occurrence of such event
and thereafter, the Servicer shall deposit all Collections into the Collection
Account, and in no such event shall the Servicer deposit any Collections
thereafter into any account established, held or maintained with the Servicer.
The Servicer shall allocate such amounts to each Series of
Investor Certificates and to the Holder of the Transferor Certificate in
accordance with this Article IV and shall withdraw the required amounts from the
Collection Account or pay such amounts to the Holder of the Transferor
Certificate in accordance with this Article IV, in both cases as modified by any
Supplement. The Servicer shall make such deposits or payments on the date
indicated therein in immediately available funds or as otherwise provided in the
Supplement for any Series of Certificates with respect to such Series.
Notwithstanding anything in this Agreement to the contrary,
for so long as, and only so long as, DNB shall remain the Servicer hereunder,
and (a)(i) the Servicer provides to the Trustee a
<PAGE>
47
letter of credit covering risk collection of the Servicer acceptable to each
Rating Agency, and (ii) the Transferor shall not have received a notice from any
Rating Agency that such letter of credit would result in the lowering of such
Rating Agency's then-existing rating of the Investor Certificates, (b) Dillard's
(so long as the Servicer is wholly-owned by Dillard's) shall have and maintain 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, the
Servicer need not deposit Collections into the Collection Account, the Principal
Account, the Finance Charge Account, the Excess Funding Account or any Series
Account, as provided in any Supplement, or make payments to the Holder of the
Transferor Certificate as provided in Article IV, but may make such deposits,
payments and withdrawals on each Transfer Date in an amount equal to the net
amount of such deposits, payments and withdrawals which would have been made
but for the provisions of this paragraph.
Notwithstanding anything else in this Agreement to the
contrary, with respect to any Monthly Period, whether the Servicer is required
to make monthly or daily deposits from the Collection Account into the Finance
Charge Account, the Principal Account, the Excess Funding Account or any Series
Account, as provided in any Supplement, (i) the Servicer will only be required
to deposit Collections from the Collection Account into the Finance Charge
Account, the Principal Account, the Excess Funding Account or any Series Account
in an amount equal to the lesser of (x) the amount required to be deposited into
any such deposit account pursuant to the terms of this Agreement or any
Supplement and (y) the amount required to be distributed on or prior to the
related Distribution Date to Investor Certificateholders or to any Credit
Enhancement Provider pursuant to the terms of any Supplement or agreement
relating to such Credit 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.
(b) Allocations for the Transferor Certificate. Throughout the
existence of the Trust, unless otherwise stated in any Supplement, the Servicer
shall allocate to the Holder of the Transferor Certificate an amount equal to
the product of (A) the Transferor Percentage and (B) the aggregate amount of
such Collections allocated to Principal Receivables and Finance Charge
Receivables, respectively, in respect of each Monthly Period. Notwithstanding
anything in this Agreement to the contrary, unless otherwise stated in any
Supplement, the Servicer need not deposit this amount or any other amounts so
allocated to the Transferor Certificate pursuant to any Supplement into the
Collection Account and shall pay, or be deemed to pay, such amounts as collected
to the Holder of the Transferor Certificate.
(c) Adjustments for Miscellaneous Credits and Fraudulent
Charges. The Servicer shall be obligated to reduce on a net basis in each
Monthly Period the aggregate amount of Principal Receivables used to calculate
the Transferor Interest as provided in this subsection 4.3(c) (a "Credit
Adjustment") with respect to any Principal Receivable (i) which was created in
respect of merchandise refused or returned by the Obligor thereunder or as to
which the Obligor thereunder has asserted a
<PAGE>
49
counterclaim or defense, (ii) which is reduced by the Servicer or related
Originator by any rebate, refund, charge-back or adjustment (including Servicer
errors) or (iii) which was created as a result of a fraudulent or counterfeit
charge.
In the event that the inclusion of the amount of a Credit
Adjustment in the calculation of the Transferor Interest would cause the
Transferor Interest to be an amount less than the Minimum Transferor Interest,
the Transferor shall make a deposit, no later than the Business Day following
the Date of Processing of such Credit Adjustment, in the Excess Funding Account
in immediately available funds in an amount equal to the amount by which such
Credit Adjustment would cause the Transferor Interest to be less than the
Minimum Transferor Interest on such Date of Processing.
(d) Transfer of Defaulted Accounts. Unless otherwise provided
in any Supplement, on the date on which an Account becomes a Defaulted Account,
the Trust shall automatically and without further action or consideration be
deemed to transfer, set over, and otherwise convey to the Transferor, without
recourse, representation or warranty, all the right, title and interest of the
Trust in and to Receivables in such Defaulted Account, all monies due or to
become due with respect to such Receivables, all proceeds of such Receivables
and Insurance Proceeds relating to such Receivables allocable to the Trust with
respect to such Receivables. Notwithstanding any such transfer of accounts,
amounts recovered with respect to such defaulted accounts may still be allocated
to the Trust to the extent provided for in the definition of Recoveries.
(e) Operation of Excess Funding Account. On each Determination
Date on which one or more Series is in its Amortization Period or Accumulation
Period, the Servicer shall determine the aggregate amount of Principal
Shortfalls, if any, with respect to each such Series that is a Principal Sharing
Series, and the Servicer shall instruct the Trustee to withdraw such amount (up
to the Excess Funding Amount) from the Excess Funding Account on the next
succeeding Transfer Date and deposit such amount in the Distribution Account for
allocation among each such Series as Shared Principal Collections as specified
in each related Supplement. On any Business Day on which the Transferor Interest
exceeds the Minimum Transferor Interest, the Servicer shall instruct the Trustee
to withdraw the amount of such excess (up to the Excess Funding Amount) from the
Excess Funding Account on such day and pay such amount to the Holder of the
Transferor Certificate.
Section 4.4 Allocations During Funding Period. To the extent
that the Servicer establishes an Eligible Deposit Account as a pre-funding
account (the "Pre-Funding Account") with respect to any Series, bearing a
designation indicating that the funds deposited therein are for the benefit of
such Series, during the period (the "Funding Period"), as set forth in the
related Supplement, that the Pre-Funding Account maintains a balance, the date
upon which an increase in the Invested Amount of such Series in accordance with
the terms of such related Supplement occurs shall be treated as an Addition Date
solely for the purpose of calculating the applicable Investor Percentages. Such
Addition Date shall be deemed to occur on the date of each such increase and the
applicable Investor Percentages shall be calculated accordingly.
<PAGE>
50
Section 4.5 Certain Fees.
(a) On or prior to each Determination Date following a Monthly
Period all of the days of which follow the Fee Determination Date, the
Transferor shall notify the Servicer of the amounts of Late Fees and similar
fees and charges and Special Fees to be included as Collections of Finance
Charge Receivables arising from the Accounts with respect to the preceding
Monthly Period. Until the date specified by the Servicer in an Officer's
Certificate delivered to the Trustee as a date after which the Servicer can
compute the actual amount of Collections of such fees and charges (the "Fee
Determination Date"), such amounts shall be deemed to be equal to the product of
(x) the amount of Late Fees and similar fees and charges and Special Fees, as
the case may be, billed with respect to such Monthly Period and (y) a fraction,
the numerator of which is the amount of Collections of Periodic Finance Charges
and Annual Membership Fees arising from the Accounts with respect to such
Monthly Period, and the denominator of which is the amount of Periodic Finance
Charges and Annual Membership Fees arising from the Accounts billed with respect
to such Monthly Period.
(b) On and after the Fee Determination Date, the amounts of
Late Fees and similar fees and charges and Special Fees to be included as
Collections of Finance Charge Receivables shall be the actual amounts of such
fees and charges, as computed by the Servicer. On each Transfer Date prior to
the first Monthly Period all of the days of which follow the Fee Determination
Date, the Transferor shall pay to the Servicer and the Servicer shall deposit
into the Collection Account, for allocation as Collections of Finance Charge
Receivables in the manner provided in Article IV (in immediately available
funds) the amounts of Late Fees and similar fees and charges and Special Fees
arising from the Accounts to be so included as Collections of Finance Charge
Receivables with respect to the preceding Monthly Period, as calculated pursuant
to this Section 4.5.
[THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL BE SPECIFIED
IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED
IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]
ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates. Subject to Sections 6.10 and
6.13, the Investor Certificates of each Series and any Class thereof may be
issued in bearer form (the "Bearer Certificates") with attached interest coupons
and a special coupon (collectively, the "Coupons") or in fully registered form
(the "Registered Certificates"), and shall be substantially in the form of the
exhibits
<PAGE>
51
with respect thereto attached to the related Supplement. The Transferor
Certificate shall be substantially in the form of Exhibit A. The Investor
Certificates and the Transferor Certificate shall, upon issue pursuant hereto or
to Section 6.9 or Section 6.10, be executed and delivered by the Transferor to
the Trustee for authentication and redelivery as provided in Sections 2.1 and
6.2. Any Investor Certificate shall be issuable in a minimum denomination of
$1,000 Undivided Interest and integral multiples thereof, unless otherwise
specified in any Supplement. The Transferor Certificate shall be issued as a
single certificate. Each Certificate shall be executed by manual or facsimile
signature on behalf of the Transferor by an authorized signatory thereof.
Certificates bearing the manual or facsimile signature of the individual who
was, at the time when such signature was affixed, authorized to sign on behalf
of the Transferor or the Trustee shall not be rendered invalid, notwithstanding
that such individual has ceased to be so authorized prior to the authentication
and delivery of such Certificates or does not hold such office at the date of
such Certificates. No Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on such Certificate
a certificate of authentication substantially in the form provided for herein,
executed by or on behalf of the Trustee by the manual signature of a duly
authorized signatory, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication except Bearer Certificates which shall be dated the
applicable Issuance Date as provided in the related Supplement.
Section 6.2 Authentication of Certificates. Contemporaneously
with the initial assignment and transfer of the Receivables, whether now
existing or hereafter created (other than Receivables in Additional Accounts)
and the other components to the Trust, the Trustee shall authenticate and
deliver the initial Series of Investor Certificates, upon the written order of
the Transferor, to the underwriters for the sale of the Book-Entry Certificates
evidenced by such Investor Certificates, and against payment to the Transferor
of the Initial Investor Interest (net of any purchase or underwriting discount).
Upon the receipt of such payment and the issuance of the Investor Certificates,
such Investor Certificates shall be fully paid and non-assessable. The Trustee
shall authenticate and deliver the Transferor Certificate to the Transferor
simultaneously with its delivery to the underwriter of the initial Series of
Investor Certificates. Upon an Exchange as provided in Section 6.9 and the
satisfaction of certain other conditions specified therein, the Trustee shall
authenticate and deliver the Investor Certificates of additional Series (with
the designation provided in the related Supplement), upon the order of the
Transferor, to the Persons designated in such Supplement. Upon the order of the
Transferor, the Certificates of any Series shall be duly authenticated by or on
behalf of the Trustee, in authorized denominations. If specified in the related
Supplement for any Series, the Trustee shall authenticate and deliver outside
the United States the Global Certificate that is issued upon original issuance
thereof, upon the written order of the Transferor, to the Depository against
payment of the purchase price therefor. If specified in the related Supplement
for any Series, the Trustee shall authenticate Book-Entry Certificates that are
issued upon original issuance thereof, upon the written order of the Transferor,
to a Clearing Agency or is nominee as provided in Section 6.10 against payment
of the purchase price thereof.
Section 6.3 Registration of Transfer and Exchange of
Certificates.
<PAGE>
52
(a) The Trustee shall cause to be kept at the office or agency
to be maintained by a transfer agent and registrar (the "Transfer Agent and
Registrar"), in accordance with the provisions of Section 11.16, a register (the
"Certificate Register") in which, subject to such reasonable regulations as it
may prescribe, the Transfer Agent and Registrar shall provide for the
registration of the Investor Certificates of each Series (unless otherwise
provided in the related Supplement) and of transfers and exchanges of the
Investor Certificates as herein provided. The Trustee is hereby initially
appointed Transfer Agent and Registrar for the purposes of registering the
Investor Certificates and transfers and exchanges of the Investor Certificates
as herein provided. If any form of Investor Certificate is issued as a Global
Certificate, the Trustee may, or if and so long as any Series of Investor
Certificates are listed on the Luxembourg Stock Exchange and such exchange shall
so require, the Trustee shall appoint a co-transfer agent and co-registrar in
Luxembourg or another European city. Any reference in this Agreement to the
Transfer Agent and Registrar shall include any co-transfer agent and co-
registrar unless the context otherwise requires. The Trustee shall be permitted
to resign as Transfer Agent and Registrar upon 30 days' written notice to the
Servicer. In the event that the Trustee shall no longer be the Transfer Agent
and Registrar, the Trustee shall appoint a successor Transfer Agent and
Registrar.
Upon surrender for registration of transfer of any Certificate
at any office or agency of the Transfer Agent and Registrar, the Transferor
shall execute, subject to the provisions of subsection 6.3(c), and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates in authorized denominations of like
aggregate Undivided Interests; provided, however that the provisions of this
paragraph shall not apply to Bearer Certificates.
At the option of an Investor Certificateholder, Investor
Certificates may be exchanged for other Investor Certificates of the same Series
in authorized denominations of like aggregate Undivided Interests, upon
surrender of the Investor Certificates to be exchanged at any such office or
agency. At the option of any Holder of Registered Certificates, Registered
Certificates may be exchanged for other Registered Certificates of the same
Series in authorized denominations of like aggregate Undivided Interests in the
Trust, upon surrender of the Registered Certificates to be exchanged at any
office or agency of the Transfer Agent and Registrar maintained for such
purpose. At the option of a Bearer Certificateholder, subject to applicable laws
and regulations (including without limitation, the Bearer Rules), Bearer
Certificates may be exchanged for other Bearer Certificates or Registered
Certificates of the same Series in authorized denominations of like aggregate
Undivided Interests in the Trust, in the manner specified in the Supplement for
such Series, upon surrender of the Bearer Certificates to be exchanged at an
office or agency of the Transfer Agent and Registrar located outside the United
States. Each Bearer Certificate surrendered pursuant to this Section 6.3 shall
have attached thereto (or be accompanied by) all unmatured Coupons, provided
that any Bearer Certificate so surrendered after the close of business on the
Record Date preceding the relevant Distribution Date after the related Series
Termination Date need not have attached the coupons relating to such
Distribution Date.
Whenever any Investor Certificates of any Series are so
surrendered for exchange, the Transferor shall execute, and the Trustee shall
authenticate and (unless the Transfer Agent and Registrar
<PAGE>
53
is different than the Trustee, in which case the Transfer Agent and Registrar
shall) deliver, the Investor Certificates of such Series which the
Certificateholder making the exchange is entitled to receive. Every Investor
Certificate presented or surrendered for registration of transfer or exchange
shall be accompanied by a written instrument of transfer in a form satisfactory
to the Trustee and the Transfer Agent and Registrar duly executed by the
Certificateholder thereof or his attorney-in-fact duly authorized in writing.
The preceding provisions of this Section 6.3 notwithstanding,
the Trustee or the Transfer Agent and Registrar, as the case may be, shall not
be required to register the transfer of or exchange any Investor Certificate of
any Series for a period of 15 days preceding the due date for any payment with
respect to the Investor Certificates of such Series.
Unless otherwise provided in the related Supplement, no
service charge shall be made for any registration of transfer or exchange of
Certificates, but the Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Investor Certificates (together with any Coupons attached
to Bearer Certificates) surrendered for registration of transfer and exchange
shall be canceled by the Transfer Agent and Registrar and disposed of in a
manner satisfactory to the Trustee. The Trustee shall cancel and destroy any
Global Certificates upon its exchange in full for Definitive Certificates and
shall deliver a certificate of destruction to the Transferor. Such certificate
shall also state that a certificate or certificates of each Foreign Clearing
Agency to the effect referred to in Section 6.13 was received with respect to
each portion of such Global Certificate exchanged for Definitive Certificates.
The Transferor shall execute and deliver to the Trustee or the
Transfer Agent and Registrar, as applicable, Bearer Certificates and Registered
Certificates in such amounts and at such times as are necessary to enable the
Trustee to fulfill its responsibilities under this Agreement and the
Certificates.
(b) Except as provided in Section 6.9 or 7.2 or in any
Supplement, in no event shall the Transferor Certificate or any interest therein
be transferred hereunder, in whole or in part, unless the Trustee shall have
consented in writing to such transfer; provided, however, that the Trustee may
not withhold such consent if it shall have received (1) written confirmation
from each Rating Agency that such transfer will satisfy the Rating Agency
Condition and (2) a Tax Opinion with respect to such transfer.
(c) Unless otherwise provided in the related Supplement,
registration of transfer of Registered Certificates containing a legend relating
to the restrictions on transfer of such Registered Certificates (which legend
shall be set forth in the Supplement relating to such Investor Certificates)
shall be effected only if the conditions set forth in such related Supplement
are satisfied.
<PAGE>
54
Whenever a Registered Certificate containing the legend sat
forth in the related Supplement is presented to the Transfer Agent and Registrar
for registration of transfer, the Transfer Agent and Registrar shall promptly
seek instructions from the Servicer regarding such transfer. The Transfer Agent
and Registrar and the Trustee shall be entitled to receive written instructions
signed by a Servicing Officer prior to registering any such transfer or
authenticating new Registered Certificates, as the case may be. The Servicer
hereby agrees to indemnify the Transfer Agent and Registrar and the Trustee and
to hold each of them harmless against any loss, liability or expense incurred
without negligence or bad faith on their part arising out of or in connection
with actions taken or omitted by them in reliance on any such written
instructions furnished pursuant to this subsection 6.3(c).
(d) The Transfer Agent and Registrar will maintain at its
expense in the Borough of Manhattan, the City of New York (and subject to this
Section 6.3, if specified in the related Supplement for any Series, any other
city designated in such Supplement) an office or offices or an agency or
agencies where Investor Certificates of such Series may be surrendered for
registration of transfer or exchange.
Section 6.4 Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate (together, in the case of Bearer Certificates,
with all unmatured Coupons, if any, appertaining thereto) is surrendered to the
Transfer Agent and Registrar, or the Transfer Agent and Registrar receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate and (b) there is delivered to the Transfer Agent and Registrar and
the Trustee such security or indemnity as may be reasonably required by them to
save each of them and the Transferor harmless, then, in the absence of notice to
the Trustee that such Certificate has been acquired by a bona fide purchaser,
the Transferor shall execute and the Trustee shall authenticate and (unless the
Transfer Agent and Registrar is different from the Trustee, in which case the
Transfer Agent and Registrar shall) deliver (in compliance with applicable law),
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and aggregate Undivided Interest.
In connection with the issuance of any new Certificate under this Section 6.4,
the Trustee or the Transfer Agent and Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee and the Transfer Agent and Registrar) connected therewith. Any duplicate
Certificate issued pursuant to this Section 6.4 shall constitute complete and
indefeasible evidence of ownership in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed certificate shall be found at any
time.
Section 6.5 Persons Deemed Owners. Prior to due presentation
of a Certificate for registration of transfer, the Trustee, the Paying Agent,
the Transfer Agent and Registrar and any agent of any of them may treat the
Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Article V (as
described in any Supplement) and for all other purposes whatsoever, and neither
the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any agent of
any of them shall be affected by any notice to the contrary; provided, however,
that in determining whether the holders of Investor Certificates evidencing the
requisite Undivided Interests have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, unless otherwise expressly
specified herein or in the related Supplement, Investor Certificates owned by
the Transferor, the Servicer or any Affiliate thereof shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice,
<PAGE>
55
consent or waiver, only Investor Certificates which a Responsible Officer in the
Corporate Trust Office of the Trustee knows to be so owned shall be so
disregarded. Investor Certificates so owned that have been pledged in good faith
shall not be disregarded as outstanding, if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Investor Certificates and that the pledgee is not the Transferor, the Servicer
or an Affiliate thereof.
In the case of a Bearer Certificate, the Trustee, the Paying
Agent, the Transfer Agent and Registrar and any agent of any of them may treat
the holder of a Bearer Certificate or Coupon as the owner of such Bearer
Certificate or Coupon for the purpose of receiving distributions pursuant to
Article IV and Article XII and for all other purposes whatsoever, and neither
the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any agent of
any of them shall be affected by any notice to the contrary. Certificates so
owned which have been pledged in good faith shall not be disregarded and may be
regarded as outstanding, if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Investor Certificates
and that the pledgee is not the Transferor, the Servicer or an Affiliate
thereof.
Section 6.6 Appointment of Paying Agent.
(a) The Paying Agent shall make distributions to Investor
Certificateholders from the appropriate account or accounts maintained for the
benefit of Certificateholders as specified in this Agreement or the related
Supplement for any Series pursuant to Articles IV and V hereof. Any Paying Agent
shall have the revocable power to withdraw funds from such appropriate account
or accounts for the purpose of making distributions referred to above. The
Trustee (or the Servicer if the Trustee is the Paying Agent) may revoke such
power and remove the Paying Agent, if the Trustee (or the Servicer if the
Trustee is the Paying Agent) determines in its sole discretion that the Paying
Agent shall have failed to perform its obligations under this Agreement in any
material respect or for other good cause. The Trustee (or the Servicer if the
Trustee is the Paying Agent) shall notify the Rating Agency of the removal of
any Paying Agent. If any form of Investor Certificate is issued as a Global
Certificate, or if and so long as any Series of Investor Certificates are listed
on the Luxembourg Stock Exchange and such exchange shall so require, the Trustee
shall appoint a co-paying agent in Luxembourg or another European city. The
Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Servicer. In the event that any Paying Agent shall no longer be
the Paying Agent, the Trustee shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company). The provisions of Sections 11.1, 11.2
and 11.3 shall apply to the Trustee also in the capacity of Paying Agent, for so
long as the Trustee shall act as Paying Agent. Any reference in this Agreement
to the Paying Agent shall include any co-paying agent unless the context
requires otherwise.
<PAGE>
56
If specified in the related Supplement for any Series, so long
as the Investor Certificates of such Series are outstanding, the Transferor
shall maintain a co-paying agent in New York City (for Registered Certificates
only) or any other city designated in such Supplement which, if and so long as
any Series of Investor Certificates is listed on the Luxembourg Stock Exchange
or other stock exchange and such exchange so requires, shall be in Luxembourg or
the location required by such other stock exchange.
(b) The Trustee shall cause the Paying Agent (other than
itself) to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee that such Paying Agent will hold all sums, if
any, held by it for payment to the Certificateholders in trust for the benefit
of the Certificateholders entitled thereto until such sums shall be paid to such
Certificateholders and shall agree, and if the Trustee is the Paying Agent it
hereby agrees, that it shall comply with all requirements of the Internal
Revenue Code regarding the withholding by the Trustee of payments in respect of
federal income taxes due from Certificate Owners.
Section 6.7 Access to List of Certificateholders' Names and
Addresses. The Trustee will furnish or cause to be furnished by the Transfer
Agent and Registrar to the Servicer or the Paying Agent, within five Business
Days after receipt by the Trustee of a request therefor from the Servicer or the
Paying Agent, respectively, in writing, a list in such form as the Servicer or
the Paying Agent may reasonably require, of the names and addresses of the
Investor Certificateholders as of the most recent Record Date for payment of
distributions to Investor Certificateholders. Unless otherwise provided in the
related Supplement, holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 10% of the Investor Interest of the Investor
Certificates of any Series (the "Applicants") may apply in writing to the
Trustee, and if such application states that the Applicants desire to
communicate with other Investor Certificateholders of any Series with respect to
their rights under this Agreement or under the Investor Certificates and is
accompanied by a copy of the communication which such Applicants propose to
transmit, then the Trustee, after having been adequately indemnified by such
Applicants for its costs and expenses, shall afford or shall cause the Transfer
Agent and Registrar to afford such Applicants access during normal business
hours to the most recent list of Certificateholders held by the Trustee and
shall give the Servicer notice that such request has been made, within five
Business Days after the receipt of such application. Such list shall be as of a
date no more than 45 days prior to the date of receipt of such Applicants'
request. Every Certificateholder, by receiving and holding a Certificate, agrees
with the Transferor, the Servicer and the Trustee that none of the Transferor,
Servicer, Trustee, Transfer Agent or Registrar, nor any of their respective
agents shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Certificateholders hereunder,
regardless of the source from which such information was obtained.
Section 6.8 Authenticating Agent.
(a) The Trustee may appoint one or more authenticating agents
with respect to the Certificates which shall be authorized to act on behalf of
the Trustee in authenticating the Certificates in connection with the issuance,
delivery, registration of transfer, exchange or repayment of the
<PAGE>
57
Certificates. Whenever reference is made in this Agreement to the authentication
of Certificates by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication on behalf of the
Trustee by an authenticating agent and a certificate of authentication executed
on behalf of the Trustee by an authenticating agent. Each authenticating agent
must be acceptable to the Transferor.
(b) Any institution succeeding to the corporate agency
business of an authenticating agent shall continue to be an authenticating agent
without the execution or filing of any paper or any further act on the part of
the Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to the Transferor. The Trustee
may at any time terminate the agency of an authenticating agent by giving notice
of termination to such authenticating agent and to the Transferor. Upon
receiving such a notice of resignation or upon such a termination, or in case at
any time an authenticating agent shall cease to be acceptable to the Trustee or
the Transferor, the Trustee promptly may appoint a successor authenticating
agent. Any successor authenticating agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like affect as if originally named as an
authenticating agent. No successor authenticating agent shall be appointed
unless acceptable to the Trustee and the Transferor.
(d) The Trustee agrees to pay each authenticating agent from
time to time reasonable compensation for its services under this Section 6.8,
and the Trustee shall be entitled to be reimbursed and the Servicer shall
reimburse the Trustee for such reasonable payments actually made, subject to the
provisions of Section 11.5.
(e) The provisions of Sections 11.1, 11.2 and 11.3 shall be
applicable to any authenticating agent.
(f) Pursuant to an appointment made under this Section 6.8,
the Certificates may have endorsed thereon, in lieu of the Trustee's certificate
of authentication, an alternate certificate of authentication in substantially
the following form:
This is one of the certificates described in the Pooling and
Servicing Agreement.
------------------------------
as Authenticating Agent
for the Trustee,
By:
---------------------------
Authorized signatory
<PAGE>
58
Section 6.9 Tender of Transferor Certificate.
(a) Upon any Exchange, the Trustee shall issue to the Holder
of the Transferor Certificate under Section 6.1, for execution and redelivery to
the Trustee for authentication under Section 6.2, one or more new Series of
Investor Certificates. Any such Series of Investor Certificates shall be
substantially in the form specified in the related Supplement and shall bear,
upon its face, the designation for such Series to which it belongs, as selected
by the Transferor. Except as specified in any Supplement for a related Series,
all Investor Certificates of any Series shall rank pari passu and be equally and
ratably entitled as provided herein to the benefits hereof (except that the
Credit Enhancement provided for any Series shall not be available for any other
Series) without preference, priority or distinction on account of the actual
time or times of authentication and delivery, all in accordance with the terms
and provisions of this Agreement and the related Supplement.
(b) The Holder of the Transferor Certificate may tender the
Transferor Certificate to the Trustee in exchange for (i) one or more newly
issued Series of Investor Certificates or in connection with a Companion Series,
interests in such Series and (ii) a reissued Transferor Certificate (any such
tender, a "Transferor Exchange"). In addition, to the extent permitted for any
Series of Investor Certificates as specified in the related Supplement, the
Investor Certificateholders of such Series may tender their Investor
Certificates and the Holder of the Transferor Certificate may tender the
Transferor Certificate to the Trustee pursuant to the terms and conditions set
forth in such Supplement in exchange for (i) one or more newly issued Series of
Investor Certificates and (ii) a reissued Transferor Certificate (an "Investor
Exchange"). The Transferor Exchange and Investor Exchange are referred to
collectively herein as an "Exchange." The Holder of the Transferor Certificate
may perform an Exchange by notifying the Trustee, in writing at least three days
in advance (an "Exchange Notice") of the date upon which the Exchange is to
occur (an "Exchange Date"). Any Exchange Notice shall state the designation of
any Series (and Class thereof, if applicable) to be issued on the Exchange Date
and, with respect to each such Series: (a) its Initial Investor Interest (or the
method for calculating such Initial Investor Interest) (b) its Certificate Rate
(or the method for allocating interest payments or other cash flows to such
Series), if any, and (c) the Credit Enhancement Provider, if any, with respect
to such Series. On the Exchange Date, the Trustee shall authenticate and deliver
any such Series of Investor Certificates only upon delivery to it of the
following: (a) a Supplement satisfying the criteria set forth in subsection
6.9(c) executed by the Transferor and specifying the Principal Terms of such
Series, (b) the applicable Credit Enhancement, if any, (c) the agreement, if
any, pursuant to which the Credit Enhancement Provider agrees to provide the
Credit Enhancement, if any, (d) an Opinion of Counsel to the effect that, unless
otherwise stated in the related Supplement, the newly issued Series or Class of
Investor Certificates will be treated as debt secured by the Receivables for
United States federal income and Delaware and New York state income and
corporate franchise tax purposes, (e) a Tax Opinion, (f) written confirmation
from each Rating Agency that the Exchange will satisfy the Rating Agency
Condition, (g) an Officer's Certificate signed by an authorized signatory of the
Transferor, that on the Exchange Date (i) the Transferor, after giving effect to
the Exchange, would not be required to add Additional Accounts pursuant to
subsection 2.6(a), and (ii) after giving effect to such Exchange, the Transferor
Interest would be at least equal to the Minimum Transferor Interest and (h) the
existing
<PAGE>
59
Transferor Certificate or applicable Investor Certificates, as the case may be.
Upon satisfaction of such conditions, the Trustee shall cancel the existing
Transferor Certificate or applicable Investor Certificates, as the case may be,
and issue, as provided above, such Series of Investor Certificates and a new
Transferor Certificate, dated the Exchange Date. There is no limit to the number
of Exchanges that may be performed under the Agreement.
(c) In conjunction with an Exchange, the parties hereto shall
execute a Supplement, which shall specify the relevant terms with respect to any
newly issued Series of Investor Certificates, which may include without
limitation: (i) its name or designation, (ii) an Initial Investor Interest or
the method of calculating the Initial Investor Interest, (iii) the method of
determining any adjusted Investor Interest, if applicable, (iv) the Certificate
Rate (or formula for the determination thereof), (v) the Closing Date, (vi) each
Rating Agency rating such Series, (vi) the name of the Clearing Agency, if any,
(vii) the rights of the Holder of the Transferor Certificate that have been
transferred to the Holders of such Series pursuant to such Exchange (including
any rights to allocations of Collections of Finance Charge Receivables and
Principal Receivables), (ix) the interest payment date or dates and the date or
dates from which interest shall accrue, (x) the periods during which or dates on
which principal will be paid or accrued, (xi) the method of allocating
Collections with respect to Principal Receivables for such Series and, if
applicable, with respect to other Series and the method by which the principal
amount of Investor Certificates of such Series shall amortize or accrete and the
method for allocating Collections with respect to Finance Charge Receivables and
Receivables in Defaulted Accounts, (xii) any other Collections with respect to
Receivables or other amounts available to be paid with respect to such Series,
(xii) the names of any accounts to be used by such Series and the terms
governing the operation of any such accounts and use of moneys therein, (xiv)
the Series Servicing Fee and the Series Servicing Fee Percentage, (xv) the
Minimum Transferor Interest and the Series Termination Date, (xvi) the terms of
any Credit Enhancement with respect to such Series, and the Credit Enhancement
Provider, if applicable, (xvii) the base rate applicable to such Series, (xviii)
the terms on which the Certificates of such Series may be repurchased or
remarketed to other investors, (xix) any deposit into any account provided for
such Series, (xx) the number of Classes of such Series, and if more than one
Class, the rights and priorities of each such Class, (xxi) the priority of any
Series with respect to any other Series, (xxii) the rights, if any, of the
holders of the Transferor Certificate that have been transferred to the holders
of such Series, (xxiii) the Pool Factor, (xxiv) the Minimum Aggregate Principal
Receivables, (xxv) whether such Series will be part of a Group, (xxvi) whether
such Series will or may be a Companion Series and the Series with which it will
be paired, if applicable and (xxvii) any other relevant terms of such Series
(including whether or not such Series will be pledged as collateral for an
issuance of any other securities, including commercial paper) (all such terms,
the "Principal Terms" of such Series). The terms of such Supplement may modify
or amend the terms of this Agreement solely as applied to such new Series. If on
the date of the issuance of such Series there is issued and outstanding one or
more Series of Investor Certificates and no Series of Investor Certificates is
currently rated by a Rating Agency, then as a condition to such Exchange a
nationally recognized investment banking firm or commercial bank shall also
deliver to the Trustee an Officer's certificate stating, in substance, that the
Exchange will not have an adverse effect on the timing or distribution of
payments to such other Series of Investor Certificates then issued and
outstanding.
<PAGE>
60
Section 6.10 Book-Entry Certificates. Unless otherwise
provided in any related Supplement, the Investor Certificates, upon original
issuance, shall be issued in the form of typewritten Certificates representing
the Book-Entry Certificates, to be delivered to the depository specified in such
Supplement (the "Depository") which shall be the Clearing Agency or Foreign
Clearing Agency, by or on behalf of such Series. The Investor Certificates of
each Series shall, unless otherwise provided in the related Supplement,
initially be registered on the Certificate Register in the name of the nominee
of the Clearing Agency or Foreign Clearing Agency. No Certificate Owner will
receive a definitive certificate representing such Certificate Owner's interest
in the related Series of Investor Certificates, except as provided in Section
6.12. Unless and until definitive, fully registered Investor Certificates of any
Series ("Definitive Certificates") have been issued to Certificate Owners
pursuant to Section 6.12:
(i) the provisions of this Section 6.10 shall be in
full force and effect with respect to each such Series;
(ii) the Transferor, the Servicer, the Paying Agent,
the Transfer Agent and Registrar and the Trustee may deal with the
Clearing Agency and the Clearing Agency Participants for all purposes
(including the making of distributions on the Investor Certificates
of each such Series) as the authorized representatives of the
Certificate Owners;
(iii) to the extent that the provisions of this
Section 6.10 conflict with any other provisions of this Agreement, the
provisions of this Section 6.10 shall control with respect to each such
Series; and
(iv) the rights of Certificate Owners of each such
Series shall be exercised only through the Clearing Agency or Foreign
Clearing Agency and the applicable Clearing Agency Participants and
shall be limited to those established by law and agreements between
such Certificate Owners and the Clearing Agency or Foreign Clearing
Agency and/or the Clearing Agency Participants. Pursuant to the
Depository Agreement applicable to a Series, unless and until
Definitive Certificates of such Series are issued pursuant to Section
6.12, the initial Clearing Agency will make book-entry transfers among
the Clearing Agency Participants and receive and transmit distributions
of principal and interest on the Investor Certificates to such Clearing
Agency Participants.
Section 6.11 Notices to Clearing Agency. Whenever notice or
other communication to the Certificateholders is required under this Agreement,
unless and until Definitive Certificates shall have been issued to Certificate
Owners pursuant to Section 6.12, the Trustee shall give all such notices and
communications specified herein to be given to Holders of the Investor
Certificates to the Clearing Agency or Foreign Clearing Agency for distribution
to Holders of Investor Certificates.
Section 6.12 Definitive Certificates. If (i) (A) the
Transferor advises the Trustee in writing that the Clearing Agency or Foreign
Clearing Agency is no longer willing or able to discharge properly its
responsibilities under the applicable Depository Agreement, and (B) the Trustee
or the
<PAGE>
61
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 the Clearing Agency or Foreign Clearing Agency with
respect to any Series of Certificates or (iii) after the occurrence of a
Servicer Default, Certificate Owners of a Series representing beneficial
interests aggregating not less than 50% of the Investor Interest of such Series
advise the Trustee and the applicable Clearing Agency or Foreign Clearing Agency
through the applicable Clearing Agency Participants in writing that the
continuation of a book-entry system through the applicable Clearing Agency or
Foreign Clearing Agency is no longer in the best interests of the Certificate
Owners, the Trustee shall notify all Certificate Owners of such Series, through
the applicable Clearing Agency Participants, of the occurrence of any such event
and of the availability of Definitive Certificates to Certificate Owners of such
Series requesting the same. Upon surrender to the Trustee of the Investor
Certificates of such Series by the applicable Clearing Agency or Foreign
Clearing Agency, accompanied by registration instructions from the applicable
Clearing Agency or Foreign Clearing Agency for registration, the Trustee shall
issue the Definitive Certificates of such Series. Neither the Transferor nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates of such Series all references
herein to obligations imposed upon or to be performed by the applicable Clearing
Agency or Foreign Clearing Agency shall be deemed to be imposed upon and
performed by the Trustee, to the extent applicable with respect to such
Definitive Certificates, and the Trustee shall recognize the Holders of the
Definitive Certificates of such Series as Certificateholders of such Series
hereunder.
Section 6.13 Global Certificate. If specified in the related
Supplement for any Series, the Investor Certificates may be initially issued in
the form of a single temporary Global Certificate (the "Global Certificate") in
bearer form, without interest coupons, in the denomination of the Initial
Investor Interest and substantially in the form attached to the related
Supplement. Unless otherwise specified in the related Supplement, the provisions
of this Section 6.13 shall apply to such Global Certificate. The Global
Certificate will be authenticated by the Trustee upon the same conditions, in
substantially the same manner and with the same effect as the Definitive
Certificates. The Global Certificate may be exchanged in the manner described in
the related Supplement for Registered or Bearer Certificates in definitive form.
Section 6.14 Meetings of Certificateholders. To the extent
provided by the Supplement for any Series issued in whole or in part in Bearer
Certificates, the Transferor, the Servicer or the Trustee may at any time call a
meeting of the Certificateholders of such Series, to be held at such time and at
such place as Transferor, the Servicer or the Trustee, as the case may be, shall
determine, for the purpose of approving a modification of or amendment to, or
obtaining a waiver of, any covenant or condition set forth in this Agreement
with respect to such Series or in the Certificates of such Series, subject to
Section 13.1 of the Agreement.
<PAGE>
62
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.1 Liability of the Transferor. The Transferor shall
be liable in accordance herewith to the extent of the obligations specifically
undertaken by the Transferor.
Section 7.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Transferor.
(a) The Transferor shall not consolidate with or merge into
any other Person or convey or transfer its properties and assets substantially
as an entirety to any Person, unless:
(i) (A) the Transferor is the surviving entity or (B)
if the Transferor is not the surviving entity, the Person formed by
such consolidation or into which the Transferor is merged or the Person
which acquires by conveyance or transfer the properties and assets of
the Transferor substantially as an entirety shall be organized and
existing under the laws of the United States of America or any State or
the District of Columbia and shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the performance of every covenant and
obligation of the Transferor, as applicable hereunder and shall benefit
from all the rights granted to the Transferor, as applicable
hereunder. To the extent that any right, covenant or obligation of
the Transferor, as applicable hereunder, is inapplicable to the
successor entity, such successor entity shall be subject to such
covenant or obligation, or benefit from such right, as would apply,
to the extent practicable, to such successor entity. In furtherance
hereof, in applying this Section 7.2 to a successor entity, Section
9.2 hereof shall be applied by reference to events of involuntary
liquidation, receivership or conservatorship applicable to such
successor entity as shall be set forth in the Officer's Certificate
described in subsection 7.2(a)(ii);
(ii) the Transferor shall have delivered to the
Trustee an Officer's Certificate signed by an authorized signatory of
the Transferor stating that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section 7.2
and that all conditions precedent herein provided for relating to such
transaction have been complied with and an Opinion of Counsel that such
supplemental agreement is legal, valid and binding; and (iii) the
Transferor shall have delivered notice to the Rating Agency of such
consolidation, merger, conveyance or transfer.
(b) The obligations of the Transferor hereunder shall not be
assignable nor shall any Person succeed to the obligations of the Transferor
hereunder (i) except for mergers, consolidations, assumptions or transfers in
accordance with the provisions of the foregoing paragraph or (ii) unless the
assignee with respect to such obligations shall be organized and existing under
the laws of the United States of America or any State or the District of
Columbia, and shall be a national banking association,
<PAGE>
63
state banking corporation or other entity which is not subject to the bankruptcy
laws of the United States of America and shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, the performance of every covenant and obligation of the
Transferor, as applicable hereunder and shall benefit from all the rights
granted to the Transferor, as applicable hereunder. To the extent that any
right, covenant or obligation of the Transferor, as applicable hereunder, is
inapplicable to the assignee, such assignee shall be subject to such covenant or
obligation, or benefit from such right, as would apply, to the extent
practicable, to such assignee.
Section 7.3 Limitation of Liability. The owner trustee,
administrators, directors, officers, employees or agents of the Transferor shall
not be under any liability to the Trust, the Trustee, the Certificateholders,
any Credit Enhancement Provider or any other Person hereunder or pursuant to any
document delivered hereunder, it being expressly understood that all such
liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Agreement and any Supplement and the
issuance of the Certificates; provided, however, that this provision shall not
protect the officers, directors, employees, or agents of the Transferor against
any liability which would otherwise be imposed by reason of willful misfeasance
or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder. Except as provided in Section
7.4, the Transferor shall not be under any liability to the Trust, the Trustee,
the Certificateholders, any Credit Enhancement Provider or any other Person for
any action taken or for refraining from the taking of any action in its capacity
as Transferor pursuant to this Agreement or any Supplement whether arising from
express or implied duties under this Agreement or any Supplement; provided,
however, that this provision shall not protect the Transferor against any
liability which would otherwise be imposed by reason of willful misfeasance or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. The Transferor and any director, officer,
employee or agent may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder.
Section 7.4 Liabilities. Notwithstanding Section 7.3 (and
notwithstanding Sections 3.2, 8.3, 8.4 and 11.11), or any other provision
herein, the Transferor by entering into this Agreement, and any holder of an
interest in the Transferor Certificate by its acceptance thereof, agree to be
liable, directly to any creditor or claimant for the entire amount of any
liabilities, including without limitation, any taxes imposed on the Trust,
losses, claims or damages (other than those that would be incurred by an
Investor Certificateholder or a Credit Enhancement Provider, if any, if the
Investor Certificates or Collateral Interest, as the case may be, were notes
secured by the Receivables, for example, as a result of the performance of the
Receivables, market fluctuations, a shortfall or failure to make payment under
any Credit Enhancement or other similar market or investment risks associated
with ownership of the Investor Certificates) arising out of or based on the
arrangement created by this Agreement (to the extent that, if the Trust assets
at the time the claim is made were used to pay in full all outstanding
Certificates of all Series, the Trust assets that would remain after the
Investor Certificateholders and Credit Enhancement Providers, if any, were paid
in full would be insufficient to pay any such losses, claims, damages or
liabilities) as though this Agreement created a partnership under the Delaware
<PAGE>
64
Revised Uniform Limited Partnership Act in which the Transferor and such holder
of an interest in the Transferor Certificate were the general partners of such
partnership. The rights created by this Section 7.4 shall run directly to and be
enforceable by the injured party subject to the limitations hereof. To the
extent provided in Section 8.4, the Servicer will (from its own assets and not
from the assets of the Trust) indemnify and hold harmless the Transferor and
each holder of an interest in the Transferor Certificate against and from
certain losses, claims, damages and liabilities of the Transferor as described
in this Section arising from the actions or omissions of the Servicer.
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
Section 8.1 Liability of the Servicer. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer in such capacity herein.
Section 8.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. The Servicer shall not consolidate with or merge
into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) (A) the Servicer is the surviving entity or (B)
if the Servicer is not the surviving entity, the corporation formed by
such consolidation or into which the Servicer is merged or the Person
which acquires by conveyance or transfer the properties and assets of
the Servicer substantially as an entirety shall be a corporation
organized and existing under the laws of the United States of America
or any State or the District of Columbia, and shall be a state or
national banking association or other entity which is not subject to
the bankruptcy laws of the United States of America and shall
expressly assume, by an agreement supplemental hereto, executed
and delivered to the Trustee in form satisfactory to the Trustee, the
performance of every covenant and obligation of the Servicer hereunder
(to the extent that any right, covenant or obligation of the Servicer,
as applicable hereunder, is inapplicable to the successor entity, such
successor entity shall be subject to such covenant or obligation, or
benefit from such right, as would apply, to the extent practicable, to
such successor entity);
(ii) the Servicer shall have delivered to the Trustee
an Officer's Certificate that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section 8.2
and that all conditions precedent herein provided for relating to such
transaction have been complied with and an Opinion of Counsel that such
supplemental agreement is legal, valid and binding with respect to the
Servicer; and
(iii) the Servicer shall have delivered notice to the
Rating Agency of such consolidation, merger, conveyance or transfer.
<PAGE>
65
Section 8.3 Limitation of Liability of the Servicer and
Others. The directors, officers, employees or agents of the Servicer shall not
be under any liability to the Trust, the Trustee, the Certificateholders, any
Credit Enhancement Provider or any other Person hereunder or pursuant to any
document delivered hereunder, it being expressly understood that all such
liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Agreement and any Supplement and the
issuance of the Certificates; provided, however, that this provision shall not
protect the directors, officers, employees and agents of the Servicer against
any liability which would otherwise be imposed by reason of willful misfeasance
or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder. Except as provided in Section 8.4
with respect to the Trust and the Trustee, its officers, directors, employees
and agents, the Servicer shall not be under any liability to the Trust, the
Trustee, its officers, directors, employees and agents, the Certificateholders
or any other Person for any action taken or for refraining from the taking of
any action in its capacity as Servicer pursuant to this Agreement or any
Supplement; provided, however, that this provision shall not protect the
Servicer against any liability which would otherwise be imposed by reason of
willful misfeasance or gross negligence in the performance of duties or by
reason of its reckless disregard of its obligations and duties hereunder or
under any Supplement. The Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person respecting any
matters arising hereunder. Neither the Servicer nor any Sub-Servicer shall be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its duties to service the Receivables in accordance with this
Agreement which in its reasonable opinion may cause it to incur any expense or
liability.
Section 8.4 Servicer Indemnification of the Trust and the
Trustee. The Servicer shall indemnify and hold harmless the Trust and the
Trustee, its officers, directors, employees andagents, 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
with respect to activities of the Trust or the Trustee pursuant to this
Agreement or any Supplement, including, but not limited to any judgment, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim; provided, however, that the Servicer shall not indemnify the Trustee if
such acts, omissions or alleged acts or omissions constitute or are caused by
fraud, negligence, bad faith or willful misconduct by the Trustee; provided,
further, that the Servicer shall not indemnify the Trust, the Investor
Certificateholders or the Certificate Owners for any liabilities, costs or
expenses of the Trust with respect to any action taken by the Trustee at the
request of the Investor Certificateholders; provided, further, that the Servicer
shall not indemnify the Trust, the Investor Certificateholders or the
Certificate owners as to any losses, claims or damages incurred by any of them
in their capacities as investors, including without limitation losses incurred
as a result of Defaulted Accounts or Receivables which are written off as
uncollectible; and provided, further, that the Servicer shall not indemnify the
Trust, the Investor Certificateholders or the Certificate Owners for any
liabilities, costs or expenses of the Trust, the Investor Certificateholders or
the Certificate Owners arising under any tax law, including without limitation,
any federal, state, local or foreign income or franchise taxes 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
<PAGE>
66
the Trust, the Investor Certificateholders or the Certificate Owners in
connection herewith to any taxing authority. Any such indemnification shall not
be payable from the assets of the Trust. The provisions of this indemnity shall
run directly to and be enforceable by an injured party subject to the
limitations hereof. The provisions of this Section 8.4 shall survive termination
of this Agreement and the resignation or removal of the Trustee.
Section 8.5 The Servicer Not to Resign. The Servicer shall not
resign from the obligations and duties hereby imposed on it except upon
determination that (i) the performance of its duties hereunder is no longer
permissible under applicable law and (ii) there is no reasonable action which
the Servicer could take to make the performance of its duties hereunder
permissible under applicable law. Any such determination permitting the
resignation of the Servicer shall be evidenced as to clause (i) above by an
Opinion of Counsel to such effect delivered to the Trustee. No such resignation
shall become effective until the Trustee or a Successor Servicer shall have
assumed the responsibilities and obligations of the Servicer in accordance with
Section 10.2 hereof. If the Trustee is unable within 120 days of the date of
such determination to appoint a Successor Servicer, the Trustee shall serve as
Successor Servicer hereunder.
Section 8.6 Access to Certain Documentation and Information
Regarding the Receivables. The Servicer shall provide to the Trustee access to
the documentation regarding the Accounts and the Receivables in such cases where
the Trustee is required in connection with the enforcement of the rights of the
Investor Certificateholders, or by applicable statutes or regulations to review
such documentation, such access being afforded without charge but only (i) upon
reasonable request, (ii) during normal business hours, (iii) subject to the
Servicer's normal security and confidentiality procedures and (iv) at offices
designated by the Servicer. Nothing in this Section 8.6 shall derogate from the
obligation of the Transferor, the Trustee or the Servicer to observe any
applicable law prohibiting disclosure of information regarding the Obligors and
the failure of the Servicer to provide access as provided in this Section 8.6 as
a result of such obligations shall not constitute a breach of this Section 8.6.
Section 8.7 Delegation of Duties. It is understood and agreed
by the parties hereto that the Servicer may delegate certain of its duties
hereunder to any Affiliate which is wholly owned by the Servicer or Dillard's.
In the ordinary course of business, the Servicer may at any time delegate any
duties hereunder to any Person who agrees to conduct such duties in accordance
with the Credit Card Guidelines. Any such delegations shall not relieve the
Servicer of its liability and responsibility with respect to such duties, and
shall not constitute a resignation within the meaning of Section 8.5 hereof. If
any such delegation is to a party other than DNB-La or MCC notification thereof
shall be given to each Rating Agency.
Section 8.8 Examination of Records. The Servicer shall clearly
and unambiguously identify each Account (including any Additional Account
designated pursuant to Section 2.6) in its computer or other records to reflect
that the Receivables arising in such Account have been conveyed to the Trust
pursuant to this Agreement. The Servicer shall, prior to the sale or transfer to
a third party
<PAGE>
67
of any receivable held in its custody, examine its computer and other records to
determine that such receivable is not a Receivable.
Section 8.9 Securities Act Filings. The Servicer is hereby
authorized and agrees to (i) execute and file on behalf of the Trust, if
necessary, a registration statement filed on Form S-3, including any amendments
thereto and such other statements or documents, prepared by or on behalf of the
Transferor or the Trust and required to be executed and filed by the Trust
pursuant to the Securities Act, Exchange Act, or the implementing rules and
regulations thereof; and (ii) execute, if necessary, any and all other documents
reasonably determined by the Trust, the Servicer, Dillard's or an Affiliate
thereof to be necessary in order to (x) qualify or register all or part of the
Investor Certificates in any state or foreign jurisdiction in which such
Investor Certificates may be sold or (y) establish any of the Investor
Certificates on any national or international stock exchange for listing or
quotation.
ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events. If any one of the following events (each, a
"Trust Pay Out Event") shall occur:
(a) (i) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Transferor or
Dillard's in an involuntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, which decree or order is not stayed, or any other
similar relief shall be granted under any applicable federal or state
law, (ii) an involuntary case is commenced against the Transferor or
Dillard's under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect which remains undismissed, undischarged
or unbonded for a period of 60 days or (iii) the Transferor or
Dillard's shall have a decree or an order for relief entered with
respect to it or commence a voluntary case under the Bankruptcy Code or
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect;
(b) the Transferor, DNB, DNB-La., or Dillard's shall consent
to the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshaling of assets and liabilities
or similar proceedings of or relating to all or substantially all of
its property, or a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Transferor, DNB, DNB-La., or Dillard's and such
decree or order shall have remained in full force and is changed or
unstayed for a period of 60 days; or the Transferor, DNB,
<PAGE>
68
DNB-La., or Dillard's shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or the Transferor shall become unable for
any reason to transfer Receivables to the Trust in accordance with
the provisions of this Agreement;
(c) DNB or DNB-La. becomes unable for any reason to transfer
Receivables to the Transferor or the Transferor becomes unable for any
reason to transfer Receivables to the Trust in accordance with the
provisions of this Agreement; or
(d) the Trust shall become subject to regulation by the
Securities and Exchange Commission as an "investment company" within
the meaning of the Investment Company Act;
then a Pay Out Event with respect to all Series of Certificates shall occur
without any notice or other action on the part of the Trustee or the Investor
Certificateholders immediately upon the occurrence of such event.
Section 9.2 Additional Rights Upon the Occurrence of Certain Events.
(a) If any event set forth in Section 9.1(a) or (b) shall
occur (any such event, an "Insolvency Event"), the Transferor shall on the day
of such Insolvency Event (the "Appointment Day") immediately cease to transfer
Principal Receivables to the Trust and shall promptly give notice to the Trustee
of such Insolvency Event and the arrangement among the parties created hereby
shall be deemed to have been dissolved, subject to the liquidation and winding
up procedures described below. Notwithstanding any cessation of the transfer to
the Trust of additional Principal Receivables, Finance Charge Receivables,
whenever created, accrued in respect of Principal Receivables which have been
transferred to the Trust shall continue to be a part of the Trust, and
Collections with respect thereto shall continue to be allocated and paid in
accordance with Article IV. Within 15 days of the Appointment Day, the Trustee
shall (i) publish a notice in an Authorized Newspaper that an Insolvency Event
has occurred and that the Trustee intends to sell, dispose of or otherwise
liquidate the Receivables in a commercially reasonable manner and (ii) send
written notice to the Investor Certificateholders describing the provisions of
this Section 9.2 and requesting instructions from such Holders. Unless within 75
days from the day notice pursuant to clause (i) above is first published, the
Trustee shall have received written instructions of Holders of Investor
Certificates evidencing more than 50% of the Investor Interest of each Series
issued and outstanding (or, if any such Series has two or more Classes, each
Class) to the effect that such Certificateholders disapprove of the liquidation
of the Receivables. If such vote disapproving of liquidation of the Receivables
has not been obtained, the Trustee shall use its best efforts to sell, dispose
of or otherwise liquidate the Receivables in a commercially reasonable manner
and on commercially reasonable terms, which shall include the solicitation of
competitive bids. The Trustee may obtain a prior determination from any such
<PAGE>
69
conservator, receiver or liquidator that the terms and manner of any proposed
sale, disposition or liquidation are commercially reasonable. The provisions of
Sections 9.1 and 9.2 shall not be deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of
the Receivables pursuant to subsection (a) above shall be treated as Collections
on the Receivables and shall be allocated and deposited in accordance with the
provisions of Article IV; provided, that the Trustee shall determine
conclusively in its sole discretion the amount of such proceeds which are
allocable to Finance Charge Receivables and the amount of such proceeds which
are allocable to Principal Receivables. On the day following the last
Distribution Date in the Monthly Period during which such proceeds are
distributed to the Investor Certificateholders of each Series, the Trust shall
terminate.
(c) The Trustee may appoint an agent or agents to assist with
its responsibilities pursuant to this Article IX with respect to competitive
bids.
ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer
or deposit or to give instructions or notice to the Trustee pursuant to
Article IV or to instruct the Trustee to make any required drawing,
withdrawal, or payment under any Credit Enhancement on or before the
date occurring ten Business Days after the date such payment, transfer,
deposit withdrawal or drawing or such instruction or notice is required
to be made or given, as the case may be, under the terms of this
Agreement;
(b) failure on the part of the Servicer duly to observe or
perform in any respect any other covenants or agreements of the
Servicer set forth in this Agreement, which has a material adverse
effect on the Investor Certificateholders of any Series and which
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by the Holders of Investor Certificates
evidencing Undivided Interests aggregating not less than 50% of the
Investor Interest of any Series adversely affected thereby and
continues to materially adversely affect such Investor
Certificateholders for such period; or the Servicer shall delegate its
duties under this Agreement, except as permitted by Section 8.7;
(c) any representation, warranty or certification made by the
Servicer in this Agreement or in any certificate delivered pursuant to
this Agreement shall prove to have been
<PAGE>
70
incorrect when made, which has a material adverse effect an the
Investor Certificateholders of any Series and which continues to be
incorrect in any material respect for a period of 60 days after the
date on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Servicer by the Trustee, or
to the Servicer and the Trustee by the Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than
50% of the Investor Interest of any Series adversely affected thereby
and continues to materially adversely affect such Investor
Certificateholders for such period; or
(d) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings of
or relating to the Servicer or of or relating to all or substantially
all of its property, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshaling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Servicer, and such decree
or order shall have remained in force undischarged or unstayed for a
period of 60 days; or the Servicer shall admit in writing its inability
to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
any assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; then, so long as such Servicer Default
shall not have been remedied, either the Trustee, or the Holders of
Investor Certificates evidencing Undivided Interests aggregating more
than 50% of the Aggregate Investor Interest, by notice then given in
writing to the Servicer (and to the Trustee if given by the Investor
Certificateholders) (a "Termination Notice"), may terminate all of the
rights and obligations of the Servicer as Servicer under this
Agreement. After receipt by the Servicer of such Termination Notice,
and on the date that a Successor Servicer shall have been appointed by
the Trustee pursuant to Section 10.2, all authority and power of the
Servicer under this Agreement shall pass to and be vested in a
Successor Servicer; and, without limitation, the Trustee is hereby
authorized and empowered (upon the failure of the Servicer to
cooperate) to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, all documents and other instruments
upon the failure of the Servicer to execute or deliver such documents
or instruments, and to do and accomplish all other acts or things
necessary or appropriate to effect the purposes of such transfer of
servicing rights and obligations. The Servicer agrees to cooperate
with the Trustee and such Successor Servicer in effecting the
termination of the responsibilities and rights of the Servicer to
conduct servicing hereunder including, without limitation, the
transfer to such Successor Servicer of all authority of the Servicer
to service the Receivables provided for under this Agreement,
including, without limitation, all authority over all Collections
which shall on the date of transfer be held by the Servicer for
deposit, or which have been deposited or caused to be deposited by
the Servicer, in the Collection Account, the Finance Charge Account,
the Principal Account, the Excess Funding Account and any Series
Account, or which shall thereafter be received with respect to the
Receivables, and in assisting the Successor Servicer and in enforcing
all rights to Insurance Proceeds applicable to the Trust. The Servicer
shall promptly transfer its electronic records or
<PAGE>
71
electronic copies thereof relating to the Receivables to the Successor
Servicer in such electronic form as the Successor Servicer may
reasonably request and shall promptly transfer to the Successor
Servicer all other records, correspondence and documents necessary for
the continued servicing of the Receivables in the manner and at such
times as the Successor Servicer shall reasonably request. To the extent
that compliance with this Section 10.1 shall require the Servicer to
disclose to the Successor Servicer information of any kind which the
Servicer reasonably deems to be confidential, the Successor Servicer
shall be required to enter into each customary licensing and
confidentiality agreements as the Servicer shall deem necessary to
protect its interests. The Servicer shall, on the date of any servicing
transfer, transfer all of its rights and obligations under the Credit
Enhancement with respect to any Series to the Successor Servicer.
Notwithstanding the foregoing, a delay in or failure of
performance referred to in subsection 10.1(a) for a period of 10 Business Days
or in subsection 10.1(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 the public enemy, acts of declared or undeclared
war, public disorder, rebellion, riot or sabotage, epidemics, landslides,
lightning, fire, hurricanes, tornadoes, earthquakes, nuclear disasters or
meltdowns, floods, power outages or similar causes. The preceding sentence shall
not relieve the Servicer from using its best efforts to perform its obligations
in a timely manner in accordance with the terms of this Agreement and the
Servicer shall provide the Trustee, any Credit Enhancement Provider, the
Transferor and the Holders of Investor Certificates with an Officer's
Certificate giving prompt notice of such failure or delay by it, together with a
description of the cause of such failure or delay and its efforts so to perform
its obligations.
Section 10.2 Trustee to Act; Appointment of Successor.
(a) On and after the receipt by the Servicer of a Termination
Notice pursuant to Section 10.1, the Servicer shall continue to perform all
servicing functions under this Agreement until the date specified in the
Termination Notice or otherwise specified by the Trustee in writing or, if no
such date is specified in such Termination Notice, or otherwise specified by the
Trustee, until a date mutually agreed upon by the Servicer and Trustee. The
Trustee shall notify each Rating Agency of such removal of the Servicer. The
Trustee shall, as promptly as possible after the giving of a Termination Notice
appoint a successor Servicer (the "Successor Servicer"), and such Successor
Servicer shall accept its appointment by a written assumption in a form
acceptable to the Trustee. The Trustee may obtain bids from any potential
successor Servicer. If the Trustee is unable to obtain any bids from any
potential successor Servicer and the Servicer delivers an Officer's Certificate
to the effect that the Servicer 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 notify each Credit
Enhancement Provider of the proposed sale of the Receivables and shall provide
each such Credit Enhancement Provider an opportunity to bid on the Receivables
and shall offer the Transferor the right of first refusal to purchase the
Receivables on terms equivalent to the best purchase offer as determined
<PAGE>
72
by the Trustee, but in no event less than an amount equal to the Aggregate
Investor Interest on the date of such purchase plus all interest accrued but
unpaid on all of the outstanding Investor Certificates at the applicable
Certificate Rate through the date of such purchase. The proceeds of such sale
shall be deposited in the Distribution Account or any Series Account, as
provided in the related Supplement, for distribution to the Investor
Certificateholders of each outstanding Series pursuant to Section 12.3 of the
Agreement. In the event that a Successor Servicer has not been appointed and has
not accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Trustee without further action shall automatically be appointed
the Successor Servicer. Notwithstanding the above, the Trustee shall, if it is
legally unable so to act, petition a court of competent jurisdiction to appoint
any established financial institution having, in the case of an entity that is
subject to risk-based capital adequacy requirements, risk-based capital of at
least $50,000,000 or, in the case of an entity that is not subject to risk-based
capital requirements, having a net worth of not less than $50,000,000 and whose
regular business includes the servicing of revolving credit card receivables as
the Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be the
successor in all respects to the Servicer with respect to servicing functions
under this Agreement and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Servicer by the terms and
provisions hereof, and all references in this Agreement to the Servicer shall be
deemed to refer to the Successor Servicer. Any Successor Servicer, by its
acceptance of its appointment, will automatically agree to be bound by the terms
and provisions of each Credit Enhancement.
(c) In connection with such appointment and assumption, the
Trustee shall be entitled to such compensation, or may make such arrangements
for the compensation of the Successor Servicer out of Collections, as it and
such Successor Servicer shall agree; provided, however, that no such
compensation shall be in excess of the Servicing Fee permitted to be paid to the
Servicer pursuant to Section 3.2. The Transferor agrees that if the Servicer is
terminated hereunder, it will agree to deposit a portion of the Collections in
respect of Finance Charge Receivables that it is entitled to receive pursuant to
Article IV to pay its share of the compensation of the Successor Servicer.
(d) All authority and power granted to the Successor Servicer
under this Agreement shall automatically cease and terminate upon termination of
the Trust pursuant to Section 12.1 and shall pass to and be vested in the
Transferor and, without limitation, the Transferor is hereby authorized and
empowered to execute and deliver, on behalf of the Successor Servicer, as
attorney-in-fact or otherwise, all documents and other instruments, and to do
and accomplish all other acts or things necessary or appropriate to effect the
purposes of such transfer of servicing rights. The Successor Servicer agrees to
cooperate with the Transferor in effecting the termination of the
responsibilities and rights of the Successor Servicer to conduct servicing on
the Receivables. The Successor Servicer shall transfer its electronic records
relating to the Receivables to the Transferor in such electronic form as the
Transferor may reasonably request and shall transfer all other records,
correspondence and documents to the Transferor in the manner and at such times
as the Transferor shall reasonably request. To the extent that compliance with
this Section 10.2 shall require the Successor Servicer to disclose to the
Transferor information of any kind which the Successor Servicer deems to be
confidential, the
<PAGE>
73
Transferor shall be required to enter into such customary licensing and
confidentiality agreements as the Successor Servicer shall deem necessary to
protect its interests.
Section 10.3 Notification to Certificateholders. Within two
Business Days after the Servicer becomes aware of any Servicer Default, the
Servicer shall give written notice thereof to the Transferor, the Trustee and
any Credit Enhancement Provider and the Trustee shall give notice to the
Investor Certificateholders at their respective addresses appearing in the
Certificate Register. Upon any termination or appointment of a Successor
Servicer pursuant to this Article X, the Trustee shall give prompt written
notice thereof to Investor Certificateholders at their respective addresses
appearing in the Certificate Register.
Section 10.4 Waiver of Past Defaults. The Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than 66-2/3% of
the Investor Interest of each Series adversely affected by any default by the
Services or Transferor may, on behalf of all Certificateholders of such Series,
waive any default by the Servicer or Transferor in the performance of its
obligations hereunder and its consequences, except a default in the failure to
make any required deposits or payments of interest or principal relating to such
Series pursuant to Article IV which default does not result from the failure of
the Paying Agent to perform its obligations to make any required deposits or
payments of interest and principal in accordance with Article IV. Upon any such
waiver of a past default, such default shall cease to exist, and any default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereon except to the extent expressly so waived.
ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee.
(a) The Trustee, prior to the occurrence of any Servicer
Default and after the curing of all Servicer Defaults which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement. If a Responsible Officer has received written notice
that a Servicer Default has occurred (which has not been cured or waived), the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) The Trustee, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Trustee which are specifically required to be
furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they substantially conform to the requirements of this
Agreement.
<PAGE>
74
(c) Subject to subsection 11.1(a), no provision of this
Agreement shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own misconduct;
provided, however, that:
(i) the Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of the Holders of Investor
Certificates evidencing Undivided Interests aggregating more than 50%
of the Investor Interest of any Series relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee in
relation to such Series, under this Agreement; and
(iii) the Trustee shall not be charged with knowledge
of any failure by the Servicer referred to in clauses (a) and (b) of
Section 10.1 unless a Responsible Officer of the Trustee obtains actual
knowledge of such failure or the Trustee receives written notice of
such failure from the Servicer or any Holders of Investor Certificates
evidencing Undivided Interests aggregating not less than 10% of the
Investor Interest of any Series adversely affected thereby.
(d) The Trustee shall not be required to expend or risk its
own funds or otherwise incur financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if
there is reasonable ground for believing that the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured to it, and none of the provisions contained in this Agreement shall in
any event require the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Agreement
except during such time, if any, as the Trustee shall be the successor to, and
be vested with the rights, duties, powers and privileges of, the Servicer in
accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this Agreement,
the Trustee shall take no action reasonably likely to impair the interests of
the Trust in any Receivable now existing or hereafter created or to impair the
value of any Receivable now existing or hereafter created.
(f) Except as provided in this subsection 11.1(f), the Trustee
shall have no power to vary the corpus of the Trust including, without
limitation, the power to (i) accept any substitute obligation for a Receivable
initially assigned to the Trust under Section 2.1 or 2.6 hereof, (ii) add any
other investment, obligation or security to the Trust, except for an addition
permitted under Section 2.6 or (iii) withdraw from the Trust any Receivables,
except for a withdrawal permitted under Sections 2.7, 9.2, 10.2, 12.1 or 12.2 or
subsections 2.4(d), 2.4(e) or Article IV.
<PAGE>
75
(g) In the event that the Paying Agent or the Transfer Agent
and Registrar shall fail to perform any obligation, duty or agreement in the
manner or on the day required to be performed by the Paying Agent or the
Transfer Agent and Registrar, as the case may be, under this Agreement, the
Trustee shall be obligated promptly to perform such obligation, duty or
agreement in the manner so required.
(h) If the Transferor has agreed to transfer any of its credit
card receivables (other than the Receivables) to another Person, upon the
written request of the Transferor, the Trustee will enter into such
intercreditor agreements with the transferee of such receivables as are
customary and necessary to identify separately the rights, if any, of the Trust
and such other Person in the Transferor's credit card receivables; provided,
however, that the Trustee shall not be required to enter into any intercreditor
agreement which could adversely affect the interests of the Certificateholders
and, upon the request of the Trustee, the Transferor will deliver an Opinion of
Counsel on any matters relating to such intercreditor agreement, reasonably
requested by the Trustee.
Section 11.2 Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 11.1:
(a) the Trustee may rely on and shall be protected in acting
on, or in refraining from acting in accord with, any assignment of
Receivables in Additional Accounts, the initial report, the monthly
Servicer's certificate, the annual Servicer's certificate, the monthly
payment instructions and notification to the Trustee, the monthly
Certificateholder's statement, any resolution, Officer's Certificate,
certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document reasonably believed by it to
be genuine and to have been signed or presented to it pursuant to
this Agreement by the proper party or parties;
(b) the Trustee may consult with counsel of its selection, and
any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement or any Credit
Enhancement, or to institute, conduct or defend any litigation
hereunder or in relation hereto, at the request, order or direction of
any of the Certificateholders or any Credit Enhancement Provider,
pursuant to the provisions of this Agreement, unless such
Certificateholders or Credit Enhancement Provider shall have offered to
the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby;
nothing contained herein shall, however, relieve the Trustee of the
obligations, upon the occurrence of any Servicer Default (which has not
been cured), to exercise such of the rights and powers vested in it by
this Agreement and any Credit
<PAGE>
76
Enhancement, and to use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs;
(d) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Agreement except to the extent of the Trustee's negligence;
(e) the Trustee shall not be bound to make any investigation
into the facts of matters stated in any assignment of Receivables in
Additional Accounts, the initial report, the monthly Servicer's
certificate, the annual Servicer's certificate, the monthly payment
instructions and notification to the Trustee, the monthly
Certificateholder's statement, any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing so to do
by Holders of Investor Certificates evidencing Undivided Interests
aggregating more than 50% of the Investor Interest of any Series which
could be adversely affected if the Trustee does not perform such acts;
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly by or through
agents or attorneys or a custodian appointed with due care by it
hereunder; and
(g) except as may be required by subsection 11.1(a), or
otherwise expressly required herein or in any Supplement the Trustee
shall not be required to make any initial or periodic examination of
any documents or records related to the Receivables or the Accounts for
the purpose of establishing the presence or absence of defects, the
compliance by the Transferor with its representations and warranties
or for any other purpose.
Section 11.3 Trustee Not Liable for Recitals in Certificates.
The Trustee assumes no responsibility for the correctness of the recitals
contained herein and in the Certificates (other than the certificate of
authentication on the Certificates). Except as set forth in Section 11.15, the
Trustee makes no representations as to the validity or sufficiency of this
Agreement or of the Certificates (other than the certificate of authentication
on the Certificates) or of any Receivable or related document. The Trustee shall
not be accountable for the use or application by the Transferor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Transferor in respect of the Receivables or
deposited in or withdrawn from the Collection Account, the Principal Account or
the Finance Charge Account, or any Series Account by the Servicer.
Section 11.4 Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Investor
Certificates with the same rights as it would have if it were not the Trustee.
Section 11.5 The Servicer to Pay Trustee's Fees and Expenses.
The Servicer covenants and agrees to pay to the Trustee from time to time, and
the Trustee shall be entitled to
<PAGE>
77
receive such reasonable compensation as shall be agreed upon from time to time
between the Servicer and the Trustee (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express trust)
for all services rendered by it in the execution of the Trust hereby created and
in the exercise and performance of any of the powers and duties hereunder of the
Trustee, and, subject to Section 8.4, the Servicer will pay or reimburse the
Trustee (without reimbursement from any Investor Account, any Series Account or
otherwise) upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any of the
provisions of this Agreement except any such expense, disbursement or advance as
may arise from its own negligence, bad faith or wilful misfeasance and except as
provided in the following sentence. If the Trustee is appointed Successor
Servicer pursuant to Section 10.2, the provisions of this Section 11.5 shall not
apply to expenses, disbursements and advances made or incurred by the Trustee in
its capacity as Successor Servicer.
The obligations of the Servicer under this Section 11.5 shall
survive the termination of the Trust and the resignation or removal of the
Trustee.
Section 11.6 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a corporation organized and doing business under
the laws of the United States of America or any state thereof authorized under
such laws to exercise corporate trust powers, having a long-term unsecured debt
rating of at least "Baa3" by Moody's and "BBB-" by Standard & Poor's having, in
the case of an entity that is subject to risk-based capital adequacy
requirements, risk-based capital of at least $50,000,000 or, in the case of an
entity that is not subject to risk-based capital adequacy requirements, having a
combined capital and surplus of at least $50,000,000 and subject to supervision
or examination by federal or state authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purpose of
this Section 11.6, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in the most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 11.6, the Trustee
shall resign immediately in the manner and with the effect specified in Section
11.7.
Section 11.7 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign and be discharged from
the Trust hereby created by giving written notice thereof to the Servicer and
the Transferor. Upon receiving such notice of resignation, the Servicer shall
promptly appoint a successor trustee by written instrument, in duplicate, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
<PAGE>
78
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 11.6 hereof and shall fail to resign
after written request therefor by the Transferor, or if at any time the Trustee
shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or
a receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Transferor may, but shall not be required to, remove the Trustee and promptly
appoint a successor trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee.
(c) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 11.7
shall not become effective until acceptance of appointment by the successor
trustee as provided in Section 11.8 hereof and any liability of the Trustee
arising hereunder shall survive such appointment of a successor trustee.
Section 11.8 Successor Trustee.
(a) Any successor trustee appointed as provided in Section
11.7 hereof shall execute, acknowledge and deliver to the Transferor, the
Servicer and to its predecessor Trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as Trustee herein. The predecessor Trustee shall deliver to the successor
trustee all documents and statements held by it hereunder, and the Transferor
and the predecessor Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly
vesting and confirming in the successor trustee all such rights, powers,
duties and obligations.
(b) No successor trustee shall accept appointment as provided
in this Section 11.8 unless at the time of such acceptance such successor
trustee shall be eligible under the provisions of Section 11.6 hereof.
(c) Upon acceptance of appointment by a successor trustee as
provided in this Section 11.8, such successor trustee shall mail notice of such
succession hereunder to all Certificateholders at their addresses as shown in
the Certificate Register.
Section 11.9 Merger or Consolidation of Trustee. Any Person
into which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided such corporation shall be eligible under the
provisions of Section 11.6 hereof, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding.
<PAGE>
79
Section 11.10 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at
any time, for the purpose of meeting any legal requirements of any jurisdiction
in which any part of the Trust may at the time be located, the Trustee shall
have the power and may execute and deliver all instruments to appoint one or
more Persons to act as a co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Trust, and to vest in such Person
or Persons, in such capacity and for the benefit of the Certificateholders, such
title to the trust, or any part thereof, and, subject to the other provisions of
this Section 11.10, such powers, duties, obligations, rights and trusts as the
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 11.6 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 11.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Trustee joining in such act), except to the extent that under any laws
of any jurisdiction in which any particular act or acts are to be
performed (whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion
thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
(ii) no trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article XI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee and a
copy thereof given to the Servicer.
<PAGE>
80
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect to this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 11.11 Tax Returns. In the event the Trust shall be
required to file tax returns, the Trustee, as soon as practicable after it is
made aware of such requirement, shall prepare or cause to be prepared any tax
returns required to be filed by the Trust and, to the extent possible, shall
file such returns at least five days before such returns are due to be filed.
The Trustee is hereby authorized to sign any such return on behalf of the Trust,
in the event that the Trustee is determined to be the person required by law to
sign such return. The Servicer shall prepare or shall cause to be prepared all
tax information required by law to be distributed to Certificateholders and
shall deliver such information to the Trustee at least five days prior to the
date it is required by law to be distributed to Certificateholders. The
Servicer, upon request, in the event that the Trustee is determined to be the
person required by law to sign such return, will furnish the Trustee with all
such information known to the Servicer as may be reasonably required in
connection with the preparation of all tax returns of the Trust. In no event
shall the Trustee or the Servicer be liable for any liabilities, costs or
expenses of the Trust, the Investor Certificateholders or the Certificate Owners
arising under any tax law, including without limitation federal, state, local or
foreign income or excise taxes or any other tax imposed on or measured by income
(or any interest or penalty with respect thereto or arising from a failure to
comply therewith).
Section 11.12 Trustee may Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or any Series
of Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee. Any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders any Series of Certificates, as their interests
may appear, in respect of which such judgment has been obtained.
Section 11.13 Suits for Enforcement. If a Servicer Default
shall occur and be continuing, the Trustee, in its discretion may, subject to
the provisions of Section 10.1, proceed to protect and enforce its rights and
the rights of the Holders of any Series of Certificates under this Agreement by
a suit, action or proceeding in equity or at law or otherwise, whether for the
specific performance of any covenant or agreement contained in this Agreement or
in aid of the execution of any power granted in this Agreement or for the
enforcement of any other legal, equitable or other remedy as the Trustee, being
advised by counsel, shall deem most effectual to protect and enforce any of the
rights of the Trustee or the Holders of any Series of Certificates.
<PAGE>
81
Section 11.14 Rights of Certificateholders to Direct Trustee.
Holders of Investor Certificates evidencing Undivided Interests aggregating more
than 50% of the Aggregate Investor Interest (or, with respect to any remedy,
trust or power that does not relate to all Series, 50% of the Aggregate Investor
Interest of the Investor Certificates of all Series to which such remedy, trust
or power relates) shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee; provided, however, that, subject to
Section 11.1, the Trustee shall have the right to decline to follow any such
direction if the Trustee being advised by counsel determines that the action so
directed may not lawfully be taken, or if the Trustee in good faith shall, by a
Responsible Officer or Responsible Officers of the Trustee, determine that the
proceedings so directed would be illegal or subject it to personal liability or
be unduly prejudicial to the rights of Certificateholders not parties to such
direction; and provided further that nothing in this Agreement shall impair the
right of the Trustee to take any action deemed proper by the Trustee and which
is not inconsistent with such direction of such Holders of Investor
Certificates.
Section 11.15 Representations and Warranties of Trustee. The Trustee
represents and warrants that:
(i) the Trustee is a banking corporation organized,
existing and authorized to engage in the business of banking under the
laws of the State of New York;
(ii) the Trustee has full power, authority and right
to execute, deliver and perform this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Agreement; and
(iii) this Agreement has been duly executed and
delivered by the Trustee.
Section 11.16 Maintenance of Office or Agency. The Trustee
will maintain at its expense in the Borough of Manhattan, the City of New York
an office or offices, or agency or agencies, where notices and demands to or
upon the Trustee in respect of the Certificates and this Agreement may be
served. The Trustee initially designates its Corporate Trust Office as its
office for such purposes in New York. The Trustee will give prompt written
notice to the Servicer and to Certificateholders (or in the case of Holders of
Bearer Certificates, in the manner provided for in the related Supplement) of
any change in the location of the Certificate Register or any such office or
agency.
<PAGE>
82
ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust.
(a) The respective obligations and responsibilities of the
Transferor, the Servicer and the Trustee created hereby (other than the
obligation of the Trustee to make payments to Certificateholders as hereinafter
set forth) shall terminate, except with respect to the duties described in
Sections 8.4 and 11.5 and subsections 2.4(c) and 12.3(b), on the Trust
Termination Date; provided, however, that the Trust shall not terminate on the
date specified in clause (i) of the definition of "Trust Termination Date" if
each of the Servicer and the Holder of the Transferor Certificate notify the
Trustee in writing, not later than five Business Days preceding such date, that
they desire that the Trust not terminate on such date, which notice (such
notice, a "Trust Extension") shall specify the date on which the Trust shall
terminate (such date, the "Extended Trust Termination Date"). The Servicer and
the Holder of the Transferor Certificate may, on any date following the Trust
Extension, so long as no Series of Certificates is outstanding, deliver a notice
in writing to the Trustee changing the Extended Trust Termination Date.
(b) All principal or interest with respect to any Series of
Investor Certificates shall be due and payable no later than the Series
Termination Date with respect to such Series. Unless otherwise provided in a
Supplement, in the event that the Investor Interest of any Series of
Certificates is greater than zero on its Series Termination Date (after giving
effect to all transfers, withdrawals, deposits and drawings to occur on such
date and the payment of principal to be made on such Series on such date), the
Trustee will sell or cause to be sold, and pay the proceeds first, to all
Certificateholders of such Series pro rata in final payment of all principal of
and accrued interest on such Series of Certificates, and second, as provided in
the related Supplement, an amount of Principal Receivables and the related
Finance Charge Receivables (or interests therein) up to 110% of the sum of the
Investor Interest of such Series plus the Enhancement Invested Amount or the
Collateral Interest (if not included in the Investor Interest) of such Series,
if any, at the close of business on such date (but not more than an amount of
Principal Receivables and the related Finance Charge Receivables equal to the
sum of (1) the product of (A) the Transferor Percentage, (B) the aggregate
amount of Principal Receivables in the Trust and (C) a fraction the numerator of
which is the applicable Investor Percentage with respect to Finance Charge
Receivables and the denominator of which is the sum of all Investor
Percentages with respect to Finance Charge Receivables of all Series and (2) the
Investor Interest of such Series plus the Enhancement Invested Amount or the
Collateral Interest (if not included in the Investor Interest) of such Series).
The Trustee shall notify each Credit Enhancement Provider of the proposed sale
of such Receivables and shall provide each Credit Enhancement Provider an
opportunity to bid on such Receivables. The Transferor shall be permitted to
purchase such Receivables in such case and shall have a right of first refusal
with respect thereto. Any proceeds of such sale in excess of such principal and
interest paid shall be paid to the Holder of the Transferor Certificate. Upon
such Series Termination Date with respect to the applicable Series of
Certificates, final payment of all
<PAGE>
83
amounts allocable to any Investor Certificates of such Series shall be made in
the manner provided in Section 12.3.
Section 12.2 Optional Purchase.
(a) If so provided in any Supplement, the Transferor may, but
shall not be obligated to, cause a final distribution to be made in respect of
the related Series of Certificates on a Distribution Date specified in such
Supplement by depositing into the Distribution Account or the applicable Series
Account, not later than the Transfer Date preceding such Distribution Date, for
application in accordance with Section 12.3, the amount specified in such
Supplement.
(b) The amount deposited pursuant to subsection 12.2(a) shall
be paid to the Investor Certificateholders of the related Series pursuant to
Section 12.3 on the related Distribution Date following the date of such
deposit. All Certificates of a Series which are purchased by the Transferor
pursuant to subsection 12.2(a) shall be delivered by the Transferor upon such
purchase to, and be canceled by, the Transfer Agent and Registrar and be
disposed of in a manner satisfactory to the Trustee and the Transferor. The
Investor Interest of each Series which is purchased by the Transferor pursuant
to subsection 12.2(a) shall, for the purposes of the definition of "Transferor
Interest," be deemed to be equal to zero on the Distribution Date following the
making of the deposit, and the Transferor Interest shall thereupon be deemed to
have been increased by the Investor Interest of such Series.
Section 12.3 Final Payment with Respect to any Series.
(a) Written notice of any termination, specifying the
Distribution Date upon which the Investor Certificateholders of any Series may
surrender their Certificates for payment of the final distribution with respect
to such Series and cancellation, shall be given by the Trustee to Investor
Certificateholders of such Series mailed not later than the fifth day of the
month of such final distribution (subject to at least two Business Days' prior
notice from the Servicer to the Trustee) (or in the manner provided by the
Supplement relating to such Series) specifying (i) the Distribution Date (which
shall be the Distribution Date in the month (x) in which the deposit is made
pursuant to subsection 2.4(e), 9.2(a), 10.2(a) or 12.2(a) of the Agreement or
such other section as may be specified in the related Supplement, or (y) in
which the related Series Termination Date occurs) upon which final payment of
such Investor Certificates will be made upon presentation and surrender of such
Investor Certificates at the office or offices therein designated (which, in the
case of Bearer Certificates, shall be outside the United States), (ii) the
amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Investor Certificates at the office or
offices therein specified. The Servicer's notice to the Trustee in accordance
with the preceding sentence shall be accompanied by an Officers' Certificate
setting forth the information specified in Article V of this Agreement covering
the period during the then current calendar year through the date of such notice
and setting forth the date of such final distribution.
<PAGE>
84
The Trustee shall give such notice to the Transfer Agent and Registrar and the
Paying Agent at the time such notice is given to such Investor
Certificateholders.
(b) Notwithstanding the termination of the Trust pursuant to
subsection 12.1(a) or the occurrence of the Series Termination Date with respect
to any Series, all funds then on deposit in the Finance Charge Account, the
Principal Account, the Excess Funding Account, the Distribution Account or any
Series Account applicable to the related Series shall continue to be held in
trust for the benefit of the Certificateholders of the related Series and the
Paying Agent or the Trustee shall pay such funds to the Certificateholders of
the related Series upon surrender of their Certificates (which surrenders and
payments, in the case of Bearer Certificates, shall be made only outside the
United States). In the event that all of the Investor Certificateholders of any
Series shall not surrender their Certificates for cancellation within six months
after the date specified in the above-mentioned written notice, the Trustee
shall give a second written notice (or, in the case of Bearer Certificates,
publication notice) to the remaining Investor Certificateholders of such Series
upon receipt of the appropriate records from the Transfer Agent and Registrar to
surrender their Certificates for cancellation and receive the final distribution
with respect thereto. If within one and one-half years after the second notice
with respect to a Series, all the Investor Certificates of such Series shall not
have been surrendered for cancellation, the Trustee may take appropriate steps
or may appoint an agent to take appropriate steps, to contact the remaining
Investor Certificateholders of such Series concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds in the
Distribution Account or any Series Account held for the benefit of such Investor
Certificateholders. The Trustee and the Paying Agent shall pay to the Transferor
upon request any monies held by them for the payment of principal or interest
which remains unclaimed for two years. After payment to the Transferor, Investor
Certificateholders entitled to the money must look to the Transferor for payment
as general creditors unless an applicable abandoned property law designates
another Person.
(c) All Certificates surrendered for payment of the final
distribution with respect to such Certificates and cancellation shall be
canceled by the Transfer Agent and Registrar and be disposed of in a manner
satisfactory to the Trustee and the Transferor.
Section 12.4 Termination Rights of Holder of Transferor
Certificate. Upon the termination of the Trust pursuant to Section 12.1, and
after payment of all amounts due hereunder on or prior to such termination and
the surrender of the Transferor Certificate, the Trustee shall execute a written
reconveyance substantially in the form of Exhibit H pursuant to which it shall
reconvey to the Holder of the Transferor Certificate, without recourse,
representation or warranty, all right, title and interest of the Trust in the
Receivables, whether then existing or thereafter created, all moneys due or to
become due with respect to such Receivables (including all accrued interest
theretofore posted as Finance Charge Receivables) and all proceeds of such
Receivables and Insurance Proceeds relating to such Receivables allocable to the
Trust, except for amounts held by the Trustee pursuant to subsection 12.3(b).
The Trustee shall execute and deliver such instruments of transfer and
assignment, in each case without recourse, as shall be reasonably requested by
the Holder of the Transferor Certificate to vest in such Holder all right, title
and interest which the Trust had in the Receivables.
<PAGE>
85
Section 12.5 Defeasance. Notwithstanding anything to the contrary in this
Agreement or any Supplement:
(a) The Transferor may at its option be discharged from its
obligations with respect to all of the Investor Certificates issued by
the Trust or any specified Series thereof on the date the applicable
conditions set forth in Section 12.5(c) are satisfied ("Defeasance");
provided, however, that the following rights, obligations, powers,
duties and immunities shall survive until otherwise terminated or
discharged hereunder: (A) the rights of Holders of Investor
Certificates of the Trust or any specified Series thereof to receive,
solely from the trust fund provided for in Section 12.5(c), payments in
respect of principal of and interest on such Investor Certificates when
such payments are due; (B) the Transferor's obligations with respect to
such Series of Certificates under Sections 6.3, 6.4 and 12.3; (C) the
rights, powers, trusts, duties and immunities of the Trustee, the
Paying Agent and the Transfer Agent and Registrar hereunder; and (D)
this Section 12.5.
(b) Subject to Section 12.5(c), the Transferor at its option
may use Collections to purchase Permitted Investments rather than
additional Receivables for transfer to the Trust until such time as no
Receivables remain in the Trust.
(c) The following shall be the conditions to Defeasance under
Section 12.5(a): (1) the Transferor irrevocably shall have deposited or
caused to be deposited with the Trustee, under the terms of an
irrevocable trust agreement in form and substance satisfactory to the
Trustee, as trust funds in trust for making the payments described
below: (A) Dollars in an amount, or (B) Permitted Investments which
through the scheduled payment of principal and interest in respect
thereof will provide, not later than the due date of payment thereon,
money in an amount, or (C) a combination thereof, in each case
sufficient to pay and discharge, and, which shall be applied by the
Trustee to pay and discharge, all remaining scheduled interest and
principal payments on all outstanding Investor Certificates of the
Trust or any specified Series thereof on the dates scheduled for such
payments in this Agreement and the applicable Supplements and all
amounts owed to the Credit Enhancement Provider for any Series if so
provided in the related Supplements or agreements with such Credit
Enhancement Provider; (2) prior to each exercise of its right to
substitute money or Permitted Investments for Receivables, the
Transferor shall deliver to the Trustee a Tax Opinion with respect to
such substitution and an Opinion of Counsel to the effect that the
Trust will not be required to register as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended;
and (3) such deposit and termination of obligations will not result in
a Pay Out Event for any Series.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
<PAGE>
86
Section 13.1 Amendment.
(a) This Agreement (including any Supplement) may be amended
from time to time by the Transferor, the Servicer and the Trustee, without the
consent of any of the Certificateholders, (i) to cure any ambiguity, to revise
any exhibits or schedules (other than Schedule 1), to correct or supplement any
provisions herein or thereon or (ii) to add any other provisions with respect to
matters or questions raised under this Agreement which shall not be inconsistent
with the provisions of this Agreement; provided, however, that such action shall
not, as evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of any of the Certificateholders unless such
Certificateholders have consented thereto.
(b) This Agreement (including any Supplement) and any schedule
or exhibit thereto may also be amended from time to time by the Transferor, the
Servicer and the Trustee, without the consent of any of the Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement, or of modifying in any
manner the rights of the Holders of Certificates; provided, however, that (i)
the Servicer shall have provided an Officer's Certificate to the Trustee to the
effect that such amendment will not materially and adversely affect the
interests of any Certificateholder, (ii) the Servicer shall have provided a Tax
Opinion with respect to such amendment and (iii) the Servicer shall have
provided at least ten Business Days' prior written notice to each Rating Agency
of such amendment and shall have received written confirmation from each Rating
Agency that such action will satisfy the Rating Agency Condition; provided,
further, that such amendment shall not, without the consent of each
Certificateholder of each Series affected thereby, (i) reduce in any manner the
amount of, or delay the timing of, distributions which are required to be made
on any Certificate of such Series, (ii) alter the requirements for changing the
Minimum Transferor Interest Percentage for such Series, (iii) change the
definition of or the manner of calculating the interest of any Certificateholder
of such Series, (iv) change the manner in which the Transferor Interest is
determined or (v) reduce the percentage pursuant to Subsection 13.1(c) required
to consent to any such amendment.
(c) This Agreement and any Supplement may also be amended from
time to time by the Transferor, the Servicer and the Trustee with the consent of
Certificateholders evidencing undivided interests aggregating more than 50% of
the Investor Interest of each and every Series adversely affected, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Certificateholders of any Series then issued and outstanding; provided,
however, that no such amendment under this subsection shall (i) reduce in any
manner the amount of, or delay the timing of, distributions which are required
to be made on any Certificate of such Series without the consent of all of the
related Certificateholders; (ii) 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 the related
Certificateholders or (iii) reduce the aforesaid percentage required to consent
to any such amendment, in each case without the consent of each
Certificateholder of all Series affected.
<PAGE>
87
(d) It shall not be necessary to obtain the consent of
Certificateholders under this Section 13.1 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable requirements as the Trustee may prescribe.
(e) Promptly after the execution of any amendment pursuant to
subsection 13.1(a) or 13.1(c) above, the Trustee shall furnish notification of
the substance of such amendment to each Rating Agency providing a rating for any
Series.
(f) Any Supplement executed and delivered pursuant to Section
6.9 and any amendments regarding the addition to or removal of Receivables from
the Trust as provided in Sections 2.6 or 2.7, executed in accordance with the
provisions hereof, shall not be considered amendments to this Agreement for the
purpose of Section 13.1.
(g) In connection with any amendment, the Trustee may request,
in addition to the Opinion of Counsel required by subsection 13.2(d), an Opinion
of Counsel from the Transferor or the Servicer to the effect that the amendment
complies with all requirements of this Agreement. The Trustee may, but shall not
be obligated to, enter into any amendment which affects the Trustee's rights,
duties or immunities under this Agreement or otherwise.
Section 13.2 Protection of Right, Title and Interest to
Trust.
(a) The Servicer shall cause this Agreement, all amendments
hereto and/or all financing statements and continuation statements and any other
necessary documents covering the Certificateholders and the Trustee's right,
title and interest to the Trust to be promptly recorded, registered and filed,
and at all times to be kept recorded, registered and filed, all in such manner
and in such places as may be required by law fully to preserve and protect the
right, title and interest of the Certificateholders or the Trustee, as the case
may be, hereunder to all property comprising the Trust. The Servicer shall
deliver to the Trustee file-stamped copies of, or filing receipts for, any
document recorded, registered or filed as provided above, promptly after the
same become available following such recording, registration of filing. The
Transferor shall cooperate fully with the Servicer in connection with the
obligations set forth above and will execute any and all documents reasonably
required to fulfill the intent of this subsection 13.2(a).
(b) Within 30 days after the Transferor makes any change in
its name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the meaning of Section 9- 402(7) of the UCC, the
Transferor shall give the Trustee notice of any such change and shall file such
financing statements or amendments as may be necessary to continue the
perfection of the Trust's security interest in the Receivables and the proceeds
thereof.
<PAGE>
88
(c) Each of the Transferor and the Servicer will give the
Trustee prompt written notice of any relocation of any office from which it
services Receivables or keeps records concerning the Receivables or of its
principal executive office and whether, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new financing
statement and shall file such financing statements or amendments as may be
necessary to continue the perfection of the Trust's security interest in the
Receivables and the proceeds thereof. Each of the Transferor and the Servicer
will at all times maintain each office from which it services Receivables and
its principal executive office within the United States of America.
(d) The Servicer will deliver to the Trustee: (i) upon each
date that any Additional Accounts are to be included in the Accounts pursuant to
Section 2.6(a) or (b), an Opinion of Counsel substantially in the form of
Exhibit E; and (ii) on or before March 31 of each year, beginning with March 31,
2000, an Opinion of Counsel, substantially in the form of Exhibit F.
Section 13.3 Limitation on Rights of Certificateholders.
(a) The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust, nor shall such death or
incapacity entitle such Certificateholder's legal representatives or heirs to
claim an accounting or to take any action or commence any proceeding in any
court for a partition or winding up of the Trust, nor otherwise affect the
rights, obligations and liabilities of the parties hereto or any of them.
(b) No Certificateholder shall have any right to vote (except
with respect to the Investor Certificateholders as provided in Section 13.1
hereof) or in any manner otherwise control the operation and management of the
Trust, or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
(c) No Certificateholder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Certificateholder previously shall have given written notice to the Trustee, and
unless the Holders of Certificates evidencing Undivided Interests aggregating
more than 50% of the Investor Interest of any Series which may be adversely
affected but for the institution of such suit, action or proceeding, shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted by each
Certificateholder with every other
<PAGE>
89
Certificateholder and the Trustee, that no one or more Certificateholders shall
have the right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Certificateholders of any other of the Certificates, or to
obtain or seek to obtain priority over or preference to any other such
Certificateholder, or to enforce any right under this Agreement, except in the
manner herein provided and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section 13.3, each and every Certificateholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
Section 13.4 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, AND WITHOUT,
LIMITING THE GENERALITY OF THE FOREGOING, THE IMMUNITY AND STANDARD OF CARE OF
THE TRUSTEE IN THE ADMINISTRATION OF THE TRUST HEREUNDER SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
Section 13.5 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
when personally delivered at, sent by facsimile to, (ii) two Business Days after
being sent by courier at or (iii) five Business Days after being mailed by
registered mail, return receipt requested, to (a) in the case of the Transferor,
to Dillard Asset Funding Company, c/o Chase Manhattan Bank Delaware, 1201 Market
Street, Wilmington, Delaware 19801, Attention: Corporate Trust Department, with
copies to James Freeman and David Helm, as Administrators, c/o Dillard's Inc.,
1600 Cantrell, Little Rock, Arkansas 72201, (b) in the case of the Servicer, to
Dillard National Bank, 396 North William Dillard Drive, Gilbert, Arizona 85233,
Attention Randall Hankins, (c) in the case of the Trustee, to the Corporate
Trust Office, (d) in the case of the Credit Enhancement Provider for a
particular Series, the address, if any, specified in the Supplement relating to
such Series and (e) in the case of the Rating Agency for a particular Series,
the address, if any, specified in the Supplement relating to such Series; or, as
to each party, at such other address as shall be designated by such party in a
written notice to each other party. Unless otherwise provided with respect to
any Series in the related Supplement any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Certificateholder as shown in the Certificate
Register, or with respect to any notice required or permitted to be made to the
Holders of Bearer Certificates, by publication in the manner provided in the
related Supplement. If and so long as any Series or Class is listed on the
Luxembourg Stock Exchange and such Exchange shall so require, any Notice to
Investor Certificateholders shall be published in an authorized newspaper of
general circulation in Luxembourg within the time period prescribed in this
Agreement. Any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
<PAGE>
88
Section 13.6 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 severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity of
enforceability of the other provisions of this Agreement or of the Certificates
or rights of the Certificateholders thereof.
Section 13.7 [RESERVED]
Section 13.8 Certificates Non-Assessable and Fully Paid. It is
the intention of the parties to this Agreement that the Certificateholders shall
not be personally liable for obligations of the Trust, that the Undivided
Interests represented by the Certificates shall be non-assessable for any losses
or expenses of the Trust or for any reason whatsoever, and that Certificates
upon authentication thereof by the Trustee pursuant to Sections 2.1 and 6.2 are
and shall be deemed fully paid.
Section 13.9 Further Assurances. The Transferor and the
Servicer agree to do and perform, from time to time, any and all acts and to
execute any and all further instruments required or reasonably requested by the
Trustee more fully to effect the purposes of this Agreement, including, without
limitation, the execution of any financing statements or continuation statements
relating to the Receivables for filing under the provisions of the Uniform
Commercial Code of any applicable jurisdiction.
Section 13.10 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Trustee, any Credit
Enhancement Provider or the Investor Certificateholders, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exhaustive of any rights, remedies,
powers and privileges provided by law.
Section 13.11 Counterparts. This Agreement may be executed in
two or more counterparts (and by different parties on separate counterparts),
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
Section 13.12 Third-Party Beneficiaries. This Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Certificateholders and, to the extent provided in the related Supplement, to the
Credit Enhancement Provider named therein, and their respective successors and
permitted assigns. Except as otherwise provided in this Article XIII, no other
Person will have any right or obligation hereunder.
Section 13.13 Actions by Certificateholders.
<PAGE>
91
(a) Wherever in this Agreement a provision is made that an
action may be taken or a notice, demand or instruction given by Investor
Certificateholders, such action, notice or instruction may be taken or given by
any Investor Certificateholder, unless such provision requires a specific
percentage of Investor Certificateholders.
(b) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Certificateholder shall bind such
Certificateholder and every subsequent holder of such Certificate issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done or omitted to be done by the Trustee or the Servicer
in reliance thereon, whether or not notation of such action is made upon such
Certificate.
Section 13.14 Rule 144A Information. For so long as any of the
Investor Certificates of any Series or any Class are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, each of the
Transferor, the Servicer, the Trustee and the Enhancement Provider for such
Series agree to cooperate with each other to provide to any Investor
Certificateholders of such Series or Class and to any prospective purchaser of
Certificates designated by such an Investor Certificateholder upon the request
of such Investor Certificateholder or prospective purchaser, any information
required to be provided to such holder or prospective purchaser to satisfy the
condition set forth in Rule 144A(d)(4) under the Securities Act.
Section 13.15 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.
Section 13.16 Headings. The headings herein are for purposes
of reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
<PAGE>
92
IN WITNESS WHEREOF, the Transferor, the Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers as of the day and year first above written.
DILLARD ASSET FUNDING COMPANY
Transferor
By:
---------------------------------
Name:
Title: Vice President
DILLARD NATIONAL BANK
Servicer
By:
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
Trustee
By:
---------------------------------
Name:
Title:
<PAGE>
- --------------------------------------------------------------------------------
DILLARD ASSET FUNDING COMPANY,
Transferor,
DILLARD NATIONAL BANK,
Servicer
and
THE CHASE MANHATTAN BANK,
Trustee
on behalf of the Investor Certificateholders
Series 1999-1 SUPPLEMENT
Dated as of _________________, 1999
to
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
Dated as _________________, 1999
DILLARD CREDIT CARD MASTER TRUST
Series 1999-1
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. Designation...........................................................................................1
SECTION 2. Definitions...........................................................................................1
SECTION 3. Servicing Compensation...............................................................................14
SECTION 4. Reassignment and Transfer Terms......................................................................14
SECTION 5. Delivery and Payment for the Investor Certificates...................................................14
SECTION 6. Depository; Form of Delivery of Investor Certificates................................................14
SECTION 7. Article IV of Agreement..............................................................................15
SECTION 4.4 Rights of Investor Certificateholders...........................................................15
SECTION 4.5 Allocations ....................................................................................15
SECTION 4.6 Determination of Monthly Interest...............................................................18
SECTION 4.7 Determination of Monthly Principal..............................................................19
SECTION 4.8 Coverage of Required Amount.....................................................................19
SECTION 4.9 Monthly Payments................................................................................20
SECTION 4.10 Investor Charge-Offs...........................................................................23
SECTION 4.11 Excess Spread..................................................................................24
SECTION 4.12 Reallocated Principal Collections..............................................................25
SECTION 4.13 Shared Principal Collections...................................................................25
SECTION 4.14 Principal Funding Account......................................................................25
SECTION 4.15 Reserve Account................................................................................26
SECTION 4.16 Determination of LIBOR.........................................................................28
SECTION 4.17 Transferor's or Servicer's Failure to Make a Deposit or Payment................................29
SECTION 8. Article V of the Agreement...........................................................................29
SECTION 5.1 Distributions...................................................................................29
SECTION 5.2 Monthly Series 1999-1 Certificateholders' Statement.............................................29
SECTION 9. Series 1999-1 Pay Out Events.........................................................................31
SECTION 10. Issuance of Additional Certificates.................................................................33
SECTION 11. Series 1999-1 Termination...........................................................................34
SECTION 12. Counterparts........................................................................................34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 13. Governing Law.......................................................................................34
SECTION 14. No Petition.........................................................................................34
SECTION 15. Tax Representation and Covenant.....................................................................34
</TABLE>
EXHIBITS
EXHIBIT A-1 Form of Class A Certificate
EXHIBIT A-2 Form of Class B Certificate]
EXHIBIT B Form of Monthly Payment Instructions
and Notification to the Trustee
EXHIBIT C Form of Monthly Series 1999-1
Certificateholders' Statement
SCHEDULE I Schedule to Exhibit C of the Pooling and Servicing Agreement
with respect to the Investor Certificates
ii
<PAGE>
Series 1999-1 SUPPLEMENT, dated as of ______________, 1999
(this "Series Supplement"), by and among DILLARD ASSET FUNDING COMPANY, as
Transferor, DILLARD NATIONAL BANK, as Servicer, and THE CHASE MANHATTAN BANK, as
Trustee under the Amended Pooling and Servicing Agreement dated as of
_______________, 1999 between the Transferor, the Servicer and the Trustee (as
may be amended, modified or supplemented from time to time, the "Agreement").
Section 6.9 of the Agreement provides, among other things,
that the Transferor and the Trustee may at any time and from time to time enter
into a supplement to the Agreement for the purpose of authorizing the delivery
by the Trustee to the Transferor for the execution and redelivery to the Trustee
for authentication of one or more Series of Certificates.
Pursuant to this Series Supplement, the Transferor and the
Trust shall create a new Series of Investor Certificates and shall specify the
Principal Terms thereof.
SECTION I1. Designation.
(a) There is hereby created a Series of Investor Certificates
to be issued in two classes pursuant to the Agreement and this Series
Supplement. The two classes shall be desig nated the Class A |X|% Floating Rate
Asset Backed Certificates, Series 1999-1 (the "Class A Certificates") and the
Class B Asset Backed Certificates, Series 1999-1 (the "Class B Certifi cates").
The Class A Certificates and the Class B Certificates shall be substantially in
the form of Exhibits A-1 and A-2 hereto, respectively.
(b) Series 1999-1 shall be included in Group One (as defined
below). Series 1999- 1 shall not be subordinated to any other Series.
(c) Notwithstanding the foregoing, except as expressly
provided herein, (i) the provisions of Article VI and Article XII of the
Agreement relating to the registration, authentication, delivery, presentation,
cancellation and surrender of Registered Certificates shall not be applicable to
the Class B Certificates, (ii) the Opinion of Counsel specified in clause (d) of
the sixth sentence of Section 6.9(b) of the Agreement shall not be required with
respect to the Class B Certificates and (iii) the Tax Opinion specified in
clause (e) of the sixth sentence of Section 6.9(b) of the Agreement shall
address the effect of the issuance of the Class B Certificates but parts (a) and
(c) of any such Tax Opinion shall not address, or be required to address, any
tax consequences that shall result to any Class B Certificateholder.
SECTION I2. Definitions.
In the event that any term or provision contained herein shall
conflict with or be inconsistent with any provision contained in the Agreement,
the terms and provisions of this Series Supplement shall govern. All Article,
Section or subsection references herein shall mean Articles, Sections or
subsections of the Agreement, except as otherwise provided herein. All
capitalized terms
<PAGE>
not otherwise defined herein are defined in the Agreement. Each capitalized term
defined herein shall relate only to the Investor Certificates and no other
Series of Certificates issued by the Trust.
"Accumulation Period" shall mean, solely for the purposes of
the definition of Monthly Principal Payment as such term is defined in each
Supplement, the Controlled Accumulation Period.
"Accumulation Period Factor" shall mean, for each Monthly
Period, a fraction, the numerator of which is equal to the sum of the initial
investor interests (or other amounts specified in the applicable Supplement) of
all outstanding Series, and the denominator of which is equal to the sum of (a)
the Initial Investor Interest, (b) the initial investor interests (or other
amounts specified in the applicable Supplement) of all outstanding Series (other
than Series 1999-1) which are not expected to be in their revolving periods, and
(c) the initial investor interests (or other amounts specified in the applicable
Supplement) of all other outstanding Series which are not allo cating Shared
Principal Collections to other Series and are in their revolving periods.
"Accumulation Period Length" shall have the meaning assigned
such term in subsection 4.9(i).
"Accumulation Shortfall" shall initially mean zero and shall
thereafter mean, with respect to any Monthly Period during the Controlled
Accumulation Period, the excess, if any, of the Deposit Amount for the previous
Monthly Period over the amount deposited into the Principal Funding Account
pursuant to subsection 4.9(e)(i) with respect to the Class A Certificates for
the previous Monthly Period.
"Additional Certificate Date" shall have the meaning assigned
such term in subsection 10(a).
"Additional Certificates" shall have the meaning assigned such
term in subsection 10(a).
"Adjusted Investor Interest" shall mean, with respect to any
date of determination, an amount equal to the sum of (a) the Class A Adjusted
Investor Interest and (b) the Class B Investor Interest.
"Aggregate Investor Default Amount" shall mean, with respect
to any Monthly Period, the sum of the Investor Default Amounts in respect of
such Monthly Period.
"Available Investor Principal Collections" shall mean with
respect to any Monthly Period, an amount equal to (a) the Investor Principal
Collections for such Monthly Period, minus (b) the amount of Reallocated Class B
Principal Collections with respect to such Monthly Period which pursuant to
Section 4.12 are required to fund the Class A Required Amount, plus (c) the
amount of Shared Principal Collections that are allocated to Series 1999-1 in
accordance with subsection 4.13(b).
2
<PAGE>
"Available Reserve Account Amount" shall mean, with respect to
any Transfer Date, the lesser of (a) the amount on deposit in the Reserve
Account on such date (after taking into account any interest and earnings
retained in the Reserve Account pursuant to subsection 4.15(b) on such date, but
before giving effect to any deposit made or to be made pursuant to subsection
4.11(i) to the Reserve Account on such date) and (b) the Required Reserve
Account Amount.
"Base Rate" shall mean, with respect to any Monthly Period,
the annualized percentage equivalent of a fraction, the numerator of which is
equal to the sum of the Class A Monthly Interest for the related Interest
Period, and the Investor Servicing Fee with respect to such Monthly Period and
the denominator of which is the Class A Investor Interest as of the close of
business on the last day of such Monthly Period.
"Class A Additional Interest" shall have the meaning specified
in Section 4.6(a).
"Class A Adjusted Investor Interest" shall mean, with respect
to any date of determination, an amount equal to the Class A Investor Interest
minus the Principal Funding Account Balance on such date of determination.
"Class A Available Funds" shall mean, with respect to any
Monthly Period, an amount equal to the sum of (a) the Class A Floating
Allocation of the Collections of Finance Charge Receivables allocated to the
Investor Certificates and deposited in the Finance Charge Account for such
Monthly Period (or to be deposited in the Finance Charge Account on the related
Transfer Date with respect to the preceding Monthly Period pursuant to the third
paragraph of subsection 4.3(a) and Section 2.8 of the Agreement and subsection
3(b) of this Series Supplement), (b) with respect to any Monthly Period during
the Controlled Accumulation Period prior to the payment in full of the Class A
Investor Interest, the Principal Funding Investment Proceeds arising pursuant to
subsection 4.14(b), if any, with respect to the related Transfer Date and (c)
the Reserve Draw Amount (up to the Available Reserve Draw Account Amount) plus
any amounts of interest and earnings described in subsections 4.15(b) and
4.15(d) which will be deposited into the Finance Charge Account on the related
Transfer Date.
"Class A Certificate Rate" shall mean from the Closing Date
through ___________, 1999 and with respect to each Interest Period thereafter, a
per annum rate equal to o% per annum in excess of LIBOR, as determined on the
related LIBOR Determination Date.
"Class A Certificateholder" shall mean the Person in whose
name a Class A Certificate is registered in the Certificate Register.
"Class A Certificates" shall mean any of the certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-1 hereto.
"Class A Deficiency Amount" shall have the meaning specified
in subsection 4.6(a).
3
<PAGE>
"Class A Fixed Allocation" shall mean, with respect to any
Monthly Period following the Revolving Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is 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.
"Class A Floating Allocation" shall mean, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is the Class A Adjusted Investor
Interest as of the close of business on the last day of the preceding Monthly
Period and the denominator of which is equal to the Adjusted Investor Interest
as of the close of business on such day; provided, however, that, with respect
to the first Monthly Period, the Class A Floating Allocation shall mean the
percentage equivalent of a fraction, the numerator of which is the Class A
Initial Investor Interest and the denominator of which is the Initial Investor
Interest.
"Class A Initial Investor Interest" shall mean the aggregate
initial principal amount of the Class A Certificates, which is $|X|.
"Class A Investor Allocation" shall mean, with respect to any
Monthly Period, (a) with respect to Default Amounts and Finance Charge
Receivables at any time and Principal Receivables during the Revolving Period,
the Class A Floating Allocation, and (b) with respect to Principal Receivables
during the Controlled Accumulation Period or Rapid Amortization Period, the
Class A Fixed Allocation.
"Class A Investor Charge-Offs" shall have the meaning
specified in subsection 4.10(a).
"Class A Investor Default Amount" shall mean, with respect to
each Transfer Date, an amount equal to the product of (a) the Aggregate Investor
Default Amount for the related Monthly Period and (b) the Class A Floating
Allocation applicable for the related Monthly Period.
"Class A Investor Interest" shall mean, on any date of
determination, an amount equal to (a) the Class A Initial Investor Interest,
minus (b) the aggregate amount of principal pay ments made to Class A
Certificateholders prior to such date and minus (c) the excess, if any, of the
aggregate amount of Class A Investor Charge-Offs pursuant to subsection 4.10(a)
over Class A Investor Charge-Offs reimbursed pursuant to subsection 4.11(b)
prior to such date of determination; provided, however, that the Class A
Investor Interest may not be reduced below zero.
"Class A Monthly Interest" shall have the meaning specified in
subsection 4.6(a).
"Class A Monthly Principal" shall mean the monthly principal
distributable in respect of the Class A Certificates as calculated in accordance
with subsection 4.7(a).
"Class A Required Amount" shall have the meaning specified in
subsection 4.8(a).
4
<PAGE>
"Class A Scheduled Payment Date" shall mean the___________
Distribution Date.
"Class A Servicing Fee" shall have the meaning specified in
subsection 3 of this Series Supplement.
"Class B Available Funds" shall mean, with respect to any
Monthly Period, an amount equal to the Class B Floating Allocation of the
Collections of Finance Charge Receivables and allocated to the Investor
Certificates and deposited in the Finance Charge Account for such Monthly Period
(or to be deposited in the Finance Charge Account on the related Transfer Date
with respect to the preceding Monthly Period pursuant to the third paragraph of
subsection 4.3(a) of the Agreement and subsection 3(b) of this Series
Supplement).
"Class B Certificateholder" shall mean the person named on a
Class B Certificate.
"Class B Certificates" shall mean any of the certificates
executed by the Transferor and substantially in the form of Exhibit A-2 hereto.
"Class B Fixed Allocation" shall mean, with respect to any
Monthly Period following the Revolving Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is 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.
"Class B Floating Allocation" shall mean, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is the Class B Investor Interest as
of the close of business on the last day of the preceding Monthly Period and the
denominator of which is equal to the Adjusted Investor Interest as of the close
of business on such day; provided, however, that, with respect to the first
Monthly Period, the Class B Floating Allocation shall mean the percentage
equivalent of a fraction, the numerator of which is the Class B Initial Investor
Interest and the denominator of which is the Initial Investor Interest.
"Class B Initial Investor Interest" shall mean the aggregate
initial principal amount of the Class B Certificates, which is $|X|.
"Class B Investor Allocation" shall mean, with respect to any
Monthly Period, (a) with respect to Default Amounts and Finance Charge
Receivables at any time or Principal Receivables during the Revolving Period,
the Class B Floating Allocation, and (b) with respect to Principal Receivables
during the Controlled Accumulation Period or Rapid Amortization Period, the
Class B Fixed Allocation.
"Class B Investor Charge-Offs" shall have the meaning
specified in subsection 4.10(c).
5
<PAGE>
"Class B Investor Default Amount" shall mean, with respect to
each Transfer Date, an amount equal to the product of (a) the Aggregate Investor
Default Amount for the related Monthly Period and (b) the Class B Floating
Allocation applicable for the related Monthly Period.
"Class B Investor Interest" shall mean, on any date of
determination, an amount equal to (a) the Class B Initial Investor Interest,
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 pursuant to subsection
4.10(c), minus (d) the amount of Reallocated Class B Principal Collections
allocated pursuant to subsection 4.12(a) on all prior Transfer Dates, minus (e)
an amount equal to the amount by which the Class B Investor Interest has been
reduced on all prior Transfer Dates pursuant to subsections 4.10(a) and (c), and
plus (f) the aggregate amount of Excess Spread allocated and available on all
prior Transfer Dates pursuant to subsection 4.11(h), 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.
"Class B Monthly Principal" shall mean the monthly principal
distributable in respect of the Class B Certificates as calculated in accordance
with subsection 4.7(c).
"Class B Servicing Fee" shall have the meaning specified in
subsection 3 hereof.
"Closing Date" shall mean _________________, 1999.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Controlled Accumulation Amount" shall mean for any Transfer
Date with respect to the Controlled Accumulation Period prior to the payment in
full of the Class A Investor Interest, $|X|; provided, however, that if the
Accumulation Period Length is determined to be less than 12 months pursuant to
subsection 4.9(i), the Controlled Accumulation Amount for each Transfer Date
with respect to the Controlled Accumulation Period prior to the payment in full
of the Class A Investor Interest will be equal to (x) the Class A Initial
Investor Interest divided by (y) the number of Monthly Periods in the Controlled
Accumulation Period as determined pursuant to subsection 4.9(i).
"Controlled Accumulation Period" shall mean, unless a Pay Out
Event shall have occurred prior thereto, the period commencing at the close of
business on __________________ or such later date as is determined in accordance
with subsection 4.9(i) and ending on the first to occur of (a) the commencement
of the Rapid Amortization Period and (b) the Series 1999-1 Termination Date.
"Covered Amount" shall mean, as of the Transfer Date with
respect to any Interest Period, an amount equal to the product of (a) (i) a
fraction, the numerator of which is the actual number of days in such 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 close of business on the Distribution Date
preceding such Transfer Date (after giving effect to all of the transactions
occurring on such date).
6
<PAGE>
"Cumulative Series Principal Shortfall" shall mean the sum of
the Series Principal Shortfalls (as such term is defined in each of the related
Series Supplements) for each Series.
"Daily Principal Shortfall" shall mean, on any date of
determination, the excess of the Monthly Principal Payment for the Monthly
Period relating to such date over the month to date amount of Collections
processed in respect of Principal Receivables for such Monthly Period allocable
to investor certificates of all outstanding Series, not subject to reallocation,
which are on deposit or to be deposited in the Principal Account on such date.
"Deposit Amount" shall mean, with respect to any Transfer
Date, the sum of (a) the Controlled Accumulation Amount for such Transfer Date
and (b) any existing Accumulation Shortfall.
"Distribution Date" shall mean |X| 15, 1999 and the fifteenth
day of each calendar month thereafter, or if such fifteenth day is not a
Business Day, the next succeeding Business Day.
"Excess Principal Funding Investment Proceeds" shall mean,
with respect to each Transfer Date relating to the Controlled Accumulation
Period, the amount, if any, by which the Principal Funding Investment Proceeds
for such Transfer Date exceed the Covered Amount determined on such Transfer
Date.
"Excess Spread" shall mean, with respect to any Transfer Date,
the sum of the amounts with respect to such Transfer Date, if any, specified
pursuant to subsections 4.9(a)(iv) and 4.9(c)(ii).
"Finance Charge Shortfall" shall mean, with respect to any
Transfer Date, the excess, if any, of the amount distributable pursuant to the
subsections 4.11(a) through (i) over Excess Spread.
"Fixed Investor Percentage" shall mean, 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 (a) the sum of
(i) the aggregate amount of Principal Receivables in the Trust determined as of
the close of business on the last day of the prior Monthly Period and (ii) the
Excess Funding Amount as of the close of business on such last day of the prior
Monthly Period and (b) the sum of the numerators used to calculate the Investor
Percentages (as such term is defined in the Agreement) for allocations with
respect to Principal Receivables for all outstanding Series on such date of
determination; provided, however, that with respect to any Monthly Period in
which an Addition Date occurs or in which a Removal Date occurs, the amount
determined pursuant to clause (a)(i) hereof shall be the quotient of (A) the sum
of (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 multiplied by the
actual number of days in 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 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
7
<PAGE>
Date, multiplied by the actual number of days in the period from and including
the related Addition Date or Removal Date to and including the last day of such
Monthly Period over (B) the actual number of days in such Monthly Period.
"Floating Investor Percentage" shall mean, 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 prior Monthly Period (or with respect to the first Monthly Period, the
Initial Investor Interest) and the denominator of which is the greater of (a)
the sum of (i) the aggregate amount of Principal Receivables as of the close of
business on the last day of the prior Monthly Period (or with respect to the
first calendar month in the first Monthly Period, the aggregate amount of
Principal Receivables in the Trust as of the close of business on the day
immediately preceding the Closing Date, and with respect to the second calendar
month in the first Monthly Period, the aggregate amount of Principal Receivables
as of the close of business on the last day of the first calendar month in the
first Monthly Period) and (ii) the Excess Funding Amount as of the close of
business on such last day of the prior Monthly Period and (b) the sum of the
numerators used to calculate the Investor Percentages (as such term is defined
in the Agreement) 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 Date occurs or in which a Removal Date
occurs, the amount determined pursuant to clause (a)(i) hereof shall be the
quotient of (A) the sum of (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 multiplied by the actual number of days in 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 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,
multiplied by the actual number of days of the period from and including the
related Addition Date or Removal Date to and including the last day of such
Monthly Period over (B) the actual number of days in such Monthly Period.
"Group One" shall mean Series 1999-1 and each other Series
specified in the related Supplement to be included in Group One.
"Initial Investor Interest" shall mean $|X|; provided,
however, that following the issuance of any Additional Certificates pursuant to
Section 10 hereof "Initial Investor Interest" shall mean the sum of $|X| and the
initial investor interest of such Additional Certificates.
"Interest Period" shall mean, with respect to any Distribution
Date, the period from and including the previous Distribution Date through the
day preceding such Distribution Date, except that the initial Interest Period
shall be the period from and including the Closing Date through the day
preceding the initial Distribution Date.
8
<PAGE>
"Investor Certificateholder" shall mean (a) with respect to
the Class A Certificates, the holder of record of a Class A Certificate and (b)
with respect to the Class B Certificates, the Class B Certificateholder.
"Investor Certificates" shall mean the Class A Certificates
and the Class B Certificates.
"Investor Default Amount" shall mean, with respect to any
Receivable in a Defaulted Account, an amount equal to the product of (a) the
Default Amount and (b) the Floating Investor Percentage on the day such Account
became a Defaulted Account.
"Investor Interest" shall mean, on any date of determination,
an amount equal to the sum of (a) the Class A Investor Interest and (b) the
Class B Investor Interest, each as of such date.
"Investor Percentage" shall mean for any Monthly Period, (a)
with respect to collections of Finance Charge Receivables and Default Amounts at
any time and collections of Principal Receivables during the Revolving Period,
the Floating Investor Percentage and (b) with respect to collections of
Principal Receivables during the Controlled Accumulation Period or the Rapid
Amortization Period, the Fixed Investor Percentage.
"Investor Principal Collections" shall mean, with respect to
any Monthly Period, the sum of (a) the aggregate amount deposited into the
Principal Account for such Monthly Period pursuant to subsections 4.5(a)(ii) and
(iv), 4.5(b)(ii) and (iv) or 4.5(c)(ii), in each case, as applicable to such
Monthly Period and (b) the aggregate amount to be treated as Investor Principal
Collections pursuant to subsections 4.9(a)(iii) and 4.11(a), (b), (c), (d), (g)
and (h) for such Monthly Period (other than such amount paid from Reallocated
Principal Collections).
"Investor Servicing Fee shall have the meaning specified in
subsection 3 hereof.
"LIBOR" shall mean, for any Interest Period, the London
interbank offered rate for one-month United States dollar deposits determined by
the Trustee for each Interest Period in accordance with the provisions of
Section 4.16.
"LIBOR Determination Date" shall mean ___________, 1999 for
the period from the Closing Date through _____________, 1999, and the second
London Business Day prior to the commencement of the second and each subsequent
Interest Period.
"London Business Day" shall mean any Business Day on which
dealings in deposits in United States dollars are transacted in the London
interbank market.
"Minimum Transferor Interest Percentage" shall mean |X|%.
9
<PAGE>
"Monthly Period" shall have the meaning specified in the
Agreement, except that the first Monthly Period with respect to the Investor
Certificates shall begin on and include the Closing Date and shall end on and
include |X|, 1999
"Monthly Principal Payment" shall mean with respect to any
Monthly Period, for all Series (including Series 1999-1) which are in an
Amortization Period or Accumulation Period (as such terms are defined in the
related Supplements for all Series), the sum of (a) the Controlled Distribution
Amount for the related Transfer Date for any Series in its Controlled
Amortization Period (as such terms are defined in the related Supplements for
all Series), (b) the Deposit Amount for the related Transfer Date for any Series
in its Accumulation Period, other than its Rapid Accumulation Period, if
applicable (as such terms are defined in the related Supplements for all
Series), (c) the Investor Interest as of the end of the prior Monthly Period
taking into effect any payments to be made on the following Distribution Date
for any Series in its Principal Amortization Period or Rapid Amortization Period
(as such terms are defined in the related Supplements for all Series), (d) the
Adjusted Investor Interest as of the end of the prior Monthly Period taking into
effect any payments or deposits to be made on the following Transfer Date and
Distribution Date for any Series in its Rapid Accumulation Period (as such terms
are defined in the related Supplements for all Series), (e) the excess of the
Class B Investor Interest as of the Transfer Date occurring in such Monthly
Period over the Required Class B Investor Interest for the related Transfer
Date, assuming no Accumulation Shortfall and (f) such other amounts as may be
specified in the related Supplements for all Series.
"Paying Agent" shall mean The Chase Manhattan Bank.
"Pay Out Commencement Date" shall mean the date on which a
Trust Pay Out Event is deemed to occur pursuant to Section 9.1 or a Series
1999-1 Pay Out Event is deemed to occur pursuant to Section 9 hereof.
"Portfolio Adjusted Yield" shall mean, with respect to any
Transfer Date, the average of the percentages obtained for each of the three
preceding Monthly Periods by subtracting the Base Rate from the Portfolio Yield
for such Monthly Period and deducting |X|% from the result for each Monthly
Period.
"Portfolio Yield" shall mean, with respect to any Monthly
Period, the annualized percentage equivalent of a fraction, the numerator of
which is an amount equal to the sum of (a) the amount of Collections of Finance
Charge Receivables deposited into the Finance Charge Account and allocable to
the Investor Certificates for such Monthly Period (b) the Principal Funding
Investment Proceeds deposited into the Finance Charge Account on the Transfer
Date related to such Monthly Period and (c) the amount of the Reserve Draw
Amount (up to the Available Reserve Account Amount) plus any amounts of interest
and earnings described in subsections 4.15(b) and (d), each deposited into the
Finance Charge Account on the Transfer Date relating to such Monthly Period,
such sum to be calculated on a cash basis after subtracting the Aggregate
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.
10
<PAGE>
"Principal Funding Account" shall have the meaning set forth
in subsection 4.14(a).
"Principal Funding Account Balance" shall mean, with respect
to any date of determination, the principal amount, if any, on deposit in the
Principal Funding Account on such date of determination.
"Principal Funding Investment Proceeds" shall mean, with
respect to each Transfer Date, the investment earnings on funds in the Principal
Funding Account (net of investment expenses and losses) for the period from and
including the immediately preceding Transfer Date to but excluding such Transfer
Date.
"Principal Funding Investment Shortfall" shall mean, with
respect to each Transfer Date relating to the Controlled Accumulation Period,
the amount, if any, by which the Principal Funding Investment Proceeds for such
Transfer Date are less than the Covered Amount determined as of such Transfer
Date.
"Rapid Amortization Period" shall mean the Amortization Period
commencing on the Pay Out Commencement Date and ending on the earlier to occur
of (a) the Series 1999-1 Termination Date and (b) the termination of the Trust
pursuant to Section 12.1.
"Rating Agency" shall mean Moody's and Standard & Poor's.
"Reallocated Class B Principal Collections" shall mean, with
respect to any Transfer Date, Collections of Principal Receivables applied in
accordance with subsection 4.12(a) in an amount not to exceed the product of (a)
the Class B Investor Allocation with respect to the Monthly Period relating to
such Transfer Date and (b) the Investor Percentage with respect to the Monthly
Period relating to such Transfer Date and (c) the amount of Collections of
Principal Receivables with respect to the Monthly Period relating to such
Transfer Date; provided however, that such amount shall not exceed the Class B
Investor Interest after giving effect to any Class B Investor Charge-Offs for
such Transfer Date.
"Reallocated Principal Collections" shall mean the Reallocated
Class B Principal Collections.
"Reference Banks" shall mean four major banks in the London
interbank market selected by the Servicer. The Servicer agrees that one of such
banks shall be [The Chase Manhattan Bank].
"Required Accumulation Factor Number" shall be equal to a
fraction, rounded upwards to the nearest whole number, the numerator of which is
one and the denominator of which is equal to the lowest monthly principal
payment rate on the Accounts, expressed as a decimal, for the 12 months
preceding the date of such calculation.
11
<PAGE>
"Required Class B Investor Interest" shall mean (a) as of the
Closing Date, the Class B Initial Investor Interest and (b) on any Transfer Date
thereafter, |X|% of the sum of the Class A Adjusted Investor Interest and the
Class B Investor 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 Class B Investor Interest
on the prior Transfer Date, after any adjustments to be made on such date, but
not less than $|X|; provided, however, that (x) if either (i) there is a
reduction in the Class B Investor Interest pursuant to clause (c), (d) or (e) of
the definition of such term or (ii) a Pay Out Event with respect to the Investor
Certificates has occurred, the Required Class B Investor Interest for any
Transfer Date shall equal the Required Class B Investor Interest for the
Transfer Date immediately preceding such reduction or Pay Out Event, (y) in no
event shall the Required Class B Investor Interest exceed the sum of the
outstanding principal amount of the Class A Certificates, as of the last day of
the Monthly Period preceding such Transfer Date after taking into account the
payments to be made on the related Distribution Date and (z) the Required Class
B Investor Interest may be reduced at the Transferor's option at any time if the
Transferor, the Servicer, the Class B Certificateholder and the Trustee have
been provided evidence that the Rating Agency Condition shall have been
satisfied with respect to such reduction.
"Required Reserve Account Amount" shall mean, with respect to
any Transfer Date on or after the Reserve Account Funding Date, an amount equal
to (a) |X|% of the outstanding principal balance of the Class A Certificates or
(b) any other amount designated by the Transferor; provided, however, that if
such designation is of a lesser amount, the Transferor shall (i) provide the
Servicer, the Class B Certificateholder and the Trustee with evidence that the
Rating Agency Condition shall have been satisfied and (ii) deliver 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 the
Transferor, 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 1999-1.
"Reserve Account" shall have the meaning specified in
subsection 4.15(a).
"Reserve Account Funding Date" shall mean the Transfer Date
which occurs not later than the earliest of (a) the Transfer Date with respect
to the Monthly Period which commences three months prior to the commencement of
the Controlled Accumulation Period; (b) the first Transfer Date for which the
Portfolio Adjusted Yield is less than |X|%, but in such event the Reserve
Account Funding Date shall not be required to occur earlier than the Transfer
Date with respect to the Monthly Period which commences 12 months prior to the
commencement of the Controlled Accumulation Period; (c) the first Transfer Date
for which the Portfolio Adjusted Yield is less than |X|%, but in such event the
Reserve Account Funding Date shall not be required to occur earlier than the
Transfer Date with respect to the Monthly Period which commences six months
prior to the commencement of the Controlled Accumulation Period; and (d) the
first Transfer Date for which the Portfolio Adjusted Yield is less than |X|%,
but in such event the Reserve Account Funding Date shall not be required to
occur earlier than the Transfer Date with respect to the Monthly Period which
commences four months prior to the commencement of the Controlled Accumulation
Period.
12
<PAGE>
"Reserve Account Surplus" shall mean, as of any Transfer Date
following the Reserve Account Funding Date, the amount, if any, by which the
amount on deposit in the Reserve Account exceeds the Required Reserve Account
Amount.
"Reserve Draw Amount" shall have the meaning specified in
subsection 4.15(c).
"Revolving Period" shall mean the period from and including
the Closing Date to, but not including, the earlier of (a) the day the
Controlled Accumulation Period commences and (b) the Pay Out Commencement Date.
"Series 1999-1" shall mean the Series of the Dillard Credit
Card Master Trust represented by the Investor Certificates.
"Series 1999-1 Certificateholders" shall mean the holder of
record of a Series 1999-1 Certificate.
"Series 1999-1 Certificates" shall mean the Class A
Certificates.
"Series 1999-1 Pay Out Event" shall have the meaning specified
in Section 9 hereof.
"Series 1999-1 Termination Date" shall mean the earliest to
occur of (a) the Distribution Date on which the Investor Interest is paid in
full, (b) the __________________ Distribution Date and (c) the Trust Termination
Date.
"Series Principal Shortfall" shall mean with respect to any
Transfer Date, the excess, if any, of (a) (i) with respect to any Transfer Date
relating to the Controlled Accumulation Period, the sum of (A) the Deposit
Amount for such Transfer Date, and (B) the excess, if any, of the Class B
Investor Interest for such Transfer Date over the Required Class B Investor
Interest for such Transfer Date and (ii) with respect to any Transfer Date
during the Rapid Amortization Period, the Adjusted Investor Interest over (b)
the Investor Principal Collections minus the Reallocated Principal Collections
for such Transfer Date.
"Series Servicing Fee Percentage" shall mean 2.0%.
"Shared Excess Finance Charge Collections" shall mean, with
respect to any Distribution Date, as the context requires, either (x) the amount
described in subsection 4.11(k) allocated to the Series 1999-1 Certificates but
available to cover shortfalls in amounts paid from Collections of Finance Charge
Receivables for other Series, if any or (y) the aggregate amount of Collections
of Finance Charge Receivables allocable to other Series in excess of the amounts
necessary to make required payments with respect to such Series, if any, and
available to cover shortfalls with respect to the Series 1999-1 Certificates.
13
<PAGE>
"Shared Principal Collections" shall mean either (a) the
amount allocated to the Investor Certificates which may be applied to the Series
Principal Shortfall with respect to other outstanding Series or (b) the amounts
allocated to the investor certificates of other Series which the applicable
Supplements for such Series specify are to be treated as "Shared Principal
Collections" and which may be applied to cover the Series Principal Shortfall
with respect to the Investor Certificates.
"Telerate Page 3750" shall mean 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).
"Unallocated Principal Collections" shall have the meaning
specified in subsection 4.5(d).
SECTION I3. Servicing Compensation. The share of the Servicing
Fee allocable to Series 1999-1 with respect to any Transfer Date (the "Investor
Servicing Fee") shall be equal to one-twelfth of the product of (i) the Series
Servicing Fee Percentage and (ii) 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 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
|X|, 1999 Monthly Period and the denominator of which is 360, (ii) the Series
Servicing Fee Percentage and (iii) the Investor Interest on the Closing Date.
The share of the Investor Servicing Fee allocable to the Class A Investor
Interest with respect to any Transfer Date (the "Class A Servicing Fee") shall
be equal to one-twelfth of the product of (i) the Class A Floating Allocation,
(ii) the Series Servicing Fee Percentage and (iii) 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 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 |X|, 1999
Monthly Period and the denominator of which is 360, (iii) the Series Servicing
Fee Percentage and (iv) the Investor Interest on the Closing Date. The remaining
portion of the Investor Servicing Fee will be allocable to the Class B Investor
Interest with respect to any Transfer Date (the "Class B Servicing Fee"). Except
as specifically provided above, the Servicing Fee shall be paid by the cash
flows from the Trust allocated to the Transferor or the certificate holders of
other Series (as provided in the related Supplements) and in no event shall the
Trust, the Trustee or the Investor Certificateholders be liable therefor. The
Class A Servicing Fee shall be payable to the Servicer solely to the extent
amounts are available for distribution in respect thereof pursuant to
subsections 4.9(a)(ii) and 4.11(a). The Class B Servicing Fee shall be payable
solely to the extent amounts are available for distribution in respect thereof
pursuant to subsection 4.11(f) or, if applicable, subsection 4.9(c)(i).
SECTION I4. Reassignment and Transfer Terms. The Investor
Certificates shall be subject to retransfer to the Transferor at its option, in
accordance with the terms specified in subsection 12.2(a), on any Distribution
Date on or after the Distribution Date on which the Investor Interest is reduced
to an amount less than or equal to 5.0% of the Initial Investor Interest. The
deposit required in
14
<PAGE>
connection with any such repurchase shall include the amount, if any, on deposit
in the Principal Funding Account and will be equal to the sum of (a) the
Investor Interest and (b) accrued and unpaid interest on the Investor
Certificates through the day preceding the Distribution Date on which the
repurchase occurs.
SECTION I5. Delivery and Payment for the Investor
Certificates. The Transferor shall execute the Investor Certificates and deliver
the Series 1999-1 Certificates to the Trustee for authentication in accordance
with Section 6.1. The Trustee shall deliver the Series 1999-1 Certificates when
authenticated in accordance with Section 6.2.
SECTION I6. Depository; Form of Delivery of Investor
Certificates.
(a) The Class A Certificates shall be delivered as Book-Entry
Certificates as provided in Sections 6.1 and 6.10. The Class B Certificate shall
be delivered as a definitive certificate registered in the name of the
Transferor or an Affiliate thereof.
(b) The Depository for the Series 1999-1 Certificates shall be
The Depository Trust Company, and the Class A Certificates shall be initially
registered in the name of Cede & Co., its nominee.
SECTION I7. Article IV of Agreement. Sections 4.1, 4.2 and 4.3
shall be read in their entirety as provided in the Agreement. Article IV (except
for Sections 4.1, 4.2 and 4.3 thereof) shall be read in its entirety as follows
and shall be applicable only to the Investor Certificates:
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.4 Rights of Investor Certificateholders. The
Investor Certificates shall represent undivided interests in the Trust,
consisting of the right to receive, to the extent necessary to make the required
payments with respect to such Investor Certificates at the times and in the
amounts specified in this Agreement, (a) the Floating Investor Percentage and
Fixed Investor Percentage (as applicable from time to time) of Collections
received with respect to the Receivables and (b) funds on deposit in the
Collection Account, the Finance Charge Account, the Excess Funding Account, the
Principal Account, the Principal Funding Account, the Reserve Account and the
Distribution Account. The Class B Certificates shall be subordinate to the Class
A Certificates. The Transferor Certificate shall not represent any interest in
the Collection Account, the Finance Charge Account, the Principal Account, the
Excess Funding Account, the Principal Funding Account, the Reserve Account or
the Distribution Account, except as specifically provided in this Article IV.
SECTION 4.5 Allocations.
15
<PAGE>
(a) Allocations During the Revolving Period. During the
Revolving Period, the Servicer shall, prior to the close of business on the day
any Collections are deposited in the Collection Account, allocate to the
Investor Certificateholders or the Holder of the Transferor Certificate and pay
or deposit from the Collection Account the following amounts as set forth below:
(i) Deposit into the Finance Charge Account an amount equal to
the product of (A) the Investor Percentage on the Date of Processing of
such Collections and (B) the aggregate amount of Collections processed
in respect of Finance Charge Receivables on such Date of Processing to
be applied in accordance with Section 4.9.
(ii) Deposit into the Principal Account an amount equal to the
product of (A) the Class B Investor Allocation on the Date of
Processing of such Collections, (B) the Investor Percentage on the Date
of Processing of such Collections and (C) the aggregate amount of
Collections processed in respect of Principal Receivables on such Date
of Processing to be applied first in accordance with Section 4.12 and
then in accordance with subsection 4.9(d).
(iii) [RESERVED]
(iv) (A) Deposit into the Principal Account an amount equal to
the product of (1) the Class A Investor Allocation on the Date of
Processing of such Collections, (2) the Investor Percentage on the Date
of Processing of such Collections and (3) the aggregate
amount of Collections processed in respect of Principal Receivables on
such Date of Processing; provided, however, that the amount deposited
into the Principal Account pursuant to this subsection 4.5(a)(iv)(A)
shall not exceed the Daily Principal Shortfall, and (B) pay to the
Holder of the Transferor Certificate an amount equal to the excess, if
any, identified in the proviso to clause (A) above; provided, however,
that the amount to be paid to the Holder of the Transferor Certificate
pursuant to this subsection 4.5(a)(iv)(B) with respect to any Date of
Processing shall be paid to the Holder of the Transferor Certificate
only if the Transferor Interest on such Date of Processing is greater
than the Minimum Transferor Interest (after giving effect to the
inclusion in the Trust of all Receivables created on or prior to such
Date of Processing and the application of payments referred to in
subsection 4.3(b)) and otherwise shall be deposited into the Excess
Funding Account.
(b) Allocations During the Controlled Accumulation Period.
During the Controlled Accumulation Period, the Servicer shall, prior to the
close of business on the day any Collections are deposited in the Collection
Account, allocate to the Investor Certificateholders or the Holder of the
Transferor Certificate and pay or deposit from the Collection Account the
following amounts as set forth below:
(i) Deposit into the Finance Charge Account an amount equal to
the product of (A) the Investor Percentage on the Date of Processing of
such Collections and (B) the aggregate amount of Collections processed
in respect of Finance Charge Receivables on such Date of Processing to
be applied in accordance with Section 4.9.
16
<PAGE>
(ii) Deposit into the Principal Account an amount equal to the
product of (A) the Class B Investor Allocation on the Date of
Processing of such Collections, (B) the Investor Percentage on the Date
of Processing of such Collections and (C) the aggregate amount of
Collections processed in respect of Principal Receivables on such Date
of Processing to be applied first in accordance with Section 4.12 and
then in accordance with subsection 4.9(e).
(iii) [RESERVED]
(iv) (A) Deposit into the Principal Account an amount equal to
the product of (1) the Class A Investor Allocation on the Date of
Processing of such Collections, (2) the Investor Percentage on the Date
of Processing of such Collections and (3) the aggregate amount of
Collections processed in respect of Principal Receivables on such Date
of Processing; provided, however, that the amount deposited into the
Principal Account pursuant to this subsection 4.5(b)(iv)(A) shall not
exceed the Daily Principal Shortfall, and (B) pay to the Holder of the
Transferor Certificate an amount equal to the excess, if any,
identified in the proviso to clause (A) above; provided, however, that
the amount to be paid to the Holder of the Transferor Certificate
pursuant to this subsection 4.5(b)(iv)(B) with respect to any Date of
Processing shall be paid to the Holder of the Transferor Certificate
only if the Transferor Interest on such Date of Processing is greater
than the Minimum Transferor Interest (after giving effect to the
inclusion in the Trust of all Receivables created on or prior to such
Date of Processing and the application of payments referred to in
subsection 4.3(b)) and otherwise shall be deposited into the Excess
Funding Account.
(c) Allocations During the Rapid Amortization Period. During
the Rapid Amortization Period, the Servicer shall, prior to the close of
business on the day any Collections are deposited in the Collection Account,
allocate to the Investor Certificateholders and pay or deposit from the
Collection Account the following amounts as set forth below:
(i) Deposit into the Finance Charge Account an amount equal to
the product of (A) the Investor Percentage on the Date of Processing of
such Collections and (B) the aggregate amount of Collections processed
in respect of Finance Charge Receivables on such Date of Processing to
be applied in accordance with Section 4.9.
(ii) (A) Deposit into the Principal Account an amount equal to
the product of (1) the Investor Percentage on the Date of Processing of
such Collections and (2) the aggregate amount of Collections processed
in respect of Principal Receivables on such Date of Processing;
provided, however, that the amount deposited into the Principal Account
pursuant to this subsection 4.5(c)(ii)(A) shall not exceed the sum of
the Investor Interest as of the close of business on the last day of
the prior Monthly Period (after taking into account any payments to be
made on the Distribution Date relating to such prior Monthly Period and
deposits and any adjustments to be made to the Investor Interest to be
made on the Transfer Date relating to such Monthly Period) and any
Reallocated Principal Collections relating to the Monthly Period in
which such deposit is made and (B) pay to the Holder of the Transferor
Certificate an
17
<PAGE>
amount equal to the excess, if any, identified in the
proviso to clause (A) above; provided, however, that the amount to be
paid to the Holder of the Transferor Certificate pursuant to this
subsection 4.5(c)(ii)(B) with respect to any Date of Processing shall
be paid to the Holder of the Transferor Certificate only if the
Transferor Interest on such Date of Processing is greater than the
Minimum Transferor Interest (after giving effect to the inclusion in
the Trust of all Receivables created on or prior to such Date of
Processing and the application of payments referred to in subsection
4.3(b)) and otherwise shall be deposited into the Excess Funding
Account.
(d) Limitation on Required Deposits. With respect to the
Investor Certificates, and notwithstanding anything in the Agreement or this
Series Supplement to the contrary, whether or not the Servicer is required to
make monthly or daily deposits from the Collection Account into the Finance
Charge Account or the Principal Account pursuant to subsections 4.5(a), 4.5(b)
and 4.5(c), 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 or the Principal Account in an amount equal to the lesser of (x)
the amount required to be deposited into any such deposit account pursuant to
subsection 4.5(a), 4.5(b) or 4.5(c) and (y) the amount required to be
distributed on or prior to the related Distribution Date to the Investor
Certificateholders 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. To the extent
that, in accordance with this subsection 4.5(d), the Servicer has retained
amounts which would otherwise be required to be deposited in the Finance Charge
Account or the Principal Account with respect to any Monthly Period, the
Servicer shall be required to deposit such amounts in the Finance Charge Account
or the Principal Account on the related Transfer Date to the extent necessary to
make required distributions to the Investor Certificateholders on the related
Distribution Date, including any amounts which are required to be applied as
Reallocated Principal Collections.
For so long as the Servicer shall (i) satisfy the conditions
specified in the third paragraph of subsection 4.3(a) of the Agreement and (ii)
be making deposits to the Principal Account and Finance Charge Account on a
monthly basis, all requirements herein to deposit amounts on a daily basis shall
be deemed to be satisfied to the extent that the required monthly deposit is
made and all references to amounts on deposit in such accounts shall be deemed
to include amounts which would otherwise have been deposited therein on a daily
basis.
SECTION 4.6 Determination of Monthly Interest.
(a) The amount of monthly interest distributable to the Class A
Certificates shall be an amount equal to the product of (i) (A) 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 (B) (i) the Class A Certificate Rate
in effect with respect to the related Interest Period, and (ii) the outstanding
principal balance of the Class A Certificates determined as of the close of
business on the Distribution Date preceding the related Transfer Date (after
giving effect to all of the transactions occurring on such date) (the "Class A
18
<PAGE>
Monthly Interest"); provided, however, that with respect to the first
Distribution Date, Class A Monthly Interest will include, accrued interest at
the Class A Certificate Rate from the Closing Date through __________________,
1999; provided, further, that in addition to Class A Monthly Interest, an amount
equal to the amount of any unpaid Class A Deficiency Amounts, as defined below,
plus an amount equal to the product of (A) (1) 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 (2) the sum of the Class A Certificate Rate
in effect with respect to the related Interest Period, plus 2% per annum, and
(B) any Class A Deficiency Amount from the prior Transfer Date, as defined below
(or the portion thereof which has not theretofore been paid to Class A
Certificateholders) (the "Class A Additional Interest") shall also be
distributable to the Class A Certificates, and on such Transfer Date the Trustee
shall deposit such funds, to the extent available, into the Distribution
Account. The "Class A Deficiency Amount" for any Transfer Date shall be equal to
the excess, if any, of the aggregate amount accrued pursuant to this subsection
4.6(a) as of the prior Interest Period over the amount actually transferred to
the Distribution Account for payment of such amount.
(b) [RESERVED]
(c) [RESERVED]
SECTION 4.7 Determination of Monthly Principal.
(a) The amount of monthly principal distributable from the
Principal Account with respect to the Class A Certificates on each Transfer Date
("Class A Monthly Principal"), beginning with the Transfer Date in the month
following the month in which the Controlled Accumulation Period or, if earlier,
the Rapid Amortization Period, begins, shall be 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 Class A Scheduled Payment Date,
the Deposit Amount for such Transfer Date and (iii) the Class A Adjusted
Investor Interest on such Transfer Date prior to any deposit into the Principal
Funding Account to be made on such day.
(b) [RESERVED]
(c) The amount of monthly principal (the "Class B Monthly
Principal") distributable from the Principal Account with respect to the Class B
Certificates on each Transfer Date shall be (A) during the Revolving Period
following any reduction of the Required Class B Investor Interest pursuant to
clause (z) of the proviso in the definition thereof an amount equal to the
lesser of (1) the excess, if any, of the Class B Interest (after taking into
account any adjustments to be made on such Transfer Date pursuant to Sections
4.10 and 4.12) over the Required Class B Investor Interest on such Transfer Date
and (2) the Available Investor Principal Collections on such Transfer Date or
(B) during the Controlled Accumulation Period or Rapid Amortization Period, an
amount equal to the lesser of (1) the excess, if any, of the Class B Investor
Interest (after taking into account any adjustments to be made on such Transfer
Date pursuant to Sections 4.10 and 4.12) over the Required Class B Investor
Interest on
19
<PAGE>
such Transfer Date and (2) the excess, if any, of (i) the Available
Investor Principal Collections on such Transfer Date over (ii) the sum of the
Class A Monthly Principal for such Transfer Date.
SECTION 4.8 Coverage of Required Amount. (a) On or before each
Transfer Date, the Servicer shall determine the amount (the "Class A Required
Amount"), if any, by which the sum of (i) the Class A Monthly Interest for such
Transfer Date, plus (ii) the Class A Deficiency Amount, if any, for such
Transfer Date, plus (iii) the Class A Additional Interest, if any, for such
Transfer Date, plus (iv) the Class A Servicing Fee for the prior Monthly Period
plus (v) the Class A Servicing Fee, if any, due but not paid on any prior
Transfer Date, plus (vi) the Class A Investor Default Amount, if any, for the
prior Monthly Period, exceeds the Class A Available Funds for the related
Monthly Period.
(b) [RESERVED]
(c) In the event that the Class A Required Amount for such
Transfer Date is greater than zero, the Servicer shall give written notice to
the Trustee of such positive Class A Required Amount on or before such Transfer
Date. In the event that the Class A Required Amount for such Transfer Date is
greater than zero, all or a portion of the Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1999-1 with respect to such
Transfer Date in an amount equal to the Class A Required Amount, to the extent
available, for such Transfer Date shall be distributed from the Finance Charge
Account on such Transfer Date pursuant to subsection 4.11(a). In the event that
the Class A Required Amount for such Transfer Date exceeds the amount of Excess
Spread and Shared Excess Finance Charge Collections allocable to Series 1999-1
with respect to such Transfer Date the Collections of Principal Receivables
allocable to the Class B Certificates (after application to the Class A Required
Amount) with respect to such Transfer Date shall be applied as specified in
Section 4.12; provided, however, that the sum of any payments pursuant to this
paragraph shall not exceed the Class A Required Amount.
SECTION 4.9 Monthly Payments. On or before each Transfer Date,
the Servicer shall instruct the Trustee in writing (which writing shall be
substantially in the form of Exhibit B hereto) to withdraw and the Trustee,
acting in accordance with such instructions, shall withdraw on such Transfer
Date or the related Distribution Date, as applicable, to the extent of available
funds, the amounts required to be withdrawn from the Finance Charge Account, the
Principal Account, the Principal Funding Account and the Distribution Account as
follows:
(a) An amount equal to the Class A Available Funds deposited
into the Finance Charge Account for the related Monthly Period shall be
distributed on each Transfer Date in the following priority:
(i) an amount equal to Class A Monthly Interest for such
Transfer Date, plus the amount of any Class A Deficiency Amount for
such Transfer Date, plus the amount of any Class A Additional Interest
for such Transfer Date, shall be deposited by the Servicer or the
Trustee into the Distribution Account;
20
<PAGE>
(ii) an amount equal to the Class A Servicing Fee for such
Transfer Date plus the amount of any Class A Servicing Fee due but not
paid to the Servicer on any prior Transfer Date shall be distributed to
the Servicer;
(iii) an amount equal to the Class A Investor Default Amount,
if any, for the preceding Monthly Period shall be treated as a portion
of Investor Principal Collections and deposited into the Principal
Account on such Transfer Date; and
(iv) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed as set forth in Section 4.11.
(b) [RESERVED]
(c) An amount equal to the Class B Available Funds deposited
into the Finance Charge Account for the related Monthly Period shall be
distributed on each Transfer Date in the following priority:
(i) if none of the Transferor, an Affiliate thereof or the
Trustee is the Servicer, an amount equal to the Class B Servicing Fee
for such Transfer Date plus the amount of any Class B Servicing Fee due
but not paid to the Servicer on any prior Transfer Date shall be
distributed to the Servicer; and
(ii) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed as set forth in Section 4.11.
(d) During the Revolving Period, an amount equal to the
Available Investor Principal Collections deposited into the Principal Account
for the related Monthly Period shall be distributed on each Transfer Date in the
following priority:
(i) an amount equal to the Class B Monthly Principal for such
Transfer Date shall be distributed to the Class B Certificateholder;
(ii) an amount equal to the lesser of (A) the product of (1) a
fraction, the numerator of which is equal to the Available Investor
Principal Collections remaining after the application specified in
subsection 4.9(d)(i) above and the denominator of which is equal to the
sum of the Available Investor Principal Collections available for
sharing as specified in the related Supplement for each Series and (2)
the Cumulative Series Principal Shortfall and (B) Available Investor
Principal Collections, shall remain in the Principal Account to be
treated as Shared Principal Collections and applied to Series other
than this Series 1999-1; and
(iii) an amount equal to the excess, if any, of (A) the
Available Investor Principal Collections for such Transfer Date over
(B) the applications specified in subsections 4.9(d)(i) and (ii) above
shall be paid to the Holder of the Transferor Certificate; provided,
however, that
21
<PAGE>-
the amount to be paid to the Holder of the Transferor
Certificate pursuant to this subsection 4.9(d)(iii) with respect to
such Transfer Date shall be paid to the Holder of the Transferor
Certificate only if the Transferor Interest on such Date of Processing
is greater than the Minimum Transferor Interest (after giving effect to
the inclusion in the Trust of all Receivables created on or prior to
such Transfer Date and the application of payments referred to in
subsection 4.3(b)) and otherwise deposited into the Excess Funding
Account.
(e) During the Controlled Accumulation Period or the Rapid
Amortization Period, an amount equal to the Available Investor Principal
Collections deposited into the Principal Account for the related Monthly Period
shall be distributed on each Transfer Date in the following priority:
(i) an amount equal to the Class A Monthly Principal for such
Transfer Date, shall be (A) during the Controlled Accumulation Period,
deposited into the Principal Funding Account, and (B) during the Rapid
Amortization Period, deposited into the Distribution Account;
(ii) [RESERVED]
(iii) for each Transfer Date (other than the Transfer Date
immediately preceding the Series 1999-1 Termination Date, in which case
on the Series 1999-1 Termination Date) after giving effect to the
distribution referred to in clauses (i) and (ii) above, an amount equal
to Class B Monthly Principal shall be distributed to the Class B
Certificateholder;
(iv) an amount equal to the lesser of (A) the product of (1) a
fraction, the numerator of which is equal to the Available Investor
Principal Collections remaining after the application specified in
subsections 4.9(e)(i), (ii) and (iii) above and the denominator of
which is equal to the sum of the Available Investor Principal
Collections available for sharing as specified in the related Series
Supplement for each Series and (2) the Cumulative Series Principal
Shortfall and (B) the Available Investor Principal Collections, shall
remain in the Principal Account to be treated as Shared Principal
Collections and applied to Series other than this Series 1999-1; and
(v) an amount equal to the excess, if any, of (A) the
Available Investor Principal Collections over (B) the applications
specified in subsections 4.9(e)(i) through (iv) above shall be paid to
the Holder of the Transferor Certificate; provided, however, that the
amount to be paid to the Holder of the Transferor Certificate pursuant
to this subsection 4.9(e)(v) with respect to such Transfer Date shall
be paid to the Holder of the Transferor Certificate only if the
Transferor Interest on such Date of Processing is greater than the
Minimum Transferor Interest (after giving effect to the inclusion in
the Trust of all Receivables created on or prior to such Transfer Date
and the application of payments referred to in subsection 4.3(b)) and
otherwise shall be deposited into the Excess Funding Account.
(f) on 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, the Trustee, acting in
accordance with instructions from the Servicer, shall withdraw from the
22
<PAGE>
Principal Funding Account and deposit in the Distribution Account the amount on
deposit in the Principal Funding Account.
(g) On each Distribution Date, the Trustee shall pay in
accordance with subsection 5.1(a) to the Class A Certificateholders from the
Distribution Account, the amount deposited into the Distribution Account
pursuant to subsection 4.9(a)(i) on the preceding Transfer Date.
(h) On the earlier to occur of (i) the first Distribution Date
with respect to the Rapid Amortization Period and (ii) the Class A Scheduled
Payment Date and on each Distribution Date thereafter, the Trustee, acting in
accordance with instructions from the Servicer, shall pay in accordance with
Section 5.1 from the Distribution Account the amount so deposited into the
Distribution Account pursuant to subsections 4.9(e) and (f) on the related
Transfer Date in an amount equal to the lesser of such amount on deposit in the
Distribution Account and the Class A Investor Interest shall be paid to the
Class A Certificateholders.
(i) The Controlled Accumulation Period is scheduled to
commence at the close of business on ___________________; provided, however,
that, if the Accumulation Period Length (determined as described below) is less
than 12 months, the date on which the Controlled Accumulation Period actually
commences will be delayed to the first Business Day of the month that is the
number of whole months prior to the Class A Scheduled Payment Date at least
equal to the Accumulation Period Length and, as a result, the number of Monthly
Periods in the Controlled Accumulation Period will at least equal the
Accumulation Period Length. On the ____________________ Determination Date, and
each Determination Date thereafter until the Controlled Accumulation Period
begins, the Servicer will determine the "Accumulation Period Length" which will
equal the number of whole months such that the sum of the Accumulation Period
Factors for each month during such period will be equal to or greater than the
Required Accumulation Factor Number; provided, however, that the Accumulation
Period Length will not be determined to be less than one month.
SECTION 4.10 Investor Charge-Offs.
(a) On or before each Transfer Date, the Servicer shall
calculate the Class A Investor Default Amount. If on any Transfer Date, the
Class A Investor Default Amount for the prior Monthly Period exceeds the sum of
the amount allocated with respect thereto pursuant to subsection 4.9(a)(iii),
subsection 4.11(a) and Section 4.12 with respect to such Monthly Period, the
Class B Investor Interest (after giving effect to reductions for any Class B
Investor Charge- offs and any Reallocated Principal Collections on such Transfer
Date) will be reduced by the amount of such excess, but not by more than the
lesser of the Class A Investor Default Amount and the Class B Investor Interest
(after giving effect to reductions for any Class B Investor Charge-Offs and any
Reallocated Principal Collections on such Transfer Date) for such Transfer Date.
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
23
<PAGE>
have been reduced below zero, but not by more than the Class A Investor Default
Amount for such Transfer Date (a "Class A Investor Charge-Off"). 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 and Shared Excess Finance Charge Collections allocable to Series 1999-1
allocated and available for such purpose pursuant to subsection 4.11(b).
(b) [RESERVED]
(c) On or before each Transfer Date, the Servicer shall
calculate the Class B Investor Default Amount. If on any Transfer Date, the
Class B Investor Default Amount for the prior Monthly Period exceeds the amount
of Excess Spread and Shared Excess Finance Charge Collections allocable to
Series 1999-1 allocated and available to fund such amount pursuant to subsection
4.11(g), the Class B Investor Interest will be reduced by the amount of such
excess but not by more than the lesser of the Class B Investor Default Amount
and the Class B Investor Interest for such Transfer Date (a "Class B Investor
Charge-Off"). The Class B Investor Interest will also be reduced by the amount
of Reallocated Principal Collections pursuant to Section 4.12 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, pursuant to
subsection 4.10(a). The Class B Investor Interest will thereafter be reimbursed
on any Transfer Date by the amount of the Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1999-1 allocated and available
for that purpose as described under subsection 4.11(h).
SECTION 4.11 Excess Spread. On or before each Transfer Date,
the Servicer shall instruct the Trustee in writing (which writing shall be
substantially in the form of Exhibit B hereto) to apply Excess Spread with
respect to the related Monthly Period to make the following distributions on
each Transfer Date in the following priority:
(a) an amount equal to the Class A Required Amount, if any,
with respect to such Transfer Date shall be used to fund the Class A Required
Amount and be applied in accordance with, and in the priority set forth in,
subsection 4.9(a);
(b) an amount equal to the aggregate amount of Class A
Investor Charge-Offs which have not been previously reimbursed shall be treated
as a portion of Investor Principal Collections and deposited into the Principal
Account on such Transfer Date;
(c) [RESERVED]
(d) [RESERVED]
(e) [RESERVED]
24
<PAGE>
(f) an amount equal to the aggregate amount of accrued but
unpaid Class B Servicing Fees shall be paid to the Servicer;
(g) an amount equal to the Class B Investor Default Amount, if
any, for the prior Monthly Period shall be treated as a portion of Investor
Principal Collections and deposited into the Principal Account on such Transfer
Date;
(h) an amount equal to the aggregate amount by which the Class
B Investor Interest has been reduced below the Required Class B Investor
Interest for reasons other than the payment of principal to the Class B Investor
(but not in excess of the aggregate amount of such reductions which have not
been previously reimbursed) shall be treated as a portion of Investor Principal
Collections and deposited into the Principal Account on such Transfer Date;
(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 in Section 4.15(f), an amount up to the excess, if any, of the
Required Reserve Account Amount over the Available Reserve Account Amount shall
be deposited into the Reserve Account;
(j) if there is not a Finance Charge Shortfall (as defined in
the relevant Supplement for another outstanding Series in Group One) for any
other Series in Group One, the balance shall be paid to the Class B
Certificateholder; and
(k) the balance, if any, after giving effect to the payments
made pursuant to subparagraphs (a) through (j) above shall constitute "Shared
Excess Finance Charge Collections" with respect to other Series in Group One.
To the extent of the Finance Charge Shortfall, if any,
following the application on each Transfer Date of Excess Spread as described
above, the Servicer shall instruct the Trustee in writing (which writing shall
be substantially in the form of Exhibit B hereto) to apply Shared Excess Finance
Charge Collections with respect to Group One allocable to Series 1999-1 in the
priority set forth above.
SECTION 4.12 Reallocated Principal Collections. On or before
each Transfer Date, the Servicer shall instruct the Trustee in writing (which
writing shall be substantially in the form of Exhibit B hereto) to withdraw from
the Principal Account and apply Reallocated Principal Collections with respect
to such Transfer Date, to make the following distributions on each Transfer Date
in the following priority:
(a) an amount equal to the excess, if any, of (i) the Class A
Required Amount, if any, with respect to such Transfer Date over (ii) the amount
of Excess Spread with respect to the related Monthly Period, shall be applied
pursuant to the priority set forth in subsection 4.9(a); and
(b) [RESERVED]
25
<PAGE>
(c) On each Transfer Date, the Class B Investor Interest shall
be reduced by the amount of Reallocated Class B Principal Collections for such
Transfer Date. In the event that such reduction would cause the Class B Investor
Interest (after giving effect to any Class B Investor Charge-Offs for such
Transfer Date) to be a negative number, the Class B Investor Interest (after
giving effect to any Class B Investor Charge-Offs for such Transfer Date) shall
be reduced to zero.
SECTION 4.13 Shared Principal Collections.
(a) The portion of Shared Principal Collections on deposit in
the Principal Account equal to the amount of Shared Principal Collections
allocable to Series 1999-1 on any Transfer Date shall be applied as Available
Investor Principal Collections pursuant to Section 4.9 and pursuant to such
Section 4.9 shall be deposited in the Distribution Account.
(b) Shared Principal Collections allocable to Series 1999-1
with respect to any Transfer Date shall mean an amount equal to the Series
Principal Shortfall, if any, with respect to Series 1999-1 for such Transfer
Date; provided, however, that if the aggregate amount of Shared Principal
Collections for all Series for such Transfer Date is less than the Cumulative
Series Principal Shortfall for such Transfer Date, then Shared Principal
Collections allocable to Series 1999-1 on such Transfer Date shall equal the
product of (i) Shared Principal Collections for all Series for such Transfer
Date and (ii) a fraction, the numerator of which is the Series Principal
Shortfall with respect to Series 1999-1 for such Transfer Date and the
denominator of which is the aggregate amount of Cumulative Series Principal
Shortfall for all Series for such Transfer Date.
SECTION 4.14 Principal Funding Account.
(a) The Trustee shall establish and maintain, in the name of
the Trust, on behalf of the Trust, for the benefit of the Investor
Certificateholders, an Eligible Deposit Account (the "Principal Funding
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Investor Certificateholders. The Trustee
shall possess all right, title and interest in all funds on deposit from time to
time in the Principal Funding Account and in all proceeds thereof. The Principal
Funding Account shall be under the sole dominion and control of the Trustee for
the benefit of the Investor Certificateholders. If at any time the Principal
Funding Account ceases to be an Eligible Deposit Account, the Transferor shall
notify the Trustee, and the Trustee upon being notified (or the Servicer on its
behalf) shall, within 10 Business Days, establish a new Principal Funding
Account meeting the conditions specified in the definition of Eligible Deposit
Account, and shall transfer any cash or any investments to such new Principal
Funding Account. The Trustee, at the direction of the Servicer, shall (i) make
withdrawals from the Principal Funding Account from time to time, in the amounts
and for the purposes set forth in this Series Supplement, and (ii) on each
Transfer Date (from and after the commencement of the Controlled Accumulation
Period) prior to termination of the Principal Funding Account make a deposit
into the Principal Funding Account in the amount specified in, and otherwise in
accordance with, subsection 4.9(e).
26
<PAGE>
(b) Funds on deposit in the Principal Funding Account shall be
invested at the direction of the Servicer by the Trustee in Permitted
Investments. Funds on deposit in the Principal Funding Account on any Transfer
Date, after giving effect to any withdrawals from the Principal Funding Account
on such Transfer Date, shall be invested in such investments that will mature so
that such funds will be available for withdrawal on or prior to the next
succeeding Transfer Date. The Trustee shall maintain for the benefit of the
Investor Certificateholders possession of the negotiable instruments or
securities, if any, evidencing such Permitted Investments. No Permitted
Investment shall be disposed of prior to its maturity.
On the Transfer Date occurring in the month following the
commencement of the Controlled Accumulation Period and on each Transfer Date
thereafter with respect to the Controlled Accumulation Period, the Trustee,
acting at the Servicer's direction given on or before such Transfer Date, shall
transfer from the Principal Funding Account to the Finance Charge Account the
Principal Funding Investment Proceeds on deposit in the Principal Funding
Account, but not in excess of the Covered Amount, for application as Class A
Available Funds applied pursuant to subsection 4.9(a)(i).
Any Excess Principal Funding Investment Proceeds shall be paid
to the Transferor on each Transfer Date. An amount equal to any Principal
Funding Investment Shortfall shall be deposited in the Finance Charge Account on
each Transfer Date from the Reserve Account to the extent funds are available
pursuant to subsection 4.15(d). Principal Funding Investment Proceeds (including
reinvested interest) shall not be considered part of the amounts on deposit in
the Principal Funding Account for purposes of this Series Supplement.
SECTION 4.15 Reserve Account.
(a) The Trustee shall establish and maintain, on behalf of the
Trust, for the benefit of the Investor Certificateholders, an Eligible Deposit
Account (the "Reserve Account"), bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the Investor
Certificateholders. The Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Reserve Account and in all
proceeds thereof. The Reserve Account shall be under the sole dominion and
control of the Trustee for the benefit of the Investor Certificateholders. If at
any time the institution holding the Reserve Account ceases to be an Eligible
Deposit Account, the Transferor shall notify the Trustee, and the Trustee upon
being notified (or the Servicer on its behalf) shall, within 10 Business Days,
establish a new Reserve Account meeting the conditions specified in the
definition of Eligible Deposit Account, and shall transfer any cash or any
investments to such new Reserve Account. The Trustee, at the direction of the
Servicer, shall (i) make withdrawals from the Reserve Account from time to time
in an amount up to the Available Reserve Account Amount at such time, for the
purposes set forth in this Series Supplement, and (ii) on each Transfer Date
(from and after the Reserve Account Funding Date) prior to termination of the
Reserve Account make a deposit into the Reserve Account in the amount specified
in, and otherwise in accordance with, subsection 4.11(i).
(b) Funds on deposit in the Reserve Account shall be invested
at the direction of the Servicer by the Trustee in Permitted Investments. Funds
on deposit in the Reserve Account on any
27
<PAGE>
Transfer Date, after giving effect to any withdrawals from the Reserve Account
on such Transfer Date, shall be invested in such investments that will mature so
that such funds will be available for withdrawal on or prior to the next
succeeding Transfer Date. The Trustee shall maintain for the benefit of the
Investor Certificateholders possession of the negotiable instruments or
securities, if any, evidencing such Permitted Investments. No Permitted
Investment shall be disposed of prior to its maturity. On each Transfer Date,
all interest and earnings (net of losses and investment expenses) accrued since
the preceding Transfer Date on funds on deposit in the Reserve Account shall be
retained in the Reserve Account (to the extent that the Available Reserve
Account Amount is less than the Required Reserve Account Amount) and the
balance, if any, shall be deposited into the Finance Charge Account and included
in Class A Available Funds for such Transfer Date. For purposes of determining
the availability of funds or the balance in the Reserve Account for any reason
under this Series Supplement, except as otherwise provided in the preceding
sentence, investment earnings on such funds shall be deemed not to be available
or on deposit.
(c) On or before each Transfer Date with respect to the
Controlled Accumulation Period prior to the payment in full of the Class A
Investor Interest and on or before the first Transfer Date with respect to the
Rapid Amortization Period, the Servicer shall calculate the "Reserve Draw
Amount" which shall be equal to the Principal Funding Investment Shortfall with
respect to each Transfer Date with respect to the Controlled Accumulation Period
or the first Transfer Date with respect to the Rapid Amortization Period;
provided, however, that such amount will be reduced to the extent that funds
otherwise would be available for deposit in the Reserve Account under Section
4.11(i) with respect to such Transfer Date.
(d) In the event that for any Transfer Date the Reserve Draw
Amount is greater than zero, the Reserve Draw Amount, up to the Available
Reserve Account Amount, shall be withdrawn from the Reserve Account on such
Transfer Date by the Trustee (acting in accordance with the instructions of the
Servicer), deposited into the Finance Charge Account and included in Class A
Available Funds for such Transfer Date.
(e) In the event that the Reserve Account Surplus on any
Transfer Date, after giving effect to all deposits to and withdrawals from the
Reserve Account with respect to such Transfer Date, is greater than zero, the
Trustee, acting in accordance with the instructions of the Servicer, shall
withdraw from the Reserve Account, and pay to the Class B Certificateholder, an
amount equal to such Reserve Account Surplus.
(f) Upon the earliest to occur of (i) the termination of the
Trust pursuant to Article XII of the Agreement, (ii) if the Controlled
Accumulation Period has not commenced, the first Transfer Date relating to the
Rapid Amortization Period and (iii) if the Controlled Accumulation Period has
commenced, the earlier of the first Transfer Date with respect to the Rapid
Amortization Period and the Transfer Date immediately preceding the Class A
Scheduled Payment Date, the Trustee, acting in accordance with the instructions
of the Servicer, after the prior payment of all amounts owing to the Series
1999-1 Certificateholders that are payable from the Reserve Account as provided
herein, shall withdraw from the Reserve Account and pay to the Class B
Certificateholder, all amounts, if any, on
28
<PAGE>
deposit in the Reserve Account and the Reserve Account shall be deemed to have
terminated for purposes of this Series Supplement.
SECTION 4.16 Determination of LIBOR.
(a) On each LIBOR Determination Date, the Trustee shall
determine LIBOR on the basis of the rate for deposits in United States dollars
for a period equal to the relevant Interest Period (except that, for the purpose
of determining LIBOR, the initial Interest Period shall be one month) 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 shall 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
shall request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are provided,
the rate for that LIBOR Determination Date shall 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, 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.
(b) The Trustee shall provide the Class A Certificate Rate
applicable to the then current and immediately preceding Interest Periods to any
Investor Certificateholder requesting such information by telephoning the
Trustee at the telephone number which is currently (212) XXX-XXXX.
(c) On each LIBOR Determination Date prior to 12:00 noon New
York City time, the Trustee shall send to the Servicer by facsimile notification
of LIBOR for the following Interest Period.
SECTION 4.17 Transferor's or Servicer's Failure to Make a
Deposit or Payment.
If the Servicer or the Transferor fails to make, or give
instructions to make, any payment or deposit (other than as required by
subsections 2.4(d) and (e) and 12.2(a) or Sections 10.2 and 12.1) required to be
made or given by the Servicer or Transferor, respectively, at the time specified
in the Agreement (including applicable grace periods), the Trustee shall make
such payment or deposit from the applicable Investor Account without instruction
from the Servicer or Transferor. The Trustee shall be required to make any such
payment, deposit or withdrawal hereunder only to the extent that the Trustee has
sufficient information to allow it to determine the amount thereof; provided,
however, that the Trustee shall in all cases be deemed to have sufficient
information to determine the amount of interest payable to the Series 1999-1
Certificateholders on each Distribution Date. The Servicer shall, upon request
of the Trustee, promptly provide the Trustee with all information necessary to
allow the Trustee to make such payment, deposit or withdrawal. Such funds or the
proceeds of such withdrawal shall be applied by the Trustee in the manner in
which such payment or deposit should have been made by the Transferor or the
Servicer, as the case may be.
29
<PAGE>
SECTION 8. Article V of the Agreement. Article V of the
Agreement shall read in its entirety as follows and shall be applicable only to
the Investor Certificateholders:
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS
SECTION 5.1 Distributions. (a) On each Distribution Date, the
Trustee shall distribute (in accordance with the certificate delivered on or
before the related Transfer Date by the Servicer to the Trustee pursuant to
subsection 3.4(b)) to each Class A Certificateholder of record on the
immediately preceding Record Date (other than as provided in subsection 2.4(e)
or Section 12.3 respecting a final distribution) such Certificateholder's pro
rata share (based on the aggregate Undivided Interests represented by Class A
Certificates held by such Certificateholder) of amounts on deposit in the
Distribution Account as are payable to the Class A Certificateholders pursuant
to Section 4.9 by check mailed to each Class A Certificateholder (at such
Certificateholder's address as it appears in the Certificate Register), except
that with respect to Class A Certificates registered in the name of the nominee
of a Clearing Agency, such distribution shall be made in immediately available
funds.
(b) [RESERVED]
SECTION 5.2 Monthly Series 1999-1 Certificateholders'
Statement.
(a) On or before each Distribution Date, the Trustee shall
forward to each Series 1999-1 Certificateholder, each Rating Agency and the
Class B Certificateholder a statement substantially in the form of Exhibit C to
this Series Supplement prepared by the Servicer, delivered to the Trustee and
setting forth, among other things, the following information (which, in the case
of subclauses (i) and (ii) below, shall be stated on the basis of an original
principal amount of $1,000 per Certificate and, in the case of subclauses (viii)
and (ix) shall be stated on an aggregate basis and on the basis of an original
principal amount of $1,000 per Certificate, as applicable):
(i) the amount of the current distribution allocable to Class
A Monthly Principal and Class B Monthly Principal, respectively;
(ii) the amount of the current distribution allocable to Class
A Monthly Interest, Class A Deficiency Amounts and Class A Additional
Interest, respectively;
(iii) the amount of Collections of Principal Receivables
processed during the related Monthly Period and allocated in respect of
the Class A Certificates and the Class B Certificates, respectively;
30
<PAGE>
(iv) the amount of Collections of Finance Charge Receivables
processed during the related Monthly Period and allocated in respect of
the Class A Certificates and the Class B Certificates, respectively;
(v) the aggregate amount of Principal Receivables, the
Investor Interest, the Adjusted Investor Interest, the Class A Investor
Interest, the Class A Adjusted Investor Interest, the Class B Investor
Interest, the Floating Investor Percentage, the Class A Floating
Allocation, the Class B Floating Allocation, and the Fixed Investor
Percentage, Class A Fixed Allocation and the Class B Fixed Allocation
with respect to the Principal Receivables in the Trust as of the close
of business on the Distribution Date preceding such Transfer Date
(after giving effect to all of the transactions occurring on such
date);
(vi) the aggregate outstanding balance of Accounts which were
30 to 59, 60 to 89, and 90 or more days delinquent as of the end of the
day on the Record Date;
(vii) the Aggregate Investor Default Amount, the Class A
Investor Default Amount and the Class B Investor Default Amount for the
related Monthly Period;
(viii) the aggregate amount of Class A Investor Charge-Offs
and Class B Investor Charge-Offs for the related Monthly Period;
(ix) the aggregate amount of Class A Investor Charge-Offs and
Class B Investor Charge-Offs reimbursed on the Transfer Date
immediately preceding such Distribution Date;
(x) the amount of the Class A Servicing Fee and the Class B
Servicing Fee for the related Monthly Period;
(xi) the Portfolio Yield for the preceding Monthly Period;
(xii) the amount of Reallocated Class B Principal Collections
with respect to such Distribution Date;
(xiii) the Class B Investor Interest of the close of business
on such Distribution Date;
(xiv) LIBOR for the Interest Period ending on such
Distribution Date;
(xv) the Principal Funding Account Balance on the Transfer
Date;
(xvi) the Accumulation Shortfall;
(xvii) the Principal Funding Investment Proceeds transferred
to the Finance Charge Account on the related Transfer Date;
31
<PAGE>
(xviii) the Principal Funding Investment Shortfall on the
related Transfer Date;
(xix) the amount of Class A Available Funds on deposit in the
Finance Charge Account on the related Transfer Date;
(xx) the current Class A Certificate Rate; and
(xxi) such other items as are set forth in Exhibit C to this
Series Supplement.
(b) Annual Certificateholders' Tax Statement. On or before
January 31 of each calendar year, beginning with calendar year 2000, the Trustee
shall distribute to each Person who at any time during the preceding calendar
year was a Series 1999-1 Certificateholder, a statement prepared by the Servicer
containing the information required to be contained in the regular monthly
report to Series 1999-1 Certificateholders, as set forth in subclauses (i) and
(ii) above, aggregated for such calendar year or the applicable portion thereof
during which such Person was a Series 1999-1 Certificateholder, together with
such other customary information (consistent with the treatment of the
Certificates as debt) as the Servicer deems necessary or desirable to enable the
Series 1999-1 Certificateholders to prepare their tax returns. Such obligations
of the Trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Trustee pursuant
to any requirements of the Internal Revenue Code as from time to time in effect.
SECTION 9. Series 1999-1 Pay Out Events. If any one of the
following events shall occur with respect to the Investor Certificates:
(a) failure on the part of the Transferor (i) to make any
payment or deposit required by the terms of (A) the Agreement or (B) this Series
Supplement, on or before the date occurring five days after the date such
payment or deposit is required to be made herein or (ii) duly to observe or
perform in any material respect any covenants or agreements of the Transferor
set forth in the Agreement or this Series Supplement, which failure has a
material adverse effect on the Series 1999-1 Certificateholders (which
determination shall be made without reference to the amount of the Class B
Investor Interest) and which continues unremedied for a period of 60 days after
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the Trustee, or to the
Transferor and the Trustee by the Holders of Investor Certificates evidencing
Undivided Interests aggregating not less than 50% of the Investor Interest of
this Series 1999-1, and continues to affect materially and adversely the
interests of the Series 1999-1 Certificateholders (which determination shall be
made without reference to the amount of the Class B Investor Interest) for such
period;
(b) any representation or warranty made by the Transferor in
the Agreement or this Series Supplement, or any information contained in a
computer file or microfiche list required to be delivered by the Transferor
pursuant to Section 2.1 or 2.6, (i) shall prove to have been incorrect in any
material respect when made or when delivered, which continues to be incorrect in
any material respect for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Transferor by the Trustee, or to the Transferor and the Trustee
32
<PAGE>
by the Holders of Investor Certificates evidencing Undivided Interests
aggregating not less than 50% of the Investor Interest of this Series 1999-1,
and (ii) as a result of which the interests of the Series 1999-1
Certificateholders are materially and adversely affected (which determination
shall be made without reference to the amount of the Class B Investor Interest)
and continue to be materially and adversely affected for such period; provided,
however, that a Series 1999-1 Pay Out Event pursuant to this subsection 9(b)
hereof shall not be deemed to have occurred hereunder if the Transferor has
accepted reassignment of the related Receivable, or all of such Receivables, if
applicable, during such period in accordance with the provisions of the
Agreement;
(c) the average Portfolio Yield for any three consecutive
Monthly Periods is reduced to a rate which is less than the average Base Rate
for such period;
(d) the Transferor shall fail to convey Receivables arising
under Additional Accounts, or Participations, to the Trust, as required by
subsection 2.6(a);
(e) any Servicer Default shall occur which would have a
material adverse effect on the Series 1999-1 Certificateholders; or
(f) the Class A Investor Interest shall not be paid in full on
the Class A Scheduled Payment Date;
then, in the case of any event described in subsection 9(a), (b) or (e) hereof,
after the applicable grace period set forth in such subparagraphs, either the
Trustee or Holders of Investor Certificates and the Class B Certificateholder
evidencing Undivided Interests aggregating not less than 50% of the Investor
Interest of this Series 1999-1 by notice then given in writing to the Transferor
and the Servicer (and to the Trustee if given by the Certificateholders) may
declare that a pay out event (a "Series 1999-1 Pay Out Event") has occurred as
of the date of such notice, and in the case of any event described in subsection
9(c), (d) or (f) hereof, a Series 1999-1 Pay Out Event shall occur without any
notice or other action on the part of the Trustee or the Investor
Certificateholders immediately upon the occurrence of such event.
SECTION 10. Issuance of Additional Certificates.
(a) During the Revolving Period, the Transferor may, in its
discretion and subject to the terms of subsection (b) below, request the Trustee
to issue additional Investor Certificates of each Class (all such additional
certificates, the "Additional Certificates") in an amount and on the date (the
"Additional Certificate Date") determined by the Transferor. Upon issuance, the
Additional Certificates will be identical in all respects (except that the
principal amount of such Additional Certificates may be different) to the
Investor Certificates currently outstanding and will be equally and ratably
entitled to the benefits of this Series Supplement and the Pooling and Servicing
Agreement. The outstanding principal amounts of all Classes of Investor
Certificates shall be increased pro rata. The Controlled Accumulation Amount for
each Class shall be increased proportionally to reflect the additional amounts
represented by the Additional Certificates.
33
<PAGE>
(b) Additional Certificates shall only be issued upon
satisfaction of all of the following conditions:
(i) On or before the fifth Business Day immediately
preceding the date on which the Additional Certificates are to be
issued, the Transferor shall give notice to the Trustee, the Servicer,
the Class B Certificateholder and the Rating Agencies of such
issuance and the date upon which it is to occur;
(ii) After giving effect to the Additional
Certificates, the total amount of Principal Receivables in the Trust
shall be greater than or equal to the Minimum Aggregate Principal
Receivables;
(iii) The Transferor shall have delivered evidence
of the proportional increase in the Class B Investor Interest to the
Trustee and the Rating Agencies;
(iv) On or before the Additional Certificate Date,
the Trustee shall have been provided evidence that the Rating Agency
Condition shall have been satisfied with respect to such issuance;
(v) The Transferor shall have delivered to the
Trustee an Officer's Certificate dated as of the Additional
Certificate Date, stating that the Transferor reasonably believes that
the issuance of such Additional Certificates will not have a material
adverse effect on any outstanding Class of Investor Certificates;
(vi) As of the Additional Certificate Date, the
amount of Investor Charge-Offs for all Classes of Investor
Certificates shall be zero; and
(vii) The Transferor shall have delivered to the
Trustee a Tax Opinion with respect to such issuance.
SECTION 11. Series 1999-1 Termination. The right of the
Investor Certificateholders to receive payments from the Trust will terminate on
the first Business Day following the Series 1999-1 Termination Date.
SECTION 12. Counterparts. This Series Supplement may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all of such counterparts shall together constitute
but one and the same instrument.
SECTION 13. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, AND WITHOUT,
34
<PAGE>
LIMITING THE GENERALITY OF THE FOREGOING, THE IMMUNITY AND STANDARD OF CARE OF
THE TRUSTEE IN THE ADMINISTRATION OF THE TRUST HEREUNDER SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
SECTION 14. No Petition. The Transferor, the Servicer and the
Trustee, by entering into this Series Supplement and each Certificateholder, by
accepting a Series 1999-1 Certificate hereby covenant and agree that they will
not at any time institute against the Trust, or join in any institution against
the Trust of, any bankruptcy proceedings under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Investor Certificateholders, the Agreement or this Series Supplement.
SECTION 15. Tax Representation and Covenant. Any Class B
Certificateholder shall be required to represent and covenant in connection with
such acquisition that (x) it has neither acquired, nor will it sell, trade or
transfer any interest in the Trust or cause any interest in the Trust to be
marketed on or through an "established securities market" within the meaning of
Code section 7704(b)(1), including without limitation an interdealer quotation
system that regularly disseminates firm buy or sell quotations by identified
brokers or dealers by electronic means or otherwise, (y) unless the Transferor
consents otherwise, such holder (i) is properly classified as, and will remain
classified as, a "corporation" as described in Code section 7701(a)(3) and (ii)
is not, and will not become, an S corporation as described in Code section 1361,
and (z) it will (i) cause any participant with respect to such interest
otherwise permitted hereunder to make similar representations and covenants for
the benefit of the Transferor and the Trust and (ii) forward a copy of such
representations and covenants to the Trustee. Each such holder shall further
agree in connection with its acquisition of such interest that, in the event of
any breach of its (or its participant's) representation and covenant that it (or
its participant) is and shall remain classified as a corporation other than an S
corporation, the Transferor shall have the right to procure a replacement
investor to replace such holder (or its participant), and further that such
holder shall take all actions necessary to permit such replacement investor to
succeed to its rights and obligations as a holder (or to the rights of its
participant).
35
<PAGE>
IN WITNESS WHEREOF, the Transferor, the Servicer and the
Trustee have caused this Series 1999-1 Supplement to be duly executed by their
respective officers as of the day and year first above written.
DILLARD ASSET FUNDING COMPANY,
as Transferor
By: CHASE MANHATTAN BANK DELAWARE,
as Owner Trustee
By:________________________________
Name:
Title:
DILLARD NATIONAL BANK,
as Servicer
By:________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Trustee
By:________________________________
Name:
Title:
<PAGE>
October 22, 1999
Dillard Asset Funding Company
c/o Chase Manhattan Bank Delaware
1202 Market Street
Wilmington, DE 19801
Re: Dillard Credit Card Master Trust
Asset-Backed Certificates
Ladies and Gentlemen:
We have acted as counsel for Dillard Asset Funding Company, a Delaware business
trust (the "Company") and Dillard National Bank, a national banking association
("DNB") in connection with the filing by the Company, on behalf of the Dillard
Credit Card Master Trust (the "Master Trust"), with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, of a Registration
Statement on Form S-3, Registration No. 333-67855 (the "Registration
Statement"), registering asset-backed certificates representing undivided
interests in certain assets of the Master Trust (the "Certificates"). The
Certificates of a particular series will be issued pursuant to an Amended and
Restated Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
between the Company, DNB as Servicer (the "Servicer") and The Chase Manhattan
Bank, as Trustee (the "Trustee"), substantially in the form filed as Exhibit 4.1
to the Registration Statement, and a related Series Supplement to the Pooling
and Servicing Agreement (a "Series Supplement") between the Company, the
Servicer and the Trustee, substantially in the form filed as Exhibit 4.2 to the
Registration Statement.
We have examined the Registration Statement, the form of Pooling and Servicing
Agreement and the form of Series Supplement. We also have examined the
originals, or duplicates or certified or conformed copies, of such records,
agreements, instruments and other documents and have made such other and further
investigations as we have deemed relevant and necessary in connection with the
opinions expressed herein. As to questions of fact material to this opinion, we
have relied upon certificates of public officials and of officers and
representatives of the Company and DNB.
In rendering the opinions set forth below, we have assumed the genuineness of
all signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as duplicates or certified or conformed copies,
and the authenticity of the originals of such latter documents.
<PAGE>
2
Based upon the foregoing, and subject to the qualifications and limitations set
forth herein, we are of the opinion that:
1. When the Pooling and Servicing Agreement has been duly authorized, executed
and delivered by each of the Company and DNB and the Trustee, such Pooling and
Servicing Agreement will constitute a binding obligation of the Company and DNB.
2. When the Series Supplement relating to a particular series of Certificates
has been duly authorized, executed and delivered by each of the Company and DNB
and the Trustee, such Series Supplement will constitute a binding obligation of
the Company and DNB.
3. When the Certificates of a particular series have been duly authorized by the
Company, when such Certificates have been duly executed and authenticated in
accordance with the terms of the Pooling and Servicing Agreement and the related
Series Supplement and when such Certificates have been delivered and sold as
contemplated by the Registration Statement, such Certificates will be validly
issued, fully paid and nonassessable and outstanding and entitled to the
benefits provided for by the Pooling and Servicing Agreement and such Series
Supplement.
Our opinions set forth above in paragraphs 1 and 2 are subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally and
general equitable principles (whether considered in a proceeding in equity or at
law).
The statements set forth in the Prospectus included in the Registration
Statement (the "Prospectus") under the caption "Federal Income Tax Consequences"
insofar as they purport to constitute summaries of matters of United States
federal income tax law and regulations or legal conclusions with respect
thereto, constitute accurate summaries of the matters described therein in all
material respects. We are members of the Bar of the State of New York, and we do
not express any opinion herein concerning any law other than the law of the
State of New York and the Federal law of the United States. This opinion is
rendered to you solely in connection with the above-described transaction and
may not be relied upon for any other purpose without our prior written consent.
We hereby consent to the filing of this opinion letter as Exhibit 5.1 and
Exhibit 8.1 to the Registration Statement and the use of our name under the
captions "Legal Matters" and "Federal Income Tax Consequences" in the
Prospectus.
Very truly yours,
/S/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
EXECUTION COPY
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
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VI
MISCELLANEOUS PROVISIONS............................................................ 12
SECTION 6.1 Amendment................................................................................. 12
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
</TABLE>
-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. (a) 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
<PAGE>
3
unpaid principal balance of such 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 under
<PAGE>
4
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
<PAGE>
5
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. 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.
<PAGE>
6
(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.
(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.
<PAGE>
7
(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.
(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
<PAGE>
8
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
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.
<PAGE>
9
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 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
<PAGE>
10
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 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.
<PAGE>
11
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.
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
<PAGE>
12
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.
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
<PAGE>
13
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:
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.
<PAGE>
14
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.
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
<PAGE>
15
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.
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
<PAGE>
16
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:
<PAGE>
18
DNB RECEIVABLES PURCHASE AGREEMENT
<PAGE>
EXECUTION COPY
MSNB RECEIVABLES PURCHASE AGREEMENT
BETWEEN
DILLARD ASSET FUNDING COMPANY
as Purchaser
AND
MERCANTILE STORES NATIONAL BANK
DATED AS OF AUGUST 14, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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 MSNB............................................. 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 MSNB Receivables.............. 8
SECTION 4.2 Conditions Precedent to the Purchaser's Purchase of MSNB Receivables...................... 8
SECTION 4.3 Conditions to Obligation of MSNB.......................................................... 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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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, MSNB.................... 14
SECTION 6.14 Merger and Integration................................................................... 15
SECTION 6.15 No Petition Covenants.................................................................... 15
SECTION 6.16 No Recourse to Owner Trustee............................................................. 15
</TABLE>
-ii-
<PAGE>
MSNB RECEIVABLES PURCHASE AGREEMENT
This MSNB 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 MERCANTILE STORES NATIONAL BANK,
a national banking association ("MSNB").
W I T N E S S E T H:
WHEREAS, the Purchaser desires to purchase Receivables and
related assets from MSNB from time to time; and
WHEREAS, MSNB 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. (a) 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.
(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, MSNB hereby sells, transfers, assigns
and otherwise conveys to the Purchaser, without recourse, and the Purchaser
hereby purchases from MSNB, all right, title and interest in, to and under all
Receivables (except for such Receivables previously sold, transferred,
<PAGE>
2
assigned or otherwise conveyed to Mersco Factors, Inc. ("MFI")) created and
arising under the Accounts identified in the list of Accounts (an "Account
List") previously delivered to the Purchaser (such Receivables, the "Designated
MSNB Receivables") and all monies, due or to become due with respect thereto
after 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") MSNB
shall sell, transfer, assign and otherwise convey to the Purchaser, without
recourse, and the Purchaser shall purchase from MSNB, 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 MSNB
Receivables, the "MSNB 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 MSNB 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 MSNB and the Purchaser may agree upon. This Agreement shall be effective
as of the date hereof (the "Closing Date") upon its execution by MSNB 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 MSNB, on such Closing Date, an amount equal to the
aggregate unpaid principal balance, if any, of the Receivables included in such
Purchased Assets as of the Initial Cutoff Date for such Receivables. Such
purchase price shall be paid to MSNB in immediately available funds. Thereafter,
on the second Business Day following the date on which a MSNB Receivable a
created, the Purchaser shall pay to MSNB, on such day, an amount equal to the
aggregate unpaid principal balance of such Receivable as of such date of
creation. Such purchase price shall be paid to MSNB in immediately available
funds.
ARTICLE III
REPRESENTATIONS AND WARRANTIES AND COVENANTS
SECTION 3.1 Representations and Warranties Regarding
Purchased Assets.
(a) MSNB represents and warrants to the Purchaser as follows
with respect to the Designated
MSNB 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 MSNB Receivable
in an existing Account is an Eligible Receivable;
(x) as of the Closing Date, each MSNB 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 MSNB or any of its Affiliates and (2) in compliance, in
all material respects, with all Requirements of Law applicable
to MSNB;
<PAGE>
3
(y) as of the Closing Date, with respect to each MSNB
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 MSNB in connection with the
conveyance of such MSNB 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 MSNB 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 MSNB Receivable is created,
MSNB shall be deemed to represent and warrant to the Purchaser as follows:
(i) Eligible Receivables. (w) each such MSNB Receivable
created on such day is an Eligible Receivable;
(x) each such MSNB Receivable created on such day has
been conveyed to the Purchaser (1) free and clear of any Lien
of any Person claiming through or under MSNB or any of its
Affiliates and (2) in compliance, in all material respects,
with all Requirements of Law applicable to MSNB;
(y) with respect to each such MSNB 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 MSNB in connection with the conveyance of such MSNB
Receivable to the Purchaser have been duly obtained, effected
or given and are in full force and effect; and
(z) the information regarding such MSNB 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, MSNB 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 MSNB in, to and under the MSNB Receivables now existing and
hereafter created and arising in connection with the Accounts,
and all proceeds of such MSNB Receivables and Insurance
Proceeds relating thereto, and such MSNB 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 MSNB 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 MSNB Receivables, the proceeds thereof
and Insurance Proceeds relating thereto upon execution and
delivery of this Agreement, and which will be enforceable with
respect to MSNB 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 MSNB Receivables hereafter created
<PAGE>
4
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 MSNB.
MSNB 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
MSNB Receivables sold, transferred, assigned or otherwise conveyed to the
Purchaser on such date), that:
(a) Organization and Good Standing. MSNB 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 MSNB Receivables.
(b) Due Qualification. MSNB 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 MSNB.
(c) Power and Authority. MSNB 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 MSNB by all necessary
corporate action on the part of MSNB. MSNB 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 MSNB.
(d) Binding Obligation. This Agreement, when duly executed and
delivered, shall constitute a legal, valid and binding obligation of
MSNB enforceable against MSNB 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 MSNB and its performance of its obligations hereunder will not
violate any Requirements of Law or contractual obligation of MSNB, 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
MSNB's knowledge, investigations pending or, to MSNB'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 MSNB.
(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 MSNB of this
Agreement.
<PAGE>
5
(h) No Default. MSNB 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, MSNB 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
MSNB.
(k) Solvency. MSNB is, and after giving effect to the
transactions contemplated to occur on such date, will be, solvent and
MSNB is paying its debts as they become due. In addition, MSNB after
giving effect to the transactions contemplated by this Agreement will
have adequate capital to conduct its business.
(l) Principal Place of Business. MSNB's principal place of
business is located at 1450 Main Street, Baton Rouge, LA 70802 and
there have been no other such locations during the previous five years.
(m) Name. MSNB's legal name is as set forth herein, there has
been no name change in the last two years and MSNB 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 MSNB as of the date hereof and
as of each Purchase Date (and, as applicable, with respect to the MSNB
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.
(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
<PAGE>
6
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
SECTION 4.1 Conditions Precedent to the Purchaser's Initial
Purchase of MSNB Receivables. The obligation of the Purchaser to purchase from
MSNB the Purchased Assets on the Closing Date is subject to the satisfaction of
the following conditions:
(a) Agreements and Terminations. The Purchaser shall have
received from MSNB (i) this Agreement, duly executed by MSNB, (ii) the
Mercantile Termination Agreement, dated as of the date hereof, between
MFI and MSNB, duly executed by MFI and MSNB and (iii) certain UCC
termination statements identified on Schedule 1 hereto, duly executed
by MFI.
(b) Certificate of Incorporation; By-laws. The Purchaser shall
have received a true and complete copy of the certificate of existence
of MSNB, 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 MSNB, certified as a true and correct copy thereof by
the Secretary or an Assistant Secretary of MSNB.
(c) Resolutions. The Purchaser shall have received copies of
duly adopted resolutions of the Board of Directors of MSNB in form and
substance reasonably satisfactory to the Purchaser, authorizing the
execution, delivery and performance of this Agreement, the documents to
be delivered by MSNB hereunder and the transactions contemplated
hereby, certified by the Secretary or an Assistant Secretary of MSNB.
<PAGE>
7
(d) Incumbency Certificate. The Purchaser shall have received
a certificate as to the incumbency and signature of the officers of
MSNB authorized to sign this Agreement on behalf of MSNB.
(e) Representations and Warranties. The representations and
warranties of MSNB 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 MSNB 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 MSNB 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 MSNB 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 provided in the Pooling and Servicing
Agreement) shall have occurred on or prior to such Purchase Date.
(c) Documents to be Delivered. MSNB shall have provided such
other documents as the Purchaser may reasonably request.
SECTION 4.3 Conditions to Obligation of MSNB. The obligation
of MSNB 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 MSNB 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, MSNB shall record and file, at its own expense, a UCC-1
financing statement in each jurisdiction in which required by applicable law,
executed by MSNB 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). MSNB 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.
<PAGE>
8
SECTION 5.2 Computer Files Marked. MSNB 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) MSNB 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 MSNB 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 MSNB
where permitted by law. MSNB 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) Except in connection with the DNB Transactions (as defined
below), MSNB 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 MSNB 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) MSNB hereby represents and warrants that its chief place
of business and principal executive office, and the place where its principal
records pertaining to the MSNB Receivables and the related Purchased Assets are
kept, is located at 1450 Main Street, Baton Rouge, LA 70802 and there are no
other such locations. Except for any relocation resulting from the DNB
Transactions, MSNB 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. MSNB 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 (i) hereunder and as contemplated by the Pooling and Servicing
Agreement or (ii) made in connection with the DNB Transactions, MSNB 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 MSNB 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 MSNB.
SECTION 5.5 Indemnification. MSNB 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
MSNB may otherwise have.
SECTION 5.6 Credit and Collection Policy.
From and after the Closing Date, MSNB shall not make any
change or modification to the credit criteria applied in respect of the
origination of MSNB Receivables or the credit review process followed in
connection with the origination of MSNB Receivables (collectively, the "Credit
and Collection Policy"), that could reasonably be expected to have a material
adverse effect on the Purchaser, as purchaser thereof.
<PAGE>
9
SECTION 5.7 Reserved.
SECTION 5.8 Repurchase Events. (a) MSNB hereby covenants and
agrees with the Purchaser that in the event of (i) a breach of any of MSNB's
representations and warranties contained in Sections 3.1(a), (b) or (c) hereof
with respect to any MSNB 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 MSNB of Section 5.4 hereof with respect to
any MSNB Receivable, which breach has a material adverse effect on the
Purchaser's interest in such MSNB Receivable or (iii) a breach of any of MSNB's
representations and warranties contained in Section 3.1(d) (such MSNB
Receivable, in either event, a "Warranty Receivable"), MSNB 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 MSNB Receivable as of the close of business on the second Business Day
preceding such date of reassignment (the "Warranty Payment"). A breach by MSNB
of any of its representations contained in Section 3.1(d) hereof with respect to
any MSNB Receivable shall constitute a breach with respect to all MSNB
Receivables. It is understood and agreed that the obligation of MSNB 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 MSNB 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
MSNB 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, MSNB 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 MSNB 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 MSNB's
expense, take such steps as MSNB deems necessary to enforce the Warranty
Receivable, including bringing suit in the name of such Person.
SECTION 5.9 Further Assignments. MSNB 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. MSNB 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 MSNB. In each
case, MSNB 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. MSNB 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.
SECTION 5.10 Sale Treatment. MSNB and the Purchaser intend to treat
the transfer and assignment described herein as a sale for accounting and tax
purposes.
ARTICLE VI
MISCELLANEOUS PROVISIONS
<PAGE>
10
SECTION 6.1 Amendment. This Agreement may be amended from time
to time by a written amendment duly executed and delivered by MSNB 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 MSNB 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
MSNB: MERCANTILE STORES NATIONAL BANK
1450 Main Street
Baton Rouge, LA 70802
Attention:
Telecopy:
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:
<PAGE>
11
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. MSNB 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 MSNB 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
MSNB 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.
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. MSNB 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, MSNB
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, MSNB. Any Person (a) into which MSNB may be merged or
consolidated, (b) resulting from any merger, conversion or consolidation to
which MSNB shall be a party, (c) succeeding to the business of MSNB, 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
<PAGE>
12
obligation of MSNB under this Agreement shall be the successor to MSNB 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
MSNB, except with respect to any merger of MSNB with, sale of Receivables,
Accounts or other assets to or assumption of the obligations of MSNB hereunder
by Dillard National Bank or an affiliate thereof (the "DNB Transactions"), 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 MSNB 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.
SECTION 6.15 No Petition Covenants. Notwithstanding any prior
termination of this Agreement, MSNB 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, MSNB 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:
MERCANTILE STORES NATIONAL BANK
By:
--------------------------------------
Name:
Title:
MSNB RECEIVABLES PURCHASE AGREEMENT
<PAGE>
EXECUTION COPY
DIC RECEIVABLES PURCHASE AGREEMENT
BETWEEN
DILLARD ASSET FUNDING COMPANY
as Purchaser
AND
DILLARD INVESTMENT CO., INC.
DATED AS OF AUGUST 14, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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................................................ 2
SECTION 3.1 Representations and Warranties Regarding Purchased Assets................................. 2
SECTION 3.2 Representations and Warranties Regarding DIC.............................................. 3
SECTION 3.3 Representations and Warranties of the Purchaser........................................... 5
ARTICLE IV
CONDITIONS................................................................... 6
SECTION 4.1 Conditions Precedent to the Purchaser's Purchase of Receivables........................... 6
SECTION 4.2 Conditions to Obligation of DIC........................................................... 7
ARTICLE V
ADDITIONAL AGREEMENTS........................................................... 7
SECTION 5.1 Initial UCC Filings....................................................................... 7
SECTION 5.2 Computer Files Marked..................................................................... 8
SECTION 5.3 Protection of Title....................................................................... 8
SECTION 5.4 Other Liens or Interests.................................................................. 8
SECTION 5.5 Indemnification........................................................................... 9
SECTION 5.6 Repurchase Events......................................................................... 9
SECTION 5.7 Further Assignments....................................................................... 9
SECTION 5.8 Sale Treatment............................................................................ 10
ARTICLE VI
MISCELLANEOUS PROVISIONS........................................................... 10
SECTION 6.1 Amendment................................................................................. 10
SECTION 6.2 Survival.................................................................................. 10
SECTION 6.3 Notices................................................................................... 10
SECTION 6.4 GOVERNING LAW............................................................................. 11
SECTION 6.5 Waivers................................................................................... 11
SECTION 6.6 Costs and Expenses........................................................................ 11
SECTION 6.7 Confidential Information.................................................................. 11
SECTION 6.8 Headings.................................................................................. 11
SECTION 6.9 Counterparts.............................................................................. 12
SECTION 6.10 Severability of Provisions............................................................... 12
SECTION 6.11 Further Assurances....................................................................... 12
SECTION 6.12 No Third-Party Beneficiaries............................................................. 12
SECTION 6.13 Merger or Consolidation of, or Assumption of the Obligations of,
DIC...................................................................................... 12
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.14 Merger and Integration................................................................... 12
SECTION 6.15 No Petition Covenants.................................................................... 13
SECTION 6.16 No Recourse to Owner Trustee............................................................. 13
</TABLE>
-ii-
<PAGE>
DIC 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 INVESTMENT CO., INC., a
Delaware corporation ("DIC").
W I T N E S S E T H:
WHEREAS, the Purchaser desires to purchase Receivables and
related assets from DIC; and
WHEREAS, DIC 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. (a) 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.
(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, DIC hereby sells,
transfers, assigns and otherwise conveys to the Purchaser, without recourse, and
the Purchaser hereby purchases from DIC, all right, title and interest in, to
and under all Receivables then existing under the Accounts identified in the
list of Accounts (an "Account List") previously delivered to the Purchaser (as
defined below; such Receivables, the "DIC 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 "Cutoff Date"), all Finance
Charge
<PAGE>
2
Receivables relating to such Accounts, all proceeds of such Receivables and all
Insurance Proceeds relating to such Receivables (collectively, the "Purchased
Assets").
SECTION 2.2 The Closings. The consummation of the purchase and
sale contemplated by Section 2.1 shall take place at such place and at such time
as DIC and the Purchaser may agree upon. This Agreement shall be effective as of
the date hereof (the "Closing Date") upon its execution by DIC and the
Purchaser.
SECTION 2.3 The Purchase Price. In consideration for the sale
to the Purchaser of the Purchased Assets on the Closing Date, the Purchaser
shall pay to DIC, on such Closing Date, an amount equal to the aggregate unpaid
principal balance of the DIC Receivables included in such Purchased Assets as of
the Cutoff Date for such Receivables. Such purchase price shall be paid to DIC
in immediately available funds.
ARTICLE III
REPRESENTATIONS AND WARRANTIES AND COVENANTS
SECTION 3.1 Representations and Warranties Regarding Purchased
Assets. (a) DIC represents and warrants to the Purchaser as follows with respect
to the DIC Receivables:
(i) Eligible Accounts. As of the Cutoff Date, each 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
DIC Receivable in an Account is an Eligible Receivable;
(x) as of the Closing Date, each DIC Receivable in an
Account has been conveyed to the Purchaser (1) free and clear
of any Lien of any Person claiming through or under DIC or any
of its Affiliates and (2) in compliance, in all material
respects, with all Requirements of Law applicable to DIC;
(y) as of the Closing Date, with respect to each DIC
Receivable in an Account, all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or
given by DIC in connection with the conveyance of such DIC
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 DIC Receivables and the Accounts related thereto set
forth in the related Account List is true and correct in all
material respects.
(b) 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 DIC in, to and under the DIC Receivables and all proceeds
of such DIC Receivables and Insurance Proceeds relating
thereto, and such DIC 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 DIC 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 DIC Receivables, the proceeds
thereof and Insurance Proceeds relating thereto upon execution
and delivery of this
<PAGE>
3
Agreement. 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,
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 DIC. DIC
represents and warrants to the Purchaser as of the date hereof (and, as
applicable, with respect to the DIC Receivables), that:
(a) Organization and Good Standing. DIC has been duly
organized and is validly existing as a Delaware corporation in good
standing under the laws 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 had at
all relevant times, and now has, power, authority and legal right to
acquire and own the DIC Receivables.
(b) Due Qualification. DIC 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 DIC.
(c) Power and Authority. DIC 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 DIC by all necessary
corporate action on the part of DIC. DIC 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 DIC.
(d) Binding Obligation. This Agreement, when duly executed and
delivered, shall constitute a legal, valid and binding obligation of
DIC enforceable against DIC 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 DIC and its performance of its obligations hereunder will not
violate any Requirements of Law or contractual obligation of DIC, 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
DIC's knowledge, investigations pending or, to DIC'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 DIC.
(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 DIC of this
Agreement.
(h) No Default. DIC 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.
<PAGE>
4
(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, DIC 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 DIC.
(k) Solvency. DIC is, and after giving effect to the
transactions contemplated to occur on such date, will be, solvent and
DIC is paying its debts as they become due. In addition, DIC after
giving effect to the transactions contemplated by this Agreement will
have adequate capital to conduct its business.
(l) Principal Place of Business. DIC's principal place of
business is located at 1600 Cantrell Road, Little Rock, AR 72201 and
there have been no other such locations during the previous five years.
(m) Name. DIC's legal name is as set forth herein, there has
been no name change in the last two years and DIC 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 DIC as of the date hereof (and,
as applicable, with respect to the DIC Receivables), 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.
(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.
<PAGE>
5
(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
(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
SECTION 4.1 Conditions Precedent to the Purchaser's Purchase
of Receivables. The obligation of the Purchaser to purchase from DIC 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 DIC and (ii) the Dillard
Termination Agreement, dated as of the date hereof, between DIC and
Dillard National Bank.
(b) Certificate of Incorporation; By-laws. The Purchaser shall
have received a true and complete copy of the certificate of
organization of DIC, certified as a true and correct copy thereof by
the Secretary of State of the State of Delaware, and a true and
complete copy of the by-laws of DIC, certified as a true and correct
copy thereof by the Secretary or an Assistant Secretary of DIC.
(c) Resolutions. The Purchaser shall have received copies of
duly adopted resolutions of the Board of Directors of DIC 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 DIC hereunder
and thereunder and the transactions contemplated hereby and thereby,
certified by the Secretary or an Assistant Secretary of DIC.
(d) Incumbency Certificate. The Purchaser shall have received
a certificate as to the incumbency and signature of the officers of DIC
authorized to sign this Agreement on behalf of DIC.
(e) Representations and Warranties. The representations and
warranties of DIC 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
<PAGE>
6
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 to Obligation of DIC. The obligation of
DIC to sell to the Purchaser the Purchased Assets to be sold hereunder 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.
(b) Purchase Price. The Purchaser shall have paid to DIC 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, DIC shall record and file, at its own expense, a UCC-1
financing statement in each jurisdiction in which required by applicable law,
executed by DIC 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). DIC shall deliver a
file-stamped copy, or other evidence reasonably satisfactory to the Purchaser of
such filing, to the Purchaser as soon as available after such filing.
SECTION 5.2 Computer Files Marked. DIC shall, at its own
expense, within 10 Business Days of the date hereof, 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) DIC 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 DIC 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 DIC
where permitted by law. DIC 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) DIC 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 DIC 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) DIC hereby represents and warrants that its chief place of
business and principal executive office, and the place where its principal
records pertaining to the Receivables and the related Purchased Assets are kept,
is located at 1600 Cantrell Road, Little Rock, AR 72201 and there are no other
such locations. DIC 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
<PAGE>
7
statement or of any new financing statement. DIC 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, DIC 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 DIC 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 DIC.
SECTION 5.5 Indemnification. DIC 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 DIC may
otherwise have.
SECTION 5.6 Repurchase Events. (a) DIC hereby covenants and
agrees with the Purchaser that in the event of (i) a breach of any of DIC's
representations and warranties contained in Section 3.1(a) hereof with respect
to any DIC 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 DIC of Section 5.4 hereof with respect to any DIC
Receivable, which breach has a material adverse effect on the Purchaser's
interest in such DIC Receivable or (iii) a breach of any of DIC's
representations and warranties contained in Section 3.1(b) (such DIC Receivable,
in either event, a "Warranty Receivable"), DIC 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 DIC
Receivable as of the close of business on the second Business Day preceding such
date of reassignment (the "Warranty Payment"). A breach by DIC of any of its
representations contained in Section 3.1(b) hereof with respect to any DIC
Receivable shall constitute a breach with respect to all DIC Receivables. It is
understood and agreed that the obligation of DIC 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 DIC for such breach
available to the Purchaser or the Purchaser.
(b) Upon receipt by the Purchaser of the Warranty Payment, the
Purchaser shall assign, without recourse, representation or warranty, to DIC 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,
DIC 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 DIC 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 DIC's expense, take such steps
as DIC deems necessary to enforce the Warranty Receivable, including bringing
suit in the name of such Person.
SECTION 5.7 Further Assignments. DIC acknowledges that the
Purchaser shall 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. DIC 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 DIC. In each case, DIC
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
<PAGE>
8
contemplated by the Pooling and Servicing Agreement, the Trustee shall have the
rights of third-party beneficiary under this Agreement. DIC 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.
SECTION 5.8 Sale Treatment. DIC 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 DIC 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 DIC set forth in Article V of this Agreement shall remain in full
force and effect and shall survive the sale of the 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
DIC: Dillard Investment Co., Inc.
1600 Cantrell Road
Little Rock, AR 72201
Attention: John Hawkins, Vice President
Telecopy:
Moody's: Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
Attention:
Telecopy:
<PAGE>
9
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. DIC 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 DIC 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
DIC 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.
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. DIC 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, DIC 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
<PAGE>
10
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, DIC. Any Person (a) into which DIC may be merged or
consolidated, (b) resulting from any merger, conversion or consolidation to
which DIC shall be a party, (c) succeeding to the business of DIC, 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 DIC under this Agreement shall be
the successor to DIC 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 DIC 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, the Purchaser and the Trustee, respectively, in the DIC 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.
SECTION 6.15 No Petition Covenants. Notwithstanding any prior
termination of this Agreement, DIC 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, DIC 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 INVESTMENT CO., INC.
By:
------------------------------
Name:
Title:
DIC RECEIVABLES PURCHASE AGREEMENT
<PAGE>
EXECUTION COPY
MFI RECEIVABLES PURCHASE AGREEMENT
BETWEEN
DILLARD ASSET FUNDING COMPANY
as Purchaser
AND
MERSCO FACTORS, INC.
DATED AS OF AUGUST 14, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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................................................. 2
SECTION 3.1 Representations and Warranties Regarding Purchased Assets................................. 2
SECTION 3.2 Representations and Warranties Regarding MFI.............................................. 3
SECTION 3.3 Representations and Warranties of the Purchaser........................................... 5
ARTICLE IV
CONDITIONS................................................................... 6
SECTION 4.1 Conditions Precedent to the Purchaser's Purchase of Receivables........................... 6
SECTION 4.2 Conditions to Obligation of MFI........................................................... 7
ARTICLE V
ADDITIONAL AGREEMENTS............................................................. 7
SECTION 5.1 Initial UCC Filings....................................................................... 7
SECTION 5.2 Computer Files Marked..................................................................... 8
SECTION 5.3 Protection of Title....................................................................... 8
SECTION 5.4 Other Liens or Interests.................................................................. 8
SECTION 5.5 Indemnification........................................................................... 8
SECTION 5.6 Repurchase Events......................................................................... 9
SECTION 5.7 Further Assignments....................................................................... 9
SECTION 5.8 Sale Treatment............................................................................ 10
ARTICLE VI
MISCELLANEOUS PROVISIONS........................................................... 10
SECTION 6.1 Amendment................................................................................. 10
SECTION 6.2 Survival.................................................................................. 10
SECTION 6.3 Notices................................................................................... 10
SECTION 6.4 GOVERNING LAW............................................................................. 11
SECTION 6.5 Waivers................................................................................... 11
SECTION 6.6 Costs and Expenses........................................................................ 11
SECTION 6.7 Confidential Information.................................................................. 11
SECTION 6.8 Headings.................................................................................. 11
SECTION 6.9 Counterparts.............................................................................. 12
SECTION 6.10 Severability of Provisions............................................................... 12
SECTION 6.11 Further Assurances....................................................................... 12
SECTION 6.12 No Third-Party Beneficiaries............................................................. 12
SECTION 6.13 Merger or Consolidation of, or Assumption of the Obligations of,
MFI...................................................................................... 12
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.14 Merger and Integration................................................................... 13
SECTION 6.15 No Petition Covenants.................................................................... 13
SECTION 6.16 No Recourse to Owner Trustee............................................................. 13
</TABLE>
-ii-
<PAGE>
MFI 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 MERSCO FACTORS, INC., a Delaware
corporation ("MFI").
W I T N E S S E T H:
WHEREAS, the Purchaser desires to purchase Receivables and
related assets from MFI; and
WHEREAS, MFI 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. (a) 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.
(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, MFI hereby sells,
transfers, assigns and otherwise conveys to the Purchaser, without recourse, and
the Purchaser hereby purchases from MFI, all right, title and interest in, to
and under all Receivables then existing under the Accounts identified in the
list of Accounts (an "Account List") previously delivered to the Purchaser (as
defined below; such Receivables, the "MFI
<PAGE>
2
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 "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 "Purchased Assets").
SECTION 2.2 The Closings. The consummation of the purchase and
sale contemplated by Section 2.1 shall take place at such place and at such time
as MFI and the Purchaser may agree upon. This Agreement shall be effective as of
the date hereof (the "Closing Date") upon its execution by MFI and the
Purchaser.
SECTION 2.3 The Purchase Price. In consideration for the sale
to the Purchaser of the Purchased Assets on the Closing Date, the Purchaser
shall pay to MFI, on such Closing Date, an amount equal to the aggregate unpaid
principal balance of the MFI Receivables included in such Purchased Assets as of
the Cutoff Date for such Receivables. Such purchase price shall be paid to MFI
in immediately available funds.
ARTICLE III
REPRESENTATIONS AND WARRANTIES AND COVENANTS
SECTION 3.1 Representations and Warranties Regarding Purchased
Assets. (a) MFI represents and warrants to the Purchaser as follows with respect
to the MFI Receivables:
(i) Eligible Accounts. As of the Cutoff Date, each 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
MFI Receivable in an Account is an Eligible Receivable;
(x) as of the Closing Date, each MFI Receivable in an
Account has been conveyed to the Purchaser (1) free and clear
of any Lien of any Person claiming through or under MFI or any
of its Affiliates and (2) in compliance, in all material
respects, with all Requirements of Law applicable to MFI;
(y) as of the Closing Date, with respect to each MFI
Receivable in an Account, all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or
given by MFI in connection with the conveyance of such MFI
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 MFI Receivables and the Accounts related thereto set
forth in the related Account List is true and correct in all
material respects.
(b) 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 MFI in, to and under the MFI Receivables and all proceeds
of such MFI Receivables and Insurance Proceeds relating
thereto, and such MFI 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 MFI or any of its Affiliates; or
<PAGE>
3
(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 MFI Receivables, the proceeds
thereof and Insurance Proceeds relating thereto upon execution
and delivery of this Agreement. 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, 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 MFI. MFI
represents and warrants to the Purchaser as of the date hereof (and, as
applicable, with respect to the MFI Receivables), that:
(a) Organization and Good Standing. MFI has been duly
organized and is validly existing as a Delaware corporation in good
standing under the laws 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 had at
all relevant times, and now has, power, authority and legal right to
acquire and own the MFI Receivables.
(b) Due Qualification. MFI 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 MFI.
(c) Power and Authority. MFI 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 MFI by all necessary
corporate action on the part of MFI. MFI 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 MFI.
(d) Binding Obligation. This Agreement, when duly executed and
delivered, shall constitute a legal, valid and binding obligation of
MFI enforceable against MFI 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 MFI and its performance of its obligations hereunder will not
violate any Requirements of Law or contractual obligation of MFI, 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
MFI's knowledge, investigations pending or, to MFI'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 MFI.
(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 MFI of this
Agreement.
<PAGE>
4
(h) No Default. MFI 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, MFI 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 MFI.
(k) Solvency. MFI is, and after giving effect to the
transactions contemplated to occur on such date, will be, solvent and
MFI is paying its debts as they become due. In addition, MFI after
giving effect to the transactions contemplated by this Agreement will
have adequate capital to conduct its business.
(l) Principal Place of Business. MFI's principal place of
business is located at 7200 West Alemeda Ave., Lakewood, CO 80226 and
there have been no other such locations during the previous five years.
(m) Name. MFI's legal name is as set forth herein, there has
been no name change in the last two years and MFI 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 MFI as of the date hereof (and,
as applicable, with respect to the MFI Receivables), 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.
(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
<PAGE>
5
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
(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
SECTION 4.1 Conditions Precedent to the Purchaser's Purchase
of Receivables. The obligation of the Purchaser to purchase from MFI 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 MFI, (ii) the Mercantile
Termination Agreement, dated as of the date hereof, between MFI and
Mercantile Stores National Bank ("MSNB"), duly executed by MFI and MSNB
and (iii) certain UCC termination statements identified on Schedule 1
hereto, duly executed by MFI.
(b) Certificate of Incorporation; By-laws. The Purchaser shall
have received a true and complete copy of the certificate of
organization of MFI, certified as a true and correct copy thereof by
the Secretary of State of the State of Delaware, and a true and
complete copy of the by-laws of MFI, certified as a true and correct
copy thereof by the Secretary or an Assistant Secretary of MFI.
(c) Resolutions. The Purchaser shall have received copies of
duly adopted resolutions of the Board of Directors of MFI in form and
substance reasonably satisfactory to the Purchaser, authorizing the
execution, delivery and performance of this Agreement, the documents to
be delivered by MFI hereunder and the transactions contemplated hereby,
certified by the Secretary or an Assistant Secretary of MFI.
<PAGE>
6
(d) Incumbency Certificate. The Purchaser shall have received
a certificate as to the incumbency and signature of the officers of MFI
authorized to sign this Agreement on behalf of MFI.
(e) Representations and Warranties. The representations and
warranties of MFI 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 to Obligation of MFI. The obligation of
MFI to sell to the Purchaser the Purchased Assets to be sold hereunder 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.
(b) Purchase Price. The Purchaser shall have paid to MFI 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, MFI shall record and file, at its own expense, a UCC-1
financing statement in each jurisdiction in which required by applicable law,
executed by MFI 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). MFI shall deliver a
file-stamped copy, or other evidence reasonably satisfactory to the Purchaser of
such filing, to the Purchaser as soon as available after such filing.
SECTION 5.2 Computer Files Marked. MFI shall, at its own
expense, within 10 Business Days of the date hereof, 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) MFI 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 MFI 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 MFI
where permitted by law. MFI 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) Except in connection with the DNB Transactions (as defined
below), MFI 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 MFI 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
<PAGE>
7
amendments as may be necessary to continue the perfection of the Purchaser's
interest in all Purchased Assets sold hereunder.
(c) MFI hereby represents and warrants that its chief place of
business and principal executive office, and the place where its principal
records pertaining to the Receivables and the related Purchased Assets are kept,
is located at 7200 West Alemeda Ave., Lakewood, CO 80226 and there are no other
such locations. Except for any relocation resulting from the DNB Transactions,
MFI 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. MFI 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 (i) hereunder and as contemplated by the Pooling and Servicing
Agreement or (ii) made in connection with the DNB Transactions, MFI 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 MFI 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 MFI.
SECTION 5.5 Indemnification. MFI 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 MFI may
otherwise have.
SECTION 5.6 Repurchase Events. (a) MFI hereby covenants and
agrees with the Purchaser that in the event of (i) a breach of any of MFI's
representations and warranties contained in Section 3.1(a) hereof with respect
to any MFI 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 MFI of Section 5.4 hereof with respect to any MFI
Receivable, which breach has a material adverse effect on the Purchaser's
interest in such MFI Receivable or (iii) a breach of any of MFI's
representations and warranties contained in Section 3.1(b) (such MFI Receivable,
in either event, a "Warranty Receivable"), MFI 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 MFI
Receivable as of the close of business on the second Business Day preceding such
date of reassignment (the "Warranty Payment"). A breach by MFI of any of its
representations contained in Section 3.1(b) hereof with respect to any MFI
Receivable shall constitute a breach with respect to all MFI Receivables. It is
understood and agreed that the obligation of MFI 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 MFI for such breach
available to the Purchaser or the Purchaser.
(b) Upon receipt by the Purchaser of the Warranty Payment, the
Purchaser shall assign, without recourse, representation or warranty, to MFI 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,
MFI 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 MFI 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 MFI's expense, take such steps
as MFI
<PAGE>
8
deems necessary to enforce the Warranty Receivable, including bringing suit in
the name of such Person.
SECTION 5.7 Further Assignments. MFI acknowledges that the
Purchaser shall 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. MFI 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 MFI. In each case, MFI
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. MFI 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.
SECTION 5.8 Sale Treatment. MFI 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 MFI 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 MFI set forth in Article V of this Agreement shall remain in full
force and effect and shall survive the sale of the 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:
with a copy to
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, NY 10001
Attn: Structured Finance Services
<PAGE>
9
MFI: Mersco Factors, Inc.
7200 West Alemeda Ave.
Lakewood, CO 80226
Attention: President
Telecopy:
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. MFI 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 MFI 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
MFI 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.
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
<PAGE>
10
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. MFI 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, MFI 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, MFI. Any Person (a) into which MFI may be merged or
consolidated, (b) resulting from any merger, conversion or consolidation to
which MFI shall be a party, (c) succeeding to the business of MFI, 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 MFI under this Agreement shall be
the successor to MFI 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 MFI, except with respect to any merger of MFI with, sale
of Receivables, Accounts or other assets to or assumption of obligations of MFI
hereunder by Dillard National Bank or an affiliate thereof (the "DNB
Transactions"), 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, the
Purchaser and the Trustee, respectively, in the MFI 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.
SECTION 6.15 No Petition Covenants. Notwithstanding any prior
termination of this Agreement, MFI 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, MFI 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.
<PAGE>
11
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:
MERSCO FACTORS, INC.
By:
------------------------------
Name:
Title:
MFI RECEIVABLES PURCHASE AGREEMENT
<PAGE>
DILLARD ASSET FUNDING COMPANY
Transferor
DILLARD NATIONAL BANK
Master Servicer
and
THE CHASE MANHATTAN BANK
Trustee
on behalf of the Certificateholders
of the Dillard's Master Credit Card Trust I
POOLING AND SERVICING AGREEMENT
DATED AS OF AUGUST 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions........................................................................................1
Section 1.02. Other Definitional Provisions.....................................................................17
Section 1.03. Business Day Certificate..........................................................................18
ARTICLE II
CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance of Receivables.........................................................................18
Section 2.02. Acceptance by Trustee.............................................................................19
Section 2.03. Representations and Warranties of the Transferor..................................................20
Section 2.04. Representations and Warranties of the Transferor Relating to the Accounts and the
Receivables; Ineligible Receivables; Reassignment...........................................22
Section 2.05. Covenants of the Transferor.......................................................................26
Section 2.06. Addition of Accounts..............................................................................28
Section 2.07. Removal of Accounts by Transferor.................................................................29
Section 2.08. Discount Option Receivables.......................................................................30
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.01. Acceptance of Appointment and Other Matters Relating to the Master Servicer.......................31
Section 3.02. Servicing Compensation............................................................................32
Section 3.03. Representations and Warranties of the Master Servicer.............................................33
Section 3.04. Reports and Records for the Trustee...............................................................34
Section 3.05. Annual Master Servicer's Certificate..............................................................35
Section 3.06. Annual Independent Accountants'Servicing Report...................................................35
Section 3.07. Tax Treatment.....................................................................................36
Section 3.08. Notices to the Transferor.........................................................................36
Section 3.09. Sub-Servicing.....................................................................................36
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.01. Rights of Certificateholders......................................................................37
Section 4.02. Establishment of Accounts.........................................................................37
Section 4.03. Collections and Allocations of Collections, Master Servicer Credit Support........................38
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN A SUPPLEMENT WITH
RESPECT TO THE RELATED SERIES]
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates..................................................................................43
Section 6.02. Authentication of Certificates....................................................................44
Section 6.03. Registration of Transfer and Exchange of Certificates.............................................44
Section 6.04. Mutilated, Destroyed, Lost or Stolen Certificates.................................................47
Section 6.05. Persons Deemed Owners.............................................................................47
Section 6.06. Appointment of Paying Agent.......................................................................48
Section 6.07. Access to List of Certificateholders, Names and Addresses.........................................48
Section 6.08. Authenticating Agent..............................................................................49
Section 6.09. Tender of Exchangeable Transferor Certificate.....................................................50
Section 6.10. Book-Entry Certificates...........................................................................52
Section 6.11. Notices to Clearing Agency........................................................................52
Section 6.12. Definitive Certificates...........................................................................53
Section 6.13. Global Certificate................................................................................53
Section 6.14. Meetings of Certificateholders....................................................................53
Section 6.15. Restrictions on Transfers of Certain Certificates.................................................54
Section 6.16. Trust Tax Election................................................................................54
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.01. Liability of the Transferor.......................................................................55
Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Transferor...................55
Section 7.03. Limitation on Liability...........................................................................55
Section 7.04. Indemnification...................................................................................56
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
Section 8.01. Liability of the Master Servicer..................................................................57
Section 8.02. Merger or Consolidation of, or Assumption of the Obligations of, the Master Servicer..............57
Section 8.03. Limitation on Liability of the Master Servicer and Others.........................................58
Section 8.04. Master Servicer Indemnification of the Transferor, the Trust and the Trustee......................58
Section 8.05. The Master Servicer Not To Resign.................................................................59
Section 8.06. Access to Certain Documentation and Information Regarding the Receivables.........................59
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8.07. Delegation of Duties..............................................................................59
ARTICLE IX
PAY OUT EVENTS
Section 9.01. Pay Out Events....................................................................................60
Section 9.02. Additional Rights Upon the Occurrence of Certain Events...........................................60
ARTICLE X
MASTER SERVICER DEFAULTS
Section 10.01. Master Servicer Defaults.........................................................................61
Section 10.02. Trustee To Act; Appointment of Successor.........................................................63
Section 10.03. Inability To Obtain Successor Master Servicer; Sale of Receivables...............................65
Section 10.04. Notification to Certificateholders...............................................................65
Section 10.05 Waiver of Past Defaults..........................................................................66
ARTICLE XI
THE TRUSTEE
Section 11.01. Duties of Trustee................................................................................66
Section 11.02. Certain Matters Affecting the Trustee............................................................68
Section 11.03. Trustee Not Liable for Recitals in Certificates..................................................69
Section 11.04. Trustee Ownership of Certificates................................................................69
Section 11.05. The Master Servicer To Pay Trustee's Fees and Expenses and Trust Expenses........................69
Section 11.06. Eligibility Requirements for Trustee.............................................................69
Section 11.07. Resignation or Removal of Trustee................................................................70
Section 11.08. Successor Trustee................................................................................70
Section 11.09. Merger or Consolidation of Trustee...............................................................71
Section 11.10. Appointment of Co-Trustee or Separate Trustee....................................................71
Section 11.11. Tax Returns......................................................................................72
Section 11.12. Trustee May Enforce Claims Without Possession of Certificates....................................73
Section 11.13. Suits for Enforcement............................................................................73
Section 11.14. Rights of Certificateholders To Direct Trustee...................................................73
Section 11.15. Representations and Warranties of Trustee........................................................73
Section 11.16. Maintenance of Office or Agency..................................................................74
ARTICLE XII
TERMINATION
Section 12.01. Termination of Trust.............................................................................74
Section 12.02. Optional Purchase................................................................................75
Section 12.03. Final Payment With Respect to Any Series.........................................................76
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 12.04. Termination Rights of Holder of Exchangeable Transferor Certificate..............................77
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01. Amendment........................................................................................77
Section 13.02. Protection of Right, Title and Interest to Trust.................................................78
Section 13.03. Limitation on Rights of Certificateholders.......................................................79
Section 13.04. Governing Law....................................................................................80
Section 13.05. Notices..........................................................................................80
Section 13.06. Severability of Provisions.......................................................................81
Section 13.07. Assignment.......................................................................................81
Section 13.08. Certificates Nonassessable and Fully Paid........................................................81
Section 13.09. Further Assurances...............................................................................81
Section 13.10. No Waiver, Cumulative Remedies...................................................................81
Section 13.11. Counterparts.....................................................................................81
Section 13.12. Third-party Beneficiaries........................................................................81
Section 13.13. Actions by Certificateholders....................................................................82
Section 13.14. Rule 144A Information............................................................................82
Section 13.15. Merger and Integration...........................................................................82
Section 13.16. Headings.........................................................................................82
Section 13.17. No Recourse......................................................................................82
EXHIBIT A - Form of Exchangeable Transferor Certificate
EXHIBIT B - Form of Annual Master Servicer's Certificate
SCHEDULE 1 - Initial Account List
</TABLE>
-iv-
<PAGE>
POOLING AND SERVICING AGREEMENT
THIS POOLING AND SERVICING AGREEMENT (this "Agreement"), dated
as of August 1, 1998, is made by and among DILLARD ASSET FUNDING COMPANY, a
Delaware business trust, as Transferor, DILLARD NATIONAL BANK, a national
banking association, as Master Servicer, and THE CHASE MANHATTAN BANK, a New
York banking corporation, as Trustee.
In consideration of the mutual agreements herein contained
each party agrees as follows for the benefit of the other parties and the
Certificateholders:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement,
unless otherwise provided with respect to a Series in the related Supplement,
the following words and phrases shall have the following meanings:
"Account" means each credit card account now or hereafter
established pursuant to a Credit Card Agreement by DNB or Mercantile (whether
originated or acquired by DNB or Mercantile), including each Transferred Account
and each Additional Account from and after the related Addition Date and
excluding any Removed Account after the related Removal Date.
"Account Information" means any account numbers or other
information contained in any Account List.
"Account List" means a computer file or microfiche list
containing a true and complete list of all Accounts, identified by account
number, the Receivables in which, whether existing or hereafter created, have
been transferred to the Trust.
"Active Account" means each Account which has had a statement
issued during the immediately preceding twelve month period.
"Additional Accounts" means additional Eligible Accounts that
are added as Accounts pursuant to Section 2.06 of this Agreement.
"Addition Date" means each date as of which Additional
Accounts will be included as Accounts pursuant to Section 2.06 hereof.
"Adjustment Amount" shall have the meaning specified in
subsection 4.03(c).
"Affiliate" of any Person means any other Person controlling,
controlled by or under common control with such Person.
<PAGE>
"Aggregate Investor Default Amount" shall have, with respect
to any Series of Certificates, the meaning stated in the related Supplement.
"Aggregate Investor Interest" means, as of any date of
determination, the sum of the Investor Interests for all Series of Certificates
issued and outstanding on such date of determination.
"Aggregate Investor Percentage" means, with respect to
Principal Receivables, Finance Charge Receivables and Receivables in Defaulted
Accounts, as the case may be, as of any date of determination, the sum of the
Investor Percentages with respect to such items of all Series of Certificates
issued and outstanding as of close of business on the preceding day; provided,
however, that the Aggregate Investor Percentage shall not exceed 100%.
"Agreement" means this Pooling and Servicing Agreement and all
amendments hereof and supplements hereto, including any Supplement.
"Amortization Period" means, with respect to any Series, the
period following the Revolving Period for the Series, which shall be the
controlled amortization period, the rapid amortization period or other
amortization period, in each case as defined with respect to such Series in the
related Supplement.
"Annual Master Servicer's Certificate" means a certificate
substantially in the form of Exhibit B hereto, delivered pursuant to Section
3.05 hereof.
"Authorized Newspaper" means a newspaper of general
circulation in the Borough of Manhattan, the City of New York and in such other
cities as shall be specified in the Supplements, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays and holidays.
"Average Principal Receivables" means, for any period, an
amount equal to (a) the sum of the aggregate amounts of Principal Receivables at
the close of business on each day during such period divided by (b) the number
of days in such period.
"Bank Portfolio" means the accounts originated by DNB or
Mercantile, as applicable.
"Bearer Certificates" shall have the meaning specified in
Section 6.01.
"Bearer Rules" means the provisions of the Internal Revenue
Code, in effect from time to time, governing the treatment of bearer
obligations, including Sections 163(f), 871, 881, 1441, 1442 and 4701, and any
regulations thereunder including, to the extent applicable to any Series,
Proposed or Temporary Regulations.
"BIF" means the Bank Insurance Fund administered by the FDIC.
-2-
<PAGE>
"Book-Entry Certificates" means beneficial interests in the
Investor Certificates, ownership and transfers of which shall be made through
book entries by a Clearing Agency as described in Section 6.10; provided, that
if book-entry registration and transfer are no longer authorized and Definitive
Certificates are to be issued to the Certificate Owners, such certificates shall
no longer be "Book-Entry Certificates."
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in New York, New York, Little Rock,
Arkansas, Gilbert, Arizona, or Baton Rouge, Louisiana (or with respect to any
Series, any additional city specified in the related Supplement) are authorized
or obligated by law or executive order to be closed.
"Certificate" means any one of the Investor Certificates of
any Series or the Exchangeable Transferor Certificate.
"Certificateholder" or "Holder" means the Person in whose name
a Certificate is registered in the Certificate Register and, if applicable, the
holder of any Bearer Certificate or Coupon, as the case may be.
"Certificate Interest" means interest payable in respect of
the Investor Certificates of any Series pursuant to the related Supplement.
"Certificate Owner" means, with respect to a Book-Entry
Certificate, the Person who is the beneficial owner of such Book-Entry
Certificate, as may be reflected on the books of the Clearing Agency, or on the
books of a Person maintaining an account with such Clearing Agency (directly or
as an indirect participant, in accordance with the rules of such Clearing
Agency).
"Certificate Principal" means principal payable in respect of
the Investor Certificates of any Series pursuant to Article IV of this Agreement
and the related Supplement.
"Certificate Rate" means, with respect to any Series or Class
of Certificates, the interest rate (or formula on the basis of which such rate
shall be determined) stated in the related Supplement; provided, that unless
otherwise provided in a Supplement, such rate shall be calculated on the basis
of actual days elapsed and a 365-day or 366-day year, as the case may be.
"Certificate Register" means the register maintained pursuant
to Section 6.03, providing for the registration of the Certificates and
transfers and exchanges thereof.
"Class" means, with respect to any Series, any one of the
classes of Investor Certificates of that Series as specified in the related
Supplement.
"Clearing Agency" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act of
1934, as amended.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency or Foreign Clearing Agency
-3-
<PAGE>
effects book-entry transfers and pledges of securities deposited with the
Clearing Agency or Foreign Clearing Agency.
"Closing Date" means, with respect to any Series, the date of
issuance of such Series of Certificates, as specified in the related Supplement.
"Collection Account" means the account created pursuant to
Section 4.02(a) hereof.
"Collections" means all payments (including Insurance Proceeds
and recoveries, net of expense of collection, on Defaulted Accounts) received by
the Master Servicer or the Transferor in respect of the Receivables, whether in
the form of cash, checks, wire transfers, ATM transfers, or other forms of
payment in accordance with the Credit Card Agreements in effect from time to
time. A Collection processed on an Account in excess of the aggregate amount of
Receivables in such Account as of the Date of Processing of such Collection
shall be deemed to be a payment in respect of Principal Receivables to the
extent of such excess. Any Collections by check which are dishonored by the
drawee bank of such check shall be subtracted from the Collections of Principal
Receivables in the Monthly Period in which the dishonor occurs.
"Corporate Trust Office" shall mean the principal corporate
office of the Trustee at which, at any particular time, its corporate trust
business shall be administered, which office at the date hereof is located at
450 West 33rd Street, New York, New York 10001, Attention: Structured Finance
Services, except that for purposes of subsection 6.03(d) and Section 11.16, such
term shall mean the office or agency of the Trustee in the Borough of Manhattan,
the City of New York, which office at the date hereof is located at 55 Water
Street, New York, New York 10041.
"Coupon" has the meaning specified in Section 6.01 hereof.
"Credit Adjustment" has the meaning specified in subsection
4.03(c) hereof.
"Credit Card Agreement" means the Agreement and Federal Truth
in Lending Statement for credit card accounts between any Obligor and an
Originator, as such agreements may be amended, modified or otherwise changed
from time to time.
"Credit Card Guidelines" means each Originator's written
policies and procedures relating to the operation of its credit card business,
including, without limitation, the policies and procedures for determining the
creditworthiness of credit card customers, the extension of credit to credit
card customers, and relating to the maintenance of credit card accounts and
collection of credit card receivables, as such policies and procedures may be
amended from time to time.
"Cut Off Date" means July 31, 1998.
"Date of Processing" means, with respect to any transaction,
the date on which such transaction is first recorded on DNB's, with respect to
Dillard's Accounts, or Mercantile's, with respect to Mercantile Accounts,
computer master file of accounts (without regard to the effective date of such
recordation).
-4-
<PAGE>
"Default Amount" means, with respect to any Distribution Date,
the aggregate amount of Principal Receivables (other than Ineligible
Receivables) in Accounts which became Defaulted Accounts during the Related
Monthly Period.
"Defaulted Account" means each Account with respect to which,
in accordance with the Credit Card Guidelines or the related Originator's
customary and usual servicing procedures for servicing credit card receivables
comparable to the Receivables, such Originator has charged off the Receivables
in such Account as uncollectible. An Account shall become a Defaulted Account on
the day on which the related Receivables are recorded as charged off as
uncollectible on such Originator's computer master file of accounts.
Notwithstanding any other provision hereof, any Receivables in a Defaulted
Account that are Ineligible Receivables shall be treated as Ineligible
Receivables rather than Receivables in Defaulted Accounts.
"Definitive Certificate" has the meaning specified in Section
6.10 hereof.
"Depository" has the meaning specified in Section 6.10 hereof.
"Depository Agreement" means, with respect to each Series, the
agreement among the Transferor, the Trustee and the Clearing Agency, or as
otherwise provided in the related Supplement.
"Determination Date" means the fourth Business Day prior to
each Transfer Date.
"Dillard's" means Dillard's Inc., its successors and assigns
"Dillard's Accounts" means those Accounts originated or (with
the prior written consent of each Rating Agency) acquired by DNB.
"Discount Option Receivables" means, on any Date of Processing
on and after the date on which any exercise of the discount option pursuant to
Section 2.08 takes effect, the sum of (a) the aggregate Discount Option
Receivables at the end of the prior Date of Processing (which amount, prior to
the date on which the Transferor's exercise of its discount option takes effect,
shall be zero), plus (b) any new Discount Option Receivables created on such
Date of Processing, minus (c) any Discount Option Receivables Collections
received on such Date of Processing, and minus (d) the Discount Option
Receivables Default Amount. Discount Option Receivables created on any Date of
Processing shall mean the product of the amount of any Principal Receivables
created on such Date of Processing (without giving effect to Discount Option
Receivables) and the Discount Percentage.
"Discount Option Receivables Default Amount" means, as of any
Date of Processing, (a) the sum of Discount Option Receivables in Accounts which
are Defaulted Accounts, minus (b) Collections consisting of recoveries, net of
expenses of collection, on such Discount Option Receivables.
"Discount Option Receivables Collections" means, on any Date
of Processing on and after the date on which any exercise of the discount option
pursuant to Section 2.08 takes effect,
-5-
<PAGE>
the product of (a) a fraction, the numerator of which is the amount of Discount
Option Receivables and the denominator of which is the sum of Principal
Receivables and Discount Option Receivables, in each case on the last day of the
preceding Monthly Period, and (b) Collections of Principal Receivables (without
giving effect to Discount Option Receivables) on such Date of Processing.
"Discount Percentage" means the percentage designated by the
Transferor pursuant to Section 2.08 hereof.
"Distribution Account" shall have the meaning specified in
subsection 4.02(c) hereof.
"Distribution Date" means, unless otherwise specified in any
Supplement for the related Series, the fifteenth day of the calendar month
following the month in which the Closing Date for such Series occurs and the
fifteenth day of each month thereafter, or, if such fifteenth day is not a
Business Day, the next succeeding Business Day.
"DNB" means Dillard National Bank, its successors and assigns.
"Dollars," "$" or "U.S. $" shall mean United States dollars.
"Eligible Account" shall mean, as of the Cut Off Date (or,
with respect to Additional Accounts, as of the related Addition Date) an account
owned by the Transferor:
(i) which is payable in Dollars;
(ii) the Obligor of which is not the U.S. Government
or any state or local governmental entity and has provided, as its most recent
billing address, an address which is located in the United States or its
territories or possessions;
(iii) which DNB or Mercantile has not classified on
its electronic records as counterfeit, canceled, fraudulent, stolen or lost;
(iv) which has been originated or (with the prior
written consent of each Rating Agency) acquired by DNB or Mercantile;
(v) the Receivables of which DNB or Mercantile has
not charged off in its customary and usual manner for charging off Receivables;
(vi) which is free of all Liens that are equal or
prior to the interest of the Trust; and
(vii) as to any Series, meets any additional
requirements set forth in the related Supplement for such Series.
"Eligible Receivable" shall mean each Receivable:
(a) which has arisen under an Eligible Account;
-6-
<PAGE>
(b) which was created in compliance, in all material respects,
with all Requirements of Law applicable to the Originator pursuant to a Credit
Card Agreement which complies, in all material respects, with all Requirements
of Law applicable to the Originator;
(c) with respect to which all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any Governmental
Authority required to be obtained, effected or given by the Originator in
connection with the creation of such Receivable or the execution, delivery and
performance by the Originator of the related Credit Card Agreement have been
duly obtained, effected or given and are in full force and effect as of such
date of creation;
(d) as to which, upon the transfer of such Receivables to the
Trustee, the Trustee will have a first priority perfected security interest or
good and marketable title thereto, free and clear of all Liens arising under or
through the Transferor or any of its Affiliates;
(e) which is the legal, valid and binding payment obligation
of the Obligor thereon, enforceable against such Obligor in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting the enforcement of creditors' rights in general and except
as such enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity);
(f) which constitutes an "account" or "general intangible"
under and as defined in Article 9 of the UCC; and
(g) as to any Series, which meets any additional requirements
set forth in the related Supplement for such Series.
"Enhancement" means, with respect to any Series, the cash
collateral account, collateral invested amount, letter of credit, guaranteed
rate agreement, maturity guaranty facility, tax protection agreement, interest
rate swap or any other contract, arrangement or agreement for the benefit of the
Certificateholders of such Series (or Certificateholders of a Class within such
Series), as designated in the related Supplement.
"Enhancement Provider" means, with respect to any Series, the
Person, if any, designated as such in the related Supplement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Excess Finance Charge Collections" means, with respect to a
Series and any date of determination, Collections of Finance Charge Receivables
allocated to the Series which are not required to fund payments to
Certificateholders of such Series on the related Distribution Date, as
determined in accordance with the terms of the related Supplement.
-7-
<PAGE>
"Excess Funding Account" means the account established in
accordance with subsection 4.02(e) hereof.
"Excess Funding Amount" means the amount on deposit in the
Excess Funding Account, exclusive of interest (including reinvested interest)
and other investment income and earnings there on.
"Excess Principal Collections" means, with respect to a Series
and any date of determination, Collections of Principal Receivables allocated to
the Series which are not required to fund payments to Certificateholders of such
Series on the related Distribution Date, or are not otherwise reserved for
distribution to Holders of the Series, as determined in accordance with the
terms of the related Supplement.
"Exchange" means either an Investor Exchange or a Transferor
Exchange, as described in Section 6.09 hereof.
"Exchangeable Transferor Certificate" means the certificate
executed by the Transferor and authenticated by the Trustee, substantially in
the form of Exhibit A and exchangeable as provided in Section 6.09; provided,
that at any time there shall be only one Exchangeable Transferor Certificate.
"Exchange Date" shall, with respect to any Series issued
pursuant to an Exchange, have the meaning specified in Section 6.09 hereof.
"Exchange Notice" shall, with respect to any Series issued
pursuant to an Exchange, have the meaning specified in Section 6.09 hereof.
"Extended Trust Termination Date" has the meaning specified in
subsection 12.01(a) hereof.
"FDIC" means the Federal Deposit Insurance Corporation.
"Finance Charge Account" has the meaning specified in
subsection 4.02(b) hereof.
"Finance Charge Receivables" means the sum of (x) the amount
billed with respect to any Account as Periodic Finance Charges, fees for
insufficient fund checks received in payment on Accounts, overlimit fees, Late
Fees and other similar fees and charges, including Special Fees to the extent
such Special Fees are categorized as Finance Charge Receivables; and (y) the sum
of (a) Discount Option Receivables; (b) Collections consisting of recoveries,
net of expenses of collection, on Receivables in Defaulted Accounts; and (c)
interest and other investment earnings (net of losses and investment expenses)
on funds on deposit in the Excess Funding Account.
"Foreign Clearing Agency" means, with respect to a Series, any
non-United States clearing agency specified in the applicable Supplement.
-8-
<PAGE>
"Global Certificate" has the meaning specified in Section 6.13
hereof.
"Governmental Authority" means the United States of America,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Group" means, with respect to any Series, the group of Series
in which the related Supplement specifies such Series is included.
"Ineligible Receivable" means a Receivable required to be
removed from the Trust pursuant to Section 2.04(c).
"Initial Closing Date" means August 14, 1998.
"Initial Investor Interest" means, with respect to any Series,
the amount stated in the related Supplement.
"Insolvency Event" means the Transferor has consented to the
appointment of a conservator, receiver or liquidator for the winding-up or
liquidation of its affairs, or a decree or order of a court, agency or
supervisory authority having jurisdiction in the premises for the appointment of
a conservator, receiver or liquidator for the winding-up or liquidation of the
Transferor's affairs has been entered against the Transferor.
"Insurance Proceeds" means any amounts recovered by an
Originator pursuant to any credit insurance policies covering any Obligor with
respect to Receivables created under such Obligor's Account.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time.
"Investor Account" means each of the Collection Account, the
Finance Charge Account, the Principal Account, the Excess Funding Account and
the Distribution Account.
"Investor Certificate" means any one of the certificates
(including, without limitation, the Bearer Certificates, the Registered
Certificates or the Global Certificates) executed by the Transferor and
authenticated by the Trustee, substantially in the form (or forms in the case of
a Series with multiple Classes) of the investor certificate attached to the
related Supplement.
"Investor Certificateholder" means the Holder of an Investor
Certificate.
"Investor Charge Off" shall have, with respect to each Series,
the meaning specified in the related Supplement.
-9-
<PAGE>
"Investor Default Amount" shall have, with respect to any
Series of Certificates, the meaning stated in the related Supplement.
"Investor Exchange" has the meaning specified in subsection
6.09 hereof.
"Investor Interest" shall have, with respect to any Series of
Certificates, the meaning stated in the related Supplement.
"Investor Percentage" shall have, with respect to Principal
Receivables, Finance Charge Receivables and Receivables in Defaulted Accounts,
and any Series of Certificates, the meaning stated in the related Supplement.
"Late Fees" shall have, with respect to an Account, the
meaning specified in the related Credit Card Agreement.
"Lien" means any mortgage, deed of trust, pledge, assignment,
participation or equity interest, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
however, that none of the following shall constitute a Lien prohibited by this
Agreement: (a) any assignment pursuant to Section 7.02 hereof, (b) any liens for
municipal or other local taxes if such taxes shall not at the time be due and
payable or if the Transferor shall currently be contesting the validity thereof
in good faith by appropriate proceedings and shall have set aside on its books
adequate reserves with respect thereto, (c) a lien granted by the Transferor
solely on the Transferor's Interest as Holder of the Exchangeable Transferor
Certificate, (d) the interest of the Transferor as Holder of the Exchangeable
Transferor Certificate, (e) the interest of the Collateral Interest Holder (as
defined in the related Supplement) or (f) the Transferor's right, if any, to
interest accruing on, and investment earnings, if any, in respect of, any
Investor Account or any Series Account, as provided in this Agreement or the
related Supplement.
"Master Servicer" means DNB, and its successors and assigns.
"Master Servicer Credit Support" means a letter of credit,
guaranty or other form of credit support supporting the Master Servicer's
obligations regarding Collections which is delivered to the Trustee in
accordance with subsection 4.03(a)(ii).
"Master Servicer Default" has the meaning specified in Section
10.01 hereof.
"Master Servicing Officer" means any officer of the Master
Servicer involved in, or responsible for, the administration and servicing of
the Receivables whose name appears on a list of servicing officers furnished to
the Trustee by the Master Servicer, as such list may from time to time be
amended.
-10-
<PAGE>
"Maximum Addition Amount" means, unless otherwise provided in
a Supplement, with respect to any Determination Date, the number of accounts
originated by DNB and by Mercantile after the Cut Off Date which would either
(a) with respect to any three consecutive Monthly Periods commencing with the
three month period ending in November 1998 be equal to the product of (i) 15%
and (ii) the number of Active Accounts as of the first day of the calendar year
in which such Monthly Periods commence (or the Cut Off Date in the case of 1998)
or (b) with respect to any twelve month period commencing after the Cut Off Date
be equal to the product of (i) 20% and (ii) the number of Active Accounts as of
the first day of such twelve month period.
"Mercantile" means Mercantile Stores National Bank, its
successors and assigns.
"Mercantile Accounts" means those Accounts originated or (with
the prior written consent of each Rating Agency) acquired by Mercantile.
"Minimum Aggregate Principal Receivables" means as of any date
of determination, an amount equal to the sum of the Investor Interests of each
Series used in calculating the numerator of the Investor Percentage for
Collections of Principal Receivables.
"Minimum Transferor Interest" means, on any date of
determination, 0% (or such higher percentage as may be specified in any
Supplement) of the aggregate Principal Receivables on that date of
determination.
"Monthly Investor Servicing Fee" means, with respect to each
Series, the share of the Monthly Servicing Fee allocable to the Series of
Investor Certificateholders, as described in Section 3.02 hereof.
"Monthly Period" means the period from and including the first
day of a calendar month to and including the last day of a calendar month.
"Monthly Master Servicer's Certificate" means with respect to
a Series, a certificate substantially in the form required by the related
Supplement, executed by a Master Servicing Officer and provided pursuant to
Section 3.04 hereof.
"Monthly Servicing Fee" has the meaning specified in Section
3.02 hereof.
"Monthly Transferor Servicing Fee" means the share of the
Monthly Servicing Fee payable by the Holder of the Exchangeable Transferor
Certificate, as described in Section 3.02 hereof.
"Moody's" means Moody's Investors Service, Inc. or any
successor thereto.
"Notice Date" has the meaning specified in subsection
2.06(b)(i) hereof.
"Obligor" means, with respect to any Account, the Person or
Persons obligated to make payments with respect to such Account, including any
guarantor thereof.
-11-
<PAGE>
"Officer's Certificate" means a certificate signed by any
Responsible Officer of the Transferor and any vice president or more senior
officer of the Master Servicer and delivered to the Trustee.
"Offshore Securities Market" means any established securities
market organized under the laws of a country other than the United States in
which Investor Certificates are listed, including, without limitation, the
Eurobond market, as regulated by the Association of International Bond Dealers;
the Amsterdam Stock Exchange; the Australian Stock Exchange Limited; the Bourse
de Bruxelles; the Frankfurt Stock Exchange; The Stock Exchange of Hong Kong
Limited; The International Stock Exchange of the United Kingdom and the Republic
of Ireland, Ltd.; the Johannesburg Stock Exchange; the Bourse de Luxembourg; the
Borsa Valori di Milan; the Montreal Stock Exchange; the Bourse de Paris; the
Stockholm Stock Exchange; the Tokyo Stock Exchange; the Toronto Stock Exchange;
the Vancouver Stock Exchange; and the Zurich Stock Exchange.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for or an employee of the Person providing the opinion, and who
shall be reasonably acceptable to the Trustee.
"Originator" shall mean, with respect to Dillard's Accounts,
DNB, and, with respect to Mercantile Accounts, Mercantile.
"Paying Agent" means any paying agent appointed pursuant to
Section 6.06, which initially shall be the Trustee.
"Pay Out Commencement Date" means, with respect to a Series,
the date on which a Pay Out Event is deemed to occur with respect to the Series.
"Pay Out Event" means, with respect to a Series, a Trust Pay
Out Event or a Series Pay Out Event.
"Periodic Finance Charges" shall have the meaning specified in
the Credit Card Agreement applicable to each Account for finance charges (due to
periodic rate) or any similar term.
"Permitted Investments" means:
(a) negotiable instruments or securities represented by
instruments in bearer or registered form which evidence (i) obligations of or
fully guaranteed as to timely payment of principal and interest by the United
States of America; (ii) time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any state thereof and subject to supervision and
examination by federal or state banking or depository institution authorities;
provided, however, that at the time of the Trust's or the Trustee's investment
or contractual commitment to invest therein, the certificates of deposit or
short-term deposits of such depository institution or trust company shall have a
credit rating from each of Moody's and Standard & Poor's of P-1 and A-1+,
respectively; (iii) commercial paper having, at the time of the Trust's or the
Trustee's investment or contractual commitment to invest therein, a rating from
each of Moody's and
-12-
<PAGE>
Standard and Poor's of P-1 and A-1+, respectively; (iv) bankers acceptances
issued by any depository institution or trust company described in clause
(a)(ii) above; and (v) investments in money market or common trust funds rated
AAA-M or AAA-mg by Standard & Poor's and Aaa by Moody's or otherwise approved in
writing by each Rating Agency;
(b) demand deposits in the name of the Trust or the Trustee in
any depository institution or trust company referred to in clause (a)(ii) above;
and
(c) any other investment if the Rating Agency Condition is
satisfied for the related Series.
"Person" means any legal person, including any individual,
corporation, partnership, joint venture, association, limited liability company,
joint-stock company, trust, unincorporated organization, governmental entity or
other entity of similar nature.
"Pool Factor" means, as of a Record Date, with respect to a
Series, or if the Series is issued in more than one Class with respect to a
Class, a number carried out to seven decimals representing the ratio of the
applicable Investor Interest as of such Record Date (determined after taking
into account any reduction in the Investor Interest which will occur on the
following Distribution Date) to the related Initial Investor Interest for the
Series or Class, as applicable.
"Pool Index File" means the file on each of the Originators'
computer system that identifies accounts of the Transferor and is designated by
such Originator as its "Pool Index File."
"Principal Account" has the meaning specified in subsection
4.02(b) hereof.
"Principal Receivable" means each Receivable other than (a)
Finance Charge Receivables, (b) Discount Option Receivables and (c) Receivables
in Defaulted Accounts. A Receivable shall be deemed to have been created at the
close of business on the Date of Processing of such Receivable. In calculating
the aggregate amount of Principal Receivables on any day, the amount of
Principal Receivables shall be reduced by the aggregate amount of credit
balances in the Accounts at the close of business on the preceding day. Any
Receivables which the Originator is unable to transfer as provided in subsection
2.05(d) shall not be included in calculating the aggregate amount of Principal
Receivables.
"Principal Terms" shall have the meaning, with respect to any
Series issued pursuant to an Exchange, specified in subsection 6.09(c).
"Qualified Institution" means:
(a) a depository institution or trust company (which may
include the Trustee or an Affiliate of the Master Servicer) organized under the
laws of the United States of America or any one of the states thereof or the
District of Columbia and with deposit insurance provided by the BIF or SAIF;
provided, however, that at all times the certificates of deposit, short-term
deposits or commercial paper or the long-term unsecured debt obligations (other
than any obligation for which the rating is based on
-13-
<PAGE>
collateral or on the credit of a Person other than such institution or trust
company) of such depository institution or trust company shall have a credit
rating of at least P-1 and
A-1 from Moody's and Standard & Poor's, respectively, or such
higher rating as may be specified in a Supplement, in the case of the
certificates of deposit, short-term deposits or commercial paper, or at least
Aa3 and AA from Moody's and Standard & Poor's, respectively, in the case of the
long-term unsecured debt obligations; or
(b) a depository institution, which may include DNB,
Mercantile or the Trustee, which is acceptable to each Rating Agency, as
evidenced by a letter from such Rating Agency.
"Rating Agency" means, with respect to a Series, the rating
agency or agencies, if any, specified in the related Supplement.
"Rating Agency Condition" means a written notice by each
applicable Rating Agency to the Transferor, the Master Servicer and the Trustee
that the action described in the notice will not result in that Rating Agency
reducing or withdrawing its then existing rating(s) of the applicable Investor
Certificates, or with respect to a Series, any related rating (as described in
the related Supplement).
"Reassignment" has the meaning specified in subsection
2.07(b)(ii).
"Reassignment Date" means a Distribution Date specified by the
Transferor as a date on which the Transferor shall be obligated to accept
reassignment of all Principal Receivables pursuant to subsection 2.04(d).
"Receivable" means any amount owing by an Obligor under an
Account, including, without limitation, amounts due in connection with the sale
of goods and services, cash advances, access checks, Periodic Finance Charges,
fees for insufficient funds checks given in payment on the Accounts, overlimit
fees, Late Fees and other similar fees and charges, including Special Fees, if
any.
"Record Date" means, with respect to a Distribution Date, the
last day of the related Monthly Period.
"Registered Certificates" has the meaning specified in Section
6.01 hereof.
"Related Monthly Period" means, with respect to a Distribution
Date, Determination Date or Transfer Date, the Monthly Period immediately
preceding the Monthly Period in which the specified Distribution Date,
Determination Date or Transfer Date occurs.
"Removal Date" means the date on which Receivables in Removed
Accounts are reassigned by the Trustee to the Transferor pursuant to Section
2.07 hereof.
"Removal Notice Date" means a day no later than the fifth
Business Day prior to a proposed Removal Date.
-14-
<PAGE>
"Removed Accounts" means Accounts, designated by the
Transferor, the Receivables in which are removed from the Trust pursuant to
Section 2.07 hereof .
"Requirements of Law" for any Person means the certificate of
incorporation or articles of association and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person is subject,
including, without limitation, usury laws, the federal Truth in Lending Act and
Regulation Z and Regulation B of the Board of Governors of the Federal Reserve
System.
"Responsible Officer" means (i) as to the Trustee, any officer
of the Trustee within the Corporate Trust Office (or any successor group of the
Trustee) of the Trustee, with direct responsibility for the administration of
this Agreement and also, a particular officer to whom any corporate trust matter
is referred because of such officer's knowledge of and familiarity with the
particular subject, (ii) as to the Transferor, (x) either of James Freeman or
David Helm in their capacity as administrator of the Transferor or (y) any
officer of Chase Manhattan Bank Delaware including any Vice President, any
Assistant Secretary or any other officer of Chase Manhattan Bank Delaware,
customarily performing functions similar to those performed by any person who at
the time shall be an above-designated officer and also, with respect to a
particular officer to whom any corporate trust matter is referred because of
such officer's knowledge of and familiarity with the particular subject, and
(iii) as to any other Person, any Vice President or higher officer.
"Revolving Period" shall have, with respect to each Series,
the meaning specified in the related Supplement.
"SAIF" means the Savings Association Insurance Fund
administered by the FDIC.
"Securities Act" means the Securities Act of 1933, as amended.
"Series" means any series of Investor Certificates, including
within any such Series, any Class or Classes of Investor Certificates
subordinate to another Class or Classes of Investor Certificates.
"Series Account" means any account or accounts established
pursuant to a Supplement for the benefit of such Series.
"Series Pay Out Event" shall have, with respect to any Series,
the meaning specified in the related Supplement.
"Series Servicing Fee Percentage" means, with respect to any
Series, the amount specified in the related Supplement.
"Series Termination Date" means, with respect to any Series,
the date stated in the related Supplement.
-15-
<PAGE>
"Service Transaction Fees" shall, with respect to an Account,
have the meaning specified in the related Credit Card Agreement for any service
transaction fees or similar terms.
"Special Fees" means Service Transaction Fees and any other
fees which are not now but from time to time may be assessed on the Accounts. On
or after the date on which any of such Special Fees begin to be assessed on the
Accounts, the Transferor may designate in an Officer's Certificate whether such
Special Fees shall be treated as Receivables.
"Standard & Poor's" means Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc., or any successor thereto
"Successor Master Servicer" means a successor master servicer
appointed pursuant to Section 10.02(a) hereof.
"Supplement" means, with respect to any Series, a supplement
to this Agreement complying with the terms of Section 6.09 of this Agreement,
executed in conjunction with the issuance of the Series (or, in the case of the
issuance of Certificates on the Initial Closing Date, the Supplement executed in
connection with the issuance of such Certificates).
"Termination Notice" shall have, with respect to any Series,
the meaning specified in subsection 10.01(d) hereof.
"Transfer Agent and Registrar" has the meaning specified in
Section 6.03 and shall initially be the Trustee's Corporate Trust Office.
"Transfer Date" means, with respect to any Series, the
Business Day immediately prior to each Distribution Date.
"Transferor" means Dillard Asset Funding Company, a Delaware
business trust.
"Transferor Exchange" has the meaning specified in subsection
6.09(a) hereof.
"Transferor Interest" means, on any date of determination (a)
the aggregate amount of Principal Receivables plus the Excess Funding Amount, in
each case at the end of the day immediately prior to such date of determination,
minus (b) the Aggregate Investor Interest at the end of such day.
"Transferor Percentage" means, on any date of determination,
when used with respect to Principal Receivables, Finance Charge Receivables and
Receivables in Defaulted Accounts, a percentage equal to 100% minus the
Aggregate Investor Percentage with respect to such categories of Receivables.
"Transferred Account" means an Account with respect to which a
new credit account number has been issued by an Originator under circumstances
resulting from a lost or stolen credit card and not requiring standard
application and credit evaluation procedures under the Credit Card
-16-
<PAGE>
Guidelines and which can be traced or identified by reference to or by way of an
Account List delivered to the Trustee as an account into which an Account has
been transferred.
"Trust" means the trust created by this Agreement, the corpus
of which shall consist of the Receivables now existing or hereafter created and
all moneys due or to become due with respect thereto, all proceeds (as defined
in Section 9-306 of the UCC) of the Receivables and all Insurance Proceeds
relating thereto, such funds as from time to time are deposited in any Investor
Account and any Series Account and the rights to or under any Enhancement with
respect to any Series.
"Trustee" means The Chase Manhattan Bank, a New York banking
corporation, and its successors and any corporation resulting from, or surviving
any consolidation or merger to which it or its successors may be a party and any
successor trustee appointed as herein provided.
"Trust Extension" has the meaning specified in subsection
12.01(a) hereof.
"Trust Pay Out Event" has the meaning specified in Section
9.01 hereof.
"Trust Termination Date" means, after the issuance of the
initial Series, the earlier to occur of (a) unless a Trust Extension shall have
occurred, the first day after the Distribution Date with respect to any Series
following the date on which funds shall have been deposited in the Distribution
Account or the applicable Series Account for the payment of Investor
Certificateholders of each Series then issued and outstanding sufficient to pay
in full the Aggregate Investor Interest plus interest accrued at the applicable
Certificate Rate through the end of the related interest accrual period prior to
such Distribution Date, (b) if a Trust Extension has occurred, the Extended
Trust Termination Date, and (c) July 15, 2021.
"UCC" means the Uniform Commercial Code then in effect in the
State of Arizona, Delaware, Louisiana or New York, as applicable.
"Undivided Interest" means the undivided interest of any
Certificateholder in the Trust.
Section 1.02. Other Definitional Provisions. (a) All terms
defined in any Supplement or this Agreement shall have the defined meanings when
used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(b) As used herein and in any certificate or other document
made or delivered pursuant hereto or pursuant to a Supplement, accounting terms
not defined in Section 1.01, and accounting terms partially defined in Section
1.01 to the extent not defined, shall have the respective meanings given to them
under generally accepted accounting principles or regulatory accounting
principles, as applicable. To the extent that the definitions of accounting
terms herein are inconsistent with the meanings of such terms under generally
accepted accounting principles or regulatory accounting principles, the
definitions contained herein shall control.
-17-
<PAGE>
(c) The agreements, representations and warranties of DNB in
this Agreement and in any Supplement in its capacity as Master Servicer, and the
agreements, representations and warranties of Dillard Asset Funding Company in
this Agreement and in any Supplement in its capacity as Transferor, shall be
deemed to be the agreements, representations and warranties of each such entity
solely in each such capacity for so long as such entity acts in each such
capacity under this Agreement.
(d) The words "thereof, "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to any Supplement or this
Agreement as a whole and not to any particular provision of this Agreement or
any Supplement.
(e) Section, subsection, Schedule and Exhibit references
contained in this Agreement or any Supplement are references to Sections,
subsections, Schedules and Exhibits in or to this Agreement or the applicable
Supplement unless otherwise specified.
(f) The Annual Master Servicer Certificate shall be in
substantially the form of Exhibit C, with such changes as the Master Servicer
may determine to be necessary or desirable; provided, however, that no such
change shall serve to exclude information required by this Agreement or any
Supplement. The Master Servicer shall, upon making such determination, deliver
to the Trustee and each Rating Agency an Officer's Certificate to which shall be
annexed the form of the Exhibit, as so changed. Upon the delivery of such
Officer's Certificate to the Trustee, the Exhibit, as so changed, shall for all
purposes of this Agreement constitute such Exhibit. The Trustee may conclusively
rely upon such Officer's Certificate in determining whether the Exhibit, as
changed, conforms to the requirements of this Agreement.
Section 1.03. Business Day Certificate. Within 10 Business
Days of the Closing Date (with respect to the remainder of 1998) and thereafter,
within 15 days prior to the end of each calendar year while this Agreement
remains in effect (with respect to succeeding years), the Master Servicer shall
deliver to the Trustee an Officer's Certificate specifying the days on which
banking institutions in Little Rock, Arkansas, Gilbert, Arizona and Baton Rouge,
Louisiana are authorized or obligated by law or executive order to be closed.
ARTICLE II
CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance of Receivables. The Transferor does
hereby transfer, assign, set-over, grant and otherwise convey to the Trust for
the benefit of the Certificateholders, without recourse, all of its right, title
and interest in, to and under the Receivables now existing and hereafter created
and arising under or in the Accounts, all moneys due or to become due with
respect thereto, including all Finance Charge Receivables, all proceeds of
Receivables, all Insurance Proceeds relating to such Receivables, and any rights
the Transferor may have in any Enhancement.
In connection with such transfer, assignment, set-over, grant
and conveyance, the Transferor agrees to record and file within two Business
Days of the Initial Closing Date, at its own
-18-
<PAGE>
expense, financing statements (including any continuation statements with
respect to such financing statement when applicable) with respect to the
Receivables now existing and hereafter created for the transfer of accounts and
general intangibles (as defined in the UCC) meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to perfect, and maintain the perfection of, the assignment of the Receivables to
the Trust, and to deliver a file-stamped copy of each such financing statement
or continuation statement or other evidence of such filing (which may, for
purposes of this Section 2.01, consist of telephone confirmation of such filing)
to the Trustee as soon as practicable after the date of issuance of the related
Certificates, and in the case of any continuation statements filed pursuant to
this Section 2.01, as soon as practicable after receipt thereof by the
Transferor. The foregoing transfer, assignment, set-over, grant and conveyance
to the Trust shall be made to the Trustee, on behalf of the Trust, and each
reference in this Agreement to such transfer, assignment, set-over, grant and
conveyance shall be construed accordingly.
In connection with such transfer, the Transferor agrees, at
its own expense, within 10 Business Days of the Initial Closing Date to indicate
in its records that the Receivables created in the Accounts have been
transferred to the Trust. In addition, the Transferor agrees to cause each of
DNB and Mercantile within 10 Business Days of the Initial Closing Date to (a)
indicate in the Pool Index File that Receivables created in connection with the
Accounts as of the Initial Closing Date have been transferred to the Trust
pursuant to this Agreement for the benefit of the Certificateholders by so
identifying such Accounts in the Pool Index File, and (b) deliver to the Trustee
an Account List, setting forth the Receivables balance as of the Cut Off Date.
Such Account List shall be marked as Schedule 1 to this Agreement, delivered to
the Trustee as confidential and proprietary, and is hereby incorporated into and
made a part of this Agreement. The Transferor agrees to cause each of DNB and
Mercantile not to alter the file designation in the Pool Index File with respect
to any Account during the term of this Agreement unless and until such Account
becomes a Removed Account. The Transferor shall, and shall cause each of DNB and
Mercantile, prior to the sale or transfer to a third party of any receivable
which it owned or serviced, examine its computer and other records to determine
that such receivable is not a Receivable.
The parties intend that the transfer shall constitute a sale,
but if, and to the extent that, such transfer is held by a court of competent
jurisdiction not to be a sale, the Transferor shall be deemed hereunder to have
granted, and does hereby so grant, to the Trustee a first priority perfected
security interest in all of the Transferor's right, title and interest in, to
and under the Receivables now existing and hereafter created and arising in
connection with the Accounts, all payments on such Receivables received after
the Cut Off Date, including all Finance Charge Receivables, all Insurance
Proceeds relating thereto and all proceeds thereof and Investor Accounts and
that this Agreement shall constitute a security agreement under applicable law.
Pursuant to the request of the Transferor, the Trustee shall
cause Certificates in authorized denominations evidencing the entire interest in
the Trust to be duly authenticated and delivered to or upon the order of the
Transferor pursuant to Section 6.02.
Section 2.02. Acceptance by Trustee. (a) The Trustee hereby
acknowledges its acceptance, on behalf of the Trust, of all right, title and
interest previously held by the Transferor in, to
-19-
<PAGE>
and under the Receivables now existing and hereafter created and arising in
connection with the Accounts, all moneys due or to become due with respect
thereto, including all Finance Charge Receivables, all proceeds of such
Receivables, Insurance Proceeds relating to such Receivables, and the proceeds
thereof, and declares that it shall maintain such right, title, and interest,
upon the Trust herein set forth, for the benefit of all Certificateholders. The
Trustee further acknowledges that, prior to or simultaneously with the execution
and delivery of this Agreement, the Master Servicer delivered to the Trustee the
Account List.
(b) The Trustee hereby agrees not to disclose to any Person
any Account Information contained in any Account Lists delivered to the Trustee
pursuant to this Agreement except as is required in connection with the
performance of its duties hereunder or in enforcing the rights of the
Certificateholders or to a Successor Master Servicer appointed pursuant to
Section 10.02 or as mandated pursuant to any Requirement of Law applicable to
the Trustee. The Trustee agrees (i) to take such measures as shall be reasonably
requested by the Transferor or the Master Servicer to protect and maintain the
security and confidentiality of Account Information, and, in connection
therewith, shall allow the Transferor and the Master Servicer to inspect the
Trustee's security and confidentiality arrangements from time to time during
normal business hours; and (ii) not to use any of the Account Information to
compete, directly or indirectly, with DNB or Mercantile. If the Trustee is
required by law to disclose any Account Information, the Trustee shall provide
the Transferor and the Master Servicer with prompt written notice, unless such
notice is prohibited by law, of such requirement so that the Transferor and the
Master Servicer may request a protective order or other appropriate remedy. The
Trustee shall make best efforts to provide the Transferor and the Master
Servicer with written notice no later than five Business Days prior to any
disclosure pursuant to this subsection 2.02(b).
(c) The Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement. Neither the Trust nor the Trustee accepts any
duty or obligation of the Transferor hereunder to any Person, including, but not
limited to, any duty or obligation to any Obligor.
Section 2.03. Representations and Warranties of the
Transferor. The Transferor hereby represents and warrants to the Trust as of the
Initial Closing Date, each Closing Date, each Removal Date and each Addition
Date:
(a) Organization and Good Standing. The Transferor is a
business trust duly organized and validly existing in good standing under the
laws of the State of Delaware and has full trust power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under this Agreement and to execute and
deliver to the Trustee the Certificates pursuant hereto;
(b) Due Qualification. The Transferor is duly qualified to do
business and is in good standing (or is exempt from such requirement) in any
state required in order to conduct business, and has obtained all necessary
licenses and approvals with respect to the Transferor required under federal and
Delaware law; provided, however, that no representation or warranty is made with
respect
-20-
<PAGE>
to any qualifications, licenses or approvals which the Trustee would have to
obtain to do business in any state in which the Trustee seeks to enforce any
Receivable;
(c) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Transferor, enforceable against the
Transferor in accordance with its terms, except (i) as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the enforcement of
creditors rights in general, and (ii) as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or in equity);
(d) Due Authorization. The execution and delivery of this
Agreement and the execution and delivery to the Trustee of the Certificates by
the Transferor and the consummation of the transactions provided for in this
Agreement have been duly authorized by the Transferor by all necessary trust
action on its part and this Agreement will remain, from the date of its
execution, an official record of the Transferor;
(e) No Conflicts. The execution and delivery of this Agreement
and the Certificates, the performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not materially conflict
with, result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a material default
under, any indenture, contract, agreement, mortgage, deed of trust, or other
instrument to which the Transferor is a party or by which it or any of its
properties are bound;
(f) No Violation. The execution and delivery of this Agreement
and the Certificates, the performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not conflict with or
violate in any material way any Requirements of Law applicable to the
Transferor;
(g) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Transferor, threatened against the
Transferor before any court, regulatory body, administrative agency, or other
tribunal or governmental instrumentality (i) asserting the invalidity of this
Agreement or the Certificates, (ii) seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions contemplated by this
Agreement or the Certificates, (iii) seeking any determination or ruling that,
in the reasonable judgment of the Transferor, would materially and adversely
affect the performance by the Transferor of its obligations under this
Agreement, (iv) seeking any determination or ruling that would materially and
adversely affect the validity or enforceability of this Agreement or the
Certificates or (v) seeking to affect adversely the income tax attributes of the
Trust;
(h) All Consents Required. All appraisals, authorizations,
consents, orders or other actions of any Person or of any governmental body or
official required in connection with the execution and delivery by the
Transferor of this Agreement and the Certificates, the performance by the
Transferor of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof,
-21-
<PAGE>
have been obtained; provided, however, that no representation or warranty is
made as to state securities or blue sky laws regarding the distribution of the
Certificates; and
(i) Insolvency. No Insolvency Event has occurred, and the
transfer of the Receivables by the Transferor to the Trust has not been made in
anticipation of the occurrence of an Insolvency Event.
The representations and warranties set forth in this Section
2.03 shall survive the transfer and assignment of the respective Receivables to
the Trust, and termination of the rights and obligations of the Master Servicer
pursuant to Section 10.01. Unless specified otherwise in the related Supplement,
the Transferor hereby represents and warrants to the Trust, with respect to any
Series of Certificates as of the related Closing Date, that the representations
and warranties of the Transferor set forth in this Section 2.03 are true and
correct as of such Closing Date (for the purposes of such representations and
warranties, "Certificates" shall mean the Certificates issued on the related
Closing Date). Upon discovery by a Responsible Officer of the Transferor, the
Master Servicer or the Trustee of a breach of the foregoing representations and
warranties, the party discovering such breach shall give prompt written notice
to the others.
Section 2.04. Representations and Warranties of the Transferor
Relating to the Accounts and the Receivables; Ineligible Receivables;
Reassignment.
(a) Representations and Warranties. The Transferor hereby
represents and warrants to the Trust that:
(i) Sale or Security Interest. This Agreement
constitutes either:
(A) a valid transfer, assignment, set-over and
conveyance to the Trust of all right, title and interest of the Transferor in,
to and under the Receivables now existing and hereafter created and arising in
connection with the Accounts, and all proceeds of such Receivables and Insurance
Proceeds relating thereto, and such Receivables and all proceeds thereof and
Insurance Proceeds relating thereto will be held by the Trust free and clear of
any Lien of any Person claiming through or under the Transferor or any of its
Affiliates; or
(B) a grant of a security interest (as defined
in the UCC) in such property to the Trust, which is enforceable with respect to
the existing Receivables, the proceeds thereof and Insurance Proceeds relating
thereto upon execution and delivery of this Agreement, and which will be
enforceable with respect to 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 Trust in such property, upon
the filing of the financing statement described in Section 2.01 and in the case
of the Receivables hereafter created and proceeds thereof and Insurance Proceeds
relating thereto, upon such creation, the Trust shall have a first priority
perfected security interest in such property (subject to Section 9-306 of the
UCC). Neither the Transferor nor any Person claiming through or under the
Transferor shall have any claim to or interest in any Investor Account or any
Series Account, except for the Transferor's rights, if any, to receive interest
accruing on, and
-22-
<PAGE>
investment earnings in respect of, any Investor Account as provided in this
Agreement (or, if applicable, any Series Account as provided in any Supplement)
and, if this Agreement constitutes the grant of a security interest in such
property, except for the interest of the Transferor in such property as a debtor
for purposes of the UCC and the interests of the Transferor as Holder of the
Exchangeable Transferor Certificate.
(ii) Eligible Accounts. As of the Cut Off Date, each
existing Account was an Eligible Account and no selection procedures adverse to
the Investor Certificateholders have been employed in selecting the Accounts
from among the Eligible Accounts in the Bank Portfolio;
(iii) Eligible Receivables. (A) As of the Initial
Closing Date, each Receivable in an existing Account is an Eligible Receivable;
(B) As of the Initial Closing Date, each
existing Receivable has been conveyed to the Trust (1) free and clear of any
Lien of any Person claiming through or under the Transferor or any of its
Affiliates and (2) in compliance, in all material respects, with all
Requirements of Law applicable to the Transferor;
(C) As of the Initial Closing Date, with
respect to each existing Receivable, all consents, licenses, approvals or
authorizations of or registrations or declarations with any Governmental
Authority required to be obtained, effected or given by the Transferor, DNB or
Mercantile in connection with the conveyance of such Receivable to the Trust
have been duly obtained, effected or given and are in full force and effect;
(D) On each day on which any new Receivable is
created, the Transferor shall be deemed to represent and warrant to the Trust
that (1) each Receivable created on such day is an Eligible Receivable and has
been conveyed to the Trust free and clear of any Lien of any Person claiming
through or under the Transferor or any of its Affiliates, and in compliance, in
all material respects, with all Requirements of Law applicable to the
Transferor, (2) all consents, licenses, approvals or authorizations of or
registrations or declarations with, any Governmental Authority required to be
obtained, effected or given by the Transferor, DNB or Mercantile in connection
with the conveyance of each such Receivable to the Trust have been duly
obtained, effected or given and are in full force and effect and (3) the
representations and warranties set forth in subsection 2.04(a)(i) are true and
correct on such day as if made on such day; and
(E) As of the date of delivery to the Trustee,
Schedule 1 to this Agreement is, and as of any Removal Date, Schedule 1 will be
amended to be, an accurate and complete listing in all material respects of all
the Accounts, and the information contained in Schedule 1 with respect to the
identity of such Accounts and the Receivables existing thereunder is, as of the
Initial Closing Date, and will be, as of each Removal Date, true and correct in
all material respects. Prior to the date on which the Trustee receives a copy of
Schedule 1, each account shall be marked by DNB and Mercantile as sold to the
Trust.
-23-
<PAGE>
(b) Notice of Breach. The representations and warranties set
forth in Section 2.04(a) shall survive the transfer and assignment of the
Receivables to the Trust. Upon discovery by a Responsible Officer of the
Transferor, the Master Servicer or the Trustee of a material breach of any of
the representations and warranties set forth in Section 2.04(a), the party
discovering such breach shall give prompt written notice to the other parties.
The Transferor agrees to cooperate with the Master Servicer and the Trustee in
attempting to cure any such breach.
(c) Transfer of Ineligible Receivables.
(i) Automatic Removal. If a breach exists with
respect to a Receivable of any representations and warranties set forth in
subsection 2.04(a)(i), or if a Receivable is not an Eligible Receivable due to a
breach of clause (d) of the definition of Eligible Receivable, and any of the
following occurs:
(A) as a result of such breach such Receivable
becomes a Defaulted Account or the Trust's rights in, to or under such
Receivable or its proceeds are impaired or the proceeds of such Receivable are
not available for any reason to the Trust free and clear of any Lien;
(B) a Lien upon the Receivable arises in favor
of the United States of America or any State or any agency or instrumentality
thereof and involves taxes or liens arising under Title IV of ERISA or has been
consented to by the Transferor, DNB or Mercantile; or
(C) the unsecured short-term debt of Dillard's
is not rated at least P-1 by Moody's and a Lien upon the subject Receivable
ranks prior to the Lien created pursuant to this Agreement;
then, upon the earlier to occur of the discovery of
such breach by the Transferor or receipt by the Transferor of written notice of
such breach given by the Trustee or the Master Servicer, all Receivables in the
related Account shall become Ineligible Receivables and shall be automatically
removed from the Trust pursuant to subsection 2.04(c)(iii).
(ii) Removal After Cure Period. If a breach of any of
the representations and warranties set forth in subsection 2.04(a)(iii) exists
other than a breach described in clause (c)(i) above, and as a result of such
breach the related Account becomes a Defaulted Account or the Trust's rights in,
to or under the Receivable or its proceeds are impaired or the proceeds of such
Receivable are not available for any reason to the Trust free and clear of any
Lien, then upon the expiration of 60 days (or such longer period as may be
agreed by the Trustee in its sole discretion, but in no event later than 150
days) from the earlier to occur of the discovery of any such event by the
Transferor or receipt by the Transferor of written notice of any such event
given by the Trustee or the Master Servicer, the Receivables in the related
Account shall become Ineligible Receivables and shall be removed from the Trust
pursuant to subsection 2.04(c)(iii); provided, however, that no such removal
shall be required to be made if, on any day within such applicable period, such
representations and warranties with respect to such Receivable shall then be
true and correct in all material respects as if such Receivable had been created
on such day.
-24-
<PAGE>
(iii) Reassignment; Procedures for Removal. The
Transferor shall accept reassignment of any Ineligible Receivable by directing
the Master Servicer to deduct the principal balance of such Ineligible
Receivable from the Principal Receivables in the Trust and to decrease the
Transferor Interest by such amount. Thereafter, such Ineligible Receivable shall
not be included in the aggregate amount of Principal Receivables used to
calculate any Investor Percentage, the Transferor Percentage or the Transferor
Interest. If the exclusion of an Ineligible Receivable from the calculation of
the Transferor Interest would cause the Transferor Interest to be reduced below
the Minimum Transferor Interest or would otherwise not be permitted by law, the
Transferor shall, prior to the next succeeding Distribution Date and, in any
event, not later than 10 Business Days thereafter, make a deposit in the Excess
Funding Account in immediately available funds equal to the amount by which the
Transferor Interest would be reduced below the Minimum Transferor Interest. The
portion of such deposit allocated to the Investor Certificates of each Series
shall be distributed to the related Investor Certificateholders in the manner
specified in Article IV, if applicable, on the Distribution Date relating to the
Monthly Period in which such deposit is made.
Upon the reassignment to the Transferor of an
Ineligible Receivable, the Trust shall automatically and without further action
be deemed to transfer, assign, set-over and otherwise convey to the Transferor,
without recourse, representation or warranty, all right, title and interest of
the Trust in, to and under such Ineligible Receivable, all moneys due or to
become due with respect thereto, including all Finance Charge Receivables and
all proceeds thereof and Insurance Proceeds relating thereto. The Trustee shall
execute such documents and instruments of transfer or assignment and take other
actions as shall reasonably be requested in writing by the Transferor to
evidence the conveyance of such Ineligible Receivable pursuant to this
subsection 2.04(c)(iii). The obligation of the Transferor set forth in this
subsection 2.04(c)(iii), or the automatic removal of such Receivable from the
Trust, as the case may be, shall constitute the sole remedy respecting any
breach of the representations and warranties set forth in the above-referenced
subsections with respect to such Receivable available to Certificateholders or
the Trustee on behalf of Certificateholders.
(iv) Proceeds Held by Master Servicer. For purposes
of subsections 2.04(c)(i) and (ii) above, proceeds of a Receivable shall not be
deemed to be impaired hereunder solely because such proceeds are held by the
Master Servicer (if the Master Servicer is DNB, Mercantile or Dillard's) for
more than the applicable period under Section 9-306(3) of the UCC.
(d) Reassignment of Trust Portfolio. If a breach of any
of the representations and warranties set forth in subsection 2.04(a)(i) exists
which has a material adverse effect on the Holders of the Investor Certificates,
the Trustee shall at the direction of the Holders of Investor Certificates
evidencing Undivided Interests aggregating more than 50% of the Aggregate
Investor Interest, by notice given in writing to the Transferor, direct the
Transferor to accept reassignment of all of the Principal Receivables by
repayment of the amount specified as determined below within 60 days of such
notice (or within such longer period as may be specified in such notice). The
Transferor shall be obligated to accept reassignment of the Principal
Receivables on a Reassignment Date specified by the Transferor and occurring
within such applicable period on the terms and conditions set forth below;
provided, however, that no such reassignment shall be required to be made if, at
any time during such
-25-
<PAGE>
applicable period, the representations and warranties contained in subsection
2.04(a)(i) shall then be true and correct in all material respects.
On the Reassignment Date, the Transferor shall deposit in the
Distribution Account or Series Account, as provided in the related Supplement,
next day funds equal to the reassignment deposit amount for such Receivables for
distribution to the Investor Certificateholders pursuant to Article XII. The
reassignment deposit amount with respect to each Series, unless otherwise stated
in the related Supplement, shall be equal to (i) the Investor Interest of such
Series at the close of business on the last day of the Monthly Period preceding
the month in which the Reassignment Date occurs, less the amount, if any,
previously allocated for payment of, or paid as, principal to such
Certificateholders on the Reassignment Date, plus (ii) an amount equal to all
interest accrued but unpaid on the Investor Certificates of such Series at the
applicable Certificate Rate through such last day, less the amount, if any,
previously allocated for payment of, or paid as, interest to the
Certificateholders of such Series on the Reassignment Date. Payment of the
reassignment deposit amount with respect to each Series, and all other amounts
in the Distribution Account or the applicable Series Account in respect of the
preceding Monthly Period shall be considered a prepayment in full of the
Receivables represented by the Investor Certificates. On the Reassignment Date,
the Receivables and all moneys due or to become due with respect thereto and all
proceeds of the Receivables and Finance Charge Receivables and Insurance
Proceeds relating thereto shall be released to the Transferor after payment of
all amounts otherwise due hereunder on or prior to such date.
The Trustee shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, representation or
warranty, as shall be prepared by and as are reasonably requested by the
Transferor to vest in the Transferor, or its designee or assignee, all right,
title and interest of the Trust in and to the Receivables, all moneys due or to
become due with respect thereto and all proceeds of the Receivables and Finance
Charge Receivables and Insurance Proceeds relating thereto.
If the Trustee or the Investor Certificateholders give notice
directing the Transferor to accept reassignment as provided above, the
obligation of the Transferor to accept reassignment of the Receivables and pay
the reassignment deposit amount pursuant to this subsection 2.04(d) shall
constitute the sole remedy respecting a breach of the representations and
warranties contained in subsection 2.04(a)(i) available to the Investor
Certificateholders or the Trustee on behalf of the Investor Certificateholders.
Section 2.05. Covenants of the Transferor. The Transferor
hereby covenants that:
(a) Receivables To Be Accounts or General Intangibles. It
will take no action to cause any Receivable to be evidenced by any instrument
(as defined in the UCC) or to cause any Receivable to be anything other than an
"account" or "general intangible" (as defined in the UCC) other than Receivables
in Defaulted Accounts. Each Receivable shall be payable pursuant to a contract
which does not create a Lien on any goods purchased thereunder;
-26-
<PAGE>
(b) Security Interests. Except for the conveyances hereunder,
it will not sell, pledge, assign or transfer to any other Person, or grant,
create, incur, assume or suffer to exist any Lien on any Receivable, whether now
existing or hereafter created, or any interest therein; the Transferor will
immediately notify the Trustee of the existence of any Lien on any Receivable;
and the Transferor shall defend the right, title and interest of the Trust in,
to and under the Receivables, whether now existing or hereafter created, against
all claims of third parties claiming through or under the Transferor;
(c) Credit Card Agreements and Account Guidelines. It will
cause DNB and Mercantile to comply with and perform their obligations under the
Credit Card Agreements relating to the Accounts, the Credit Card Guidelines
except insofar as any failure to comply or perform would not materially and
adversely affect the rights of the Trust or the Certificateholders hereunder or
under the Certificates. Except as expressly provided in any Supplement, the
Transferor may permit DNB and Mercantile to change the terms and conditions of
the Credit Card Agreements or the Credit Card Guidelines in any respect
(including, without limitation, the reduction of the required minimum monthly
payment, the calculation of the amount, or the timing, of charge-offs and the
Periodic Finance Charges and other fees to be assessed thereon) only if such
change (i) would not, in the reasonable belief of DNB or Mercantile cause a Pay
Out Event to occur, (ii) is made applicable to a substantial portion of the
comparable segment of the revolving credit card accounts owned by DNB and
Mercantile which have characteristics the same as, or substantially similar to,
the Accounts that are the subject of such change, except as otherwise restricted
by an endorsement, sponsorship, or other agreement between DNB or Mercantile and
an unrelated third party or by the terms of the Credit Card Agreements, and
(iii) such change would not materially and adversely affect the rights of the
Trust or the Certificateholders hereunder or under the Certificates of any
Series then-outstanding.
(d) Allocation of Collections. If the Transferor, DNB or
Mercantile is unable for any reason to transfer Receivables to the Trust in
accordance with the provisions of this Agreement (including, without limitation,
by reason of the application of the provisions of Section 9.02 or an order by
any federal governmental agency having regulatory authority over the Transferor
or any court of competent jurisdiction that the Transferor not transfer any
additional Principal Receivables to the Trust) (i) the Transferor will allocate
and pay to the Trust, after the date of such inability, all Collections with
respect to Principal Receivables, and all amounts which would have constituted
Collections with respect to Principal Receivables but for the inability to
transfer such Receivables (up to an aggregate amount equal to the amount of
Principal Receivables in the Trust on such date); (ii) it agrees to have such
amounts applied as Collections in accordance with Article IV; and (iii) so long
as all Collections and all amounts which would have constituted Collections are
allocated and applied in accordance with clauses (i) and (ii) above, Principal
Receivables (and all amounts which would have constituted Principal Receivables
but for the inability to transfer Receivables to the Trust) that are written off
as uncollectible in accordance with this Agreement shall continue to be
allocated in accordance with Article IV, and all amounts that would have
constituted Principal Receivables but for the Transferor's inability to transfer
Receivables to the Trust shall be deemed to be Principal Receivables for the
purpose of calculating (A) the applicable Investor Percentage with respect to
any Series and (B) the Aggregate Investor Percentage thereunder.
-27-
<PAGE>
If due to any Requirement of Law the Transferor, DNB or
Mercantile is unable to allocate Collections as described above, the Transferor
shall allocate, after the occurrence of such event, payments on each Account
with respect to the principal balance of such Account first to the oldest
principal balance of such Account and to have such payments applied as
Collections in accordance with Article IV.
The parties hereto agree that Finance Charge Receivables,
whenever created, accrued in respect of Principal Receivables that have been
conveyed to the Trust, or that would have been conveyed to the Trust but for the
above described inability to transfer such Receivables, shall continue to be a
part of the Trust notwithstanding any cessation of the transfer of additional
Principal Receivables to the Trust and Collections with respect thereto shall
continue to be allocated and paid in accordance with Article IV.
(e) Delivery of Collections. It will pay to the Master
Servicer all payments received by the Transferor in respect of the Receivables
as soon as practicable after receipt thereof by the Transferor.
(f) Conveyance of Accounts. It will not convey, assign,
exchange or otherwise transfer the Accounts to any Person prior to the
termination of this Agreement pursuant to Article XII; provided, however, that
the Transferor shall not be prohibited hereby from conveying, assigning,
exchanging or otherwise transferring the Accounts in connection with a
transaction complying with the provisions of Section 7.02.
Section 2.06. Addition of Accounts. (a) On each date on which
Accounts are originated or acquired by DNB or Mercantile, the Transferor shall
automatically add such accounts as Accounts ("Additional Accounts"), the
Receivables of which shall become property of the Trust; provided, that, unless
written consent of each Rating Agency has been received, (i) all Accounts
acquired by DNB or Mercantile and (ii) any Additional Accounts (other than
Accounts referred to in clause (i)) in excess of the Maximum Addition Amount
(collectively if such consents have not been received, the "Excluded Accounts"),
shall not be included in any calculations made hereunder for any purpose,
including, without limitation, for purposes of calculating the Average Principal
Receivables, Default Amount, Defaulted Accounts, Eligible Accounts, Eligible
Receivables, Net Portfolio Yield and Principal Receivables in the Trust.
(b) The Transferor agrees that in connection with any transfer
of Receivables from Additional Accounts:
(i) On a quarterly basis, the Transferor shall give
the Trustee, each Rating Agency and the Master Servicer written notice of all
Additional Accounts which have been added to the Trust since the prior period,
which notice shall specify the approximate aggregate amount of the Receivables
transferred;
(ii) in addition to the representations and
warranties set forth in Section 2.03, the Transferor shall represent and warrant
that as of the related Addition Date in the case of
-28-
<PAGE>
clauses (A), (C) and (D) below and as of the delivery date of the supplemental
Account List in the case of clause (B) below:
(A) Except with respect to Excluded Accounts,
each Additional Account is an Eligible Account, and each Receivable in such
Additional Account, is an Eligible Receivable;
(B) the supplemental Account List provided
pursuant to (i) above is an accurate and complete listing in all material
respects of all Additional Accounts included as Accounts as of such date and the
information contained therein with respect to the identity of such Additional
Accounts and the Receivables existing thereunder is true and correct in all
material respects,
(C) As of the Addition Date, each existing
Receivable in the related Additional Accounts has been conveyed to the Trust
free and clear of any Lien of any Person claiming through or under the
Transferor or any of its Affiliates and in compliance, in all material respects,
with all Requirements of Law applicable to the Transferor; and
(D) As of the Addition Date, with respect to
each existing Receivable in the related Additional Accounts, all consents,
licenses, approvals or authorizations of or registrations or declarations with
any Governmental Authority required to be obtained, effected or given by the
Transferor in connection with the conveyance of such Receivable to the Trust
have been duly obtained, effected or given and are in full force and effect.
Section 2.07. Removal of Accounts by Transferor. (a) Subject
to the conditions set forth below, the Transferor may, but shall not be
obligated to, designate Accounts as Removed Accounts and the related Receivables
deleted and removed from the Trust; provided, however, that the Transferor shall
not make more than one such designation in any one Monthly Period. On or before
the related Removal Notice Date relating to the proposed Removal Date on which
the Receivables in the designated Removed Accounts will be reassigned by the
Trustee to the Transferor, the Transferor shall give the Trustee and the Master
Servicer written notice that the Receivables from such Removed Accounts are to
be reassigned to the Transferor.
(b) The Transferor shall 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 on any Removal Date shall not, in the reasonable belief of the
Transferor, (a) cause a Pay Out Event to occur; provided, however, that for the
purposes of this subsection 2.07(b)(i), the Receivables of each Removed Account
shall be considered to have been removed as of the Removal Date, (b) cause the
Transferor Interest to be less than the Minimum Transferor Interest on such
Removal Date, or (c) result in the failure to make any payment specified in the
related Supplement with respect to any Series;
(ii) on or prior to the Removal Date, the Transferor
shall have delivered to the Trustee for execution a written assignment in
substantially the form of Exhibit G (the
-29-
<PAGE>
"Reassignment") and, within five Business Days thereafter, the Transferor shall
have delivered to the Trustee 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 as of the
Removal Date, which computer file or microfiche list shall as of the Removal
Date modify and amend and be made a part of this Agreement;
(iii) the Transferor shall represent and warrant that
no selection procedures believed by the Transferor to be materially adverse to
the interests of the Certificateholders were utilized in selecting the Removed
Accounts;
(iv) on or before the tenth Business Day prior to the
proposed Removal Date, each Rating Agency shall have received notice of such
proposed removal of the Receivables of such Accounts and the Transferor shall
have received notice prior to the Removal Date from each Rating Agency that the
Rating Agency Condition is satisfied; and
(v) the Transferor shall have delivered to the
Trustee an Officer's Certificate confirming the items set forth in clauses (i)
through (iv) above. The Trustee may conclusively rely on such Officer's
Certificate, shall have no duty to make inquiries with regard to the matters set
forth therein and shall incur no liability in so relying.
Upon satisfaction of the above conditions, the Trustee shall
execute and deliver the Reassignment to the Transferor, and the Receivables from
the Removed Accounts shall no longer constitute a part of the Trust.
Section 2.08. Discount Option Receivables. (a) The Transferor
shall have the option to designate a percentage (the "Discount Percentage") of
the Receivables in all or certain of the Accounts created on and after such date
of designation to be treated as Finance Charge Receivables ("Discount Option
Receivables") in accordance with the provisions of this Section 2.08. The
Discount Percentage shall not apply to Finance Charges, or any other fees and
charges (other than Insurance Proceeds) or to Receivables in or recoveries of
Defaulted Accounts. The Discount Percentage may be fixed or variable and shall
not exceed 2.00%.
(b) Discount Option Receivables shall be considered
Finance Charge Receivables for all purposes hereunder, including for the
purposes of allocating Collections pursuant to Article IV.
(c) The Transferor shall have the option to increase the
Discount Percentage to a percentage not greater than 2.00%, to reduce the
Discount Percentage, to apply the Discount Percentage to Receivables created in
Accounts not previously subject to the Discount Percentage and to cease to apply
the Discount Percentage to Receivables created in Accounts previously subject to
the Discount Percentage; provided however, that the Transferor shall not change
any existing Discount Option Receivables into Principal Receivables and the
Transferor shall not increase the Discount Percentage during any Rapid
Amortization Period or if such increase would cause the Principal Receivables in
the Trust to be less than the Minimum Aggregate Principal Receivables.
-30-
<PAGE>
(d) The Transferor shall provide to the Master Servicer,
the Trustee and each Rating Agency 30 days' prior written notice of any
designation, increase or reduction of the Discount Percentage, and such
designation, increase or reduction shall become effective on the date specified
in such notice unless such designation, increase or reduction in the reasonable
belief of the Transferor would cause a Pay Out Event, or an event which, with
notice or the lapse of time or both, would constitute a Pay Out Event, to occur;
provided, however, that the Rating Agency Condition shall have been satisfied.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.01. Acceptance of Appointment and Other Matters
Relating to the Master Servicer. (a) DNB agrees to act as the Master Servicer
under this Agreement. The Investor Certificateholders of each Series by their
acceptance of the related Certificates consent to DNB's acting as Master
Servicer.
(b) The Master Servicer shall service and administer the
Receivables and shall collect payments due under the Receivables in accordance
with its customary and usual servicing procedures for servicing credit card
receivables comparable to the Receivables and in accordance with the Credit Card
Guidelines and shall have full power and authority acting alone or through any
party properly designated by it hereunder, to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable.
Without limiting the generality of the foregoing and subject
to Section 10.01, the Master Servicer is hereby authorized and empowered (i) to
direct the Trustee to make withdrawals from any Investor Account or Series
Account to the extent and as set forth in this Agreement and the applicable
Supplement, (ii) unless such power and authority is revoked by the Trustee due
to the existence of a Master Servicer Default pursuant to Section 10.01, to
instruct the Trustee to make withdrawals and payments, from the Finance Charge
Account, the Principal Account and any Series Account, in accordance with such
instructions as set forth in this Agreement, (iii) unless such power and
authority is revoked by the Trustee due to the existence of a Master Servicer
Default pursuant to Section 10.01, to instruct the Trustee in writing, as set
forth in this Agreement, (iv) to execute and deliver, on behalf of the Trust for
the benefit of the Certificateholders, any and all instruments of satisfaction
or cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Receivables and, after the
Delinquency of any Receivable and to the extent permitted under and in
compliance with applicable law and regulations, to commence enforcement
proceedings with respect to such Receivables and (v) to make any filings,
reports, notices, applications, registrations with, and to seek any consents or
authorizations from the Securities and Exchange Commission and any state
securities authority on behalf of the Trust as may be necessary or advisable to
comply with any federal or state securities or reporting requirements.
-31-
<PAGE>
The Trustee agrees that it shall promptly follow the written
instructions of the Master Servicer to withdraw funds from the Principal
Account, the Finance Charge Account or any Series Account and to take any action
required under any Enhancement at such time as required under this Agreement.
The Trustee shall execute at the Master Servicer's written request such
documents prepared by the Transferor and acceptable to the Trustee as may be
necessary or appropriate to enable the Master Servicer to carry out its
servicing and administrative duties hereunder.
(c) If the Transferor, DNB or Mercantile is unable for any
reason to transfer Receivables to the Trust in accordance with the provisions of
this Agreement (including, without limitation, by reason of the application of
the provisions of Section 9.02 or the order of any federal governmental agency
having regulatory authority over the Transferor, DNB or Mercantile or any court
of competent jurisdiction that the Transferor, DNB or Mercantile not transfer
any additional Principal Receivables to the Trust), the Master Servicer shall
make all allocations as required by Section 2.05(d) hereof.
(d) The Master Servicer shall not be obligated to use
servicing procedures, offices, employees or accounts for servicing the
Receivables separate from the procedures, offices, employees and accounts used
by the Master Servicer in connection with servicing other credit card
receivables.
(e) The Master Servicer shall maintain fidelity bond coverage
insuring against losses through wrongdoing of its officers and employees who are
involved in the servicing of credit card receivables covering such actions and
in such amounts as the Master Servicer believes to be reasonable from time to
time.
(f) The relationship of the Master Servicer (and of any
successor to the Master Servicer as servicer under this Agreement) to the
Trustee under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent of the
Trustee.
Section 3.02. Servicing Compensation. (a) As compensation for
its servicing activities hereunder and reimbursement for its expenses as set
forth in this Section, the Master Servicer shall be entitled to receive a
"Monthly Servicing Fee" in respect of any Monthly Period or portion thereof
prior to the termination of the Trust pursuant to Section 12.01. The Monthly
Servicing Fee shall equal the sum of (i) the aggregate amount of Monthly
Investor Servicing Fees with respect to each Series then outstanding and (ii)
the Monthly Transferor Servicing Fee.
(b) Unless otherwise provided in the related Supplements, the
share of the Monthly Investor Servicing Fee allocable to each Series of Investor
Certificateholders with respect to any Monthly Period (or portion thereof) shall
be payable to the Master Servicer in arrears on the related Distribution Date
pursuant to Article IV and, unless otherwise provided in the related Supplement,
shall be equal to one-twelfth of the product of (a) the applicable Series
Servicing Fee Percentage per annum and (b) the Investor Interest of such Series
as of the last day of the Monthly Period.
-32-
<PAGE>
The share of the Monthly Transferor Servicing Fee shall be
equal to one-twelfth of the product of (a) the Transferor Interest and (b) the
weighted average of the Series Servicing Fee Percentages with respect to each
Series of Investor Certificates then outstanding. The Monthly Transferor
Servicing Fee is payable in arrears no later than the last Transfer Date with
respect to any Series occurring in a Monthly Period.
The Monthly Transferor Servicing Fee and, unless otherwise
provided in a Supplement, each Monthly Investor Servicing Fee, shall be
calculated on the basis of actual days elapsed and a year of 365 days or 366
days, as the case may be. The compensation payable to the Master Servicer
hereunder, including the Monthly Servicing Fee, may not be transferred except to
a Successor Master Servicer.
(c) The Master Servicer's expenses include the amounts due to
the Trustee pursuant to Section 11.05, the reasonable fees and disbursements of
independent public accountants and all other expenses incurred by the Trust or
by the Master Servicer in connection with its activities hereunder. The Master
Servicer shall be required to pay such expenses for its own account and shall
not be entitled to any payment therefor other than from the Monthly Servicing
Fee; provided, however, that the Master Servicer shall not be liable for any
liabilities, costs or expenses of the Trust, the Investor Certificateholders or
the Certificate Owners arising under any tax law, including without limitation
any federal, state or local income or franchise taxes 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).
Section 3.03. Representations and Warranties of the Master
Servicer. DNB hereby makes, as of the date hereof, the following representations
and warranties:
(a) Organization and Good Standing. The Master Servicer is a
national banking association duly organized, validly existing and in good
standing under the laws of the United States of America and has full power,
authority and legal right to own its properties and conduct its credit card
business as such properties are presently owned and such business is presently
conducted, and to execute, deliver and perform its obligations under this
Agreement.
(b) Due Qualification. The Master Servicer is not required to
qualify nor register as a foreign corporation in any state in order to service
the Receivables as required by this Agreement, other than such states as to
which the Master Servicer has so qualified or failure to so qualify would not
have a material adverse effect on the Master Servicer's ability to perform its
obligations hereunder, and has obtained all licenses and approvals necessary in
order to so service the Receivables as required under federal and Arizona law.
(c) Due Authorization. The execution, delivery and performance
of this Agreement have been duly authorized by the Master Servicer by all
necessary corporate action on the part of the Master Servicer and this Agreement
will remain, from the time of its execution, an official record of the Master
Servicer.
-33-
<PAGE>
(d) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Master Servicer, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect, affecting the enforcement of creditors' rights in general
and the rights of creditors of national banking associations.
(e) No Violation. The execution and delivery of this Agreement
by the Master Servicer, and the performance of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof applicable to the Master
Servicer, will not conflict with, violate, result in any breach of any of the
material terms and provisions of, or constitute (with or without notice or lapse
of time or both) a default under any Requirement of Law applicable to the Master
Servicer or any indenture contract, agreement, mortgage, deed of trust or other
instrument to which the Master Servicer is a party or by which it is bound.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Master Servicer, threatened against the
Master Servicer before any court, regulatory body, administrative agency or
other tribunal or governmental instrumentality seeking to prevent the issuance
of the Certificates or the consummation of any of the transactions contemplated
by this Agreement, seeking any determination or ruling that, in the reasonable
judgment of the Master Servicer, would materially and adversely affect the
performance by the Master Servicer of its obligations under this Agreement, or
seeking any determination or ruling that would materially and adversely affect
the validity or enforceability of this Agreement.
(g) Compliance With Requirements of Law. The Master Servicer
shall duly satisfy all obligations on its part to be fulfilled under or in
connection with each Receivable and the related Account, will maintain in effect
all qualifications required under Requirements of Law in order to service
properly each Receivable and the related account and will comply in all material
respects with all other Requirements of Law in connection with servicing each
Receivable and the related Account, the failure to comply with which would have
a material adverse effect on the Certificateholders or any Enhancement Provider.
Section 3.04. Reports and Records for the Trustee.
(a) Daily Reports. On each Business Day, the Master Servicer,
with prior notice, shall prepare and make available at the office of the Master
Servicer for inspection by the Trustee a record setting forth (i) the aggregate
amount of Collections processed by the Master Servicer on the preceding Business
Day and (ii) the aggregate amount of Receivables as of the close of business on
the preceding Business Day.
(b) Monthly Master Servicer's Certificate. Unless otherwise
stated in the related Supplement with respect to any Series, on each
Determination Date the Master Servicer shall forward, as provided in Section
13.05, to the Trustee, the Paying Agent, any Enhancement Provider and each
Rating Agency, a Monthly Master Servicer's Certificate setting forth the
information required by the related Supplement.
-34-
<PAGE>
Section 3.05. Annual Master Servicer's Certificate. On or
before March 31 of each calendar year, beginning with March 31, 1999, the Master
Servicer will deliver to the Trustee, any Enhancement Provider and each Rating
Agency, an Officer's Certificate substantially in the form of Exhibit C stating
that (a) a review of the activities of the Master Servicer during the
twelve-month period ending on December 31 of the prior year, and of its
performance under this Agreement was made under the supervision of the officer
signing such certificate, and (b) to the best of such officer's knowledge based
on such review, the Master Servicer has fully performed all its obligations
under this Agreement throughout such period, or, if there has been a default in
the performance of any such obligation, specifying each such default known to
such officer and the nature and status thereof. A copy of such certificate may
be obtained by any Investor Certificateholder by a request in writing to the
Trustee addressed to the Corporate Trust Office.
Section 3.06. Annual Independent Accountants' Servicing
Report. (a) On or before March 31 of each calendar year, beginning with March
31, 1999, the Master Servicer shall cause a firm of nationally recognized
independent certified public accountants (who may also render other services to
the Master Servicer, DNB, Mercantile or the Transferor) to furnish a report to
the Trustee, any Enhancement Provider and each Rating Agency, to the effect that
such firm has made a study and evaluation, in accordance with generally accepted
auditing standards, of the Master Servicer's internal accounting controls,
relative to the servicing of Accounts under this Agreement, and that, on the
basis of such study and evaluation, such firm is of the opinion (assuming the
accuracy of any reports generated by the Master Servicer's third party agents)
that the system of internal accounting controls in effect on the date set forth
in such report, relating to servicing procedures performed by the Master
Servicer, taken as a whole, was sufficient for the prevention and detection of
errors and irregularities in amounts that would be material to the financial
statements of the Master Servicer and that such servicing was conducted in
compliance with the Sections of this Agreement during the period covered by such
report (which shall be the period from January 1 to and including December 31 of
the preceding calendar year), except for such exceptions, errors or
irregularities as such firm shall believe to be immaterial to the financial
statements of the Master Servicer and such other exceptions, errors or
irregularities as shall be set forth in such report. Unless otherwise provided
with respect to any Series in the related Supplement, a copy of such report may
be obtained by any Investor Certificateholder by a request in writing to the
Trustee addressed to the Corporate Trust Office.
(b) On or before March 31 of each calendar year,
beginning with March 31, 1999, the Master Servicer shall cause a firm of
nationally recognized independent certified public accountants (who may also
render other services to the Master Servicer, DNB, Mercantile or the Transferor)
to furnish a report, prepared using generally accepted auditing standards, to
the Trustee and each Rating Agency to the effect that they have compared the
mathematical calculations of each amount set forth in the monthly certificates
forwarded by the Master Servicer pursuant to subsection 3.04(b) during the
period covered by such report (which shall be the period from January 1 of the
preceding calendar year to and including December 31 of such calendar year) with
the Master Servicer's computer reports which were the source of such amounts and
that on the basis of such comparison, such firm is of the opinion that such
amounts are in agreement, except for such exceptions as it believes to be
immaterial to the financial statements of the Master Servicer and such other
exceptions as shall be set forth in such
-35-
<PAGE>
report. A copy of such report may be obtained by any Investor Certificateholder
by a request in writing to the Trustee addressed to the Corporate Trust Office.
Section 3.07. Tax Treatment. The Transferor has structured
this Agreement and the Investor Certificates with the intention that the
Investor Certificates will qualify under applicable federal, state, local and
foreign tax law as indebtedness of the Transferor. The Transferor, the Master
Servicer, the Holder of the Exchangeable Transferor Certificate (and any Person
acquiring an interest in the Exchangeable Transferor Certificate), each Investor
Certificateholder, and each Certificate Owner, agree to treat and to take no
action inconsistent with the treatment of the Investor Certificates (or
beneficial interest therein) as indebtedness for all federal, state, local and
foreign tax purposes. Each Investor Certificateholder and the Holder of the
Exchangeable Transferor Certificate (and any Person acquiring an interest in the
Exchangeable Transferor Certificate), by acceptance of its Certificate and each
Certificate Owner, by acquisition of a beneficial interest in a Certificate,
agree to be bound by the provisions of this Section 3.07. Each Certificateholder
agrees that it will cause any Certificate Owner (and any Person acquiring an
interest in the Exchangeable Transferor Certificate) acquiring an interest in a
Certificate through it to comply with this Agreement as to treatment as
indebtedness under applicable tax law, as described in this Section 3.07. The
Transferor agrees that it shall not file a tax return on behalf of the Trust or
apply for a taxpayer identification number for the Trust except in compliance
with a directive or order from a Governmental Authority requiring such action to
be taken. Each party hereto agrees that it will not make the election provided
for in Treas. Reg. ss. 301.7701-3(c).
Section 3.08. Notices to the Transferor. If DNB is no longer
the Master Servicer, any Successor Master Servicer appointed pursuant to Section
10.02 shall deliver or make available to the Transferor each certificate and
report required to be prepared, forwarded or delivered thereafter pursuant to
Sections 3.04, 3.05 and 3.06.
Section 3.09. Sub-Servicing.
The Master Servicer may appoint any Affiliate as a
sub-servicer (each, a "Sub-Servicer") hereunder, provided, however, that such
appointment shall not relieve the Master Servicer of its duties hereunder. Each
duly appointed Sub-Servicer is hereby authorized to take any action which is
authorized to be taken by the Master Servicer hereunder. The Master Servicer
hereby appoints each of Mercantile, Mercantile Credit Corporation and Dillard's
as a Sub-Servicer hereunder.
Any amounts received by a Sub-Servicer in respect of a
Receivable shall be deemed to have been received by the Master Servicer whether
or not actually received by it. The Master Servicer shall supervise, monitor and
oversee the servicing of the Receivables by the Sub-Servicers and the
performance by the Sub-Servicers of all services, duties, responsibilities and
obligations that are to be observed or performed by the Sub-Servicers. Upon the
termination or resignation of the Master Servicer in accordance with the terms
hereof, the services, duties, responsibilities and obligations of the
Sub-Servicers hereunder shall be terminated. As compensation for the performance
of its obligations as a Sub-Servicer under this Agreement, each Sub-Servicer
shall be entitled to receive a fee from the Master Servicer in such amounts as
shall be separately agreed between the Master Servicer and such Sub-Servicer.
-36-
<PAGE>
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.01. Rights of Certificateholders. Each Series of
Investor Certificates shall represent Undivided Interests in the Trust,
including the benefits of any Enhancement issued with respect to such Series and
the right to receive the Collections and other amounts at the times and in the
amounts specified in this Article IV (as supplemented by the Supplement related
to such Series) to be deposited in the Investor Accounts or to be paid to the
Investor Certificateholders of such Series; provided, however, that the
aggregate interest represented by such Certificates at any time in the Principal
Receivables shall not exceed an amount equal to the Investor Interest at such
time.
The Exchangeable Transferor Certificate shall represent the
remaining Undivided Interest in the Trust, including the right to receive the
Collections and other amounts at the times and in the amounts specified in this
Article IV (as supplemented by the Supplement related to such Series) to be paid
to the Holder of the Exchangeable Transferor Certificate; provided, however,
that the aggregate interest represented by such Exchangeable Transferor
Certificate at any time in the Principal Receivables shall not exceed the
Transferor Interest at such time and such Certificate shall not represent any
interest in the Investor Accounts, except as provided in this Agreement, or the
benefits of any Enhancement issued with respect to any Series.
Section 4.02. Establishment of Accounts.
(a) The Collection Account. The Master Servicer, for the
benefit of the Certificateholders, shall establish and maintain, or shall cause
to be established and maintained, with a Qualified Institution in the name of
the Trustee, on behalf of the Trust, a non-interest-bearing segregated trust
account (the "Collection Account"). The Collection Account will bear a
designation clearly indicating that the funds deposited therein are held in
trust for the benefit of the Certificateholders. Pursuant to authority granted
to it pursuant to subsection 3.01(b), the Master Servicer shall have the
revocable power to instruct the Trustee to withdraw funds from the Collection
Account for the purposes of carrying out its duties hereunder. The Master
Servicer is hereby authorized to direct the Trustee to withdraw from the
Collection Account any funds not required by this Agreement to be deposited into
the Collection Account.
(b) The Finance Charge Account and the Principal Account.
The Trustee shall establish and maintain with a Qualified Institution in the
name of the Trust two segregated trust accounts (designated as the "Finance
Charge Account" and the "Principal Account," respectively), each bearing a
designation clearly indicating that the funds therein are held for the benefit
of the Investor Certificateholders. The Principal Account and the Finance Charge
Account may be subaccounts of the Collection Account. The Trustee shall have
sole control over and possess all right, title and interest in all funds on
deposit from time to time in the Finance Charge Account and the Principal
Account and in all proceeds thereof in trust for the benefit of the Investor
Certificateholders.
-37-
<PAGE>
Pursuant to authority granted to it hereunder, the Master
Servicer shall have the revocable power to instruct the Trustee to withdraw
funds from the Finance Charge Account and Principal Account for the purpose of
carrying out the Master Servicer's duties hereunder. The Trustee at all times
shall maintain accurate records reflecting each transaction in the Principal
Account and the Finance Charge Account.
(c) The Distribution Account. The Trustee, for the benefit of
the Investor Certificateholders of each Series, shall cause to be established
and maintained in the name of the Trust with a Qualified Institution, a
segregated trust account (the "Distribution Account") bearing a designation
clearly indicating that the funds deposited therein are held in trust for the
benefit of the Investor Certificateholders. The Trustee shall have sole control
over and possess all right, title and interest in all funds on deposit from time
to time in the Distribution Account and in all proceeds thereof.
(d) Administration of Collection Account, Principal Account
and Finance Charge Account. Funds on deposit in the Principal Account and the
Finance Charge Account shall, to the extent reasonably practicable, be invested
in Permitted Investments at the direction of the Transferor. Funds on deposit in
the Collection Account may, at the written direction of the Transferor, be
invested in Permitted Investments. Any such investment shall mature and such
funds shall be available for withdrawal on or prior to the first Transfer Date
following the Monthly Period in which such funds were processed for collection.
The Trustee shall maintain for the benefit of the Investor
Certificateholders possession of the negotiable instruments or securities
evidencing the Permitted Investments described in clause (a) of the definition
thereof from the time of purchase thereof until the time of sale or maturity;
provided, that no such investment shall be disposed of prior to its maturity
date. All interest and earnings (net of losses and investment expenses) on funds
on deposit in the Collection Account, the Principal Account and the Finance
Charge Account shall be remitted on a monthly basis to the Master Servicer. For
purposes of determining the availability of funds or the balances in the
Collection Account, the Finance Charge Account and the Principal Account for any
reason under this Agreement, no investment earnings on such funds shall be
deemed to be available or on deposit.
(e) Excess Funding Account. The Trustee, for the benefit of
the Certificateholders, shall establish and maintain or cause to be established
and maintained in the name of the Trustee on behalf of the Trust, with a
Qualified Institution, a segregated trust account, which may be a subaccount of
the Collection Account, (the "Excess Funding Account"). The Excess Funding
Account will bear a designation clearly indicating that the funds deposited
therein are held for the benefit of the Investor Certificateholders, and the
Trustee shall have sole dominion and control over and possess all right, title
and interest in all funds on deposit from time to time in the Excess Funding
Account and in all proceeds thereof.
The Master Servicer may instruct the Trustee to make
withdrawals and payments from the Excess Funding Account for the purposes of
carrying out the Master Servicer's or the Trustee's duties hereunder.
-38-
<PAGE>
At the written direction of the Transferor, funds on deposit
in the Excess Funding Account shall be invested by the Trustee in Permitted
Investments, selected by the Transferor, that will mature so that funds will be
available at the close of business on the next Business Day. All such Permitted
Investments shall be held by the Trustee for the benefit of the Investor
Certificateholders. The Trustee shall maintain for the benefit of the Investor
Certificateholders possession of the negotiable instruments or securities, if
any, evidencing such Permitted Investments.
On each Business Day, the Master Servicer shall determine the
amount by which the Transferor Interest exceeds the Minimum Transferor Interest
on such date and shall instruct the Trustee to withdraw any such excess from the
Excess Funding Account on such day and pay such amount to the Holder of the
Exchangeable Transferor Certificate.
On each Determination Date, the Master Servicer shall instruct
the Trustee to withdraw on the next succeeding Distribution Date from the Excess
Funding Account and apply all interest and other investment earnings (net of
losses and investment expenses) on funds on deposit in the Excess Funding
Account, for application as Collections of Finance Charge Receivables with
respect to the Related Monthly Period. Interest (including reinvested interest)
and other investment income and earnings on funds on deposit in the Excess
Funding Account shall not be considered part of the Excess Funding Amount for
purposes of this Agreement.
On each Determination Date on which one or more Series in a
particular Group is in an Amortization Period, the Master Servicer shall
determine the aggregate amount of Principal Shortfalls, if any, with respect to
each Series in such Group (after giving effect to the allocation and payment
provisions in subsection 4.03(e) and in the Supplement with respect to each such
Series on the next succeeding Distribution Date), and the Master Servicer shall
instruct the Trustee to withdraw such amount (up to the Excess Funding Amount)
from the Excess Funding Account on the next succeeding Distribution Date and
allocate such amount among each such Series in the applicable Group as Excess
Principal Collections as specified in each related Supplement.
(f) Change of Accounts. If, at any time, the institution
holding an account created under this Section ceases to be a Qualified
Institution, the Trustee (or the Master Servicer on its behalf) shall within 10
Business Days establish a new account meeting the conditions specified above
with a Qualified Institution and shall transfer any cash and/or any investments
to such new account.
Section 4.03. Collections and Allocations of Collections,
Master Servicer Credit Support.
(a) Deposit of Collections, Master Servicer Credit Support.
The Master Servicer shall transfer all Collections as promptly as possible after
the Date of Processing of such Collections, but in no event later than the
second Business Day thereafter. Except as provided below, the Master Servicer
shall deposit all such Collections in the Collection Account as promptly as
possible after the Date of Processing of such Collections, but in no event later
than the second Business Day thereafter. The Master Servicer shall allocate such
amounts to each Series of Investor Certificates and to the Holder of the
Exchangeable Transferor Certificate in accordance with this Article IV and shall
-39-
<PAGE>
cause the withdrawal of the required amounts from the Collection Account or pay
such amounts to the Holder of the Exchangeable Transferor Certificate in
accordance with this Article IV, in both cases as modified by any Supplement.
The Master Servicer shall make such deposits or payments on the date indicated
therein by wire transfer or as otherwise provided in the Supplement for any
Series of Certificates with respect to such Series.
Notwithstanding anything in this Agreement to the contrary,
unless otherwise stated in any Supplement, for so long as no Pay Out Event has
occurred and is continuing and DNB is the Master Servicer hereunder, and (i)
provides Master Servicer Credit Support to the Trustee covering collection and
payment obligations of the Master Servicer acceptable to each Rating Agency, as
evidenced by a letter from such Rating Agency, or (ii) Dillard's (for so long as
DNB 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 (iii) such other arrangement is made by the Master
Servicer which is approved in writing by the Rating Agencies, the Master
Servicer need not deposit Collections into the Collection Account as provided
above, but may, from Collections transferred to the Transferor, make a single
deposit in the Collection Account in immediately available funds equal to the
aggregate amount of principal of and interest on the Investor Certificates that
is due and payable on the Distribution Date not later than 10:00 a.m., New York
Time, on the Transfer Date following the Related Monthly Period.
Subject to the express terms of any Supplement, but
notwithstanding anything else in this Agreement to the contrary, with respect to
any Monthly Period, whether the Master Servicer is required to make deposits of
Collections pursuant to the first or second paragraph of this subsection
4.03(a), (A) the Master Servicer will only be required to deposit Collections
into the Collection Account or Distribution Account, as applicable, up to the
aggregate amount of Collections required to be deposited into any Series Account
or, without duplication, distributed on or prior to the related Distribution
Date to Investor Certificateholders or to any Enhancement Provider pursuant to
the terms of any Supplement or agreement whereby the Enhancement is provided,
and (B) if at any time prior to such Distribution Date the amount of Collections
deposited in the Collection Account or Distribution Account exceeds the amount
required to be deposited pursuant to clause (A) above, the Master Servicer will
be permitted to withdraw the excess from the Collection Account or Distribution
Account, as applicable for transfer to the Transferor. The Master Servicer shall
give prompt written notice to the Trustee if either Moody's or Standard & Poor's
reduces the long-term unsecured debt rating assigned to Dillard's below
investment grade.
Prior to termination of any Master Servicer Credit Support, if
on any Transfer Date the Master Servicer will not be making in full the
remittances of Collections required to be made by the Master Servicer pursuant
to this subsection 4.03(a), the Master Servicer shall by 10:00 a.m. (New York
time) on such Transfer Date notify the Trustee of such failure pursuant to an
Officer's Certificate certifying that such remittances will not be made in full
and specifying the shortfall between the amount that is required to be remitted
by the Master Servicer to the Distribution Account and the amount of funds that
will actually be so remitted. The Trustee shall not later than 12:00 noon (New
York time) on such Transfer Date draw on the Master Servicer Credit Support, if
any, in accordance with the terms
-40-
<PAGE>
thereof, in the amount of such shortfall. The Trustee shall deposit into the
Distribution Account the amount received from the issuer of the Master Servicer
Credit Support in respect of such drawing. Amounts deposited by the Trustee
pursuant to this section shall be deemed to constitute the Master Servicer
remittances of Collections to the Distribution Account with respect to which the
draw on the Master Servicer Credit Support was made.
If (1) a draw is made on the Master Servicer Credit Support or
(2) to the extent that Collections required to be deposited into the Collection
Account or any Series Account equals or exceeds in the aggregate ninety percent
(90%) of the amount of the Master Servicer Credit Support or such other higher
percentage as agreed in writing by the Rating Agencies, the Master Servicer
shall, commencing on the Distribution Date to which such draw relates, or the
date on which Collections required to be deposited into the Collection Account
in any Series Account equals or exceeds in the aggregate 90% of the Master
Servicer Credit Support in such higher percentage as agreed in writing by the
Rating Agencies, as applicable, remit Collections as required by the first
paragraph of this subsection 4.03(a).
The Master Servicer Credit Support may be terminated by the
Master Servicer at its sole option (x) upon fifteen Business Days' prior notice
to the Trustee, each Rating Agency, the Transferor, the Enhancement Providers
and the issuer of the Master Servicer Credit Support, and (y) upon delivery to
the Trustee of an Officer's Certificate of the Master Servicer certifying that,
as of the date the Master Servicer Credit Support terminates, all amounts which
would have been required to be deposited into the Collection Account pursuant to
Section 4.03 had the Master Servicer Credit Support not been in effect shall
have been so deposited. The Master Servicer shall, commencing on the date the
Master Servicer Credit Support is terminated, remit Collections as required by
Section 4.03.
The Trustee shall surrender the Master Servicer Credit Support
to the issuer thereof promptly following the earlier of the termination date
under the Master Servicer Credit Support, the appointment of a Successor Master
Servicer or the termination of the Trust.
(b) Allocations for the Exchangeable Transferor Certificate.
Throughout the existence of the Trust, unless otherwise stated in any
Supplement, the Master Servicer shall allocate to the Holder of the Exchangeable
Transferor Certificate an amount equal to the product of (i) the Transferor
Percentage and (ii) the aggregate amount of the Collections allocated to
Principal Receivables and Finance Charge Receivables, respectively, in respect
of each Monthly Period. Notwithstanding anything in this Agreement to the
contrary, unless otherwise stated in any Supplement, the Master Servicer need
not deposit this amount or any other amounts so allocated to the Exchangeable
Transferor Certificate pursuant to any Supplement into the Collection Account
and such amounts may be retained by the Holder of the Exchangeable Transferor
Certificate.
(c) Adjustments for Miscellaneous Credits and Fraudulent
Charges. The Master Servicer shall be obligated to reduce on a net basis each
Monthly Period the aggregate amount of Principal Receivables used to calculate
the Transferor Interest as provided in this subsection 4.03(c) (a "Credit
Adjustment") with respect to any Principal Receivable (i) which was created in
respect of merchandise refused or returned by the Obligor thereunder or as to
which the Obligor thereunder has
-41-
<PAGE>
asserted a counterclaim or defense, (ii) which is reduced by the Master Servicer
by any rebate, refund, charge-back or adjustment (including Master Servicer
errors), or (iii) which was created as a result of a fraudulent or counterfeit
charge. If the inclusion of the amount of a Credit Adjustment in the calculation
of the Transferor Interest would cause the Transferor Interest to be an amount
less than zero, upon written notice from the Master Servicer (if the Master
Servicer is not DNB) the Transferor shall deposit, no later than the earlier of
(A) the Business Day following the Date of Processing of such Credit Adjustment,
and (B) the last day of the Monthly Period in which such Date of Processing
occurs, in the Excess Funding Account immediately available funds equal to the
amount by which such Credit Adjustment exceeds the Transferor Interest on such
Date of Processing.
Any amount deposited into the Excess Funding Account in
connection with a Credit Adjustment shall be applied in accordance with Article
IV and the terms of each Supplement. If the Transferor shall fail to deposit
into the Excess Funding Account any amount required to be so paid pursuant to
this Section 4.03 or subsection 2.04(c)(iii) (an "Adjustment Amount"), and shall
not have subsequently paid such Adjustment Amount, no Collections of Principal
Receivables allocable to the Investor Certificates shall be distributed or
otherwise released to the Transferor hereunder, but shall instead be deposited
in the Excess Funding Account until the full Adjustment Amount has been
deposited. In addition, if the Transferor repurchases the Receivables or the
Certificates of any Series, including pursuant to Article XII, the purchase
price with respect to any Series shall include the Adjustment Amount of such
Series, if any.
If the Master Servicer adjusts upwards the principal amount of
any Receivable, the Aggregate Principal Receivables shall be increased by the
amount of such upward adjustment.
(d) Excess Principal Collections. On each Distribution Date,
Excess Principal Collections from each Group shall be allocated by the Master
Servicer (i) first, to each outstanding Series in such Group pro rata based on
the Principal Shortfall, if any, for each Series in such Group, (ii) second, at
the option of the Transferor, any remainder may be applied as principal with
respect to any Series of variable funding Certificates in such Group and (iii)
third, the Master Servicer shall pay any remaining Excess Principal Collections
on any Business Day to the Holder of the Exchangeable Transferor Certificate;
provided, that if the Transferor Interest as determined on such Business Day
(after giving effect to any Principal Receivables transferred to the Trust on
such date) does not exceed the Minimum Transferor Interest on such date, then
such remaining Excess Principal Collections shall be deposited in the Excess
Funding Account to be held and/or distributed as provided in subsection 4.02(e).
(e) Excess Finance Charge Collections. On each Distribution
Date, Excess Finance Charge Collections from each Group shall be allocated by
the Master Servicer (i) first, to each outstanding Series in such Group pro rata
based on the Finance Charge Shortfalls (as defined in the related Supplements)
for all Series in such Group and (ii) second, to the Holder of the Exchangeable
Transferor Certificate, any Excess Finance Charges remaining after payment in
full of Finance Charge Shortfalls for all Series in such Group.
-42-
<PAGE>
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN A
SUPPLEMENT WITH RESPECT TO THE RELATED SERIES]
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates. Subject to Sections 6.10 and
6.13, the Investor Certificates of each Series and any Class thereof may be
issued in bearer form (the "Bearer Certificates") or in fully registered form
(the "Registered Certificates"). Such Certificates may be issued in discount
form, or with attached interest coupons and a special coupon (collectively, the
"Coupons"), and shall be substantially in the form of the exhibits with respect
thereto attached to the related Supplement.
The Investor Certificates and the Exchangeable Transferor
Certificate shall, upon issue pursuant hereto or pursuant to Section 6.09 or
Section 6.10, be executed and delivered by the Transferor to the Trustee for
authentication and redelivery as provided in Sections 2.01 and 6.02. The
Transferor is hereby authorized to execute and deliver such Certificates on
behalf of the Trust. Any Investor Certificate shall be issuable in a minimum
denomination of $20,000 Undivided Interest and shall not be subdivided for
resale into Undivided Interests smaller than an Undivided Interest the initial
offering price for which would have been at least $20,000, unless otherwise
specified in any Supplement, and shall be issued upon original issuance in an
original principal amount equal to the Initial Investor Interest. The
Exchangeable Transferor Certificate shall be issued as a single certificate,
substantially in the form of Exhibit A.
Each Certificate shall be executed by manual or facsimile
signature on behalf of the Transferor by any Responsible Officer thereof.
Certificates bearing the manual or facsimile signature of the individual who
was, at the time when such signature was affixed, authorized to sign on behalf
of the Transferor or the Trustee shall not be rendered invalid, notwithstanding
that such individual has ceased to be so authorized prior to the authentication
and delivery of such Certificates or does not hold such office at the date of
such Certificates. No Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on such Certificate
a certificate of authentication substantially in the form provided for herein,
executed by or on behalf of the Trustee by the manual signature of a duly
authorized signatory, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication except Bearer Certificates which shall be dated the
applicable Issuance Date as provided in the related Supplement.
Except as specified in the related Supplement, all Investor
Certificates of any Series shall rank pari passu and be equally and ratably
entitled as provided herein to the benefits hereof (except that the Enhancement
provided for a Series shall not be available for any other Series) without
-43-
<PAGE>
preference, priority or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions of
this Agreement and the related Supplement.
Section 6.02. Authentication of Certificates. (a) On the
Initial Closing Date, the Trustee shall authenticate and deliver the
Exchangeable Transferor Certificate to the Transferor simultaneously with its
delivery to the Transferor of the initial Series of Investor Certificates.
(b) Upon purchase of the Investor Interest, the Trustee shall
authenticate and deliver the initial Series of Investor Certificates, upon the
written order of the Transferor, against payment to the Transferor of the
Initial Investor Interest (net of any purchase or underwriting discount). Upon
the receipt of such payment and the issuance of the Investor Certificates, such
Investor Certificates shall be fully paid and non-assessable.
(c) Upon an Exchange as provided in Section 6.09 and the
satisfaction of the other conditions specified therein, upon the order of the
Transferor, the Trustee shall authenticate and deliver the Investor Certificates
of additional Series (with the designation provided in the related Supplement),
to the Persons designated in such Supplement, in authorized denominations equal
to (in the aggregate) the Initial Investor Interest of such Series of Investor
Certificates.
(d) If specified in the related Supplement for any Series, the
Trustee shall authenticate and deliver outside the United States the Global
Certificate that is issued upon original issuance thereof, upon the written
order of the Transferor, to the Depository against payment of the purchase price
therefor.
(e) If specified in the related Supplement for any Series, the
Trustee shall authenticate Book-Entry Certificates that are issued upon original
issuance thereof, upon the written order of the Transferor, to a Clearing Agency
or its nominee as provided in Section 6. 10 against payment of the purchase
price thereof.
Section 6.03. Registration of Transfer and Exchange of
Certificates. (a) The Trustee shall cause to be kept at the office or agency to
be maintained by a transfer agent and registrar (the "Transfer Agent and
Registrar"), in accordance with the provisions of Section 11.16, a register (the
"Certificate Register") in which, subject to such reasonable regulations as it
may prescribe, the Transfer Agent and Registrar shall provide for the
registration of the Investor Certificates of each Series (unless otherwise
provided in the related Supplement) and of transfers and exchanges of the
Investor Certificates as herein provided. The Trustee is hereby initially
appointed Transfer Agent and Registrar for the purposes of registering the
Investor Certificates and transfers and exchanges of the Investor Certificates
as herein provided. If any form of Investor Certificate is issued as a Global
Certificate, the Transferor may, or if and so long as any Series of Investor
Certificates are listed on an Offshore Securities Market and such exchange shall
so require, the Transferor shall appoint a co-transfer agent and co-registrar in
the location required by the Offshore Securities Market. Any reference in this
Agreement to the Transfer Agent and Registrar shall include any co-transfer
agent and co-registrar unless the context otherwise requires. The Trustee shall
be permitted to resign as Transfer Agent and Registrar upon 30 days written
notice to the Master Servicer, provided, however, that such resignation
-44-
<PAGE>
shall not be effective until the appointment by the Transferor of a successor
Transfer Agent and Registrar, and acceptance of the appointment by such
successor.
Upon surrender for registration of transfer of any Certificate
at any office or agency of the Transfer Agent and Registrar, the Transferor
shall execute, subject to the provisions of subsection 6.03(c), and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates in authorized denominations of like
aggregate Undivided Interests; provided, that the provisions of this paragraph
shall not apply to Bearer Certificates.
At the option of an Investor Certificateholder, Investor
Certificates may be exchanged for other Investor Certificates of the same Series
in authorized denominations of like aggregate Undivided Interests, upon
surrender of the Investor Certificates to be exchanged at any office or agency
of the Transfer Agent and Registrar. At the option of any Holder of Registered
Certificates, Registered Certificates may be exchanged for other Registered
Certificates of the same Series in authorized denominations of like aggregate
Undivided Interests in the Trust, upon surrender of the Registered Certificates
to be exchanged at any office or agency of the Transfer Agent and Registrar
maintained for such purpose. At the option of a Bearer Certificateholder,
subject to applicable laws and regulations (including without limitation, the
Bearer Rules), Bearer Certificates may be exchanged for other Bearer
Certificates or Registered Certificates of the same Series in authorized
denominations of like aggregate Undivided Interests in the Trust, in the manner
specified in the Supplement for such Series, upon surrender of the Bearer
Certificates to be exchanged at an office or agency of the Transfer Agent and
Registrar located outside the United States. Each Bearer Certificate surrendered
pursuant to this Section 6.03 shall have attached thereto (or be accompanied by)
all unmatured Coupons, provided that any Bearer Certificate so surrendered after
the close of business on the Record Date (of, if the Record Date is not a
Business Day, after the close of business of the Business Day immediately
preceding the Record Date) preceding the relevant Distribution Date after the
related Series Termination Date need not have attached the Coupons relating to
such Distribution Date.
Whenever any Investor Certificates of any Series are so
surrendered for exchange, the Transferor shall execute, and the Trustee shall
authenticate and (unless the Transfer Agent and Registrar is different than the
Trustee, in which case the Transfer Agent and Registrar shall) deliver, the
Investor Certificates of such Series which the Certificateholder making the
exchange is entitled to receive. Every Investor Certificate presented or
surrendered for registration of transfer or exchange shall be accompanied by a
written instrument of transfer in a form satisfactory to the Trustee and the
Transfer Agent and Registrar duly executed by the Certificateholder thereof or
his attorney-in-fact duly authorized in writing.
The preceding provisions of this Section 6.03 notwithstanding,
the Trustee or the Transfer Agent and Registrar, as the case may be, shall not
be required to register the transfer of or exchange any Investor Certificate of
any Series for a period of 15 days preceding any Distribution Date for such
Series.
Unless otherwise provided in the related Supplement, no
service charge shall be made for any registration of transfer or exchange of
Certificates, but the Transfer Agent and Registrar may
-45-
<PAGE>
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
All Investor Certificates (together with any Coupons attached
to Bearer Certificates) surrendered for registration of transfer and exchange
shall be cancelled by the Transfer Agent and Registrar and disposed of in its
customary manner. The Trustee shall cancel and destroy the Global Certificates
upon its exchange in full for Definitive Certificates and shall deliver a
certificate of destruction to the Transferor. Such certificate shall also state
that a certificate or certificates of each Foreign Clearing Agency to the effect
referred to in Section 6.13 was received with respect to each portion of the
Global Certificate exchanged for Definitive Certificates.
The Transferor shall execute and deliver to the Trustee or the
Transfer Agent and Registrar, as applicable, Bearer Certificates and Registered
Certificates in such amounts and at such times as are necessary to enable the
Trustee to fulfill its responsibilities under this Agreement and the
Certificates.
(b) Except as provided in Section 6.09 or 7.02 or in any
Supplement, in no event shall the Exchangeable Transferor Certificate or any
interest therein be transferred hereunder, in whole or in part, unless the
Transferor shall have consented in writing to such transfer and unless the
Trustee shall have received (i) confirmation in writing that the Rating Agency
Condition is satisfied and (ii) an Opinion of Counsel to the effect that (A) the
conveyed interest in the Exchangeable Transferor Certificate will be treated as
either debt or an interest in a partnership for federal income tax purposes and
that the conveyance of such interest will not cause the Trust to be
characterized for federal income tax purposes as an association taxable as a
corporation or as a publicly traded partnership or otherwise have any material
adverse impact on the federal or applicable state income taxation of any
outstanding Series of Investor Certificates or any Certificate Owner and (B)
such transfer will not cause a taxable event for federal income tax purposes to
any Investor Certificateholder.
(c) Unless otherwise provided in the related Supplement,
registration of transfer of Registered Certificates containing a legend relating
to the restrictions on transfer of such Registered Certificates (which legend
shall be set forth in the Supplement relating to such Investor Certificates)
shall be effected only if the conditions set forth in such related Supplement
are satisfied. Whenever a Registered Certificate containing the legend set forth
in the related Supplement is presented to the Transfer Agent and Registrar for
registration of transfer, the Transfer Agent and Registrar shall promptly seek
instructions from the Master Servicer regarding such transfer. The Transfer
Agent and Registrar and the Trustee shall be entitled to receive written
instructions signed by a Master Servicing Officer prior to registering any such
transfer or authenticating new Registered Certificates, as the case may be. The
Master Servicer hereby agrees to indemnify the Transfer Agent and Registrar and
the Trustee and to hold each of them harmless against any loss, liability or
expense incurred without negligence or bad faith on their part arising out of or
in connection with actions taken or omitted by them in reliance on any such
written instructions furnished pursuant to this subsection 6.03(c).
(d) If specified in any Supplement, the Transfer Agent and
Registrar will maintain at its expense in the Borough of Manhattan, the City of
New York (and subject to this Section 6.03, if
-46-
<PAGE>
specified in the related Supplement for any Series, any other city designated in
such Supplement) an office or offices or an agency or agencies where Investor
Certificates of such Series may be surrendered for registration of transfer or
exchange.
Section 6.04. Mutilated, Destroyed, Lost or Stolen
Certificates. If (a) any mutilated Certificate (together, in the case of Bearer
Certificates, with all unmatured Coupons, if any, appertaining thereto) is
surrendered to the Transfer Agent and Registrar, or the Transfer Agent and
Registrar receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate and (b) there is delivered to the Transfer Agent and
Registrar and the Trustee such security or indemnity as may be required by them
to save each of them and the Transferor harmless, then, in the absence of notice
to the Trustee that such Certificate has been acquired by a bona fide purchaser,
the Transferor shall execute and the Trustee shall authenticate and (unless the
Transfer Agent and Registrar is different from the Trustee, in which case the
Transfer Agent and Registrar shall) deliver (in compliance with applicable law),
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and aggregate Undivided Interest.
In connection with the issuance of any new Certificate under this Section 6.04,
the Trustee or the Transfer Agent and Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee and the Transfer Agent and Registrar) connected therewith. Any duplicate
Certificate issued pursuant to this Section 6.04 shall constitute complete and
indefeasible evidence of ownership in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any
time.
Section 6.05. Persons Deemed Owners. (a) Prior to due
presentation of a Certificate for registration of transfer, the Trustee, the
Paying Agent, the Transfer Agent and Registrar and any agent of any of them may
treat the Person in whose name any Certificate is registered as the owner of
such Certificate for the purpose of receiving distributions pursuant to Article
V (as described in any Supplement) and for all other purposes whatsoever, and
neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any
agent of any of them shall be affected by any notice to the contrary. In the
case of a Bearer Certificate, the Trustee, the Paying Agent, the Transfer Agent
and Registrar and any agent of any of them may treat the holder of a Bearer
Certificate or Coupon as the owner of such Bearer Certificate or Coupon for the
purpose of receiving distributions pursuant to Article IV and Article XII and
for all other purposes whatsoever, and neither the Trustee, the Paying Agent,
the Transfer Agent and Registrar nor any agent of any of them shall be affected
by any notice to the contrary.
(b) Notwithstanding (a) above, in determining whether the
Holders of Investor Certificates evidencing the requisite Undivided Interests
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Investor Certificates owned by the Transferor, the Master
Servicer or any Affiliate thereof shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Investor Certificates which a Responsible Officer in the
Corporate Trust Office of the Trustee knows to be so owned shall be so
disregarded. Investor Certificates so owned that have been pledged in good faith
shall not be disregarded as
-47-
<PAGE>
outstanding, if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Investor Certificates and that
the pledgee is not the Transferor, the Master Servicer or an Affiliate thereof.
Section 6.06. Appointment of Paying Agent. (a) The Paying
Agent shall make distributions to Investor Certificateholders from the
appropriate account or accounts maintained for the benefit of Certificateholders
as specified in this Agreement or the related Supplement for any Series pursuant
to Articles IV and V hereof. Any Paying Agent shall have the revocable power to
withdraw funds from such appropriate account or accounts for the purpose of
making such distributions. The Trustee (or the Master Servicer if the Trustee is
the Paying Agent) may revoke such power and remove the Paying Agent, if the
Trustee (or the Master Servicer if the Trustee is the Paying Agent) determines
in its sole discretion that the Paying Agent shall have failed to perform its
obligations under this Agreement in any material respect or for other good
cause. The Trustee (or the Master Servicer if the Trustee is the Paying Agent)
shall notify the Rating Agencies of the removal of any Paying Agent. The Paying
Agent, unless the Supplement with respect to any Series states otherwise, shall
initially be the Trustee.
The Trustee shall be permitted to resign as Paying Agent upon
30 days' written notice to the Master Servicer and the Transferor and, upon such
resignation, the Transferor shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company). The provisions of Sections 11.01,
11.02 and 11.03 shall apply to the Trustee also in its role as Paying Agent, for
so long as the Trustee shall act as Paying Agent. Any reference in this
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
If specified in the related Supplement for any Series, so long
as the Investor Certificates of such Series are outstanding, the Transferor
shall maintain a co-paying agent in New York City (for Registered Certificates
only) or any other city designated in such Supplement. If any Investor
Certificate is issued as a Global Certificate, or so long as any Series of
Investor Certificates is listed on any Offshore Securities Market and such
exchange so requires, the Transferor shall maintain a co-paying agent in the
location required by such Offshore Securities Market.
(b) The Transferor shall cause the Paying Agent (other than
the Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent will hold all
sums, if any, held by it for payment to the Certificateholders in trust for the
benefit of the Certificateholders entitled thereto until such sums shall be paid
to such Certificateholders and shall agree, and if the Trustee is the Paying
Agent it hereby agrees, that it shall comply with all requirements of the
Internal Revenue Code regarding the withholding by the Trustee of payments in
respect of federal income taxes due from Certificate Owners.
Section 6.07. Access to List of Certificateholders, Names and
Addresses. The Trustee will furnish or cause to be furnished by the Transfer
Agent and Registrar to the Master Servicer, the Transferor or the Paying Agent,
within five Business Days after receipt by the Trustee of a request therefor
from the Master Servicer or the Paying Agent, respectively, in writing, a list
in such form as the Master Servicer or the Paying Agent may reasonably require,
of the names and addresses of the Investor Certificateholders as of the most
recent Record Date for payment of distributions to Investor
-48-
<PAGE>
Certificateholders. Unless otherwise provided in the related Supplement, Holders
of Investor Certificates evidencing Undivided Interests aggregating not less
than 10% of the Investor Interest of the Investor Certificates of any Series
(the "Applicants") may apply in writing to the Trustee, and if such application
states that the Applicants desire to communicate with other Investor
Certificateholders of any Series with respect to their rights under this
Agreement or under the Investor Certificates and is accompanied by a copy of the
communication which such Applicants propose to transmit, then the Trustee, after
having been adequately indemnified by such Applicants for its costs and
expenses, shall afford or shall cause the Transfer Agent and Registrar to afford
such Applicants access during normal business hours to the most recent list of
Certificateholders held by the Trustee and shall give the Master Servicer and
the Transferor notice that such request has been made, within five Business Days
after the receipt of such application. Such list shall be as of a date no more
than 45 days prior to the date of receipt of such Applicant's request. Every
Certificateholder, by receiving and holding a Certificate, agrees with the
Transferor, the Master Servicer and the Trustee that none of the Transferor, the
Master Servicer, the Trustee, the Transfer Agent or the Registrar, nor any of
their respective agents shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Certificateholders
hereunder, regardless of the source from which such information was obtained.
Section 6.08. Authenticating Agent. (a) The Trustee may
appoint one or more authenticating agents with respect to the Certificates which
shall be authorized to act on behalf of the Trustee in authenticating the
Certificates in connection with the issuance, delivery, registration of
transfer, exchange or repayment of the Certificates. Any reference in this
Agreement to the authentication of Certificates by the Trustee or the Trustee's
certificate of authentication shall be deemed to include authentication on
behalf of the Trustee by an authenticating agent and a certificate of
authentication executed on behalf of the Trustee by an authenticating agent.
Each authenticating agent must be acceptable to the Transferor.
(b) Any institution succeeding to the corporate agency
business of an authenticating agent shall continue to be an authenticating agent
without the execution or filing of any paper or any further act on the part of
the Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to the Transferor. The Trustee
may at any time, with or without cause, terminate the agency of an
authenticating agent by giving notice of termination to such authenticating
agent and to the Transferor. Upon receiving such a notice of resignation or upon
such a termination, or in case at any time an authenticating agent shall cease
to be acceptable to the Trustee or the Transferor, the Trustee promptly may
appoint a successor authenticating agent. Any successor authenticating agent
upon acceptance of its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with like effect as if
originally named as an authenticating agent. No successor authenticating agent
shall be appointed unless acceptable to the Trustee and the Transferor.
(d) The Master Servicer agrees to pay each authenticating
agent from time to time reasonable compensation for its services under this
Section 6.08.
-49-
<PAGE>
(e) The provisions of Sections 11.01, 11.02 and 11.03 shall be
applicable to any authenticating agent.
(f) Pursuant to an appointment made under this Section 6.08,
the Certificates may have endorsed thereon, in lieu of the Trustee's certificate
of authentication, an alternate certificate of authentication in substantially
the following form:
This is one of the certificates described in the Dillard's
Master Credit Card Trust I Pooling and Servicing Agreement.
as Authenticating Agent for the Trustee,
By
---------------------------------------
Authorized Officer
Section 6.09. Tender of Exchangeable Transferor Certificate.
(a) The Holder of the Exchangeable Transferor Certificate may tender (any such
tender, a "Transferor Exchange") the Exchangeable Transferor Certificate to the
Trustee in exchange for one or more newly issued Series of Investor Certificates
and a reissued Exchangeable Transferor Certificate.
In addition, to the extent permitted for any Series of
Investor Certificates as specified in the related Supplement, the Investor
Certificateholders of such Series may tender (an "Investor Exchange") their
Investor Certificates and the Holder of the Exchangeable Transferor Certificate
may tender the Exchangeable Transferor Certificate to the Trustee pursuant to
the terms and conditions set forth in such Supplement in exchange for (A) one or
more newly issued Series of Investor Certificates and (B) a reissued
Exchangeable Transferor Certificate, respectively.
The Holder of the Exchangeable Transferor Certificate may
perform an Exchange by notifying the Trustee, in writing at least five days in
advance (an "Exchange Notice") of the date upon which the Exchange is to occur
(an "Exchange Date"). Any Exchange Notice shall state the designation of any
Series to be issued on the Exchange Date and, with respect to each such Series:
(i) its Initial Investor Interest (or the method for calculating such Initial
Investor Interest), (ii) its Certificate Rate (or the method for allocating
interest payments or other cash flows to such Series), if any, (iii) the
Enhancement Provider, if any, with respect to such Series, and (iv) the excess
of the Principal Receivables in the Trust over the Minimum Transferor Interest
after giving effect to the Exchange.
(b) Upon any Exchange, the Trustee shall issue to the Holder
of the Exchangeable Transferor Certificate under Section 6.01, for execution and
redelivery to the Trustee for authentication under Section 6.02, one or more new
Series of Investor Certificates. Any such Series of Investor Certificates shall
be substantially in the form specified in the related Supplement and shall bear,
upon its face, the designation for such Series to which it belongs, as selected
by the Transferor.
(c) On the related Exchange Date, the Trustee shall
authenticate and deliver any such Series of Investor Certificates only upon
delivery to it of the following: (i) a Supplement satisfying
-50-
<PAGE>
the criteria set forth in subsection 6.09(d) executed by the Transferor and the
Master Servicer and specifying the Principal Terms of such Series, (ii) the
applicable Enhancement, if any, (iii) the agreement, if any, pursuant to which
the Enhancement Provider agrees to provide the Enhancement, if any, (iv) an
Opinion of Counsel to the effect that, the newly issued Series of Investor
Certificates will be treated as debt or as a partnership interest (in which case
such opinion shall also state that the Trust will not be taxable as a
corporation or a publicly traded partnership) for federal income tax purposes
and that the issuance of the newly issued Series of Investor Certificates will
not adversely affect the federal income tax characterization of the Holder of
any outstanding Series of Investor Certificates or any Certificate Owner, (v)
the Rating Agency Condition is satisfied, (vi) an Officer's Certificate signed
by a Responsible Officer of the Transferor, that on the Exchange Date (A) the
Transferor, after giving effect to the Exchange, would not be required to add
Additional Accounts pursuant to subsection 2.06(a) and (B) after giving effect
to such Exchange, the Transferor Interest would be at least equal to the Minimum
Transferor Interest, and (vii) the existing Exchangeable Transferor Certificate
or applicable Investor Certificates, as the case may be. Upon satisfaction of
such conditions, the Trustee shall cancel the existing Exchangeable Transferor
Certificate or applicable Investor Certificates, as the case may be, and issue,
as provided above, such Series of Investor Certificates and a new Exchangeable
Transferor Certificate, dated the Exchange Date. There is no limit to the number
of Exchanges that may be performed under this Agreement.
(d) In conjunction with an Exchange, the parties hereto shall
execute a Supplement, which shall specify the relevant terms (the "Principal
Terms") with respect to any newly issued Series of Investor Certificates, which
may include without limitation: (i) its name or designation, (ii) an Initial
Investor Interest or the method of calculating the Initial Investor Interest,
(iii) the Certificate Rate, (iv) the Closing Date, (v) the rating agency or
agencies rating such Series, (vi) the name of the Clearing Agency, if any, (vii)
the rights of the Holder of the Exchangeable Transferor Certificate that have
been transferred to the Holders of such Series pursuant to such Exchange
(including any rights to allocations of Collections of Finance Charge
Receivables and Principal Receivables), (viii) the interest payment date or
dates and the date or dates from which interest shall accrue, (ix) the method of
allocating Collections with respect to Principal Receivables for such Series
and, if applicable, with respect to other Series and the method by which the
principal amount of Investor Certificates of such Series shall amortize or
accrete and the method for allocating Collections with respect to Finance Charge
Receivables and Receivables in Defaulted Accounts, (x) the names of any accounts
to be used by such Series and the terms governing the operation of any such
account, (xi) the Series Servicing Fee Percentage, (xii) the Minimum Transferor
Interest, (xiii) the terms of any Enhancement with respect to such Series, (xiv)
the Enhancement Provider, if applicable, (xv) the base rate applicable to such
Series, (xvi) the terms on which the Certificates of such Series may be
repurchased or remarketed to other investors, (xvii) any deposit into any
account provided for such Series, (xviii) the number of Classes of such Series,
and if more than one Class, the rights and priorities of each such Class, (xix)
the priority of any Series with respect to any other Series, (xx) the Series
Termination Date, (xxi) the Pool Factor, (xxii) the Minimum Aggregate Principal
Receivables, (xxiii) whether such Series will be part of a Group, and (xxiv) any
other relevant terms of such Series (including whether or not such Series will
be pledged as collateral for an issuance of any other securities, including
commercial paper).
-51-
<PAGE>
The terms of such Supplement may modify or amend the terms of
this Agreement solely as applied to such new Series. If on the date of the
issuance of such Series there is issued and outstanding one or more Series of
Investor Certificates and no Series of Investor Certificates is currently rated
by a Rating Agency, then as a condition to such Exchange a nationally recognized
investment banking firm or commercial bank shall also deliver to the Trustee an
officers certificate stating, in substance, that the Exchange will not have an
adverse effect on the timing or distribution of payments to such other Series of
Investor Certificates then issued and outstanding.
Section 6.10. Book-Entry Certificates. Unless otherwise
provided in any related Supplement, the Investor Certificates, upon original
issuance, shall be issued in the form of typewritten Certificates representing
the Book-Entry Certificates, to be delivered to the depository specified in such
Supplement (the "Depository") which shall be the Clearing Agency or Foreign
Clearing Agency, by or on behalf of such Series. The Investor Certificates of
each Series shall, unless otherwise provided in the related Supplement,
initially be registered on the Certificate Register in the name of the nominee
of the Clearing Agency or Foreign Clearing Agency. No Certificate Owner will
receive a definitive certificate representing such Certificate Owner's interest
in the related Series of Investor Certificates, except as provided in Section
6.12 or in the respective Supplement.
Unless and until definitive, fully registered Investor
Certificates of any Series ("Definitive Certificates") have been issued to
Certificate owners pursuant to Section 6.12:
(i) the provisions of this Section 6. 10 shall be in full
force and effect with respect to each such Series;
(ii) the Transferor, the Master Servicer, the Paying Agent,
the Transfer Agent and Registrar and the Trustee may deal with the Clearing
Agency and the Clearing Agency Participants for all purposes (including the
making of distributions on the Investor Certificates of each such Series) as the
authorized representatives of the Certificate Owners;
(iii) to the extent that the provisions of this Section 6.10
conflict with any other provisions of this Agreement, the provisions of this
Section 6.10 shall control with respect to each such Series; and
(iv) the rights of Certificate Owners of each such Series
shall be exercised only through the Clearing Agency or Foreign Clearing Agency
and the applicable Clearing Agency Participants and shall be limited to those
established by law and agreements between such Certificate Owners and the
Clearing Agency or Foreign Clearing Agency and/or the Clearing Agency
Participants. Pursuant to the Depository Agreement applicable to a Series,
unless and until Definitive Certificates of such Series are issued pursuant to
Section 6.12, the initial Clearing Agency will make book-entry transfers among
the Clearing Agency Participants and receive and transmit distributions of
principal and interest on the Investor Certificates to such Clearing Agency
Participants.
Section 6.11. Notices to Clearing Agency. Whenever notice or
other communication to the Certificateholders is required under this Agreement,
unless and until Definitive
-52-
<PAGE>
Certificates shall have been issued to Certificate Owners pursuant to Section
6.12, the Trustee shall give all such notices and communications specified
herein to be given to Holders of the Investor Certificates to the Clearing
Agency or Foreign Clearing Agency for distribution to Holders of Investor
Certificates.
Section 6.12. Definitive Certificates. If (a)(i) the
Transferor advises the Trustee in writing that the Clearing Agency or Foreign
Clearing Agency is no longer willing or able to discharge properly its
responsibilities under the applicable Depository Agreement, and (ii) the Trustee
or the Transferor is unable to locate a qualified successor; (b) the Transferor,
at its option, advises the Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency or Foreign Clearing Agency with
respect to any Series of Certificates; or (c) after the occurrence of a Master
Servicer Default, Certificate Owners of a Series representing beneficial
interests aggregating not less than 50% of the Investor Interest of such Series
advise the Trustee and the applicable Clearing Agency or Foreign Clearing Agency
through the applicable Clearing Agency Participants in writing that the
continuation of a book-entry system through the applicable Clearing Agency or
Foreign Clearing Agency is no longer in the best interests of the Certificate
Owners, the Trustee shall notify all Certificate Owners of such Series, through
the applicable Clearing Agency Participants, of the occurrence of any such event
and of the availability of Definitive Certificates to Certificate Owners of such
Series requesting the same.
Upon surrender to the Trustee of the Investor Certificates of
such Series by the applicable Clearing Agency or Foreign Clearing Agency,
accompanied by registration instructions from the applicable Clearing Agency or
Foreign Clearing Agency for registration, the Trustee shall issue the Definitive
Certificates of such Series. Neither the Transferor nor the Trustee shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions. Upon the issuance
of Definitive Certificates of such Series, all references herein to obligations
imposed upon or to be performed by the applicable Clearing Agency or Foreign
Clearing Agency shall be deemed to be imposed upon and performed by the Trustee,
to the extent applicable with respect to such Definitive Certificates, and the
Trustee shall recognize the Holders of the Definitive Certificates of such
Series as Certificateholders of such Series hereunder.
Section 6.13. Global Certificate. If specified in the related
Supplement for any Series, the Investor Certificates may be initially issued in
the form of a single temporary Global Certificate (the "Global Certificate") in
bearer form, without interest coupons, in the denomination of the Initial
Investor Interest and substantially in the form attached to the related
Supplement. Unless otherwise specified in the related Supplement, the provision
of this Section 6.13 shall apply to such Global Certificate. The Global
Certificate will be authenticated by the Trustee upon the same conditions, in
substantially the same manner and with the same effect as the Definitive
Certificates. The Global Certificate may be exchanged in the manner described in
the related Supplement for Registered or Bearer Certificates in definitive form.
Section 6.14. Meetings of Certificateholders. To the extent
provided by the Supplement for any Series issued in whole or in part in Bearer
Certificates, the Master Servicer, the Transferor or the Trustee may at any time
call a meeting of the Certificateholders of such Series, to be held at such time
and at such place as the Master Servicer, the Transferor or the Trustee, as the
case
-53-
<PAGE>
may be, shall determine, for the purpose of approving a modification of or
amendment to, or obtaining a waiver of, any covenant or condition set forth in
this Agreement with respect to such Series or in the Certificates of such
Series, subject to Section 13.01 of the Agreement.
Section 6.15. Restrictions on Transfers of Certain
Certificates. Notwithstanding any other provision of this Agreement, any
Certificate or uncertificated interest in the Trust (or any interests therein)
(including Exchangeable Transferor Certificates) for which an Opinion of Counsel
has not been issued opining that such Certificates or uncertificated interests
(or any interest therein) would be treated as debt for Federal income tax
purposes (each, a "Subject Certificate") shall be subject to the transfer
restrictions set forth herein or in the relevant Series Supplement.
No transfer (or purported transfer) of all or any part of a
Subject Certificate (or any interest therein), whether to another
Certificateholder or to a Person who is not a Certificateholder, shall be
effective, and any such transfer (or purported transfer) shall be void ab
initio, and no Person shall otherwise become a beneficial owner of a Subject
Certificate (or any interest therein) if:
(a) at the time of such transfer (or purported transfer) any
Subject Certificates are traded on an established securities market;
(b) after such transfer (or purported transfer) the Trust
would have more than 100 beneficial owners of Subject Certificates; or
(c) the Subject Certificates have been issued in a transaction
or transactions that were required to be registered under the Securities Act,
and to the extent such offerings or sales were required to be registered under
the Securities Act by reason of Regulation S (17 CFR 230.901 through 230.904 or
any successor thereto), such offerings or sales would not have been required to
be registered under the Securities Act if the interests so offered or sold had
been offered and sold within the United States.
For purposes of clause (a) above, an established securities
market is described in Treasury Regulation 1-7704-1(b). Except as otherwise
permitted under the relevant Series Supplement, no beneficial owner of a Subject
Certificate may be a partnership (including any entity treated as a partnership
for federal income tax purposes), a grantor trust or an S corporation (each such
entity a "flow-through entity").
Section 6.16. Trust Tax Election. No Person, including the
Trustee, shall have the authority to make an election under Treasury Regulation
301.7701-3(c) to cause the Trust to be classified as an association taxable as a
corporation.
-54-
<PAGE>
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.01. Liability of the Transferor. The Transferor
shall be liable in accordance herewith solely to the extent of the obligations
specifically undertaken by the Transferor.
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Transferor. (a) The Transferor shall not consolidate with or
merge into any other Person or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the Person formed by such consolidation or into
which the Transferor is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Transferor substantially as an
entirety shall be, if the Transferor is not the surviving entity, organized and
existing under the laws of the United States of America or any State or the
District of Columbia, and shall expressly assume, by an agreement supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, the performance of every covenant and obligation of the Transferor, as
applicable hereunder and shall benefit from all the rights granted to the
Transferor, as applicable hereunder. To the extent that any right, covenant or
obligation of the Transferor, as applicable hereunder is inapplicable to the
successor entity, such successor entity shall be subject to such covenant or
obligation, or benefit from such right, as would apply, to the extent
practicable, to such successor entity. In furtherance hereof, in applying this
Section 7.02 to a successor entity, Section 9.02 hereof shall be applied by
reference to events of involuntary liquidation, receivership or conservatorship
applicable to such successor entity as shall be set forth in the Officer's
Certificate described in subsection 7.02(a)(ii);
(ii) the Transferor shall have delivered to the
Trustee an Officer's Certificate of the Transferor stating that such
consolidation, merger, conveyance or transfer and such supplemental agreement
complies with this Section 7.02 and that all conditions precedent herein
provided for relating to such transaction have been complied with and an Opinion
of Counsel that such supplemental agreement is legal, valid and binding; and
(iii) the Transferor shall have delivered notice to
the Rating Agencies of such consolidation, merger, conveyance or transfer.
(b) The obligations of the Transferor hereunder shall not
be assignable nor shall any Person succeed to the obligations of the Transferor
hereunder except for mergers, consolidations, assumptions or transfers in
accordance with the provisions of the foregoing paragraph.
Section 7.03. Limitation on Liability. The trustees,
directors, officers, employees or agents of the Transferor shall not be under
any liability to the Trust, the Trustee, the Certificateholders, any Enhancement
Provider or any other Person hereunder or pursuant to any document delivered
hereunder, it being expressly understood that all such liability is expressly
waived and released as a condition of, and as consideration for, the execution
of this Agreement and any
-55-
<PAGE>
Supplement and the issuance of the Certificates; provided, however, that this
provision shall not protect the trustees, officers, directors, employees or
agents of the Transferor against any liability which would otherwise be imposed
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. Except as provided in Section 7.04, the Transferor shall not
be under any liability to the Trust, the Trustee, the Certificateholders, any
Enhancement Provider or any other Person for any action taken or for refraining
from the taking of any action in its capacity as Transferor pursuant to this
Agreement or any Supplement whether arising from express or implied duties under
this Agreement or any Supplement; provided, however, that this provision shall
not protect the Transferor against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. The Transferor and any trustee, director, officer, employee or
agent may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Section 7.04. Indemnification. (a) The Transferor shall
indemnify and hold harmless the Trust and the Trustee, its officers, directors,
employees and agents from and against any reasonable loss, liability, expense,
damage or injury suffered or sustained by reason of any acts, omissions or
alleged acts or omissions arising out of or based upon the arrangement created
by this Agreement or any Supplement; provided, however, that the Transferor
shall not indemnify the Trustee if such acts, omissions or alleged acts or
omissions constitute or are caused by fraud, negligence or willful misconduct by
the Trustee; and provided, further, that the Transferor shall not indemnify the
Trust, the Investor Certificateholders or the Certificate Owners for (i) any
liabilities, costs or expenses of the Trust with respect to any action taken by
the Trustee at the direction of Holders of Investor Certificates evidencing
Undivided Interests aggregating not less than 50% of the Investor Interest of
the respective Series; (ii) any losses, claims or damages incurred by any of
them in their capacities as investors, including, without limitation, losses
incurred as a result of Defaulted Accounts or Receivables which are written off
as uncollectible; or (iii) any liabilities, costs or expenses of the Trust, the
Investor Certificateholders or the Certificate Owners arising under any tax law,
including without limitation, any federal, state, local or foreign income or
franchise taxes 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 Investor Certificateholders or
the Certificate Owners in connection herewith to any taxing authority.
(b) The Transferor shall be liable directly to and shall
indemnify the injured party for all losses, claims, damages, liabilities and
expenses of the Trust to the extent that the Transferor would be liable if the
Trust were a partnership under the Delaware Revised Uniform Limited Partnership
Act in which the Transferor were a general partner; provided, however, that the
Transferor shall not be liable for (i) any losses incurred by a
Certificateholder or a Certificate Owner in its capacity as an investor in the
Certificates or (ii) any liabilities, costs or expenses of the Investor
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation, any federal, state, local or foreign income or
franchise taxes 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 Investor Certificateholders or the
Certificate Owners in connection herewith to any taxing authority.
-56-
<PAGE>
(c) Any indemnification under this Section 7.04 shall not be
payable from the assets of the Trust. The provisions of this indemnity shall run
directly to and be enforceable by an injured party subject to the limitations
hereof. Any injured party seeking indemnification hereunder shall give the
Transferor prompt written notice of any potential loss, liability, expense,
damage or injury, including actual or threatened litigation. The Transferor
shall be entitled to assume the defense of and to negotiate the settlement of
any such claim. The obligations of the Transferor under this subsection 7.04
shall be evidenced by the Exchangeable Transferor Certificate, which shall be
deemed to be a separate Class of Certificate from all other Certificates issued
by the Trust.
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
Section 8.01. Liability of the Master Servicer. The Master
Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Master Servicer in such capacity
herein.
Section 8.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer. The Master Servicer shall not consolidate
with or merge into any other Person or convey or transfer its properties and
assets substantially as an entirety to any Person, unless:
(i) the Person formed by such consolidation or into
which the Master Servicer is merged or the Person which acquires by conveyance
or transfer the properties and assets of the Master Servicer substantially as an
entirety shall be a corporation organized and existing under the laws of the
United States of America or any State or the District of Columbia, and shall be
a state or national banking association or other entity which is not subject to
the bankruptcy laws of the United States of America and, if the Master Servicer
is not the surviving entity, shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee in form satisfactory
to the Trustee, the performance of every covenant and obligation of the Master
Servicer hereunder (to the extent that any right, covenant or obligation of the
Master Servicer, as applicable hereunder, is inapplicable to the successor
entity, such successor entity shall be subject to such covenant or obligation,
or benefit from such right, as would apply, to the extent practicable, to such
successor entity);
(ii) the Master Servicer shall have delivered to the
Trustee an Officer's Certificate that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section 8.02 and that
all conditions precedent herein provided for relating to such transaction have
been complied with and an Opinion of Counsel that such supplemental agreement is
legal, valid and binding with respect to the Master Servicer; and
(iii) the Master Servicer shall have delivered notice
to the Rating Agencies of such consolidation, merger, conveyance or transfer.
-57-
<PAGE>
Section 8.03. Limitation on Liability of the Master Servicer
and Others. The directors, officers, employees or agents of the Master Servicer
shall not be under any liability to the Trust, the Trustee, the
Certificateholders, any Enhancement Provider or any other Person hereunder or
pursuant to any document delivered hereunder, it being expressly understood that
all such liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Agreement and any Supplement and the
issuance of the Certificates; provided, however, that this provision shall not
protect the directors, officers, employees and agents of the Master Servicer
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. Except as
provided in Section 8.04 with respect to the Trust and the Trustee, its
officers, directors, employees and agents, the Master Servicer shall not be
under any liability to the Trust, the Trustee, its officers, directors,
employees and agents, the Certificateholders or any other Person for any action
taken or for refraining from the taking of any action in its capacity as Master
Servicer pursuant to this Agreement or any Supplement; provided, however, that
this provision shall not protect the Master Servicer against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of its reckless disregard
of its obligations and duties hereunder or under any Supplement. The Master
Servicer may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
The Master Servicer shall not be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its duties to service the
Receivables in accordance with this Agreement which in its reasonable opinion
may involve it in any expense or liability.
Section 8.04. Master Servicer Indemnification of the
Transferor, the Trust and the Trustee. The Master Servicer shall indemnify and
hold harmless the Trust and the Trustee, its officers, directors, employees and
agents, 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 Master Servicer with respect to activities of the Trust or
the Trustee pursuant to this Agreement or any Supplement, including, but not
limited to any judgment, award, settlement, reasonable attorneys' fees and other
costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided, however, that the Master
Servicer shall not indemnify the Trustee if such acts, omissions or alleged acts
or omissions constitute or are caused by fraud, negligence, or willful
misconduct by the Trustee; and provided further, that the Master Servicer shall
not indemnify the Trust, the Investor Certificateholders or the Certificate
Owners (a) for any liabilities, costs or expenses of the Trust with respect to
any action taken by the Trustee at the direction of Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than 50% of the
Investor Interest of the respective Series; (b) any losses, claims or damages
incurred by any of them in their capacities as investors, including without
limitation, losses incurred as a result of Defaulted Accounts or Receivables
which are written off as uncollectible; or (c) any liabilities, costs or
expenses of the Trust, the Investor Certificateholders or the Certificate Owners
arising under any tax law, including without limitation, any federal, state,
local or foreign income or franchise taxes 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
Investor Certificateholders or the Certificate Owners in connection herewith to
any taxing authority.
-58-
<PAGE>
Any such indemnifications under this Section 8.04 shall not be
payable from the assets of the Trust. The provisions of this indemnity shall run
directly to and be enforceable by an injured party subject to the limitations
hereof. Any injured party seeking indemnification hereunder shall give the
Master Servicer prompt written notice of any potential loss, liability, expense,
damage or injury, including actual or threatened litigation. The Master Servicer
shall be entitled to assume the defense of and to negotiate the settlement of
any such claim.
Section 8.05. The Master Servicer Not To Resign. The Master
Servicer shall not resign from the obligations and duties hereby imposed on it
except upon determination that (a) the performance of its duties hereunder is no
longer permissible under applicable law as evidenced by an Opinion of Counsel to
such effect delivered to the Trustee, and (b) there is no reasonable action
which the Master Servicer could take to make the performance of its duties
hereunder permissible under applicable law. No such resignation shall become
effective until the Trustee or a Successor Master Servicer reasonably acceptable
to the Transferor shall have assumed the responsibilities and obligations of the
Master Servicer in accordance with Section 10.02 hereof. If the Trustee is
unable within 120 days of the date of such determination to appoint a Successor
Master Servicer, the Trustee shall serve as Successor Master Servicer hereunder
until such time as a Successor Master Servicer shall have been appointed and
assumed the obligations of the Master Servicer in accordance with Section 10.02
hereunder.
Section 8.06. Access to Certain Documentation and Information
Regarding the Receivables. The Master Servicer shall provide to the Trustee
access to the documentation regarding the Accounts and the Receivables in such
cases where the Trustee is required in connection with the enforcement of the
rights of the Investor Certificateholders, or by applicable statutes or
regulations to review such documentation, such access being afforded without
charge but only (a) upon reasonable request, (b) during normal business hours,
(c) subject to the Master Servicer's normal security and confidentiality
procedures, and (d) at offices designated by the Master Servicer. Nothing in
this Section 8.06 shall derogate from the obligation of the Transferor, the
Trustee or the Master Servicer to observe any applicable law prohibiting
disclosure of information regarding the Obligors and the failure of the Master
Servicer to provide access as provided in this Section 8.06 as a result of such
obligations shall not constitute a breach of this Section 8.06.
Section 8.07. Delegation of Duties. It is understood and
agreed by the parties hereto that the Master Servicer may delegate certain of
its duties hereunder to any Affiliate which is wholly owned by the Master
Servicer or Dillard's. In the ordinary course of business, the Master Servicer
may at any time delegate any duties hereunder to any Person who agrees to
conduct such duties in accordance with the Credit Card Guidelines. Any such
delegations shall not relieve the Master Servicer of its liability and
responsibility with respect to such duties, and shall not constitute a
resignation within the meaning of Section 8.05 hereof. If any such delegation is
to a party other than an Affiliate, as permitted above, notification thereof
shall be given to each Rating Agency.
-59-
<PAGE>
ARTICLE IX
PAY OUT EVENTS
Section 9.01. Pay Out Events. The occurrence of any one of the
following events shall constitute a Trust Pay Out Event:
(a) the Transferor, DNB, Mercantile or Dillard's consents to
the appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to all or substantially all of its property; or a
decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Transferor, DNB, Mercantile or
Dillard's, and such decree or order shall have remained in force undischarged or
unstayed for a period of 60 days; or the Transferor, DNB, Mercantile, or
Dillard's shall admit in writing its inability to pay its debts generally as
they become due, file a petition to take advantage of any applicable insolvency
or reorganization statute, make an assignment for the benefit of its creditors
or voluntarily suspend payment of its obligations;
(b) DNB or Mercantile become unable for any reason to transfer
Receivables to the Transferor or the Transferor becomes unable for any reason to
transfer Receivables to the Trust in accordance with the provisions of this
Agreement; or
(c) the Trust becomes subject to regulation by the Securities
and Exchange Commission as an "investment company" within the meaning of the
Investment Company Act.
If a Trust Pay Out Event occurs, a Pay Out Event with respect to all Series of
Certificates shall immediately occur without any notice or other action on the
part of the Trustee or the Investor Certificateholders. Upon receipt by the
Trustee of a written notice that a Pay Out Event has occurred, the Trustee will
notify each Rating Agency of such occurrence.
Section 9.02. Additional Rights Upon the Occurrence of Certain
Events. (a) If an Insolvency Event occurs, the Transferor shall on the day of
such Insolvency Event (the "Appointment Day") immediately cease to transfer
Principal Receivables to the Trust and shall promptly give notice to the Trustee
of such Insolvency Event. Notwithstanding any cessation of the transfer to the
Trust of additional Principal Receivables, Finance Charge Receivables, whenever
created, accrued in respect of Principal Receivables which have been transferred
to the Trust shall continue to be a part of the Trust, and Collections with
respect thereto shall continue to be allocated and paid in accordance with
Article IV.
Within 15 days of the Appointment Day, the Trustee may (i)
publish a notice in an Authorized Newspaper that an Insolvency Event has
occurred and that the Trustee intends to sell, dispose of or otherwise liquidate
the Receivables in a commercially reasonable manner and (ii) send written notice
to the Investor Certificateholders describing the provisions of this Section
9.02 and
-60-
<PAGE>
requesting instructions from such Holders. Unless, within 90 days from the day
notice pursuant to clause (i) above is first published, the Trustee shall have
received written instructions from Holders of Investor Certificates evidencing
more than 50% of each Class of the Investor Interest of each Series issued and
outstanding to the effect that such Certificateholders disapprove of the
liquidation of the Receivables and wish to continue having Principal Receivables
transferred to the Trust as before such Insolvency Event, the Trust shall
terminate and the Trustee shall sell, dispose of or otherwise liquidate the
Receivables in a commercially reasonable manner and on commercially reasonable
terms, which shall include the solicitation of competitive bids, and terminate
the Trust. The Trustee may obtain a prior determination from any conservator,
receiver or liquidator of the Transferor that the terms and manner of any
proposed sale, disposition or liquidation are commercially reasonable. The
provisions of Sections 9.01 and 9.02 shall not be deemed to be mutually
exclusive.
(b) Notwithstanding the termination of the Trust in accordance
with subsection 9.02(a), the rights of the Certificateholders to amounts due
hereunder shall continue until payment in full of such amounts. The proceeds
from the sale, disposition or liquidation of the Receivables pursuant to
subsection (a) above shall be treated as Collections on the Receivables and
shall be allocated and deposited in accordance with the provisions of Article
IV; provided, that the Trustee shall determine conclusively in its sole
discretion the amount of such proceeds which are allocable to Finance Charge
Receivables and the amount of such proceeds which are allocable to Principal
Receivables.
(c) The Trustee may appoint an agent or agents to assist with
its responsibilities pursuant to this Article IX with respect to competitive
bids.
ARTICLE X
MASTER SERVICER DEFAULTS
Section 10.01. Master Servicer Defaults. Subject to the last
paragraph of this Section 10.01, a "Master Servicer Default" shall exist if any
one of the following exists:
(a) the Master Servicer fails to make any payment, transfer or
deposit or to give instructions or notice to the Trustee pursuant to Article IV
or to instruct the Trustee to make any required drawing, withdrawal, or payment
under any Enhancement on or before the later of (i) the fifth Business Day after
the date such payment, transfer, deposit, withdrawal or drawing or such
instruction or notice is required to be made or given, as the case may be, under
the terms of this Agreement, or (ii) the third Business Day after written notice
of such failure shall have been given to the Master Servicer,
(b) the Master Servicer fails duly to observe or perform in
any respect any other covenants or agreements of the Master Servicer set forth
in this Agreement, which failure has a material adverse effect on the Investor
Certificateholders of any Series and continues unremedied for a period of 60
days after the date on which written notice of such failure, requiring the same
to be remedied, is given to the Master Servicer by the Trustee, or to the Master
Servicer and the Trustee by the Holders of Investor Certificates evidencing
Undivided Interests aggregating not less than 50% of the Investor
-61-
<PAGE>
Interest of any Series adversely affected thereby and continues to materially
adversely affect such Investor Certificateholders for such period; or the Master
Servicer shall delegate its duties under this Agreement, except as permitted by
Sections 3.09 and 8.07;
(c) any representation, warranty or certification made by the
Master Servicer in this Agreement or in any certificate delivered pursuant to
this Agreement shall prove to have been incorrect when made, which has a
material adverse effect on the Investor Certificateholders of any Series and
which continues to be incorrect in any material respect for a period of 60 days
after the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Master Servicer by the Trustee, or to the
Master Servicer and the Trustee by the Holders of Investor Certificates
evidencing Undivided Interests aggregating not less than 50% of the Investor
Interest of any Series adversely affected thereby and continues to materially
adversely affect such Investor Certificateholders for such period; or
(d) the Master Servicer consents to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Master Servicer or of or relating to all or substantially all of its
property; or a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Master Servicer,
and such decree or order shall have remained in force undischarged or unstayed
for a period of 60 days; or the Master Servicer admits in writing its inability
to pay its debts generally as they become due, files a petition to take
advantage of any applicable insolvency or reorganization statute, makes any
assignment for the benefit of its creditors or voluntarily suspends payment of
its obligations;
then, so long as such Master Servicer Default shall not have been remedied or
waived, either the Trustee, or the Holders of Investor Certificates evidencing
Undivided Interests aggregating more than 50% of the Aggregate Investor
Interest, by notice given in writing to the Master Servicer (and to the Trustee
if given by the Investor Certificateholders) (a "Termination Notice"), may
terminate all of the rights and obligations (other than unsatisfied obligations
for acts or omissions during its tenure as Master Servicer) of the Master
Servicer as Master Servicer under this Agreement. After receipt by the Master
Servicer of such Termination Notice, and on the date that a Successor Master
Servicer shall have been appointed by the Trustee pursuant to Section 10.02, all
authority and power of the Master Servicer under this Agreement shall pass to
and be vested in a Successor Master Servicer; and, without limitation, the
Trustee is hereby authorized and empowered (upon the failure of the Master
Servicer to cooperate) to execute and deliver, on behalf of the Master Servicer,
as attorney-in-fact or otherwise, all documents and other instruments upon the
failure of the Master Servicer to execute or deliver such documents or
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of such transfer of servicing rights and
obligations.
The Master Servicer agrees to cooperate with the Trustee and
such Successor Master Servicer in effecting the termination of the
responsibilities and rights of the Master Servicer to conduct servicing
hereunder, including, without limitation, the transfer to such Successor Master
Servicer of all
-62-
<PAGE>
authority of the Master Servicer to service the Receivables provided for under
this Agreement, including, without limitation, all authority over all
Collections which shall on the date of transfer be held by the Master Servicer
for deposit, or which have been deposited by the Master Servicer, in any
Investor Account and any Series Account, or which shall thereafter be received
with respect to the Receivables, and in assisting the Successor Master Servicer
and in enforcing all rights to Insurance Proceeds applicable to the Trust. The
Master Servicer shall promptly transfer its electronic records or electronic
copies thereof relating to the Receivables to the Successor Master Servicer in
such electronic form as the Successor Master Servicer may reasonably request and
shall promptly transfer to the Successor Master Servicer all other records,
correspondence and documents necessary for the continued servicing of the
Receivables in the manner and at such times as the Successor Master Servicer
shall reasonably request. To the extent that compliance with this Section 10.01
shall require the Master Servicer to disclose to the Successor Master Servicer
information of any kind which the Master Servicer reasonably deems to be
confidential, the Successor Master Servicer shall be required to enter into such
customary licensing and confidentiality agreements as the Master Servicer shall
deem necessary to protect its interests. The Master Servicer shall, on the date
of any servicing transfer, transfer all of its rights and obligations under the
Enhancement with respect to any Series to the Successor Master Servicer. The
Master Servicer being terminated shall bear all costs of a Service Transfer,
including but not limited to those of the Trustee reasonably allocable to
specific employees and overhead, legal fees and expenses, accounting and
financial consulting fees and expenses, and costs of amending the Agreement, if
necessary.
Notwithstanding the foregoing, a delay in or failure of
performance referred to in subsection 10.01(a) for a period of five Business
Days or under subsection 10.01(b) or (c) for a period of 60 Business Days, shall
not constitute a Master Servicer Default if such delay or failure could not be
prevented by the exercise of reasonable diligence by the Master Servicer and
such delay or failure was caused by an act of God or the public enemy, acts of
declared or undeclared war, public disorder, rebellion, riot or sabotage,
epidemics, landslides, lightning, fire, hurricanes, tornadoes, earthquakes,
nuclear disasters or meltdowns, floods, power outages or similar causes. The
preceding sentence shall not relieve the Master Servicer from using its best
efforts to perform its obligations in a timely manner in accordance with the
terms of this Agreement and the Master Servicer shall provide the Trustee, any
Enhancement Provider, the Transferor and the Holders of Investor Certificates
with an Officer's Certificate giving prompt notice of such failure or delay by
it, together with a description of the cause of such failure or delay and its
efforts so to perform its obligations.
Section 10.02. Trustee To Act; Appointment of Successor. (a)
After receipt by the Master Servicer of a Termination Notice pursuant to Section
10.01, the Master Servicer shall continue to perform all servicing functions
under this Agreement until the date specified in the Termination Notice or
otherwise specified by the Trustee in writing or, if no such date is specified
in such Termination Notice, or otherwise specified by the Trustee, until a date
mutually agreed upon by the Master Servicer and Trustee. The Trustee shall
notify each Rating Agency of removal of the Master Servicer.
The Trustee shall, as promptly as possible after the giving of
a Termination Notice, appoint a Successor Master Servicer, and such Successor
Master Servicer shall accept its appointment
-63-
<PAGE>
by a written assumption in a form acceptable to the Trustee. The Trustee may
obtain bids from any potential successor master servicers. If a Successor Master
Servicer has not been appointed and has not accepted its appointment at the time
when the Master Servicer ceases to act as Master Servicer, the Trustee without
further action shall automatically be appointed the Successor Master Servicer.
Notwithstanding the above, the Trustee shall, if it is unable legally so to act,
petition a court of competent jurisdiction to appoint any established financial
institution having, in the case of an entity that is subject to risk-based
capital adequacy requirements, risk-based capital of at least $50,000,000 or, in
the case of an entity that is not subject to risk-based capital requirements,
having a net worth of not less than $50,000,000 and whose regular business
includes the servicing of credit card receivables as the Successor Master
Servicer hereunder.
(b) Upon its appointment, the Successor Master Servicer shall
be the successor in all respects to the Master Servicer with respect to
servicing functions under this Agreement and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Master
Servicer by the terms and provisions hereof, and all references in this
Agreement to the Master Servicer shall be deemed to refer to the Successor
Master Servicer. Any Successor Master Servicer, by its acceptance of its
appointment, will automatically agree to be bound by the terms and provisions of
each Enhancement. Notwithstanding the above, or anything in this Section 10.02
to the contrary, the Trustee, if it becomes Master Servicer pursuant to this
Section, shall have no responsibility or obligation (i) to repurchase or
substitute any Account or Receivable, (ii) for any representation or warranty of
the Master Servicer hereunder, and (iii) for any act or omission of either a
predecessor or successor Master Servicer other than the Trustee. The Trustee may
conduct any activity required of it as Master Servicer hereunder through an
Affiliate or through an agent. Neither the Trustee nor any other successor
Master Servicer shall be deemed to be in default hereunder due to any act or
omission of a predecessor Master Servicer, including but not limited to failure
to timely deliver to the Trustee any Monthly Master Servicer's Certificate or
any funds required to be deposited to the Trust Fund, or any breach of its duty
to cooperate with a transfer of servicing as required by Section 10.01.
(c) In connection with such appointment and assumption, the
Trustee shall be entitled to such compensation, or may make such arrangements
for the compensation of the Successor Master Servicer out of Collections, as it
and such Successor Master Servicer shall agree; provided, however, that no such
compensation shall be in excess of the Monthly Servicing Fee permitted to the
Master Servicer pursuant to Section 3.02. The Transferor agrees that if the
Master Servicer is terminated hereunder, it will agree to deposit a portion of
the Collections in respect of Finance Charge Receivables that it is entitled to
receive pursuant to Article IV to pay its share of the compensation of the
Successor Master Servicer.
(d) All authority and power granted to the Successor Master
Servicer under this Agreement shall automatically cease and terminate upon
termination of the Trust pursuant to Section 12.01 and shall pass to and be
vested in the Transferor and, without limitation, the Transferor is hereby
authorized and empowered to execute and deliver, on behalf of the Successor
Master Servicer, as attorney-in-fact or otherwise, all documents and other
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of such transfer of servicing rights. The
-64-
<PAGE>
Successor Master Servicer agrees to cooperate with the Transferor in effecting
the termination of the responsibilities and rights of the Successor Master
Servicer to conduct servicing on the Receivables. The Successor Master Servicer
shall transfer its electronic records relating to the Receivables to the
Transferor in such electronic form as the Transferor may reasonably request and
shall transfer all other records, correspondence and documents to the Transferor
in the manner and at such times as the Transferor shall reasonably request. To
the extent that compliance with this Section 10.02 shall require the Successor
Master Servicer to disclose to the Transferor information of any kind which the
Successor Master Servicer deems to be confidential, the Transferor shall be
required to enter into such customary licensing and confidentiality agreements
as the Successor Master Servicer shall reasonably deem necessary to protect its
interests.
(e) Nothing in this Agreement shall be construed to require
any Successor Master Servicer to assume or succeed to any duty or obligation of
the Transferor.
Section 10.03. Inability To Obtain Successor Master Servicer;
Sale of Receivables. If (a) the Trustee is unable to obtain a bid from any
potential successor master servicer, (b) the Master Servicer delivers an
Officer's Certificate to the effect that it cannot in good faith cure the Master
Servicer Default which gave rise to the Termination Notices, and (c) the Trustee
is unable legally to act as Successor Master Servicer, then the Trustee shall
give written notice to each Enhancement Provider. Such notice shall state that
the Trustee proposes to sell the Receivables and shall provide each such
Enhancement Provider an opportunity to bid on the Receivables and shall offer
the Transferor the right of first refusal to purchase the Receivables on terms
equivalent to the best purchase offer as determined by the Trustee, but in no
event less than an amount equal to the Aggregate Investor Interest on the date
of such purchase plus all interest accrued but unpaid on all of the outstanding
Investor Certificates at the applicable Certificate Rate through the date of
such purchase; provided, however, that if the short-term unsecured debt
obligations or long-term unsecured debt obligations of Dillard's are not rated
at the time of such purchase at least P-3 or Baa-3, respectively, by Moody's, no
such purchase by the Transferor shall occur unless the Transferor shall deliver
an Opinion of Counsel reasonably acceptable to the Trustee that such purchase
would not constitute a fraudulent conveyance of the Transferor.
The proceeds of such sale shall be deposited in the
Distribution Account or any Series Account, as provided in the related
Supplement, for distribution to the Investor Certificateholders of each
outstanding Series pursuant to Section 12.03 of this Agreement.
Section 10.04. Notification to Certificateholders. Within two
Business Days after the Master Servicer becomes aware of any Master Servicer
Default, the Master Servicer shall give prompt written notice thereof to the
Transferor, the Trustee and any Enhancement Provider and the Trustee shall give
notice to the Investor Certificateholders at their respective addresses
appearing in the Certificate Register. Upon any termination or appointment of a
Successor Master Servicer pursuant to this Article X, the Trustee shall give
prompt written notice thereof to Investor Certificateholders at their respective
addresses appearing in the Certificate Register.
-65-
<PAGE>
Section 10.05 Waiver of Past Defaults. The Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than 66 2/3% of
the Investor Interest of each Series adversely affected by any default by the
Master Servicer or Transferor may, on behalf of all Certificateholders of such
Series, waive any default (whether or not a Master Servicer Default) by the
Master Servicer or Transferor in the performance of its obligations hereunder
and its consequences, except a default in the failure to make any required
deposits or payments of interest or principal relating to such Series pursuant
to Article IV which default does not result from the failure of the Paying Agent
to perform its obligations to make any required deposits or payments of interest
and principal in accordance with Article IV. Upon any such waiver of a past
default, such default shall cease to exist, and any default arising therefrom
shall be deemed to have been remedied for every purpose of this Agreement. No
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon except to the extent expressly so waived.
ARTICLE XI
THE TRUSTEE
Section 11.01. Duties of Trustee. (a) The Trustee, prior to
the occurrence of any Master Servicer Default and after the curing or waiving of
all Master Servicer Defaults which may have occurred, undertakes to perform such
duties and only such duties as are specifically set forth in this Agreement. If
a Responsible Officer has received written notice that a Master Servicer Default
has occurred (which has not been cured or waived), the Trustee shall exercise
such of the rights and powers vested in it by this Agreement, and use the same
degree of care and skill in its exercise, as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs;
provided, however, that if the Trustee is acting as Successor Master Servicer,
it shall in such capacity use the same standard of care and skill as are
required of the Master Servicer under this Agreement; and provided further, that
for purposes of determining the standard of care required of the Trustee under
this subsection 11.01(a), the appointment of a Successor Trustee shall be deemed
a cure of the Master Servicer Default which occasioned such appointment.
(b) The Trustee, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Trustee which are specifically required to be
furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they substantially conform on their face to the requirements
of this Agreement, but shall not be required to verify the accuracy of the
contents thereof or to verify any calculations contained therein.
(c) Subject to subsection 11.01(a), no provision of this
Agreement shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct; provided, however, that:
(i) the Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
-66-
<PAGE>
(ii) the Trustee shall not be charged with knowledge
of any failure by the Master Servicer referred to in clauses (a) and (b) of
Section 10.01 unless a Responsible Officer of the Trustee obtains actual
knowledge of such failure or the Trustee receives written notice of such failure
from the Master Servicer or any Holders of Investor Certificates evidencing
Undivided Interests aggregating not less than 10% of the Investor Interest of
any Series adversely affected thereby.
(d) The Trustee shall not be required to expend or risk its
own funds or otherwise incur financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if
there is reasonable ground for believing that the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it, and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations under this Agreement of the Transferor at any time or
of the Master Servicer except during such time, if any, as the Trustee shall be
the Successor Master Servicer.
(e) Except for actions expressly authorized by this Agreement,
the Trustee shall take no action reasonably likely to impair the interests of
the Trust in any Receivable now existing or hereafter created or to impair the
value of any Receivable now existing or hereafter created.
(f) Except as provided in this subsection 11.01(f), the
Trustee shall have no power to vary the corpus of the Trust including, without
limitation, the power to (i) accept any substitute obligation for a Receivable
initially assigned to the Trust under Section 2.01 or 2.06 hereof, (ii) add any
other investment, obligation or security to the Trust, except for an addition
permitted under Section 2.06 or (iii) withdraw from the Trust any Receivables,
except for a withdrawal permitted under Sections 2.07, 9.02, 10,02, 12.01 or
12.02 or subsections 2.04(d), 2.04(e) or Article IV.
(g) If the Paying Agent or the Transfer Agent and Registrar
shall fail to perform any obligation, duty or agreement in the manner or on the
day required to be performed by the Paying Agent or the Transfer Agent and
Registrar, as the case may be, under this Agreement, the Trustee shall be
obligated promptly to perform such obligation, duty or agreement in the manner
so required, but shall not be obligated to expend its own funds in so
performing.
(h) If the Transferor has agreed to transfer any of its credit
card receivables (other than the Receivables) to another Person, upon the
written request of the Transferor the Trustee will enter into such intercreditor
agreements with the transferee of such receivables as are customary and
necessary to identify separately the rights, if any, of the Trust and such other
Person in the Transferor's credit card receivables; provided, that the Trustee
shall not be required to enter into any intercreditor agreement which could
adversely affect the interests of the Certificateholders. Upon the request of
the Trustee, the Transferor will deliver an Opinion of Counsel on any matters
relating to such intercreditor agreement, reasonably requested by the Trustee.
(i) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Holders of Investor Certificates evidencing
Undivided Interests aggregating more than 50% of the Investor Interest
-67-
<PAGE>
of any Series relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee in relation to such Series, under this
Agreement.
Section 11.02. Certain Matters Affecting the Trustee. Except
as otherwise provided in Section 1.1.01:
(a) the Trustee may rely on and shall be protected in acting
on, or in refraining from acting in accord with, any assignment of Receivables
in Additional Accounts, the initial report, the Monthly Master Servicer's
Certificates, the Annual Master Servicer's Certificates, the monthly payment
instructions and notification to the Trustee, the monthly Certificateholder's
statements, any resolution, Officer's Certificate, certificate of auditors or
any other certificate, statement, instrument, opinions report, notice, request,
consent, order, appraisal, bond or other paper or document believed by it to be
genuine and to have been signed or presented to it pursuant to this Agreement by
the proper party or parties;
(b) the Trustee may consult with counsel, and any Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it hereunder in good faith and in
accordance with such Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement or any Enhancement, or to
institute, conduct or defend any litigation hereunder or in relation hereto, at
the request, order or direction of any of the Certificateholders or any
Enhancement Provider, pursuant to the provisions of this Agreement, unless such
Certificateholders or Enhancement Provider shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligations, upon the occurrence of any
Master Servicer Default (which has not been cured or waived), to exercise such
of the rights and powers vested in it by this Agreement and any Enhancement, and
to use the same degree of care and skill in its exercise as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs;
(d) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Agreement;
(e) the Trustee shall not be bound to make any investigation
into the facts of matters stated or computations contained in any assignment of
Receivables in Additional Accounts, the initial report, the Monthly Master
Servicer's Certificate, the Annual Master Servicer's Certificate, the monthly
payment instructions and notification to the Trustee, the monthly
Certificateholder's statement, any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing so to do by Holders of
Investor Certificates evidencing undivided interests aggregating more than 50%
of the Investor Interest of any Series which could be adversely affected if the
Trustee does not perform such acts;
-68-
<PAGE>
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian, and the Trustee shall not be responsible for
any misconduct or negligence on the part of any such agent, attorney or
custodian appointed by it with due care and in accordance with the terms of this
Agreement; and
(g) except as may be required by subsection 11.01(a), the
Trustee shall not be required to make any initial or periodic examinations of
any documents or records related to the Receivables or the Accounts for the
purpose of establishing the presence or absence of defects, the compliance by
the Transferor with its representations and warranties or for any other purpose.
Section 11.03. Trustee Not Liable for Recitals in
Certificates. The Trustee assumes no responsibility for the correctness of the
recitals contained herein and in the Certificates (other than the certificate of
authentication on the Certificates). Except as set forth in Section 11.15, the
Trustee makes no representations as to the validity or sufficiency of this
Agreement or of the Certificates (other than the certificate of authentication
on the Certificates) or of any Receivable or related document. The Trustee shall
not be accountable for the use or application by the Transferor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Transferor in respect of the Receivables or
deposited in or withdrawn from the Collection Account, the Principal Account or
the Finance Charge Account, or any Series Account by the Master Servicer.
Section 11.04. Trustee Ownership of Certificates. The Trustee
may in its individual capacity, and in a fiduciary capacity, become the owner or
pledgee of Investor Certificates, and the Trustee may transact banking business
with the Transferor or the Master Servicer, in each case with the same rights as
it would have if it were not the Trustee.
Section 11.05. The Master Servicer To Pay Trustee's Fees and
Expenses and Trust Expenses. The Master Servicer covenants and agrees to pay to
the Trustee from time to time, and the Trustee shall be entitled to receive
reasonable compensation (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) for all services
rendered by it in the execution of the Trust hereby created and in the exercise
and performance of any of the powers and duties hereunder of the Trustee, and,
subject to Section 8.04, the Master Servicer will pay or reimburse the Trustee
(without reimbursement from any Investor Account, any Series Account or
otherwise) upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee or the Trust in accordance with any of
the provisions of this Agreement except any such expense, disbursement or
advance as may arise from its own negligence or bad faith and except as provided
in the following sentence. If the Trustee is appointed Successor Master Servicer
pursuant to Section 10.02, the provisions of this Section 11.05 shall not apply
to expenses, disbursements and advances made or incurred by the Trustee in its
capacity as Successor Master Servicer.
The obligations of the Master Servicer under this Section
11.05 shall survive the termination of the Trust and the resignation or removal
of the Trustee.
Section 11.06. Eligibility Requirements for Trustee. The
Trustee hereunder shall at all times be a corporation organized and doing
business under the laws of the United States of
-69-
<PAGE>
America or any state thereof authorized under such laws to exercise corporate
trust powers, having a long-term unsecured debt rating of at least Baa3 by
Moody's and BBB by Standard & Poor's having, in the case of an entity that is
subject to risk-based capital adequacy requirements, risk-based capital of at
least $50,000,000 or, in the case of an entity that is not subject to risk-based
capital adequacy requirements, having a combination capital and surplus of at
least $50,000,000 and subject to supervision or examination by federal or state
authority. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section 11.06, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 11.06, the Trustee shall resign immediately in the
manner and with the effect specified in Section 11.07.
Section 11.07. Resignation or Removal of Trustee. (a) The
Trustee may at any time resign and be discharged from the Trust hereby created
by giving written notice thereof to the Master Servicer and the Transferor. Upon
receiving such notice of resignation, the Transferor shall promptly appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee; provided, however, no successor trustee may be appointed
without the prior written consent of the Master Servicer. If no successor
trustee shall have been so appointed and have accepted within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 11.06 hereof and shall fail to resign
after written request therefor by the Transferor, or if at any time the Trustee
shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or
a receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Transferor may, but shall not be required to, remove the Trustee and promptly
appoint a successor trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee; provided, however, no successor trustee may be appointed
without the prior written consent of the Master Servicer.
(c) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 11.07
shall not become effective until acceptance of appointment by the successor
trustee as provided in Section 11.08 hereof and any liability of the Trustee
arising hereunder shall survive such appointment of a successor trustee.
Section 11.08. Successor Trustee. (a) Any successor trustee
appointed as provided in Section 11.07 hereof shall execute, acknowledge and
deliver to the Transferor, the Master Servicer and to its predecessor Trustee an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the predecessor Trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties
-70-
<PAGE>
and obligations of its predecessor hereunder, with the like effect as if
originally named as Trustee herein. The predecessor Trustee shall deliver to the
successor trustee all documents and statements held by it hereunder, and the
Transferor and the predecessor Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for fully and
certainly vesting and confirming in the successor trustee all such rights,
powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided
in this Section 11.08 unless at the time of such acceptance such successor
trustee shall be eligible under the provisions of Section 11.06 hereof.
(c) Upon acceptance of appointment by a successor trustee as
provided in this Section 11.08, such successor trustee shall mail notice of such
succession hereunder to all Certificateholders at their addresses as shown in
the Certificate Register.
Section 11.09. Merger or Consolidation of Trustee. Any Person
into which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
all or substantially all of the corporate trust business of the Trustee, shall
be the successor of the Trustee hereunder, provided such corporation shall be
eligible under the provisions of Section 11.06 hereof, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
Section 11.10. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust may at the time be located, the Trustee shall have the power and
may execute and deliver all instruments to appoint one or more Persons to act as
a co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Certificateholders, such title to the Trust, or any
part thereof, and, subject to the other provisions of this Section 11.10, such
powers, duties, obligations, rights and trusts as the Trustee may consider
necessary or desirable. No co-trustee or separate trustee hereunder shall be
required to meet the terms of eligibility as a successor trustee under Section
11.06 and no notice to Certificateholders of the appointment of any co-trustee
or separate trustee shall be required under Section 11.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act), except to
the extent that under any laws of any jurisdiction in which any particular act
or acts are to be performed (whether as Trustee hereunder or as successor to the
Master Servicer hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations
-71-
<PAGE>
(including the holding of title to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate trustee
or co-trustee, but solely at the direction of the Trustee;
(ii) no trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article XI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee and a
copy thereof given to the Master Servicer.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect to this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 11.11. Tax Returns. If the Transferor receives a
directive or order from a Governmental Authority pursuant to Section 3.07 that
the Trust shall be required to file tax returns, the Transferor, as soon as
practicable after it is made aware of such requirement, shall prepare or cause
to be prepared any tax returns required to be filed by the Trust and, to the
extent possible, shall file such returns at least five days before such returns
are due to be filed. The Transferor is hereby authorized to sign any such return
on behalf of the Trust. The Master Servicer shall prepare or shall cause to be
prepared all tax information required by law to be distributed to
Certificateholders and shall deliver such information to the Trustee at least
five days prior to the date it is required by law to be distributed to
Certificateholders. The Master Servicer, upon request, will furnish the
Transferor with all such information known to the Master Servicer as may be
reasonably required in connection with the preparation of all tax returns of the
Trust. In no event shall the Trustee or the Master Servicer be liable for any
liabilities, costs or expenses of the Trust, the Investor Certificateholders or
the Certificate Owners arising under any tax law, including, without limitation,
federal, state, local or foreign income or excise taxes or any other tax imposed
on or measured by income (or any interest or penalty with respect thereto or
arising from a failure to comply therewith).
-72-
<PAGE>
Section 11.12. Trustee May Enforce Claims Without Possession
of Certificates. All rights of action and claims under this Agreement or any
Series of Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee. Any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of any Series of Certificateholders in respect of which such
judgment has been obtained.
Section 11.13. Suits for Enforcement. If a Master Servicer
Default shall occur and be continuing, the Trustee, in its discretion may,
subject to the provisions of Section 10.01, proceed to protect and enforce its
rights and the rights of any Series of Certificateholders under this Agreement
by a suit, action or proceeding in equity or at law or otherwise, whether for
the specific performance of any covenant or agreement contained in this
Agreement or in aid of the execution of any power granted in this Agreement or
for the enforcement of any other legal, equitable or other remedy as the
Trustee, being advised by counsel, shall deem most effectual to protect and
enforce any of the rights of the Trustee or any Series of Certificateholders.
Section 11.14. Rights of Certificateholders To Direct Trustee.
Holders of Investor Certificates evidencing Undivided Interests aggregating more
than 50% of the Aggregate Investor Interest (or, with respect to any remedy,
trust or power that does not relate to all Series, 50% of the aggregate Investor
Interest of the Investor Certificates of all Series to which such remedy, trust
or power relates) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee; provided, however, that, subject to
Section 11.01, the Trustee shall have the right to decline to follow any such
direction if the Trustee being advised by counsel determines that the action so
directed may not lawfully be taken, or if the Trustee in good faith shall, by a
Responsible Officer or Responsible Officers of the Trustee, determine that the
proceedings so directed would be illegal or involve it in personal liability or
be unduly prejudicial to the rights of Certificateholders not parties to such
direction; and, provided further, that nothing in this Agreement shall impair
the right of the Trustee to take any action deemed proper by the Trustee and
which is not inconsistent with such direction of such Holders of Investor
Certificates.
Section 11.15. Representations and Warranties of Trustee. The
Trustee represents and warrants that:
(a) the Trustee is a New York banking corporation with trust
powers and is organized, existing and authorized to engage in the business of
banking under the laws of the State of New York;
(b) the Trustee has full power, authority and right to
execute, deliver and perform this Agreement, and has taken all necessary action
to authorize the execution, delivery and performance by it of this Agreement;
and
(c) this Agreement has been duly executed and delivered by the
Trustee.
-73-
<PAGE>
Section 11.16. Maintenance of Office or Agency. If required by
any Supplement, the Trustee will maintain at its expense in the Borough of
Manhattan, the City of New York an office or offices, or agency or agencies,
where notices and demands to or upon the Trustee in respect of the Certificates
and this Agreement may be served. The Trustee will give prompt written notice to
the Master Servicer and to Certificateholders (or in the case of Holders of
Bearer Certificates in the manner provided for in the related Supplement) of any
change in the location of the Certificate Register or any such office or agency.
ARTICLE XII
TERMINATION
Section 12.01. Termination of Trust. (a) The respective
obligations and responsibilities of the Transferor, the Master Servicer and the
Trustee created hereby (other than the obligation of the Trustee to make
payments to Certificateholders as hereafter set forth) shall terminate, except
with respect to the duties described in Section 11.05 and subsection 12.03(b),
on the Trust Termination Date; provided, however, that the Trust shall not
terminate on the date specified in clause (i) of the definition of "Trust
Termination Date" if each of the Master Servicer and the Holder of the
Exchangeable Transferor Certificate notify the Trustee in writing, not later
than five Business Days preceding such date, that they desire that the Trust not
terminate on such date, which notice (such notice, a "Trust Extension") shall
specify the date on which the Trust shall terminate (such date, the "Extended
Trust Termination Date"); provided, however, that the Extended Trust Termination
Date shall be not later than July 15, 2021. The Master Servicer and the Holder
of the Exchangeable Transferor Certificate may, on any date following the Trust
Extension, so long as no Series of Certificates is outstanding, deliver a notice
in writing to the Trustee changing the Extended Trust Termination Date.
(b) If (i) the Trust has not terminated by the last
Distribution Date occurring in the second month preceding the Trust Termination
Date, and (ii) the Investor Interest of any Series (after giving effect to all
transfers, withdrawals, deposits and drawings to occur on such date and the
payment of principal on any Series of Certificates to be made on the related
Distribution Date during such month pursuant to Article IV) would be greater
than zero, the Master Servicer shall sell within 30 days after such Transfer
Date all the Receivables. The Master Servicer shall notify each Enhancement
Provider of the proposed sale of the Receivables and shall provide each
Enhancement Provider an opportunity to bid on the Receivables. The Transferor
shall have the right of first refusal to purchase the Receivables on terms
equivalent to the best purchase offer as determined by the Trustee in its sole
discretion. The proceeds of any such sale shall be treated as Collections on the
Receivables and shall be allocated and deposited in accordance with Article IV;
provided, however, that the Trustee shall determine conclusively in its sole
discretion the amount of such proceeds which are allocable to Finance Charge
Receivables and the amount of such proceeds which are allocable to Principal
Receivables. During such 30-day period, the Master Servicer shall continue to
collect payments on the Receivables and allocate and deposit such payments in
accordance with the provisions of Article IV.
-74-
<PAGE>
(c) All principal or interest with respect to any Series of
Investor Certificates shall be due and payable no later than the Series
Termination Date with respect to such Series. Unless otherwise provided in a
Supplement, if the Investor Interest of any Series of Certificates is greater
than zero on its Series Termination Date (after giving effect to all transfers,
withdrawals, deposits and drawings to occur on such date and the payment of
principal to be made on such Series on such date), the Trustee will sell or
cause to be sold, and pay the proceeds to all Certificateholders of such Series
pro rata in final payment of all principal of and accrued interest on such
Series of Certificates, an amount of Principal Receivables and the related
Finance Charge Receivables (or interests therein) up to 110% of the Investor
Interest of such Series at the close of business on such date (but not more than
the applicable Investor Percentage of Principal Receivables and the related
Finance Charge Receivables on such date for such Series). The Trustee shall
notify each Enhancement Provider of the proposed sale of such Receivables and
shall provide each Enhancement Provider an opportunity to bid on such
Receivables. The Transferor shall be permitted to purchase such Receivables in
such case and shall have a right of first refusal with respect thereto. Any
proceeds of such sale in excess of such principal and interest paid to the
Certificateholders of such Series shall be paid to the Holder of the
Exchangeable Transferor Certificate. Upon such Series Termination Date with
respect to the applicable Series of Certificates, final payment of all amounts
allocable to any Investor Certificates of such Series shall be made in the
manner provided in Section 12.03.
Section 12.02. Optional Purchase. (a) If so provided in any
Supplement, the Transferor may, but shall not be obligated to, cause a final
distribution to be made in respect of the related Series of Certificates on a
Distribution Date specified in such Supplement by depositing into the
Distribution Account or the applicable Series Account, not later than the
Transfer Date preceding such Distribution Date, for application in accordance
with Section 12.03, the amount specified in such Supplement; provided, however,
that if the short-term unsecured debt obligations or long-term unsecured debt
obligations of Dillard's are not rated at the time of such purchase of
Receivables at least P-3 or Baa3, respectively, by Moody's, no such event shall
occur unless the Transferor shall deliver an Opinion of Counsel reasonably
acceptable to the Trustee that such deposit into the Distribution Account or any
Series Account as provided in the related Supplement would not constitute a
fraudulent conveyance by the Transferor.
(b) The amount deposited pursuant to subsection 12.02(a) shall
be paid to the Investor Certificateholders of the related Series pursuant to
Section 12.03 on the related Distribution Date following the date of such
deposit. All Certificates of a Series which are purchased by the Transferor
pursuant to subsection 12.02(a) shall be delivered by the Transferor upon such
purchase to, and be canceled by, the Transfer Agent and Registrar and be
disposed of in a manner satisfactory to the Trustee and the Transferor. The
Investor Interest of each Series which is purchased by the Transferor pursuant
to subsection 12.02(a) shall, for the purposes of the definition of "Transferor
Interest", be deemed to be equal to zero on the Distribution Date following the
making of the deposit, and the Transferor Interest shall thereupon be deemed to
have been increased by the Investor Interest of such Series.
-75-
<PAGE>
Section 12.03. Final Payment With Respect to Any Series. (a)
Written notice of any termination specifying the Distribution Date upon which
the Investor Certificateholders of any Series may surrender their Certificates
for payment of the final distribution with respect to such Series and
cancellation, shall be given (subject to at least two Business Days' prior
notice from the Master Servicer to the Trustee) by the Trustee to Investor
Certificateholders of such Series mailed not later than the fifth day of the
month of such final distribution (or in the manner provided by the Supplement
relating to such Series) specifying:
(i) the Distribution Date (which shall be the
Distribution Date in the month (A) in which the deposit is made pursuant to
subsection 2.04(d), 9.02(b), 10.02(c) or subsection 12.02(a) of this Agreement
or such other Section as may be specified in the related Supplement or (B) in
which the related Series Termination Date occurs) upon which final payment of
such Investor Certificates will be made upon presentation and surrender of such
Investor Certificates at the office or offices therein designated (which, in the
case of Bearer Certificates, shall be outside the United States),
(ii) the amount of any such final payment, and
(iii) that the Record Date otherwise applicable to
such Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Investor Certificates at the office or offices
therein specified.
The Master Servicer's notice to the Trustee in accordance with the preceding
sentence shall be accompanied by an Officer's Certificate setting forth the
information specified in Article V of this Agreement covering the period during
the then current calendar year through the date of such notice and setting forth
the date of such final distribution. The Trustee shall give such notice to the
Transfer Agent and Registrar and the Paying Agent at the time such notice is
given to such Investor Certificateholders.
(b) Notwithstanding the termination of the Trust pursuant to
subsection 12.01(a) or the occurrence of the Series Termination Date with
respect to any Series, all funds then on deposit in the Finance Charge Account,
the Principal Account, the Distribution Account or any Series Account applicable
to the related Series shall continue to be held in trust for the benefit of the
Certificateholders of the related Series and the Paying Agent or the Trustee
shall pay such funds to the Certificateholders of the related Series upon
surrender of their Certificates (which surrenders and payments, in the case of
Bearer Certificates, shall be made only outside the United States). In the event
that all of the Investor Certificateholders of any Series shall not surrender
their Certificates for cancellation within six months after the date specified
in the above-mentioned written notice, the Trustee shall give a second written
notice (or, in the case of Bearer Certificates, publication notice) to the
remaining Investor Certificateholders of such Series upon receipt of the
appropriate records from the Transfer Agent and Registrar to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one and one-half years after the second notice with respect
to a Series, all the Investor Certificates of such Series shall not have been
surrendered for cancellation the Trustee may take appropriate steps or may
appoint an agent to take appropriate steps, to contact the remaining Investor
Certificateholders of such Series concerning surrender of their Certificates,
and the cost thereof shall be paid out of the funds in the Distribution Account
or any Series Account held for the benefit of such
-76-
<PAGE>
Investor Certificateholders. The Trustee and the Paying Agent shall pay to the
Transferor upon request any moneys held by them for the payment of principal or
interest which remains unclaimed for two years. After payment to the Transferor,
Investor Certificateholders entitled to the money must look to the Transferor
for payment as general creditors unless an applicable abandoned property law
designates another Person.
(c) All Certificates surrendered for payment of the final
distribution with respect to such Certificates and cancellation shall be
canceled by the Transfer Agent and Registrar and be disposed of in a manner
satisfactory to the Trustee and the Transferor.
Section 12.04. Termination Rights of Holder of Exchangeable
Transferor Certificate. Upon the termination of the Trust pursuant to Section
12.01, and after payment of all amounts due hereunder on or prior to such
termination and the surrender of the Exchangeable Transferor Certificate, the
Trustee shall execute a written reconveyance substantially in the form of
Exhibit H pursuant to which it shall reconvey to the Holder of the Exchangeable
Transferor Certificate (without recourse, representation or warranty) all right,
title and interest of the Trust in the Receivables, whether then existing or
thereafter created, all moneys due or to become due with respect thereto
(including all accrued interest theretofore posted as Finance Charge
Receivables) and all proceeds thereof and Insurance Proceeds relating thereto
allocable to the Trust pursuant to any Supplement, except for amounts held by
the Trustee pursuant to subsection 12.03(b). The Trustee shall execute and
deliver such instruments of transfer and assignment, in each case without
recourse, representation or warranty, as shall be reasonably requested by the
Holder of the Exchangeable Transferor Certificate to vest in such Holder all
right, title and interest which the Trust had in the Receivables.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01. Amendment. (a) This Agreement or any Supplement
may be amended in writing from time to time by the Master Servicer, the
Transferor and the Trustee, without the consent of any of Certificateholders;
provided, that such action shall not, as evidenced by an Opinion of Counsel for
the Transferor addressed and delivered to the Trustee, adversely affect in any
material respect the interests of any Investor Certificateholder; provided,
further, that each Rating Agency shall have notified the Transferor, the Master
Servicer and the Trustee in writing that such action will not result in a
reduction or withdrawal of the rating of any outstanding Series or Class to
which it is a Rating Agency.
(b) This Agreement or any Supplement may also be amended in
writing from time to time by the Master Servicer, the Transferor and the Trustee
with the consent of the Holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 50.1% of the Investor Interest of each
outstanding Series adversely affected by such amendment for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or any Supplement or modifying in any manner the
rights of Investor Certificateholders of any Series then issued and outstanding;
provided, however, that no such amendment shall (i) reduce in any manner the
-77-
<PAGE>
amount of, or delay the timing of, distributions which are required to be made
on any Investor Certificates of such Series without the consent of each Investor
Certificateholder of such Series, (ii) 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 Investor
Certificateholder of such Series or (iii) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of each Investor
Certificateholder of all Series adversely affected. The Trustee may, but shall
not be obligated to, enter into any such amendment which affects the Trustee's
rights, duties or immunities under this Agreement or otherwise.
(c) Notwithstanding anything in this Section 13.01 to the
contrary, the Series Supplement with respect to any Series may be amended on the
items and in accordance with the procedures provided in such Series Supplement.
(d) Promptly after the execution of any such amendment (other
than an amendment pursuant to paragraph (a)), the Trustee shall provide
notification of the substance of such amendment to each Investor
Certificateholder of each Series adversely affected and to each Rating Agency
providing a rating for such Series and any Enhancement Provider for such Series.
(e) It shall not be necessary for the consent of Investor
Certificateholders under this Section 13.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Investor Certificateholders shall
be subject to such reasonable requirements as the Trustee may prescribe.
(f) Any Series Supplement executed and delivered pursuant
to Section 6.09 and any amendments regarding the addition to or removal of
Receivables from the Trust as provided in Sections 2.06 and 2.07, executed in
accordance with the provisions hereof, shall not be considered amendments to
this Agreement for the purpose of subsections 13.01(a) and (b).
(g) In connection with any amendment, the Trustee may request
an Opinion of Counsel from the Transferor or Master Servicer to the effect that
the amendment is authorized or permitted, or complies with all requirements of
this Agreement.
Section 13.02. Protection of Right, Title and Interest to
Trust. (a) The Master Servicer shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the Certificateholders and the Trustee's right,
title and interest to the Trust to be promptly recorded, registered and filed,
and at all times to be kept recorded, registered and filed, all in such manner
and in such places as may be required by law fully to preserve and protect the
right, title and interest of the Certificateholders or the Trustee, as the case
may be, hereunder to all property comprising the Trust. The Master Servicer
shall deliver to the Trustee file-stamped copies of, or filing receipts for, any
document recorded, registered or filed as provided above, as soon as available
following such recording, registration or filing. The Transferor shall cooperate
fully with the Master Servicer in connection with the obligations set forth
above and will execute any and all documents reasonably required to fulfill the
intent of this subsection 13.02(a).
-78-
<PAGE>
(b) Within 30 days after the Transferor makes any change in
its name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with paragraph (a) above
materially misleading within the meaning of the UCC, the Transferor shall give
the Trustee notice of any such change and shall file such financing statements
or amendments as may be necessary to continue the perfection of the Trust's
security interest in the Receivables and the proceeds thereof.
(c) Each of the Transferor and the Master Servicer will give
the Trustee prompt written notice of any relocation of any office from which it
services Receivables or keeps records concerning the Receivables or of its
principal executive office and whether, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new financing
statement and shall file such financing statements or amendments as may be
necessary to continue the perfection of the Trust's security interest in the
Receivables and the proceeds thereof. Each of the Transferor and the Master
Servicer will at all times maintain each office from which it services
Receivables and its principal executive office within the United States of
America.
(d) The Master Servicer will deliver to the Trustee on or
before March 31 of each year, beginning with March 31, 1999, an Opinion of
Counsel, confirming the perfection opinion delivered on any Closing Date.
Section 13.03. Limitation on Rights of Certificateholders. (a)
The death or incapacity of any Certificateholder shall not operate to terminate
this Agreement or the Trust, nor shall such death or incapacity entitle such
Certificateholders, legal representatives or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
(b) No Certificateholder shall have any right to vote (except
with respect to the Investor Certificateholders as provided in Section 13.01
hereof) or in any manner otherwise control the operation and management of the
Trust, or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
(c) No Certificateholder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Certificateholder previously shall have given written notice to the Trustee, and
unless the Holders of Certificates evidencing Undivided Interests aggregating
more than 50% of the Investor Interest of any Series which may be adversely
affected but for the institution of such suit, action or proceeding, shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby,
-79-
<PAGE>
and the Trustee, for 60 days after its receipt of such notice, request and offer
of indemnity, shall have neglected or refused to institute any such action, suit
or proceeding; it being understood and intended, and being expressly covenanted
by each Certificateholder with every other Certificateholder and the Trustee,
that no one or more Certificateholders shall have the right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Certificateholders
of any other of the Certificates, or to obtain or seek to obtain priority over
or preference to any other such Certificateholder, or to enforce any right under
this Agreement, except in the manner herein provided and for the equal, ratable
and common benefit of all Certificateholders. For the protection and enforcement
of the provisions of this Section 13.03, each and every Certificateholder and
the Trustee shall be entitled to such relief as can be given either at law or in
equity.
Section 13.04. Governing Law. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 13.05. Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered at, sent by facsimile to, sent by courier at
or mailed by registered mail, return receipt requested, to:
(a) in the case of the Transferor, to Dillard Asset Funding
Company, c/o Chase Manhattan Bank Delaware, 1201 Market Street, Wilmington,
Delaware 19801, Attention: Corporate Trust Department, with a copy to James
Freeman/David Helm, as administrators, Dillard's Inc., 1600 Cantrell, Little
Rock, Arkansas 72201;
(b) in the case of the Master Servicer, to Dillard National
Bank, 396 North William Dillard Drive, Gilbert, Arizona 85233, Attention:
Randall Hawkins;
(c) in the case of the Trustee, to the Corporate Trust Office;
(d) in the case of the Enhancement Provider for a particular
Series, the address, if any, specified in the Supplement relating to such
Series; and
(e) in the case of the Rating Agency for a particular Series,
the address, if any, specified in the Supplement relating to such Series;
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
Unless otherwise provided with respect to any Series in the
related Supplement any notice required or permitted to be mailed to a
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Certificateholder as shown in the Certificate Register, or with
respect to any notice required or permitted to be made to the holders of Bearer
Certificates, by publication in the
-80-
<PAGE>
manner provided in the related Supplement. If and so long as any Series or Class
is listed on any Offshore Securities Market and such Exchange shall so require,
any Notice to Investor Certificateholders shall be published in the manner
required by such Offshore Securities Market. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
Section 13.06. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall for
any reason whatsoever be held invalid, then such covenants, agreements,
provisions or terms 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 of the
Certificates or rights of the Certificateholders thereof.
Section 13.07. Assignment. Notwithstanding anything to the
contrary contained herein, this Agreement may not be assigned by the Transferor
without the prior consent of Holders of Investor Certificates evidencing
Undivided Interests aggregating not less than 66 2/3% of the Investor Interest
of each Series on a Series by Series basis.
Section 13.08. Certificates Nonassessable and Fully Paid. It
is the intention of the parties to this Agreement that the Certificateholders
shall not be personally liable for obligations of the Trust, that the Undivided
Interests represented by the Certificates shall be non-assessable for any losses
or expenses of the Trust or for any reason whatsoever, and that Certificates
upon authentication thereof by the Trustee pursuant to Sections 2.01 and 6.02
are and shall be deemed fully paid.
Section 13.09. Further Assurances. The Transferor and the
Master Servicer agree to do and perform, from time to time, any and all acts and
to execute any and all further instruments required or reasonably requested by
the Trustee more fully to effect the purposes of this Agreement, including,
without limitation, the execution of any financing statements or continuation
statements relating to the Receivables for filing under the provisions of the
UCC of any applicable jurisdiction.
Section 13.10. No Waiver, Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Trustee, any Enhancement
Provider or the Investor Certificateholders, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exhaustive of any rights, remedies, powers and privileges
provided by law.
Section 13.11. Counterparts. This Agreement may be executed in
two or more counterparts (and by different parties on separate counterparts),
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
Section 13.12. Third-party Beneficiaries. This Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Certificateholders and, to the extent provided in the related
-81-
<PAGE>
Supplement, to the Enhancement Provider named therein, and the respective
successors and permitted assigns. Except as otherwise provided in this Article
XIII, no other Person will have any right or obligation hereunder.
Section 13.13. Actions by Certificateholders. Wherever this
Agreement provides that an action may be taken or a notice, demand or
instruction given by Investor Certificateholders, such action, notice or
instruction may be taken or given by any Investor Certificateholder, unless such
provision requires a specific percentage of Investor Certificateholders. Any
request, demand, authorization, direction, notice, consent, waiver or other act
by a Certificateholder shall bind such Certificateholders and every subsequent
Holder of such Certificate issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof in respect of anything done or omitted
to be done by the Trustee or the Master Servicer in reliance thereon, whether or
not notation of such action is made upon such Certificate.
Section 13.14. Rule 144A Information. For so long as any of
the Investor Certificates of any Series or any Class are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, each of the
Transferor, the Master Servicer, the Trustee and the Enhancement Provider for
such Series agree to cooperate with each other to provide to any Investor
Certificateholders of such Series or Class and to any prospective purchaser of
Certificates designated by such an Investor Certificateholder upon the request
of such Investor Certificateholder or prospective purchaser, any information
required to be provided to such holder or prospective purchaser to satisfy the
condition set forth in Rule 144A(d)(4) under the Securities Act.
Section 13.15. 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. The Agreement may not be
modified, amended, waived or supplemented except as provided herein.
Section 13.16. Headings. The headings herein are for purposes
of reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
Section 13.17. No Recourse. No recourse may be taken, directly
or indirectly, with respect to the obligations of the Transferor, the Trust,
Chase Manhattan Bank Delaware or the Trustee on the Certificates or under this
Agreement or any certificate or other writing delivered in connection herewith
or therewith, against:
(i) the Trustee or Chase Manhattan Bank Delaware in its
individual capacity;
(ii) any owner of a beneficial interest in the Transferor; or
(iii) any partner, owner, beneficiary, agent, officer,
director, employee or agent of the Trustee or Chase Manhattan Bank Delaware in
their individual capacities, any holder of a beneficial interest in the
Transferor, the Trustee or Chase Manhattan Bank Delaware or of any successor or
assign of the Trustee or Chase Manhattan Bank Delaware in their individual
capacities (or any of their
-82-
<PAGE>
successors or assigns), except as any such Person may have expressly agreed (it
being understood that the Trustee and Chase Manhattan Bank Delaware have no such
obligations in their individual capacities) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Agreement, in the performance of any duties or obligations of the
Transferor hereunder, Chase Manhattan Bank Delaware shall be subject to, and
entitled to the benefits of, the terms and provisions of Article XI hereof.
-83-
<PAGE>
IN WITNESS WHEREOF, the Transferor, the Master Servicer and
the Trustee have caused this Pooling and Servicing Agreement to be duly executed
by their respective officers as of the day and year first above written.
DILLARD ASSET FUNDING COMPANY,
as Transferor
BY: CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity but solely
as owner trustee
By: _______________________________________
Name: _____________________________________
Title:
DILLARD NATIONAL BANK,
as Master Servicer
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
THE CHASE MANHATTAN BANK, as Trustee
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
<PAGE>
EXHIBIT A
FORM OF EXCHANGEABLE TRANSFEROR CERTIFICATE
No. 1 One Unit
DILLARD'S MASTER CREDIT CARD TRUST I
ASSET BACKED CERTIFICATE
THIS CERTIFICATE WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY BE SOLD ONLY PURSUANT TO
A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING AND SERVICING AGREEMENT WILL
BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE BY THE TRUSTEE UPON WRITTEN
REQUEST.
This Certificate represents an
Undivided Interest in the
Dillard's Master Credit Card Trust I
The corpus of the Trust which consists of a portfolio of credit card receivables
acquired by Dillard Asset Funding Company and other assets and interests
constituting the Trust under the Pooling and Servicing Agreement described
below.
(Not an interest in or an obligation of
Dillard Asset Funding Company
or any Affiliate thereof.)
This certifies that Dillard Asset Funding Company (the
"Holder") is the registered owner of an undivided interest in a trust (the
"Trust"), the corpus of which consists of a portfolio of receivables (the
"Receivables") now existing or hereafter created under selected credit card
accounts (the "Accounts") acquired by Dillard Asset Funding Company (the
"Transferor"), a business trust organized under the laws of the State of
Delaware, all monies due in payment of the Receivables, all proceeds of such
Receivables and Insurance Proceeds relating to the Receivables, and the other
assets and interests constituting the Trust pursuant to a Pooling and Servicing
Agreement, dated as of August 1, 1998, and as supplemented by any Supplement
relating to a Series of Investor Certificates (the "Pooling and Servicing
Agreement"), by and among Dillard Asset Funding Company, as Transferor, Dillard
National Bank, as Master Servicer, and The Chase Manhattan Bank, as Trustee (the
"Trustee").
A-1
<PAGE>
This Certificate is the Exchangeable Transferor Certificate
issued under and subject to the terms, provisions and conditions of the Pooling
and Servicing Agreement, to which Pooling and Servicing Agreement, as amended or
supplemented from time to time, the Holder by virtue of the acceptance hereof
assents and by which the Holder is bound.
This Certificate does not represent an obligation of, or any
interest in, the Transferor or the Master Servicer, and neither the Certificates
nor the Accounts or Receivables are insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency. This Certificate is
limited in right of payment to certain Collections respecting the Receivables,
all as more specifically set forth hereinabove and in the Pooling and Servicing
Agreement.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Pooling and Servicing Agreement,
or be valid for any purpose.
[Remainder of Page Intentionally Left Blank.]
A-2
<PAGE>
IN WITNESS WHEREOF, Dillard Asset Funding Company has caused
this Exchangeable Transferor Certificate to be duly executed.
DILLARD ASSET FUNDING COMPANY
BY: CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity but solely
as owner trustee
By: _____________________________________
Name: ___________________________________
Title: __________________________________
Date: ________________________
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
CERTIFICATE OF AUTHENTICATION
This is the Exchangeable Transferor Certificate referred to in
the within mentioned Pooling and Servicing Agreement.
THE CHASE MANHATTAN BANK, Trustee
By:
----------------------------
Authorized Officer
<PAGE>
EXHIBIT B
FORM OF ANNUAL MASTER SERVICER'S CERTIFICATE
DILLARD NATIONAL BANK
Dillard's Master Credit Card Trust I
The undersigned, a duly authorized representative of Dillard
National Bank ("DNB"), as Master Servicer pursuant to the Pooling and Servicing
Agreement, dated as of August 1, 1998 (the "Pooling and Servicing Agreement"),
by and among Dillard Asset Funding Company, as Transferor, DNB, as Master
Servicer, and The Chase Manhattan Bank, as trustee (the "Trustee"), does hereby
certify that:
1. DNB is Master Servicer under the Pooling and Servicing
Agreement.
2. The undersigned is duly authorized pursuant to the Pooling
and Servicing Agreement to execute and deliver this Certificate to the Trustee.
3. This Certificate is delivered pursuant to Section 3.05 of
the Pooling and Servicing Agreement.
4. A review of the activities of the Master Servicer during
the period from the Closing Date until December 31, _______, was conducted under
our supervision.
5. Based on such review, the Master Servicer has, to the best
of our knowledge, fully performed all its obligations under the Pooling and
Servicing Agreement throughout such period and no default in the performance of
such obligations has occurred or is continuing except as set forth in Paragraph
6 below.
6. The following is a description of each default in the
performance of the Master Servicer's obligations under the provisions of the
Pooling and Servicing Agreement, including any Supplement known to us to have
been made during such period which sets forth in detail (i) the nature of each
such default, (ii) the action taken by the Master Servicer, if any, to remedy
each such default and (iii) the current status of each such default:
[If applicable, insert "None.]
B-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate this __________ day of ______.
By: ___________________________________
Name: _________________________________
Title: ________________________________
<PAGE>
DILLARD ASSET FUNDING COMPANY
Transferor
DILLARD NATIONAL BANK
Master Servicer
and
THE CHASE MANHATTAN BANK
Trustee
------------------------
AMENDED AND RESTATED
VFC SERIES 1998 SUPPLEMENT
Dated as of January 1, 1999
to
POOLING AND SERVICING AGREEMENT
Dated as of August 1, 1998
------------------------
DILLARD'S MASTER CREDIT CARD TRUST I
VFC SERIES 1998 FLOATING RATE
CLASS A ASSET BACKED CERTIFICATES
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS............................................................................................1
SECTION 2 DESIGNATION...........................................................................................13
SECTION 3 DELIVERY AND PAYMENT FOR THE CLASS A CERTIFICATES.....................................................14
SECTION 4 FORM OF DELIVERY OF CLASS A CERTIFICATES..............................................................14
SECTION 5 RESERVED..............................................................................................14
SECTION 6 REASSIGNMENT AND TRANSFER TERMS.......................................................................14
SECTION 7 ARTICLE IV OF THE AGREEMENT...........................................................................14
SECTION 8 ARTICLE V OF THE AGREEMENT............................................................................26
SECTION 9 VFC SERIES 1998 PAY OUT EVENTS........................................................................27
SECTION 10 VFC SERIES 1998 TERMINATION..........................................................................28
SECTION 11 PERIODIC FINANCE CHARGES AND OTHER FEES..............................................................28
SECTION 12 CLASS A FEES.........................................................................................28
SECTION 13 VFC SERIES 1998 COVENANTS............................................................................29
SECTION 15 RATIFICATION OF AGREEMENT............................................................................31
SECTION 16 COUNTERPARTS.........................................................................................31
SECTION 17 GOVERNING LAW........................................................................................32
SECTION 18 RESTRICTIONS ON TRANSFER.............................................................................32
SECTION 19 NONPETITION..........................................................................................37
</TABLE>
EXHIBIT A--Form of Class A Certificate
EXHIBIT B--Form of Monthly Payment Instructions and Notification to the Trustee
EXHIBIT C--Form of Monthly Certificateholders' Statement
EXHIBIT D--Form of Annual Master Servicer's Certificate
EXHIBIT E--Form of Institutional Accredited Investor Certification
<PAGE>
AMENDED AND RESTATED
VFC SERIES 1998 SUPPLEMENT
AMENDED AND RESTATED VFC SERIES 1998 SUPPLEMENT, dated as of
January 1, 1999 (this "Supplement") by and among DILLARD ASSET FUNDING COMPANY,
a Delaware business trust, as Transferor, DILLARD NATIONAL BANK, a national
banking association, as Master Servicer, and THE CHASE MANHATTAN BANK, a New
York banking corporation, as Trustee under the Pooling and Servicing Agreement
dated as of August 1, 1998 by and among the Transferor, the Master Servicer and
the Trustee (as supplemented by this Supplement, the "Agreement").
W I T N E S S E T H:
WHEREAS, Section 6.09 of the Agreement provides, among other
things, that the Transferor and the Trustee may at any time and from time to
time enter into a supplement to the Agreement for the purpose of authorizing the
delivery by the Trustee to the Transferor for execution and redelivery to the
Trustee for authentication of one or more Series of Certificates;
WHEREAS, the Transferor, the Master Servicer and the Trustee
executed and delivered the VFC Series 1998 Supplement (the "Original
Supplement"), dated as of the Funding Date;
WHEREAS, pursuant to the Original Supplement, the Transferor
and the Trustee created a new Series of Investor Certificates and specified the
Principal Terms thereof;
WHEREAS, the Transferor, the Master Servicer and the Trustee
desire to amend and restate the Original Supplement to modify the terms pursuant
to which the VFC Series 1998 Certificates may be reassigned and transferred and
to remove provisions relating to the Call Option; and
WHEREAS, Holders of the VFC Series 1998 Certificates
evidencing Undivided Interests aggregating 100% of the Investor Interest of VFC
Series 1998 have consented to the amendment and restatement of the Original
Supplement in the form hereof.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants expressed herein, the parties hereto hereby agree as
follows:
In the event that any term or provision contained herein shall
conflict with or be inconsistent with any provision contained in the Agreement,
the terms and provisions of this Supplement shall govern.
SECTION 1
DEFINITIONS
All Article, Section or Subsection references herein shall
mean Article, Section or Subsection of the Agreement, except as otherwise
specified herein. All capitalized terms used herein
<PAGE>
but not otherwise defined herein shall have the meanings given to such terms in
the Agreement. Each capitalized term defined herein shall relate only to the VFC
Series 1998 Certificates and no other Series of Certificates issued by the
Trust.
"Alternate Rate" means, on any date, a fluctuating rate of
interest per annum equal to the Federal Funds Rate most recently determined by
the Funding Agent, plus, after the occurrence of a Pay Out Event, 1.50%.
"Amortization Period" means the period following the Revolving
Period which shall be the Scheduled Amortization Period or the Rapid
Amortization Period.
"APA Banks" has the meaning provided in the Asset Purchase
Agreement.
"Applicable Pass-Through Rate" means, with respect to the
Class A Certificates, (a) with respect to any Monthly Period during which the
Class A Certificates are held for the benefit of the CP Vehicle only, the CP
Rate for the CP Vehicle, (b) with respect to any Monthly Period during which the
Class A Certificates are held for the benefit of the CP Vehicle and the APA
Banks, the weighted average of (i) the CP Rate for the CP Vehicle (weighted on
the basis of the average daily principal amount of such Class A Certificates
held for the benefit of the CP Vehicle) and (ii) the Bank Rate (weighted on the
basis of the average daily principal amount of such Class A Certificates held
for the benefit of the APA Banks), (c) with respect to any Monthly Period during
which the Class A Certificates are held for the benefit of the APA Banks only,
the Bank Rate, plus (d) in each case applicable fees, if any, as set forth in
the Fee Letter that are based on the applicable outstanding Class A Interest.
"Asset Purchase Agreement" means an agreement whereby the APA
Banks agree to purchase Class A Certificates from the CP Vehicle to support the
Commercial Paper.
"Available Class A Principal Collections" means, with respect
to any Monthly Period and the related Distribution Date or for any applicable
period within a Monthly Period, an amount equal to the sum of:
(a) the product of (i) the Investor Principal Collections for
each Date of Processing falling in such Monthly Period or applicable
period and (ii) the Class A Floating Percentage (if such date falls in
the Revolving Period) or the Class A Fixed Percentage (if such date
falls in an Amortization Period);
(b) any Investor Finance Charge Collections which, pursuant to
subsection 4.09(a)(iv) or (a)(v), are required to be treated as
Available Class A Principal Collections;
(c) any Reallocated Collateral Interest Principal Collections
which, pursuant to Section 4.12, are required to fund any deficiency in
the amounts required to be distributed pursuant to subsection
4.09(a)(iv) or (a)(v);
-2-
<PAGE>
(d) any Shared Principal Collections allocable to VFC Series
1998 as Collections of Principal Receivables pursuant to Section 4.14;
and
(e) any Collateral Interest Principal Collections which,
pursuant to subsections 4.09(c)(ii) and 4.09(e)(ii) are to be treated
as Available Class A Principal Collections.
"Available Investor Funds" means, with respect to any Monthly
Period, the sum of (a) the Investor Finance Charge Collections for such Monthly
Period, (b) the Investor Principal Collections for such Monthly Period and (c)
any other amounts allocated to VFC Series 1998 as Available Class A Principal
Collections or Excess Finance Charge Collections with respect to such Monthly
Period.
"Average" means, with respect to any defined term and period,
(a) the weighted average of such term based on the aggregate of the values for
such term for each day during the applicable period, divided by (b) the number
of days in such period.
"Bank Rate" means, for any Monthly Period, an interest rate
per annum equal to LIBOR plus 0.50% (unless the Fee Letter specifies that a
lesser percentage be used) for such Monthly Period, except that the Bank Rate
shall equal the Alternate Rate:
(a) after the occurrence and during the continuance of an
event described in subsection 12(e) of this Supplement or a Pay Out
Event; or
(b) during any Monthly Period with respect to any portion of
the Class A Certificates (i) held by the APA Banks for less than the
entire Monthly Period or (ii) as to which the Funding Agent did not
receive notice or determine, by noon (New York City time) on the third
Business Day preceding the first day of such Monthly Period, that such
Class A Certificates will be held by the APA Banks.
"Base Rate" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction (a) the numerator of which is the
Carrying Costs for such Monthly Period and (b) the denominator of which is the
Average Investor Interest during such Monthly Period.
"Carrying Costs" means, for any Monthly Period, the sum of the
following items for such Monthly Period: (a) the amount of the Investor Interest
Monthly Interest Payment, (b) the Series Servicing Fee and (c) all amounts
payable pursuant to Section 12 of this Supplement for such Monthly Period.
"Certificate Purchase Agreement" means the Certificate
Purchase Agreement dated August 14, 1998 among the Transferor, the Master
Servicer, the CP Vehicle, the APA Banks party thereto and the Funding Agent.
"Class A Certificate" means any one of the Certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A.
-3-
<PAGE>
"Class A Certificateholder" means the Person in whose name a
Class A Certificate is registered in the Certificate Register.
"Class A Certificate Rate" means, with respect to a Monthly
Period, a rate per annum equal to the Applicable Pass-Through Rate for the Class
A Certificates.
"Class A Charge-Offs" has the meaning specified in subsection
4.10(a).
"Class A Default Amount" means, with respect to any Monthly
Period, an amount equal to the product of (a) the Investor Default Amount and
(b) the Class A Floating Percentage, in each case for such Monthly Period.
"Class A Default Interest" has the meaning specified in
subsection 4.06(a).
"Class A Fees" means the fees payable to the CP Vehicle under
Section 12 of this Supplement.
"Class A Finance Charge Collections" means, with respect to
any Monthly Period, an amount equal to the sum of the product of (a)(i) the
Class A Floating Percentage on each Date of Processing during such Monthly
Period falling in the Revolving Period or (ii) the Class A Fixed Percentage on
each Date of Processing during such Monthly Period falling in the Amortization
Period and (b) the Investor Finance Charge Collections on each such date.
"Class A Finance Charge Shortfall" shall have the meaning
specified in subsection 4.06(a).
"Class A Fixed Percentage" means (a) with respect to any
Monthly Period occurring in an Amortization Period, the percentage equivalent of
a fraction the numerator of which is equal to the Class A Interest at the close
of business on the last day of the Revolving Period and the denominator of which
is equal to the Investor Interest at the close of business on the last day of
the Revolving Period and (b) with respect to any day occurring in an
Amortization Period, the percentage equivalent of a fraction the numerator of
which is equal to the Class A Interest at the close of business on the last day
of the Revolving Period and the denominator of which is equal to the Investor
Interest at the close of business on the last day of the Revolving Period.
"Class A Floating Percentage" means (a) with respect to any
Monthly Period, the percentage equivalent of a fraction (i) the numerator of
which is equal to the Average Class A Investor Interest during such Monthly
Period and (ii) the denominator of which is equal to the Average Investor
Interest for such Monthly Period and (b) with respect to any day, the percentage
equivalent of a fraction (i) the numerator of which is equal to the Class A
Interest at the close of business on the preceding day and (ii) the denominator
of which is equal to the Investor Interest at the close of business on such
preceding day.
"Class A Interest" means, on any date of determination, an
amount equal to (a) the Initial Class A Interest, minus (b) the aggregate amount
of principal payments made to the Class A
-4-
<PAGE>
Certificateholders prior to such date of determination (including payments in
respect of any decrease pursuant to Section 4.16(a)(v) hereof), minus (c) the
excess, if any, of the aggregate amount of Class A Charge-Offs for the Class A
Certificates over Class A Charge-Offs for the Class A Certificates reimbursed
pursuant to subsection 4.09(a)(v) or Section 4.12 prior to such date of
determination, plus (d) the amount of any increase in the Class A Interest
pursuant to Section 4.16(a) hereof; provided, however, that the Class A Interest
may not be reduced below zero.
"Class A Monthly Interest Payment" means the monthly interest
distributable in respect of the Class A Certificates as calculated in accordance
with subsection 4.06(a).
"Class A Monthly Principal" means the monthly principal
distributable in respect of the Class A Certificates as calculated in accordance
with subsection 4.07(a).
"Class A Required Amount" has the meaning specified in Section
4.08.
"Class A Servicing Fee" means, as to any Monthly Period, the
product of (a) the Series Servicing Fee for such Monthly Period and (b) the
Class A Floating Percentage for such Monthly Period.
"Collateral Interest" means, when used with respect to any
date, an amount equal to (a) the Initial Collateral Interest, minus (b) the
aggregate amount of Collateral Interest Monthly Principal payments made to the
Collateral Interest Holder prior to such date pursuant to the Agreement, minus
(c) the excess, if any, of the aggregate amount of Collateral Interest
Charge-Offs for all prior Distribution Dates pursuant to subsection 4.10(b),
over Collateral Interest Charge-Offs reimbursed pursuant to subsection 4.11(c),
plus (d) the amount of any increase in the Collateral Interest pursuant to
Section 4.16(a) hereof; provided, however, that the Collateral Interest may not
be reduced below zero.
"Collateral Interest Available Funds" means with respect to
any Monthly Period, an amount equal to the product of (a)(i) the Collateral
Interest Floating Percentage on each Date of Processing during such Monthly
Period falling in the Revolving Period (ii) the Collateral Interest Fixed
Percentage on each Date of Processing during such Monthly Period falling in the
Amortization Period and (b) the Investor Finance Charge Collections on each such
date.
"Collateral Interest Charge-Offs" has the meaning specified in
subsection 4.10(b).
"Collateral Interest Default Amount" means, with respect to
any Monthly Period, the product of (a) the Investor Default Amount and (b) the
Collateral Interest Floating Percentage for such Monthly Period.
"Collateral Interest Finance Charge Shortfall" has the meaning
specified in subsection 4.06(b).
"Collateral Interest Fixed Percentage" means, with respect to
any date in an Amortization Period, the percentage equivalent of a fraction the
numerator of which is the Collateral
-5-
<PAGE>
Interest at the close of business on the last day of the Revolving Period, and
the denominator of which is equal to the Investor Interest at the close of
business on the last day of the Revolving Period.
"Collateral Interest Floating Percentage" means (a) with
respect to any Monthly Period, the percentage equivalent of a fraction (i) the
numerator of which is equal to the Average Collateral Interest during such
Monthly Period and (ii) the denominator of which is equal to the Average
Investor Interest during such Monthly Period, and (b) with respect to any day,
the percentage equivalent of a fraction (i) the numerator of which is equal to
the Collateral Interest at the close of business on the preceding day and (ii)
the denominator of which is equal to the Investor Interest at the close of
business on such preceding day.
"Collateral Interest Holder" means Dillard Asset Funding
Company.
"Collateral Interest Monthly Interest Payment" means the
monthly interest distributable in respect of the Collateral Interest, which
monthly interest shall be an amount equal to the product of (x) the Collateral
Interest, (y) the Collateral Interest Rate for such Monthly Period and (z) a
fraction, the numerator of which is the actual number of days in such Monthly
Period and the denominator of which is 360.
"Collateral Interest Monthly Principal" means the monthly
principal distributable to the Collateral Interest Holder in accordance with
subsection 4.07(b).
"Collateral Interest Principal Collections" means, with
respect to any Monthly Period, an amount equal to:
(a) the sum of the product of (i) the Investor Principal
Collections for each Date of Processing falling in that Monthly Period
and (ii) the Collateral Interest Floating Percentage for such date (if
such date falls in the Revolving Period) or the Collateral Interest
Fixed Percentage for such date (if such date falls in an Amortization
Period); minus
(b) any Reallocated Collateral Interest Principal Collections
which, pursuant to Section 4.12, are required to fund any deficiency in
the amounts required to be distributed pursuant to subsections
4.09(a)(i), (ii). (iii), (iv) and (vi).
"Collateral Interest Rate" shall mean 0.00%.
"Collateral Interest Servicing Fee" means, with respect to any
Monthly Period, the product of (a) the Series Servicing Fee for such Monthly
Period and (b) the Collateral Interest Floating Percentage for such Monthly
Period.
"Commercial Paper" shall have the meaning specified in the
Certificate Purchase Agreement.
"CP Rate," for any period, shall mean, with respect to a CP
Vehicle, the per annum rate equivalent to the "weighted average cost" (as
defined below) related to the issuance of Commercial
-6-
<PAGE>
Paper by the CP Vehicle that is allocated, in whole or in part, to maintain the
CP Vehicle's investment in its Class A Certificates; provided, however, that if
any component of such rate is a discount rate, in calculating the CP Rate, the
rate used to calculate such component shall be a rate resulting from converting
such discount rate to an interest-bearing equivalent rate per annum. As used in
this definition, the "weighted average cost" shall consist of (a) the actual
interest rate paid to purchasers of the Commercial Paper issued by the CP
Vehicle (which rate shall reflect and give effect to the commissions of
placement agents and dealers in respect of such Commercial Paper, to the extent
such commissions are allocated, in whole or in part, to such Commercial Paper by
the CP Vehicle and are not otherwise paid by the Transferor pursuant to any Fee
Letter), (b) the costs associated with the issuance of such Commercial Paper as
set forth in the Fee Letter, and (c) interest paid on other borrowing or funding
sources by the CP Vehicle (other than under the Asset Purchase Agreement),
including to fund small or odd dollar amounts that are not easily accommodated
in the commercial paper market.
"CP Vehicle" means PARCO.
"Distribution Date" means September 15, 1998 and the fifteenth
day of each calendar month thereafter or, if such day is not a Business Day, the
next succeeding Business Day.
"DNB" means Dillard National Bank, its successors and assigns.
"Eligible Accounts" means Accounts which are Eligible Accounts
under the Agreement and which meet the additional criteria set forth in Section
14 of this Supplement.
"Enhancement" means the Collateral Interest.
"Enhancement Provider" means the Collateral Interest Holder.
"Enhancement Surplus" means, as to any Distribution Date, the
excess, if any, of the Collateral Interest over the Required Collateral Interest
Amount at the close of business on the last day of the Related Monthly Period.
"Excess Finance Charge Collections" has the meaning specified
in Section 4.11(f).
"Excess Spread Amount" means, as to any Distribution Date, the
amount specified in subsection 4.09(a)(ix).
"Federal Funds Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Funding Agent from three (3) Federal funds brokers
of recognized standing selected by it.
-7-
<PAGE>
"Fee Letter" means the letter dated as of the date hereof from
the Transferor addressed to the Funding Agent, as such letter is amended from
time to time, with respect to fees for the Class A Certificates.
"Finance Charge Shortfall" has the meaning specified in
Section 4.13.
"Fixed Investor Percentage" means, with respect to any date
during an Amortization Period, the percentage equivalent of a fraction (a) the
numerator of which is equal to the Investor Interest at the close of business on
the last day of the Revolving Period and (b) the denominator of which is equal
to the greater of (i) the sum of Principal Receivables in the Trust and the
Excess Funding Amount, in each case at the close of business on the last day of
the Revolving Period and (ii) the sum of the numerators used to determine the
principal allocation percentages for each Series outstanding under the Trust for
such date.
"Floating Investor Percentage" means:
(a) with respect to any Monthly Period, the percentage
equivalent of a fraction (i) the numerator of which is equal to the
Average Investor Interest during such Monthly Period and (ii) the
denominator of which is equal to the greater of (A) the sum of the
Average Principal Receivables in the Trust and the Average Excess
Funding Amount, in each case during such Monthly Period, and (B) for
purposes of allocating Collections of Finance Charge and Principal
Receivables only, the sum of the numerators used to determine the
principal allocation percentages and, for all other purposes, the sum
of the numerators used to determine the Floating Investor Percentages,
in each case for each Series outstanding under the Trust for such
Monthly Period; and
(b) with respect to any day, the percentage equivalent of a
fraction (i) the numerator of which is equal to the Investor Interest
at the close of business on the preceding day and (ii) the denominator
of which is equal to the greater of (A) the sum of the Principal
Receivables in the Trust and the Excess Funding Amount, in each case at
the close of business on such preceding day, and (B) for purposes of
allocating Collections of Finance Charge and Principal Receivables
only, the sum of the numerators used to determine the principal
allocation percentages and, for all other purposes, the sum of the
numerators used to determine the Floating Investor Percentages, in each
case for each Series outstanding under the Trust for such preceding
day.
"Funding Agent" means The Chase Manhattan Bank and any
successor thereto.
"Funding Date" means August 14, 1998.
"Group I" means VFC Series 1998 and each other series
specified in the related Supplement to be included in Group I.
-8-
<PAGE>
"Initial Class A Interest" means the aggregate initial
principal amount of the Class A Certificates issued on the Funding Date, plus
any increase in the Class A Interest in accordance with subsection 4.16(a).
"Initial Collateral Interest" means the Collateral Interest
outstanding on the Funding Date.
"Initial Investor Interest" means the Initial Class A Interest
plus the Initial Collateral Interest.
"Investor Certificates" means the Class A Certificates and the
Collateral Interest.
"Investor Default Amount" means, as to any Monthly Period, an
amount equal to the product of (a) the Default Amount for such Monthly Period
and (b) the Floating Investor Percentage for such Monthly Period.
"Investor Finance Charge Collections" means, with respect to
any Date of Processing, an amount equal to the aggregate for each Account of the
product of (a) the Investor Percentage for such Date of Processing and (b) the
lesser of (x) Collections actually received on such date in respect of such
Account and (y) the amount billed as or deemed to be Finance Charge Receivables
with respect to the immediately preceding Monthly Period in respect of such
Account, minus Collections previously received and already applied in respect of
such Account in the related Monthly Period, and with respect to any Monthly
Period, the aggregate of such sums for each Date of Processing in such Monthly
Period.
"Investor Interest" means, when used with respect to any date,
an amount equal to the sum of (a) the Class A Interest and (b) the Collateral
Interest as of such date.
"Investor Interest Monthly Interest Payment" means, as to any
Monthly Period, the sum of the Class A Monthly Interest Payment plus the
Collateral Interest Monthly Interest Payment for such Monthly Period.
"Investor Percentage" means, for any date or period of
determination:
(a) when used with respect to Collections of Principal
Receivables and of Finance Charge Receivables during
an Amortization Period, the Fixed Investor Percentage
and, when used with respect to Collections of
Principal Receivables and of Finance Charge
Receivables during the Revolving Period, the Floating
Investor Percentage; and
(b) when used with respect to Receivables in Defaulted
Accounts at any time, the Floating Investor
Percentage.
"Investor Principal Collections" means, with respect to any
Date of Processing, an amount equal to the aggregate for each Account of the
product of (a) the Investor Percentage for such
-9-
<PAGE>
Date of Processing and (b) all Collections other than Investor Finance Charge
Collections actually received on each such date in respect of such Account, and
with respect to any Monthly Period the aggregate of such sums for each Date of
Processing in such Monthly Period.
"LIBOR" means, on any Rate Determination Date, the rate
appearing on Page 3750 of the Telerate Service (or on any successor or
substitute page of such Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those currently provided on
such page of such Service, as determined by the Funding Agent from time to time
for purposes of providing quotations of interest rates applicable to one-month
dollar deposits in the London interbank market) at approximately 11:00 A.M.
(London time) on such Rate Determination Date as the rate for one-month dollar
deposits. In the event that such rate is not available at such time for any
reason, then the "LIBOR" shall be the rate at which one-month dollar deposits of
$5,000,000 are offered by the principal London office of the Funding Agent in
immediately available funds in the London interbank market at approximately
11:00 A.M. (London time) on such Rate Determination Date.
"London Banking Day" means any day on which banks are open for
business in London, England and dealing in United States Dollar deposits.
"Master Closing Instructions and Receipt" means the Master
Closing Instruction and Receipt dated the Funding Date and executed by the
Transferor along with other parties thereto.
"Maximum Class A Interest" means (a) as of the Funding Date,
$1,350,000,000 and (b) thereafter, such lesser amount as reduced by any
reductions pursuant to subsection 4.16(b).
"Monthly Period" has the meaning specified in the Agreement
except that the first Monthly Period with respect to the VFC Series 1998
Certificates shall begin on and include the Funding Date and end on August 31,
1998.
"Net Portfolio Yield" means, for the VFC Series 1998
Certificates, with respect to any Monthly Period, the annualized percentage
equivalent of a fraction (a) the numerator of which is equal to the Collections
of Finance Charge Receivables allocated to the VFC Series 1998 Certificates and
deposited into the Collection Account for such Monthly Period, minus the
Investor Default Amount for such Monthly Period, and (b) the denominator of
which is the Average Investor Interest during such Monthly Period.
"PARCO" shall mean Park Avenue Receivables Corporation, its
successors and assigns.
"Pay Out Commencement Date" means the earlier of the date on
which a Trust Pay Out Event occurs pursuant to Section 9.01 or a VFC Series 1998
Pay Out Event occurs pursuant to Section 9 of this Supplement.
"Preceding Monthly Period" means, with respect to any Monthly
Period, the immediately preceding Monthly Period.
-10-
<PAGE>
"Principal Shortfall" has the meaning specified in Section
4.14.
"Private Holder" means each holder of a right to receive
interest or principal in respect of any direct or indirect interest in the
Trust, including any financial instrument or contract the value of which is
determined in whole or in part by reference to the Trust (including the Trusts
assets, income of the Trust or distributions made by the Trust), excluding any
interest in the Trust represented by any Series or Class of Certificates or any
other interest as to which the Trustee has received an Opinion of Counsel to the
effect that such Series, Class or other interest will be treated as debt or
otherwise not as an equity interest in either the Trust or the Receivables for
federal income tax purposes, in each case, provided such interest is not
convertible or exchangeable into an interest in the Trust or the Trusts' income
does not provide for payment of equivalent value. Notwithstanding the
immediately preceding- sentence, "Private Holder" shall also include any other
Person that the Transferor reasonably determines is a "partner" within the
meaning of Section 1.7704-1(h)(1)(ii) of the U.S. Treasury Regulations
(including by reason of Section 1.7704-1(h)(3)) or any successor provision of
law. Any Person holding more than one interest in the Trust each of which
separately would cause such Person to be a Private Holder shall be treated as a
single Private Holder. Each holder of an interest in a Private Holder which is a
partnership, S corporation or a grantor trust under the Code shall be treated as
a Private Holder unless excepted with the consent of the Transferor (which
consent shall be based on consultation with qualified tax counsel).
"QIB" means a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act.
"Rapid Amortization Period" means an Amortization Period
commencing on the Pay Out Commencement Date and ending on the earlier to occur
of (a) the VFC Series 1998 Termination Date or (b) the termination of the Trust.
"Rate Determination Date" means for each Monthly Period the
second London Banking Day preceding such Monthly Period.
"Rating Agency" means Standard & Poor's and Moody's.
"Rating Agency Condition" means a written notice by each
Rating Agency to the Transferor and/or the Funding Agent or the Master Servicer
and the Trustee that the action described in the notice will not result in that
Rating Agency reducing or withdrawing its then existing rating of the Commercial
Paper.
"Reallocated Collateral Interest Principal Collections" has
the meaning specified in Section 4.08.
"Regulatory Change" means, as to any affected party, any
change in (or the adoption, implementation, change in phase-in or commencement
of effectiveness of) (a) any federal, state or foreign law applicable to such
affected party or (b) any regulation, directive, requirement or request
-11-
<PAGE>
applicable to such affected party by any Governmental Authority or monetary,
fiscal or other similar authority with jurisdiction over the affected party.
"Required Collateral Interest Amount" means:
(a) as of the Funding Date and on any Distribution Date during
the Revolving Period, 13% of the sum of the Class A Interest and the
Collateral Interest; and
(b) on any Distribution Date during the Amortization Period
means 13% of the sum of the Class A Interest and the Collateral
Interest at the close of business on the last day of the Revolving
Period (in each case, rounded upwards, if necessary, to the nearest
$1.00);
provided, however, if the Collateral Interest has been reduced pursuant to
subsection 4.10(b) or if the Pay Out Commencement Date has occurred, then the
Required Collateral Interest Amount for any Distribution Date shall equal the
amount of the Required Collateral Interest Amount immediately prior to such
reduction or Pay Out Commencement Date; provided, further, that in no event
shall the Required Collateral Interest Amount for any Distribution Date exceed
the Class A Interest as of the last day of the Related Monthly Period; and
provided, further, however, that the Required Collateral Interest Amount may be
reduced to a lesser amount if (i) the Rating Agency Condition is satisfied and
(ii) the CP Vehicle and the Class A Certificateholders consent in writing to
such reduction.
"Revolving Period" means the period from and including the
Funding Date to, but not including, the earlier to occur of (a) the Scheduled
Amortization Period and (b) the Pay Out Commencement Date.
"Scheduled Amortization Period" means, unless the Pay Out
Commencement Date shall have occurred prior thereto, the period commencing on
the first to occur of (a) that Distribution Date occurring in August 1999 and
(b) any date selected by the Transferor upon 30 days prior written notice to the
Funding Agent, the Collateral Interest Holder, the VFC Series 1998
Certificateholders, the Master Servicer and the Trustee and ending upon the
first to occur of (a) the commencement of the Rapid Amortization Period and (b)
the VFC Series 1998 Termination Date.
"Series Servicing Fee" means, as to any Monthly Period, the
product of (a) the Series Servicing Fee Percentage, (b) the Average Investor
Interest for such Monthly Period, and (c) a fraction the numerator of which is
the number of days in such Monthly Period and the denominator of which is 365 or
366, as the case may be.
"Series Servicing Fee Percentage" 2.00% per annum.
"Shared Principal Collections" means those Excess Principal
Collections allocated to VFC Series 1998 in accordance with subsection 4.03(e)
and Section 4.14.
"Targeted Holder" has the meaning specified in the Asset
Purchase Agreement.
"Tranche" has the meaning specified in the Certificate
Purchase Agreement.
-12-
<PAGE>
"Transaction Documents" has the meaning specified in the Asset
Purchase Agreement.
"VFC Series 1998" means the Series of the Dillard's Master
Credit Card Trust I represented by the Class A Certificates and the Collateral
Interest.
"VFC Series 1998 Certificateholder" means the Holder of any
VFC Series 1998 Certificate.
"VFC Series 1998 Certificateholders' Interest" has the meaning
specified in Section 4.04.
"VFC Series 1998 Certificates" means the Class A Certificates
and the Collateral Interest.
"VFC Series 1998 Pay Out Event" has the meaning specified in
Section 9 of this Supplement.
"VFC Series 1998 Termination Date" means the earliest to occur
of (a) the Distribution Date following the Distribution Date on which the VFC
Series 1998 Certificates are paid in full, (b) the thirty-sixth Distribution
Date following the end of the Revolving Period and (c) the termination of the
Trust.
SECTION 2
DESIGNATION
There is hereby created a Series of Investor Certificates to
be issued pursuant to the Agreement and this Supplement to be known generally as
the "VFC Series 1998 Certificates." The VFC Series 1998 Certificates shall
include one Class of certificated certificates, the "VFC Series 1998 Floating
Rate Class A Asset Backed Certificates" (the "Class A Certificates"). Class A
Certificates shall not be subordinated to any other Series.
In addition, there is hereby created a second Class of
uncertificated interests in the Trust which, except as expressly provided
herein, shall be deemed to be Investor Certificates for all purposes under the
Agreement and this Supplement and which shall be known as the "Collateral
Interest, VFC Series 1998." The Collateral Interest shall be subordinated to the
Class A Certificates as provided herein. The Collateral Interest is Enhancement
for the Class A Certificates, and the Collateral Interest Holder shall have the
rights of an Enhancement Provider under (and shall be a third-party beneficiary
of) the Agreement.
-13-
<PAGE>
SECTION 3
DELIVERY AND PAYMENT FOR THE CLASS A CERTIFICATES
The Transferor shall execute and deliver the Class A
Certificates to the Trustee for authentication in accordance with Section 6.01
of the Agreement. The Trustee shall deliver the Class A Certificates when
authenticated in accordance with Section 6.02 of the Agreement and the purchase
price for the Class A Certificates has been paid in accordance with the Master
Closing Instructions and Receipt.
SECTION 4
FORM OF DELIVERY OF CLASS A CERTIFICATES
Class A Certificates shall be physically delivered as
Registered Certificates and shall not be Book-Entry Certificates.
SECTION 5
RESERVED
Reserved.
SECTION 6
REASSIGNMENT AND TRANSFER TERMS
The VFC Series 1998 Certificates shall be subject to
retransfer to the Transferor at its option, in accordance with the terms
specified in subsection 12.02(a) of the Agreement, on any Distribution Date on
which the then outstanding Investor Interest is 10% or less of the Initial
Investor Interest. The deposit required in connection with any such repurchase
shall be equal to the sum of the Investor Interest, plus accrued and unpaid
interest on the VFC Series 1998 Certificates through the day preceding the
Distribution Date on which the repurchase occurs plus all amounts due and owing
pursuant to the Certificate Purchase Agreement.
SECTION 7
ARTICLE IV OF THE AGREEMENT
Sections 4.01 and 4.02 shall be read in their entirety as
provided in the Agreement. For purposes of VFC Series 1998 only, Section 4.03(a)
is amended as follows: "The exception to the
-14-
<PAGE>
deposit requirements provided by the second paragraph of Section 4.03(a) shall
not be available at any time when an Investor Wind-Down Event (as defined in the
Asset Purchase Agreement) has occurred and is continuing," and the following
provisions are added to Article IV of the Agreement:
"Section 4.04. Rights of Class A Certificateholders and the
Collateral Interest Holder. The Investor Certificates shall represent undivided
interests in the Trust including the right to receive, to the extent necessary
to make the required payments with respect to the Investor Certificates at the
time and in the amounts specified in this Agreement, (a) the Investor Percentage
of Collections with respect to the Receivables and (b) funds on deposit in the
Collection Account, the Finance Charge Account, the Principal Account and the
Distribution Account that are allocable to the VFC Series 1998 Certificates
(collectively, the "VFC Series 1998 Certificateholders' Interest"). The
Exchangeable Transferor Certificate shall not represent any interest in the
Finance Charge Account, the Principal Account or the Distribution Account,
except as specifically provided in this Article IV.
Section 4.05. Collections and Allocation of Collections to
Holder of Exchangeable Transferor Certificate.
(a) Collections. The Master Servicer will apply or will
instruct the Trustee to apply all funds on deposit in the Collection
Account, the Finance Charge Account, the Principal Account or the
Distribution Account allocable to the VFC Series 1998 Certificates and
the Exchangeable Transferor Certificate as described in this Article
IV.
(b) Payments to the Holder of the Exchangeable Transferor
Certificate. On each Date of Processing, the Master Servicer shall
determine whether a Pay Out Event is deemed to have occurred with
respect to the Investor Certificates. If no Pay Out Event has occurred,
the Master Servicer shall allocate Collections with respect to such
Date of Processing to the Holder of the Exchangeable Transferor
Certificate as follows:
(i) During the Revolving Period, in addition to
amounts allocated to the Holder of the Exchangeable Transferor
Certificate pursuant to subsections 4.02(e), 4.03(b), 4.03(c)
and 4.03(e):
(A) for each Date of Processing, an amount equal
to:
(1) the Investor Principal Collections for
that Date of Processing, minus
(2) the sum of (x) the amount of any
reduction in the Class A Interest in accordance with
Section 4.16 (less amounts already reserved for
purposes of that reduction), (y) the product of the
Collateral Interest Floating Percentage for such day
and Collections in respect of Principal Receivables
for such day and (z) if any other Series in Group I
is outstanding and in its Amortization Period or
payments are required to be made pursuant to Section
4.14, the Class A Floating Percentage of Investor
Principal Collections (such
-15-
<PAGE>
amounts described in this clause (2) to be deposited
into the Principal Account), and minus
(3) the amount (if any) by which the Minimum
Transferor Interest exceeds the Transferor Interest,
in each case on that Date of Processing, which amount
shall be deposited into the Excess Funding Account in
accordance with subsection 4.03(e); and
(B) on each Determination Date, an amount equal
to the excess if any, of:
(1) the aggregate amount specified in clauses
(2)(y) and (z) of subparagraph (A) above with respect
to the Related Monthly Period over;
(2) the sum of (x) the aggregate amount of
Reallocated Collateral Interest Principal Collections
to be applied on the related Distribution Date
pursuant to Section 4.12, (y) amounts to be applied
as Collateral Interest Monthly Principal pursuant to
subsection 4.07(b)(i) and (z) the amount which has
been applied to cover the aggregate amount of
Principal Shortfalls for all Series in Group I then
outstanding for the related Distribution Date;
(the obligations of the Master Servicer pursuant to the foregoing
provisions of this subsection 4.05(b)(i) are subject to the provisions
of subsection 4.03(a)); and
(ii) For each Date of Processing and each Determination Date
during the Amortization Period prior to the VFC Series 1998 Termination
Date, the amount of payments made to the Holder of the Exchangeable
Transferor Certificate shall be determined only as provided in
subsection 4.03(b).
(iii) Notwithstanding any provisions to the contrary in this
Section 4.05(b), but subject to Section 4.03 of the Agreement, all
allocations and payments to be made on a Date of Processing during a
calendar week may be made on the second day of the next following
calendar week, or if such date is not a Business Day, on the next
succeeding Business Day.
The allocations to be made pursuant to this subsection 4.05(b)
also apply to deposits into the Collection Account that are treated as
Collections, including Credit Adjustments, payment of the reassignment price
pursuant to Section 2.07, and proceeds from the sale, disposition or liquidation
of the Receivables pursuant to Section 9.02, 10.01, 12.01 or 12.02 and Section 4
of this Supplement. Such deposits to be treated as Collections will be allocated
as Finance Charge Receivables or Principal Receivables as indicated in the
Agreement.
Section 4.06. Determination of Monthly Interest for the VFC
Series 1998 Certificates.
-16-
<PAGE>
(a) Class A Monthly Interest Payment. The amount of monthly
interest distributable from the Collection Account with respect to the Class A
Certificates on any Distribution Date (the "Class A Monthly Interest Payment")
shall be equal to the product of (A) the Class A Certificate Rate, (B) a
fraction the numerator of which is the actual number of days in the Related
Monthly Period and the denominator of which is (1) 360, if and to the extent the
Applicable Pass-Through Rate is based on the CP Rate or LIBOR, and (2) 365 or
366, as the case may be, if and to the extent the Applicable Pass-Through Rate
is based on the Alternate Rate and to the component of the Class A Certificate
Rate specified in the Fee Letter, and (C) the Average Class A Interest during
the Related Monthly Period, without giving effect to clause (c) of the
definition of Class A Interest.
On each Determination Date, the Master Servicer shall
determine whether (x) the Class A Monthly Interest Payment for the Related
Monthly Period exceeds (y) the amount allocated and available to pay such Class
A Monthly Interest Payment on the related Distribution Date (any such excess, a
"Class A Finance Charge Shortfall"). If a Class A Finance Charge Shortfall
exists with respect to any Distribution Date, an additional amount ("Class A
Default Interest") shall be payable as provided herein with respect to the Class
A Certificates on each Distribution Date thereafter to and including the
Distribution Date on which such Class A Finance Charge Shortfall is paid to
Class A Certificateholders equal to the product of (aa) the Class A Certificate
Rate, (bb) a fraction the numerator of which is the actual number of days from
the preceding Distribution Date to but excluding such Distribution Date and the
denominator of which is 365 or 366, as the case may be, and (cc) the Class A
Finance Charge Shortfall. Notwithstanding anything to the contrary herein, Class
A Default Interest shall be payable or distributed to Class A Certificateholders
only to the extent permitted by applicable law.
(b) Collateral Interest Monthly Interest Payment. The amount
of monthly interest distributable from the Collection Account with respect to
the Collateral Interest (the "Collateral Interest Monthly Interest Payment") on
any Distribution Date shall be equal to (ii) the product of (A) the Collateral
Interest Rate, (B) a fraction the numerator of which is the actual number of
days in the Related Monthly Period and the denominator of which is 360, and (C)
the Average Collateral Interest during the Related Monthly Period.
Section 4.07. Determination of Monthly Principal for the VFC
Series 1998 Certificates.
(a) Class A Monthly Principal. The amount of monthly principal
(the "Class A Monthly Principal") distributable from the Distribution Account
with respect to the Class A Certificates on each Distribution Date beginning
with the first Distribution Date that relates to a Monthly Period during which
the Amortization Period begins shall be equal to the lesser of (i) Available
Class A Principal Collections on deposit in the Collection Account for such
Distribution Date and (ii) the Class A Interest on such Distribution Date.
(b) Collateral Interest Monthly Principal. The amount of
monthly principal (the "Collateral Interest Monthly Principal") distributable
from the Collection Account with respect to the Collateral Interest on each
Distribution Date shall be:
-17-
<PAGE>
(i) on any Distribution Date, an amount up to the lesser of
(A) (1) Collateral Interest Principal Collections with respect to such
Distribution Date plus (2) Available Class A Principal Collections (not
including any amounts specified in clause (d) of the definition of
"Available Class A Principal Collections") not applied as Class A
Monthly Principal on such Distribution Date pursuant to (a) above and
(B) the Enhancement Surplus on such Distribution Date, if any, computed
without reference to distributions under this subsection; and
(ii) beginning with the Distribution Date on which the Class A
Interest is paid in full, an amount equal to the sum of the Available
Class A Principal Collections with respect to such Distribution Date
(minus the portion of such Available Class A Principal Collections
applied to Class A Monthly Principal on such Distribution Date) and the
Collateral Interest Principal Collections with respect to such
Distribution Date;
provided, however, with respect to any Distribution Date, Collateral Interest
Monthly Principal shall not exceed the Collateral Interest.
Section 4.08. Coverage of Class A Required Amount. On each
Determination Date, the Master Servicer shall determine if:
(a) the sum of (i)(A) the Class A Monthly Interest Payment for
the related Distribution Date, (B) any Class A Monthly Interest Payment
previously due but not paid to the Class A Certificateholders on a
prior Distribution Date, and (C) the Class A Default Interest, if any,
for such Distribution Date and any Class A Default Interest previously
due but not paid to the Class A Certificateholders on a prior
Distribution Date, (ii) the Class A Default Amount for such
Distribution Date, (iii) the amount of Class A Charge-Offs not
reimbursed prior to such Distribution Date, (iv) the amount of any due
but unpaid facility fee expenses payable in accordance with Section
4.09(a)(vi) and (vii), and (v) the Class A Servicing Fee and the
Collateral Interest Servicing Fee for such Distribution Date and any
Class A Servicing Fee and Collateral Interest Servicing Fee previously
due but not paid to the Master Servicer exceeds
(b) the Investor Finance Charge Collections for the Related
Monthly Period (and such excess the "Class A Required Amount").
If a Class A Required Amount exists for such Distribution
Date, (x) the Master Servicer shall give written notice to the Trustee of such
Class A Required Amount no later than three Business Days prior to such
Distribution Date, and (y) the Excess Spread Amount and the Excess Finance
Charge Collections allocable to VFC Series 1998 Certificates in accordance with
subsection 4.03(e) and Section 4.11 with respect to such Distribution Date in an
aggregate amount equal to the Class A Required Amount for such Distribution Date
shall be distributed from the Collection Account on the Distribution Date
pursuant to Section 4.11. If the Class A Required Amount exceeds the Excess
Spread Amount and the Excess Finance Charge Collections allocable to VFC Series
1998 with respect to such Distribution Date, Collections of Principal
Receivables allocable to the Collateral Interest with respect to such
Distribution Date as specified in Section 4.12 equal to the amount of the excess
shall be transferred on the Distribution Date from the Collection Account to the
Distribution Account as
-18-
<PAGE>
"Reallocated Collateral Interest Principal Collections" for payment to the Class
A Certificateholders on such Distribution Date. If the Collection Account is
held by the Trustee, the Master Servicer shall direct the Trustee in writing on
or before the related Transfer Date to make any transfers from the Collection
Account to the Distribution Account required by this Section 4.08.
Section 4.09. Application of Available Investor Funds. On each
Determination Date, the Master Servicer shall give the Trustee written
instructions substantially in the form contained in Exhibit B hereto, to
withdraw, and the Trustee, acting in accordance with such instructions, shall
withdraw on the related Distribution Date, to the extent of Available Investor
Funds, the amounts required to be withdrawn from the Collection Account to make
the following distributions:
(a) On each Distribution Date, an amount equal to the Investor
Finance Charge Collections for the Related Monthly Period shall be distributed
or allocated in the following priority:
(i) an amount equal to Class A Monthly Interest
Payment for such Distribution Date, plus the amount of any
Class A Monthly Interest Payment previously due but not paid
to Class A Certificateholders on a prior Distribution Date,
plus the amount of any Class A Default Interest for such
Distribution Date and any Class A Default Interest previously
due but not distributed on a prior Distribution Date, shall be
distributed to the Class A Certificateholders;
(ii) an amount equal to the Class A Servicing Fee and
Collateral Interest Servicing Fee for such Distribution Date,
plus the amount of any Class A Servicing Fee and Collateral
Interest Servicing Fee previously due but not distributed to
the Master Servicer on a prior Distribution Date, shall be
distributed to the Master Servicer;
(iii) an amount equal to the Class A Default Amount,
if any, for such Distribution Date shall be allocated as a
portion of Available Class A Principal Collections for such
Distribution Date;
(iv) an amount equal to the aggregate amount of Class
A Charge-Offs which have not been previously reimbursed shall
be allocated as a portion of Available Class A Principal
Collections for such Distribution Date;
(v) an amount equal to the fees payable on such
Distribution Date to the Funding Agent pursuant to subsection
12(a) of this Supplement shall be paid to the Funding Agent;
(vi) an amount equal to all other amounts due and
owing to the Funding Agent on behalf of the CP Vehicle and the
APA Banks pursuant to this Supplement, the Asset Purchase
Agreement or the Certificate Purchase Agreement shall be paid
to the Funding Agent;
(vii) an amount equal to the Collateral Interest
Monthly Interest Payment for such Distribution Date, plus the
amount of any Collateral Interest Monthly Interest
-19-
<PAGE>
Payments previously due but not distributed to the Collateral
Interest Holder on a prior Distribution Date pursuant to this
subsection; and
(viii) the balance, if any, shall constitute "Excess
Spread Amount" and shall be allocated and distributed as set
forth in Section 4.11.
(b) On each Distribution Date with respect to the Revolving
Period, an amount equal to the Available Class A Principal Collections deposited
in the Collection Account for the Related Monthly Period not reserved to make
any reduction in the Class A Interest required pursuant to Section 4.16, to the
extent not allocated in accordance with subsection 4.07(b)(i), shall be treated
as Excess Principal Collections and applied in accordance with Section 4.14 to
other Series in Group I.
(c) On each Distribution Date with respect to the Revolving
Period, an amount equal to the Collateral Interest Principal Collections
deposited in the Collection Account for the Related Monthly Period and Available
Class A Principal Collections allocated in accordance with subsection 4.07(b)(i)
shall be distributed in the following order of priority:
(i) an amount equal to Collateral Interest Monthly
Principal for such Distribution Date, up to the amount of the
Collateral Interest on such Distribution Date, shall be
distributed to the Collateral Interest Holder; and
(ii) the balance, if any, shall be treated as a
portion of Available Class A Principal Collections for such
Distribution Date.
(d) On the Distribution Date relating to the Monthly Period
during which the Amortization Period begins and each Distribution Date
thereafter, an amount equal to the Available Class A Principal Collections
deposited in the Collection Account for the Related Monthly Period shall be
distributed in the following priority:
(i) an amount equal to Class A Monthly Principal for
such Distribution Date shall be distributed to the Class A
Certificateholders;
(ii) the balance, if any, of such Available Class A
Principal Collections then on deposit in the Collection
Account shall be allocated in accordance with subsection
4.07(b) and distributed to the Collateral Interest Holder; and
(iii) an amount equal to the balance, if any, of such
Available Class A Principal Collections for such Distribution
Date after giving effect to paragraphs (i) and (ii) above,
shall be treated as Excess Principal Collections and applied
in accordance with Section 4.14 to other Series in Group I.
(e) On the Distribution Date with respect to the Monthly
Period during which the Amortization Period begins and each Distribution Date
thereafter, an amount equal to Collateral Interest Principal Collections
deposited in the Collection Account for the Related Monthly Period shall be
distributed in the following order of priority:
-20-
<PAGE>
(i) an amount equal to Collateral Interest Monthly
Principal for such Distribution Date, up to the amount of the
Collateral Interest, shall be distributed to the Collateral
Interest Holder; and
(ii) the balance, if any, of such Collateral Interest
Principal Collections then on deposit in the Collection
Account shall be allocated as a portion of Available Class A
Principal Collections for such Distribution Date.
Section 4.10. Investor Charge-Offs.
(a) Class A Charge-Offs. On each Determination Date, the
Master Servicer shall calculate the Class A Default Amount for the related
Distribution Date. If the Class A Default Amount for any Distribution Date
exceeds the sum of (i) Investor Finance Charge Collections allocated pursuant to
subsection 4.09(a)(iv) on that Distribution Date, (ii) Reallocated Collateral
Interest Principal Collections allocated and available for the purpose of
reimbursing the Class A Default Amount with respect to such Distribution Date,
and (iii) Excess Finance Charge Collections allocated and available for the
purpose of reimbursing the Class A Default Amount with respect to such
Distribution Date, the Collateral Interest will be reduced (but not below zero)
by the amount of such excess.
If on any Distribution Date the Collateral Interest is (or is
reduced to) zero, then the Class A Interest will be reduced (but not below zero)
by any remaining excess of the Class A Default Amount over the other amounts
specified in the preceding sentence (a "Class A Charge-Off"). If the Class A
Interest has been reduced by the amount of any Class A Charge-Offs, it will be
reimbursed on any Distribution Date by an amount up to such unreimbursed
aggregate Class A Charge-Offs from Investor Finance Charge Collections,
Reallocated Collateral Interest Principal Collections and Excess Finance Charge
Collections allocated and available for such purpose pursuant to subsection
4.09(a)(v) and Section 4.12.
(b) Collateral Interest Charge-Offs. On each Determination
Date, the Master Servicer shall calculate the Collateral Interest Default Amount
for the related Distribution Date. If the Collateral Interest Default Amount for
any Distribution Date exceeds the amount of the Excess Spread Amount and Excess
Finance Charge Collections which are allocated and available to fund such amount
pursuant to subsections 4.11(b) and 4.13(b), respectively, the Collateral
Interest (after giving effect to any adjustments with respect thereto as
described in the preceding clause (a)) will be reduced by the amount of such
excess but not more than the lesser of (i) the Collateral Interest Default
Amount and (ii) the Collateral Interest for such Distribution Date. The
Collateral Interest will also be reduced by the amount of Reallocated Collateral
Interest Principal Collections pursuant to Section 4.12 and the amount of any
portion of the Collateral Interest allocated to the Class A Certificates to
avoid a reduction in the Class A Interest pursuant to subsection 4.10(a). The
Collateral Interest will also be reduced by an amount equal to any Adjustment
Amount due but not paid pursuant to Section 4.03(c) in the related Monthly
Period. A reduction in the Collateral Interest pursuant to any of the preceding
three sentences is called a "Collateral Interest Charge-Off. On any Distribution
Date thereafter, the Collateral Interest will be reinstated and increased by an
amount equal to the unreinstated principal balance of Collateral
-21-
<PAGE>
Interest Charge-Offs from Excess Spread Amount allocated and available for that
purpose as described under subsection 4.11(c).
Section 4.11. Excess Spread Amount; Excess Finance Charge
Collections for the VFC Series 1998 Certificates. On each Distribution Date, the
Master Servicer will apply or cause the Trustee to apply the Excess Spread
Amount with respect to the Related Monthly Period to make the following
distributions in the following priority:
(a) an amount equal to any Class A Servicing Fee and
Collateral Interest Servicing Fee for such Distribution Date
not paid pursuant to subsection 4.09(a)(iii) plus the amount
of any Class A Servicing Fee and Collateral Interest Servicing
Fee previously due but not distributed to the Master Servicer
on a prior Distribution Date shall be distributed to the
Master Servicer;
(b) any unpaid amounts payable pursuant to Section
4.09(a)(i) or (ii) on such Distribution Date or Section 12 of
this Supplement and any other amounts owed to the Funding
Agent on behalf of the CP Vehicle and the APA Banks pursuant
to the Asset Purchase Agreement or the Certificate Purchase
Agreement shall be applied in accordance with this Supplement,
the Asset Purchase Agreement or the Certificate Purchase
Agreement;
(c) an amount equal to the Collateral Interest
Default Amount for such Distribution Date shall be allocated
as a portion of Collateral Interest Principal Collections with
respect to such Distribution Date;
(d) an amount equal to the aggregate amount of
Collateral Interest Charge-Offs which have not been previously
reimbursed shall be allocated as a portion of Collateral
Interest Principal Collections with respect to such
Distribution Date; and
(e) the balance, if any, will constitute "Excess
Finance Charge Collections" available for allocation to other
Series in Group I or to the Holder of the Exchangeable
Transferor Certificate for such Distribution Date as described
in subsection 4.03(e) and Section 4.13 of the Agreement.
Section 4.12. Reallocated Collateral Interest Principal
Collections. The Master Servicer shall apply, or shall cause the Trustee to
apply on each Distribution Date, "Reallocated Collateral Interest Principal
Collections," with respect to such Distribution Date, to make the following
distributions in the following priority:
(a) an amount equal to the excess, if any, of (i) the
Class A Required Amount, if any, with respect to such
Distribution Date over (ii) the amount of the Excess Spread
Amount and Excess Finance Charge Collections allocated to VFC
Series 1998 with respect to the Related Monthly Period shall
be distributed by the Trustee to fund
-22-
<PAGE>
any deficiency pursuant to subsections 4.09(a)(i), (ii),
(iii), (iv), (v), (vi) and (vii) in that order of priority;
and
(b) the balance, if any, of such Reallocated
Collateral Interest Principal Collections shall be treated as
a portion of Collateral Interest Principal Collections to be
applied in accordance with subsection 4.09(c) or (e), as
applicable.
Section 4.13. Excess Finance Charge Collections. Subject to
subsection 4.03(e), Excess Finance Charge Collections with respect to the Series
in Group I for any Distribution Date will be allocated to VFC Series 1998 in an
amount equal to the product of (a) the aggregate amount of Excess Finance Charge
Collections with respect to all the Series in Group I for such Distribution Date
and (b) a fraction the numerator of which is the Finance Charge Shortfall for
VFC Series 1998 for such Distribution Date and the denominator of which is the
aggregate amount of Finance Charge Shortfalls (as defined in the related
Supplements) for all the Series in Group I for such Distribution Date. Excess
Finance Charge Collections so allocated shall be applied to any items specified
in subsection 4.09(a) or Section 4.11 that remain unpaid after the application
of Investor Finance Charge Collections and any Excess Spread Amount in the
priorities specified, first, in subsection 4.09(a) and, second, in Section 4.11.
The "Finance Charge Shortfall" for VFC Series 1998 for any Distribution Date
shall be equal to the excess, if any, of (i) the full amount required to be
paid, without duplication, pursuant to subsection 4.09(a) and Section 4.11
(excluding clause (g) thereof) on such Distribution Date over (ii) the Investor
Percentage of Collections of Finance Charge Receivables with respect to the
Related Monthly Period. Excess Finance Charge Collections remaining in the
Finance Charge Account on any Distribution Date after payment of Finance Charge
Shortfalls for all Series in Group I will be distributed to the Holder of the
Exchangeable Transferor Certificate in accordance with subsection 4.03(e).
Section 4.14. Shared Principal Collections. Subject to Section
4.03(d), Excess Principal Collections for any Distribution Date will be
allocated to VFC Series 1998 (as to such allocated amount, the "Shared Principal
Collections") in an amount equal to the product of (a) the aggregate amount of
Excess Principal Collections with respect to all Series in Group I for such
Distribution Date and (b) a fraction the numerator of which is the Principal
Shortfall for VFC Series 1998 for such Distribution Date and the denominator of
which is the aggregate amount of Principal Shortfalls for all the Series in
Group I for such Distribution Date. The "Principal Shortfall" for VFC Series
1998 shall be equal to (i) for any Distribution Date with respect to the
Revolving Period, zero, and (ii) for any Distribution Date with respect to the
Amortization Period, the excess, if any, of the Investor Interest with respect
to such Distribution Date over the amount of Available Class A Principal
Collections for such Distribution Date (excluding any portion thereof
attributable to Excess Principal Collections). Excess Principal Collections
remaining in the Principal Account on any Distribution Date after payment of
Principal Shortfalls for all Series in Group I will be distributed to the Holder
of the Exchangeable Transferor Certificate or deposited in the Excess Funding
Account in accordance with subsection 4.03(d).
Section 4.15. Determination of LIBOR.
-23-
<PAGE>
(a) Calculation. On each Rate Determination Date, the Funding
Agent shall determine LIBOR.
(b) Notification. Promptly after the end of each
Monthly Period, the Funding Agent will give facsimile notice
to the Master Servicer, the Trustee and the Collateral
Interest Holder of the Class A Certificate Rate and the
Collateral Interest Rate applicable for such Monthly Period.
Such rate may be obtained by any VFC Series 1998
Certificateholder by telephoning the Trustee at its Corporate
Trust Office at (212) 946-8600.
Section 4.16. Changes in Investor Interest.
(a) Changes in Class A Interest.
(i) The Class A Interest may be increased or
decreased from time to time upon the conditions
described in this subsection 4.16(a). The Transferor
may deliver to the Class A Certificateholders and the
Trustee on any Business Day a written notice
specifying (A) the proposed amount of the adjusted
Class A Interest (the "Class A Adjusted Amount") and
(B) the proposed date of adjustment of the Class A
Interest (a "Class A Adjustment Date"), which shall
be any Business Day not earlier than two Business
Days after such notice. Each adjustment shall be in
an amount of not less than $1,000,000.
(ii) No more than two adjustments of the
Class A Interest may be made in any week and no
increase of the Class A Interest may be made that
would result in more than fifteen (15) Tranches
outstanding at any time.
(iii) Any proposed increase in the Class A
Interest (the "Class A Increase Amount") shall not
exceed an amount equal to the excess of:
(A) the aggregate amount of
Principal Receivables in the Trust on the Transfer
Date preceding the Class A Adjustment Date over;
(B) the greater of (1) the sum of
(x) the Aggregate Investor Interest outstanding as of
the day prior to the proposed Class A Adjustment
Date, minus amounts on deposit in the Investor
Accounts for payment of principal to the Investors,
and (y) the Minimum Transferor Interest as of such
Class A Adjustment Date; and (2) the Minimum
Aggregate Principal Receivables;
provided, however, that the Class A Interest on any Business Day shall not
exceed the Maximum Class A Interest.
(iv) The purchase of any related Class A
Increase Amount is subject to satisfaction of the
condition that, on any Class A Adjustment Date on
-24-
<PAGE>
which an increase in the Class A Interest is
occurring, the Funding Agent shall have received a
certificate of a Responsible Officer of each of the
Transferor and the Master Servicer that (A) no Pay
Out Event (or no event or condition has occurred
which, with notice or the passage of time or both,
would constitute a Pay Out Event) has occurred and is
continuing on such Class A Adjustment Date; (B) the
representations and warranties of the Transferor or
the Master Servicer (as applicable) in this
Supplement are true and correct on such Class A
Adjustment Date; and (C) the Collateral Interest is
equal to or greater than the Required Collateral
Interest Amount on such Class A Adjustment Date,
after giving effect to the amount of any increase in
the Class A Interest occurring on such Class A
Adjustment Date, as certified in the Certificate
being delivered on such Class A Adjustment Date, as
applicable.
Upon satisfaction of the foregoing
conditions, and the payment by the CP Vehicle or the
APA Banks, as applicable, to the Trustee on or before
the Class A Adjustment Date of an amount equal to the
Class A Increase Amount, the Master Servicer shall
appropriately note such Class A Increase Amount and
the Adjusted Class A Amount and direct the Trustee in
writing to pay to the Transferor such Class A
Increase Amount on the Adjustment Date. From and
after such Adjustment Date, the Class A Interest will
be equal to the Class A Adjusted Amount which shall
be shown as such on the next Monthly Master
Servicer's Certificate.
(v) Any proposed decrease in the Class A
Interest (other than a permanent reduction pursuant
to subsection 4.16(b) below) shall be effected on a
Class A Adjustment Date in accordance with a notice
specifying the amount of the proposed reduction (the
"Class A Reduction Amount") from Available Class A
Principal Collections. Commencing on the date notice
is given for a Class A reduction, the Master Servicer
shall not reinvest Class A Monthly Principal until
the amount thereof not so reinvested shall equal the
Class A Reduction Amount. The Master Servicer shall
transfer such Class A Reduction Amount from the
Collection Account to the appropriate Class A
Certificateholder.
(b) Permanent Reductions in Maximum Class A Interest. The
Transferor may at any time elect to reduce permanently the Maximum Class A
Interest by giving at least 30 days prior written notice to the VFC Series 1998
Certificateholders, the CP Vehicle, the Funding Agent, the Trustee, the APA
Banks and the Collateral Interest Holder of such reduction in the Maximum Class
A Interest, including the amount of such proposed reduction and the proposed
date on which such reduction will commence. The amount of such reduction must be
$1,000,000 or an integral multiple thereof.
(c) Notation of Adjustments. Each Class A Certificateholder
shall and is hereby authorized to record on the grid attached to its Class A
Certificate (or, at such Class A
-25-
<PAGE>
Certificateholder's option, in its internal books and records) the date and
amount of any Class A Increase Amount purchased by it and the Class A Adjusted
Amount, and each repayment of the Class A Interest (including payments effecting
a reduction pursuant to subsection 4.16(a) or (b) above), provided that failure
to make any such recordation on such grid or any error in such grid shall not
adversely affect such Class A Certificateholder's rights with respect to its
Class A Interest and its right to receive Class A Monthly Interest Payment on
such Class A Adjusted Amount. The Trustee shall not be responsible for the
accuracy of any information on any such Class A Certificate grid or with respect
to the Certificateholder's notations in its internal books and records.
SECTION 8
ARTICLE V OF THE AGREEMENT
Article V of the Agreement shall read in its entirety as
follows and shall be applicable only to the VFC Series 1998 Certificates:
"ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS
Section 5.01. Distributions. On each Distribution Date, the
Paying Agent shall distribute (in accordance with the certificate delivered by
the Master Servicer to the Trustee pursuant to subsection 3.04(b)) to each Class
A Certificateholder of record on the related Record Date for such Distribution
Date (other than as provided in subsection 2.04(e) or Section 12.03 respecting a
final distribution) such Certificateholder's pro rata share (based on
Certificates held by such Certificateholder) of the amounts on deposit in the
Distribution Account payable to the applicable Class of Class A
Certificateholders pursuant to Article IV by check mailed to each Class A
Certificateholder, provided that, so long as the Class A Certificates are held
by the Funding Agent, such amount shall be payable by wire transfer in
immediately available funds remitted in accordance with written directions from
the Funding Agent and retrieved not later than 11:30 a.m., New York time, on the
related Distribution Date.
Section 5.02. Certificateholders' Statement. (a) Monthly
Certificateholders' Statement. On or before the thirteenth calendar day of each
month, the Paying Agent shall forward or cause to be forwarded to each VFC
Series 1998 Certificateholder and each Rating Agency a statement substantially
in the form of Exhibit C to this Supplement prepared by the Master Servicer.
(b) Annual Certificateholders Tax Statement. On or before
January 31 of each calendar year, beginning with calendar year 1999, the Trustee
shall furnish or cause to be furnished to each Person who at any time during the
preceding calendar year was a VFC Series 1998 Certificateholder a statement
prepared by the Master Servicer substantially in the form of Exhibit D
-26-
<PAGE>
hereto. Such obligations of the Trustee shall be deemed to have been satisfied
to the extent that substantially comparable information shall be provided by the
Trustee pursuant to any requirements of the Internal Revenue Code as from time
to time in effect."
SECTION 9
VFC SERIES 1998 PAY OUT EVENTS
Subject to the last paragraph of this Section 9, the following
events are VFC Series 1998 Pay Out Events:
(a) failure on the part of the Transferor (i) to make any
payment or deposit required by the terms of the Agreement or this
Supplement on or before the date occurring two Business Days after the
date such payment or deposit is required to be made herein or (ii) duly
to observe or perform in any material respect any covenants or
agreements of the Transferor set forth in the Agreement or this
Supplement (including without limitation, the covenant of the
Transferor contained in Section 11 of this Supplement), which failure
has a material adverse effect on the VFC Series 1998 Certificateholders
and which continues unremedied for a period of 30 days after the date
on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the Trustee or to
the Transferor and the Trustee by the Holders of the VFC Series 1998
Certificates evidencing Undivided Interests aggregating not less than
50% of the Investor Interest of VFC Series 1998 and continues to affect
materially and adversely the interests of the VFC Series 1998
Certificateholders for such period;
(b) any representation or warranty made by the Transferor in
the Agreement or this Supplement, or any information contained in a
computer file or microfiche list required to be delivered by the
Transferor pursuant to Section 2.01 or 2.06 shall prove to have been
incorrect in any material respect when made or when delivered, which
(i) continues to be incorrect in any material respect for a period of
30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the
Transferor by the Trustee, or to the Transferor and the Trustee by the
Holders of VFC Series 1998 Certificates evidencing Undivided Interests
aggregating not less than 50% of the Investor Interest of VFC Series
1998, and (ii) as a result of which the interests of the VFC Series
1998 Certificateholders are materially and adversely affected and
continue to be materially and adversely affected for such period;
provided, however, that a Pay Out Event pursuant to this subsection
9(b) shall not be deemed to have occurred hereunder if a Transferor has
accepted reassignment of the related Receivable, or all of such
Receivables, if applicable, during such period in accordance with the
provisions of the Agreement;
(c) the average Net Portfolio Yield for any three consecutive
Monthly Periods is reduced to a rate which is less than the average
Base Rate for such period; or
-27-
<PAGE>
(d) any Master Servicer Default shall occur which would have a
material adverse effect on the VFC Series 1998 Certificates.
If any event described in subparagraphs (a), (b) and (e) occurs after the
applicable grace period set forth in such subparagraphs, either the Trustee, the
Holder of the Collateral Interest or the Holders of Class A Certificates
evidencing Undivided Interests aggregating not less than 50% of the Class A
Interest of the VFC Series 1998 Certificates by notice given in writing to the
Transferors and the Master Servicer (and to the Trustee if given by the VFC
Series 1998 Certificateholders) may declare that a pay out event (a "VFC Series
1998 Pay Out Event") has occurred as of the date of such notice. If an event
described in subparagraphs (c) and (d) above occurs, a VFC Series 1998 Pay Out
Event shall occur immediately without the giving of any notice or other action
by the Trustee or the Certificateholders.
SECTION 10
VFC SERIES 1998 TERMINATION
Subject to Section 12.03, the right of the VFC Series 1998
Certificateholders to receive payments from the Trust will terminate on the
first Business Day following the VFC Series 1998 Termination Date, provided that
all actions required under Sections 12.01 and 12.03 in connection with the VFC
Series 1998 Termination Date have been taken.
SECTION 11
PERIODIC FINANCE CHARGES AND OTHER FEES
The Transferor shall cause each Originator to agree that,
except as otherwise required by any Requirement of Law, or as is deemed by such
Originator to be necessary in order for it to maintain its credit card business,
based upon a good-faith assessment by it, in its sole discretion, of the nature
of the competition in the credit card business, such Originator shall not at any
time reduce the Periodic Finance Charges or minimum payment assessed on any
Account if, as a result of such reduction, its reasonable expectation of the Net
Portfolio Yield as of such date would be less than the Base Rate.
SECTION 12
CLASS A FEES
(a) Monthly Fees. Prior to the Amortization Period, to the
extent the Class A Interest is funded with Commercial Paper, the CP Vehicle, and
to the extent the Class A Interest is funded by the APA Banks, the APA Banks,
shall be entitled to receive a facility fee for each Monthly Period equal to the
product of (i) the Percentage specified in the Fee Letter and (ii) the
difference between the Average Maximum Class A Interest and the Average Class A
Interest during the Related
-28-
<PAGE>
Monthly Period. Such fee shall be calculated on the basis of the actual number
of days in such Monthly Period and a year of 365 or 366 days, as the case may
be, and shall be payable in arrears on each Distribution Date for the Related
Monthly Period. The CP Vehicle shall also be entitled to receive a usage fee
under the terms and conditions set forth in the Fee Letter. If on any
Distribution Date the amounts distributed pursuant to Article IV with respect to
such fees is less than the amount of such fees, then the Transferor shall pay to
the CP Vehicle or the APA Banks, as applicable, in immediately available funds
on such Distribution Date, any portion of such fees that have not been so paid.
(b) Expense Reimbursement. Upon written demand by the
Certificateholders, the Transferor shall reimburse the Certificateholders for
their reasonable out-of-pocket expenses arising from (i) any waiver or
modification of the Agreement or this Supplement which has been requested by the
Transferor or (ii) from the Certificateholders exercising their rights under the
Agreement or this Supplement upon a Master Servicer Default or a Pay Out Event.
Such amounts shall be paid on the Distribution Date next following the demand to
the extent such amounts have not been distributed pursuant to Article IV.
(c) Limited Recourse. The obligation of the Trust and the
Trustee to pay any amounts pursuant to Section 12 of this Supplement are limited
to the funds to be applied pursuant to Article IV irrespective of the ability of
the Transferor to fulfill its obligation pursuant to such Section.
SECTION 13
VFC SERIES 1998 COVENANTS
(a) Transferor/Master Servicer Covenants. Each of the
Transferor and the Master Servicer hereby agree to deliver to the Trustee and
the Certificateholders:
(i) promptly upon a Responsible Officer's becoming
aware thereof, written notice of material changes in the terms
of the Accounts or servicing and collection policies of the
Master Servicer which may reasonably be expected to have a
material adverse effect on the interests of the
Certificateholders;
(ii) promptly upon a Responsible Officer's becoming
aware thereof, written notice of material litigation or
regulatory action which is commenced against the Master
Servicer which may reasonably be expected to have a material
adverse effect on the interests of the Certificateholders;
(iii) on their respective due dates, copies of
reports required under subsections 3.06(a) and (b); and
(iv) promptly upon a Responsible Officer's becoming
aware thereof, written notice of a Pay Out Event or event that
with the giving of notice, or the passage of time, or both,
would constitute a Pay Out Event (including a Trust Pay Out
Event).
-29-
<PAGE>
The Master Servicer hereby agrees to deliver to the Trustee
and the Certificateholders:
(i) within 60 days after the end of each quarterly
fiscal period in Dillard's fiscal year, copies of Dillard's
unconsolidated financial statements, certified as complete and
correct, subject to normal changes resulting from year-end
audit adjustments, by Dillard's chief financial officer; and
(ii) within 90 days after the end of Dillard's fiscal
year, copies of consolidated financial statements for such
year, certified by independent accountants of nationally
recognized standing selected by Dillard's or, if no such
unconsolidated certified financial statements are prepared,
the consolidated financial statements of the parent of such
party certified by independent accountants of nationally
recognized standing selected by such parent.
(b) Receivable Reviews. So long as the Class A Certificates
remain outstanding, the Master Servicer and Transferor shall, during regular
business hours and (so long, as no Pay Out Event has occurred and is continuing)
upon two Business Days' prior written notice. permit the Funding Agent (or such
other Person as the Funding Agent may designate from time to time), or its
agents or representatives (including certified public accounts or other
auditors) as an expense of the Master Servicer paid out of the Series Servicing
Fee, (i) to examine and make copies of and abstracts from, and to conduct
accounting reviews of, all related records and documents in the possession or
under the control of the Master Servicer or the Transferor and (ii) to visit the
offices and properties of the Master Servicer or the Transferor for the purpose
of examining such materials described in clause (1), and to discuss matters
relating to the Receivables or the Accounts or the performance by the Master
Servicer or the Transferor of their respective obligations under the Agreement
and this Supplement with any officer, employee or representative of the Master
Servicer or the Transferor; provided, however, that, so long as no Pay Out Event
has occurred and is continuing, the Funding Agent shall not be entitled to
exercise this right of review more than once per year; and provided, further,
that the Master Servicer shall be liable only for reasonable expenses incurred
in connection with any such review.
(c) Subsequent Issuances. So long as the Class A Certificates
remain outstanding, the Transferor shall not cause any additional Series of
Investor Certificates to be issued unless prior to the issuance date the
Transferor has provided to the Funding Agent written confirmation from each
Rating Agency to the effect that such issuance will not cause them to withdraw
or downgrade their respective ratings of the Commercial Paper and an Opinion of
Counsel to the effect that the issuance of such additional Series of Investor
Certificates will not affect the disclosure obligations of the CP Vehicle.
SECTION 14
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE APA BANKS AND
ANY ACQUIRING APA BANK
Each APA Bank and any Acquiring APA Bank represents, warrants
and covenants to the Transferor, the Master Servicer, the Funding Agent and the
Trustee that:
-30-
<PAGE>
(a) it is not a trust, estate, partnership or "S Corporation"
(within the meaning of Section 1361(a) of the Code) for United States federal
income tax purposes, or if it is such an entity, the value of such entity's
interest in the Class A Certificates is less than 50% of the total value of all
of the entity's assets and no more than 50% of the value of any beneficial
owner's interest in such entity is attributable to such entity's interest in the
Class A Certificates;
(b) it has not acquired and agrees that it will not sell,
trade or transfer any interest in a Class A Certificate or cause a Participation
or any other interest in a Class A Certificate or the Series Supplement, to be
marketed on or through an "established securities market" within the meaning of
Section 7704(b)(1) of the Code (and the Treasury regulations promulgated
thereunder) including, without limitation, an over-the-counter market or an
interdealer quotation system that regularly disseminates firm buy or sell
quotations;
(c) it is the sole beneficial owner of its Class A
Certificates and it will remain the sole beneficial owner of such Class A
Certificates until such time as such Class A Certificates, or any Participation
or other interest therein, are sold, assigned or otherwise transferred in
accordance with Section 18 hereof; and
(d) it will not sell, assign or transfer any Class A
Certificate, or any Participation or other interest therein, except as allowed
and to the extent permitted under Section 18 hereof.
SECTION 15
RATIFICATION OF AGREEMENT
As supplemented by this Supplement, the Agreement is in all
respects ratified and confirmed and the Agreement as so supplemented by this
Supplement shall be read, taken and construed as one and the same instrument.
Pursuant to Section 3.12, the Collateral Interest Certificateholders, and their
respective successors and assigns, shall be third-party beneficiaries of the
Agreement.
SECTION 16
COUNTERPARTS
This Supplement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all of such
counterparts shall together constitute but one and the same instrument.
-31-
<PAGE>
SECTION 17
GOVERNING LAW
This Supplement shall be construed in accordance with the laws
of the State of New York, without reference to its conflict of laws provisions,
and the obligations, rights and remedies of the parties hereunder shall be
determined in accordance with such laws.
SECTION 18
RESTRICTIONS ON TRANSFER
(a) For purposes of this Agreement, the Collateral Interest is
non-transferrable and at all times be held by the Transferor. Any purported
transfer, assignment or other conveyance (including any participation) of the
Collateral Interest shall be void.
(b) The Class A Certificates have not been, and will not be,
registered under the Securities Act or any state securities law. No reoffer,
resale, pledge (except as provided in the Asset Purchase Agreement) or other
transfer of any Class A Certificate or any interest therein or participation
thereof subsequent to the initial purchase from the Transferor will be made
unless such resale or transfer is made pursuant to Rule 144A under the
Securities Act to a Person whom the seller of the Certificates reasonably
believes is a QIB purchasing for its own account or a QIB purchasing for the
account of a QIB, whom the seller has informed, in each case, that the reoffer,
resale, pledge or other transfer is being made in reliance on Rule 144A and the
Transferor delivers a Certificate in the form of Exhibit E hereto. Neither the
Transferor nor the Trustee is obligated to register the Class A Certificates
under the Securities Act or to take any action otherwise required under this
Agreement or this Series Supplement to permit the transfer of Class A
Certificates without registration.
(c) Each Class A Certificate will bear legends substantially
in the form set forth below:
"THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES
THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON WHO THE HOLDER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ("QIB") WITHIN THE
MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT, OR A QIB PURCHASING FOR
THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH
REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A. EACH CERTIFICATE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS
CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS
-32-
<PAGE>
EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT
OF ANOTHER QIB.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF THE
TRANSFEROR AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (1) AN EMPLOYEE BENEFIT
PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF
ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE "CODE"), (III) A GOVERNMENTAL PLAN, AS DEFINED IN
SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO
A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION
4975 OF THE CODE, (IV) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS (AS
DEFINED IN 29 C.F.R. SECTION 2510.3-101 OR OTHERWISE UNDER ERISA) BY REASON OF A
PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON INVESTING PLAN ASSETS OF ANY
SUCH PLAN (INCLUDING, WITHOUT LIMITATION, FOR PURPOSES OF CLAUSE (IV) AND THIS
CLAUSE (V), ANY INSURANCE COMPANY GENERAL ACCOUNT, BUT EXCLUDING ANY ENTITY
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
THIS CERTIFICATE WILL NOT BE ACCEPTED FOR REGISTRATION OF
TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE TRUSTEE THAT
THE RESTRICTIONS ON TRANSFER SET FORTH ABOVE HAVE BEEN COMPLIED WITH, ALL AS
PROVIDED IN THE AGREEMENT."
(d) So long as the Class A Certificates are held by the CP
Vehicle, (i) the Transferor may not issue another Series of Certificates without
the consent of the CP Vehicle and (ii) the Collateral Interest and the
Exchangeable Transferor Certificate may only be held by Persons "controlling" or
"under common control" with the Trust for purposes of Rule 2a-7 of the
Investment Company Act of 1940, as amended.
(e) Successors and Assigns. This Agreement shall be binding
upon the parties hereto and their respective successors and permitted assigns.
No Class A Certificateholder may participate, assign or sell any portion of its
rights hereunder (or any interest therein) except as permitted under this
Section 18. No assignment hereunder shall become effective without satisfying
the Rating Agency Condition.
(f) Assignments to Purchasers. (i) Any Class A
Certificateholder may, upon prior written notice to the Funding Agent and the
satisfaction of all applicable requirements under Section 6.03 of the Agreement
and in accordance with applicable law, assign to one or more assignees (any such
assignee shall be referred to herein as an "Acquiring Class A
Certificateholder") all or a portion of its interests, rights and obligations
hereunder and the Transaction Documents; provided, however, that no such
assignment shall be permitted (1) except in the case of an assignment to another
Class A Certificateholder, without the Transferor's prior written consent to
such assignment (which consent shall
-33-
<PAGE>
not be unreasonably withheld or delayed), (2) if such assignment is not
otherwise permitted under Section 6.15 of the Agreement, (3) if such assignment
is for less than $5,000,000, (4) if such assignment would cause there to be more
than 80 Targeted Holders of the Class A Certificates at any time, and (5) unless
the parties to each such assignment shall execute and deliver to the Funding
Agent a transfer supplement (each, a "Transfer Supplement"), substantially in
the form of Exhibit A to the Asset Purchase Agreement, together with a
processing and recordation fee of $3,500 and the Acquiring Class A
Certificateholder, if it shall not be a Class A Certificateholder, shall deliver
to the Funding Agent an administrative questionnaire in the form provided by the
Funding Agent. Upon acceptance and recording pursuant to this Section 18(f),
from and after the effective date specified in each Transfer Supplement, which
effective date shall be at least five Business Days after the execution thereof,
(A) the Acquiring Class A Certificateholder thereunder shall be a party hereto
and, to the extent of the interest assigned by such Transfer Supplement, have
the rights and obligations of an Class A Certificateholder hereunder and (B) the
assigning Class A Certificateholder thereunder shall, to the extent of the
interest assigned by such Transfer Supplement, be released from its obligations
hereunder and the other Transaction Documents (and, in the case of a Transfer
Supplement covering all or the remaining portion of an assigning Class A
Certificateholder's rights and obligations hereunder and the other Transaction
Documents, such Class A Certificateholder shall cease to be a party hereto but
shall continue to be entitled to receive costs set forth in Section 12 hereof,
as well as any fees accrued for its account and not yet paid).
(ii) By executing and delivering a Transfer Supplement, the
assigning Class A Certificateholder thereunder and the Acquiring Class A
Certificateholder thereunder shall be deemed to confirm to and agree with each
other and the other parties hereto as follows: (A) such assigning Class A
Certificateholder warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and that its
Commitment, and the outstanding balances of its Class A Certificates, in each
case without giving effect to assignments thereof which have not become
effective, are as set forth in such Transfer Supplement; (B) except as set forth
in (A) above, such assigning Class A Certificateholder makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection herewith, or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
hereof, any other Transaction Document or any other instrument or document
furnished pursuant hereto or thereto, or the financial condition of the
Transferor or the Master Servicer, or the performance or observance by the
Transferor or the Master Servicer of any of its obligations hereunder, any other
Transaction Document or any other instrument or document furnished pursuant
hereto or thereto; (C) such Acquiring Class A Certificateholder represents and
warrants that it is legally authorized to enter into such Transfer Supplement;
(D) such Acquiring Class A Certificateholder confirms that it has received a
copy of the Series Supplement and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Transfer Supplement; (E) such Acquiring Class A Certificateholder will
independently and without reliance upon the Funding Agent, the Trustee, the
assigning Class A Certificateholder or any other Class A Certificateholder and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
hereunder or any other Transaction Document; (F) such Acquiring Class A
Certificateholder appoints and authorizes the Funding Agent and the Trustee to
take
-34-
<PAGE>
such action as agent on its behalf and to exercise such powers hereunder as are
delegated to the Funding Agent and the Trustee, respectively, by the terms
thereof, together with such powers as are reasonably incidental thereto; and (G)
such Acquiring Class A Certificateholder agrees that it will perform in
accordance with their terms all the obligations which by the terms hereof are
required to be performed by it as an Class A Certificateholder.
(iii) Notwithstanding and in addition to the provisions of
Section 6.03 of the Agreement, the Funding Agent shall maintain at one of its
offices in The City of New York a copy of each Transfer Supplement delivered to
it and a register for the recordation of the names and addresses of the Class A
Certificateholders, and the Commitments of, and the principal amount of the
Class A Certificates issued to, each Class A Certificateholder pursuant to the
terms hereof from time to time (the "Register"). Notwithstanding the provisions
of Section 6.05 of the Agreement, the entries in the Register as provided in
this subsection 18(f) shall be conclusive and the Transferor, the Master
Servicer, the Class A Certificateholders, the Registrar, the Funding Agent and
the Trustee shall treat each person whose name is recorded in the Register
pursuant to the terms hereof as an Class A Certificateholder hereunder for all
purposes, notwithstanding notice to the contrary. However, in accordance with
Section 6.05 of the Agreement, in determining whether the holders of the
requisite percentage interests have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Class A Certificates owned by
the Transferor, the Master Servicer, or any Affiliate thereof, shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Class A Certificates
which a Responsible Officer of the Trustee actually knows to be so owned shall
be so disregarded. Class A Certificates so owned by the Transferor, the Master
Servicer, or any Affiliate thereof which have been pledged in good faith shall
not be disregarded and may be regarded as outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right to so act with respect to
such Class A Certificates and that the pledgee is not the Transferor, the Master
Servicer, or any Affiliate thereof. The Register shall be available for
inspection by the Transferor, the Master Servicer, the Class A
Certificateholders and the Trustee, at any reasonable time and from time to time
upon reasonable prior notice.
(iv) Upon its receipt of a copy of the written consent of the
Trustee, the Transferor and the Master Servicer and a duly completed Transfer
Supplement executed by an assigning Class A Certificateholder and an Acquiring
Class A Certificateholder, an administrative questionnaire completed in respect
of the Acquiring Class A Certificateholder (unless the Acquiring Class A
Certificateholder shall already be a Class A Certificateholder hereunder) and
the processing and recordation fee referred to in subsection 18(f)(i), the
Funding Agent shall (x) accept such Transfer Supplement, (y) record the
information contained therein in the Register and (z) give prompt written notice
thereof to the Class A Certificateholders, the Transferor, the Master Servicer
and the Trustee. No assignment shall be effective unless and until it has been
recorded in the Register as provided in this paragraph (iv).
(g) Participations. (i) Any Class A Certificateholder may sell
participations to one or more banks or other entities (the "Participants") in
all or a portion of its rights and obligations hereunder and the other
Transaction Documents (including all or a portion of its Commitment and Class A
-35-
<PAGE>
Certificates); provided that any Participant shall, prior to entering into a
Participation, execute and deliver to the Transferor and the Trustee an
Assignment/Participation Certification in substantially the form of Exhibit D to
the Asset Purchase Agreement; and provided further, that (A) such Class A
Certificateholder's obligations under this Agreement shall remain unchanged, (B)
such Class A Certificateholder shall remain solely responsible to the other
parties hereto for the performance of such obligations, (C) the Participants
shall be entitled to the receive costs set forth in Section 12 hereof, and shall
be required to provide the tax forms and certifications described in subsection
18(j), to the same extent as if they were Class A Certificateholders provided,
however, that (1) no such Participant shall be entitled to receive any greater
amount pursuant to the Section 12 provisions hereof than an Class A
Certificateholder would have been entitled to receive in respect of the amount
of the Participation sold by such Class A Certificateholder to such Participant
had no sale occurred, (2) the Transferor, the Master Servicer, the other Class A
Certificateholders, the Funding Agent and the Trustee, shall continue to deal
solely and directly with such Class A Certificateholder in connection with such
Class A Certificateholder's rights and obligations hereunder, and such Class A
Certificateholder shall retain the sole right to enforce its rights under Class
A Certificates and to approve any amendment, modification or waiver of any
provision hereof (other than amendments, modifications or waivers decreasing any
fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Class A Certificates, extending any scheduled
principal payment date or date fixed for the payment of interest on the Class A
Certificates or increasing or extending the Commitments), (3) the sum of the
aggregate amount of any Commitment or portion thereof subject to each such
Participation plus the portion of the Class A Interest represented by the
relevant Class A Certificates subject to such Participation shall not be less
than $5,000,000, and (4) such Participation shall not cause there to more than
80 Targeted Holders of the Class A Certificates at any time. Each Class A
Certificateholder that grants a participation to a person that not a United
States person within the meaning of Section 7701(a)(30) of the Code (a "Non-U.S.
Person") pursuant to this subsection shall provide the Transferor and the
Trustee with appropriately executed copies of Internal Revenue Service Form 4224
with respect to each Participant (x) prior to any such disposition and (y) upon
the occurrence of any event which would require the amendment or resubmission of
any such form previously provided hereunder. No Participant may grant a
subparticipation in a Class A Certificate under any circumstances.
(h) Disclosure of Information. Any Class A Certificateholder
may, in connection with any assignment or participation or proposed assignment
or participation pursuant to this Section 18, disclose to the Acquiring Class A
Certificateholder or Participant (each, a "Transferee") or proposed Acquiring
Class A Certificateholder or Participant any information relating to the
Transferor, the Master Servicer or the Trust furnished to such Class A
Certificateholder by or on behalf of such entities, provided that, prior to any
such disclosure of information, each such Acquiring Class A Certificateholder or
Participation or proposed Acquiring Class A Certificateholder or Participant
shall comply with the terms of Section 7.10 of the Certificate Purchase
Agreement.
(i) Delegation of Duties by Transferor. The Transferor shall
not assign or delegate any of its rights or duties hereunder without the prior
written consent of the Funding Agent, the Trustee and each Class A
Certificateholder, and any attempted assignment without such consent shall be
null and void.
-36-
<PAGE>
(j) Transfer to Non-U.S. Persons. If any interest in a Class A
Certificate is transferred to any Transferee which is a Non-U.S. Person, the
Class A Certificateholder making such transfer shall cause such Transferee,
concurrently with the effectiveness of such Transfer, (x) to furnish to the
assigning Class A Certificateholder (and, in the case of any Acquiring Class A
Certificateholder, the Funding Agent, the Transferor and the Trustee), with
copies to the Master Servicer, United States Internal Revenue Service Form 4224
(or successor applicable forms) unless a change in law has occurred prior to the
date on which such delivery would otherwise be required which renders such form
inapplicable and (y) to agree (for the benefit of the Class A
Certificateholders, the Funding Agent, the Master Servicer, the Transferor and
the Trustee) to provide the assigning Class A Certificateholder (and, in the
case of any Acquiring Class A Certificateholder, the Funding Agent, the
Transferor and the Trustee) a new Form 4224 (or successor applicable forms) upon
the expiration or obsolescence of any previously delivered form and comparable
statements in accordance with applicable United States laws and regulations and
amendments duly executed and completed by such Transferee unless a change in law
has occurred prior to the date on which such form inapplicable, and to comply
from time to time with all applicable United States laws and regulations with
regard to such withholding tax exemption.
(k) ERISA Limitations. Notwithstanding any other provisions
herein, no transfer or assignment of any interests or obligations of any Class A
Certificateholder hereunder or any grant of participations therein shall be
permitted if such transfer, assignment or grant would result in a prohibited
transaction under Section 4975 of the Internal Revenue Code or Section 406 of
ERISA or cause the Trust Assets to be regarded as "plan assets" pursuant to 29
C.F.R. ss.2510.3-101, or require the Transferor to file a registration statement
with the Securities and Exchange Commission or to qualify under the "blue sky"
laws of any state.
SECTION 19
NONPETITION
From the date hereof until one day following the first
anniversary of payment in full by the CP Vehicle of all Commercial Paper issued
by it, the Transferor, DNB, Mercantile and the Trustee shall not initiate, file
or join in any involuntary petition against the CP Vehicle under any present or
future state or federal statute, law or regulation relating to bankruptcy,
insolvency or other relief for debtors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-37-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this
Supplement to be duly executed and delivered by their respective duly authorized
officers on the day and year first above written.
DILLARD ASSET FUNDING COMPANY,
as Transferor
BY: CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity but solely
as owner trustee
By: ___________________________________
Name: _________________________________
Title: ________________________________
DILLARD NATIONAL BANK,
as Master Servicer
By: ___________________________________
Name: _________________________________
Title: ________________________________
THE CHASE MANHATTAN BANK, as Trustee
By: ___________________________________
Name: _________________________________
Title: ________________________________
-38-
<PAGE>
EXHIBIT A
FORM OF CLASS A CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT
THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON WHO THE HOLDER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ("QIB") WITHIN THE
MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT, OR A QIB PURCHASING FOR
THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH
REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A. EACH CERTIFICATE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS
CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS
OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF THE
TRANSFEROR AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT
PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF
ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE "CODE"), (III) A GOVERNMENTAL PLAN, AS DEFINED IN
SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO
A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION
4975 OF THE CODE, (IV) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS (AS
DEFINED IN 29 C.F.R. SECTION 2510.3-101 OR OTHERWISE UNDER ERISA) BY REASON OF A
PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON INVESTING PLAN ASSETS OF ANY
SUCH PLAN (INCLUDING, WITHOUT LIMITATION, FOR PURPOSES OF CLAUSE (IV) AND THIS
CLAUSE (V), ANY INSURANCE COMPANY GENERAL ACCOUNT, BUT EXCLUDING ANY ENTITY
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
THIS CERTIFICATE WILL NOT BE ACCEPTED FOR REGISTRATION OF
TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE TRUSTEE THAT
THE RESTRICTIONS ON TRANSFER SET FORTH ABOVE HAVE BEEN COMPLIED WITH, ALL AS
PROVIDED IN THE AGREEMENT.
No. $
<PAGE>
DILLARD'S MASTER CREDIT CARD TRUST I
VFC SERIES 1998 FLOATING RATE
ASSET BACKED CERTIFICATE, CLASS A
Each $1,000 minimum denomination represents
an Undivided Interest in the
Dillard's Master Credit Card Trust I VFC Series 1998
Evidencing an Undivided Interest in a trust, the corpus of
which consists of a portfolio of credit card receivables generated or acquired
by Dillard Asset Funding Company and other assets and interests constituting the
Trust under the Pooling and Servicing Agreement described below.
(Not an interest in or obligation of Dillard Asset Funding
Company or any Affiliate thereof.)
This certifies that ______________ (the "Class A
Certificateholder") is the registered owner of the Undivided Interest in a trust
(the "Trust"), the corpus of which consists of a portfolio of receivables (the
"Receivables") now existing or hereafter created and arising in connection with
selected credit card accounts (the "Accounts") acquired by Dillard Asset Funding
Company, all moneys due or to become due in payment of the Receivables
(including all Finance Charge Receivables), all proceeds of such Receivables,
proceeds of credit insurance policies relating to the Receivables, all moneys on
deposit in certain bank accounts of the Trust (including, if specified, certain
investment earnings thereon), and the other assets and interests constituting
the Trust pursuant to a Pooling and Servicing Agreement dated as of August 1,
1998, as amended or supplemented from time to time (the "Pooling and Servicing
Agreement"), by and between Dillard Asset Funding Company, as Transferor,
Dillard National Bank, as Master Servicer, and The Chase Manhattan Bank, as
Trustee (the "Trustee").
The Transferor has structured the Pooling and Servicing
Agreement and the VFC Series 1998 Certificates with the intention that the VFC
Series 1998 Certificates will qualify under applicable federal, state, local and
foreign tax law as indebtedness, and the Transferor, the Holder of the
Exchangeable Transferor Certificate, the Master Servicer and each VFC Series
1998 Certificateholder (or VFC Series 1998 Certificate Owner), by acceptance of
its VFC Series 1998 Certificate (or, in the case of a VFC Series 1998
Certificate Owner, by virtue of such VFC Series 1998 Certificate Owner's
acquisition of a beneficial interest therein), agrees to treat and to take no
action inconsistent with the treatment of the VFC Series 1998 Certificates (or
beneficial interest therein) as indebtedness for all federal, state, local and
foreign tax purposes. Each VFC Series 1998 Certificateholder agrees that it will
cause any VFC Series 1998 Certificate Owner acquiring an interest in a VFC
Series 1998 Certificate through it to comply with the Pooling and Servicing
Agreement as to treatment as indebtedness under applicable tax law.
To the extent not defined herein, capitalized terms used
herein have the meanings assigned in the Pooling and Servicing Agreement. This
Class A Certificate is issued under and is subject to the terms, provisions and
conditions of the Pooling and Servicing Agreement and the VFC Series
-2-
<PAGE>
1998 Supplement thereto, to which Pooling and Servicing Agreement and the VFC
Series 1998 Supplement thereto, as amended from time to time, the Class A
Certificateholder by virtue of the acceptance hereof assents and by which the
Class A Certificateholder is bound.
This Class A Certificate does not represent an obligation of,
or an interest in, the Transferor or the Master Servicer, and neither the VFC
Series 1998 Certificates nor the Accounts or Receivables are insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency. This VFC Series 1998 Certificate is limited in right of
payment to certain collections respecting the Receivables, all as more
specifically set forth hereinabove and in the Pooling and Servicing Agreement.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Class A
Certificate shall not be entitled to any benefit under the Pooling and Servicing
Agreement, or be valid for any purpose.
IN WITNESS WHEREOF, Dillard Asset Funding Company has caused
this Class A Certificate to be duly executed.
DILLARD ASSET FUNDING COMPANY
BY: CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity, but solely
as owner trustee
By: ___________________________________
Name: _________________________________
Title: ________________________________
-3-
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
CERTIFICATE OF AUTHENTICATION
This is the Class A Certificate referred to in the within
mentioned Pooling and Servicing Agreement.
THE CHASE MANHATTAN BANK, as Trustee
By: _________________________________
Authorized Officer
Date:
-4-
<PAGE>
CLASS A CERTIFICATE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Initial Class Class A Current
Class Increase Principal Class A Class
Interest Amounts Payments Charge-offs Interest
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
-5-
<PAGE>
EXHIBIT B
FORM OF MONTHLY PAYMENT INSTRUCTIONS AND
NOTIFICATION TO THE TRUSTEE
<PAGE>
EXHIBIT C
FORM OF MONTHLY CERTIFICATEHOLDERS' STATEMENT
<PAGE>
EXHIBIT D
FORM OF ANNUAL MASTER SERVICER'S CERTIFICATE
DILLARD NATIONAL BANK
Dillard's Master Credit Card Trust I
The undersigned, a duty authorized representative of Dillard
National Bank ("DNB"), pursuant to the Pooling and Servicing Agreement dated as
of August 1, 1998, (the "Pooling and Servicing Agreement") by and between
Dillard Asset Funding Company, as Transferor, DNB, as Master Servicer, and The
Chase Manhattan Bank, as trustee (the "Trustee") does hereby certify that:
1. DNB is Master Servicer under the Pooling and Servicing
Agreement.
2. The undersigned is duly authorized pursuant to the Pooling
and Servicing Agreement to execute and deliver this Certificate to the Trustee.
3. This Certificate is delivered pursuant to Section 3.05 of
the Pooling and Servicing Agreement.
4. A review of the activities of the Master Servicer during
the period from the [Funding Date/January 1, ] until December [31, ] was
conducted under our supervision.
5. Based on such review, the Master Servicer has, to the best
of our knowledge, fully performed all its obligations under the Pooling and
Servicing Agreement throughout such period and no default in the performance of
such obligations has occurred or is continuing except as set forth in Paragraph
6 below.
6. The following is a description of each default in the
performance of the Master Servicer's obligations under the provisions of the
Pooling and Servicing Agreement, including any Supplement known to us to have
been made during such period which sets forth in detail (i) the nature of each
such default, (ii) the action taken by the Master Servicer, if any, to remedy
each such default and (iii) the current status of each such default.
None
IN WITNESS WHEREOF, the undersigned has duly executed this
certificate this ____ day of ___________, [ ].
Name:
Title:
<PAGE>
EXHIBIT E
FORM OF INSTITUTIONAL ACCREDITED INVESTOR CERTIFICATION
[DATE]
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Corporate Trust Division
Re: Dillard's Master Credit Card Trust I, VFC Series 1998
Ladies and Gentlemen:
In connection with our proposed purchase of $_________ in
principal amount of Dillard's Master Credit Card Trust I, Class A Certificate,
VFC Series 1998 (the "Certificate"), we confirm that:
1. We agree to be bound by the restrictions and conditions set
forth in the Pooling and Servicing Agreement dated as of August 1, 1998, as
supplemented by the Amended and Restated VFC Series 1998 Supplement thereto,
dated as of January 1, 1999 (collectively, the "Pooling and Servicing
Agreement"), each by and among Dillard Asset Funding Company, as Transferor,
Dillard National Bank, as Master Servicer, and The Chase Manhattan Bank, as
Trustee (the "Trustee"), and agree to be bound by, and not reoffer, resell,
pledge or otherwise transfer (any such act, a "Transfer"), the Certificates
except in compliance with such restrictions and conditions.
2. We understand that the Certificates have not been and will
not be registered under the Securities Act of 1933, as amended (the "Securities
Act"), or any state securities law and agree that the Certificates may be
reoffered, resold, pledged or otherwise transferred only in compliance with the
Securities Act and other applicable laws and only pursuant to Rule 144A under
the Securities Act to a person that we reasonably believe is a qualified
institutional buyer within the meaning of Rule 144A ("QIB") purchasing for its
own account or a QIB purchasing for the account of a QIB, whom we have informed,
in each case, that the reoffer, resale, pledge or other transfer is being made
in reliance on Rule 144A.
3. We are [a QIB] [a QIB purchasing for the account of a QIB]
and have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Certificates, and we and any account for which we are acting are each able to
bear the economic risk of our or its investment.
4. We are acquiring each of the Certificates purchased by us
for our own account or for a single account (each of which is an institutional
"accredited investor") as to which we exercise sole investment discretion.
-6-
<PAGE>
5. We are acquiring the Certificates purchased by us for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act.
6. We are not (i) an employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Code, (iii) a governmental plan, as
defined in Section 3(32) of ERISA, subject to any federal, state or local law
which is, to a material extent, similar to the provisions of Section 406 of
ERISA or Section 4975 of the Code, (iv) an entity whose underlying assets
include plan assets by reason of a plan's investment in the entity, or (v) a
person investing "plan assets" of any such plan (including, for purposes of
clauses (iv) and (v), any insurance company general account, but excluding any
entity registered under the Investment Company Act of 1940, as amended).
7. We further understand that, on any proposed resale, pledge
or transfer of any Certificates, we will be required to furnish to the Trustee
and the Registrar such certification and other information as the Trustee or the
Registrar may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions and with the restrictions and conditions of the
Certificates and the Pooling and Servicing Agreement pursuant to which the
Certificates were issued. We further understand that Certificates purchased by
us will bear a legend to the foregoing effect.
8. The person signing this letter on behalf of the ultimate
beneficial purchaser of the Certificates has been duly authorized by such
beneficial purchaser of the Certificates to do so.
You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[Name of Purchaser]
By: ___________________________________
Name: _________________________________
Title: ________________________________
E-2
