As filed with the Securities and Exchange Commission on June 1, 1999
Registration No. 333-67855
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-Effective
Amendment No. 3
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)
Delaware Dillard Asset Funding 880352714
(State or other Company (I.R.S. employer
jurisdiction of c/o Chase Manhattan Bank identification number)
incorporation or Delaware
organization) 1201 Market Street
Wilmington, Delaware
19801
(302) 984-3300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
James Freeman
Dillard Asset Funding Company
c/o Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
(302) 984-3300
(Address, including zip code, and telephone number, including area code, of
agent for service of registrant)
Copies to:
David Eisenberg, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
<PAGE>
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.
2
<PAGE>
The information in this prospectus is not complete and may be changed. We can
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
3
<PAGE>
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-
Class A Certificates Class B Certificates
Principal Amount $ $
Price $ ( %) $ ( %)
Underwriters' Commission $ $
Proceeds to the Issuer $ ( %) $ ( %)
Certificate Rate one-month LIBOR + one-month LIBOR +
% p.a. % p.a.
Interest Payment Dates monthly on the Monthly on the
First Interest Payment Date , 19 , 19
Scheduled Principal
Payment Date , ,
The Class B Certificates are subordinated to the Class A Certificates.
Investing in the certificates involves certain risks. See "Risk Factors"
beginning on page -- 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.
These securities are offered subject to availability.
4
<PAGE>
Underwriters of the Class A Certificates
[insert list of Class A underwriters]
Underwriter of the Class B Certificates
[insert list of Class B underwriters]
5
<PAGE>
To understand the structure of these securities, you must read carefully
the attached prospectus and this supplement in their entirety.
TABLE OF CONTENTS
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 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-8
Allocations of Charged-Off Receivables and
Dilutions Could Result in a Loss to You S-9
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 . . . . . . . . . . S-11
S-2
<PAGE>
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 Could
Disproportionately Affect the
Receivables Pool . . . . . . . . . . S-12
Dillard's Credit Card Portfolio . . . . . . S-12
GeneralS-12
Delinquency and Loss ExperienceS-12
Recoveries . . . . . . . . . . . . . . S-14
The Receivables . . . . . . . . . . . . . . S-15
General . . . . . . . . . . . . . . . . . . S-15
Dilution Experience . . . . . . . . . . . . S-17
Maturity Considerations . . . . . . . . . . S-19
Controlled Accumulation Period. . . . . . . S-19
Rapid Amortization Period . . . . . . . . . S-19
Pay Out Events . . . . . . . . . . . . . . S-19
Payment Rates . . . . . . . . . . . . . . . S-20
Receivable Yield Considerations . . . . . . S-21
Use of Proceeds . . . . . . . . . . . . . . S-22
Description of the Certificates . . . . . . S-22
General . . . . . . . . . . . . . . . . . . S-22
Status of the Certificates . . . . . . . . S-23
Interest Payments . . . . . . . . . . . . . S-24
Principal Payments . . . . . . . . . . . . S-25
Postponement of Controlled Accumulation
Period . . . . . . . . . . . . . . . S-26
Subordination . . . . . . . . . . . . . . . S-26
Allocation Percentages . . . . . . . . . . S-27
S-3
<PAGE>
Reallocation of Cash Flows . . . . . . . . S-27
Application of Collections . . . . . . S-29
Application of Collections of Finance
Charge Receivables . . . . . . . . . S-32
Allocations of Collections of Principal
Receivables . . . . . . . . . . . . . S-33
Shared Excess Finance Charge
Collections . . . . . . . . . . . . . S-34
Shared Principal Collections . . . . . . . S-34
Required Collateral Interest . . . . . . . S-34
Adjustment Payments . . . . . . . . . . . . S-35
Defaulted Receivables; Dilutions; Investor
Charge-Offs . . . . . . . . . . . . . S-35
Servicer Guarantee . . . . . . . . . . . . S-35
Principal Funding Account . . . . . . . . . S-36
[Reserve Account] . . . . . . . . . . . . . S-37
Issuance of Additional Certificates . . . . S-38
Companion Series . . . . . . . . . . . . . S-38
Pay Out Events . . . . . . . . . . . . . . S-39
Servicing Compensation and Payment of
Expenses . . . . . . . . . . . . . . S-39
The Certificates . . . . . . . . . . . . . S-40
Exchanges . . . . . . . . . . . . . . . . . S-40
Reports to Certificateholders . . . . . . . S-40
Listing And General Information . . . . . . S-41
ERISA Considerations . . . . . . . . . . . S-41
Class A Certificates . . . . . . . . . . . S-41
Class B Certificates . . . . . . . . . . . S-42
Consultation with Counsel . . . . . . . . . S-42
S-4
<PAGE>
Underwriting . . . . . . . . . . . . . . . S-42
Legal Matters . . . . . . . . . . . . . . . S-45
Glossary of Terms . . . . . . . . . . . . . S-46
S-5
<PAGE>
Summary of Terms
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]
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 subordination of
and the 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 [2 business days before [2 business days before
Date: each interest payment date] each interest payment
date]
First Interest Payment Date: , ,
S-6
<PAGE>
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
_________
* It is a condition to issuance that one of these ratings be obtained.
S-7
<PAGE>
Structural Summary
This summary briefly describes certain 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 owned by Dillard's National
Bank or other Dillard's subsidiaries and have been sold to the transferor who
in turn has sold 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:
subordination of Class B certificates
subordination of the collateral interest
S-8
<PAGE>
Credit enhancement is provided to Class B
certificates by the following:
subordination of the collateral interest
The effect of subordination is that the more subordinated interests will absorb
any net losses allocated to 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:
you and other certificateholders of this series;
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)];
providers of credit enhancements for your series and other series issued by
the trust; and
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 10% 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.
S-9
<PAGE>
Scheduled Principal Payments and Potential Later
Payments
The trust expects to pay the entire principal amount due to Class A certificate-
holders 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 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.]
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.
S-10
<PAGE>
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:
S-11
<PAGE>
under existing law, the Class A and Class B certificates will be
characterized as debt for U.S. federal income tax purposes and
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-12
<PAGE>
Selected Trust Portfolio Summary Data
Graphic Distribution of Receivables in Trust Portfolio as of ,
[Chart]
The chart above shows the geographic distribution of the receivables in
the trust portfolio among the 50 states. Other than the states specifically
shown in the chart, no state accounts for more than --% of receivables in
the trust portfolio.
Age of accounts in Trust Portfolio as of , .
[Chart]
The chart above shows the percentages of the receivables in the trust
portfolio arising under accounts within the age brackets shown.
S-13
<PAGE>
Dillard's Portfolio Payment Data
[Chart]
The chart above shows the total yield, payment rate and net charge-off
rate for the Dillard's entire portfolio for each month from 19
to 19 .
"Dillard's Portfolio Yield" for any month means the total amount of
collected finance charges for the month, expressed as a percentage of total
outstanding receivables at the beginning of the month.
The "Payment Rate" for any month is the aggregate amount collected on
receivables during the month, including recoveries on previously charged off
receivables, expressed as a percentage of total outstanding receivables at
the beginning of the month.
The amount of "Net 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-14
<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.
You May Receive Principal Payments Earlier or Later than the Scheduled
Payment Date if the Portfolio Yield Is Reduced
S-15
<PAGE>
If a pay out event occurs with respect to your series, the trust
will commence a rapid amortization, and you will receive principal
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:
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.
S-16
<PAGE>
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. [While the designation of
additional accounts is subject to certain conditions
precedent, these conditions precedent [may not][do not]
include 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 certain 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.
The Transferor May Not Be Able to If the transferor's percentage interest
Add Accounts to Trust Portfolio in the accounts of the trust 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.
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 ertificate could cause a pay out
event to occur.
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
S-17
<PAGE>
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.
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 offer certain 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.
Allocations of Charged-Off Each originator anticipates that it
Receivables Could Result in a Loss will write off as uncollectible some
to You portion of the receivables arising in
its accounts in the 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.
<PAGE>
Adjustments Due to Rebates, A portion of the receivables will be
Exchanges and Writedowns Could not be collected as a result of
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.
S-18
<PAGE>
You May Not Be Able to Resell The underwriters may, but are not
Your Certificates required to, assist in resales of
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
Transferor, an Originator or an interest are conveyed to the trust
Initial Seller of Receivables by the transferor. The transferor
Could Result in Accelerated, acquires them from the originators
Delayed or Reduced Payments and from certain non-bank affiliates
to You of Dillard's which in turn acquired
the receivables from the originators.
In each instance, the 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.
S-19
<PAGE>
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.
A bankruptcy trustee, conservator or
receiver with authority over the
receivables may have the power--
regardless of the terms of the
pooling and servicing agreement,
to prevent the beginning of a
rapid amortization period,
to prevent the early sale of
the receivables and termination
of the trust,
to require new principal
receivables to continue being
transferred to the trust,
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,
S-20
<PAGE>
repudiate the pooling and
servicing agreement which
establishes the trust
and limit the trust's
resulting claim; or
regardless of the instructions of
the certificateholders,
to require the early sale of
the trust's receivables,
to require termination of the
trust and retirement of the
trust's certificates including
your series, or
to prohibit the continued
transfer of principal
receivables to the trusts.
The Timing of Payments to You The trust, as a master trust, may
May Be Affected by the Issuance issue series of certificates from
of Additional Series by the Trust time to time. The trust may issue
additional series with terms that
are different from your series
without the prior review or consent
of any certificateholders. It is a
condition to the issuance of each
new series that each rating agency
that has rated an outstanding series
confirm in writing that the issuance
of the new series will not result in
a reduction or withdrawal of its
rating of any class of any
outstanding series. However, the
terms of a new series could affect
the timing and amounts of payments
on any other outstanding series.
S-21
<PAGE>
You Will Have Limited Control Certificateholders of any series or any
of Trust Actions class within a series may need the
consent or approval of a specified
percentage of the investor interest of
other series or a class of the other
series to take or direct certain
actions, including:
appointing a successor servicer
if Dillard National Bank defaults
on its obligations under the
pooling and servicing agreement,
amending the pooling and
servicing agreement in some cases
and
directing a repurchase of
all outstanding series after
certain 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 Because Class B is subordinated to
Additional Credit Risk Class A, principal payments to 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
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 paie first to Class
A and any remaining net proceeds would
be paid to Class B.
S-22
<PAGE>
Changes in Social, Technological and Changes in purchase and payment patterns
Economic Factors May Affect by obligors under the accounts and the
Purchase and Payment Patterns and related receivables may result
Could Affect the Timing of Interest from a variety of social, technological
and Principal Payments to You and economic factors. Social factors
include potential changes in consumers'
attitudes toward financing purchases
with debt. Technological factors
include new methods of payment.
Economic factors include the rate of
inflation, unemployment levels and
relative interest rates. 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 and 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 Under the pooling and servicing
May Change Without Notice and agreement, a fixed percentage of the
May Affect Portfolio Yield Which balance of receivables originated by
May Impact the Timing of Payments the originators will be deemed to
to You constitute finance charges on those
receivables. [The transferor 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
S-23
<PAGE>
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.
Geographic Concentrations in the The receivables in the trust
Receivables Pool May Impact the portfolio as of the cut-off date
Timing and Amount of Payments to were obligations of Dillard's credit
You. card holders with primary addresses
in states. Holders residing in the
states of , and ,
represent %, % and %,
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.
S-24
<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 the delinquency and loss experience as of
the dates and for each of the periods shown for receivables arising in the
Dillard's entire portfolio of accounts. As of the beginning of the day on
, 199 , the receivables in the trust represented approximately % of
the Dillard's portfolio. Because the receivables represent only a portion of
the Dillard's portfolio, actual delinquency and loss experience for the
receivables in the trust may be different from that provided below. In
particular, reported loss and delinquency percentages for each portfolio may
be reduced as a result of the addition of receivables. Receivables in newly
originated accounts generally have lower delinquency and loss levels than
receivables in more seasoned accounts and the addition of these receivables
to a portfolio increases the outstanding receivables balance for the
portfolio which, for the Dillard's portfolio, is the denominator used to
calculate the percentages below. While all newly originated and newly
acquired accounts become part of the Dillard's portfolio when originated or
acquired, newly originated or acquired accounts do not automatically become
part of the trust portfolio but may be added from time to time at the option
of the transferor.
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
S-25
<PAGE>
after the original billing date. In addition, delinquencies are calculated
as a percentage of outstanding receivables as of the end of the month.
Delinquency Experience
Dillard's Portfolio
(Dollars in thousands)
December 31,
----------------------------------------------------------------
1998 1997 1996
---------------------- --------------------- -------------------
Number of Percentage Percentage Percentage
Days Delinquent of Total Delinquent of Total Delinquent of Total
Delinquent Amount Receivables Amount Receivables Amount Receivables
- -------------------------------------------------------------------------------
30 to 59 Days $50,542 3.31% $57,820 3.37% $53,385 3.19%
60 to 89 Days 25,816 1.69 22,446 1.31 21,925 1.31
90 Days or
More 58,663 3.83 44,184 2.58 46,029 2.75
------- ---- ------- ----- ------ -----
TOTAL $135,221 8.83% $124,450 7.26% $121.339 7.25%
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 represented as a percentage for the months ended
is an annualized figure.]
Loss Experience
Dillard's Portfolio
(Dollars in millions)
Year Ended December 31,
---------------------------------------
1998 1997 1996
---------------------------------------
Average Receivables Outstanding . . . . $1,601,806 $1,621,623 $1,595,213
Gross Charge-Offs . . . . . . . . . . . 102,426 94,066 105,221
Recoveries . . . . . . . . . . . . . . 12,497 13,060 12,871
Net Charge-Offs . . . . . . . . . . . . 89,929 81,006 92,350
Net Charge-Offs as a Percentage of
Average Receivables
Outstanding . . . . . . . . . . . . 5.61% 5.00% 5.79%
S-26
<PAGE>
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-27
<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 % and % 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,
- 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
- to maintain, for so long as certificates of any series remain
outstanding, the sum of
- the aggregate amount of Principal Receivables; and
- 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
right under the pooling and servicing agreement (subject to certain
limitations and conditions) 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, and 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 beginning of the day on , 1999, the trust
portfolio had
- total balances of
- $-- in Principal Receivables; and
- $-- in Finance Charge Receivables;
- accounts with an average
- principal balance of $--;
- credit limit of $--; and
- age of--months;
S-28
<PAGE>
- percentage of total receivable balance to total credit limit of
--%; and
- cardholders with billing addresses in -- 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.
The following tables summarize the trust portfolio by various criteria
as of the beginning of the day on , 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
(dollar amounts in millions)
Percentage of
Number of Total Number Receivables Percentage of
Account Balance Accounts Accounts Outstanding Total Receivables
- ----------------------- --------- ------------ ----------- -----------------
Credit Balance . . . . .
No Balance . . . . . . .
$0.01 to $1,500.00 . . .
$1,500.01 to $5,000.00 .
[$5,000.01 to $10,000.00 .
$10,000.01 to $20,000.00 .
Over $20,000.00 . . . . ] ------- ------- ------- --------
100% 100%
TOTAL . . . . . . . . .
S-29
<PAGE>
Composition by Credit Limit
Trust Portfolio
(dollar amounts in millions)
Percentage of
Number of Total Number Receivables Percentage of
Account Balance Accounts Accounts Outstanding Total Receivables
- ----------------------- --------- ------------ ----------- -----------------
$0.00
$0.01 to $1,500.00 . .
$1,500.01 to $5,000.00.
[$5,000.01 to $10,000.00
Over $10,000.00 . . . . ]
------- ------- ------- --------
100% 100%
TOTAL . . . . . . . . .
Composition by Period of Delinquency
Trust Portfolio
(dollar amounts in millions)
Percentage of
Number of Total Number Receivables Percentage of
Account Balance Accounts Accounts Outstanding Total Receivables
- ----------------------- --------- ------------ ----------- -----------------
Current to 29 days
delinquent . . . . .
30 to 59 days
delinquent . . . .
60 to 89 days
delinquent . . . .
90 to 119 days
delinquent . . . . .
120 days delinquent
or more . . . . . .
------- ------- ------- --------
100% 100%
TOTAL . . . . . . . . .
S-30
<PAGE>
Composition by Account Seasoning
Trust Portfolio
(dollar amounts in millions)
Percentage of
Number of Total Number Receivables Percentage
Account Age (months Accounts Accounts Outstanding of Total
since account opening) Receivables
- ----------------------- --------- ------------ ----------- -----------
Not More than 6 Months . . .
Over 6 Months to 12 Months .
Over 12 Months to 24 Months .
Over 24 Months to 36 Months .
Over 36 Months to 48 Months .
Over 48 Months to 60 Months .
Over 60 Months to 120 Months
Over 120 Months . . . . . . .
100.00% 100.00%
TOTAL. .. . . .. . . .. .
Geographic Distribution of Accounts
Trust Portfolio
(dollar amounts in millions)
Percentage of
Number of Total Number Receivables Percentage
Accounts Accounts Outstanding of Total
State Receivables
- ----------------------- --------- ------------ ----------- -----------
[ . . . . . . . . . . ]
Other . . .. . . . . . .
100.00% 100.00%
TOTAL. .. . . .. . . .. .
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 certain other
non-cash items, or if a receivable is canceled due to goods that have been
S-31
<PAGE>
refused by a cardholder. The table below provides dilution experience for
receivables originated by the originators. [For purposes of the following
table, the middle fiscal month of each fiscal quarter is a five week fiscal
month and the first and third fiscal month of each fiscal quarter is a four
week fiscal month.] There can be no assurance that the actual dilution
experience in the future will be similar to the historical experience
provided in this table.
Dilution Experience
Monthly Dilution Monthly Dilution
Monthly Period Percentage Monthly Period Percentage
- -------------- ---------- -------------- ----------
January . . . . . . . July . . . . . . .
February . . . . . . August . . . . . .
March . . . . . . . . September . . . . .
April . . . . . . . . October . . . . . .
May . . . . . . . . . November . . . . .
June . . . . . . . . December . . . . .
January . . . . . . . July . . . . . . .
February . . . . . . August . . . . . .
March . . . . . . . . September . . . . .
April . . . . . . . . October . . . . . .
May . . . . . . . . . November . . . . .
S-32
<PAGE>
June . . . . . . . . December . . . . .
January . . . . . . . July . . . . . . .
February . . . . . . . . August . . . . . .
March . . . . . . . . . . September . . . . .
April . . . . . . . . . . October . . . . . .
May . . . . . . . . . . . November . . . . .
June . . . . . . . . . . December . . . . .
S-33
<PAGE>
Maturity Considerations
Class A certificateholders will receive payments of principal on the
earlier of
- the Class A Scheduled Payment Date; and
- 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
- the Class B Scheduled Payment Date; and
- 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 monthly
period. Subject to certain conditions, the day on which the Revolving Period
ends and the Controlled Accumulation Period begins may be delayed to no later
than the close of business on the last day of the monthly period.
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.
- Amounts in the Principal Funding Account are expected to be
available to pay the Class A Investor Interest on the Class A
Scheduled Payment Date.
- After the payment of the Class A Investor Interest in full,
Available Investor Principal Collections are expected to be
available to pay the Class B Investor Interest on the Class B
Scheduled Payment Date.
- 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.
S-34
<PAGE>
Pay Out Events
A Pay Out Event for your series occurs, either automatically or after
specified notice, upon
- the failure of the transferor to make certain payments or
transfers of funds for the benefit of the certificateholders
within the time periods stated in the pooling and servicing
agreement,
- material breaches of certain representations, warranties or
covenants of the transferor,
- certain bankruptcy or insolvency events involving the transferor,
Dillard's or an originator,
- 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,
- the trust becoming subject to regulation as an investment company
within the meaning of the Investment Company Act of 1940, as
amended,
- the failure of the transferor to convey receivables arising under
additional accounts when required by the pooling and servicing
agreement,
- the occurrence of a servicer default which would have a material
adverse effect on the certificateholders,
- 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,
- the transferor's interest in the trust becoming less than the
Minimum Transferor Interest, or
- 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 for the Dillard's portfolio during any month in the period
shown and the average cardholder monthly payment rates for all months during
the periods shown. In each case 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.
S-35
<PAGE>
Cardholder Monthly Payment Rates
Dillard's Portfolio
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ------------ ------------
Highest Month . . . . . . . . . . . . . 21.66% 21.63% 21.75%
Lowest Month . . . . . . . . . . . . . 17.08 17.16 17.27
Monthly Average . . . . . . . . . . . . 18.76 19.11 19.38
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 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
S-36
<PAGE>
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 in
the Dillard's portfolio for each of the three calendar years contained in the
period ended December 31, 1998 [and for the -month period ended
, 1999,] 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. [However, the transferor
believes that during the three calendar years contained in the period ended
December 31, 1998 and for the -month period ended , 1999,
the yield on an accrual basis closely approximated the yield on a cash basis.
The yield on both an accrual and a cash basis will be affected by numerous
factors, including
- monthly periodic finance charges on the receivables;
- fees charged;
- changes in the delinquency rate on the receivables; and
- 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
S-37
<PAGE>
percentage reflected for the months ended , 1999 is an Annualized figure.]
Portfolio Yield
Dillard's Portfolio
(dollar amounts in millions)
Year Ended December 31,
--------------------------------------
1998 1997 1996
----------- ----------- --------------
Finance Charges and Fees Billed . . . . $ 300,743 $314,609 $292,332
Average Receivables Outstanding . . . . 1,601,806 1,621,624 1,595,213
Yield from Finance charges and
Fees Billed . . . . . . . . . . . . . . 18.78% 19.40% 18.33%
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.
This summary is not a complete description of the terms of the
certificates. 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
S-38
<PAGE>
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:
- payments of interest on each distribution date at the Class A
certificate rate from Finance Charge Receivables,
- payments of principal on ______ __, 20__ in an amount equal to
the principal amount of the certificates from Principal
Receivables, and
- collections allocated to the Class A Investor Interest from:
- 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;
- funds on deposit in the Principal Funding Account and the
Reserve Account, including certain investment earnings on
those accounts;
- Reallocated Principal Collections, which represent certain
amounts available from another class of certificates of this
series;
- Shared Principal Collections, which represent certain
amounts available from other series of certificates; and
- certain other available amounts, including, under certain
circumstances, amounts on deposit in the excess funding
account established under the agreement.
Each Class B certificate represents the right to receive:
- payments of interest on each distribution date at the Class B
certificate rate from Finance Charge Receivables;
- payments of principal on _______ __, 20__ in an amount equal to
the principal amount of the certificates from Principal
Receivables, and
- collections allocated to the Class B Investor Interest from:
- Excess Spread;
- Reallocated Collateral Principal Collections, which
represent certain amounts allocable to the Collateral
Interest;
- Shared Principal Collections; and
- certain other available amounts, including, under certain
circumstances, 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
S-39
<PAGE>
certificate in whole or in part subject to certain limitations and conditions
under the agreement. See "Description of the Certificates--Certain 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-40
<PAGE>
Interest Payments
Interest on the Class A certificates Interest on the Class B certificates
will: will:
- accrue at the Class A certificate - accrue at the Class B certificate
rate from the closing date; rate from the closing date;
- be calculated at the Class A - be calculated at the Class B
certificate rate certificate rate
- from the closing date through - from the closing date through
, 1999; and , 1999; and
- for each subsequent Interest - for each subsequent Interest
Period; Period;
- be calculated on the - be calculated on the
- initial outstanding principal - initial outstanding principal
balance of the Class A balance of the Class B
closing date for the first closing date for the first
Distribution Date; and Distribution Date; and
- outstanding principal balance - outstanding principal balance
of the Class A certificates as of the Class B certificates as
of the preceding Record Date of the preceding Record Date
on each subsequent on each subsequent Distribution
Distribution Date; Date;
- - be paid from - be paid from
- Class A Available Funds for - Class B Available Funds for
the related Monthly Period; the related Monthly Period; and
and
- to the extent Class A Available - to the extent Class B Available
Funds are insufficient to pay Funds are insufficient to pay
the interest, from the interest, from
- Excess Spread; and - Excess Spread; and
- Reallocated Principal - Reallocated Collateral
Collections (to the extent Principal Collections
available) (to the extent available)
for the related monthly period; and for the related monthly period
remaining after selected other
payments have been made on the
Class A certificates; and
- be distributed to Class A - be distributed to Class B
certificateholders on each certificateholders on each
Distribution Date. 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. 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-41
<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 preceding a distribution
date, collections under Principal Receivables will generally be treated as
Shared Principal Collections or, under certain circumstances, deposited into
an excess funding account. This treatment is subject to certain 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:
- the Available Investor Principal Collections for the transfer
date,
- the applicable Controlled Deposit Amount, which, for such monthly
period, is an amount equal to the Controlled Accumulation Amount,
and
- 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
S-42
<PAGE>
Interest has been paid in full, an amount equal to the least of the following
amounts:
- Available Investor Principal Collections for the transfer date,
and
- 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, under certain
circumstances, deposited into the excess funding account.
During the Controlled Accumulation Period until the final payment to
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 the transfer date will be
generally treated as Shared Principal Collections or, under certain
circumstances, 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 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
S-43
<PAGE>
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
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 certain other series which are scheduled to be in their
revolving periods during the Controlled Accumulation Period and on increases
in the principal payment rate occurring after the closing date. The length of
the Controlled Accumulation Period will not be determined to be less than one
month.
Subordination
Class B Certificates
- The Class B certificates will be subordinated to the extent
necessary to fund certain payments to the Class A certificates;
- Certain principal payments allocable to the Class B certificates
may be reallocated to cover amounts in respect of the Class A
certificates; and
- The Class B Investor Interest may be reduced if the Collateral
Interest is equal to zero 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.
- The Collateral Interest will be subordinated to the extent
necessary to the Class A and Class B certificates;
- Principal payments allocable to the Collateral Interest may be
reallocated to cover payments to the Class A and Class B
certificates; and
- The Collateral Interest may be reduced.
S-44
<PAGE>
Allocation Percentages
For each Monthly Period the servicer will allocate among the Investor
Interest, 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
- Class A certificateholders will be based on the Class A Floating
Allocation;
- Class B certificateholders will be based on the Class B Floating
Allocation; and
- 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
- Class A certificateholders based on the Class A Floating
Allocation;
- Class B certificateholders based on the Class B Floating
Allocation; and
- 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
- Class A certificateholders will be based on the Class A Fixed
Allocation;
- Class B certificateholders will be based on the Class B Fixed
Allocation; and
- 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
- Class A monthly interest due on the related Distribution Date and
overdue Class A monthly interest and Class A additional interest,
if any,
- the Class A servicing fee for the related monthly period and
overdue Class A servicing fee, if any; and
S-45
<PAGE>
- 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:
- funds available for this purpose from the Excess Spread allocated
to Series 1999- for that Transfer Date; then
- Reallocated Collateral Principal Collections for the related
monthly period; then
- Reallocated Class B Principal Collections for the related monthly
period; then
- Collateral Interest collections will be reduced by the amount of
the insufficiency until the Collateral Interest collections are
reduced to zero; then
- after giving effect to reductions for any Collateral Charge-
Offs and Reallocated Principal Collections on the Transfer
Date; and then
- provided that the reduction will not be by more than the
Class A Investor Default Amount for that monthly period;
then
- Class B Investor Interest will be reduced by the remaining
insufficiency 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 for which the Collateral Interest was not
reduced on such Transfer Date; and then
- 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
- Class A Investor Interest will be reduced by the remaining
insufficiency;
- 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."
S-46
<PAGE>
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
- 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, if any; and
- the Class B servicing fee for the related monthly period and
overdue Class B servicing fee, if any; and
- 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:
- 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
- Reallocated Collateral Principal Collections not required to fund
the Class A Required Amount for the related monthly period; then
- Collateral Interest collected on the Transfer Date will be
reduced by the remaining insufficiency until the Collateral
Interest collections are reduced to zero;
- after any adjustments made thereto for the benefit of the
Class A certificateholders;
- after giving effect to reductions for any Collateral Charge-
Offs and Reallocated Principal; and
- provided that the reduction will not be more than the Class
B Investor Default Amount for the monthly period; then
- Class B Investor Interest collections on the Transfer Date will
be reduced by the remaining insufficiency; then
- after giving effect to reductions for any Collateral Charge-
Offs and Reallocated Principal Collections; and
- 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."
S-47
<PAGE>
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 the 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:
- 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;
- 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
- 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.
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:
- 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;
- 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;
S-48
<PAGE>
- 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
- 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:
- 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;
- 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
- 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:
- 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
- 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:
- the Class A Required Amount, if any, for the Transfer Date will be
used to fund the Class A Required Amount; provided, that in the event
the Class A Required Amount for the Transfer Date exceeds the amount
of Excess Spread, the Excess Spread will be applied to pay amounts
due on the Transfer Date under the first three priorities relating to
Class A Available Funds above under "--Payment of Interest, Fees and
Other Items."
- 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 certain other amounts applied for that purpose) will
be deposited into the Principal Account and treated as a portion of
Available Investor Principal Collections for the Transfer Date as
described under "--Payments of Principal" below;
- the Class B Required Amount, if any, for the Transfer Date will be
used to fund the Class B Required Amount and will be applied to
S-49
<PAGE>
- pay 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
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- the amounts determined to be payable pursuant to the pooling and
servicing agreement shall be paid to the collateral interest holder;
and
S-50
<PAGE>
- 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 certain allocation and payment provisions and
is qualified by the full descriptions of these provisions in this prospectus
supplement and the attached prospectus.
Allocations of Collections of Finance Charge Receivables
CHART
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:
- on each Transfer Date during the Revolving Period, all Available
Investor Principal Collections will be distributed or deposited in
the following priority:
- 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
- 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;
- 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:
- Class A Monthly Principal will be
- during the Controlled Accumulation Period, deposited in the
Principal Funding Account (up to the Controlled Deposit
Amount for the Transfer Date) or
- during the Rapid Amortization Period, distributed to the
Class A certificateholders; and
- 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;
S-51
<PAGE>
- 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
- 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. Series 1999- will terminate on the Series 1999-
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 certain allocation and payment
provisions and is qualified by the full descriptions of these provisions in
this prospectus supplement and the prospectus.
Allocations of Collections of Principal Receivables
CHART
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:
- share Excess Finance Charge Collections with each other series,
if any, in Group I;
- 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
- pay the holder of the transferor certificate, Excess Finance
Charge Collections, if any, remaining after covering shortfalls
on all outstanding series in the group.
S-52
<PAGE>
While this series is included in Group I, there can be no assurance
that:
- any other series will be included in the group; or
- 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:
- during the Controlled Accumulation Period:
- deposits of the applicable Controlled Deposit Amount to
- the Principal Funding Account; or
- the Distribution Account; and
- during the Rapid Amortization Period:
- first, payments to the certificateholders; and
- second, under certain circumstances, payments to the
collateral interest holder.
For any monthly period, the servicer will allocate the Shared Principal
Collections:
- first, to cover Principal Shortfalls, on a pro rata
basis among the applicable Series (but not investor
charge-offs for any series); and
- second, to the extent Shared Principal Collections exceed
Principal Shortfalls, to:
- the holder of the transferor certificate; or
- under certain circumstances, 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."
S-58
<PAGE>
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.
Defaulted Receivables; Dilutions; Investor Charge-Offs
On or before each Transfer Date, the servicer will:
- calculate the Investor Default Amount for the preceding monthly
period;
- allocate the Class A Investor Default Amount to the Class A
certificateholders;
- allocate the Class B Investor Default Amount to the Class B
certificateholders; and
- 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
- Excess Spread and
- Reallocated Principal Collections; then
the following reductions will occur to the extent necessary and in the order
in which they appear:
- 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:
- the Class A Investor Default Amount; and
- the Collateral Interest
until the Collateral Interest is zero; then
- 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
S-59
<PAGE>
- the Class A Investor Interest will be reduced by the Class A
Investor Charge-Offs.
Any reduction in the Class A Investor Interest, will
- slow or even reduce the return of principal and interest
to the Class A certificateholders; and
- 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
- Excess Spread and
- Reallocated Principal Collections; then
the following reductions will occur to the extent necessary and in the order
in which they appear:
- 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:
- the Class B Investor Default Amount; and
- the Collateral Interest
until the Collateral Interest is zero; and then
- the Class B Investor Interest will be reduced by the Class B
Investor Charge-Off.
Any reduction in the Class B Investor Interest, will
- slow or even reduce the return of principal and interest
to the Class B certificateholders; and
- 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:
- Collateral Charge-Offs; or
S-60
<PAGE>
- 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 the Servicer Guarantee.
Principal Funding Account
Under the Series 1999- supplement, the trustee at the direction of
the servicer will:
- establish and maintain the Principal Funding Account;
- during the Controlled Accumulation Period, transfer
collections from the Principal Account to the Principal
Funding Account as described under "--Application of
Collections." related to
- Principal Receivables (other than Reallocated
Principal Collections) and
- Shared Principal Collections from other series,
if any, allocated to Series 1999- ; and
- ultimately use these collections to pay the principal of
the Class A certificates on the earlier of
- the Class A Scheduled Payment Date or
- 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
- (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
- the Class A Covered Amount,
an amount up to the shortfall will be
- withdrawn from the Reserve Account;
- deposited in the Finance Charge Account and
S-61
<PAGE>
- included in collections of Finance Charge Receivables to
be applied to the payment of Class A Monthly Interest.
[Reserve Account
On each Transfer Date, the trustee, acting on the servicer's
instructions, will fund the Reserve Account
- from and after the Reserve Account Funding Date;
- prior to the termination of the Reserve Account;
- from Excess Spread allocated to the certificates to the
extent described above under "--Application of
Collections--Excess Spread"; and
- 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
- 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 Account;
- provided that the Reserve Account has not terminated as
described below,
- may invest at the direction of the servicer
amounts in the Reserve Account in permitted
investments until the following Transfer Date,
and
- retain the net investment income in the Reserve
Account or deposited in the Finance Charge
Account and treated as Class A Available Funds;
- on or before each Transfer Date during the Controlled
Accumulation Period and on the first Transfer Date
during the Rapid Amortization Period,
- 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
- the Available Reserve Account Amount
and
- the Class A Principal Funding
Investment Shortfall;
S-56
<PAGE>
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
- the termination of the trust pursuant to the pooling and
servicing agreement; and
- if the Controlled Accumulation Period has not commenced
- the first Transfer Date during the Rapid
Amortization Period or,
- if the Controlled Accumulation Period has commenced,
- the earlier to occur of
- the first Transfer Date during the Rapid Amortization
Period; and
- 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.]
Issuance of Additional Certificates
The Series 1999- supplement provides that, from time to time
during the Revolving Period, the transferor may, subject to certain
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
certain conditions provided in the Series 1999- supplement, including
the following:
S-63
<PAGE>
- 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,
- after giving effect to the additional issuance, the total amount
of Principal Receivables will be greater than or equal to the
Minimum Aggregate Principal Receivables,
- the transferor will have delivered evidence of the proportional
increase in the Collateral Interest to the trustee and the Rating
Agencies,
- the Rating Agency Condition will have been satisfied for the
additional issuance,
- 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,
- as of the date of the additional issuance there are no Investor
Charge-Offs for any class of this series; and
- 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
- 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
- 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.
The issuance of a companion series will be subject to the conditions
described under "Description of the Certificates--Exchanges" in the
S-58
<PAGE>
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 clause (y) of the denominator of the
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 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,
- on the certificates if,
- in the case of any event described in clause
(a), (b) or (e) of the definition of Pay Out
Event,
- any applicable grace period has
expired, and
- 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
- 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
- for all series then outstanding
- 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.
S-59
<PAGE>
On the date on which a Pay Out Event is deemed to have occurred,
- the Rapid Amortization Period will begin; and
- 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
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 the related 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."
The servicer will pay from its servicing compensation certain 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
S-60
<PAGE>
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
- the amount, if any, withdrawn from the Principal Funding Account for
the Transfer Date, and
- 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-67
<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 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 Code 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
S-62
<PAGE>
(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
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.
S-63
<PAGE>
Class B Certificates
The underwriter currently does not expect that the Class B certificates
will be held by at least 100 Independent Investors and, therefore, does not
expect that such Class B certificates will qualify as publicly-offered
securities under the regulation referred to in the preceding paragraph.
Accordingly, the Class B certificates may not be acquired or held by (a) any
employee benefit plan that is subject to ERISA, (b) any plan or other
arrangement (including an individual retirement account or Keogh plan) that
is subject to Section 4975 of the Code, or (c) any entity whose underlying
assets include plan assets under the regulation by reason of any such plan's
investment in the entity. By its acceptance of a Class B certificate, each
Class B certificateholder will be deemed to have represented and warranted
that it is not and will not be subject to the foregoing limitation.
Consultation with Counsel
In light of the foregoing, fiduciaries or other persons contemplating
purchasing the certificates on behalf or with plan assets of any Plan should
consult their own counsel regarding whether the trust assets represented by
the certificates would be considered plan assets, the consequences that would
apply if the trust's assets were considered plan assets, and the possibility
of exemptive relief from the prohibited transaction rules.
Finally, Plan fiduciaries and other Plan investors should consider the
fiduciary standards under ERISA or other applicable law in the context of the
Plan's particular circumstances before authorizing an investment of a portion
of the Plan's assets in the certificates. Accordingly, among other factors,
Plan fiduciaries and other Plan investors should consider whether the
investment (i) satisfies the diversification requirement of ERISA or other
applicable law, (ii) is in accordance with the Plan's governing instruments,
and (iii) is prudent in light of the risk factors and other factors discussed
in this prospectus supplement.
Underwriting
Subject to the terms 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:
Principal Amount
of
Class A
Class A Underwriters Certificates
- -------------------- ----------------
Total . . . . . . . . . . . . . . . . . . .
S-64
<PAGE>
Principal Amount
of
Class B
Class B Underwriter certificates
- ------------------- -----------------
[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 certain
conditions are satisfied. We have agreed to indemnify the underwriters
against certain 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 certain dealers at that price less a
concession of [ ]%. The Class A underwriters or those dealers may allow a
discount of [ ]% on sales to certain other dealers. 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 B underwriters may offer the Class B
certificates to certain dealers at that price less a concession of [ ]%.
The Class B underwriters or those dealers may allow a discount of [ ]% on
sales to certain 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,
S-65
<PAGE>
including serving as an agent and/or lender on some of our credit
agreements.]
[Each underwriter has represented and agreed that
- 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;
- 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;
- 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
- 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:
- the underwriters may overallot in connection with any offering of
certificates, creating a sort position in the certificates for
their own accounts;
- 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
- in any offering of the certificates through a syndicate of
underwriters, the underwriting syndicate may reclaim selling
S-66
<PAGE>
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-67
<PAGE>
Glossary of Terms
The certificates will be issued pursuant to the pooling and servicing
agreement and the series supplement. The following glossary of terms is not
complete. You should refer to the prospectus, the pooling and servicing
agreement and the series supplement for additional definitions. If you send
a written request to the trustee at its corporate office, the trustee will
provide to you without charge a copy of the pooling and servicing agreement
(without exhibits and schedules) and the series supplement (without
exhibits).
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.
"Accumulation Period Length" will mean the number of whole months
expected to be required to fund the Principal Funding Account up to the
initial outstanding principal amount of the Class A certificates no later
than the Class A Scheduled Payment Date, based on (a) the expected monthly
collections of Principal Receivables expected to be distributable to the
certificateholders of all series (excluding certain other series), assuming a
principal payment rate no greater than the lowest monthly principal payment
rate on the receivables for the preceding twelve months and (b) the amount of
principal expected to be distributable to certificateholders of all series
(excluding certain other series) which are not expected to be in their
revolving periods during the Controlled Accumulation Period.
"Addition Date" will mean the related date of the first addition to the
trust of receivables in certain designated accounts.
"Adjusted Investor Interest" will mean for any date of
determination means the sum of the Class A Adjusted Investor Interest, the
Class B Investor Interest and the Collateral Interest.
"Available Investor Principal Collections" will mean, with respect
to any monthly period, an amount equal to the sum of (a) (i) collections of
Principal Receivables received during the monthly period and other amounts
allocable to the Investor Interest, minus (ii) the amount of Reallocated
Principal Collections for the monthly period used to fund the Required
Amount, plus (b) any Shared Principal Collections for other series that are
allocated to Series 1999-__.
"Available Reserve Account Amount" will mean on each Transfer Date,
the amount available to be withdrawn from the Reserve Account 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.
S-68
<PAGE>
"Cedel" will mean Cedelbank.
"Class A Adjusted Investor Interest" will mean, 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" will mean, with respect to any monthly
period, an amount equal to the sum of (a) the Class A Floating Allocation of
collections of Finance Charge Receivables allocated to the Investor Interest
for the monthly period, (b) Principal Funding Investment Proceeds, if any,
for the related Transfer Date and (c) amounts, if any, to be withdrawn from
the Reserve Account which are required to be included in Class A Available
Funds under the Series 1998- Supplement Transfer Date.
"Class A certificate rate" will mean a rate of interest per annum
above LIBOR as determined on the related LIBOR Determination Date with
respect to each period.
"Class A Covered Amount" for each Transfer Date will mean Principal
Funding Account Balance as of the Record Date preceding the Transfer Date.
"Class A Fixed Allocation" will mean, 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" will mean, 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.
"Class A Investor Charge-Off" will mean the amount by which the Class
B Investor Interest would have been reduced below zero, but not more than the
Class A Investor Default Amount for the related Transfer Date.
"Class A Investor Default Amount" will mean 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 (a)
the aggregate initial principal amount of the Class A certificates, minus (b)
S-69
<PAGE>
the aggregate amount of principal payments made to Class A certificateholders
prior to that date, minus (c) 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" will mean, for any Distribution Date, an
amount equal to the product of (i) the Class A Certificate Rate for related
Interest Period, (ii) the actual number of days in that Interest Period
divided by 360 and (iii) 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 (calculated as though there were 30 days in).
"Class A Monthly Principal" will mean, with respect to any Transfer
Date relating to the Controlled Accumulation Period or the Rapid Amortization
Period, prior to the payment in full of the Class A Investor Interest, an
amount equal to the least of (i) the Available Investor Principal Collections
on deposit in the Principal Account with respect to that Transfer Date, (ii)
for each Transfer Date with respect to the Controlled Accumulation Period,
prior to the payment in full of the Class A Investor Interest, and on or
prior to the Class A Scheduled Payment Date, the applicable Controlled
Deposit Amount for that Transfer Date and (iii) the Class A Adjusted Investor
Interest prior to any deposits on that Transfer Date.
"Class A Required Amount" will mean, an amount, if any, equal to the sum
of (a) Class A Monthly Interest due on the related Distribution Date and
overdue Class A monthly interest and Class A Additional Interest thereon, if
any, (b) the Class A Servicing Fee for the related monthly period and overdue
Class A Servicing Fee, if any, and (c) the Class A Investor Default Amount,
if any, for the related monthly period exceeds the Class A Available Funds
for the related monthly period.
"Class B Available Funds" will mean, 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 certificate rate" will mean a rate of interest per annum
above LIBOR prevailing on the related LIBOR Determination Date with respect
to that period.
S-70
<PAGE>
"Class B Fixed Allocation" will mean, with respect to any monthly
period, the percentage equivalent (which percentage shall never exceed 100%)
of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the Revolving Period,
and the denominator of which is equal to the Investor Interest as of the
close of business on the last day of the Revolving Period.
"Class B Floating Allocation" will mean, with respect to any monthly
period, the percentage equivalent (which percentage shall never exceed 100%)
of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the preceding monthly
period (or with respect to the first monthly period, as of the Closing Date)
and the denominator of which is equal to the Adjusted Investor Interest as of
the close of business on that day.
"Class B Investor Charge-Off" will mean the amount by which the
Collateral Interest would have been reduced below zero, but not more than the
Class B Investor Default Amount for that Transfer Date.
"Class B Investor Default Amount" will mean, 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 (a)
the aggregate initial principal amount of the Class B certificates, minus (b)
the aggregate amount of principal payments made to Class B certificateholders
prior to that date, minus (c) the aggregate amount of Class B Investor
Charge-Offs for all prior Transfer Dates, minus (d) the aggregate amount of
Reallocated Class B Principal Collections for all prior Transfer Dates for
which the Collateral Interest has not been reduced, minus (e) an amount equal
to the aggregate amount by which the Class B Investor Interest has been
reduced to fund the Class A Investor Default Amount on all prior Transfer
Dates plus (f) the aggregate amount of Excess Spread allocated and available
on all prior Transfer Dates for the purpose of reimbursing amounts deducted
according to clauses (c), (d) and (e) above; provided, that the Class B
Investor Interest may not be reduced below zero.
"Class B Monthly Interest" will mean, with respect to any Distribution
Date, the product of (i) the Class B Certificate Rate for the related
Interest Period, (ii) the actual number of days in that Interest Period
divided by 360 and (iii) 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
S-71
<PAGE>
the Closing Date through __________, 1999 (calculated as though there were 30
days in ___________).
"Class B Monthly Principal" will mean, with respect to any Transfer
Date relating to the Controlled Accumulation Period or the Rapid Amortization
Period, after the Class A certificates have been paid in full (after taking
into account payments to be made on the related Distribution Date), an amount
equal to the lesser of (i) the Available Investor Principal Collections on
deposit in the Principal Account for that Transfer Date (minus the portion of
the Available Investor Principal Collections applied to Class A Monthly
Principal on that Transfer Date) and (ii) the Class B Investor Interest for
that Transfer Date.
"Class B Required Amount" will mean the sum equal to (a)the amount, if
any, by which the sum of (i) Class B Monthly Interest due on the related
Distribution Date and overdue Class B Monthly Interest and Class B Additional
Interest, if any, and (ii) the Class B Servicing Fee for the related monthly
period and overdue Class B Servicing Fee, if any, exceeds the Class B
Available Funds for that monthly period and (b) the Class B Investor Default
Amount, if any, for that related monthly period.
"Class Shortfall" will mean the amount of the Class A Covered Amount
deficiency.
"closing date" will mean ________ , 1999.
"Collateral Available Funds" will mean, 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.
"Collateral Charge-Off" will mean the amount of that excess but not
greater than the lesser of the Collateral Default Amount and the Collateral
Interest for that Transfer Date.
"Collateral Default Amount" will mean 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" will mean, for any monthly period, the
percentage equivalent (which percentage never to 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.
S-72
<PAGE>
"Collateral Floating Allocation" will mean, with respect to any
monthly period, the percentage equivalent (which percentage never to 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 Principal" will mean (a) 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 (i) 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 (ii) the Available Investor Principal Collections on that Transfer
Date or (b) with respect to any Transfer Date relating to the Controlled
Accumulation Period or Rapid Amortization Period, an amount equal to the
lesser of (i) the excess, if any, of the Collateral Interest (after giving
effect to reductions for any Collateral Charge-Offs and Reallocated Principal
Collections on 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 (ii) the excess, if any, of (A) the
Available Investor Principal Collections on that Transfer Date over (B) the
sum of the Class A Monthly Principal plus the Class B Monthly Principal for
that Transfer Date.
"Controlled Accumulation Amount" will mean (a) for any Transfer Date
with respect to the Controlled Accumulation Period, prior to the payment in
full of the Class A Investor Interest; provided, 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 Agreement based on the principal payment
rates for the Accounts and on the investor interests of other series (other
than certain excluded series) which are scheduled to be in their revolving
periods and then scheduled to create Shared Principal Collections during the
Controlled Accumulation Period and (b) for any Transfer Date with respect to
the Controlled Accumulation Period after the payment in full of the Class A
Investor Interest, an amount equal to the Class B Investor Interest on that
Transfer Date.
"Distribution Date" will mean the Closing Date and on the day of each
following month (or, if that day is not a business day, the next succeeding
business day).
S-73
<PAGE>
"DTC" will mean the Depository Trust Company.
"ERISA" will mean the Employee Retirement Income Security Act of 1979,
as amended.
"Euroclear" will mean the Euroclear System.
"Excess Finance Charge Collections" will mean 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 Funding Account" will mean an excess funding account
established under the pooling and servicing agreement as supplemented by the
Series 1999- supplement.
"Excess Spread" will mean the balance, if any, remaining after the
trustee, pursuant to the allocates the money available in the Finance Charge
Account to the Class A Available Funds, Class B Available Funds and
Collateral Available Funds.
"Fixed Investor Percentage" will 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 (x) the sum
of (A) the aggregate amount of Principal Receivables as of the close of
business on the last day of the prior monthly period and (B) the principal
amount on deposit in the Excess Funding Account as of the close of business
on such day and (y) the sum of the numerators used to calculate the Investor
Percentages for allocations with respect to Principal Receivables for all
outstanding Series for such monthly period; provided, however, that with
respect to any monthly period in which an Addition Date occurs or in which a
Removal Date occurs, the amount in clause (x)(A) above shall be (i) the
aggregate amount of Principal receivables in the trust as of the close of
business on the last day of the prior monthly period for the period from and
including the first day of such monthly period to but excluding the related
Addition Date or Removal Date and (ii) the aggregate amount of Principal
Receivables in the trust at the beginning of the day on the related Addition
Date or Removal Date after adjusting for the aggregate amount of Principal
Receivables added to or removed from the trust on the related Addition Date
or Removal Date, as the case may be, for the period from and including the
related Addition Date or Removal Date to and including the last day of such
monthly period.
S-74
<PAGE>
"Floating Investor Percentage" will 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 preceding monthly period (or with respect to the first monthly period,
the initial Investor Interest) and the denominator of which is the greater of
(x) the sum of (A) the aggregate amount of Principal Receivables as of the
close of business on the last day of the preceding monthly period (or with
respect to the first monthly period, the aggregate amount of Principal
Receivables as of the close of business on the day immediately preceding the
Closing Date) and (B) the principal amount on deposit in the Excess Funding
Account as of the close of business on such day and (y) the sum of the
numerators used to calculate the Investor Percentages for allocations with
respect to Finance Charge Receivables, Default Amounts or Principal
Receivables, as applicable, for all outstanding Series on such date of
determination; provided, however, that with respect to any monthly period in
which an addition of Accounts occurs or in which a removal of Accounts
occurs, the amount in clause (x)(A) above shall be (i) the aggregate amount
of Principal Receivables in the trust as of the close of business on the last
day of the prior monthly period for the period from and including the first
day of such monthly period to but excluding the 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, as the
case may be, for the period from and including the related Addition Date or
Removal Date to and including the last day of such monthly period.
"Independent Investors" will mean investors who were independent of the
issuer and of one another.
"Interest Period" will mean, with respect to any Distribution Date,
the period from and including the previous Distribution Date through the day
preceding such Distribution Date, except the initial Interest Period will be
the period from and including the Closing Date through , 1999.
"LIBOR" will mean, 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
S-75
<PAGE>
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.
"LIBOR Determination Date" will mean the second business day prior to
the Distribution Date on which that Interest Period commences.
"Listing Agent" will mean Banque Generale de Luxembourg, S.A.
"Minimum Aggregate Principal Receivables" will mean an amount equal to
the sum of the numerators used to calculate the Investor Percentages with
respect to the allocation of collections of Principal Receivables for each
Series then outstanding minus the amount on deposit in the Excess Funding
Account as of the date of determination; provided, that the Minimum Aggregate
Principal Receivables may be reduced to a lesser amount at any time if the
Rating Agency Condition is satisfied.
"Pay Out Event" will mean the occurrence, either automatically or
after specified notice, of the events described in "Maturity Considerations--
Pay Out Events" in this prospectus supplement.
"Plan Asset Regulation" will mean a regulation issued by the DOL.
"Portfolio Yield" will mean, for 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 Account" will mean an Eligible Deposit Account held
for the benefit of the Certificateholders.
"Principal Funding Account Balance" will mean an amount equal to the
Class A Investor Interest.
"Principal Funding Investment Proceeds" will mean Investment earnings
(net of investment losses and expenses) on funds on deposit in the Principal
Funding Account.
S-76
<PAGE>
"Principal Shortfalls" will mean 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.
"Rating Agency Condition" will mean 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.
"Reallocated Class B Principal Collections" will mean, 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 exceed the Class B Investor Interest after giving effect to
any Class B Investor Charge-Offs for that Transfer Date.
"Reallocated Collateral Principal Collections" will mean, 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" will mean, for any monthly period,
(a) the Reallocated Class B Principal Collections for such monthly period, if
any, plus (b) the Reallocated Collateral Principal Collections for that
monthly period, if any.
"Recoveries" will mean recoveries on charged-off accounts in the
Dillard's portfolio.
"Required Amount" will mean, for any monthly period, (a) the Class A
Required Amount plus (b) the Class B Required Amount, each for that monthly
period.
"Required Collateral Interest" with respect to any Transfer Date means
(i) initially $_____ (the "Initial Collateral Interest") and (ii)
thereafter on each Transfer Date an amount equal to the percentage 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
S-77
<PAGE>
Transfer Date, but not less than $_____; provided, (1) that if certain
reductions in the Collateral Interest are made or if a Pay Out Event occurs,
the Required Collateral Interest for such Transfer Date will equal the
Required Collateral Interest for the Transfer Date immediately preceding the
occurrence of that reduction or Pay Out Event, (2) 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 (3) 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" will mean, for any Transfer Date, on
or after the Reserve Account Funding Date will be equal to (a) the interest
of the outstanding principal balance of the Class A certificates or (b) 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" will mean 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.
"Servicer Guarantee" will mean the obligations of the servicer under
the pooling and servicing agreement guaranteed by Dillard's.
S-78
<PAGE>
SUBJECT TO COMPLETION, DATED , 1999
Prospectus
DILLARD CREDIT CARD MASTER TRUST
Issuer
Dillard Asset Funding Company
Transferor
Dillard National Bank
Servicer
Asset Backed Certificates
The trust--
- - may periodically issue asset backed certificates in one or more series
with one or more classes; and
- - will own--
- receivables in a portfolio of private label consumer revolving
credit card accounts;
- payments due on those receivables; and
- other property described in this prospectus and in the
prospectus supplement.
The certificates--
- - will represent interests in the trust and will be paid only from the
assets of the trust;
- - offered by this prospectus will be rated in one of the four highest
rating categories by at least one nationally recognized rating
organization;
- - may have one or more forms of enhancement; and
- - will be issued as part of a designated series which may include one or
more classes of certificates and enhancement.
The certificateholders--
- - will receive interest and principal payments from a varying percentage of
credit card account collections.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
, 1999
S-79
<PAGE>
TABLE OF CONTENTS
Page
The Trust and Related Parties . . . . . . . . 1
The Trust . . . . . . . . . . . . . . . 1
Dillard's Inc. . . . . . . . . . . . . . 1
Mercantile Stores Company,
Inc. . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . 15
Use of Proceeds . . . . . . . . . . . . . . . 16
Description of the Certificates . . . . . . . 16
General . . . . . . . . . . . . . . . . 16
Book-Entry Registration . . . . . . . . 18
Definitive Certificates . . . . . . . . 21
Interest Payments . . . . . . . . . . . 22
Principal Payments . . . . . . . . . . . 23
Revolving Period . . . . . . . . . . . . 24
Controlled Amortization Period . . . . . 24
Principal Amortization Period . . . . . . 25
Accumulation Period . . . . . . . . . . . 25
Rapid Accumulation Period . . . . . . . . 26
Rapid Amortization Period . . . . . . . . 27
Transfer and Assignment of Receivables . 28
Exchanges . . . . . . . . . . . . . . . . 29
Representations and Warranties . . . . . 31
Addition of Trust Assets . . . . . . . . 34
Removal of Accounts . . . . . . . . . . . 36
Collection and Other Servicing
Procedures . . . . . . . . . . . . . . 37
Discount Option . . . . . . . . . . . . . 37
Trust Accounts . . . . . . . . . . . . . 38
Funding Period . . . . . . . . . . . . . 39
Companion Series . . . . . . . . . . . . 40
Investor Percentage and Transferor
Percentage . . . . . . . . . . . . . . 41
Application of Collections . . . . . . . 42
Shared Excess Finance Charge
Collections . . . . . . . . . . . . . . 44
Shared Principal Collections . . . . . . 44
Defaulted Receivables; Rebates and
Fraudulent Charges; Investor
Charge-Offs . . . . . . . . . . . . . . 44
Final Payment of Principal; Termination . 46
S-i
<PAGE>
<PAGE>
Pay Out Events . . . . . . . . . . . . . 47
Servicing Compensation and Payment
of Expenses . . . . . . . . . . . . . . 48
Certain Matters Regarding the Transferor
and the Servicer. . . . . . . . . . . . 49
Servicer Guarantee. . . . . . . . . . . . 50
Servicer Default . . . . . . . . . . . . 51
Reports to Certificateholders . . . . . . 52
Evidence as to Compliance . . . . . . . . 53
Amendments. . . . . . . . . . . . . . . . 54
List of Certificateholders . . . . . . . 55
The Trustee . . . . . . . . . . . . . . . 55
Description of the Purchase Agreements. . . . 56
General . . . . . . . . . . . . . . . . . 56
Representations and Warranties . . . . . 57
Certain Covenants . . . . . . . . . . . . 58
Repurchase Events . . . . . . . . . . . . 58
Merger and Consolidation . . . . . . . . 59
Credit Enhancement . . . . . . . . . . . . . 59
Subordination . . . . . . . . . . . . . . 61
Letter of Credit . . . . . . . . . . . . 61
Cash Collateral Guaranty or Account . . . 61
Collateral Interest . . . . . . . . . 62
Surety Bond or Insurance Policy . . . . . 62
Spread Account . . . . . . . . . . . . . 62
Reserve Account . . . . . . . . . . . . . 63
Certificate Ratings . . . . . . . . . . . . . 63
Certain Legal Aspects of the Receivables. . . 63
Transfer of Receivables . . . . . . . . 63
Certain Matters Relating to Bank
Receivership . . . . . . . . . . . . 65
Certain Matters Relating to Bankruptcy of
the Transferor, DIC and MFI . . . . 66
Consumer Protection Laws . . . . . . . . 67
Claims and Defenses of Cardholders Against
the Trust . . . . . . . . . . . . . 68
Federal Income Tax Consequences . . . . . . . 70
General . . . . . . . . . . . . . . . . 70
Treatment of the Certificates as Debt . 71
Taxation of Interest Income of U.S.
Certificate Owners . . . . . . . . . 72
Sale, Exchange or Retirement of
Certificates . . . . . . . . . . . . 72
Possible Alternative Characterizations . 73
Non-U.S. Certificate Owners . . . . . . 73
Information Reporting and Backup
Withholding . . . . . . . . . . . . 75
State and Local Taxation . . . . . . . . 75
Plan of Distribution . . . . . . . . . . . . 76
Legal Matters . . . . . . . . . . . . . . . . 77
Reports to Certificateholders . . . . . . . . 77
S-iv
<PAGE>
Where You Can Find More Information . . . . . 77
Glossary of Terms . . . . . . . . . . . . . . 78
<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:
- - this prospectus, which provides general information, some of which may not
apply to a particular series of certificates, including your series, and
- - the prospectus supplement, which will describe the specific terms of your
series of certificates, including:
- the timing and amount of interest and principal payments;
- information about the receivables;
- information about credit enhancement for each class;
- credit ratings; and
- the method for selling the certificates.
Whenever information in the prospectus supplement is more specific than the
information in this prospectus, you should rely on the information in the
prospectus supplement.
You should rely only on the information provided in this prospectus and the
prospectus supplement, including the information incorporated by reference.
We have not authorized anyone to provide you with different information.
We include cross-references in this prospectus and in the prospectus
supplement to captions in these materials where you can find further related
discussions. The 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.
S-v
<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
- acquiring and holding receivables;
- issuing series of certificates and the transferor certificate that
evidences the transferor interest;
- making payments on the certificates and engaging in related
activities, including, with respect to any series, obtaining any
credit enhancement; and
- 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 , 1999, stores in
- - Alabama - Georgia - Kentucky - Nevada - Tennessee
- - Arizona - Idaho - Louisiana - New Mexico - Texas
- - Arkansas - Illinois - Mississippi - North Carolina - Virginia
- - California - Indiana - Missouri - Ohio - Utah
- - Colorado - Iowa - Montana - Oklahoma - Wyoming
- - Florida - Kansas - Nebraska - South Carolina
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:
- Dillard's - Bacon's
S-1
<PAGE>
- J.B. White - 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 and 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.
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 in Gilbert, Arizona.
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.
2
<PAGE>
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 certain 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.
3
<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 with the Dillard's customers. In this prospectus and in the
prospectus supplement, we will refer to 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 in
this prospectus in the "Description of Purchase Agreements" section. See
"Description of the Purchase Agreements" in this prospectus.
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.
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.
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.
The Dillard's accounts were originated under policies and procedures which
differed from those applied to the creation of Mercantile accounts. Dillard's
does not expect any of these differences to have a material adverse effect on
the credit quality of the receivables in the 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:
- Regular Revolving - Reduced Rate
4
<PAGE>
- Extended Revolving - 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:
- Regular Option - Special Option
- Prestige Option - Home Option
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.
Dillard's has added, and may continue to add, accounts to its portfolio
by purchasing credit card accounts from other retailers. Credit card accounts
that have been purchased by Dillard's, such as the Mercantile accounts, were
originally opened using criteria established by the institution from which
the accounts were purchased and may not have been subject to the same level
of credit review as accounts established by DNB 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.
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
5
<PAGE>
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. Cardholders
make purchases when using their Dillard's Card to buy merchandise or services
and amounts due for the purchases will be included in the receivables.
The accounts were principally generated through:
- telemarketing and direct-mail solicitation for accounts on a pre-
approved credit basis,
- in-store applications made available to prospective cardholders at
department stores and
- 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.
- 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 certain 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.
- 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.
6
<PAGE>
- 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 a prospective
customer. A credit evaluation is based upon a proprietary underwriting model
and an independent credit bureau report. The same application is also
available on the Internet.
- Campus Programs
The 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.
- 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.
- 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
7
<PAGE>
to obtain a Dillard's Card an applicant must possess both a satisfactory
scorecard report and a satisfactory credit score from the independent credit
reporting agency.
- Credit Limits
Credit limits are assigned to new customers according to their respective
credit scores. Credit lines for new accounts typically range from $400 to
$3,000. Proprietary behavioral scoring is conducted on accounts on a monthly
basis and is used to determine a 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.
- Mercantile Cards
In determining whether to generate a Mercantile account for and issue a
Mercantile Card to a customer, DNB-La. also used underwriting procedures
based almost exclusively on a quantitative analysis of an applicant's
information. Credit decisions were based primarily upon credit scores
obtained from independent credit bureaus and either a 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.
8
<PAGE>
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.
- 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.
- 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
9
<PAGE>
minimum purchase. The monthly payment terms for these purchases are
the greater of $20 or 1/20 of the highest balance.
- Reduced Rate Revolving. Reduced Rate Revolving terms are sometimes
offered in connection with special promotions on the same type of
merchandise 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.
- 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
- on the first day of the billing cycle there was no balance
outstanding;
- if the balance outstanding on the first day of the billing cycle is
paid in full during the billing cycle; or
- 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
- the average daily balance during the billing cycle by
- 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, under certain
circumstances, the periodic finance charges on a limited number of accounts
may be either greater than or less than those assessed by the 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.
10
<PAGE>
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.
- 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 1/12 of the outstanding
balance. A finance charge is assessed on the unpaid balance.
- Special Option. Special Option terms were designed for larger
purchases, with no limit on the types of goods which could be
purchased. Special Option terms entitle the holder of 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.
- 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.
- 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
- on the first day of such billing cycle there was no balance
outstanding; or
11
<PAGE>
- if the balance outstanding on the first day of such billing cycle is
paid in full during such billing cycle; or
- if on the last day of such billing cycle there is no balance
outstanding.
The monthly periodic finance charge assessed on outstanding balances is
calculated by multiplying
- the average daily balance during the billing cycle by
- 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, under certain circumstances, DNB-La.
may offer on a temporary basis periodic finance charges on a limited number
of accounts that are either greater than or less than those assessed by the
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:
- 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
- a fee of $15.00 for each check submitted by a cardholder in payment
of an account which is dishonored.
Payments by a cardholder in connection with a DNB account are processed
and applied
- first to any billed fees; and
- 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
- first to any billed fees;
- next to billed and unpaid finance charges; and
12
<PAGE>
- 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:
- Front-end delinquencies, which are accounts that are one payment past
due, up to 30 days past due; and
- 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
certain period determined by its behavioral scoring system, DNB mails a
separate notice to the cardholder notifying him or her of the delinquency and
possible revocation of the credit card and requesting payment of the
13
<PAGE>
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.
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
14
<PAGE>
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 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.
15
<PAGE>
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
- an inability of Dillard's to order merchandise;
- to receive and distribute merchandise to its stores;
- to pay for merchandise received;
- to process credit card purchases made with, and payments made with
respect to, private label credit cards issued by the originators; and
- 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.
While Dillard's believes it has made substantial progress in solving
significant Year 2000 issues, it currently estimates that it will not
complete all remediation action until June 1999. Dillard's has not completed
the testing of all remediation action it has taken but has obtained letters
of Year 2000 certification from its mission-critical computer system and
software vendors.
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
16
<PAGE>
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 $1.2
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 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.
17
<PAGE>
The Receivables
The assets of the trust will include
- receivables arising under private label revolving credit card
accounts
- selected from Dillard's entire portfolio of accounts; and
- owned by the originators; and
- all monies due or to become due in payment of the receivables;
- all proceeds of the receivables;
- all proceeds of any credit insurance policies relating to the
receivables;
- the right to receive recoveries, if any, allocable to the trust
if specified in the prospectus supplement relating to your
series;
- all monies on deposit in certain bank accounts of the trust
- including any investments in which any monies
are invested; and
- investment earnings on these amounts if specified in the
prospectus supplement relating to your series; and
- any credit enhancement with respect to any particular
series or class specified in the prospectus supplement
relating to your series.
The receivables will consist of
- Principal Receivables representing
- amounts charged by cardholders for goods and services; plus
- Finance Charge Receivables representing
- related periodic finance charges;
- amounts charged or billed to the accounts for
- credit card fees including
- late fees; and
- fees for dishonored checks; and
- any recoveries allocable to the trust.
18
<PAGE>
However, if the transferor exercises the Discount Option, an amount equal to
the product of the Discount Percentage and the amount of receivables arising
in the related accounts on and after the date the option is exercised that
otherwise would be Principal Receivables will be treated as Finance Charge
Receivables. 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
- as applied initially on the Cut-Off Date
specified in the prospectus supplement relating
to your series; and
- 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
- designate additional accounts from time to time;
- transfer to the trust all existing and future receivables of the
additional accounts; or
- 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.
Furthermore, the transferor has the right, subject to limitations and
conditions contained in the agreement, to
- designate certain accounts for removal from the trust;
- accept the transfer of all existing and future
receivables in the accounts designated for removal; and
- 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
- the accounts designated by the transferor on the Cut-Off Date;
- plus any additional accounts;
- minus any removed accounts.
<PAGE>
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 certain
eligibility requirements. See "Description of the Certificates--
Representations and Warranties."
The prospectus supplement relating to each series of certificates will
provide certain information about the trust portfolio as of the date
specified. Such information will include, but not be limited to
- the amount of Principal Receivables;
- the amount of Finance Charge Receivables;
- the range and average of principal balances of the accounts;
- the range and average of credit limits of the accounts;
- the geographic distribution of the accounts;
- the types of accounts; and
- delinquency statistics relating to the accounts.
Material characteristics of the trust set out in the prospectus
supplement, namely
- the percentage of charged-offs receivables in the Dillard's
portfolio; and
- the aggregate principal balance of the accounts in the Dillard's
portfolio
will not vary by more than 5% as of the date you make your investment
decision to purchase the certificates.
19
<PAGE>
Maturity Considerations
Collections of Principal Receivables for each series are expected to be
- 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
- accumulated for distribution to you on a scheduled
payment date to one or more classes of
certificateholders during an Accumulation Period
consisting of
- a Controlled Accumulation Period and
- under certain 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.
The related prospectus supplement will specify
- when the Controlled Amortization Period, Principal
Amortization Period, or Accumulation Period, as
applicable, will begin;
- 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;
- the manner and order of principal accumulations and
payments among the classes of a series of certificates;
- the payment rate assumptions on which the expected
principal accumulations and payments are based; and
- the Pay Out Events which, if any were to occur, would
lead to the commencement of a
- Rapid Amortization Period; or
- if specified in the related prospectus
supplement, a Rapid Accumulation Period.
20
<PAGE>
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 certain historical
data on
- payments by cardholders;
- total charge-offs; and
- 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
- seasonal variations;
- general economic conditions; and
- 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
- the amount of collections of Principal Receivables
scheduled or available to be distributed during the
Controlled Amortization Period, or Principal
Amortization Period; or
- accumulated for later payment to certificateholders or
any specified class of certificateholders during an
Accumulation Period, or on the scheduled payment date,
as applicable.
21
<PAGE>
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."
Use of Proceeds
The net proceeds from the sale of each series of certificates will be
paid to the transferor and/or used in the manner specified in the related
prospectus supplement. The transferor will use the proceeds to pay the
originators or other sellers for the purchase of receivables held by the
trust.
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
- certificateholders of each series of the trust;
- holder of the transferor certificate of the trust; and
- in certain circumstances, the credit enhancement
provider described in the prospectus supplement relating
to your series.
The transferor certificate
- will be owned initially by the transferor;
- will represent the undivided interest in the trust not
represented by
- the certificates issued and outstanding under
the trust or
- the rights, if any, of any credit enhancement
providers to receive payments from the trust;
- will entitle its holder to the Transferor Percentage of
all cardholder payments from the receivables in the
trust; and
<PAGE>
- 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
- will represent interests in the trust only;
- will not represent interests in or obligations of the
transferor, Dillard's or any of its affiliates;
- are not insured or guaranteed by the FDIC or any other
governmental agency;
- will represent the right to receive, on a monthly basis,
the respective Investor Percentage of the collections of
- Finance Charge Receivables;
- Principal Receivables;
- Defaulted Accounts;
- to the extent needed to make required payments under
the agreement and the related series supplement
relating to your series; and
- subject to any reallocation of such amounts if
provided in the series supplement relating to
your series;
- will be paid interest and principal
- on distribution dates;
- to certificateholders in whose names the
certificates were registered on the record
dates; and
- in the amounts, for the periods and on the dates
specified in the related prospectus supplement;
- 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;
- will be available for beneficial ownership in minimum
denominations and integral multiples of $1,000; and
- will be available in book-entry form only unless
otherwise specified in the prospectus supplement
relating to your series;
22
<PAGE>
The Investor Interest
- in the trust will remain constant for each series of
certificates during the Revolving Period except under
certain limited circumstances or as otherwise specified
in the related prospectus supplement; and
- 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
- 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;
- will generally increase to reflect reductions in the
Investor Interest for such series; and
- 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
- Principal Receivables;
- Finance Charge Receivables; and
- receivables in Defaulted Accounts
during the Revolving Period, any Amortization Period and any Accumulation
Period, as applicable. If the 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; --Certain Matters Regarding the transferor and the Servicer; --
Defaulted Receivables; --Rebates and Fraudulent Charges; --Investor Charge-
Offs; and --Exchanges."
23
<PAGE>
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."
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 Cedel'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 certain other organizations.
Indirect access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through
or maintain a custodial relationship with a DTC participant, either directly
24
<PAGE>
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 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
25
<PAGE>
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
26
<PAGE>
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 banks. Cedelbank customers are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the underwriters of any series of certificates. 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.
27
<PAGE>
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.
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
- the transferor advises the trustee for the series in
writing that
- DTC is no longer willing or able to discharge
properly its responsibilities as depository for
the series of certificates; and
- the trustee or the transferor is unable to
locate a qualified successor;
- the transferor, at its option, advises the trustee in
writing that it elects to terminate the book-entry
system through DTC;
28
<PAGE>
- 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
- 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.
29
<PAGE>
Interest Payments
For each series and class of certificates, interest will
- 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;
- 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;
- be funded from
- collections of Finance Charge Receivables
allocated to the Investor Interest during the
preceding monthly period or monthly periods;
- 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
- certain investment earnings on funds held in
accounts of the trust and from any applicable
credit enhancement, if necessary, or certain
other amounts as specified in the prospectus
supplement relating to your series.
The prospectus supplement relating to your series will specify
- whether your series with more than one class of
certificates will have a separate interest funding
account for each class; and
- describe for your series and class
- the amounts and sources of interest payments to
be made to you;
- the certificate rate for each class; and
- for a series or each class bearing interest at a
floating certificate rate;
30
<PAGE>
- the initial certificate rate;
- the dates and the manner for
determining later certificate rates;
- the formula, index or other method for
determining the certificate rates; and
- any cap or other limitations on any
certificate rate.
Principal Payments
The principal of the certificates of each offered series
- will be scheduled to be repaid either
- 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
- Controlled Amortization Period or
- Principal Amortization Period; or
- 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;
- will not be repaid to certificateholders during the
Revolving Period unless otherwise provided for in the
prospectus supplement relating to your series;
- 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 series or class and from
certain other sources specified in the prospectus
supplement relating to your series which will be:
- distributed to the certificateholders in the
amounts and on distribution dates specified in
the prospectus supplement relating to your
series; or
31
<PAGE>
- 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:
- may begin to be repaid earlier than the
applicable principal commencement date or
scheduled payment date; and
- 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
- method of paying principal;
- principal commencement date; or
- 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
- The Revolving Period will begin on the closing date and end
with the commencement of an Amortization Period or an
Accumulation Period.
- 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.
- As described in this prospectus and in the prospectus supplement
relating to your series, collections of Principal Receivables
otherwise allocable to the Investor Interest will, subject to
limitations in the agreement,
- be paid from the trust to the holder of the transferor
certificate; or
- 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.
<PAGE>
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:
- which will commence at the close of business on a date
specified in the related prospectus supplement and
continue until the earliest of
- the commencement of the Rapid Amortization
Period;
- 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
- the Series Termination Date for your series; and
- during which the Controlled Distribution Amount will be
made to certificateholders then scheduled to receive
distributions consisting of principal distributions in
amounts determined in the manner specified in the
prospectus supplement relating to your series
- on each distribution date from:
- collections of Principal Receivables
allocable to the respective Investor
Interest; and
- certain other amounts if so specified
in the prospectus supplement;
- in an amount equal to
- to the Controlled Amortization Amount
specified in the related prospectus
supplement;
- plus any existing deficit controlled
amortization amount arising from prior
distribution dates; and
- in the priority among the classes as provided
for in the prospectus supplement relating to
your series.
32
<PAGE>
Principal Amortization Period
The prospectus supplement relating to your series or class of
certificates may specify a Principal Amortization Period:
- which will commence at the close of business on a date
specified in the related prospectus supplement and
continue until the earliest of
- the commencement of the Rapid Amortization
Period;
- 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
- the Series Termination Date for your series.
During this period, 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
- collections of Principal Receivables allocable to the
respective Investor Interest; and
- certain 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:
- 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
- the commencement of the Rapid Amortization
Period, or, if so specified in the related
prospectus supplement, the Rapid Accumulation
Period;
- 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
- the Series Termination Date for the series;
33
<PAGE>
- separate corresponding principal accounts, including
- principal funding accounts; and
- an account for the Controlled Accumulation
Amount; and
- during which distributions of principal will be made to
certificateholders of the series or class on the
scheduled payment date
- from the Principal Funding Account:
- representing collections of
- Principal Receivables allocable
to the Investor Interest of the
series; and
- certain other amounts if
specified in the prospectus
supplement relating to your
series;
- 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
equal to the Controlled
Accumulation Amount specified
in the prospectus supplement
relating to your series;
- plus any deficit Controlled
Accumulation Amount from prior
distribution dates;
- 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
- investment earnings from which may be
applied to pay interest on the series
of certificates; and
34
<PAGE>
- 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.
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:
- the commencement of the Rapid Amortization Period;
- 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
- 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
- representing collections of
- Principal Receivables allocable to the Investor
Interest of the series; and
- other amounts if specified in the prospectus
supplement relating to your series; and
- 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.
- 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
- investment earnings from which may be applied to pay
interest on the series of certificates.
35
<PAGE>
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
- beginning on
- the day on which a Pay Out Event has occurred
for a series; or
- 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
- after a Pay Out Event has occurred; and
- the Rapid Accumulation Period has
commenced;
- until the earlier of
- 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
- the related Series Termination Date
- during which distributions of principal will be made
- to certificateholders of the series or class
and, in certain circumstances, to the Credit
Enhancement Provider
- 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
- from collections of Principal Receivables
allocable to the series' Investor Interest and
other amounts if specified in the prospectus
supplement relating to your series
36
<PAGE>
- without being limited by any
- Controlled Deposit Amount or
- Controlled Distribution Amount; and
- 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.
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
- existing receivables in the related accounts; and
- unless otherwise specified in the prospectus supplement
relating to your series, future receivables in the accounts;
obtained and to be obtained from its interest in the 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
- has indicated in its computer files that the related
receivables have been conveyed to the trust;
- 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;
- 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;
- 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;
- except as stated above, will not stamp or mark to
reflect the transfer of the receivables to the trust;
and
<PAGE>
- 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 "Certain 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:
- one or more series of certificates which are
- transferable; and
- have the characteristics described below; and
- the transferor certificate which
- evidences the transferor interest;
- initially will be held by the transferor; and
- 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
- exchange
- the transferor certificate; or
- the transferor certificate and the certificates
evidencing any series of certificates issued by
the trust;
- for
- one or more new series which may include series
offered pursuant to this prospectus; and
- a reissued transferor certificate;
- pursuant to any one or more series supplements.
37
<PAGE>
For each exchange, the transferor will
- specify all the principal terms of the new series to be
issued
- without obtaining any consent from any
certificateholder of any series previously
outstanding from the trust
- 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
- offer 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;
- 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
- the trustee will hold any form of credit enhancement
only on behalf of the series with respect to which it
relates;
- the holder of the transferor certificate may
- deliver a different form of credit enhancement
agreement for each series;
- specify different certificate rates and monthly
servicing fees for each series or a particular
class within the series; and
- vary between series the terms upon which a
series or a particular class within a series may
be repurchased by the transferor;
38
<PAGE>
- one or more series may
- be in their amortization or accumulation periods
while other series are not; and
- have the benefit of a credit enhancement which
is available only to that series;
- certain series may be subordinated to other series, or
classes within a series may have different priorities;
- there will be no limit to the number of exchanges that
may be performed;
- the holder of the transferor certificate may perform an
exchange by
- notifying the trustee at least five days in
advance of the date upon which the exchange is
to occur;
- the designation of any series to be
issued on the date of the exchange; and
- with respect to each series and, if
applicable, each class of each series:
- 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;
- its certificate rate or method
of calculating the rate; and
- the provider of credit
enhancement, if any, which is
expected to provide support
with respect to it;
- the trustee will authenticate any series only upon
delivery to it of the following items,
- a series supplement specifying the principal
terms of the series;
- 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
39
<PAGE>
- an opinion of counsel that states, for federal
income tax purposes,
- 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;
- following such issuance, the trust will
not be deemed to be an association or
publicly traded partnership taxable as
a corporation;
- the issuance will not cause or
constitute an event in which gain or
loss would be recognized by any
certificateholder or the trust;
- if required by the related series supplement,
the form of credit enhancement;
- 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;
- 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;
- 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
- the existing transferor certificate and, if
applicable, the certificates representing the
series to be exchanged;
- 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.
<PAGE>
Representations and Warranties
Subject to exceptions and limitations in the agreement, the transferor
makes representations and warranties to the trust in the pooling and
servicing agreement to the effect that, among other things:
- the transferor
- is duly organized and in good standing;
- has or had the authority to consummate the
transactions contemplated by the agreement and
the purchase agreements; and
- has or had the power and authority to
- execute, deliver and perform its
obligations under the agreement and
purchase agreements; and
- transfer the receivables to the trust;
- the execution, delivery and performance of the
transferor's obligations under the pooling and servicing
agreement and receivables purchase agreements:
- will not materially conflict with or constitute
a material default under any instrument,
contract or agreement to which the transferor is
a party;
- will not violate any requirements of law
applicable to the transferor; and
- no proceedings are pending or, to the best of the
transferor's knowledge, threatened, against the
transferor before any court
- asserting the invalidity of the certificates of
the series;
- seeking to prevent the consummation of the
transactions contemplated by the agreement or
purchase agreements; or
- seeking any determination or ruling that would
materially and adversely affect the validity or
enforceability of the agreement or purchase
agreements.
40
<PAGE>
If so provided in the prospectus supplement relating to your series, if
- any of these representations and warranties
- proves to have been incorrect in any material
respect when made; and
- continues to be incorrect for 60 days after
notice to the transferor by the related trustee
or to the transferor and the related trustee by
the certificateholders holding more than 50% of
the investor interest of the related series, and
- 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 to the effect, that,
- as of the cut-off date specified in the prospectus
supplement relating to your series, or as of the
date of the designation of additional accounts, each
applicable account was an Eligible Account;
- as of the closing date of the initial series of
certificates issued by the trust, each of the
receivables then existing in the applicable accounts is
an Eligible Receivable; and
- as of the date of creation of any new receivable, the
new receivable is an Eligible Receivable and the
representations and warranties relating set forth in
subclause (b) in the immediately following paragraph is
true and correct with respect to such receivable.
In the event
- of a breach of any representation and warranty set out
in this paragraph;
- within 60 days, or a longer period as may be
agreed to by the trustee, of the earlier
to occur of
- the discovery of the breach by the
transferor or servicer; or
41
<PAGE>
- receipt by the transferor of written
notice of the breach given by the
trustee; or
- with respect to certain breaches relating to
prior liens, immediately upon the earlier to
occur of such discovery or notice; and
- that as a result of the breach;
- the receivables in the related accounts are
charged off as uncollectible;
- the trust's rights in, to or under the
receivables or its proceeds are impaired; or
- the proceeds of the receivables are not
available for any reason to the trust free and
clear of any lien;
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
- 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
- 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
- the agreement will constitute a legal, valid and binding
obligation of the transferor; and
42
<PAGE>
- the transfer of receivables by the transferor to the
trust will constitute either
- 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
- the grant of a first priority perfected security
interest in the receivables, except for certain
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 above, either
- the trustee; or
- the holders of certificates evidencing undivided
interests in the trust aggregating more than 50% of the
aggregate Investor Interest of all series outstanding
under 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
- 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
- less the amount, if any, previously allocated for
payment of principal to the certificateholders or the
holders of the Enhancement Invested Amount or the
collateral interest, if any, on the distribution date;
43
<PAGE>
- plus an amount equal to all accrued and unpaid interest;
- 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
- considered a payment in full of the Investor Interest
and the Enhancement Invested Amount, if any, for each
series required to be repurchased; and
- 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
- 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
- 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
- the presence or absence of defects;
- compliance with the transferor's representations and
warranties; or
- for any other purpose.
The servicer, however, will deliver to the trustee on or before March 31 of
each year or 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 certain other components of the trust.
Addition of Trust Assets
As described above under "The Receivables," additional accounts will be
included as accounts for the trust:
44
<PAGE>
- from time to time at the option of the transferor; and
- as required under the circumstances and in the amounts
specified in the prospectus supplement for a particular
series;
- 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
- must be an Eligible Account at the time of its
designation;
- may not be of the same credit quality as the initial
accounts;
- may have been originated by an originator using credit
criteria different from those which were applied by the
originator to the initial accounts; or
- may have been acquired by an originator from an
institution which may have had different credit
criteria.
In addition to or in lieu of additional accounts, the transferor will be
permitted to add Participations to the trust. Participations
- may be evidenced by one or more certificates of
ownership issued under a separate Participation
Agreement entered into by the transferor;
- 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 certain other rights
and remedies specified in the Participation Agreement;
- may have their own credit enhancement, pay out events,
servicing obligations and servicer defaults;
- all of which are likely to be enforceable by a
separate trustee under the Participation
Agreement; and
- may be different from those specified here.
45
<PAGE>
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
- 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
- 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
- will have been
- registered under the Securities Act; or
- held for at least the Rule 144(k) holding
period, and
- 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:
- the transferor will
- 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;
- 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;
46
<PAGE>
- 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;
- represent and warrant that
- 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;
- 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
- as of the addition date, the transferor
is not insolvent;
- 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
- under circumstances, if any, specified in the prospectus
supplement relating to your series for additional
accounts and to participations, each rating agency then
rating any series of certificates outstanding under the
trust will have consented to the addition of the
additional accounts or participations.
If specified in the prospectus supplement relating to your series, additional
accounts may be automatically added to the accounts on an ongoing basis;
provided, however, that automatic inclusion and transfer will not occur for
an account if:
- the account does not qualify as an Eligible Account or
- 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.
<PAGE>
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 certain accounts to be removed accounts. The designation of accounts to
be removed
- will cause the underlying receivables to be subject to
deletion and removal from the trust;
- may be restricted to certain periods or prohibited if so
specified in the related prospectus supplement; and
- 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:
- 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;
- 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;
- 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;
- 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;
- the satisfaction of any other conditions as are
specified in the prospectus supplement relating to your
series; and
47
<PAGE>
- 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.
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:
- processing statements;
- mailing, collecting and recording payments;
- investigating payment delinquencies; and
- communicating with obligors.
The servicer may delegate some or all of these servicing functions to one or
more subservicers who agree to perform these functions in accordance with the
servicer's policies and procedures. Currently, the servicer has appointed
MCC, an affiliate of DNB, as a subservicer for the Mercantile accounts.
Discount Option
The transferor may at any time designate a Discount 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. Such a
designation will become effective upon satisfaction of the requirements set
out in the 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 the Discount 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
- a Finance Charge Account;
- a Principal Account;
- one or more Distribution Accounts; and
- a Collection Account.
48
<PAGE>
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
- an interest funding account;
- a principal funding account;
- a Pre-Funding Account; or
- 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
- obligations fully guaranteed by the U.S.;
- demand deposits, time deposits or certificates of
deposit of depository institutions or trust companies,
the certificates of deposit of which have a rating in
the highest rating category from Moody's and Standard &
Poor's unless otherwise specified in the prospectus
supplement relating to your series and bankers'
acceptances issued by any of these depository
institutions or trust companies;
- commercial paper having, at the time of the trust's
investment, a rating in the highest rating category
from Moody's and Standard & Poor's unless otherwise
specified in the prospectus supplement relating to your
series;
- certain repurchase agreements transacted with either
- an entity subject to the United States federal
bankruptcy code or
- 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
- any other Permitted Investments.
49
<PAGE>
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;
- 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;
- 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
- the transfer of additional receivables to the
trust; or
- 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
- end on a specified date certain or earlier under certain
circumstances, such as the commencement of the Rapid
Amortization Period;
- have a length that may be contingent upon another event
such as
- the generation by the transferor of additional
Principal Receivables or
- the term of the Amortization Period or
Accumulation Period of a related companion
series; and
- in any case have an actual length no longer than one
year.
50
<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:
- receivables to the extent of the Investor Interest in
the series; and
- funds on deposit in the Pre-Funding Account and
Permitted Investments of the funds to the extent of the
difference between
- the Full Investor Interest and
- the initial Investor Interest.
See "Maturity Considerations."
The related prospectus supplement will specify:
- the initial Investor Interest for the series;
- the Full Investor Interest; and
- the date by which the Investor Interest is expected to
equal the Full Investor Interest.
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,
- 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
- if so specified in the related prospectus supplement;
- monies in the Pre-Funding Account will be
- invested by the trustee in Permitted
Investments; or
- subject to a guaranteed rate or
investment agreement or other similar
arrangement; and
- in connection with each distribution
date during the Funding Period;
51
<PAGE>
- investment earnings on funds in
the Pre-Funding Account during
the related monthly period; and
- 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
Full Investor Interest by the end of the Funding Period;
- any amount remaining in the Pre-Funding Account and any
additional amounts specified in the 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;
- an early repayment of certificate principal will result;
and
- 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.
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.
- 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.
- 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,
- the Investor Percentage for collections of Principal
Receivables for the series and
- the Investor Percentage for collections of Principal
Receivables for the companion series
may be reset as provided in the related prospectus
supplement.
52
<PAGE>
- 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
- all amounts collected on Finance Charge Receivables;
- all amounts collected on Principal Receivables; and
- all receivables in defaulted accounts
among
- the Investor Interest of each series issued by the trust
and between each class of each series;
- the Transferor Interest; and
- in certain circumstances, the interest of certain credit
enhancement providers.
The servicer will make each allocation by reference to:
- the applicable Investor Percentage of each series;
- the Transferor Percentage; and
- in certain circumstances, the Credit Enhancement
Percentage for your series.
The prospectus supplement relating to your series will specify
- the Investor Percentage; and
- if applicable, the Credit Enhancement Percentage or the
method of calculating the percentage for the allocations
of collections of
- Principal Receivables;
- Finance Charge Receivables; and
- receivables in defaulted accounts
during, as applicable,
<PAGE>
- the Revolving Period;
- any Amortization Period; and
- the Accumulation Period; and
- 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
- 100%
- minus the aggregate Investor Percentages;
- minus, if applicable, the Credit Enhancement
Percentages, for all series then outstanding.
Application of Collections
The servicer will
- deposit any payment it collects on the receivables into
the Collection Account:
- no later than the second business day following
the date of processing;
- unless otherwise specified in the prospectus
supplement relating to your series; and
- except as otherwise provided below; and
- make the deposits and payments to the accounts and
parties as indicated below on the same day as any
deposit is made; provided, however, that for as long as
DNB remains the servicer under the agreement, and
- the servicer provides to the trustee a
letter of credit or other credit
support acceptable to each rating
agency; and
- 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
53
<PAGE>
- 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
- 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;
- the servicer will only be required to deposit
collections from the Collection Account into
- the finance charge account;
- the principal account; or
- any series account established by a related
series supplement
up to
- the required amount to be deposited into any
account; or
- without duplication, distributed on or prior to
the related distribution date to
certificateholders or to the provider of credit
enhancement; and
- 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:
- an amount equal to the Transferor Percentage of the aggregate
amount of the deposits in respect of Principal Receivables and
54
<PAGE>
Finance Charge Receivables will be paid or held for payment to
the holder of the transferor certificate, provided that
- if after giving effect to the inclusion in the trust of
all receivables on or prior to the date of processing
the Transferor Interest would be reduced below the
minimum Transferor Interest;
- 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;
- 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;
- 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
- 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;
- 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;
- during the Controlled Amortization Period or Accumulation Period,
as applicable, an amount equal to the applicable Investor
Percentage of such deposits in respect of Principal Receivables
up to the amount, if any, as specified in the related prospectus
supplement will be deposited in the principal account or
principal funding account, as applicable, for allocation and
distribution to certificateholders as described in the related
prospectus supplement, provided that
- if collections of Principal Receivables exceed the
principal payments which may be allocated or distributed
to certificateholders,
55
<PAGE>
- then the amount of such excess will be paid to the
holder of the transferor certificate until the
Transferor Interest is reduced to the minimum Transferor
Interest, and 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
- during the Principal Amortization Period, if applicable, and the
Rapid Amortization Period, an amount equal to the applicable
Investor Percentage of such deposits in respect of Principal
Receivables will be deposited into the principal account for
application and distribution as provided in the related
prospectus supplement.
In the case of a series of certificates having more than one class, the
amounts in the Collection Account will be allocated and applied to each class
in the manner and order of priority described in the related prospectus
supplement.
Any Unallocated Principal Collections
- together with any adjustment payments as described
below, will be paid to and held in the principal account
and paid to the transferor if and to the extent that the
Transferor Interest is equal to or greater than zero; or
- if an Amortization Period or Accumulation Period has
commenced, will
- be held for distribution to the
certificateholders on the related distribution
date or
- accumulated for distribution on the scheduled
payment date
as applicable, and distributed to the certificateholders of each class or
held for and distributed to the certificateholders of other series of
certificates issued by the 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 Excess Finance Charge Collections for
another series within the Group to cover any shortfalls for amounts payable
56
<PAGE>
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, Excess Finance Charge Collections for any monthly
period will equal the excess of collections of
- Finance Charge Receivables;
- annual membership fees, if any; and
- certain other amounts allocated to the Investor Interest
of the series or class
over the sum of
- interest accrued for the current month and overdue
monthly interest on the certificates of the series or
class;
- accrued and unpaid Investor Servicing Fees for the
series or class payable from collections of Finance
Charge Receivables;
- the Investor Default Amount for the series or class;
- unreimbursed Investor Charge-Offs for the series or
class; and
- 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, Shared
Principal Collections 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.
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
- will be calculated by the servicer on the Determination
Date for the preceding monthly period;
57
<PAGE>
- 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
- 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:
- collections in the finance charge account; or
- 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, Invesor Charge-Offs
- will reduce the Investor Interest for the series for any
monthly period;
- 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
- 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
- of transactions occurring in respect of a rebate
or refund to a cardholder; or
- the Principal Receivable was created in respect
of merchandise which was refused or returned by
a cardholder; and
<PAGE>
- 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;
- depositing with the trustee, from amounts representing,
or acquired with, collections of receivables, money or
Permitted Investments;
- sufficient to
- make all remaining scheduled interest and principal
payments on the series or all outstanding series of
certificates of the trust, as the case may be on the
dates scheduled for such payments; and
- pay all amounts owing to any credit enhancement
provider for the series or all outstanding
series, as the case may be;
- if such action would not result in a Pay Out Event for
any series.
Prior to its first exercise of its right to substitute money or Permitted
Investments for receivables, the transferor will deliver to the trustee
- 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
- a Tax Opinion.
Final Payment of Principal; Termination
With respect to each series, the transferor may repurchase the
certificates
- on any distribution date
58
<PAGE>
- after the total Investor Interest of the series
and the Enhancement Invested Amount, if any,
with respect to the series, 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;
- if certain 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
- the total Investor Interest of the series less the
amount, if any, on deposit in any principal funding
account with respect to the series;
- plus the Enhancement Invested Amount, if any, for the
series;
- plus accrued and unpaid interest on the certificates and
interest or other amounts payable on the Enhancement
Invested Amount or the collateral interest, if any,
through the day preceding the distribution date on which
the repurchase occurs.
The certificates of each series will be retired on the day following the
distribution date on which the final payment of principal is scheduled to be
made to the certificateholders, whether as a result of optional reassignment
to the transferor or otherwise. Each prospectus supplement will specify 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
- sell or cause to be sold certain receivables in the
manner provided in the pooling and servicing agreement
and series supplement; and
- pay the net proceeds of the sale and any collections on
the receivables, in an amount at least equal to the sum
of
- the Investor Interest;
- the Enhancement Invested Amount, if any, for the
series; and
- accrued interest due on the above.
59
<PAGE>
Unless the servicer and the holder of the transferor certificate instruct
the trustee otherwise, the Trust Termination Date will be the earliest of:
- 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;
- July 15, 2021, or
- 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:
- certain events of insolvency or receivership relating to
the transferor or Dillard's DNB, DNB-La.;
- 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
- 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.
60
<PAGE>
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 certain provisions of federal law, the
transferor voluntarily enters liquidation or a receiver
is appointed for the transferor on the day of the event,
- the transferor will immediately cease to
transfer Principal Receivables to the trust;
- promptly give notice to the trustee of the
event;
- within 15 days, the trustee will publish a
notice of the liquidation or the appointment
stating that the trustee intends to sell,
dispose of, or otherwise liquidate the
receivables in a commercially reasonable manner;
- unless otherwise instructed within a specified
period by certificateholders representing
undivided interests aggregating more than 50% of
the Investor Interest of each 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
- the proceeds from the sale, disposition or
liquidation of the receivables will be treated
as collections of the receivables and applied as
specified above in "--Application of
Collections" and in the related prospectus
supplement.
If the only Pay Out Event to occur is either the insolvency of the
transferor or the appointment of a conservator or receiver for the
transferor, the conservator or receiver may have the power to prevent the
early sale, liquidation or disposition of the receivables and the
commencement of the Rapid Amortization Period. In addition, a conservator or
receiver may have the power to cause the early sale of the receivables and
the early retirement of the certificates. See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to Bank Receivership."
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.
61
<PAGE>
The Investor Servicing Fee will be
- funded from collections of Finance Charge Receivables
allocated to the Investor Interest; and
- paid each month, or on such other specified periodic
basis, from
- amounts allocated and on deposit in the finance
charge account; or
- in certain 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
- the Transferor Interest;
- the Investor Interests of any other series issued by the
trust; and
- 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 certain expenses
incurred in connection with servicing the receivables including, without
limitation, payment of
- the fees and disbursements of the trustee and
independent certified public accountants; and
- other fees which are not expressly stated in the 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.
Certain 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
certain limited circumstances, the servicer or sub-servicer may resign or be
removed, in which event the trustee or a third party servicer may be
appointed as successor servicer. The 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
62
<PAGE>
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
- loss;
- liability;
- expense;
- damage; or
- injury suffered or sustained
by reason of any acts or omissions or alleged acts or omissions of the
servicer or any sub-servicer with respect to the activities of the trust or
the trustee; provided, however, that the servicer will not indemnify,
- 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;
- the trust, the certificateholders or the certificate
owners for
- liabilities arising from actions taken by the
trustee at the request of certificateholders;
- 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
- 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
63
<PAGE>
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 certain exceptions, the transferor will indemnify
an injured party for any losses, claims, damages or liabilities other than
those incurred by a certificateholder as an investor in the certificates or
those which arise from any action of a certificateholder arising out of or
based upon the arrangement created by the 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
- 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
- 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
- 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
- a Tax Opinion.
Any person
- into which, in accordance with the agreement, the transferor or
the servicer may be merged or consolidated; or
- resulting from any merger or consolidation to which the
transferor or the servicer is a party; or
64
<PAGE>
- succeeding to the business of the transferor or the servicer
upon
- execution of a supplement to the pooling and servicing
agreement; and
- delivery of an opinion of counsel as to the compliance
of the transaction with the applicable provisions of the
pooling and servicing agreement,
will be the successor to the transferor or the servicer, as the case may be,
under the 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
- the trustee; or
- 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
- 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
- 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
- the trustee is unable to obtain any bids from eligible
successor servicers;
<PAGE>
- 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
- 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:
- failure by the servicer to make any payment, transfer or
deposit, or to give instructions to the trustee to make
certain payments, transfers or deposits, on the date the
servicer is required to do so under the agreement or any
series supplement or within the applicable grace period,
which will not exceed 10 business days;
- 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;
- 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 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;
- the occurrence of certain events of bankruptcy, insolvency
or receivership of the servicer, or
- 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.
2
<PAGE>
Upon the occurrence of any such event, the servicer will
- not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms
of the pooling and servicing agreement; and
- 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 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:
- the total amount distributed;*
- the amount of the distribution on the distribution date
allocable to principal on the certificates;*
- the amount of the distribution allocable to interest on the
certificates;*
- 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;
- the aggregate amount of
- Principal Receivables;
- the Investor Interest; and
- the Investor Interest as a percentage of the aggregate
amount of the Principal Receivables
3
<PAGE>
in the trust as of the end of the last day of the
preceding monthly period or periods since the last
distribution date;
- 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;
- the aggregate Investor Default Amount for the preceding
monthly period or periods since the last distribution date;
- 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;
- the amount of the Investor Servicing Fee for the preceding
monthly period or periods since the last distribution date;
- the amount available under any enhancement and credit
enhancement, if any, as of the close of business on the
distribution date;
- 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;
- 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;
- 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;
- certain information relating to the floating or variable
certificate rates, if applicable, for the monthly period or
periods ending on such distribution date; and
- 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.
4
<PAGE>
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
- a report to the effect that the accounting firm has
examined management's assertion that
- 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
- in their opinion, management's assertion is fairly
stated, in all material respects; and
- 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
5
<PAGE>
prospectus supplement relating to your series, of an annual statement signed
by an officer of the servicer to the effect that
- the servicer has fully performed its obligations under the
agreement throughout the preceding year; or
- if there has been a default in the performance of any
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,
- cure any ambiguity;
- revise certain exhibits and schedules;
- correct or supplement any provision which may be
inconsistent with any other provision in the agreement; or
- 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
- 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;
- 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
6
<PAGE>
- 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
- reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on certificates
of any series;
- change the definition of or the manner of calculating the
interest of any certificateholder of any series;
- alter the requirements for changing the percentage by which
the minimum Transferor Interest for certificates of any
series is determined;
- change the manner in which the Transferor Interest of any
series is determined; or
- 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
- adding any provisions to;
- changing in any manner; or
- eliminating any of the provisions of
the agreement or of modifying in any manner the rights of holders of
certificates. No such amendment, however, may
- 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;
- change the definition of or the manner of calculating
7
<PAGE>
- the Investor Interest;
- the Investor Percentage; or
- the Investor Default Amount
of the series without the consent of each holder of
certificates adversely affected by the change; or
- 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
- after having been adequately indemnified by such
certificateholders for its costs and expenses; and
- 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 certain 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,
- all rights, powers, duties and obligations conferred or
imposed upon the trustee by the pooling and servicing
agreement will be conferred or imposed upon the trustee and
separate trustee or co-trustee jointly; or
8
<PAGE>
- in any jurisdiction in which the trustee will be
incompetent or unqualified to perform certain 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
- the trustee ceases to be eligible to continue as trustee
under the agreement; or
- if the trustee becomes insolvent.
In such circumstances, the transferor will be obligated to appoint a
successor trustee. Any resignation or removal of the trustee and appointment
of a successor trustee does not become effective until acceptance of the
appointment by the successor trustee.
Description of the Purchase Agreements
General
The transferor will obtain its interest in the receivables under certain
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:
- the DIC Purchase Agreement dated as of August 14, 1998 with
DIC;
- the MFI Purchase Agreement dated as of August 14, 1998 with
Mersco Factors;
- the DNB Purchase Agreement dated as of August 14, 1998 with
DNB; and
- 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
9
<PAGE>
- all then existing and thereafter arising receivables in
each account identified on a list of accounts delivered to
the transferor; and
- all monies due or to become due with respect 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
- all receivables then existing and thereafter arising in
each account created after August 12, 1998; and
- all monies due or to become due with respect 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,
- 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;
10
<PAGE>
- 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 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;
- the Purchase Agreement constitutes either
- 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
- a grant of a perfected, first priority, security
interest as defined in the UCC in the property
to the transferor, subject to certain
exceptions.
- 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;
- each receivable transferred is an Eligible Receivable;*
- each receivable transferred has been or will be conveyed
to the transferor*
- free and clear of any lien of any person
claiming through or under the Receivables Seller
or any of its affiliates; and
- in compliance, in all material respects, with
all requirements of law applicable to the
Receivables Seller;
- all consents, licenses, approvals or authorizations of,
or registrations or declarations with, any governmental
11
<PAGE>
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;
- the Receivables Seller has the corporate power and
authority to
- execute and deliver and perform its obligations
under the Purchase Agreement; and
- 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
- the Receivables Seller is, and after giving effect to
the transfers contemplated to occur on any date under
the Purchase Agreement, will be, solvent.
Certain Covenants
Each Receivables Seller will agree, among other things,
- 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;
- 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;
- 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
12
<PAGE>
Agreement and not to grant, create, incur, assume or
suffer to exist any lien thereon;
- 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
- 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
- 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
- a breach by the Receivables Seller of its covenant
described in clauses marked with an * above under the
description "Certain Covenants," which breach has a
material adverse effect on the transferor's interest in
the receivable, or
- 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
13
<PAGE>
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
- into which a Receivables Seller may be merged or
consolidated
- resulting from any merger, conversion or
consolidation to which the Receivables Seller is
a party,
- succeeding to the business of the Receivables
Seller, or
- more than 50% of the voting stock of which is
owned, directly or indirectly, by Dillard's;
- which person in any of the foregoing cases executes an
agreement of assumption to perform every obligation of
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:
- 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 transferor and the
trustee, respectively, in the receivables transferred by
the Receivables Seller and reciting the details of the
filings; or
- stating that, in the opinion of counsel, no such action
is necessary to preserve and protect these interests.
14
<PAGE>
Credit Enhancement
General
For any series, credit enhancement may be provided for one or more
classes. Credit enhancement may be in the form of
- the subordination of one or more classes of the
certificates of the series;
- a letter of credit;
- the establishment of a cash collateral guaranty or
account;
- a collateral interest;
- a surety bond;
- an insurance policy;
- a spread account;
- a reserve account;
- the use of cross support features;
- another method of credit enhancement described in the
related prospectus supplement;
- or 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
- the characteristics of the receivables and accounts
included in the trust portfolio as of the closing date
for the series;
- and the desired rating for each class; and
- the requirements of each rating agency rating the
certificates of the series or class.
15
<PAGE>
Unless otherwise specified in the prospectus supplement for your series,
the credit enhancement will not
- provide protection against all risks of loss; and
- 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
- the amount payable under the credit enhancement;
- any conditions to payment not otherwise described here;
- 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
- any material provision of any agreement relating to the
credit enhancement.
Additionally, the prospectus supplement relating to your series may set out
information for any credit enhancement provider, including
- a brief description of its principal business
activities;
- its principal place of business, place of incorporation
and the jurisdiction under which it is chartered or
licensed to do business;
- if applicable, the identity of regulatory agencies which
exercise primary jurisdiction over the conduct of its
business;
- its total assets, and its stockholders' or policy
holders' surplus, if applicable; and
- other appropriate financial information as of the date
specified in the prospectus supplement.
16
<PAGE>
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 certain Pay Out Events for the series. In
such event, the credit enhancement provider may have an interest in certain
cash flows in respect of the receivables to the extent described in 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 certain types of
losses not covered by another form of credit enhancement. The prospectus
supplement relating to your series will also set out information concerning
- the amount of subordination of a class or classes of
subordinated certificates in a series;
- the circumstances in which the subordination will be
applicable;
- the manner, if any, in which the amount of subordination
will be applicable;
- the manner, if any, in which the amount of subordination
will decrease over time; and
- the conditions under which amounts available from
payments that would otherwise be made to holders of 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.
17
<PAGE>
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 certain 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
- a Cash Collateral Guaranty
- secured by the deposit of cash or certain
permitted investments in a Cash Collateral
Account; and
- reserved for the beneficiaries of the Cash
Collateral Guaranty;
- or by a Cash Collateral Account alone.
The amount available under the Cash Collateral Guaranty or the Cash
Collateral Account will be the lesser of
- amounts on deposit in the Cash Collateral Account; and
- an amount specified in the 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
18
<PAGE>
- to the extent the transferor elects, subject to certain
conditions specified in the related prospectus
supplement, to apply collections of Principal
Receivables allocable to the collateral interest to
decrease the collateral interest;
- 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
- to the extent excess collections of Finance Charge
Receivables are required to be deposited into the Cash
Collateral Account as specified in the related
prospectus supplement.
The total amount of the credit enhancement available pursuant to the
collateral interest and, if applicable, the Cash Collateral Guaranty or Cash
Collateral Account will be the lesser of
- the sum of the collateral interest; and
- the amount on deposit in the Cash Collateral Account and
an amount specified in the related prospectus
supplement.
The related prospectus supplement will set out the circumstances under which
holders of certificates will receive payments
- under a Cash Collateral Guaranty;
- under a Cash Collateral Account; or
- 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
19
<PAGE>
series or class of certificates in the manner and amount specified in the
prospectus supplement.
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 certain 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
- an initial cash deposit;
- the retention of certain periodic distributions of principal or
interest or both otherwise payable to one or more classes or
certificates, including the Subordinated Certificates; or
- the provision of a letter of credit, guarantee, insurance policy
or other form of credit or any combination 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:
- its view on the likelihood that certificateholders will receive
required interest and principal payments; and
- its evaluation of the receivables and the availability of any
credit enhancement for the certificates.
Among the things a rating will not indicate are:
- the likelihood that interest or principal payments will be paid
on a scheduled date;
20
<PAGE>
- the likelihood that a Pay Out Event will occur;
- the likelihood that a United States withholding tax will be
imposed on non-U.S. Certificateholders;
- the marketability of the certificates;
- the market price of the certificates; or
- whether the certificates are an appropriate investment for any
purchaser.
A rating will not be a recommendation to buy, sell or hold the
certificates. A rating may be lowered or withdrawn at any time by a rating
agency.
The transferor will request a rating of the certificates offered by
this prospectus and the prospectus supplement from at least one rating
agency. It will be a condition to the issuance of the certificates of each
series or class offered pursuant to this prospectus and the related
prospectus supplement, including each series that includes a Pre-Funding
Account, that they be rated in one of the four highest rating categories by
at least one nationally recognized rating 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.
Certain 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
- 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
- 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
21
<PAGE>
receivables created in favor of the trust on and after their creation, except
for certain tax and other governmental liens, subject to the limitations
described below. For a discussion of the trust's rights arising from a breach
of these warranties, see "Description of the Certificates--Representations
and Warranties."
The transferor will represent as to receivables to be conveyed, that
the receivables are accounts or general intangibles for purposes of the UCC.
Both the transfer and assignment of accounts and chattel paper and the
transfer of accounts as security for an obligation are treated under Article
9 of the UCC as creating a security interest 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 certain 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
- 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, or
22
<PAGE>
- 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
- 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.
Certain 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 certain other circumstances occur, the Comptroller is
authorized to appoint the FDIC as receiver.
In connection with the issuance of a series of certificates which is
supported by receivables transferred by DNB or DNB-La. to the transferor,
counsel will advise the trustee, based upon the assumptions and limitations
contained in a written legal opinion, that the sale of receivables by DNB or
DNB-La., as appropriate, would constitute either a valid sale or a grant of a
security interest, as defined in the UCC, in the property to the transferor
which, upon the filing of specified financing statements will be a perfected
security interest.
FIRREA sets forth certain powers that the FDIC may exercise as
receiver for DNB or DNB-La. To the extent that
- an originator granted a security interest in its receivables to
the transferor, which security interest is subsequently assigned
to the trust,
- the interest was validly perfected before the originator's
insolvency,
- 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,
- the pooling and servicing agreement is continuously a record of
the originator, and
23
<PAGE>
- 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
- were to assert that the security interest in favor of either the
transferor or the trust was unperfected or unenforceable; or
- were to require either the transferor or the trustee to establish
its right to those payments by submitting to and completing the
administrative claims procedure established under FIRREA; or
- the conservator or receiver were to request a stay of proceedings
with respect to an originator as provided under FIRREA,
delays in payments on the certificates and possible reductions in the amount
of those payments could occur. The 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
24
<PAGE>
and on commercially reasonable terms, unless otherwise instructed within a
specified period by holders of certificates representing undivided interests
aggregating more than 50% of the Investor Interest of each series or, if any
series has more than one class, of each class, and any other person specified
in the 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 certain events of insolvency, conservatorship or
receivership with respect to the servicer will result in a servicer default,
which servicer default, in turn, could result in a Pay Out Event. If no other
servicer default other than the commencement of such bankruptcy or similar
event exists, a conservator or receiver of the servicer may have the power to
prevent the trustee and the securityholders from appointing a successor
servicer.
Certain Matters Relating to Bankruptcy of the Transferor, DIC and MFI
The transferor will not engage in any activities except
- purchasing accounts receivable from Dillard's and certain of
Dillards' subsidiaries,
- forming the trust,
- transferring accounts receivable to the trust, and
- engaging in activities incident to, or necessary or convenient to
accomplish, the foregoing.
The transferor has no intention of filing, and Condev Nevada Inc. has
no intention of causing the filing of a voluntary petition under the United
States federal bankruptcy code or any similar applicable state law with
respect to the transferor so long as the transferor is solvent and does not
reasonably foresee becoming insolvent.
The voluntary or involuntary application for relief under the United
States federal bankruptcy code or any similar applicable state law with
respect to Dillard's or any of its affiliates, other than the transferor but
including DIC and MFI, should not necessarily result in a similar voluntary
25
<PAGE>
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.
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.
26
<PAGE>
The pooling and servicing agreement provides that, upon the
bankruptcy or appointment of a receiver for the transferor or Dillard's, a
Pay Out Event with respect to all series will occur, and under the pooling
and servicing agreement, no new Principal Receivables will be transferred to
the trust. If the only Pay Out Event to occur is either the insolvency of the
transferor or the appointment of a bankruptcy trustee or receiver for the
transferor, the receiver or bankruptcy trustee for the transferor may have
the power to continue to require the transferor to transfer new Principal
Receivables to the trust and to prevent the early sale, liquidation or
disposition of the receivables and the commencement of the Early Amortization
Period. See "Description of the Certificates--Pay Out Events."
Consumer Protection Laws
The relationships of the cardholder and credit card issuer and the
lender are extensively regulated by federal and state consumer protection
laws. With respect to credit cards issued by an originator, the most
significant laws include the federal
- Truth-in-Lending, Equal Credit Opportunity,
- Fair Credit Reporting,
- Fair Debt Collection Practice, and
- Electronic Funds Transfer Acts.
These statutes impose disclosure requirements when a credit card account is
advertised, when it is opened,
- at the end of monthly billing cycles, and
- at year end.
In addition, these statutes
- limit customer liability for unauthorized use,
- prohibit certain discriminatory practices in extending credit,
and
- impose certain limitations on the type of account-related charges
that may be assessed.
Cardholders are entitled under these laws to
- have payments and credits applied to the credit card accounts
promptly,
27
<PAGE>
- to receive prescribed notices, and
- 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 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 certain 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,
- prohibit the imposition of certain minimum finance charges and
other fees,
- prohibit certain methods of calculating finance charges,
- require prior notice of any increase in the interest rate
assessed with respect to a credit card account, and
- limit the amount of certain fees.
Although such proposed legislation has not been enacted, there can be no
assurance that such a bill will not become law in the future. The potential
effect of any legislation which limits the amount of finance charges and fees
that may be charged on credit cards could be to reduce the portfolio yield on
the accounts. If 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
28
<PAGE>
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
- 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 all the terms of the contract between the originator and
the obligor and
- 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
- any obligor is authorized to continue to pay the originator until
- 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
- 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.
29
<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 certain types of certificate owners that are subject
to special treatment under the Code, such as
- banks,
- financial institutions,
- dealers in securities,
- regulated investment companies,
- real estate investment trusts,
- tax-exempt entities,
- persons holding certificates as part of a hedging, integrated,
conversion or constructive sale transaction or a straddle,
30
<PAGE>
- persons whose functional currency is not the U.S. dollar, or
- 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
- a citizen or resident of the United States,
- a corporation or partnership created or organized in the United
States or under the laws of the United States or any political
subdivision thereof,
- an estate the income of which is subject to United States federal
income taxation regardless of its source, or
31
<PAGE>
- 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
certain 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. Certain 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.
32
<PAGE>
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 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
33
<PAGE>
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
- 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
- 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
34
<PAGE>
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.
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 certain
circumstances, a trust's share of expenses of such partnership would be
miscellaneous itemized deductions that, in the aggregate, are allowed as
deductions only to the extent that they exceed two percent of the
individual's adjusted gross income, and would be subject to reduction if the
individual's adjusted gross income exceeded certain limits. As a result, 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 certain 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 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:
35
<PAGE>
(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
(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
- the beneficial owner provides his name and address, and
certifies, under penalties of perjury, that he is not a U.S.
36
<PAGE>
Certificate Owner, which certification may be made on an IRS
Form W-8 or successor form, or
- 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, 1999 for an offshore account or
through certain foreign intermediaries.
If a non-U.S. Certificate Owner cannot satisfy the requirements of
the portfolio interest exception of paragraph (a) above, payments of interest
made to such non-U.S. Certificate Owner will be subject to a 30% withholding
tax unless the beneficial owner of the certificate provides the transferor or
any withholding agent with a properly executed
- 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
- 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 certain situations.
If a non-U.S. Certificate Owner is engaged in a trade or business in
the United States and interest on the certificate is effectively connected
with the conduct of such trade or business, the non-U.S. Certificate Owner,
although exempt from the withholding tax discussed above, will be subject to
U.S. federal income tax on such interest income on a net income basis in the
same manner as if it were a U.S. Certificate Owner. In addition, if such non-
U.S. Certificate Owner is a foreign corporation, it may be subject to a
branch profits tax equal to 30%, or 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
37
<PAGE>
- the gain is effectively connected with a trade or business
carried on by the non-U.S. Certificate Owner in the United
States,
- 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 certain other conditions are met, or
- 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 treated as engaged in a trade or business in the United States. In that
event, the non-U.S. Certificate Owner would be required to file a U.S.
federal income tax return and, in general, would be subject to U.S. federal
income tax including, in the case of a non-U.S. Certificate Owner that is a
corporation, the branch profits tax, on its allocable share of the net income
from the partnership. Further, certain withholding obligations 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 certain non-U.S. Certificate Owners, such as
controlled foreign corporations, passive foreign investment companies and
foreign personal holding companies, that are subject to special treatment
under the Code. Such entities should consult their own tax advisors to
determine the U.S. federal, state, local and other tax consequences that may
be relevant to them.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments of principal and interest paid on certificates and to the proceeds
of sale of a certificate made to U.S. Certificate Owners other than certain
exempt recipients such as corporations. A 31% backup withholding tax will
apply to such payments if the U.S. Certificate Owner fails to provide a
taxpayer identification number or certification of 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.
38
<PAGE>
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 certain U.S. related financial
intermediaries unless the statement described in (a)(iv) above under "--Non-
U.S. Certificate Owners" has been received and the payor does not have actual
knowledge that the beneficial owner is a United States person or the holder
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against 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
- through underwriters or dealers,
- directly to one or more purchasers, or
- 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 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
- will be acquired by the underwriters for their own
account, and
39
<PAGE>
- may be resold from time to time in one or more
transactions, including
- negotiated transactions,
- at a fixed public offering price
- 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 certain conditions precedent, 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 certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
40
<PAGE>
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 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
41
<PAGE>
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.
42
<PAGE>
Glossary of Terms
The certificates will be issued pursuant to the pooling and servicing
agreement and the series supplement. The following glossary of terms is not
complete. You should refer to the prospectus, the prospectus supplement, the
pooling and servicing agreement and the series supplement for additional
definitions. If you send a written request to the trustee at its corporate
office, the trustee will provide to you without charge a copy of the pooling
and servicing agreement (without exhibits and schedules) and the series
supplement (without exhibits).
Some of the definitions contained in this glossary of terms may not
necessarily apply to your series of certificates.
"Accumulation Period" will 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, as defined for that series
in the related supplement.
"Additional Interest" will mean interest, if any, on overdue Monthly
Interest, at the rate specified in the related supplement.
"Amortization Period" will 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
for that series in the related prospectus supplement.
"benefit plan investors" will have the meaning attributed to such
term under ERISA.
"Cash Collateral Account" will mean the deposit of cash or certain
permitted investments in an account meant to serve as security for the Cash
Collateral Guaranty.
"Cash Collateral Guaranty" will mean, if specified in the related
supplement, the accumulation of cash in an account reserved for use as
support for a series or one or more classes provided with a guaranty.
"Cede" will mean Cede & Co., as DTC Nominee.
"Collateral Interest" will mean for any date an amount equal to (a)
the Initial Collateral Interest, minus (b) the aggregate amount of principal
payments made to the Collateral Interest Holder prior to that date, minus (c)
43
<PAGE>
the aggregate amount of Collateral Charge-Offs for all prior Transfer Dates,
minus (d) the aggregate amount of Reallocated Collateral Principal
Collections for all prior Transfer Dates, minus (e) an amount equal to the
aggregate amount by which the Collateral Interest has been reduced to fund
the Class A Investor Default Amount and the Class B Investor Default Amount
on all prior Transfer Dates plus (f) the aggregate amount of Excess Spread
allocated and available on all prior Transfer Dates for the purpose of
reimbursing amounts deducted according to clauses (c), (d) and (e); provided,
the Collateral Interest may not be reduced below zero.
"Collection Account" will mean, an account established by the
servicer no later than the second business day (or any other day specified in
the related supplement) following the date of processing, for the purpose of
aggregating any receivable payments collected by the servicer.
"Companion Series" will mean, (i) each series which has been paired
with another series (which series may be prefunded in whole or in part), so
that the reduction of the Investor Interest of that series results in the
increase of the Investor Interest of the other series, as described in the
related supplement, and (ii) any other series, as described in the related
supplement.
"Controlled Accumulation Period" will mean with respect to the
certificates, the close of business of the last day of the monthly period.
"Controlled Amortization Period" will mean an amortization period,
unless a Rapid Amortization Period with respect to that series commences,
during which collections of Principal Receivables allocable to the Investor
Interest of that series (and certain other amounts if specified in the
supplement) will be used on each Distribution Rate to make principal
distributions in amounts determined by the supplement to the
certificateholders of the series or any class of series that are scheduled to
receive distributions.
"Controlled Deposit Amount" will mean, for such monthly period, an
amount equal to the Controlled Accumulation.
"Controlled Distribution Amount" will mean, with respect of any
series, the meaning specified in the related prospectus supplement.
"controlled foreign corporation" will have the meaning attributed to
such term as defined in Section 957 of the Code.
"Credit and Collection Policy" will mean (i) the credit criteria
applied by the Receivables Seller to the origination of that receivables by
the Receivables Seller or (ii) the credit review process followed by the
Receivables Seller in connection with the origination of that Receivable
Seller's receivables.
44
<PAGE>
"Credit Enhancement" will mean the subordination of the Class B
certificates to the Class A certificates.
"Credit Enhancement Percentage" will mean the percentage of interest
of certain Credit Enhancement Providers.
"Credit Enhancement Provider" will mean, with respect to any series,
the person, if any, designated the credit enhancement provider in the related
supplement.
"Cut-Off Date" will mean the date specified in the related
supplement.
"Defaulted Accounts" will 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 that account as uncollectible. An account becomes a
Defaulted Account on the day on which the receivables are recorded as charged
off as uncollectible on the computer master file of the respective
originator's accounts. However, any receivables in a Defaulted Account that
are Ineligible Receivables shall be treated as Ineligible Receivables rather
than receivables in Defaulted Accounts.
"Determination Date" will mean, unless otherwise specified in the
related supplement, the fourth business day before each Transfer Date.
"DIC" will mean Dillard Investment Co, Inc. a Delaware corporation.
"Dillard's" will mean Dillard's, Inc., a corporation organized under
the laws of Delaware
"Dillard's Cards" will mean the private label credit card program
offered by Dillard's to its creditworthy customers.
"Dillard's Entity" will mean Dillard's or any of its affiliates
(other than the transferor but including DIC and MFI)
"Discount Option Receivables" will mean the amount of receivables
arising in certain accounts of the trust on and after the date the Discount
Option is exercised that otherwise would have been treated as Principal
Receivables to be treated as Finance Charge Receivables.
"Discount Percentage" will mean the fixed or variable percentage
designated by the transferor for each series as specified in the related
supplement.
45
<PAGE>
"Distribution Accounts" will mean an Eligible Deposit Account
established by the trustee.
"Disqualified person" will have the meaning attributed to such term
under ERISA.
"DNB" will 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.
"DNB-La." will 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.
"DOL" will mean the Department of Labor.
"Early Amortization Period" will mean 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" will 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 (i) which is payable in dollars, (ii) 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, (iii) which the
originator has not classified on its electronic records as counterfeit,
deleted, fraudulent, stolen or lost, and (iv) 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" will 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, 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" will 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 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
46
<PAGE>
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.
"Eligible Receivable" will mean each receivable:
(a) 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 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;
(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 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;
(d) 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, free and clear of all liens,
except for permitted 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, 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
(f) which constitutes an "account" under and as defined in
Article 9 of the UCC in effect in the State of Delaware.
"ERISA" will mean, the Employee Retirement Income Security Act of
1974, as amended from time to time.
47
<PAGE>
"Finance Charge Account" will mean a certain segregated account
established and maintained by the trustee in the name of the trust for the
benefit of the certificateholders.
"Finance Charge Receivables" will mean, the collected periodic
finance charges and amounts charged or billed to the credit card accounts
related to certain credit card fees, including late fees; provided, if the
transferor exercises the Discount Option, an amount equal to the Discount
Percentage multiplied by the receivable amount arising in the related
accounts on and after the Discount Option is exercised will be treated as
Finance Charge Receivables.
"Final Regulations" will have the meaning attributed to such term as
defined in the Code.
"foreign personal holding companies" will have the meaning attributed
to such term as defined in Section 552 of the Code.
"Full Investor Interest" will mean until the end of the funding
period of a series paired with a related Companion Series, the certificates
of such series will evidence an undivided interest in Receivables to the
extent of the Investor Interest in that series and in funds on deposit in the
Pre-Funding Account and Permitted Investments to the extent of the difference
between the aggregate principal amount of the certificate of such series and
the initial Investor Interest.
"Funding Period" will mean 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" will have the meaning attributed to
such term under ERISA.
"Group" will mean, with respect to any series, the group of series in
which the related prospectus supplement specifies that such series shall be
included.
"Ineligible Receivable" will mean, upon a breach of any
representation or warranty, the reassignment of each Principal Receivable as
to which the breach relates because the receivables in certain accounts are
charged off as uncollectible, the trust's rights in, to or under the
receivables or its proceeds are impaired or the proceeds of those receivables
are not available for any reason to the trust free and clear of any lien.
"Investor Charge-Off" will mean, for any monthly period, for any
series or class, the amount by which (a) the related Monthly Interest and
overdue Monthly Interest (together with, if applicable, Additional Interest),
the accrued and unpaid Investor Servicing Fees payable from collections of
48
<PAGE>
Finance Charge Receivables, the Investor Default Amount and any other
required fees exceeds (b) amounts available to pay such amounts out of
collections of Finance Charge Receivables, available Credit Enhancement
amounts, if any, and other sources specified in the related supplement, if
any, but not more than such Investor Default Amount.
"Investor Default Amount" will mean, for any monthly period, and for
any series or class, the aggregate amount of the applicable Investor
Percentage of Principal Receivables in default accounts.
"'Investor Interest" will mean for any date of determination an
amount equal to the sum of the Class A Investor Interest plus, the Class B
Investor Interest plus, the Collateral Interest.
"Investor Percentage" will mean the percentage of the collections of
Finance Charge Receivables and Principal Receivables allocated monthly to the
certificateholders of each series.
"Investor Servicing Fee" will mean the servicing fee allocable to the
Investor Interest related to a series or class, as specified in thesupplement.
"L/C Bank" will mean the bank issuing a letter of credit.
"MCC" will mean Mercantile Credit Corporation, a corporation
organized and existing under the laws of Louisiana.
"Mercantile Accounts" will mean the revolving credit card accounts
originated by DNB-La. prior to October 17, 1998.
"Mercantile Cards" will mean the Mercantile private label credit card
program offered by Mercantile to its creditworthy customers prior to
Dillard's acquisition of Mercantile Stores National Bank.
"MFI" will mean Mersco Factors, Inc., a Delaware corporation.
"Minimum Transferor Interest" will mean, for any period, the interest
of the sum of (i) the average Principal Receivables for that period and (ii)
the average principal amount on deposit in the Excess Funding Account, the
Principal Funding Account and any other account specified from time to time
pursuant to the 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 clauses (i) and (ii) above upon satisfaction of the Rating
Agency Condition and certain other conditions in the Agreement.
"Moody's" will mean Moody's Investors Service, Inc.
49
<PAGE>
"non-U.S. Certificate Owner" will mean any certificate owner other
than a U.S. Certificate Owner.
"Participations" will mean 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" will mean 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 certain other
specified rights and remedies.
"parties in interest" will mean persons that are "parties in
interest" under ERISA or disqualified persons under the Code.
"passive foreign investment companies" will have the meaning
attributed to such term as defined in Section 1297 of the Code.
"Paying Agent" will mean the identified paying agent specified in the
supplement.
"Pay Out Event" will mean either automatically or after specified
notice, upon
(a) the failure of the transferor to make certain payments or
transfers of funds for the benefit of the certificateholders
within the time periods stated in the pooling and servicing
agreement,
(b) material breaches of certain representations, warranties or
covenants of the transferor,
(c) certain bankruptcy or insolvency events involving the
transferor, Dillard's or an originator,
(d) a reduction of the average of the Portfolio Yields for any
three consecutive monthly periods to a rate that is less
than the average of the Base Rates for such period,
(e) the trust becoming subject to regulation as an investment
company within the meaning of the Investment Company Act of
1940, as amended,
(f) the failure of the transferor to convey receivables arising
under additional accounts when required by the pooling and
servicing agreement,
50
<PAGE>
(g) the occurrence of a servicer default which would have a
material adverse effect on the certificateholders,
(h) insufficient funds in the Distribution Account to pay the
Class A Investor Interest or the Class B Investor Interest
in full on the Class A Scheduled Payment Date or the Class B
Scheduled Payment Date, respectively,
(i) the transferor's interest in the trust becoming less than
the Minimum Transferor Interest, or
(j) the transferor becomes unable for any reason to transfer
receivables to the trust in accordance with the provisions
of the pooling and servicing agreement.
"Permitted Investments" will mean any investment that by its terms
converts to cash within a finite time period, if a Rating Agency confirms in
writing that such investment will not adversely affect the trust's current
rating or ratings of the certificates.
"Plans" will mean the Code imposed requirements on certain employee
benefit plans.
"Pre-Funding Account" will mean an account established to maintain
the collected Pre-Funding Amount.
"Pre-Funding Amount" will mean during the Controlled Amortization
Period, Principal Amortization Period or Accumulation Period, as applicable,
if principal is not paid to the certificateholders in the amounts and on
Distribution Dates specified in the related supplement, the receivables will
accumulate in a trust account established for the benefit of such
certificateholders for later distribution on the Scheduled Payment Date in
the amounts specified in the related supplement.
"Principal Account" will mean an account established and maintained
by the trustee in the name of the trust for the benefit of the
certificateholders of the related series and for the purposes set out in the
related prospectus supplement.
"Principal Amortization Period" will mean 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" will mean the principal amount held in a trust
account established by the trustee, equaling the deficiency, if any, between
51
<PAGE>
the amount of Principal Receivables in trust allocable to a series and the
aggregate principal amount of the certificates of the series.
"Principal Receivables" will 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 that 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
on that day.
"Purchase Agreements" will mean (i) the DIC Receivables Purchase
Agreement, dated as of August 14, 1998, between DIC 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; or (v) any agreement whereby the
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" will mean, 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 continue until the earliest of the (a) commencement of
the Rapid Amortization Period, (b) payment in full of the Investor Interest
(and the collateral interest if so specified in the related prospectus
supplement) or (c) 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" will mean during the period from the day
on which a Pay Out Event has occurred with respect to a series or, if so
specified in the 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 (a) 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 (b) the related Series Termination Date, collections of Principal
Receivables allocable to the Investor Interest of such series (and certain
other amounts if so specified in the related supplement) will be distributed
as principal payments to the certificateholders of that series and, in
certain 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.
52
<PAGE>
"Receivables Seller" will mean one or more of the originators or
party to a purchase agreement with the transferor whereby the transferor
obtains the interest to certain receivables.
"Record Date" will mean the last business day of the calendar month
preceding the Distribution Date.
"Regular Option" will mean the payment method available for new
purchases of merchandise or services at any Dillard's or Mercantile
department store.
"Regulation" will have the meaning attributed to such term under
ERISA.
"Repurchase Guarantee" will mean, if provided in the supplement, the
guarantee in favor of the trustee by Dillard's or any of its subsidiaries of
the obligations of the Receivable Seller to repurchase the receivables under
certain circumstances.
"Reserve Account" will mean the established account intended to
assist with subsequent distribution of principal or interest on the
certificates funded by an initial cash deposit, the retention of certain
periodic distributions of principal and/or interest otherwise payable to one
or more classes of certificates.
"Revolving Period" will mean the period beginning on the closing date
and ending with the commencement of an Amortization Period or an Accumulation
Period.
"Series Termination Date" will mean, 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 Default" will mean (a) failure by the servicer to make any
payment, transfer or deposit, or to give instructions to the trustee to make
certain payments, transfers or deposits, on the date the servicer is so
required under the pooling and servicing agreement or any series supplement
(or within the applicable grace period, which shall not exceed 10 business
days);
(b) failure on the part of the servicer duly to observe or
perform in any respect any other covenants or agreements of
the servicer which has a material adverse effect on the
certificateholders of any series issued and outstanding
under the trust and which continues unremedied for a period
of 60 days after written notice and continues to have a
material adverse effect on such certificateholders; or the
53
<PAGE>
delegation by the Servicer of its duties under the pooling
and servicing agreement, except as specifically permitted
thereunder;
(c) any representation, warranty or certification made by the
servicer in the pooling and servicing agreement, or in any
certificate delivered pursuant to the pooling and servicing
agreement, proves to have been incorrect when made which has
a material adverse effect on the certificateholders of any
series issued and outstanding under 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 such certificateholders;
(d) the occurrence of certain events of bankruptcy, insolvency
or receivership of the servicer, or
(e) such other event specified in the related supplement.
"Servicer Guaranty" will mean the guaranty by Dillard's of the
obligations of the servicer under the pooling and servicing agreement.
"Servicer Transfer" will mean, unless otherwise specified in the
related supplement, in the event of any Servicer Default, either the trustee
or certificateholders representing undivided interests aggregating more than
50% of the Investor Interests for all series of certificates of the trust, by
written notice to the servicer (and to the trustee if given by the
certificateholders), may terminate all of the rights and obligations of the
servicer under the pooling and servicing agreement and in and to the
receivables and the proceeds thereof and the Trustee may appoint a new
Servicer.
"Servicing Fee" will mean a fee paid from the trust to the servicer
as compensation for servicing the trust.
"Shared Principal Collections" will mean 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 certain
other amounts allocated to the Investor Interest of any series are not needed
to make payments or deposits for that series.
"Spread Account" will mean an account into which periodic deposits of
certain available excess cash flow from the trust assets are deposited, and
is intended to assist with subsequent distribution of interest and principal
on the certificates of the class or series in the manner specified in the
related prospectus supplement.
54
<PAGE>
"Standard & Poor's" will mean Standard & Poor's Rating Services, a
Division of The McGraw-Hill Companies, Inc.
"Subordinated Certificates" will mean the Class B certificates
"Sub-Servicer" will mean an affiliate of the servicer appointed to
receive any or all of the receivables.
"Tax Option" will 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.
"transfer date" will mean, unless otherwise specified in the related
supplement, with respect to any series, the business day immediately prior to
each Distribution Date.
"Transferor Interest" will mean, on any date of determination, the
aggregate amount of Principal Receivables and the principal amounts on
deposit in the Excess Funding Account, any 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" will mean the right of the transferor to
receive a percentage of all cardholder payments on the receivable in the
trust equal to 100% minus the sum of the applicable Investor Percentages for
all series of certificates the outstanding.
"Trust Termination Date" will mean 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 the pooling and servicing agreement and (c) July 15,
2021, and (ii) if a Trust Extension shall have occurred, the Extended Trust
Termination Date.
55
<PAGE>
"Unallocated Principal Collections" will mean any amounts of
collected Principal Receivables not paid to the transferor because the
Transferor Interest is zero.
"US Certificate Owner" will mean (i) a citizen or resident of the
United States; (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or any political
subdivision; (iii) an estate the income of which is subject to United States
federal income taxation regardless of its source or 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.
"Warranty Payment" will mean the payment from the Receivables Seller
to the transferor in connection with the Receivables Seller's repurchase of
the Warranty Receivables.
"Warranty Receivable" will mean 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" will have the meaning attributed to such term as
defined in the Code.
56
<PAGE>
ANNEX I
Global Clearance, Settlement and Tax Documentation Procedures
Except in certain limited circumstances, the Global Securities
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 certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interest in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts
as DTC Participants.
Custody accounts of investors electing to hold their Global
Securities through DTC will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedelbank
or Euroclear accounts will follow the settlement procedures applicable to
57
<PAGE>
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 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 Cedel 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
58
<PAGE>
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, Cedel or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the bonds to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment date to and excluding the settlement
date. The payment will then be reflected in the account of the 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 Cedel
Customer's or Euroclear Participant's account would instead be valued as of
the actual settlement date. Finally, day traders that use Cedel or Euroclear
and that purchase Global Securities from DTC Participants for delivery to
59
<PAGE>
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 Cedel or
Euroclear accounts in accordance with the clearing system's
customary procedure.
(2) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement which would give the
Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is
at least one day prior to the value date for the sale to the
Cedelbank Customer or Euroclear Participant.
Certain 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
60
<PAGE>
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 -- 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.
61
<PAGE>
Prospectus Supplement
Dillard Credit Card Master Trust
Issuer
SERIES -
$
Class A Floating Rate
Asset Backed Certificates
$
Class B Floating Rate
Asset Backed Certificates
Dillard Asset Funding Company
Transferor
Dillard National Bank
Servicer
Underwriters of the Class A Certificates
[Name of Underwriters]
Underwriter of the Class B Certificates
[Name of Underwriter]
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the Prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Certificates in any state where the offer is
not permitted.
We do not claim the accuracy of the information in this Prospectus
Supplement and the Prospectus as of any date other than the dates stated on
their respective covers.
Dealers will deliver a Prospectus Supplement and Prospectus when
acting as underwriters of the Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the
Certificates will deliver a Prospectus Supplement and Prospectus until
, .
62
<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.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
* To be filed by amendment.
Item 15. Indemnification of Directors and Officers
Reference is made to the Underwriting Agreement which is filed as
Exhibit 1.1 to this Registration Statement.
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
1.1 --Form of Underwriting Agreement***
3.1 --Trust Agreement*
4.1 --Form of Pooling and Servicing Agreement***
4.2 --Form of Series Supplement for Pooling and Servicing
Agreement***
63
<PAGE>
5.1 --Opinion of Simpson Thacher & Bartlett***
8.1 --Opinion of Simpson Thacher & Bartlett with respect to
certain tax matter included in opinion to be filed as Exhibit
5.1
10.1 --Form of Receivables Purchase Agreement**
23 --Consent of Simpson Thacher & Bartlett (included in its
opinions filed as Exhibits 5.1 and 8.1)
* Filed herewith
** Previously filed
*** To be filed by amendment
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
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
64
<PAGE>
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
65
<PAGE>
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.
66
<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.3 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized on June 1, 1999.
Dillard Asset Funding Company
as originator of the Trust
By: /s/ David Helm
Administrator
Dillard National Bank,
as Servicer on behalf of the Trust
By: /s/ Randall Hankins
Authorized Signatory
67
===============================================================================
TRUST AGREEMENT
among
CONDEV NEVADA INC.,
as Depositor
CHASE MANHATTAN BANK DELAWARE,
as Owner Trustee
and
JAMES FREEMAN, as Administrator
DAVID HELM, as Administrator
Dated as of August 1, 1998
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page(s)
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . 1
Section 1.1. Capitalized Terms. . . . . . . . . . . . . . . . . . . 1
ARTICLE II
ORGANIZATION . . . . . . . . . . . . . . . . . . 4
Section 2.1. Name. . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2. Office. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3. Purposes and Powers. . . . . . . . . . . . . . . . . . 4
Section 2.4. Maintenance of Separate Existence; Prohibited
Transactions. . . . . . . . . . . . . . . . . . . 5
Section 2.5. Appointment of Owner Trustee. . . . . . . . . . . . . 7
Section 2.6. Initial Capital Contribution of Owner Trust Estate. . 7
Section 2.7. Declaration of Trust. . . . . . . . . . . . . . . . . 7
Section 2.8. Title to Trust Property. . . . . . . . . . . . . . . . 7
Section 2.9. Situs of Trust. . . . . . . . . . . . . . . . . . . . 8
Section 2.10. Representations and Warranties of the Depositor. . . . 8
ARTICLE III
TRUST CERTIFICATES . . . . . . . . . . . . . 9
Section 3.1. Initial Ownership. . . . . . . . . . . . . . . . . . . 9
Section 3.2. The Trust Certificate . . . . . . . . . . . . . . . . 9
Section 3.3. Authentication and Delivery of Trust Certificate . . . 9
Section 3.4. Registration and Transfer of the Trust Certificate. . 10
Section 3.5. Mutilated, Destroyed, Lost or Stolen Trust Certificate 10
Section 3.6. Persons Deemed Owners. . . . . . . . . . . . . . . . . 10
ARTICLE IV
[RESERVED] . . . . . . . . . . . . . . . 11
ARTICLE V
RESERVED] . . . . . . . . . . . . . . . 11
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE . . . . . . . . 11
-i-
<PAGE>
Section 6.1. General Authority . . . . . . . . . . . . . . . . . . 11
Section 6.2. General Duties . . . . . . . . . . . . . . . . . . . . 11
Section 6.3. No Duties Except as Specified in this Agreement . . . 11
Section 6.4. No Action Except Under Specified Documents . . . . . . 12
Section 6.5. Restrictions . . . . . . . . . . . . . . . . . . . . . 12
Section 6.6. Delegation of Duties . . . . . . . . . . . . . . . . . 12
ARTICLE VII
CONCERNING THE OWNER TRUSTEE . . . . . . . . . . 12
Section 7.1. Acceptance of Trusts and Duties . . . . . . . . . . . 13
Section 7.2. Furnishing of Documents. . . . . . . . . . . . . . . . 14
Section 7.3. Representations and Warranties . . . . . . . . . . . . 14
Section 7.4. Reliance; Advice of Counsel . . . . . . . . . . . . . 14
Section 7.5. Not Acting in Individual Capacity . . . . . . . . . . 15
Section 7.6. Owner Trustee Not Liable for Trust Certificate or
Receivables . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE AND ADMINISTRATORS . . . . . 15
Section 8.1. Owner Trustee's and Administrators' Fees and Expenses 15
Section 8.2. Indemnification . . . . . . . . . . . . . . . . . . . 16
Section 8.3. Payments to the Owner Trustee and the Administrators . 16
ARTICLE IX
TERMINATION OF TRUST AGREEMENT . . . . . . . . . . 16
Section 9.1. Termination of Trust Agreement . . . . . . . . . . . . 16
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES . . . . 17
Section 10.1. Eligibility Requirements for Owner Trustee . . . . . . 17
Section 10.2. Resignation or Removal of Owner Trustee . . . . . . . 17
Section 10.3. Successor Owner Trustee . . . . . . . . . . . . . . . 18
Section 10.4. Merger or Consolidation of Owner Trustee . . . . . . . 18
-ii-
<PAGE>
Section 10.5. Appointment of Co-Trustee or Separate Trustee . . . . 19
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . 20
Section 11.1. Supplements and Amendments . . . . . . . . . . . . . . 20
Section 11.2. No Legal Title to Trust Estate in Owner . . . . . . . 21
Section 11.3. Limitations on Rights of Others . . . . . . . . . . . 21
Section 11.4. Notices . . . . . . . . . . . . . . . . . . . . . . . 21
Section 11.5. Severability of Provisions . . . . . . . . . . . . . . 21
Section 11.6. Counterparts . . . . . . . . . . . . . . . . . . . . . 21
Section 11.7. Successors and Assigns . . . . . . . . . . . . . . . . 21
Section 11.8. No Petition . . . . . . . . . . . . . . . . . . . . . 21
Section 11.9. No Recourse . . . . . . . . . . . . . . . . . . . . . 22
Section 11.10. Certificate Nonassessable and Fully Paid . . . . . . 22
Section 11.11. Headings . . . . . . . . . . . . . . . . . . . . . . 22
Section 11.12. Governing Law . . . . . . . . . . . . . . . . . . . . 22
Section 11.13. Nature of Beneficial Interest . . . . . . . . . . . . 22
Exhibit A Certificate of Trust . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B Trust Certificate . . . . . . . . . . . . . . . . . . . . . . B-1
-iii-
<PAGE>
This TRUST AGREEMENT, dated as of August 1, 1998, is between CONDEV
NEVADA INC., a Nevada corporation (the "Depositor"), CHASE MANHATTAN BANK
DELAWARE, a Delaware banking corporation, as owner trustee (the "Owner
Trustee") James Freeman, as administrator, and David Helm, as administrator
(each an "Administrator" and collectively, the "Administrators").
WHEREAS, the parties hereto desire to create a Delaware business trust
under Chapter 38 of Title 12 of the Delaware Code, 12 Del.C. Section 3801,
et. seq. (the "Business Trust Statute") named Dillard Asset Funding Company
(the "Trust") and that this Trust Agreement constitute the governing
instrument of such business trust; and
WHEREAS, in connection herewith, the Depositor is willing to assume
certain obligations pursuant hereto;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Capitalized Terms. Except as otherwise provided in this
Agreement, whenever used in this Agreement the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
"Administrators" means James Freeman and David Helm, each in his
capacity as administrator hereunder together with their respective
successors.
"Agreement" means this Trust Agreement, as the same may be amended and
supplemented from time to time.
"Basic Documents" means this Agreement, the Certificate of Trust, the
Pooling and Servicing Agreement, the Certificate Purchase Agreement, the
Receivables Purchase Agreements, any depository agreement to which the Trust
is a party, the Asset Purchase Agreement, the Dillard's Master Credit Card
Trust I Fee Letter, dated August 14, 1998 and the Dillard Asset Funding
Company Certificate.
"Business Trust Statute" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., as the same may be amended from time
to time.
"Certificate of Trust" means the Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute,
substantially in the form of Exhibit A hereto.
<PAGE>
"Certificate Purchase Agreement" means the certificate purchase
agreement, dated as of August 14, 1998 by and among Park Avenue Receivables
Corporation, as purchaser, The Chase Manhattan Bank, as Funding Agent, the
several financial institutions party thereto, the Trust, as transferor, and
Dillard National Bank, as master servicer.
"Certificate Register" mean the register maintained pursuant to Section
3.04.
"Depositor" means Condev Nevada Inc. in its capacity as depositor
hereunder, and its successors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expenses" shall have the meaning assigned to such term in Section 8.02.
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.02.
"Owner" means the registered holder of the Trust Certificate.
"Owner Trustee" means, initially, Chase Manhattan Bank Delaware, a
Delaware banking corporation, not in its individual capacity but solely as
owner trustee under this Agreement, and any successor Owner Trustee
hereunder.
"Owner Trustee Corporate Trust Office" means the office of the Owner
Trustee at which its corporate trust business shall be administered, which
initially shall be Chase Manhattan Bank Delaware, 1201 Market Street,
Wilmington, Delaware 19801, Attention: Corporate Trust Administration
Department, with a copy to The Chase Manhattan Bank, 450 West 33rd Street,
15th Floor, New York, New York 10001, Attention: Structured Finance Services
(ABS), or such other office at such other address as the Owner Trustee may
designate from time to time by notice to the Owner, the Master Servicer, and
the Depositor.
"Person" means a legal person, including any individual, corporation,
estate, partnership, limited liability company, joint venture, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement, dated as of August 1, 1998, among the Trust, as Transferor, The
Chase Manhattan Bank, as Trustee and Dillard National Bank, as Master
Servicer, together with the VFC Series 1998 Supplement to the Pooling and
Servicing Agreement, dated as of August 14, 1998, by and among the Trust, the
Master Servicer and the Trustee, as the same may be amended or supplemented
from time to time.
<PAGE>
"Receivables" means all Receivables now existing and hereafter arising
and created under the Accounts, all monies due and 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 trust may have in any Enhancement.
"Receivables Purchase Agreements" means, collectively, (i) the DNB
Receivables Purchase Agreement dated as of August 14, 1998 between Dillard
National Bank and the Trust, (ii) the MSNB Receivables Purchase Agreement
dated as of August 14, 1998 between Mercantile Stores National Bank and the
Trust, (iii) the DIC Receivables Purchase Agreement dated as of August 14,
1998 between Dillard Investment Co., Inc. and the Trust and (iv) the MFI
Receivables Purchase Agreement dated as of August 14, 1998 between Mersco
Factors, Inc. and the Trust, as each of the foregoing may be amended from
time to time.
"Responsible Officer" means, with respect to the Owner Trustee, any
officer within the Corporate Trust Administration Department of the Owner
Trustee with direct responsibility for the administration of this Agreement
and also, with respect to a particular matter, any other officer to whom such
matter is referred because of such officer's knowledge of and familiarity
with the particular subject.
"Secretary of State" means the Secretary of State of the State of
Delaware.
"Securities Act" means the Securities Act of 1933, as amended from time
to time or any successor legislation.
"Trust" means the trust established by this Agreement.
"Trust Certificate" means the trust certificate evidencing the
beneficial interest of the Owner in the Trust, substantially in the form of
Exhibit B hereto.
"Trust Estate" means all right, title and interest of the Trust in and
to the property and rights acquired under the Receivables Purchase
Agreements, all funds on deposit from time to time in the trust accounts and
all other property of the Trust from time to time, including any rights of
the Owner Trustee and the Trust pursuant to the Pooling and Servicing
Agreement and the other Basic Documents.
Section 1.2. Other Definitional Provisions. Capitalized terms used
that are not otherwise defined herein shall have the meanings ascribed
thereto in the Pooling and Servicing Agreement.
Section 1.03. Usage of Terms. With respect to all terms in this
Agreement, the singular includes the plural and the plural the singular;
words importing any gender include the other genders; references to "writing"
<PAGE>
include printing, typing, lithography and other means of reproducing words in
a visible form; references to agreements and other contractual instruments
include all amendments, modifications and supplements thereto or any changes
therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including" means "including without
limitation".
Section 1.04. Section References. All section references, unless
otherwise indicated, shall be to Sections in this Agreement.
Section 1.05. Accounting Terms. All accounting terms used but not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles in the United States.
ARTICLE II
ORGANIZATION
Section 2.1. Name. The Trust created hereby shall be known as
"Dillard Asset Funding Company", in which name the Owner Trustee may conduct
the activities of the Trust, make and execute contracts and other instruments
on behalf of the Trust and sue and be sued.
Section 2.2. Office. The office of the Trust shall be in care of the
Owner Trustee at the Owner Trustee Corporate Trust Office or at such other
address in Delaware as the Owner Trustee may designate by written notice to
the Owner and the Depositor.
Section 2.3. Purposes and Powers.
(a) The sole purpose of the Trust is to conserve the Trust Estate and
collect and disburse the periodic income therefrom for the use and benefit of
the Owner, and in furtherance of such purpose to engage in the following
activities:
(i) to issue the Trust Certificate to the Owner pursuant to this
Agreement;
(ii) to purchase the Receivables, and to pay the organizational,
start-up and transactional expenses of the Trust;
(iii) to transfer the Receivables pursuant to the Pooling and
Servicing Agreement and to hold, manage and distribute to the Owner the
Trust Estate pursuant to this Agreement and the Pooling and Servicing
Agreement;
(iv) to enter into and perform its obligations under the Basic
Documents to which the Trust is to be a party;
<PAGE>
(v) to engage in those activities, including entering into
agreements, that are necessary to accomplish the foregoing or are
incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation
of the Trust Estate and the making of distributions to the Owner.
The Trust shall not engage in any activities other than in connection with
the foregoing. Nothing contained herein shall be deemed to authorize the
Owner Trustee, on behalf of the Trust, to engage in any business operations
or any activities other than those set forth in this Section. Specifically,
the Owner Trustee, on behalf of the Trust, shall have no authority to engage
in any business operations, acquire any assets other than those specifically
included in the Trust Estate or otherwise vary the assets held by the Trust
except pursuant to the Basic Documents. Similarly, the Owner Trustee shall
have no discretionary duties other than performing those acts set forth above
necessary to accomplish the purpose of the Trust set forth in this Section.
Section 2.4. Maintenance of Separate Existence; Prohibited
Transactions.
The Trust shall maintain operations separate and apart from those of the
Depositor and its Affiliates. In furtherance of the maintenance of separate
operations, and without limiting the foregoing sentence, the Trust shall act
in accordance with the following:
(a) The Trust shall act solely in its own name and shall not hold
itself out as being an agent for or a division of the Depositor or any
Affiliate thereof, and shall not represent to any third party that the credit
or resources of the Depositor or any Affiliate thereof will be available to
satisfy the liabilities or obligations of the Trust.
(b) The business of the Trust shall be conducted only by the Owner
Trustee and the duties and powers of the Administrators shall be ministerial,
except as provided in this Agreement. Decisions with respect to the Trust's
business and daily operations shall be independently made by the Owner
Trustee or, except as expressly prohibited hereby, an Administrator, and will
not be dictated by the Depositor or any Affiliate thereof.
(c) The Trust shall observe all customary business trust
formalities, including keeping books and records separate and apart from
those of the Depositor and any Affiliate thereof and taking appropriate
business trust actions at the appropriate times.
(d) The existence of the Trust and the ownership of its assets
shall be disclosed in a footnote to the financial statements of the
Depositor. The assets of the Trust shall be separately identified and
segregated and shall not be commingled with those of the Depositor. All of
<PAGE>
the Trust's assets shall at all times be held by or on behalf of the Trust,
and if held on behalf of the Trust by another entity, shall at all times be
kept identifiable (in accordance with customary usage) as assets owned by the
Trust. In no event shall any of the Trust's assets be held on its behalf or
otherwise by the Depositor or any Affiliate thereof, except pursuant to the
Pooling and Servicing Agreement. The Trust shall maintain its own bank
accounts, payroll and separate books of account.
(e) The Trust shall have its own office which shall be separate
and apart from the offices of the Depositor. The Trust's office may be in
the same building from which the Depositor's operations are conducted,
provided that there will be a separate formal office for the Trust with its
name on the door and the Trust's rights to the space will be established
pursuant to an appropriate lease or sublease or other arm's-length
arrangement.
(f) The Trust will have its own telephone number and letterhead,
and communications by the Trust will be made on the Trust's letterhead and in
no event will be made on the letterhead or stationery of the Depositor or any
other Person.
(g) The Depositor shall cause the Trust to be adequately
capitalized in light of its business. The Trust shall have no funded
indebtedness (other than as provided by the Basic Documents).
(h) The Trust shall not invest in securities of, or make loans or
advances to, the Depositor or any Affiliate thereof (other than as provided
by the Basic Documents).
(i) Any transaction between the Trust, on the one hand, and the
Depositor or any Affiliate thereof, on the other hand, shall, except as
provided by the Basic Documents, be conducted only on terms and conditions
comparable to transactions on an arm's-length basis with unaffiliated persons
and only with the prior approval of the Owner Trustee.
(j) Investment guidelines and criteria shall be established by the
Owner Trustee and the Administrators and shall require that investments for
the account of the Trust be made directly by the Trust or by a broker engaged
and paid by the Trust, in each case with the prior approval of the Owner
Trustee, be carried by the Trust in its own name and in no event be made in
securities or other obligations issued by the Depositor or any Affiliate
thereof.
(k) The Trust shall directly manage its own liabilities from its
own funds, including paying its own operating expenses and reimbursing the
Depositor or any Affiliate thereof, as the case may be, for any payroll
expenses that are attributable to any Administrators of the Trust, and shall
remit to the Depositor or any Affiliate thereof, as the case may be, its
appropriate share of the costs of insurance and benefit plans maintained by
<PAGE>
the Depositor or any Affiliate thereof, that are attributable to any
Administrators.
(l) The Depositor and its Affiliates shall not guarantee any
obligation of the Trust.
(m) To the extent the Administrators of the Trust participate in
insurance and benefit plans maintained by the Depositor or an Affiliate
thereof, the Trust will pay an arm's-length fee to the Depositor or such
Affiliate thereof, as the case may be, for services provided by the
Administrators, which fee will be based, in part, upon the Trust's
appropriate share of the costs of such plans.
(n) The Trust shall not merge or consolidate with, or sell all or
substantially all its assets to any Person except in accordance with the
Basic Documents. Without limiting the generality of the foregoing, the Owner
Trustee shall not delegate any decision with regard to any merger,
consolidation, sale of assets, the filing by the Trust of a voluntary
petition for bankruptcy or consenting to the filing of an involuntary
petition for bankruptcy against the Trust.
(o) The Owner shall have no right;
(i) to call for any partition or division of the property or
assets of the Trust;
(ii) to revoke or terminate the Trust;
(iii) to vote or in any manner otherwise to control the
administration, operation or management of the Trust or the obligations
of the parties to this Agreement, including, without limitation, the
right to vote with respect to the matters set forth in Section 3815 of
the Business Trust Act; and
(iv) to receive any regular distribution of the property or
assets of the Trust or the income or proceeds thereof (other than as
provided by the Pooling and Servicing Agreement and as approved by the
Owner Trustee), except upon the dissolution of the Trust in accordance
with Section 9.01.
Section 2.5. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein, and the
Owner Trustee hereby accepts such appointment, subject to the terms and
conditions hereof.
Section 2.6. Initial Capital Contribution of Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the
Owner Trustee, as of the date hereof, the sum of $1.00. The Owner Trustee
<PAGE>
hereby acknowledges receipt in trust from the Depositor, as of the date
hereof, of the foregoing contribution, which shall constitute the initial
Trust Estate. The Depositor may from time to time at its discretion sell,
assign, transfer, convey and set over to the Owner Trustee, additional
contributions to the capital of the Trust. The Trust shall maintain, or
shall delegate to the Administrators to maintain, a separate deposit account
into which any contributions pursuant to this Section shall be deposited.
Section 2.7. Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Trust Estate in trust upon and subject to the
conditions set forth herein for the sole purposes set forth in Section 2.03.
It is the intention of the parties hereto that the Trust constitute a
business trust under the Business Trust Statute and that this Agreement
constitute the governing instrument of such business trust. Effective as of
the date hereof, the Owner Trustee shall have all rights, powers and duties
set forth herein and in the Business Trust Statute for the sole purpose and
to the extent necessary to accomplish the purpose of the Trust as set forth
in Section 2.03.
Section 2.8. Title to Trust Property. Legal title to the Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Trust Estate to be vested in a trustee or trustees, in which case title
shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
Section 2.9. Situs of Trust. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the
Owner Trustee on behalf of the Trust shall be located in the State of
Delaware or the State of New York. The Trust shall not have any employees in
any state other than Delaware; provided, however, that nothing herein shall
restrict or prohibit the Owner Trustee from having employees within or
without the State of Delaware. Payments will be received by the Trust only
in Delaware or New York and payments will be made by the Trust only from
Delaware or New York. The only office of the Trust will be at the Owner
Trustee Corporate Trust Office as set forth in Section 2.02.
Section 2.10. Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants to the Owner Trustee
that:
(i) The Depositor is duly organized and validly existing in good
standing as a corporation organized and existing in good standing under
the laws of the State of Nevada with power and authority to own its
properties and to conduct its business and had at all relevant times,
and has, power, authority and legal right to acquire and own the
Receivables.
<PAGE>
(ii) The Depositor 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 qualifications.
(iii) The Depositor has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Depositor has
full power and authority to sell and assign the property to be sold and
assigned to and deposited with the Owner Trustee on behalf of the Trust
as part of the Trust Estate and has duly authorized such sale and
assignment and deposit with the Owner Trustee on behalf of the Trust by
all necessary corporate action; and the execution, delivery and
performance of this Agreement have been duly authorized by the Depositor
by all necessary corporate action.
(iv) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in the breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under,
the articles of incorporation or bylaws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of the properties of the Depositor pursuant to the
terms of any such indenture, agreement or other instrument (other than
pursuant to the Basic Documents); nor violate any law or any order, rule
or regulation applicable to the Depositor of any court or of any federal
or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its
properties.
(v) There are no proceedings or investigations pending, or to the
Depositor's best knowledge threatened, before any court, regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties: (A) asserting the
invalidity of this Agreement, any of the other Basic Documents or the
Trust Certificate, (B) seeking to prevent the issuance of the Trust
Certificate or the consummation of any of the transactions contemplated
by this Agreement or any of the other Basic Documents, (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Depositor of its obligations under, or the validity
or enforceability of, this Agreement, any of the other Basic Documents
or the Trust Certificate or (D) involving the Depositor and which might
adversely affect the federal income tax or other federal, state or local
tax attributes of the Trust Certificate.
ARTICLE III
TRUST CERTIFICATES
<PAGE>
Section 3.1. Initial Ownership. Upon the formation of the Trust by
the contribution by the Depositor pursuant to Section 2.06, the Depositor
shall be the sole beneficiary of the Trust.
Section 3.2. The Trust Certificate. The Trust Certificate shall be
substantially in the form of Exhibit B hereto. The Trust Certificate shall
be executed by the Owner Trustee on behalf of the Trust by manual or
facsimile signature of an authorized officer of the Owner Trustee. The Trust
Certificate bearing the manual or facsimile signature of an individual who
was, at the time when such signature was affixed, authorized to sign on
behalf of the Owner Trustee shall be valid and binding obligations of the
Trust, notwithstanding that such individual has ceased to be so authorized
prior to the authentication and delivery of such Trust Certificate or did not
hold such office at the date of such Trust Certificate. The Trust
Certificate shall be dated the date of its authentication.
Section 3.3. Authentication and Delivery of Trust Certificate. The
Owner Trustee shall cause to be authenticated and delivered upon the order of
the Depositor, in exchange for the Receivables and the other assets of the
Trust, simultaneously with the sale, assignment and transfer to the Trust of
the Receivables, and the constructive delivery to the Owner Trustee of the
Receivables and the other assets of the Trust, the Trust Certificate. No
Trust Certificate shall be entitled to any benefit under this Agreement, or
be valid for any purpose, unless there appears on such Trust Certificate a
certificate of authentication substantially in the form set forth in the form
of Trust Certificate attached hereto as Exhibit B, executed by the Owner
Trustee or its authenticating agent, by manual signature, and such
certificate upon any Trust Certificate shall be conclusive evidence, and the
only evidence, that such Trust Certificate has been duly authenticated and
delivered hereunder. Upon issuance, authentication and delivery pursuant to
the terms hereof, the Trust Certificate will be entitled to the benefits of
this Agreement. The Owner Trustee hereby appoints The Chase Manhattan Bank
as an authenticating agent.
Section 3.4. Registration and Transfer of the Trust Certificate.
(a) The Owner Trustee shall keep or cause The Chase Manhattan Bank to
keep a Certificate Register, subject to such reasonable regulations as it may
prescribe. The Certificate Register shall provide for the registration of
the Trust Certificate. To the fullest extent permitted by applicable law,
the Owner shall not be permitted to convey, sell, assign or otherwise
transfer the Trust Certificate, or any interest therein or represented
thereby, to any other Person except for a successor by merger to the Owner;
provided, however, that the Owner may grant a security interest in its Trust
Certificate to Dillard Investment Co., Inc. (the "Secured Party"). The
Secured Party may exercise all of its rights under that certain Pledge
Agreement, dated as of August 14, 1998, made by the Owner in favor of the
Secured Party, including becoming the Owner of the Trust Certificate.
<PAGE>
(b) Subject to Section 3.04(a), the transfer of the Trust Certificate
may be registered only upon the books kept for the registration and
registration of transfer of the Trust Certificate upon surrender thereof to
the Owner Trustee at the Corporate Trust Office together with an assignment
duly executed by the registered owner or such owner's attorney or legal
representative in such form as shall be satisfactory to the Owner Trustee.
Upon any such registration of transfer the Owner Trustee shall execute and
deliver in exchange for such Trust Certificate a new registered Trust
Certificate, registered in the name of the transferee. The Owner Trustee may
rely and shall be fully protected in relying upon any duly executed
assignment and shall not be responsible for ascertaining whether the transfer
complies with the requirements of any applicable state or federal law.
Section 3.5. Mutilated, Destroyed, Lost or Stolen Trust Certificate.
If (i) a mutilated Trust Certificate is surrendered to the Owner Trustee, or
the Owner Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Trust Certificate, and (ii) there is delivered to the
Owner Trustee and the Trust such security or indemnity as may be required by
them to save each of them harmless, then, in the absence of notice that such
Trust Certificate has been acquired by a bona fide purchaser, the Owner
Trustee on behalf of the Trust shall execute and the Owner Trustee or its
authenticating agent shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Trust Certificate, a
new Trust Certificate. In connection with the issuance of any new Trust
Certificate under this Section, the Owner Trustee may require the payment by
the Owner of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto. Any duplicate Trust Certificate
issued pursuant to this Section shall constitute complete and indefeasible
evidence of ownership in the Trust, as if originally issued, whether or not
the lost, stolen or destroyed Trust Certificate shall be found at any time.
Section 3.6. Persons Deemed Owners. The Owner Trustee and any of its
respective agents may treat the Person in whose name the Trust Certificate is
registered as the owner of the Trust Certificate for the purpose of receiving
any payment (if any) and for all other purposes whatsoever, and none of the
Owner Trustee or any of its respective agents shall be affected by any notice
to the contrary.
ARTICLE IV
[RESERVED]
ARTICLE V
[RESERVED]
<PAGE>
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1. General Authority. The Owner Trustee is authorized and
directed to execute and deliver on behalf of the Trust the Basic Documents to
which the Trust is to be a party and each certificate or other document
attached as an exhibit to or contemplated by the Basic Documents to which the
Trust is to be a party and subject to the provisions and limitations of
Sections 2.03 and 2.04 hereof, any amendment or other agreement, as evidenced
conclusively by the Owner Trustee's execution thereof. In addition to the
foregoing, the Owner Trustee is authorized, but shall not be obligated, to
take all actions required of the Trust pursuant to the Basic Documents. The
Owner Trustee is further authorized from time to time to take such action as
any Administrator recommends with respect to the Basic Documents.
Section 6.2. General Duties. Subject to the provisions and
limitations of Sections 2.03 and 2.04, it shall be the duty of the Owner
Trustee to discharge (or cause to be discharged through the Administrators or
such agents as shall be appointed) all of its responsibilities and the duties
and obligations of the Trust pursuant to the terms of this Agreement and the
other Basic Documents to which the Trust is a party and to administer the
Trust in the interest of the Owner, subject to the Basic Documents and in
accordance with the provisions of this Agreement. Notwithstanding the
foregoing, the Owner Trustee shall be deemed to have discharged its duties
and responsibilities hereunder and under the other Basic Documents to the
extent the Administrators have agreed hereunder to perform any act or to
discharge any duty of the Owner Trustee or the Trust hereunder or under any
Basic Document, and the Owner Trustee shall not be held liable for the
default or failure of the Administrators to carry out their obligations under
Section 6.06 hereof.
Section 6.3. No Duties Except as Specified in this Agreement. The
Owner Trustee shall not have any duty or obligation to manage, make any
payment with respect to, register, record, sell, dispose of or otherwise deal
with the Trust Estate, or to otherwise take or refrain from taking any action
under, or in connection with, any document contemplated hereby to which the
Owner Trustee or the Trust is a party, except as expressly provided by the
terms of this Agreement; and no implied duties or obligations shall be read
into this Agreement or any other Basic Document against the Owner Trustee.
The Owner Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted
to it hereunder or to prepare or file any Securities and Exchange Commission
filing for the Trust or to record this Agreement or any other Basic Document.
The Owner Trustee nevertheless agrees that it will, at its own cost and
expense, promptly take all action as may be necessary to discharge any liens
on any part of the Trust Estate that result from actions by, or claims
<PAGE>
against, the Owner Trustee that are not related to the ownership or the
administration of the Trust Estate.
Section 6.4. No Action Except Under Specified Documents. The Owner
Trustee shall not manage, control, use, sell, dispose of or otherwise deal
with any part of the Trust Estate except in accordance with (i) the powers
granted to and the authority conferred upon the Owner Trustee pursuant to
this Agreement and (ii) the other Basic Documents.
Section 6.5. Restrictions.
(a) The Owner Trustee shall not take any action (i) that is
inconsistent with the purposes of the Trust set forth in Section 2.03 or with
Section 2.04 or (ii) that, to the actual knowledge of the Owner Trustee,
would result in the Trust's becoming taxable as a corporation for federal or
state income tax purposes. The Owner Trustee shall not act upon instructions
from the Owner if such instructions are contrary to this Agreement or the
Basic Documents to which the Trust is a party or could result in a reduction
or withdrawal of any rating assigned by any rating agency to any class of
Investor Certificates.
(b) The Owner Trustee shall not distribute any monies to the
Depositor unless such monies are not required or needed to be distributed to
any other party (other than the Trust or the Owner Trustee) under the Basic
Documents. The Owner Trustee may conclusively rely upon a certificate from
an Administrator to the foregoing effect.
Section 6.6. Delegation of Duties.
(a) The Owner Trustee and the Trust hereby appoint the
Administrators and the Administrators hereby agree to discharge all of each
of the obligations and duties of the Owner Trustee or the Trust under this
Agreement and the other Basic Documents; provided, that the Owner Trustee
does not hereby delegate any power or duty to any Administrator that pursuant
to Section 2.04 specifically contemplates the approval of the Owner Trustee.
(b) The Depositor and the Owner Trustee are entitled to appoint or
remove without cause any Administrator at any time.
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1. Acceptance of Trusts and Duties. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Agreement. The
<PAGE>
Owner Trustee also agrees to disburse all monies actually received by it
constituting part of the Trust Estate upon the terms of this Agreement and
the other Basic Documents. The Owner Trustee shall not be answerable or
accountable hereunder or under any other Basic Document under any
circumstances, except (i) for its own willful misconduct or gross negligence
or (ii) in the case of the inaccuracy of any representation or warranty
contained in Section 7.03 expressly made by the Owner Trustee. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of judgment
made by a Responsible Officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of any
Administrator or the Owner:
(c) no provision of this Agreement or any other Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers
hereunder or under any other Basic Document if the Owner Trustee shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured or
provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Trust Certificate (if any);
(e) the Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Agreement or for the due execution hereof by
the Depositor or for the form, character, genuineness, sufficiency, value or
validity of any of the Trust Estate, or for or in respect of the validity or
sufficiency of the Basic Documents, other than the certificate of
authentication on the Trust Certificate, and the Owner Trustee shall in no
event assume or incur any liability, duty or obligation to any Owner, other
than as expressly provided for herein or expressly agreed to in the other
Basic Documents;
(f) the Owner Trustee shall not be liable for the default or misconduct
of any Administrator or the D agreement, under any of the Basic Documents
or otherwise and the Owner Trustee shall have no obligation or liability to
perform the obligations of the Trust under this Agreement or the other Basic
Documents that are required to be performed by the Administrators; and
(g) the Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute, conduct
or defend any litigation under this Agreement or otherwise or in relation to
this Agreement or any other Basic Document, at the request, order or
<PAGE>
direction of the instructing party, unless such instructing party has offered
to the Owner Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities that may be incurred by the Owner Trustee
therein or thereby; the right of the Owner Trustee to perform any
discretionary act enumerated in this Agreement or in any other Basic Document
shall not be construed as a duty, and the Owner Trustee shall not be
answerable for other than its gross negligence or willful misconduct in the
performance of any such act.
Section 7.2. Furnishing of Documents. The Owner Trustee shall furnish
to the Owner promptly upon receipt of a written request therefor, duplicates
or copies of all reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Owner Trustee under the
Basic Documents.
Section 7.3. Representations and Warranties. The Owner Trustee hereby
represents and warrants to the Depositor and the Owners that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Agreement, nor
the consummation by it of the transactions contemplated hereby nor compliance
by it with any of the terms or provisions hereof will contravene any federal
or Delaware law, governmental rule or regulation governing the banking or
trust powers of the Owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or bylaws or any
indenture, mortgage, contract, agreement or instrument to which it is a party
or by which any of its properties may be bound or result in the creation or
imposition of any lien, charge or encumbrance on the Trust Estate resulting
from actions by or claims against the Owner Trustee individually which are
unrelated to this Agreement or the other Basic Documents.
Section 7.4. Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in acting upon
any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper believed by it
to be genuine and believed by it to be signed by the proper party or parties.
The Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that the
<PAGE>
same is in full force and effect. As to any fact or matter the method of
determination of which is not specifically prescribed herein, the Owner
Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or other authorized
officers of the relevant party, as to such fact or matter and such
certificate shall constitute full protection to the Owner Trustee for any
action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the
other Basic Documents, the Owner Trustee (i) may act directly or through its
agents or attorneys pursuant to agreements entered into with any of them, and
the Owner Trustee shall not be liable for the conduct or misconduct of such
agents or attorneys if such agents or attorneys shall have been selected by
the Owner Trustee with reasonable care, and (ii) may consult with counsel,
accountants and other skilled persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the written
opinion or advice of any such counsel, accountants or other such persons and
not contrary to this Agreement or any other Basic Document.
Section 7.5. Not Acting in Individual Capacity. Except as otherwise
provided in this Article Seven, in accepting the trusts hereby created, Chase
Manhattan Bank Delaware acts solely as Owner Trustee hereunder and not in its
individual capacity, and all Persons having any claim against the Owner
Trustee by reason of the transactions contemplated by this Agreement or any
other Basic Document shall look only to the Trust Estate for payment or
satisfaction thereof.
Section 7.6. Owner Trustee Not Liable for Trust Certificate or
Receivables. The recitals contained herein and in the Trust Certificate
(other than the signature of the Owner Trustee and the certificate of
authentication on the Trust Certificate) shall be taken as the statements of
the Depositor, and the Owner Trustee assumes no responsibility for the
correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Agreement, any other Basic Document or the
Trust Certificate (other than the signature of the Owner Trustee and the
certificate of authentication on the Trust Certificate and the
representations and warranties in Section 7.03), or of any Receivable or
related documents. The Owner Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity and
enforceability of any Receivable, or the perfection and priority of any
security interest created by any Receivable in any asset or the maintenance
of any such perfection and priority, or for or with respect to the
sufficiency of the Trust Estate or its ability to generate the payments to be
distributed to the Owner under this Agreement, including, without limitation,
the existence, condition and ownership of any Receivable; the existence and
contents of any Receivable on any computer or other record thereof; the
validity of the assignment of any Receivable to the Trust or of any
<PAGE>
intervening assignment; the completeness of any Receivable; the performance
or enforcement of any Receivable; the compliance by the Depositor or the
Master Servicer with any warranty or representation made under any Basic
Document or in any related document or the accuracy of any such warranty or
representation; or any action of the Administrator, the Trustee taken in the
name of the Owner Trustee or the Trust.
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE AND ADMINISTRATORS
Section 8.1. Owner Trustee's and Administrators' Fees and Expenses.
The Owner Trustee and the Administrators shall receive as compensation for
their services hereunder such fees as have been separately agreed upon before
the date hereof between the Depositor, the Owner Trustee and each of the
Administrators, as the case may be, and the Owner Trustee and each
Administrator, as the case may be, shall be entitled to be reimbursed by the
Depositor for its other reasonable expenses hereunder, including the
reasonable compensation, expenses and disbursements of such agents,
representatives, experts and counsel as the Owner Trustee and each
Administrator may employ in connection with the exercise and performance of
their respective rights and duties hereunder.
Section 8.2. Indemnification. The Depositor shall be liable as
primary obligor for, and shall indemnify the Owner Trustee and the
Administrators and their respective successors, assigns, agents and servants
(collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by
or asserted against the Owner Trustee and the Administrators or any
Indemnified Party in any way relating to or arising out of this Agreement,
the other Basic Documents, the Trust Estate, the administration of the Trust
Estate or the action or inaction of the Owner Trustee hereunder, except only
that the Depositor shall not be liable for or required to indemnify an
Indemnified Party from and against Expenses arising or resulting from any of
the matters described in the second sentence of Section 7.01. The
indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee, the Administrators or the termination of
this Agreement. In the event of any claim, action or proceeding for which
indemnity will be sought pursuant to this Section, the Owner Trustee's or any
Administrator's choice of legal counsel shall be subject to the approval of
the Depositor, which approval shall not be unreasonably withheld.
Section 8.3. Payments to the Owner Trustee and the Administrators.
Any amounts paid to the Owner Trustee and the Administrators pursuant to this
<PAGE>
Article shall be deemed not to be a part of the Trust Estate immediately
after such payment.
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1. Termination of Trust Agreement.
(a) This Agreement (other than Article Eight) and the Trust shall
terminate and be of no further force or effect upon the earliest to occur of
(i) upon the filing of a certificate of dissolution or its equivalent with
respect to the Trust; provided, however, that the Trust shall not terminate
pursuant to this subsection until the repayment in full of the Investor
Certificates; (ii) upon the entry of a decree of judicial dissolution of the
Trust; (iii) before the issuance of the Trust Certificate, with the consent
of the Depositor and the Owner Trustee; or (iv) the expiration of the term of
the Trust on July 15, 2021. As soon as is practicable after the occurrence
of an event referred to in Section 9.01(a), (i) the Depositor shall pay or
make reasonable provision for the payment of all liabilities of the Trust,
and (ii) the Owner Trustee shall file a certificate of cancellation with the
Secretary of State of the State of Delaware, and thereupon the Trust shall
terminate.
(b) Except as provided in Section 9.01(a), neither the Depositor, nor
any Owner shall be entitled to revoke or terminate the Trust.
(c) Upon the happening of the events in Section 9.01(a), the Owner
Trustee shall deliver to the Owner any part of the Trust Estate in its
possession.
<PAGE>
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of
Section 3807(a) of the Business Trust Statute; authorized to exercise
corporate trust powers; having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authorities; and having (or having a parent that has) a rating of at least
Baa3 by Moody's and A-1 by Standard & Poor's. If such corporation shall
publish reports of condition at least annually pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for
the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. The Owner Trustee
may not or may not have been, at any time within the past five years, an
employee, officer, director, Affiliate or ten percent (10%) or more
stockholder of the Depositor or any of its Affiliates. In case at any time
the Owner Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Owner Trustee shall resign immediately in the
manner and with the effect specified in Section 10.2.
Section 10.2. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Depositor and the
Administrators. Upon receiving such notice of resignation, the Depositor
shall promptly appoint a successor Owner Trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and one copy to the successor Owner Trustee. If no successor
Owner Trustee shall have been so appointed and have accepted appointment
within 30 days after the giving of such notice of resignation, the resigning
Owner Trustee or the Depositor may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator, may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the
authority of the immediately preceding sentence, the Depositor shall promptly
appoint a successor Owner Trustee by written instrument, in duplicate, one
copy of which instrument shall be delivered to the outgoing Owner Trustee so
removed and one copy to the successor Owner Trustee, and shall pay all fees
owed to the outgoing Owner Trustee.
<PAGE>
The Depositor shall remove a Owner Trustee only for cause. For purposes
of this Section, "cause" means (i) the willful refusal of an Owner Trustee
substantially to perform its duties under this Agreement or (ii) illegal
conduct or gross misconduct by a Owner Trustee that is willful and results in
material and demonstrable damage to the business or assets of the Trust.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section
shall not become effective until acceptance of appointment by the successor
Owner Trustee pursuant to Section 10.03 and payment of all fees and expenses
owed to the outgoing Owner Trustee.
Section 10.3. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to
the Administrators, and to its predecessor Owner Trustee an instrument
accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become
effective, and such successor Owner Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor under this Agreement, with like effect as if
originally named as Owner Trustee. The predecessor Owner Trustee shall, upon
payment of its fees and expenses, deliver to the successor Owner Trustee all
documents and statements and monies held by it under this Agreement; and the
Administrators and the predecessor Owner Trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for
fully and certainly vesting and confirming in the successor Owner Trustee all
such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Administrators shall mail notice thereof to the Owner and
each Rating Agency. If the Administrators shall fail to mail such notice
within ten days after acceptance of such appointment by the successor Owner
Trustee, the successor Owner Trustee shall cause such notice to be mailed at
the expense of the Administrators.
Section 10.4. Merger or Consolidation of Owner Trustee. Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, without the execution or filing of any instrument or any further
act on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, that such corporation shall be eligible pursuant
to Section 10.1.
<PAGE>
Section 10.5. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Estate, the Administrators and the Owner Trustee acting
jointly shall have the power and shall execute and deliver all instruments to
appoint one or more Persons approved by the Depositor to act as co-trustee,
jointly with the Owner Trustee, or as separate trustee or separate trustees,
of all or any part of the Trust Estate, and to vest in such Person, in such
capacity, such title to the Trust or any part thereof and, subject to the
other provisions of this Section, such powers, duties, obligations, rights
and trusts as the Depositor may consider necessary or desirable. If the
Administrators shall not have joined in such appointment within 15 days after
the receipt by it of a request so to do, the Owner Trustee alone shall have
the power to make such appointment. No co-trustee or separate trustee under
this Agreement shall be required to meet the terms of eligibility as a
successor Owner Trustee pursuant to Section 10.01 except that such co-trustee
or successor trustee shall have (or have a parent that has) a rating of at
least Baa3 by Moody's and A-1 by Standard & Poor's, and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant
to Section 10.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) all rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by
the Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular act or
acts are to be performed, the Owner Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Estate or
any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at the
direction of the Owner Trustee;
(b) no trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement; and
(c) the Administrators and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
<PAGE>
or property specified in its instrument of appointment, either jointly with
the Owner Trustee or separately, as may be provided therein, subject to all
the provisions of this Agreement, specifically including every provision of
this Agreement relating to the conduct of, affecting the liability of or
affording protection to, the Owner Trustee. Each such instrument shall be
filed with the Owner Trustee and a copy thereof given to the Administrators.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Supplements and Amendments.
(a) This Agreement may be amended by the Owner Trustee to cure any
ambiguity, to correct or supplement any provisions in this Agreement or to
add any other provisions with respect to matters or questions arising under
this Agreement that shall not be inconsistent with the provisions of this
Agreement.
(b) This Agreement may be amended by, and only be, a written instrument
executed by the Owner Trustee and the Depositor and written confirmation from
each rating agency rating a series of Investor Certificates that such
amendment will not result in a reduction or withdrawal of any rating assigned
by any such rating agency to any series of Investor Certificates, as
applicable; provided that no such amendment may amend or delete any provision
of Sections 2.04, 3.04, 10.02 and 11.01(b).
(c) Prior to the execution of any such amendment or consent, the Owner
Trustee shall furnish written notification of the substance of such amendment
or consent, together with a copy thereof, to the Administrators and each
Rating Agency.
(d) Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
(e) In connection with the execution of any amendment to this Agreement
or any other Basic Document to which the Trust is a party and for which
<PAGE>
amendment the Owner Trustee's consent is sought, the Owner Trustee shall be
entitled to receive and conclusively rely upon an Opinion of Counsel to the
effect that such amendment is authorized or permitted by the Basic Documents
and that all conditions precedent in the Basic Documents for the execution
and delivery thereof by the Trust or the Owner Trustee, as the case may be,
have been satisfied. The Owner Trustee may, but shall not be obligated to,
enter into any such amendment that affects the Owner Trustee's own rights,
duties or immunities under this Agreement or otherwise.
Section 11.2. No Legal Title to Trust Estate in Owner. The Owner shall
not have legal title to any part of the Trust Estate. The Owner shall be
entitled to receive distributions with respect to its undivided ownership
interest therein only in accordance with the Basic Documents. No transfer,
by operation of law or otherwise, of any right, title or interest of the
Owner to and in its ownership interest in the Trust Estate shall operate to
terminate this Agreement or the trusts hereunder or entitle any transferee to
an accounting or to the transfer to it of legal title to any part of the
Trust Estate.
Section 11.3. Limitations on Rights of Others. Except for Section
2.07, the provisions of this Agreement are solely for the benefit of the
Owner Trustee, Chase Manhattan Bank Delaware, the Depositor, the Owner, and
the Administrators, whether express or implied, shall be construed to give to
any other Person any legal or equitable right, remedy or claim in the Trust
Estate or under or in respect of this Agreement or any covenants, conditions
or provisions contained herein.
Section 11.4. Notices. All demands, notices and communications under
this Agreement shall be in writing personally delivered or mailed by
certified mail, return receipt requested, and shall be deemed to have been
duly given upon receipt in the case of (a) the Owner Trustee, at the Owner
Trustee Corporate Trust Office; (b) the Depositor, c/o Dillards, Inc., 5200
Las Vegas Blvd., Las Vegas, NV 89109; (c) the Certificate Registrar or the
agent for the Owner Trustee, at the address indicated under the definition of
"Owner Trustee Corporate Trust Office"; (d) the Administrators, c/o Dillards,
Inc., 1600 Cantrell Road, Little Rock, AR 72201; or (e) as to each party, at
such other address as shall be designated by such party in a written notice
to each other party.
Section 11.5. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever 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 Trust
Certificate or the rights of the Owner thereof.
<PAGE>
Section 11.6. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
Section 11.7. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, each of
the Depositor, the Owner Trustee and their respective successors and
permitted assigns and the Owner and its successors and permitted assigns, all
as herein provided. Any request notice, direction, consent, waiver or other
instrument or action by the Owner shall bind the successors and assigns of
the Owner.
Section 11.8. No Petition.
(a) The Depositor will not at any time institute against the Trust any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Trust
Certificate, this Agreement or any of the other Basic Documents.
(b) The Owner Trustee, by entering into this Agreement, the Owner, by
accepting the Trust Certificate, by accepting the benefits of this Agreement,
hereby covenant and agree that they will not at any time institute against
the Depositor, or the Trust, or join in any institution against the
Depositor, or 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 Trust Certificate, this Agreement or any of the
other Basic Documents.
Section 11.9. No Recourse. The Owner by accepting the Trust
Certificate acknowledges that the Trust Certificate represents a beneficial
interest in the Trust only and does not represent an interest in or
obligation of the Depositor, Chase Manhattan Bank Delaware, the Master
Servicer, the Administrators, the Owner Trustee, or any of their respective
Affiliates and no recourse may be had against such parties or their assets,
except as may be expressly set forth or contemplated in this Agreement, the
Trust Certificate or the other Basic Documents.
Section 11.10. Certificate Nonassessable and Fully Paid. The Owner
shall not be personally liable for obligations of the Trust. The interests
represented by the Trust Certificate shall be nonassessable for any losses or
expenses of the Trust or for any reason whatsoever, and, upon authentication
thereof pursuant to Section 3.03, the Trust Certificate shall be deemed fully
paid.
Section 11.11. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
<PAGE>
Section 11.12. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.13. Nature of Beneficial Interest. The beneficial interest
represented by the Trust Certificate shall be a "security" for purposes of
Section 8-102 of Article 8 of the Uniform Commercial Code as in effect in the
State of Delaware and the State of New York.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
CONDEV NEVADA INC., as Depositor
By: _______________________________________
Name:______________________________________
Title: ____________________________________
CHASE MANHATTAN BANK
DELAWARE, as Owner Trustee
By: _______________________________________
Name: ____________________________________
Title: ___________________________________
___________________________________________
James Freeman, as Administrator
____________________________________________
David Helm, as Administrator
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST OF
DILLARD ASSET FUNDING COMPANY
This Certificate of Trust of Dillard Asset Funding Company (the
"Trust"), dated as of August 13, 1998, is being duly executed and filed by
the undersigned, a Delaware corporation, as trustee, to form a business trust
under the Delaware Business Trust Act (12 Del. Code, Section 3801 et seq.).
1. Name. The name of the business trust formed hereby is Dillard
Asset Funding Company.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is Chase Manhattan Bank Delaware, 1201
Market Street, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration Department.
3. Effective date. This Certificate of Trust shall be effective upon
filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust pursuant to Section 3811(a) of
the Delaware Business Trust Act, as of the date first above written.
CHASE MANHATTAN BANK DELAWARE, not in its
individual capacity but solely as Owner
By: _____________________________________
Name:____________________________________
Title:___________________________________
<PAGE>
EXHIBIT B
EXHIBIT "B"
[Form of Trust Certificate]
<PAGE>
THIS CERTIFICATE IS NON-TRANSFERABLE EXCEPT AS PROVIDED IN SECTION 3.04(a) OF
THE TRUST AGREEMENT
DILLARD ASSET FUNDING COMPANY
TRUST CERTIFICATE
THIS CERTIFIES THAT Condev Nevada Inc., a Nevada corporation (the
"Depositor"), is the registered owner of 100% beneficial interest in Dillard
Asset Funding Company (the "Trust") formed pursuant to the Trust Agreement,
dated as of August 1, 1998 (the "Trust Agreement"), by and among the
Depositor, Chase Manhattan Bank Delaware, a Delaware banking corporation, as
owner trustee (the "Owner Trustee") and the administrators named therein (the
"Administrators"). Capitalized terms used herein and not otherwise defined
shall have the meanings assigned such terms in the Trust Agreement.
This Trust Certificate is the duly authorized Trust Certificate
designated as a Trust Certificate (the "Trust Certificate"). This Trust
Certificate is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement, to which Trust Agreement the holder of
this Trust Certificate by virtue of acceptance hereof assents and by which
such holder is bound. The Trust's only assets will be the Trust Estate.
Distributions, if any, on this Trust Certificate shall be made as
provided in the Trust Agreement by wire transfer without presentation or
surrender of this Trust Certificate or the making of any notation hereon.
The holder of this Trust Certificate acknowledges and agrees that Chase
Manhattan Bank Delaware is executing this Trust Certificate solely in its
capacity as Owner Trustee under the Trust Agreement and that Chase Manhattan
Bank Delaware shall incur no liability in connection herewith except by
reason of its own gross negligence or willful misconduct or for its own bad
faith.
Reference is hereby made to the further provisions of this Trust
Certificate set forth on the reverse hereof, which further provisions shall
for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been executed
by a Responsible Officer of the Owner Trustee by manual signature, this Trust
Certificate shall not entitle the holder hereof to any benefit under the
Trust Agreement or be valid for any purpose.
The beneficial interest represented by the Trust Certificate shall be a
"security" for purposes of Section 8-102 of Article 8 of the Uniform
Commercial Code as in effect in the State of Delaware and the State of New
York.
<PAGE>
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Trust 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:
Dated: August 14, 1998
<PAGE>
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Trust Certificate referred to in the within-mentioned Trust
Agreement.
CHASE MANHATTAN BANK DELAWARE, not in its individual
capacity but solely as Trustee
By:_____________________________________
Name:
Title:
<PAGE>
Reverse of Certificate
The Trust Certificate does not represent an obligation of, or an
interest in, the Depositor, the Owner Trustee, the Administrators or any
affiliates of any of them and no recourse may be had against such parties or
their assets, except as may be expressly set forth or contemplated herein or
in the Trust Agreement. A copy of the Trust Agreement may be examined during
the normal business hours at the office of the Owner Trustee set forth in
Section 2.02 of the Trust Agreement.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights of the Owner (as
defined in the Trust Agreement) under the Trust Agreement by written
instrument executed by the Owner Trustee and the Depositor.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers untO
_______________________________________________________________________________
_______________________________________________________________________________
(name and addess of assignee)
the within Trust Certificate and all rights thereunder, and h
