<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2000
REGISTRATION NO. 333-67855
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 5
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DILLARD CREDIT CARD MASTER TRUST I
(ISSUER OF THE CERTIFICATES)
DILLARD ASSET FUNDING COMPANY
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME AS SPECIFIED IN REGISTRANT'S CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE DILLARD ASSET FUNDING COMPANY 880352714
(STATE OR OTHER JURISDICTION OF C/O CHASE MANHATTAN BANK DELAWARE (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 1201 MARKET STREET IDENTIFICATION NUMBER)
WILMINGTON, DELAWARE 19801
(302) 984-3300
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES FREEMAN
DILLARD ASSET FUNDING COMPANY
C/O CHASE MANHATTAN BANK DELAWARE
1201 MARKET STREET
WILMINGTON, DELAWARE 19801
(302) 984-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE OF REGISTRANT)
------------------------
Copies to:
DAVID EISENBERG, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective as determined by
market conditions.
If the only securities registered on this form are to be offered pursuant to
dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
TO BE REGISTERED REGISTERED(1) UNIT OR SHARE(2) PRICE
<S> <C> <C> <C>
Asset Backed Certificates................................... $500,000,000 100% $500,000,000
<CAPTION>
TITLE OF SECURITIES AMOUNT OF
TO BE REGISTERED REGISTRATION FEE(3)
<S> <C>
Asset Backed Certificates................................... $132,000.00
</TABLE>
(1) If any registered securities are issued at an original issue discount, then
such greater principal amount as shall result in an aggregate initial
offering price of $500,000,000. In no event will the aggregate initial
offering price of securities registered hereunder exceed $500,000,000 or the
equivalent thereof in one or more foreign currencies or composite
currencies, including the euro.
(2) The proposed maximum offering price per unit or share will be determined
from time to time by the registrant of the securities registered hereunder.
(3) $278 of which has previously been paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We can
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Prospectus Supplement to Prospectus, Dated , 2000
DILLARD CREDIT CARD MASTER TRUST I
Issuer
DILLARD ASSET FUNDING COMPANY, Transferor
DILLARD NATIONAL BANK, Servicer
$ CLASS A FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1999-
$ CLASS B FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1999-
<TABLE>
<CAPTION>
Class A Certificates Class B Certificates
---------------------------------- ----------------------------------
<S> <C> <C>
Principal Amount $ $
Price $ ( %) $ ( %)
Underwriters' Commissions $ ( %) $ ( %)
Proceeds to the Issuer $ ( %) $ ( %)
Certificate Rate one-month LIBOR + % p.a. one-month LIBOR + % p.a.
Interest Payment Dates monthly on the monthly on the
First Interest Payment Date , 19 , 19
Scheduled Principal Payment Date , ,
</TABLE>
THE CLASS B CERTIFICATES ARE SUBORDINATED TO THE CLASS A CERTIFICATES.
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT.
THESE CERTIFICATES ARE INTERESTS IN THE DILLARD CREDIT CARD MASTER TRUST I, AND
ARE BACKED ONLY BY THE ASSETS OF THE TRUST. NEITHER THESE CERTIFICATES NOR THE
ASSETS OF THE TRUST ARE OBLIGATIONS OF DILLARD ASSET FUNDING COMPANY, DILLARD
NATIONAL BANK OR ANY OF THEIR AFFILIATES, OR OBLIGATIONS INSURED BY THE FDIC.
[WE HAVE APPLIED TO HAVE THE CERTIFICATES LISTED ON THE LUXEMBOURG STOCK
EXCHANGE.]
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS SUPPLEMENT AND THE ATTACHED
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITERS of the CLASS A CERTIFICATES
[INSERT LIST OF CLASS A UNDERWRITERS]
UNDERWRITERS of the CLASS B CERTIFICATES
[INSERT LIST OF CLASS B UNDERWRITERS]
<PAGE>
TO UNDERSTAND THE STRUCTURE OF THESE SECURITIES, YOU MUST READ CAREFULLY THE
ATTACHED PROSPECTUS AND THIS SUPPLEMENT IN THEIR ENTIRETY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms............................... S-3
Structural Summary............................. S-4
Selected Trust Portfolio Summary Data.......... S-6
Dillard's Portfolio Payment Data............... S-7
Risk Factors................................... S-8
You May Receive Principal Payments Earlier or
Later than the Scheduled Payment Date if
the Portfolio Yield Is Reduced............ S-8
The Transferor May Not Be Able to Add
Accounts to Trust Portfolio............... S-9
Allocations of Charged-Off Receivables Could
Result in a Loss to You................... S-10
Adjustments Due to Rebates, Exchanges and
Writedowns Could Reduce Payments to You... S-10
You May Not Be Able to Resell Your
Certificates.............................. S-10
Insolvency or Bankruptcy of the Transferor,
an Originator or an Initial Seller of
Receivables Could Result in Accelerated,
Delayed or Reduced Payments to You........ S-10
The Timing of Payments to You May Be Affected
by the Issuance of Additional Series by
the Trust................................. S-11
You Will Have Limited Control of Trust
Actions................................... S-11
Class B Certificateholders Bear Additional
Credit Risk............................... S-11
Changes in Social, Technological and Economic
Factors May Affect Purchase and Payment
Patterns and Could Affect the Timing of
Interest and Principal Payments to You.... S-12
Calculation of Finance Charges May Change
Without Notice and May Affect Portfolio
Yield Which May Impact the Timing of
Payments to You........................... S-12
Geographic Concentrations in the Receivables
Pool May Impact the Timing and Amount of
Payments to You........................... S-13
Dillard's Credit Card Portfolio................ S-14
General...................................... S-14
Delinquency and Loss Experience.............. S-14
Recoveries................................... S-15
Management Discussion and Analysis............. S-16
The Receivables................................ S-17
<CAPTION>
PAGE
----
<S> <C>
General...................................... S-17
Dilution Experience.......................... S-20
Maturity Considerations........................ S-21
Controlled Accumulation Period............... S-21
Rapid Amortization Period.................... S-21
Pay Out Events............................... S-21
Payment Rates................................ S-22
Receivable Yield Considerations................ S-23
Use of Proceeds................................ S-24
Description of the Certificates................ S-24
General...................................... S-24
Status of the Certificates................... S-25
Interest Payments............................ S-26
Principal Payments........................... S-27
Postponement of Controlled Accumulation
Period.................................... S-28
Subordination................................ S-28
Allocation Percentages....................... S-29
Reallocation of Cash Flows................... S-29
Application of Collections................... S-31
Allocations of Collections of Finance Charge
Receivables............................... S-34
Allocations of Collections of Principal
Receivables............................... S-36
Shared Excess Finance Charge Collections..... S-36
Shared Principal Collections................. S-37
Required Collateral Interest................. S-37
Adjustment Payments.......................... S-37
Defaulted Receivables; Dilutions; Investor
Charge-Offs............................... S-38
Servicer Guarantee........................... S-39
Principal Funding Account.................... S-39
[Reserve Account]............................ S-40
Issuance of Additional Certificates.......... S-41
Companion Series............................. S-41
Pay Out Events............................... S-42
Servicing Compensation and Payment of
Expenses.................................. S-42
The Certificates............................. S-43
Exchanges.................................... S-43
Reports to Certificateholders................ S-43
Listing and General Information................ S-44
ERISA Considerations........................... S-44
Class A Certificates......................... S-44
Class B Certificates......................... S-45
Consultation with Counsel.................... S-45
Underwriting................................... S-46
Legal Matters.................................. S-47
Glossary of Terms.............................. S-48
</TABLE>
S-2
<PAGE>
SUMMARY OF TERMS
<TABLE>
<S> <C>
Transferor: Dillard Asset Funding Company
Originators: Dillard National Bank; Dillard National Bank (formerly known as Mercantile Stores
National Bank)
Servicer: Dillard National Bank
Trustee: The Chase Manhattan Bank
Pricing Date: ,
Closing Date: ,
Clearance and Settlement: DTC/Cedelbank/Euroclear
Trust Assets: receivables originated in private label revolving credit accounts, [including
recoveries on charged-off receivables]
</TABLE>
<TABLE>
<S> <C> <C>
Series Structure: Amount % of Total Series
Class A $ %
Class B $ %
Collateral Interest $ %
Annual Servicing Fee:
%
Class A Class B
Anticipated Ratings:*
(Moody's / S&P / Fitch IBCA) [ ] [ ]
Credit Enhancement: subordination of Class B and the subordination of collateral interest
collateral interest
Minimum Transferor Interest: % %
Interest Rate: [1-month LIBOR + % [1-month LIBOR + %
p.a.] p.a.]
Interest Accrual Method: actual / 360 actual / 360
Interest Payment Dates: monthly ( ) monthly ( )
Interest Rate Index Reset Date: [2 business days before each each [2 business days before each
interest payment date] interest payment date]
First Interest Payment Date: , ,
Scheduled Payment Date: , ,
Commencement of Controlled
[Accumulation]
[Amortization] Period (subject to , N/A
adjustment):
Series 1999-[ ] Legal Final , ,
Maturity:
Application for Exchange Listing: Luxembourg Luxembourg
CUSIP Number
ISIN Number
Common Code
</TABLE>
- ------------------
* It is a condition to issuance that one of these ratings be obtained.
S-3
<PAGE>
STRUCTURAL SUMMARY
This summary briefly describes major structural components of the offering. The
remainder of this prospectus supplement and the prospectus provide much more
detailed information about the certificates and the trust. To fully understand
the terms of the certificates you need to read both this supplement and the
attached prospectus in their entirety.
THE SERIES 1999 - CERTIFICATES
The certificates are backed by interests in a pool of credit card receivables
that are generated when an individual uses his or her Dillard's credit card to
make a purchase of a good or service in a retail store owned by Dillard's Inc.
or any of its subsidiaries. Those receivables are originated by Dillard National
Bank or another Dillard's subsidiary and then sold to the transferor who in turn
sells the receivables to the trust. Dillard National Bank and other subsidiaries
service the receivables sold to the trust as well as the receivables that have
not been transferred to the trust.
Your certificates represent the right to a portion of collections on the
underlying receivables. Your certificates will also be allocated a portion of
net losses on receivables, if any. Any collections allocated to your series in
excess of the amount owed to you or the servicers of the receivables will be
shared with other series of certificates issued by the trust or returned to
Dillard Asset Funding Company, the transferor. In no case will you receive more
than the principal and interest owed to you under the terms described in this
supplement.
Your certificates feature credit enhancement by means of the subordination of
other interests, which is intended to protect you from net losses and shortfalls
in cash flow. Credit enhancement is provided to Class A certificates by the
following:
o subordination of Class B certificates
o subordination of the collateral interest
Credit enhancement is provided to Class B certificates by the following:
o subordination of the collateral interest
The effect of subordination is that the more subordinated interests will absorb
any net losses allocated to the certificates, and make up any shortfalls in cash
flow, before the more senior interests are affected. On the closing date the
collateral interest will be $ , or % of your series.
DILLARD CREDIT CARD MASTER TRUST I
The Chase Manhattan Bank, as trustee, maintains the trust for the benefit of:
o you and other certificateholders of this series;
o certificateholders of other series issued by the trust [(other series are
currently outstanding and a summary of each is described in Annex I to
this supplement)];
o providers of credit enhancements for your series and other series issued
by the trust; and
o the transferor.
Each series has a claim to a fixed dollar amount of the trust's assets,
regardless of the total amount of receivables in the trust at any time. The
transferor of the receivables to the trust holds the remaining claim to the
trust's assets. This claim fluctuates with the total amount of receivables in
the trust. The transferor, as the holder of that claim, will have the right to
purchase your certificates at any time when the outstanding amount of the
certificateholders' interest in the trust is less than 5% of the original amount
of that interest. The price the transferor will pay for the outstanding amount
of that interest will be equal to at least the entire unpaid balance of that
amount plus accrued and unpaid interest.
SCHEDULED PRINCIPAL PAYMENTS AND POTENTIAL LATER PAYMENTS
The trust expects to pay the entire principal amount due to Class A
certificateholders in [one] payment on , , and the entire
principal amount due to Class B certificateholders in [one] payment on
, . [In order to accumulate the funds to pay Class A
certificateholders on the scheduled payment date, the trust will conduct a
controlled accumulation by setting aside principal collections in a principal
funding account. The trust will deposit funds into the principal funding account
during a controlled accumulation period. The length of the controlled
accumulation period may be as long as twelve
S-4
<PAGE>
months, but will be shortened if the transferor expects that a shorter period
will suffice for the accumulation of the Class A payment amount. The
accumulation period will end on the scheduled payment date for Class A, when the
funds on deposit in the principal funding account will be paid to Class A or
upon the occurence of a payout event.]
If Class A is not fully repaid on its scheduled payment date, Class A will begin
to receive monthly payments of principal until it is fully repaid.
After Class A is fully repaid the trust will use principal collections allocated
to this series to repay Class B. [Because of the relatively small principal
payment required to repay Class B, the trust expects to pay the Class B
principal in full in one month.] If Class B is not fully repaid on its scheduled
payment date, Class B will begin to receive monthly payments of principal after
Class A is fully repaid.
Prior to the commencement of an accumulation or amortization period for this
series, principal collections will be paid to the transferor or shared with
other series that are amortizing or in an accumulation period.
MINIMUM YIELD ON THE RECEIVABLES; POSSIBLE EARLY PRINCIPAL REPAYMENT OF YOUR
SERIES-
Class A or Class B may be repaid earlier than its scheduled principal repayment
date if collections on the underlying receivables, together with other amounts
available for payment to certificateholders, are too low. The minimum amount
that must be available for payment to your series in any month, referred to as
the base rate, is the sum of the interest payable to Class A certificateholders,
the interest payable to Class B certificateholders and the interest payable to
the holder of the collateral interest, in each case for the related interest
period, plus the servicing fee for the related month. If the average trust
portfolio yield for your series for any three consecutive months is less than
the average base rate for the same three consecutive months, a pay out event
will occur and the trust will commence a rapid amortization and holders of your
series will receive principal payments earlier than the scheduled principal
repayment date.
Your series is also subject to several other pay out events, which could cause
your series to amortize. If your series begins to amortize, Class A will receive
monthly payments of principal until it is fully repaid; Class B will then
receive monthly payments of principal until it is fully repaid. In that event,
your certificates may be repaid prior to the scheduled payment date.
The final payment of principal and interest will be made no later than
, , which is the final payment date for your
series.
TAX STATUS OF CLASS A, CLASS B AND DILLARD CREDIT CARD MASTER TRUST I
Simpson Thacher & Bartlett, as tax counsel to the transferor, is of the opinion
that:
o under existing law, the Class A and Class B certificates will be
characterized as debt for U.S. federal income tax purposes and
o The trust will not be an association or publicly traded partnership
taxable as a corporation for U.S. federal income tax purposes.
ERISA CONSIDERATIONS
CLASS A CERTIFICATES: The underwriters anticipate that the Class A certificates
will meet the criteria for treatment as publicly-offered securities. If so,
subject to important considerations described in this prospectus supplement and
in the attached prospectus, the Class A certificates will be eligible for
purchase by persons investing assets of employee benefit plans or individual
retirement accounts.
CLASS B CERTIFICATES: The underwriters do not anticipate that the Class B
certificates will meet the requirements to be considered publicly offered
securities and therefore pension plans and other investors subject to ERISA may
not acquire or hold Class B certificates.
MAILING ADDRESS AND TELEPHONE NUMBER OF REGISTRANT
The mailing address of Dillard Asset Funding Company is c/o Chase Manhattan Bank
Delaware, 1201 Market Street, Wilmington, Delaware 19801 and the telephone
number is (302) 984-3300.
S-5
<PAGE>
SELECTED TRUST PORTFOLIO SUMMARY DATA
[PIE CHART]
GEOGRAPHIC DISTRIBUTION OF RECIVABLES IN TRUST PORTFOLIO
State Percentage
----- ----------
Texas 26.2
Florida 10.1
Louisiana 7.0
Ohio 5.8
Alabama 4.6
Missouri 4.1
Tennessee 4.0
Oklahoma 4.0
Kentucky 3.5
Arizona 3.5
Arkansas 3.3
Other 23.9
The chart above shows the geographic distribution by state of receivables
in the trust portfolio as of the billing cycles ended in October 1999. Other
than the states specifically shown in the chart, no state represents more than
3% of receivables in the trust portfolio.
[BAR CHART]
AGE OF ACCOUNTS IN TRUST PORTFOLIO
(MONTHS)
Age in months Percentage
------------- ----------
0-10 5.7
11-22 8.8
23-34 9.2
35-46 7.6
47-58 6.2
59-70 4.6
71+ 57.9
The chart above shows the age of accounts in the trust portfolio as of the
billing cycles ended in October 1999. This chart shows that 57.9% of the
accounts in the trust portfolio have been open for more than 70 months.
S-6
<PAGE>
DILLARD'S PORTFOLIO PAYMENT DATA
The chart below shows Dillard's portfolio yield, payment rate and net charge-off
rate for the trust portfolio for each month from January 1997 to October 1999.
[GRAPH]
PAYMENT DATA
<TABLE>
<CAPTION>
(A) Dillard's Portfolio Yield (B) Payment Rate (C) Net Charge-off Rate
----------------------------- ---------------- -----------------------
<S> <C> <C> <C>
Jan-97 17.4 19 4.7
Feb-97 18.9 18.9 4.4
Mar-97 18.1 21.8 4.5
Apr-97 18 17.7 4
May-97 18 17.9 4.8
Jun-97 17.9 21 4.9
Jul-97 18.1 17.5 5.7
Aug-97 17.9 17.2 4.9
Sep-97 17.9 20.9 5.2
Oct-97 18.5 17.4 4.5
Nov-97 18.7 18.8 5.6
Dec-97 18.9 21.5 5.2
Jan-98 18.4 18.9 4.7
Feb-98 18.8 18.9 4.6
Mar-98 19 21.7 4.8
Apr-98 18.9 17.8 5.3
May-98 18.9 17.8 5
Jun-98 19 20.8 5
Jul-98 19.2 17.9 5.9
Aug-98 19.2 17.5 5.3
Sep-98 18.7 20.2 5.8
Oct-98 18.6 17.4 5.4
Nov-98 18.4 17.1 6.7
Dec-98 18.3 19.3 7.3
Jan-99 17.6 17.3 6
Feb-99 18.3 17.4 6.5
Mar-99 17.9 21.2 6.6
Apr-99 17.6 16.3 6.2
May-99 17.9 17.2 5.8
Jun-99 18.1 19.7 5.4
Jul-99 17.9 16.8 5.8
Aug-99 19.4 15.5 5.8
Sep-99 20.3 19.8 5.5
Oct-99 18.2 17.4 10.9
</TABLE>
The "portfolio yield" for any month means the total amount of collected
finance charges and fees for the month, expressed as a percentage of total
outstanding receivables at the beginning of the month.
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 "net charge-off rate" for any month is the amount of charged off
receivables recorded in the month, net of any recoveries from earlier charge
offs on receivables in the trust portfolio, expressed as a percentage of total
outstanding receivables at the beginning of the month.
S-7
<PAGE>
RISK FACTORS
The following is a summary of all material risk factors applicable to an
investment in the certificates. The remainder of this prospectus supplement and
the prospectus provide much more detailed information about these risks. You
should consider these risk factors in light of your investment strategy in
deciding whether to purchase certificates.
<TABLE>
<S> <C>
YOU MAY RECEIVE PRINCIPAL PAYMENTS EARLIER If a pay out event occurs with respect to your series, your series
OR LATER THAN THE SCHEDULED PAYMENT DATE will commence a rapid amortization, and you will receive principal
IF THE PORTFOLIO YIELD payments earlier than the scheduled principal repayment date. Any
IS REDUCED circumstances that tend to reduce collections of receivables may
increase the risk of early repayment of your series. Conversely, any
reduction in collections may cause the period during which
collections are accumulated in the principal funding account for
payment of Class A to be longer than otherwise would have been the
case.
The following factors could result in reduced collections:
o ORIGINATORS OF THE RECEIVABLES MAY CHANGE THE TERMS AND CONDITIONS
OF THE ACCOUNTS
The transferor will transfer to the trust receivables arising under
specified credit card accounts, but the originators of the
receivables will continue to own those accounts. As the owner of
those accounts, the originators retain the right to change various
terms and conditions of those accounts, including finance charges and
other fees and the monthly minimum payment. For example, originators
may change the terms of accounts to maintain the competitive position
of Dillards' department stores. Changes in the terms of the accounts
may reduce the amount of receivables arising under the accounts,
reduce the amount of collections on those receivables, or otherwise
alter payment patterns.
o THE TRANSFEROR MAY ADD ACCOUNTS TO THE TRUST PORTFOLIO.
The transferor is permitted to designate additional accounts for the
trust portfolio and to transfer the receivables in those accounts to
the trust. [The designation of additional accounts [may not] [do not]
require a confirmation from rating agencies that the additional
accounts will not result in a suspension, downgrade or withdrawal of
its rating for the certificates.] Any new accounts and receivables
may have different terms and conditions than the accounts and
receivables already in the trust. [In addition, credit card accounts
purchased by Dillard's or its subsidiaries may be included as
additional accounts if eligibility conditions are satisfied. Credit
card accounts purchased by Dillard's or its subsidiaries and
transferred to the transferor may have been originated using criteria
different from the criteria used by the originators.] The new
accounts and receivables may perform differently over time than the
accounts and receivables already in the trust and could tend to
reduce the amount of collections allocated to your series. For
example, the new accounts may have lower payment rates or higher
credit losses.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
THE TRANSFEROR MAY NOT BE ABLE TO ADD If the transferor's percentage interest in the accounts of the trust
ACCOUNTS TO TRUST PORTFOLIO falls to % or less, it will be required to maintain that level by
designating additional accounts for the trust portfolio and
transferring the receivables in those accounts to the trust. The
transferor may not have any additional accounts to add. If the
transferor fails to add accounts when required, a pay out event will
occur and you could receive payment of principal sooner than
expected.
o FINANCE CHARGES ACCRUE AT A FIXED RATE
Finance charges on the receivables in the trust accrue at a fixed
rate. We adjust the interest rate on your certificates periodically
based upon an index. Interest rate increases on your certificates may
not be offset by increases in collections of finance charge
receivables. A decrease in the spread between collections of finance
charge receivables and interest payments on your certificate could
cause a pay out event to occur.
o CONSUMER PROTECTION LAWS MAY IMPEDE COLLECTION EFFORTS
Federal and state consumer protection laws regulate the creation and
enforcement of credit card accounts and receivables. Changes or
additions to those laws or failure to comply with those laws could
make it more difficult to collect payments on the receivables or
reduce the finance charges and other fees that an originator can
charge on credit card account balances or could render the
receivables uncollectible. No representative of the trust will make
any examination of the receivables or the related records for the
purpose of determining the presence or absence of defects, compliance
with representations and warranties, or for any other purpose.
o CARDHOLDERS MAY MAKE PRINCIPAL PAYMENTS AT ANY TIME
The receivables transferred to the trust may be paid at any time. We
cannot assure the creation of additional receivables in underlying
accounts or that any particular pattern of cardholder payments will
occur. The retail department store sector, in general, is highly
competitive. Generally, Dillard's competes not only with other
department stores but with direct marketers and numerous types of
retail outlets, including variety stores and discount stores. No
transaction document prohibits Dillard's from selling all or any
portion of its business or assets. In addition, Dillard's no longer
offers extended payment terms previously available to private label
credit card holders of the recently acquired Mercantile Stores
department store chain. A significant decline in the amount of new
receivables generated by the accounts in the trust could result in
reduced portfolio yield. The financial condition of Dillard's
department stores will affect the ability of the originators to
generate and transfer new receivables and might also affect payment
patterns on the receivables.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
ALLOCATIONS OF CHARGED-OFF RECEIVABLES Each originator anticipates that it will write off as uncollectible
COULD RESULT IN some portion of the receivables arising in its accounts in the trust
A LOSS TO YOU portfolio. Each class of certificates will be allocated a portion of
those charged-off receivables. If the amount of charged-off
receivables allocated to any class of certificates exceeds the amount
of other funds available for reimbursement of those charge-offs,
which could occur if the limited amount of credit enhancement for
those certificates is reduced to zero, the holders of those
certificates may not receive the full amount of principal and
interest due to them.
ADJUSTMENTS DUE TO REBATES, EXCHANGES AND A portion of the receivables will be not be collected as a result of
WRITEDOWNS COULD REDUCE PAYMENTS TO YOU rebates, exchanges, write-downs and similar occurrences. The
transferor will be obligated to make payments to compensate the
holders of the certificates for the amount of receivables which
become uncollectible for these reasons. If the transferor fails to
make any of these payments, the amount of the resulting insufficiency
will be allocated to the transferor's interest. If the amount of the
transferor's interest does not cover this insufficiency, the
available credit enhancement will be reduced and you may not receive
the full amount of principal and interest due.
YOU MAY NOT BE ABLE TO RESELL YOUR The underwriters may, but are not required to, assist in resales of
CERTIFICATES your certificates. A secondary market for these securities may not
develop. If a secondary market does develop, it might not continue or
it might not be sufficiently liquid to allow you to resell any of
your certificates.
INSOLVENCY OR BANKRUPTCY OF THE The receivables in which you have an interest are conveyed to the
TRANSFEROR, AN ORIGINATOR OR AN INITIAL trust by the transferor. The transferor acquires them from the
SELLER OF RECEIVABLES COULD RESULT IN originators and from non-bank affiliates of Dillard's which in turn
ACCELERATED, DELAYED OR REDUCED PAYMENTS acquired the receivables from the originators. In each instance, the
TO YOU conveyances are intended to be treated as sales. However, in a
bankruptcy or bank receivership proceeding, the conveyances may not
be treated as sales but as creations of security interests in the
receivables. The receivables may then be subject to tax or other
governmental liens and to administrative expenses of the bankruptcy
or bank receivership proceeding of a predecessor in interest of those
receivables. Furthermore, a bankruptcy trustee or a creditor may
attempt to cause a predecessor in interest of the receivables or the
transferor to be substantively consolidated with the transferor or
the trust, respectively. Recharacterization as a pledge or
substantive consolidation can delay or even reduce payments on your
certificates.
In addition, if a bankruptcy trustee, conservator or receiver is
appointed for the transferor, a pay out event for all series will
occur and new principal receivables will not be transferred to the
trust. The transferor will then sell the receivables, unless holders
of more than 50% of the investor interest of each class of
outstanding certificates gives the trustee other instructions. The
trust would terminate earlier than was planned and you could have a
loss if the sale of the receivables produced insufficient net
proceeds to pay you in full.
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
A bankruptcy trustee, conservator or receiver with authority over the
receivables may have the power--
o regardless of the terms of the pooling and servicing agreement,
o to prevent the beginning of a rapid amortization period,
o to prevent the early sale of the receivables and termination of the
trust,
o to require new principal receivables to continue being transferred
to the trust,
o require the trustee of the trust to go through an administrative
claims procedure to establish its right to payments collected on
the receivables in the trust,
o repudiate the pooling and servicing agreement which establishes the
trust and limit the trust's resulting claim; or
o regardless of the instructions of the certificateholders,
o to require the early sale of the trust's receivables,
o to require termination of the trust and retirement of the trust's
certificates including your series, or
o to prohibit the continued transfer of principal receivables to the
trusts.
THE TIMING OF PAYMENTS TO YOU MAY BE The trust, as a master trust, may issue series of certificates from
AFFECTED BY THE ISSUANCE OF ADDITIONAL time to time. The trust may issue additional series with terms that
SERIES BY THE TRUST are different from your series without the prior review or consent of
any certificateholders. It is a condition to the issuance of each new
series that each rating agency that has rated an outstanding series
confirm in writing that the issuance of the new series will not
result in a reduction or withdrawal of its rating of any class of any
outstanding series. However, the terms of a new series could affect
the timing and amounts of payments on any other outstanding series.
YOU WILL HAVE LIMITED CONTROL OF TRUST Certificateholders of any series or any class within a series may
ACTIONS need the consent or approval of a specified percentage of the
investor interest of other series or a class of the other series to
take or direct actions, including:
o appointing a successor servicer if Dillard National Bank defaults
on its obligations under the pooling and servicing agreement,
o amending the pooling and servicing agreement in some cases and
o directing a repurchase of all outstanding series after violations
of the transferor's representations and warranties.
The interests of the certificateholders of any of the other series
may not coincide with yours, making it more difficult for any
particular certificateholder to achieve the desired results from such
vote.
CLASS B CERTIFICATEHOLDERS BEAR ADDITIONAL Because Class B is subordinated to Class A, principal payments to
CREDIT RISK Class B will not begin until Class A is repaid. Additionally, if
collections of finance charge receivables allocated to the
certificates are insufficient to cover amounts due to Class A, the
investor interest for Class B might be reduced. This would reduce the
amount of the collections of finance charge receivables
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
available to Class B in future periods and could cause a possible
delay or reduction in principal and interest payments on Class B. If
receivables had to be sold, the net proceeds of that sale available
to pay principal would be paid first to Class A and any remaining net
proceeds would be paid to Class B.
CHANGES IN SOCIAL, TECHNOLOGICAL AND Changes in purchase and payment patterns by obligors under the
ECONOMIC FACTORS MAY AFFECT PURCHASE AND accounts may result from a variety of social, and technological and
PAYMENT PATTERNS AND COULD AFFECT THE economic factors. Social factors include potential changes in
TIMING OF INTEREST AND PRINCIPAL PAYMENTS consumers' attitudes toward financing purchases with debt.
TO YOU Technological factors include new methods of payment. Economic
factors include the rate of inflation, unemployment levels and
relative interest rates. Each of these factors may have a disparate
impact on the payment by obligors and the generation of new
receivables under Dillard's credit card accounts, which may result in
a loss to you. For example, Dillard's department stores generally
accept third party revolving credit cards such as VISA and MasterCard
cards issued by various financial institutions, charge cards such as
the American Express Card and debit cards. Changes in interest rates
charged by or incentives offered to use these other cards, or greater
use of debit cards, could lead to fewer purchases with Dillard's
charge cards even though overall sales at Dillard's department stores
remain the same or increase.
[CALCULATION OF FINANCE CHARGES MAY CHANGE Under the pooling and servicing agreement, a fixed percentage of the
WITHOUT NOTICE AND MAY AFFECT PORTFOLIO balance of receivables originated by the originators will be deemed
YIELD WHICH MAY IMPACT THE TIMING OF to constitute finance charges on those receivables. [The transferor
PAYMENTS TO YOU may, without notice or consent of the certificateholders, from time
to time, increase or reduce this percentage]. An increase in the
finance charge percentage used to calculate finance charges will
increase the percentage of collections on the receivables that are
treated as collections of finance charge receivables, which will
increase the portfolio yield to a level higher than it would be in
the absence of such an increase. As a result, such an increase in the
finance charge percentage would decrease the likelihood of the
occurrence of a pay out event based upon a reduction of the average
portfolio yield. However, an increase in the finance charge
percentage would also reduce the total amount of principal
receivables, which could increase the likelihood of a pay out event
occurring if the total principal receivables fall below the
prescribed minimum aggregate principal receivables. A reduction in
the finance charge percentage could reduce the portfolio yield and
may increase the possibility that a pay out event would occur if the
average portfolio yield declines below a specific floor. In addition,
the transferor may make other adjustments to the finance charge
percentage if those changes would not cause a pay out event to occur
and also satisfy any rating agency conditions with respect to any
series. The occurrence of a pay out event as a result of these
factors will affect the timing of principal payments to you and could
result in a loss to you.]
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
GEOGRAPHIC CONCENTRATIONS IN THE The receivables in the trust portfolio as of the billing cycles ended
RECEIVABLES POOL MAY IMPACT THE TIMING AND in October 1999 were obligations of Dillard's credit card holders
AMOUNT OF PAYMENTS TO YOU with primary addresses in Texas, Florida and Louisiana representing
26.2%, 10.1% and 7.0%, respectively, of receivables in the trust
portfolio. If there are adverse economic conditions in those states,
cardholders living there may make fewer purchases with their
Dillard's cards or may not be able to make timely payments on their
Dillard's cards which may affect the amount of receivables available
to the trust to make payments of interest and principal on the
certificates.
</TABLE>
S-13
<PAGE>
DILLARD'S CREDIT CARD PORTFOLIO
This prospectus supplement uses terms that are defined in the "Glossary of
Terms" in this prospectus supplement and in the prospectus. We indicate defined
terms in bold.
GENERAL
The receivables in the trust are generated from transactions made by
holders of private label revolving credit card accounts selected by each
originator from its entire portfolio of accounts.
DELINQUENCY AND LOSS EXPERIENCE
The originators consider an account delinquent if a payment is not received
by the date of the statement following the statement on which the amount is
first stated to be due.
Efforts to collect delinquent credit card receivables are made by the
servicer's account management department, collection agencies and attorneys
retained by the servicer. Efforts to collect delinquent credit card receivables
may also be made by the account management department of subservicers retained
by the servicer, and collection agents and attorneys retained by these
subservicers.
Prior to October 1999, it was 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. Since October 1999, it is the policy of the originators to charge
off an account at the end of the billing cycle in which the account became seven
payments delinquent. If an originator receives notice that a cardholder is the
subject of a bankruptcy proceeding, it charges off the cardholder's account upon
the earlier of the end of the month in which notice of the bankruptcy is
received and the time period described in the previous sentence. Charged-off
accounts are sent to an internal recovery unit, collection agencies or
attorneys.
The following tables describe delinquency and loss experience for the ten
months ended October 31, 1999 and for the years ended December 31, 1998, 1997
and 1996, respectively. Since the trust was created in 1998, the tabular
presentation contains trust portfolio data for October 31, 1999 and December 31,
1998. All other periods contain Dillard's portfolio data. As of the billing
cycles ended in October 1999, the receivables in the trust portfolio represented
99.7% of the Dillard's portfolio.
In the table below, "number of days delinquent" means the number of days
after the first billing date following the original billing date. For example,
30 days delinquent means that no payment was received within 60 days after the
original billing date. In addition, delinquencies are calculated as a percentage
of outstanding receivables as of the end of the month.
PORTFOLIO DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
TEN MONTHS ENDED
OCTOBER 31, 1999 1998 1997 1996
-------------------------- -------------------------- -------------------------- ----------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
NUMBER OF DAYS DELINQUENT TOTAL DELINQUENT TOTAL DELINQUENT TOTAL DELINQUENT
DELINQUENT AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT
- --------------------- ---------- ------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
30 to 59 Days........ $ 46,104 3.6% $ 50,742 3.3% $ 57,820 3.4% $ 53,385
60 to 89 Days........ 19,872 1.6 25,816 1.7 22,446 1.3 21,925
90 Days or More...... 31,920 2.5 58,663 3.8 44,184 2.6 46,029
-------- --- -------- ----- -------- ----- --------
Total............ $ 97,896 7.7% $135,221 8.8% $124,450 7.3% $121,339
-------- --- -------- ----- -------- ----- --------
-------- --- -------- ----- -------- ----- --------
<CAPTION>
1996
-------------
PERCENTAGE OF
NUMBER OF DAYS TOTAL
DELINQUENT RECEIVABLES
- --------------------- -------------
<S> <C>
30 to 59 Days........ 3.2%
60 to 89 Days........ 1.3
90 Days or More...... 2.8
-----
Total............ 7.3%
-----
-----
</TABLE>
In the table below, "average receivables outstanding" means the average of
the daily receivable balance during the period indicated. The gross charge-offs
shown below include only the principal portion of charged-off receivables, do
not include the amount of any reductions in average receivables outstanding due
to fraud, returned goods or customer disputes and exclude charges relating to
changes in the servicer's charge-off
S-14
<PAGE>
policies. The net charge-offs as a percentage of average receivables outstanding
for the ten months ended October 31, 1999 is an annualized figure.
PORTFOLIO LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
TEN MONTHS ENDED --------------------------------------
OCTOBER 31, 1999 1998 1997 1996
----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding.................... $ 1,419,723 $1,601,806 $1,621,623 $1,595,213
Gross Charge-Offs.................................. 86,378 102,426 94,066 105,221
Recoveries......................................... 18,633 12,497 13,060 12,871
Net Charge-Offs.................................... 67,745 89,929 81,006 92,350
Net Charge-Offs as a Percentage of Average
Receivables Outstanding.......................... 5.7% 5.6% 5.0% 5.8%
</TABLE>
RECOVERIES
The transferor is required to transfer to the trust a percentage of
recoveries on defaulted accounts. For each monthly period, recoveries will be
allocated to the certificates on the basis of the percentage equivalent of the
ratio which the amount of RECEIVABLES in defaulted accounts in a monthly period
bears to the amount of receivables in defaulted accounts recorded in the
Dillard's portfolio. RECOVERIES allocated to the trust will be treated as
collections of finance charge receivables. See "Dillard's Credit Card
Portfolio--Delinquency and Loss Experience" herein and "Dillard's Credit Card
Activities--Collection of Delinquent Accounts" in the attached prospectus.
S-15
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
The level of credit card portfolio delinquencies and charge-offs is
dependent on a variety of factors, including
o Overall credit quality of cardholders
o Credit underwriting standards
o Success of collection efforts
o Availability of other sources of credit used by consumers to purchase
goods in Dillard's stores
o General economic conditions, and
o Seasonal variations in consumer spending and borrowing patterns.
The Delinquency Experience table presented above indicates that accounts in
the credit card portfolio, 60 days or more delinquent, totaled 4.1% and 5.5% of
total receivables at October 31, 1999 and December 31, 1998, respectively,
representing a 27.6% reduction in delinquencies. Accounts in the credit card
portfolio, 60 days or more delinquent, at December 31, 1997 and 1996 were 3.9%
and 4.1% of total receivables, respectively.
The Loss Experience table presented above indicates that net charge-offs,
as a percent of average credit card receivables, were 5.7% (annualized) and 5.6%
for the ten month period ended October 31, 1999 and the year ended December 31,
1998, respectively, representing a 2.0% increase in credit card portfolio net
charge-offs as a percent of average receivables. Net charge-offs as a percent of
average receivables for the years ended December 31, 1997 and 1996 were 5.0% and
5.8%, respectively.
Prior to October 1999, it was the policy of the originators to charge off
an account immediately following the billing cycle in which the account became
seven payments delinquent. Since October 1999, it is the policy of the
originators to charge off an account at the end of the billing cycle in which
the account became seven payments delinquent. This change in the originators'
charge-off policy resulted in a net charge-off rate for October 1999 which
includes charge-offs which would not have been charged off until November 1999
under the previous policy.
S-16
<PAGE>
THE RECEIVABLES
GENERAL
The receivables conveyed to the trust arise in accounts originated by an
originator. The transferor has selected them on the basis of criteria outlined
in the pooling and servicing agreement and described in the prospectus. As of
the CUT-OFF DATE, approximately 79% and 21% of the accounts conveyed to the
trust were originated or acquired by the originators, DNB and DNB-LA.,
respectively. Pursuant to the pooling and servicing agreement, the transferor
has the right, subject to some limitations and conditions, to designate from
time to time additional accounts and to transfer to the trust all existing and
future receivables from these additional accounts. Any additional accounts
designated pursuant to the pooling and servicing agreement must be eligible
accounts as of the date the transferor designates them as additional accounts.
Additional accounts will be originated or acquired by an originator and
transferred to the transferor. The transferor will be required to designate
additional accounts, to the extent available,
o to maintain the transferor interest in the trust so that during any
period of 30 consecutive days, the transferor interest averaged over that
period equals or exceeds the MINIMUM TRANSFEROR INTEREST for the same
period; and
o to maintain, for so long as certificates of any series remain
outstanding, the sum of
o the aggregate amount of principal receivables; and
o the principal amount on deposit in the excess funding account equal
to or greater than the MINIMUM AGGREGATE PRINCIPAL RECEIVABLES.
The transferor will convey existing and future receivables from these
additional accounts to the trust. Furthermore, the transferor will have the
qualified right under the pooling and servicing agreement to designate removed
accounts and to require the trustee to reconvey all existing and future
receivables from these removed accounts. As of the CUT-OFF DATE and, for
receivables in additional accounts, as of the related date of their conveyance
to the trust, on the date any new receivables are created, the transferor will
represent and warrant to the trust that the receivables meet the eligibility
requirements specified in the pooling and servicing agreement. See "Description
of the Certificates--Representations and Warranties" in the attached prospectus.
As of the billing cycles ended in October 1999, the trust portfolio had
o total balances of
o $1.3 billion in principal receivables; and
o $17.1 million in finance charge receivables;
o accounts with an average
o principal balance of $420, excluding accounts without an outstanding
principal balance; and
o credit limit of $2,150, excluding corporate accounts which have no
pre-set credit limits;
o percentage of total receivable balance to total credit limit of 9.4%; and
o cardholders with billing addresses in the 50 states and the District of
Columbia.
Accounts which are acquired and not originated by an originator may have
been originated under policies and procedures which differ from those of the
originators. We do not expect any of these differences to have a material
adverse effect on the credit quality of the receivables in the trusts or on the
interests of the certificateholders. [Prior to the addition of any accounts
which are acquired but not originated by an originator, the rating agencies then
rating the certificates must confirm that the addition of acquired accounts will
not result in a lower rating on the certificates]. See "Description of the
Certificates--Collection and Other Servicing Procedures" in the attached
prospectus.
S-17
<PAGE>
The following tables summarize the trust portfolio by various criteria as
of the billing cycles ended in October 1999. Because the future composition of
the trust portfolio may change over time, these tables are not necessarily
indicative of the composition of the trust portfolio at any subsequent time.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
ACCOUNT BALANCE ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Credit Balance..................................... 281,191 3.6% $ (4,495) (0.4)%
No Balance......................................... 4,697,643 60.7 -- --
$0.01 to $500.00................................... 1,948,070 25.2 361,243 28.3
$500.01 to $1,000.00............................... 495,469 6.4 346,530 27.2
$1,000.01 to $3,000.00............................. 284,121 3.7 447,281 35.1
$3,000.01 to $5,000.00............................. 26,208 0.3 96,125 7.5
Over $5,000.00..................................... 4,684 0.1 29,245 2.3
--------- ----- ----------- -----
Total......................................... 7,737,386 100.0% $ 1,275,929 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
CREDIT LIMIT ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
$0.00.............................................. 1,478,087 19.1% $ 146,235 11.4%
$0.01 to $1,000.00................................. 1,963,911 25.4 218,296 17.1
$1,000.01 to $3,000.00............................. 3,177,905 41.1 482,046 37.8
$3,000.01 to $5,000.00............................. 1,031,111 13.3 317,816 24.9
$5,000.01 to $10,000.00............................ 85,680 1.1 110,664 8.7
Over $10,000.00.................................... 692 0.0 872 0.1
--------- ----- ----------- -----
Total......................................... 7,737,386 100.0% $ 1,275,929 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
PERIOD OF DELINQUENCY ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Current to 29 days delinquent...................... 7,576,501 97.9% $ 1,178,033 92.3%
30 to 59 days delinquent........................... 77,073 1.0 40,104 3.6
60 to 89 days delinquent........................... 33,550 0.4 19,872 1.6
90 days delinquent or more......................... 50,262 0.7 31,920 2.5
--------- ----- ----------- -----
Total......................................... 7,737,386 100.0% $ 1,275,929 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
S-18
<PAGE>
COMPOSITION BY ACCOUNT SEASONING
TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
ACCOUNT AGE (MONTHS SINCE ACCOUNT OPENING) ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Not More than 10 Months............................ 593,812 7.7% $ 72,546 5.7%
Over 10 Months to 22 Months........................ 1,143,561 14.8 111,860 8.8
Over 22 Months to 34 Months........................ 694,154 9.0 117,200 9.2
Over 34 Months to 46 Months........................ 519,562 6.7 97,309 7.6
Over 46 Months to 58 Months........................ 384,443 5.0 79,379 6.2
Over 58 Months to 70 Months........................ 281,940 3.6 58,379 4.6
Over 70 Months..................................... 4,119,914 53.2 739,256 57.9
--------- ------- ----------- -------
Total......................................... 7,737,386 100.0% 1,275,929 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO AT OCTOBER
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
STATE ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
- --------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Alabama............................................ 302,999 3.9% $ 58,348 4.6%
Arizona............................................ 249,244 3.2 45,251 3.5
Arkansas........................................... 168,413 2.2 42,566 3.3
California......................................... 51,348 0.7 7,121 0.6
Colorado........................................... 275,543 3.6 29,952 2.3
Florida............................................ 888,680 11.5 129,161 10.1
Georgia............................................ 204,874 2.6 31,968 2.5
Idaho.............................................. 31,625 0.4 1,727 0.1
Illinois........................................... 85,732 1.1 10,236 0.8
Indiana............................................ 72,710 0.9 7,053 0.5
Iowa............................................... 38,090 0.5 3,117 0.2
Kansas............................................. 234,214 3.0 31,297 2.5
Kentucky........................................... 317,766 4.1 44,109 3.5
Louisiana.......................................... 510,557 6.6 89,760 7.0
Minnesota.......................................... 17,311 0.2 283 0.0
Mississippi........................................ 177,326 2.3 31,220 2.4
Missouri........................................... 418,654 5.4 51,726 4.1
Montana............................................ 31,467 0.4 3,208 0.3
Nebraska........................................... 73,985 1.0 9,430 0.7
Nevada............................................. 65,546 0.8 13,482 1.1
New Mexico......................................... 81,063 1.0 15,899 1.3
North Carolina..................................... 241,776 3.1 32,655 2.6
North Dakota....................................... 5,435 0.1 48 0.0
Ohio............................................... 634,222 8.2 74,453 5.8
Oklahoma........................................... 246,879 3.2 50,467 4.0
South Carolina..................................... 246,507 3.2 33,859 2.7
Tennessee.......................................... 387,647 5.0 51,631 4.0
Texas.............................................. 1,291,937 16.7 334,179 26.2
Utah............................................... 62,099 0.8 7,154 0.6
Virginia........................................... 207,840 2.7 19,410 1.5
Wyoming............................................ 15,324 0.2 1,811 0.1
Other.............................................. 100,573 1.4 13,347 1.1
--------- ----- ----------- -----
Total......................................... 7,737,386 100.0% $ 1,275,929 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
S-19
<PAGE>
DILUTION EXPERIENCE
A factor used to evaluate a portfolio of receivables is dilution. Dilution
occurs if the balance of a receivable is reduced because of a rebate, billing
error, return, exchange, allowance (including reductions because of the
selection of a cash price payment option) or other non-cash items, or if a
receivable is canceled due to goods that have been refused by a cardholder. The
table below provides dilution experience for receivables originated by the
originators, excluding any dilutive effect from the Mercantile Stores during the
period from January 1996 through October 1999. The Mercantile Stores did not
maintain dilution experience information prior to the acquisition by Dillard's
in August 1998. For purposes of the following table, March, June, September and
December are five week fiscal months. All other months are four week fiscal
months. There can be no assurance that the actual dilution experience in the
future will be similar to the historical experience provided in this table.
DILUTION EXPERIENCE
<TABLE>
<CAPTION>
MONTHLY DILUTION
MONTHLY PERIOD PERCENTAGE
- ------------------------------------ ----------------
<S> <C>
1996
January............................. 2.8%
February............................ 2.1
March............................... 3.0
April............................... 2.5
May................................. 2.6
June................................ 3.0
<CAPTION>
MONTHLY DILUTION
MONTHLY PERIOD PERCENTAGE
- ------------------------------------ ----------------
<S> <C>
July................................ 2.2%
August.............................. 2.3
September........................... 3.3
October............................. 2.5
November............................ 2.6
December............................ 5.2
</TABLE>
<TABLE>
<S> <C>
1997
January............................. 2.3
February............................ 2.2
March............................... 3.1
April............................... 2.5
May................................. 2.7
June................................ 3.1
July................................ 2.3
August.............................. 2.4
September........................... 3.1
October............................. 2.6
November............................ 2.8
December............................ 4.8
</TABLE>
<TABLE>
<S> <C>
1998
January............................. 2.4
February............................ 2.0
March............................... 3.1
April............................... 2.6
May................................. 2.5
June................................ 2.9
July................................ 2.1
August.............................. 2.2
September........................... 3.0
October............................. 2.2
November............................ 2.7
December............................ 4.7
</TABLE>
<TABLE>
<S> <C>
1999
January............................. 2.3
February............................ 2.0
March............................... 3.1
April............................... 2.4
May................................. 2.4
June................................ 2.7
July................................ 2.2
August.............................. 2.1
September........................... 3.1
October............................. 2.4
</TABLE>
S-20
<PAGE>
MATURITY CONSIDERATIONS
Class A certificateholders will receive payments of principal on the
earlier of
o the Class A scheduled payment date; and
o a PAY OUT EVENT which results in the commencement of the RAPID
AMORTIZATION PERIOD;
Class B certificateholders will receive payments of principal on the
earlier of
o the Class B scheduled payment date; and
o a PAY OUT EVENT which results in the commencement of the RAPID
AMORTIZATION PERIOD after the final principal payment on the Class A
certificates has been made.
CONTROLLED ACCUMULATION PERIOD
The CONTROLLED ACCUMULATION PERIOD for the certificates is scheduled to
begin at the close of business of the last day of the o monthly period. The day
on which the REVOLVING PERIOD ends and the CONTROLLED ACCUMULATION PERIOD begins
generally may be delayed to no later than the close of business on the last day
of the o monthly period.
During the CONTROLLED ACCUMULATION PERIOD, the trust will accumulate cash
in the principal funding account to be used to make later principal payments in
certificateholders.
o Amounts in the principal funding account are expected to be available to
pay the CLASS A INVESTOR INTEREST on the Class A scheduled payment date.
o After the payment of the CLASS A INVESTOR INTEREST in full, AVAILABLE
INVESTOR PRINCIPAL COLLECTIONS are expected to be available to pay the
CLASS B INVESTOR INTEREST on the Class B scheduled payment date.
o If the amount required to pay a class of certificates is not available on
the scheduled payment date, a PAY OUT EVENT will occur and the RAPID
AMORTIZATION PERIOD will commence. No assurance can be given that
sufficient amounts will be available to pay a class of certificates.
See "Description of the Certificates--Principal Payments--Controlled
Accumulation Period" and "--Postponement of Controlled Accumulation Period" for
a more detailed discussion of the Controlled Accumulation Period and events
which may cause a postponement of the Controlled Accumulation Period.
RAPID AMORTIZATION PERIOD
A RAPID AMORTIZATION PERIOD begins when a PAY OUT EVENT occurs and
continues until the trust has fully paid the principal of this Series or until
the Series 1999- termination date. During the RAPID AMORTIZATION PERIOD,
PRINCIPAL COLLECTIONS WILL BE USED TO PAY THE CLASS A INVESTOR INTEREST first
followed by the CLASS B INVESTOR INTEREST.
See "Description of the Certificates--Principal Payments--Rapid Amortization
Period" for a more detailed discussion of the Rapid Amortization Period.
PAY OUT EVENTS
A PAY OUT EVENT for your series occurs, either automatically or after
specified notice, upon
o the failure of the transferor to make payments or transfers of funds for
the benefit of the certificateholders within the time periods stated in
the pooling and servicing agreement;
o material breaches of representations, warranties or covenants of the
transferor;
o bankruptcy or insolvency events involving the transferor, Dillard's or an
originator;
o a reduction of the average of the PORTFOLIO YIELDS for any three
consecutive monthly periods to a rate that is less than the average of
the BASE RATES for that period;
S-21
<PAGE>
o the trust becoming subject to regulation as an investment company within
the meaning of the Investment Company Act of 1940, as amended;
o the failure of the transferor to convey receivables arising under
additional accounts when required by the pooling and servicing agreement;
o the occurrence of a servicer default which would have a material adverse
effect on the certificateholders;
o insufficient funds in the distribution account to pay the CLASS A
INVESTOR INTEREST or the CLASS B INVESTOR INTEREST in full on the
Class A scheduled payment date or the Class B scheduled payment date,
respectively;
o the transferor's interest in the trust becoming less than the MINIMUM
TRANSFEROR INTEREST; or
o the transferor becomes unable for any reason to transfer receivables to
the trust in accordance with the provisions of the pooling and servicing
agreement.
See "Description of the Certificates--Pay Out Events."
PAYMENT RATES
The following table provides the highest and lowest cardholder monthly
payment rates during any month in the period shown and the average cardholder
monthly payment rates for all months during the periods shown for (a) each of
the calendar years ended December 31, 1996 and December 31, 1997 for the
Dillard's portfolio and (b) the calendar year ended December 31, 1998 and for
the ten calendar months ended October 31, 1999 for the trust portfolio. In each
case these rates are calculated as a percentage of total opening monthly account
balances during the periods shown. Payment rates shown in the table are based on
amounts which would be treated as payments of principal receivables and finance
charge receivables.
In the table below, monthly averages shown are expressed as an arithmetic
average of the payment rate for each month during the period indicated and each
month's payment rate representing total payments collected during the given
month is expressed as a percentage of the prior month's ending outstanding
receivables.
CARDHOLDER MONTHLY PAYMENT RATES
DILLARD'S PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
TEN MONTHS ENDED ------------------------
OCTOBER 31, 1999 1998 1997 1996
---------------- ---- ---- ----
<S> <C> <C> <C> <C>
Highest Month................................................... 21.2% 21.7% 21.6% 21.8%
Lowest Month.................................................... 16.3 17.1 17.2 17.3
Monthly Average................................................. 18.0 18.8 19.1 19.4
</TABLE>
DNB generally determines the minimum monthly payment for its accounts by
multiplying the combined new balance of purchases and cash advances, less any
disputed amounts, by 10% ( 1/10 expressed as a percentage). If this amount is
less than $20.00, it is increased to $20.00. This amount and any past due
amounts equals the minimum payment amount. The minimum payment amount, however,
is never more than the new balance. It should be noted that DNB does offer
different minimum monthly payment terms for selected purchases under its
extended revolving, reduced rate revolving and silver club revolving terms. See
"Billing and Payments--Customer Terms--Dillard's Credit Cards" in the attached
prospectus.
DNB-LA. generally determines the minimum monthly payment for its accounts
by multiplying the combined new balance of purchases and cash advances, less any
disputed amounts, by 8.33% ( 1/12 expressed as a percentage). If this amount is
less than $10.00, it is increased to $10.00. The sum of this amount and any past
due amounts equals the minimum payment amount. The minimum payment amount,
however, is never more than the new balance. Like DNB, DNB-LA. does offer
different minimum monthly payment terms for selected purchases under the
extended revolving, reduced rate revolving and silver club revolving
S-22
<PAGE>
terms in addition to other programs which are no longer available for current
and future purchases. See "Billing and Payments--Customer Terms--Mercantile
Credit Cards" in the attached prospectus.
There can be no assurance that the cardholder monthly payment rates in the
future will be similar to the historical experience above. In addition, the
amount of collections of receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of principal
receivables for the trust portfolio will be similar to the historical experience
described above or that deposits into the principal funding account or the
distribution account, as applicable, will be made in accordance with the
applicable CONTROLLED ACCUMULATION AMOUNT. If a PAY OUT EVENT occurs, the
average life of the certificates could be significantly reduced or increased.
Because there may be a slowdown in the payment rate below the payment rates
used to determine the CONTROLLED ACCUMULATION AMOUNTS, or a PAY OUT EVENT may
occur which would initiate the RAPID AMORTIZATION PERIOD, there can be no
assurance that the actual number of months elapsed from the date of issuance of
the Class A certificates and the Class B certificates to their respective final
distribution dates will equal the expected number of months. As described
elsewhere in this prospectus supplement, the servicer may shorten the CONTROLLED
ACCUMULATION PERIOD. There can be no assurance that there will be sufficient
time to accumulate all amounts necessary to pay the CLASS A INVESTOR INTEREST
and the CLASS B INVESTOR INTEREST on the Class A scheduled payment date and the
Class B scheduled payment date, respectively. See "Certificate Rating" and
"Maturity Considerations" in the attached prospectus.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts for
(a) each of the calendar years ended December 31, 1996 and December 31, 1997 in
the Dillard's portfolio and (b) the calendar year ended December 31, 1998 and
for the ten calendar months ended October 31, 1999 in the trust portfolio are
provided in the following table. The historical yield figures in the following
tables are calculated on an accrual basis. Collections of receivables included
in the trust will be on a cash basis and may not reflect the historical yield
experience in the table. In addition, collections on account of finance charges
will be equal to [ % of the total amount of collections received] [the amount
billed as finance charges in the billing statement to which each payment
relates]. During periods of increasing delinquencies or periodic payment
deferral programs, accrual yields may exceed cash amounts accrued and billed to
cardholders. Conversely, cash yields may exceed accrual yields as amounts
collected in a current period may include amounts accrued during prior periods.
The yield on both an accrual and a cash basis will be affected by numerous
factors, including
o monthly periodic finance charges on the receivables;
o fees charged;
o changes in the delinquency rate on the receivables; and
o the percentage of cardholders who pay their balances in full each month
and do not incur finance charges.
Additionally, the monthly yield on a cash basis will be affected by the number
of collection days in such month. See "Risk Factors".
In the table below, finance charges and fees billed include periodic and
minimum finance charges, [annual membership fees], late charges and fees for
returned checks. Finance charges and fees billed are presented net of
adjustments made pursuant to DNB'S and DNB-LA.'S normal servicing procedures,
including removal of incorrect or disputed finance charges and reversal of
finance charges accrued on charged-off accounts. Average receivables outstanding
means the average of the daily receivable balance during the period indicated.
Yield from finance charges and fees billed is calculated as a percentage of
average receivables outstanding. The percentage reflected for the ten months
ended October 31, 1999 is an annualized figure.
S-23
<PAGE>
PORTFOLIO YIELD
DILLARD'S PORTFOLIO
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------------
OCTOBER 31, 1999 1998 1997 1996
---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Finance Charges and Fees Billed....................... $ 217,672 $ 300,743 $ 314,609 $ 292,332
Average Receivables Outstanding....................... 1,419,723 1,601,806 1,621,624 1,595,213
Yield from Finance charges and Fees Billed............ 18.4% 18.8% 19.4% 18.3%
</TABLE>
Revenues vary for each account based on the type and volume of activity for
each account. Because the trust portfolio represents only a portion of the
Dillard's portfolio, actual yield with respect to receivables may be different
from that described above. See "Dillard's Credit Card Portfolio" and "The
Receivables--Additional Trust Portfolio Information" in this supplement and
"Dillard's Credit Card Activities" in the attached prospectus.
USE OF PROCEEDS
The net proceeds from the sale of the certificates will be (i) [used to
make an initial deposit to the finance charge account in the amount of $
for the payment of interest on the certificates on the first distribution date,
(ii)] if so required, used to make an initial deposit to an account for the
benefit of the collateral interest holder and (iii) paid to the transferor. The
transferor will use the balance together with funds received from Condev Nevada,
Inc. as a contribution to its capital to pay the originators [and the other
receivables sellers] for the purchase of the receivables held by the trust.
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued pursuant to the pooling and servicing
agreement, among the transferor, the servicer and the trustee as supplemented by
the supplement for this series. Unless noted otherwise, references to the
"pooling and servicing agreement" or the "agreement" are to the pooling and
servicing agreement as supplemented by the series supplement. The transferor and
the trustee may execute further series supplements in order to issue additional
series if the conditions for the issuance of additional series in the agreement
are satisfied.
While this summary discloses the material terms of the certificates, it is
not a complete description. You should refer to the pooling and servicing
agreement and the series supplement for a complete description. You should also
refer to the "Description of the Certificates" in the attached prospectus for
additional information concerning the certificates and the agreement.
GENERAL
The certificates represent the right to receive payments from the assets of
the trust, including the right to the applicable allocation percentage of all
cardholder payments on the receivables in the trust.
Each Class A certificate represents the right to receive:
o payments of interest on each distribution date at the Class A certificate
rate from finance charge receivables,
o payments of principal on , 20 in an amount equal to the
principal amount of the certificates from principal receivables or on
other dates following the occurrence of a PAY OUT EVENT, and
o collections allocated to the CLASS A INVESTOR INTEREST from:
o EXCESS SPREAD, which represents the balance remaining after money
available in the finance charge account is allocated to the CLASS A
AVAILABLE FUNDS, CLASS B AVAILABLE FUNDS and COLLATERAL AVAILABLE
FUNDS;
S-24
<PAGE>
o funds on deposit in the principal funding account and the reserve
account, including investment earnings on those accounts;
o REALLOCATED PRINCIPAL COLLECTIONS, which represent amounts available
from another class of certificates of this series;
o SHARED PRINCIPAL COLLECTIONS, which represent amounts available from
other series of certificates; and
o other available amounts, possibly including amounts on deposit in
the excess funding account established under the agreement.
Each Class B certificate represents the right to receive:
o payments of interest on each distribution date at the Class B certificate
rate from finance charge receivables;
o payments of principal on , 20 in an amount equal to the
principal amount of the certificates from principal receivables, and
o collections allocated to the CLASS B INVESTOR INTEREST from:
o EXCESS SPREAD;
o REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS, which represent
amounts allocable to the Collateral Interest;
o SHARED PRINCIPAL COLLECTIONS; and
o other available amounts, possibly including amounts on deposit in
the excess funding account established under the agreement.
Payments of interest and principal will be made on each distribution date
on which payments are due. You will be paid on a distribution date if you were a
registered certificateholder on the last business day of the calendar month
preceding the distribution date.
The transferor will initially own the transferor certificate, which
represents the right to a percentage of all cardholder payments on the
receivables in the trust. The transferor may transfer the transferor certificate
in whole or in part subject to limitations and conditions under the agreement.
See "Description of the Certificates--Matters Regarding the Transferor and the
Servicer" in the attached prospectus.
STATUS OF THE CERTIFICATES
Upon issuance, the certificates will rank pari passu with all other
outstanding series. Payments on the Class B certificates are subordinated to
payments on the Class A certificates as described in this prospectus supplement.
S-25
<PAGE>
INTEREST PAYMENTS
The distribution date for your series will be the 15th day of each month
(or, if that day is not a business day, the next succeeding business day);
except that the first distribution date will be , . The
interest period for any distribution date will be the period from and including
the previous distribution date through the day preceding the distribution date
for which the interest period is being determined; except that the interest
period for the first distribution date will be the period from the closing date
for your series through , . The record date for a distribution
date will be the last business day of the calendar month preceding that
distribution date. The transfer date for your series is the business day
immediately preceding each distribution date.
Interest on the Class A certificates will:
o accrue at the Class A certificate rate from the closing date;
o be calculated at the Class A certificate rate
o from the closing date through , 1999; and
o for each subsequent interest period;
o be calculated on the
o initial outstanding principal balance of the Class A certificates
from the closing date for the first distribution date; and
o outstanding principal balance of the Class A certificates as of the
preceding record date on each subsequent distribution date;
o be paid from
o CLASS A AVAILABLE FUNDS for the related monthly period; and
o to the extent CLASS A AVAILABLE FUNDS are insufficient to pay the
interest, from
o EXCESS SPREAD; and
o REALLOCATED PRINCIPAL COLLECTIONS (to the extent available)
for the related monthly period; and
o be distributed to Class A certificateholders on each distribution date.
Interest on the Class B certificates will:
o accrue at the Class B certificate rate from the closing date;
o be calculated at the Class B certificate rate
o from the closing date through , 1999; and
o for each subsequent interest period;
o be calculated on the
o initial outstanding principal balance of the Class B certificates
from the closing date for the first distribution date; and
o outstanding principal balance of the Class B certificates as of the
preceding record date on each subsequent distribution date;
o be paid from
o CLASS B AVAILABLE FUNDS for the related monthly period; and
o to the extent CLASS B AVAILABLE FUNDS are insufficient to pay the
interest, from
o EXCESS SPREAD; and
o REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS (to the extent
available)
for the related monthly period remaining after selected other
payments have been made on the Class A certificates; and
o be distributed to Class B certificateholders on each distribution date;
Interest due on the certificates but not paid on any distribution date will
be payable on the next succeeding distribution date together with additional
interest. Additional interest will accrue on the same basis as interest on the
certificates, and will accrue from the distribution date on which the overdue
interest first became due, to but excluding the distribution date on which the
additional interest is paid.
The trustee will determine LIBOR on , 1999 for the period from
the closing date through , 1999 and for each interest period, on
each LIBOR determination date which will be the second London business day prior
to the distribution date on which that interest period begins. For the purposes
of calculating LIBOR, a business day is any business day on which dealings in
deposits in United States dollars are transacted in the London interbank market.
S-26
<PAGE>
The Class A certificate rate and the Class B certificate rate applicable to
the current and immediately preceding interest period may be obtained by
telephoning the trustee at its Corporate Trust Office at (212) . [The
trustee will cause the Class A certificate rate and the Class B certificate rate
as well as the amount of CLASS A MONTHLY INTEREST and CLASS B MONTHLY INTEREST
applicable to an interest period to be provided to the Luxembourg Stock Exchange
as soon as possible after its determination but in no event later than the first
day of the relevant interest period.] This information will also be included in
a statement to the certificateholders of record prepared by the Servicer. See
"Description of the Certificates--Reports to Certificateholders" in the attached
prospectus.
Interest on the certificates will be calculated on the basis of the actual
number of days in the interest period and a 360-day year.
PRINCIPAL PAYMENTS
You will receive payments of principal in one payment on the Class A
expected maturity date or the Class B expected maturity date, as applicable, in
an amount equal to the principal amount of the certificates and subject to the
conditions and exceptions set forth below. The trust will not pay principal to
Class B certificateholders until it has made the final principal payment to
Class A certificateholders.
Revolving Period.
The revolving period begins on the closing date and ends with the
commencement of an AMORTIZATION PERIOD or an ACCUMULATION PERIOD. During this
period, the trust will not pay principal to you. During the revolving period and
on each transfer date, the business day immediately preceding a distribution
date, collections under principal receivables will generally be treated as
SHARED PRINCIPAL COLLECTIONS or deposited into an excess funding account. This
treatment is subject to limitations, including the allocation of any REALLOCATED
PRINCIPAL COLLECTIONS for a given monthly period to pay the CLASS A REQUIRED
AMOUNT and the CLASS B REQUIRED AMOUNT.
Controlled Accumulation Period.
On each transfer date during the CONTROLLED ACCUMULATION PERIOD, the
trustee will deposit into the principal funding account an amount equal to the
least of the following amounts:
o the AVAILABLE INVESTOR PRINCIPAL COLLECTIONS for the transfer date,
o the applicable CONTROLLED DEPOSIT AMOUNT, which, for that monthly
period, is an amount equal to the CONTROLLED ACCUMULATION AMOUNT
plus the ACCUMULATION SHORTFALL, if any, and
o the CLASS A ADJUSTED INVESTOR INTEREST prior to any deposits on the
transfer date.
The trust will pay Class A certificateholders principal in a single
payment on the Class A scheduled maturity date using funds from the principal
funding account. After the CLASS A INVESTOR INTEREST has been paid in full, the
trust will pay into the distribution account, until the CLASS B INVESTOR
INTEREST has been paid in full, an amount equal to the least of the following
amounts:
o AVAILABLE INVESTOR PRINCIPAL COLLECTIONS for the transfer date, for
the and
o the CLASS B INVESTOR INTEREST.
The trust will pay Class B certificateholders principal in a single
payment on the Class B scheduled maturity date using funds from the distribution
account.
During the CONTROLLED ACCUMULATION PERIOD until the final principal payment
to the Class B certificateholders, the portion of AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS not applied to CLASS A MONTHLY PRINCIPAL, CLASS B MONTHLY PRINCIPAL
or COLLATERAL MONTHLY PRINCIPAL on a transfer date will generally be treated as
SHARED PRINCIPAL COLLECTIONS or deposited into the excess funding account.
Rapid Amortization Period.
On each distribution date during the RAPID AMORTIZATION PERIOD, the
Class A certificateholders will be entitled to receive AVAILABLE INVESTOR
PRINCIPAL COLLECTIONS for the related monthly period in an amount up to the
CLASS A INVESTOR INTEREST. Certificateholders will receive payments until the
earlier of the date the Class A certificates are paid in full and the
Series 1999- termination date.
After payment in full of the CLASS A INVESTOR INTEREST, the Class B
certificateholders will be entitled to receive AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS on each distribution date in an amount up to the CLASS B
S-27
<PAGE>
INVESTOR INTEREST. Certificateholders will receive payments until the earlier of
the date the Class B Certificates are paid in full and the Series 1999-
termination date.
After payment in full of the CLASS B INVESTOR INTEREST, the collateral
interest holder will be entitled to receive AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS on each transfer date other than the transfer date prior to the
Series 1999- termination date and on the Series 1999- termination date. The
collateral interest holders will receive payments until the earlier of the date
the collateral interest is paid in full and the Series 1999- termination date.
See "--Pay Out Events" below for a discussion of events which might lead to
the commencement of the Rapid Amortization Period.
POSTPONEMENT OF CONTROLLED ACCUMULATION PERIOD
Upon written notice to the trustee, the servicer may elect to postpone the
commencement of the CONTROLLED ACCUMULATION PERIOD, and extend the length of the
REVOLVING PERIOD, subject to certain conditions including those described below.
The servicer may make this election only if the number of whole months needed to
fund the principal funding account based on expected collections of principal on
the receivables available to pay your series and those needed to pay other
series is less than twelve months. On the , 200 determination date
and on each subsequent determination date which will be the fourth business day
before each transfer date until the CONTROLLED ACCUMULATION PERIOD begins, the
servicer will review the amount of available Principal Collections and may elect
to postpone the commencement of the CONTROLLED ACCUMULATION PERIOD. In making
this determination, the servicer will assume that the principal payment rate
will be no greater than the lowest monthly payment rate for the preceding
12 months.
The effect of the preceding calculation is to permit the reduction of the
length of the CONTROLLED ACCUMULATION PERIOD based on the investor interests of
other series which are scheduled to be in their revolving periods during the
CONTROLLED ACCUMULATION PERIOD and on increases in the principal payment rate
occurring after the closing date. The length of the CONTROLLED ACCUMULATION
PERIOD will not be determined to be less than one month.
SUBORDINATION
Class B Certificates
o The Class B certificates will be subordinated to the extent
necessary to fund payments to the Class A certificates;
o Principal payments allocable to the Class B certificates may be
reallocated to cover amounts in respect of the Class A certificates;
and
o The CLASS B INVESTOR INTEREST may be reduced if the Collateral
Interest is equal to zero resulting in a reduced percentage of
finance charge receivables being allocated to the CLASS B INVESTOR
INTEREST. To the extent the reduction is not reimbursed, the amount
of principal and interest distributable to the Class B
certificateholders will be reduced.
No principal will be paid to the Class B certificateholders until the CLASS A
INVESTOR INTEREST is paid in full. See "--Allocation Percentages,"
"--Reallocation of Cash Flows" and "--Application of Collections--Excess
Spread."
Collateral Interest.
o The collateral interest will be subordinated to the extent necessary
to the Class A and Class B certificates;
o Principal payments allocable to the collateral interest may be
reallocated to cover payments to the Class A and Class B
certificates; and
o The collateral interest may be reduced.
S-28
<PAGE>
ALLOCATION PERCENTAGES
For each monthly period the servicer will allocate among the investor
interest for your series, the investor interest for all other series issued and
outstanding and the transferor interest, all amounts collected on finance charge
receivables, all amounts collected on principal receivables and all default
amounts.
Collections of Finance Charge Receivables and Default Amounts
At any time, collections of finance charge receivables and default amounts
will be allocated to the investor interest based on the FLOATING INVESTOR
PERCENTAGE. Allocations to the
o Class A certificateholders will be based on the CLASS A FLOATING
ALLOCATION;
o Class B certificateholders will be based on the CLASS B FLOATING
ALLOCATION; and
o collateral interest holder will be based on the COLLATERAL FLOATING
ALLOCATION.
Collections of Principal Receivables
During the REVOLVING PERIOD, collections of principal receivables will be
allocated to the
o Class A certificateholders based on the CLASS A FLOATING ALLOCATION;
o Class B certificateholders based on the CLASS B FLOATING ALLOCATION;
and
o collateral interest holder based on the COLLATERAL FLOATING
ALLOCATION.
During the CONTROLLED ACCUMULATION PERIOD and the RAPID AMORTIZATION
PERIOD, collections of principal receivables will be allocated to the investor
interest based on the FIXED INVESTOR PERCENTAGE. Allocations to the
o Class A certificateholders will be based on the CLASS A FIXED
ALLOCATION;
o Class B certificateholders will be based on the CLASS B FIXED
ALLOCATION; and
o collateral interest holder will be based on the COLLATERAL FIXED
ALLOCATION.
REALLOCATION OF CASH FLOWS
Class A Required Amount
With respect to each transfer date, the servicer will determine the
CLASS A REQUIRED AMOUNT, which will be equal to the amount, if any, by which the
sum of
o CLASS A MONTHLY INTEREST due on the related distribution date and
overdue CLASS A MONTHLY INTEREST and Class A additional interest, if
any,
o the Class A servicing fee for the related monthly period and overdue
Class A servicing fee, if any; and
o the CLASS A INVESTOR DEFAULT AMOUNT, if any, for the related monthly
period
exceeds the CLASS A AVAILABLE FUNDS for the related monthly period.
If the CLASS A REQUIRED AMOUNT is greater than zero, the following sources will
be used to fund this amount in the order in which they appear:
o funds available for this purpose from the EXCESS SPREAD allocated to
Series 1999- for that transfer date; then
o REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS for the related monthly
period; then
o REALLOCATED CLASS B PRINCIPAL COLLECTIONS for the related monthly
period; then
S-29
<PAGE>
o collateral interest collections will be reduced by the amount of the
insufficiency until the collateral interest collections are reduced
to zero; then
o after giving effect to reductions for any COLLATERAL CHARGE-OFFS
and REALLOCATED PRINCIPAL COLLECTIONS on the transfer date; and
then
o provided that the reduction will not be by more than the CLASS A
INVESTOR DEFAULT AMOUNT for that monthly period; then
o CLASS B INVESTOR INTEREST will be reduced by the remaining
insufficiency until the CLASS B INVESTOR INTEREST is reduced to
zero;
o after giving effect to reductions for any CLASS B INVESTOR
CHARGE-OFFS and any REALLOCATED CLASS B PRINCIPAL COLLECTIONS for
which the collateral interest was not reduced on that transfer
date; and then
o provided that the reduction will not be by more than the CLASS A
INVESTOR DEFAULT AMOUNT for that monthly period over the amount
of the reduction, if any, of the collateral interest with respect
to the relevant monthly period; and then
o CLASS A INVESTOR INTEREST will be reduced by the remaining
insufficiency;
o provided that, the CLASS A INVESTOR INTEREST will not be reduced
by more than the excess, if any, of the CLASS A INVESTOR DEFAULT
AMOUNT for the relevant monthly period over the amount of the
reductions, if any, of the collateral interest and the CLASS B
INVESTOR INTEREST with respect to the relevant monthly period.
Any reduction in the CLASS A INVESTOR INTEREST will have the effect of
slowing or reducing the return of principal and interest to the Class A
certificateholders. In that case, the Class A certificateholders will bear
directly the credit and other risks associated with their interests in the
trust. See "--Defaulted Receivables; Investor Charge-Offs."
Class B Required Amount
With respect to each transfer date, the servicer will determine the
CLASS B REQUIRED AMOUNT, which will be equal to the sum of
o the amount, if any, by which the sum of
o CLASS B MONTHLY INTEREST due on the related distribution date and
overdue CLASS B MONTHLY INTEREST and Class B additional interest,
if any; and
o the Class B servicing fee for the related monthly period and
overdue Class B servicing fee, if any; and
o the CLASS B INVESTOR DEFAULT AMOUNT, if any, for the related monthly
period.
If the CLASS B REQUIRED AMOUNT is greater than zero, the following sources will
be used to fund this amount in the order in which they appear:
o EXCESS SPREAD allocated to Series 1999- not required to pay the
CLASS A REQUIRED AMOUNT or reimburse CLASS A INVESTOR CHARGE-OFFS
for that transfer date; then
o REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS not required to fund
the CLASS A REQUIRED AMOUNT for the related monthly period; then
o collateral interest collected on the transfer date will be reduced
by the remaining insufficiency until the collateral interest
collections are reduced to zero;
o after any adjustments made thereto for the benefit of the
Class A certificateholders;
o after giving effect to reductions for any COLLATERAL CHARGE-OFFS
and REALLOCATED PRINCIPAL; and
S-30
<PAGE>
o provided that the reduction will not be more than the CLASS B
INVESTOR DEFAULT AMOUNT for the monthly period; then
o CLASS B INVESTOR INTEREST collections on the transfer date will be
reduced by the remaining insufficiency; then
o after giving effect to reductions for any COLLATERAL CHARGE-OFFS
and REALLOCATED PRINCIPAL COLLECTIONS; and
o provided that the reduction will not be more than the CLASS B
INVESTOR DEFAULT AMOUNT for that monthly period.
The reduction of the CLASS B INVESTOR INTEREST will not be more than the
excess of the CLASS B INVESTOR DEFAULT AMOUNT for such monthly period over the
amount of such reduction of the collateral interest, and the Class B
certificateholders will bear directly the credit and other risks associated with
their interests in the trust. See "--Defaulted Receivables; Investor
Charge-Offs."
Reductions of the CLASS A INVESTOR INTEREST or CLASS B INVESTOR INTEREST
described above will be reimbursed by, and the CLASS A INVESTOR INTEREST or
CLASS B INVESTOR INTEREST increased to the extent of, EXCESS SPREAD available
for that purpose on each transfer date. When reductions of the CLASS A INVESTOR
INTEREST and CLASS B INVESTOR INTEREST have been fully reimbursed, reductions of
the collateral interest will be reimbursed until reimbursed in full in a similar
manner. See "--Application of Collections--Excess Spread."
APPLICATION OF COLLECTIONS
Allocations.
Except as otherwise provided below, the servicer will deposit any payment
collected on the receivables into the collection account no later than the
second business day following the date of processing. On the same day as the
deposit is made, the servicer will make the deposits and payments to the
accounts and parties below. However, as long as DNB remains the servicer, it may
make deposits and payments on each transfer date in an amount equal to the net
amount of deposits and payments which would otherwise have been made as long as
one of the following conditions is satisfied:
o the servicer provides to the trustee a letter of credit or other
credit enhancement covering the risk of collection of the servicer
acceptable to the rating agencies and reliance on the letter of
credit or other credit enhancement will not result in the lowering
of any rating agency's then existing rating of any outstanding
series;
o Dillard's, so long as the servicer is wholly-owned by Dillard's, has
and maintains a long-term unsecured debt rating in one of the four
highest categories assigned by each of Moody's and Standard &
Poor's; or
o some other arrangement is made by the servicer which is approved in
writing by each rating agency rating any outstanding series.
Regardless of anything to the contrary in the pooling and servicing
agreement and whether the servicer is required to make monthly or daily deposits
from the collection account, the servicer will only be required to deposit
collections from the collection account up to the required amount to be
deposited into any deposit account or, without duplication, distributed on or
prior to the related distribution date to certificate holders or to the
collateral interest holder. If at any time prior to the related distribution
date the amount of collections deposited in the collection account exceeds the
amount required to be deposited from the collection account to a deposit account
or distributed to a certificate holder or the collateral interest holder, the
servicer will be permitted to withdraw the excess from the collection account.
S-31
<PAGE>
Payment of Interest, Fees and Other Items.
On each transfer date, the trustee will apply the CLASS A AVAILABLE FUNDS,
CLASS B AVAILABLE FUNDS and COLLATERAL AVAILABLE FUNDS in the finance charge
account in the following manner:
On each transfer date, an amount equal to CLASS A AVAILABLE FUNDS will
be distributed in the following priority:
o First, an amount equal to the CLASS A MONTHLY INTEREST for the
related distribution date, plus the amount of any overdue
CLASS A MONTHLY INTEREST and Class A additional interest, if any,
will be deposited into the distribution account for distribution
to Class A certificateholders on the related distribution date;
o Second, an amount equal to the Class A servicing fee for the
related monthly period, plus the amount of any overdue Class A
servicing fee, will be paid to the servicer;
o Third, an amount equal to the CLASS A INVESTOR DEFAULT AMOUNT, if
any, for the related monthly period will be treated as a portion
of AVAILABLE INVESTOR PRINCIPAL COLLECTIONS and deposited into
the principal account for the transfer date; and
o Fourth, the balance, if any, will constitute a portion of EXCESS
SPREAD and will be allocated and distributed as described under
"--Excess Spread."
On each transfer date, an amount equal to CLASS B AVAILABLE FUNDS will
be distributed in the following priority:
o First, an amount equal to the CLASS B MONTHLY INTEREST for the
related distribution date, plus the amount of any overdue
CLASS B MONTHLY INTEREST and Class B additional interest, if any,
will be deposited into the distribution account for distribution
to Class B certificate holders on the related distribution date;
o Second, an amount equal to the Class B servicing fee for the
related monthly period, plus the amount of any overdue Class B
servicing fee, will be paid to the servicer; and
o Third, the balance, if any, will constitute a portion of EXCESS
SPREAD and will be allocated and distributed as described under
"--Excess Spread. "
On each transfer date, an amount equal to COLLATERAL AVAILABLE FUNDS
will be distributed in the following priority:
o First, if neither DNB nor the trustee is the servicer, an amount
equal to the collateral interest servicing fee for the related
monthly period, plus the amount of any overdue collateral
interest servicing fees, will be paid to the servicer, and
o Second, the balance, if any, will constitute a portion of EXCESS
SPREAD and will be allocated and distributed as described under
"--Excess Spread."
Excess Spread.
On each transfer date, the trustee, acting under the servicer's
instructions, will apply EXCESS SPREAD for the related monthly period, to
make the following distributions in the following priority:
o an amount equal to the CLASS A REQUIRED AMOUNT, if any, for the
transfer date will be applied to pay amounts due on the transfer
date relating to CLASS A AVAILABLE FUNDS above under "--Payment
of Interest, Fees and Other Items."
o an amount equal to the total amount of CLASS A INVESTOR
CHARGE-OFFS which have not been previously reimbursed (after
giving effect to the allocation on the transfer date of other
amounts applied for that purpose) will be deposited into the
principal account and treated as a portion of AVAILABLE INVESTOR
PRINCIPAL COLLECTIONS for the transfer date as described under
"--Payments of Principal" below;
S-32
<PAGE>
o an amount equal to the CLASS B REQUIRED AMOUNT, if any, for the
transfer date will be used to pay
o amounts due on the transfer date in accordance with the first
two priorities relating to Class B Available Funds above under
"--Payment of Interest, Fees and Other Items;" and
o then, the amount remaining, up to the CLASS B INVESTOR DEFAULT
AMOUNT, will be deposited into the principal account and
treated as a portion of AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS for the transfer date as described under
"--Payments of Principal" below;
o an amount equal to the total amount by which the CLASS B INVESTOR
INTEREST has been reduced below the initial CLASS B INVESTOR
INTEREST for reasons other than the payment of principal to the
Class B certificateholders (but not in excess of the aggregate
amount of the reductions which have not been previously
reimbursed) will be deposited into the principal account and
treated as a portion of AVAILABLE INVESTOR PRINCIPAL COLLECTIONS
for the transfer date as described under "--Payments of
Principal" below;
o an amount equal to the COLLATERAL MONTHLY INTEREST for the
transfer date, plus the amount of any COLLATERAL MONTHLY INTEREST
previously due but not distributed to the collateral interest
holder on a prior transfer date, will be distributed to the
collateral interest holder for distribution in accordance with
the pooling and servicing agreement;
o if neither DNB nor the trustee is the servicer, an amount equal
to the collateral interest servicing fee for the related monthly
period, plus the amount of any overdue collateral interest
servicing fee, will be paid to the servicer;
o an amount equal to the total COLLATERAL DEFAULT AMOUNT, if any,
for the transfer date will be deposited into the principal
account and treated as a portion of AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS for the transfer date as described under "--Payments
of Principal" below;
o an amount equal to the total amount by which the collateral
interest has been reduced below the REQUIRED COLLATERAL INTEREST
for reasons other than the payment of principal to the collateral
interest holder (but not in excess of the aggregate amount of
reductions which have not been previously reimbursed) will be
deposited into the principal account and treated as a portion of
AVAILABLE INVESTOR PRINCIPAL COLLECTIONS for the transfer date as
described under "--Payments of Principal" below;
o on each transfer date from and after the RESERVE ACCOUNT FUNDING
DATE, BUT PRIOR TO THE DATE ON WHICH THE RESERVE ACCOUNT
terminates as described under "--Reserve Account," an amount up
to the excess, if any, of the REQUIRED RESERVE ACCOUNT AMOUNT
over the AVAILABLE RESERVE ACCOUNT AMOUNT will be deposited into
the reserve account;
o the amounts determined to be payable pursuant to the pooling and
servicing agreement shall be paid to the collateral interest
holder; and
o the balance, if any, after giving effect to the payments made
pursuant to subparagraphs above, will constitute EXCESS FINANCE
CHARGE COLLECTIONS to be applied with respect to other series.
The diagram on the next page demonstrates the application of collections of
finance charge receivables allocated to Series 1999- . The diagram is a
simplified demonstration of allocation and payment provisions and is qualified
by the full descriptions of these provisions in this prospectus supplement and
the attached prospectus.
S-33
<PAGE>
ALLOCATIONS OF COLLECTIONS OF FINANCE CHARGE RECEIVABLES
[FLOW CHART]
<TABLE>
<S> <C>
Collections of Finance Charge Receivables
Allocated to Your Series
|
|-----------------------------------------|--------------------------------------------|
Arrow Down Arrow Down Arrow Down
| | |
Class A Investor Interest Class B Investor Interest Collateral Interest
| | |
Arrow Down Arrow Down Arrow Down
| | |
1. Class A Interest Payments 1. Class B Interest Payments 1. Collateral Interest
2. Class A Servicing Fee 2. Class B Servicing Fee Servicing Fee
3. Class A Default Amount | |
| | |
|-----------------------------------------|--------------------------------------------
Arrow Down
|
Excess Collections of ---- Arrow Left --- Excess Finance Charge
Finance Charges Collections from
| Other Series
|
Arrow Down
|
|
1. Class A Interest Payment
2. Class A Servicing Fee
3. Class A Default Amount
4. Reimburse Class A Investor Interest
5. Class B Interest Payment
6. Class B Servicing Fee
7. Class B Default Amount
8. Reimburse Class B Investor Interest
9. Collateral Interest and certain other items
10. Other Series of Certificates
</TABLE>
Payments of Principal. On each transfer date, the trustee, acting on the
servicer's instructions, will distribute AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS (see "--Principal Payments" above) on deposit in the principal
account in the following manner:
o on each transfer date during the REVOLVING PERIOD, all AVAILABLE
INVESTOR PRINCIPAL COLLECTIONS will be distributed or deposited in
the following priority:
o an amount equal to the COLLATERAL MONTHLY PRINCIPAL will be paid
to the collateral interest holder in accordance with the pooling
and servicing agreement; and
o the balance will be treated as SHARED PRINCIPAL COLLECTIONS and
applied as described under "Description of the
Certificates--Shared Principal Collections" in this prospectus
supplement and in the attached prospectus;
o on each transfer date during the CONTROLLED ACCUMULATION PERIOD or
the RAPID AMORTIZATION PERIOD, all AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS will be distributed or deposited in the following
priority:
o CLASS A MONTHLY PRINCIPAL will be
o during the CONTROLLED ACCUMULATION PERIOD, deposited in the
principal funding account (up to the CONTROLLED DEPOSIT AMOUNT
for the transfer date) or
S-34
<PAGE>
o during the RAPID AMORTIZATION PERIOD, distributed to the
Class A certificateholders; and
o for each transfer date after the CLASS A INVESTOR INTEREST has
been paid in full (after taking into account payments to be made
on the related distribution date), the CLASS B MONTHLY PRINCIPAL
for the transfer date will be distributed to the Class B
certificateholders;
o on each transfer date during the CONTROLLED ACCUMULATION PERIOD and
the RAPID AMORTIZATION PERIOD in which a reduction in the REQUIRED
COLLATERAL INTEREST has occurred, AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS not applied to CLASS A MONTHLY PRINCIPAL or CLASS B
MONTHLY PRINCIPAL will be applied to reduce the collateral interest
to the REQUIRED COLLATERAL INTEREST; and
o on each transfer date during the CONTROLLED ACCUMULATION PERIOD and
the RAPID AMORTIZATION PERIOD, the balance of AVAILABLE INVESTOR
PRINCIPAL COLLECTIONS not applied according to the two paragraphs
relating to the CONTROLLED ACCUMULATION PERIOD and the RAPID
AMORTIZATION PERIOD above, if any, will be treated as SHARED
PRINCIPAL COLLECTIONS and applied as described under "Description of
the Certificates--Shared Principal Collections" in this prospectus
supplement and in the attached prospectus.
The final distribution of principal and interest on the certificates will
be made no later than the distribution date in the manner provided in
"Description of the Certificates--Final Payment of Principal; Termination" in
the attached prospectus.
The Series 1999- termination date will be the earliest of:
o the distribution date on which the investor interest is paid in
full;
o the o distribution date; or
o the TRUST TERMINATION DATE.
After the Series 1999- termination date, the trust will have no further
obligation to pay principal or interest on the certificates.
The diagram below demonstrates the manner in which collections of principal
receivables are allocated and applied to Series 1999- . The diagram is a
simplified demonstration of allocation and payment provisions and is qualified
by the full descriptions of these provisions in this prospectus supplement and
the prospectus.
S-35
<PAGE>
ALLOCATIONS OF COLLECTIONS OF PRINCIPAL RECEIVABLES
[FLOW CHART]
<TABLE>
<S> <C>
Collections of Principal Receivables
Allocated to Your Series
|
-------------------------------------------------------------
| |
| Arrow Down
| |
| Class B Investor Interest
| |
| Arrow Down
| |
Arrow Down Reallocation to unpaid:
| 1. Class A Interest Payments
Class A Investor Interest 2. Class A Servicing Fee
| 3. Class A Default Amount
| |
| |------------------------------
------------------------------|
|
Arrow Down
|
|
Available Investor Principal --- Arrow Left ------- Shared Principal Collections
Collections from Other Series
|
Arrow Down
|
During Accumulation or amortization period:
1. Class A Principal Payment or Deposit
2. Class B Principal Payment
3. Collateral Interest Principal Payment
|
Arrow Down
|
Shared Principal Collections to
Other Series, if necessary
|
Arrow Down
|
Dillard Asset Funding Company
</TABLE>
SHARED EXCESS FINANCE CHARGE COLLECTIONS
This series will be included in Group I. Any other series which may be
issued by the trust from time to time, may also be included in Group I. [There
are currently no other series included in Group I. Group I is currently the only
group in the trust.] The series supplement for each series will specify whether
a given series will be included in a group.
Each series in Group I will:
o share EXCESS FINANCE CHARGE COLLECTIONS with each other series, if
any, in Group I;
o apply pro rata, EXCESS FINANCE CHARGE COLLECTIONS to cover any
shortfalls of amounts payable from collections of finance charge
receivables allocable to any other series included in Group I; and
S-36
<PAGE>
o pay the holder of the transferor certificate, EXCESS FINANCE CHARGE
COLLECTIONS, if any, remaining after covering shortfalls on all
outstanding series in the group.
While this series is included in Group I, there can be no assurance that:
o any other series will be included in the group; or
o there will be any EXCESS FINANCE CHARGE COLLECTIONS for the group
for any monthly period.
While the transferor believes that, based upon applicable rules and
regulations as currently in effect, the sharing of EXCESS FINANCE CHARGE
COLLECTIONS among series in a group will not have adverse regulatory
implications for it, there can be no assurance that this will continue to be
true in the future.
SHARED PRINCIPAL COLLECTIONS
Collections of principal receivables for any monthly period allocated to
the investor interest will cover:
o during the CONTROLLED ACCUMULATION PERIOD:
o deposits of the applicable CONTROLLED DEPOSIT AMOUNT to
o the principal funding account; or
o the distribution account; and
o during the RAPID AMORTIZATION PERIOD:
o first, payments to the certificateholders; and
o second, payments to the collateral interest holder.
For any monthly period, the servicer will allocate the SHARED PRINCIPAL
COLLECTIONS:
o first, to cover PRINCIPAL SHORTFALLS, on a pro rata basis among the
applicable series (but not investor charge-offs for any series); and
o second, to the extent SHARED PRINCIPAL COLLECTIONS exceed PRINCIPAL
SHORTFALLS, to:
o the holder of the transferor certificate; or
o the excess funding account;
REQUIRED COLLATERAL INTEREST
On any transfer date, if the collateral interest is less than the REQUIRED
COLLATERAL INTEREST, some EXCESS SPREAD, if available, will be allocated to
increase the collateral interest to the extent of the shortfall. Any of the
EXCESS SPREAD not required to be so allocated or deposited into the reserve
account on any transfer date will be applied in accordance with the pooling and
servicing agreement. See "--Application of Collections--Excess Spread."
ADJUSTMENT PAYMENTS
If on any business day the Servicer adjusts the amount of any principal
receivable due to a dilution, then the amount of the transferor interest in the
trust will be reduced, on a net basis, by the amount of such adjustment on that
business day. In the event the transferor interest would fall below the MINIMUM
TRANSFEROR INTEREST, the transferor will be required to pay the trust an
ADJUSTMENT PAYMENT. ADJUSTMENT PAYMENTS made by the transferor will be treated
as EXCESS SPREAD. If the transferor fails to pay when due, EXCESS SPREAD and
REALLOCATED PRINCIPAL COLLECTIONS for Series 1999- may be applied. To the
extent these amounts are insufficient to cover the portion of the unpaid
ADJUSTMENT PAYMENTS allocated to Series 1999- , there will be an INVESTOR
CHARGE-OFF as described below.
S-37
<PAGE>
DEFAULTED RECEIVABLES; DILUTIONS; INVESTOR CHARGE-OFFS
On or before each transfer date, the servicer will:
o calculate the INVESTOR DEFAULT AMOUNT for the preceding monthly
period;
o allocate the CLASS A INVESTOR DEFAULT AMOUNT to the Class A
certificateholders;
o allocate the CLASS B INVESTOR DEFAULT AMOUNT to the Class B
certificateholders; and
o allocate the COLLATERAL DEFAULT AMOUNT to the collateral interest
holder.
Class A Certificates
If the CLASS A INVESTOR DEFAULT AMOUNT exceeds the available amount of
o EXCESS SPREAD and
o REALLOCATED PRINCIPAL COLLECTIONS; then
the following reductions will occur to the extent necessary and in the order in
which they appear:
o the collateral interest, after giving effect to reductions for any
COLLATERAL CHARGE-OFFS and any REALLOCATED PRINCIPAL COLLECTIONS on
the transfer date, will be reduced by the lesser of:
o the CLASS A INVESTOR DEFAULT AMOUNT; and
o the collateral interest
until the collateral interest is zero; then
o the CLASS B INVESTOR INTEREST will be reduced until the CLASS B
INVESTOR INTEREST is reduced to zero, after giving effect to
reductions for any CLASS B INVESTOR CHARGE-OFFS and any REALLOCATED
CLASS B PRINCIPAL COLLECTIONS on the transfer date; and then
o the CLASS A INVESTOR INTEREST will be reduced by the CLASS A
INVESTOR CHARGE-OFFS.
Any reduction in the CLASS A INVESTOR INTEREST, will
o slow or even reduce the return of principal and interest to the
Class A certificateholders; and
o be reimbursed up to the total amount of CLASS A INVESTOR CHARGE-OFFS
on any transfer date by the amount of EXCESS SPREAD allocated and
available for that purpose.
Class B Certificates
If the CLASS B INVESTOR DEFAULT AMOUNT exceeds the available amount of
o EXCESS SPREAD and
o REALLOCATED PRINCIPAL COLLECTIONS; then
the following reductions will occur to the extent necessary and in the order in
which they appear:
o collateral interest, after giving effect to reductions for any
COLLATERAL CHARGE-OFFS and any REALLOCATED PRINCIPAL COLLECTIONS on
the transfer date and after giving effect to any adjustments due to
the preceding paragraph, will be reduced by the lesser of:
o the CLASS B INVESTOR DEFAULT AMOUNT; and
o the collateral interest
until the collateral interest is zero; and then
o the CLASS B INVESTOR INTEREST will be reduced by the CLASS B
INVESTOR CHARGE-OFF.
Any reduction in the CLASS B INVESTOR INTEREST, will
o slow or even reduce the return of principal and interest to the
Class B certificateholders; and
S-38
<PAGE>
o be reimbursed up to the unpaid principal balance of the Class B
certificates on any transfer date by the amount of EXCESS SPREAD
allocated and available for that purpose.
Collateral Interest
If the COLLATERAL DEFAULT AMOUNT exceeds the available amount of EXCESS
SPREAD which is allocated and available to fund the amount as described under
"--Application of Collections--Excess Spread," then the collateral interest will
be reduced by the COLLATERAL CHARGE-OFFS. Any reduction in the collateral
interest reduced by:
o COLLATERAL CHARGE-OFFS; or
o allocations to Class A or Class B certificates;
will be reimbursed on any later transfer date by the amount of EXCESS SPREAD
allocated and available for that purpose.
SERVICER GUARANTEE
The obligations of the servicer under the pooling and servicing agreement
will be guaranteed by Dillard's under a servicer guarantee.
PRINCIPAL FUNDING ACCOUNT
Under the Series 1999- supplement, the trustee at the direction of the
servicer will:
o establish and maintain the principal funding account;
o during the CONTROLLED ACCUMULATION PERIOD and RAPID AMORTIZATION
PERIOD, transfer collections from the principal account to the
principal funding account as described underb "--Application of
Collections." related to
o principal receivables (other than REALLOCATED PRINCIPAL
COLLECTIONS) and
o SHARED PRINCIPAL COLLECTIONS from other series, if any, allocated
to Series 1999- ; and
o ultimately use these collections to pay the principal of the
Class A certificates on the earlier of
o the Class A scheduled payment date or
o the first distribution date during the RAPID AMORTIZATION PERIOD.
Funds on deposit in the principal funding account will be invested until
the following transfer date by the trustee at the direction of the servicer in
permitted investments. The proceeds from these investments will be applied on
each transfer date as CLASS A AVAILABLE FUNDS. If, for any transfer date, these
proceeds are less than an amount equal to the product of
o (i) a fraction, the numerator of which is the actual number of days
in the related interest period and the denominator of which is 360,
times (ii) the Class A certificate rate in effect for the interest
period; and
o the principal funding account balance as of the record date
preceding the transfer date;
an amount up to the shortfall will be
o withdrawn from the reserve account;
o deposited in the finance charge account and
o included in collections of finance charge receivables to be applied
to the payment of CLASS A MONTHLY INTEREST.
S-39
<PAGE>
[RESERVE ACCOUNT
On each transfer date, the trustee, acting on the servicer's instructions,
will fund the reserve account
o from and after the RESERVE ACCOUNT FUNDING DATE;
o prior to the termination of the reserve account;
o from EXCESS SPREAD allocated to the certificates to the extent
described above under
"--Application of Collections--Excess Spread"; and
o up to the REQUIRED RESERVE ACCOUNT AMOUNT.
On each transfer date, after giving effect to any deposit to be made to,
and any withdrawal to be made from, the reserve account on the transfer date,
the trustee
o will distribute to the collateral interest holder from the reserve
account an amount equal to the excess, if any, of the amount on
deposit in the reserve account over the REQUIRED RESERVE AMOUNT;
o provided that the reserve account has not terminated as described
below,
o may invest at the direction of the servicer amounts in the
reserve account in permitted investments until the following
transfer date, and
o retain the net investment income in the reserve account or deposited
in the finance charge account and treated as CLASS A AVAILABLE
FUNDS;
o on or before each transfer date during the CONTROLLED ACCUMULATION
PERIOD and on the first transfer date during the RAPID AMORTIZATION
PERIOD,
o withdraw from the reserve account and deposit in the finance
charge account and include in collections of finance charge
receivables to be applied to the payment of the CLASS A MONTHLY
INTEREST for the transfer date an amount equal to the lesser of
o the AVAILABLE RESERVE ACCOUNT AMOUNT and
o the CLASS A PRINCIPAL FUNDING INVESTMENT SHORTFALL;
provided, that the amount withdrawn will be reduced to the extent
that funds otherwise would be available to be deposited in the
reserve account on the transfer date.
The reserve account will be terminated upon the earlier to occur of
o the termination of the trust pursuant to the pooling and servicing
agreement; and
o if the CONTROLLED ACCUMULATION PERIOD has not commenced, the first
transfer date during the RAPID AMORTIZATION PERIOD or,
o if the CONTROLLED ACCUMULATION PERIOD has commenced,
o the earlier to occur of
o the first transfer date during the RAPID AMORTIZATION PERIOD;
and
o the transfer date immediately preceding the Class A scheduled
payment date.
Upon the termination of the reserve account, all remaining amounts on deposit
will be distributed to the collateral interest holder for application in
accordance with the terms of the pooling and servicing agreement. Any amounts
withdrawn from the reserve account and distributed to the collateral interest
holder as described above will not be available for distribution to the
certificateholders.]
S-40
<PAGE>
ISSUANCE OF ADDITIONAL CERTIFICATES
The Series 1999- supplement provides that, from time to time during the
REVOLVING PERIOD, the transferor may, subject to the conditions described below,
cause the trustee to issue additional certificates and to increase the size of
the collateral interest. When issued, the additional certificates of each class
will be identical in all respects to the other outstanding certificates of that
class and will be equally and ratably entitled to the benefits of the pooling
and servicing agreement without preference, priority or distinction.
In connection with each additional issuance, a pro rata principal amount of
each class of certificates will be issued and there will be a pro rata increase
in the collateral interest.
As of the date of any additional issuance, the collateral interest, the
CONTROLLED ACCUMULATION AMOUNT and the investor interest for each class of this
series will be increased proportionately to reflect the aggregate face amount of
the additional certificates.
Additional certificates may be issued only upon the satisfaction of the
conditions provided in the Series 1999- supplement, including the following:
o on or before the fifth business day immediately preceding the date
on which the additional certificates are to be issued, the
transferor will have given the trustee, the servicer and the rating
agencies notice of the issuance and the date upon which it is to
occur,
o after giving effect to the additional issuance, the total amount of
principal receivables will be greater than or equal to the sum of
the numerators used to calculate the investor percentages with
respect to the allocation of collections of principal receivables
for each series then outstanding minus the amount on deposit in the
excess funding account as of the date of determination; provided,
that this amount may be reduced to a lesser amount at any time if
the RATING AGENCY CONDITION is satisfied.
o the transferor will have delivered evidence of the proportional
increase in the collateral interest to the trustee and the Rating
Agencies,
o the RATING AGENCY CONDITION will have been satisfied for the
additional issuance,
o the transferor will have delivered to the trustee a certificate of
an authorized officer to the effect that, in the reasonable belief
of the transferor, the additional issuance will not have a material
adverse effect on any outstanding class of this series,
o as of the date of the additional issuance there are no INVESTOR
CHARGE-OFFS for any class of this series; and
o the transferor will have delivered to the trustee a tax opinion for
the additional issuance.
There are no restrictions on the timing or amount of any additional issuance
other than the conditions described above.
COMPANION SERIES
The certificates may be paired with one or more companion series. Each
companion series will require an initial deposit to a prefunding account in an
amount up to the initial principal balance of the companion series, funded
primarily from the proceeds for the sale of the companion series, or will have a
variable principal amount. Any prefunding account will be held for the benefit
of the companion series and not for the benefit of certificateholders. As
principal is paid on the certificates, either
o in the case of a prefunded companion series, an equal amount of
funds on deposit in any prefunding account for the prefunded
companion series will be released (which funds will be distributed
to the transferor) or
o in the case of a companion series having a variable principal
amount, an interest in the variable companion series in an equal or
lesser amount may be sold by the trust (with the proceeds
distributed to the transferor) in either case, the invested amount
in the trust of the companion series will increase by up to the
corresponding amount.
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The issuance of a companion series will be subject to the conditions described
under "Description of the Certificates--Exchanges" in the attached prospectus.
There can be no assurance, however, that the terms of any companion series might
not have an impact on the timing or amount of payments received by a
certificateholder. In particular, the denominator of the FIXED INVESTOR
PERCENTAGE may be increased if a PAY OUT EVENT occurs to a companion series
resulting in a possible reduction of the percentage of collections of principal
receivables allocated to this series if the event allowed the payment of
principal at that time to the companion series and required reliance by this
series on the second clause of the denominator in the definition of FIXED
INVESTOR PERCENTAGE for this series. See "Maturity Considerations" and
"--Allocation Percentages" in this supplement.
PAY OUT EVENTS
As described above, the REVOLVING PERIOD will continue through the close of
business on the last day of the o monthly period (unless postponed as described
under "--Postponement of Controlled Accumulation Period"), unless a PAY OUT
EVENT occurs beforehand.
A PAY OUT EVENT will occur,
o on the certificates if,
o in the case of any event described in clauses marked with an
asterisk (*) in the definition of PAY OUT EVENT,
o any applicable grace period has expired, and
o either the trustee or certificateholders and the collateral
interest holder evidencing undivided interests totaling more
than 50% of the investor interest, by written notice to the
transferor and the servicer (and to the trustee if given by
the certificateholders) declare that a PAY OUT EVENT has
occurred on the certificates as of the date of the notice; and
o in the case of any event described in clause (c), (d) or (f) of
the definition of PAY OUT EVENT, the event occurs without any
notice or other action on the part of the trustee, the
certificateholders, the collateral interest holder or all
certificateholders, as appropriate; and
o for all series then outstanding
o in the case of any event described in clause (g), (h) or (i) of
the definition of PAY OUT EVENT, the event occurs without any
notice or other action on the part of the trustee, the
certificateholders, the collateral interest holder or all
certificateholders, as appropriate.
On the date on which a PAY OUT EVENT is deemed to have occurred,
o the RAPID AMORTIZATION PERIOD will begin; and
o distributions of principal to the certificateholders will begin on
the next distribution date.
If, because of the occurrence of a PAY OUT EVENT, the RAPID AMORTIZATION
PERIOD begins earlier than the close of business on the last day of the o
monthly period, certificateholders will begin receiving distributions of
principal earlier than they otherwise would have, which may shorten the average
life of the certificates.
See "Description of the Certificates--Pay Out Events" in the attached
prospectus for an additional discussion of the consequences of an insolvency,
conservatorship or receivership of the transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
[The servicer will receive a servicing fee as servicing compensation for
each series it services. The servicing fee may be payable from finance charge
receivables or other amounts as specified in this prospectus supplement.
Pursuant to the pooling and servicing agreement, the amount by which the
servicing fee exceeds the investor servicing fee will be paid from amounts
allocable to the transferor certificate and to other series. The servicing fee
for Class A and the servicing fee for Class B will be payable to the servicer
only as described under "--Application of Collections."]
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The servicer will pay from its servicing compensation expenses incurred
from servicing the receivables including payment of the fees and disbursements
of the trustee and independent certified public accountants and other fees which
are not expressly stated in the pooling and servicing agreement to be payable by
the trust or the certificateholders other than federal, state and local income
and franchise taxes, if any, payable by the trust.
THE CERTIFICATES
[You may purchase the certificates only in minimum denominations of $1,000
and integral multiples of $1,000.]
[Application will be made to list the certificates on the Luxembourg Stock
Exchange.]
The Class A certificates and the Class B certificates initially will be
represented by certificates registered in the name of CEDE, as nominee of DTC.
Unless and until definitive certificates are issued, all references in this
prospectus supplement to actions by Class A certificateholders and/or Class B
certificateholders refers to actions taken by DTC upon instructions from DTC
participants. All references in this prospectus supplement to distributions,
notices, reports and statements to Class A certificateholders and/or Class B
certificateholders refers to distributions, notices, reports and statements to
DTC or CEDE, as the registered holder of the Class A certificates and the Class
B certificates for distribution to certificate owners in accordance with DTC
procedures. Certificateholders may hold their certificates through DTC in the
U.S. or CEDELBANK or EUROCLEAR in Europe if they are participants of these
systems, or indirectly through organizations that are participants in these
systems. CEDE, as nominee for DTC, will hold the global certificates. CEDELBANK
and EUROCLEAR will hold omnibus positions on behalf of the CEDELBANK customers
and the EUROCLEAR Participants, respectively, through customers' securities
accounts in CEDELBANK's and EUROCLEAR's names on the books of their respective
depositaries. The depositaries in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC. See
"Description of the Certificates--General," "--Book-Entry Registration" and
"--Definitive Certificates" in the attached prospectus.
The supplement and the certificates will provide that any money paid by the
trust to any paying agent for the payment of principal or interest which remains
unclaimed for two years after the payment becomes due will be repaid to the
trust, and any certificateholder may then look only to the trust for payment.
The paying agents for the certificates will be and the
trustee.
EXCHANGES
The transferor certificate is transferable only as provided in the
agreement. The agreement also provides that the holder of the transferor
certificate may tender the transferor certificate to the trustee in exchange for
one or more new series and a reissued transferor certificate as described in the
attached prospectus.
REPORTS TO CERTIFICATEHOLDERS
On each transfer date, the trustee will forward to each certificateholder
of record, a statement prepared by the servicer containing the items described
in "Description of the Certificates--Reports to Certificateholders" in the
attached prospectus. In addition, the statement will include
o the amount, if any, withdrawn from the principal funding account for
the transfer date, and
o the collateral interest, if any, for the transfer date.
So long as the certificates are listed on the Luxembourg Stock Exchange, notice
to certificateholders will be published in a daily newspaper in Luxembourg which
is expected to be the Luxemburger Wort. In the event that definitive
certificates are issued, notices to certificateholders will also be given by
mail to their addresses as they appear on the register maintained by the
trustee.
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<PAGE>
LISTING AND GENERAL INFORMATION
Application will be made to list the Class A certificates and the Class B
certificates on the Luxembourg Stock Exchange. In connection with the listing
application, the organizational documents of the transferor, as well as legal
notice relating to the issuance of the Class A certificates and the Class B
certificates will be deposited prior to listing with the Chief Registrar of the
District Court of Luxembourg, where copies may be obtained upon request.
The Class A and the Class B certificates have been accepted for clearance
through the facilities of DTC, CEDELBANK and EUROCLEAR. The CUSIP numbers for
the Class A certificates and the Class B certificates are and ,
respectively; the International Securities Identification Numbers (ISIN) for the
Class A certificates and the Class B certificates are US and US
respectively; the Common Code numbers for the Class A certificates and the
Class B certificates are and , respectively.
[Copies of the agreement, the annual report of independent public
accountants described in "Description of the Certificates--Evidence as to
Compliance" in the attached prospectus, the documents listed under "Where You
Can Find More Information" and the reports to Certificateholders referred to
under "Reports to Certificateholders" and "Description of the
Certificates--Reports to Certificateholders" in the attached prospectus will be
available free of charge at the office of Banque Generale du Luxembourg, S.A.,
the listing agent, 50 Avenue J.F. Kennedy, L-2951, Luxembourg. Financial
information regarding the transferor is included in the consolidated financial
statements of Dillard's Inc. in its Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 [and Quarterly Report on Form 10-Q for the quarter
ended , 1999]. The report is available, and reports for subsequent
years will be available, at the office of the listing agent.]
So long as there is no paying agent and transfer agent in Luxembourg,
Banque Generale du Luxembourg, S.A. will act as intermediary agent in
Luxembourg. In the event that definitive certificates are issued, a paying agent
and transfer agent will be appointed in Luxembourg.
The certificates, the pooling and servicing agreement and the Series
1999- supplement are governed by the laws of the State of New York.
We cannot guaranty that the application for the listing will be accepted.
You should consult with Banque Generale du Luxembourg, S.A., the Luxembourg
listing agent for the certificates, 50 Avenue J.F. Kennedy, L-2951 Luxembourg,
phone number (352) 42421, to determine whether or not the certificates are
listed on the Luxembourg Stock Exchange.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the CODE prohibit PLANS from
engaging in certain transactions involving PLAN assets with persons that are
parties in interest under ERISA or disqualified persons under the CODE with
respect to the PLAN. A violation of these prohibited transaction rules may
generate excise tax and other liabilities under ERISA and Section 4975 of the
CODE for such persons, unless a statutory, regulatory or administrative
exemption is available. PLANS that are governmental plans (as defined in
section 3(32) of ERISA) and certain church plans (as defined in
section 3(33) of ERISA are not subject to ERISA requirements.
CLASS A CERTIFICATES
A violation of the prohibited transaction rules could occur if the Class A
certificates were to be purchased with assets of any PLAN if the transferor, the
trustee, any underwriters of the series or any of their affiliates were a party
in interest with respect to such PLAN, unless a statutory, regulatory or
administrative exemption is available or an exemption applies under a PLAN ASSET
REGULATION issued by the DOL. The transferor, the trustee, any underwriters of a
series and their affiliates are likely to be parties in interest with respect to
many PLANS. Before purchasing the Class A certificates, a PLAN fiduciary or
other PLAN investor should consider whether a prohibited transaction might arise
by reason of the relationship between the PLAN and the transferor, the trustee,
any underwriters of such series or any of their affiliates and consult their
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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 under ERISA
or disqualified persons under the CODE with respect to a PLAN that purchases or
holds Class A certificates might be prohibited under Section 406 of ERISA and/or
Section 4975 of the CODE and result in excise tax and other liabilities under
ERISA and Section 4975 of the CODE unless an exemption were available. The five
DOL class exemptions described in the accompanying prospectus may not provide
relief for all transactions involving the assets of the trust even if they would
otherwise apply to the purchase of a Class A certificate by a PLAN.
CLASS B CERTIFICATES
The underwriter currently does not expect that the Class B certificates
will be held by at least 100 independent investors and, therefore, does not
expect that such Class B certificates will qualify as publicly-offered
securities under the regulation referred to in the preceding paragraph.
Accordingly, the Class B certificates may not be acquired or held by (a) any
employee benefit plan that is subject to ERISA, (b) any plan or other
arrangement (including an individual retirement account or Keogh plan) that is
subject to Section 4975 of the CODE, or (c) any entity whose underlying assets
include PLAN assets under the regulation by reason of any such plan's investment
in the entity. By its acceptance of a Class B certificate, each Class B
certificateholder will be deemed to have represented and warranted that it is
not and will not be subject to the foregoing limitation.
CONSULTATION WITH COUNSEL
In light of the foregoing, fiduciaries or other persons contemplating
purchasing the certificates on behalf or with PLAN assets of any PLAN should
consult their own counsel regarding whether the trust assets represented by the
certificates would be considered PLAN assets, the consequences that would apply
if the trust's assets were considered PLAN assets, and the possibility of
exemptive relief from the prohibited transaction rules.
Finally, PLAN fiduciaries and other PLAN investors should consider the
fiduciary standards under ERISA or other applicable law in the context of the
PLAN'S particular circumstances before authorizing an investment of a portion of
the PLAN'S assets in the certificates. Accordingly, among other factors, PLAN
fiduciaries and other PLAN investors should consider whether the investment (i)
satisfies the diversification requirement of ERISA or other applicable law, (ii)
is in accordance with the PLAN'S governing instruments, and (iii) is prudent in
light of the risk factors and other factors discussed in this prospectus
supplement.
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<PAGE>
UNDERWRITING
Subject to the terms of the underwriting agreement between the transferor
and the underwriters, the transferor has agreed to sell to the Class A
underwriters and the Class B underwriter the principal amount of the Class A
certificates and the Class B certificates, as applicable, and the underwriters
listed below have in turn agreed to purchase the respective principal amounts of
certificates set forth opposite the underwriters' name:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS A
CLASS A UNDERWRITERS CERTIFICATES
- ------------------------------------------------------------------------------------ -------------------
<S> <C>
Total...............................................................................
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS B
CLASS B UNDERWRITERS CERTIFICATES
- ------------------------------------------------------------------------------------ -------------------
<S> <C>
</TABLE>
[We have entered into an Underwriting Agreement dated [ ] with the
underwriters. The agreement provides that the underwriters will purchase from us
$[ ] principal amount of the certificates in the amounts indicated in the
tables above. The underwriters will purchase all of the certificates if any of
the certificates are purchased. They need not purchase any certificates unless
the conditions in the Underwriting Agreement are satisfied. We have agreed to
indemnify the underwriters against liabilities, including civil liabilities
under the Securities Act of 1933, or to contribute to payments which the
underwriters may be required to make for those liabilities.
We must also pay the expenses of this offering, which are expected to be
$[ ]. Those expenses will reduce the proceeds of this offering received by
us.
The underwriters advise us that they propose to offer the certificates to
the public initially at the respective offering prices indicated on the cover
page of this prospectus supplement. The Class A underwriters may offer the Class
A certificates to selected dealers at that price less a concession of [ ]%. The
Class A underwriters or those dealers may allow a discount of [ ]% on sales to
other dealers. The Class B underwriters may offer the Class B certificates to
selected dealers at that price less a concession of [ ]%. The Class B
underwriters or those dealers may allow a discount of [ ]% on sales to other
dealers. After the initial public offering of the certificates, the underwriters
may change the public offering price, concession to dealers and discount.
The certificates are a new issue of securities with no established trading
market. The underwriters have advised us that they intend to act as market
makers for the certificates. They are not obligated to do so, however, and they
may discontinue any market making at any time without notice. Neither we nor the
underwriters can assure the liquidity of any trading market for the
certificates.
The underwriters and their affiliates engage in transactions with or
perform services for us in the ordinary course of business. Those services
include investment and commercial banking transactions and services, including
serving as an agent and/or lender on some of our credit agreements.]
[Each underwriter has represented and agreed that
o it only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issue of the certificates to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or who is a person to whom
the document may otherwise lawfully be issued or passed on;
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<PAGE>
o it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 with respect to anything done by it in relation to
the Certificates in, from or otherwise involving the United Kingdom;
o if that underwriter is an authorized person under Chapter III of
Part I of the Financial Services Act 1986, it has only promoted and
will only promote (as that term is defined in Regulation 1.02 of the
Financial Services (Promotion of Unregulated Schemes) Regulations
1991) to any person in the United Kingdom the scheme described
herein if that person is of a kind described either in
Section 76(2) of the Financial Services Act 1986 or in Regulation
1.04 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991; and
o it is a person of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996.
To facilitate the offering of the certificates, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of the
certificates including the following:
o the underwriters may overallot in connection with any offering of
certificates, creating a short position in the certificates for
their own accounts;
o the underwriters may bid for, and purchase, the certificates in the
open market to cover overallotments or to stabilize the price of the
certificates; and
o in any offering of the certificates through a syndicate of
underwriters, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing
the certificates in the offering if the syndicate repurchases
previously distributed certificates in transactions to cover
syndicate short positions, in stabilization transactions or
otherwise.
Any of these activities may stabilize or maintain the market price of the
certificates above independent market levels. The underwriters are not required
to engage in these activities, and may end any of these activities at any time.]
[This prospectus supplement and the attached prospectus may be used by
in connection with offers and sales related to market-making transactions
in the certificates. may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale. has no obligation to make a market in
the certificates and any such market-making may be discontinued at any time
without notice, in its sole discretion. is among the underwriters
participating in the initial distribution of the certificates.]
LEGAL MATTERS
Simpson Thacher & Bartlett will give opinions on the legality of the
certificates, the tax consequences of issuance of the certificates and certain
creditor's rights matters for the registrant.
[ ] will also give opinions on the legality of the certificates
for the underwriters.
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<PAGE>
GLOSSARY OF TERMS
The following glossary of terms is not complete. You should refer to the
prospectus for additional definitions.
Unless the context requires otherwise, the definitions contained in this
glossary of terms apply only to this series of certificates and will not
necessarily apply to any other series of certificates the trust may issue.
"ADJUSTED INVESTOR INTEREST" means for any date of determination the
investor interest minus the principal funding account balance on that date.
"ADJUSTMENT PAYMENT" means the amount by which the transferor interest is
below the Minimum Transferor Interest which amount the transferor is required to
pay to the trust.
"AVAILABLE INVESTOR PRINCIPAL COLLECTIONS" means, with respect to any
monthly period, an amount equal to the sum of
o collections of principal receivables received during the monthly period
and other amounts allocable to the investor interest, minus
o the amount of Reallocated Principal Collections for the monthly period
used to fund the Required Amount, plus
o any Shared Principal Collections for other series that are allocated to
Series 1999- .
"AVAILABLE RESERVE ACCOUNT AMOUNT" means with respect to each transfer
date, the amount equal to the lesser of the amount on deposit in the reserve
account (before giving effect to any deposit to be made to the reserve account
on such transfer date) and the Required Reserve Account Amount for the transfer
date.
"BASE RATE" means, with respect to any monthly period, the annualized
percentage equivalent of a fraction,
o the numerator of which is the sum of
-- the Class A Monthly Interest,
-- the Class B Monthly Interest and
-- the Collateral Monthly Interest, each for the related interest period,
and
-- the investor servicing fee for such monthly period, and
o the denominator of which is the investor interest as of the close of
business on the last day of such monthly period.
"CLASS A ADJUSTED INVESTOR INTEREST" means, for any date of determination,
an amount equal to the then current Class A investor interest minus the
principal funding account balance on that date.
"CLASS A AVAILABLE FUNDS" means, with respect to any monthly period, an
amount equal to the sum of
o the Class A Floating Allocation of collections of finance charge
receivables allocated to the investor interest for the monthly period,
o Principal Funding Investment Proceeds, if any, for the related transfer
date and
o amounts, if any, to be withdrawn from the reserve account which are
required to be included in Class A Available Funds under the Series
1999- supplement on that transfer date.
"CLASS A FIXED ALLOCATION" means, with respect to any monthly period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is equal to the Class A Investor Interest as of the close
of business on the last day of the Revolving Period, and the denominator of
which is equal to the investor interest as of the close of business on the last
day of the Revolving Period.
"CLASS A FLOATING ALLOCATION" means, with respect to any monthly period,
the percentage equivalent (which percentage shall never exceed 100%) of a
fraction, the numerator of which is equal to the Class A Adjusted Investor
Interest as of the close of business on the last day of the preceding monthly
period (or for the first monthly period, as of the closing date) and the
denominator of which is equal to the Adjusted Investor Interest as of the close
of business on that day.
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"CLASS A INVESTOR CHARGE-OFF" means the amount by which the Class B
Investor Interest would have been reduced by the Class A Investor Default Amount
below zero, but not more than the Class A Investor Default Amount for the
related transfer date.
"CLASS A INVESTOR DEFAULT AMOUNT" means on each transfer date an amount
equal to the product of the Class A Floating Allocation applicable during the
related monthly period and the Investor Default Amount for that monthly period.
"CLASS A INVESTOR INTEREST" for any date means an amount equal to
o the aggregate initial principal amount of the Class A certificates,
o minus the aggregate amount of principal payments made to Class A
certificateholders prior to that date,
o minus the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs for all transfer dates preceding that date over the aggregate
amount of any reimbursements of Class A Investor Charge-Offs for all
transfer dates preceding that date;
provided, however, that the Class A Investor Interest may not be reduced below
zero.
"CLASS A MONTHLY INTEREST" means, for any distribution date, an amount
equal to the product of
o the Class A certificate rate for related interest period,
o the actual number of days in that interest period divided by 360 and
o the outstanding principal balance of the Class A certificates as of the
related record date;
provided, however, for the first distribution date, Class A Monthly Interest
will be equal to the interest accrued on the initial outstanding principal
balance of the Class A certificates at the applicable Class A certificate rate
for the period from the closing date through , 1999.
"CLASS A MONTHLY PRINCIPAL" means, with respect to any transfer date
relating to the Controlled Accumulation Period or the Rapid Amortization Period,
prior to the payment in full of the Class A Investor Interest, an amount equal
to the least of
o the Available Investor Principal Collections on deposit in the principal
account with respect to that transfer dates,
o for each transfer date with respect to the Controlled Accumulation
Period, prior to the payment in full of the Class A Investor Interest,
and on or prior to the Class A Scheduled Payment Date, the applicable
Controlled Deposit Amount for that transfer date and
o the Class A Adjusted Investor Interest prior to any deposits on that
transfer date.
"CLASS A REQUIRED AMOUNT" means, an amount, if any, equal to the sum of
o Class A Monthly Interest due on the related Distribution Date and overdue
Class A Monthly Interest and Class A additional interest on the overdue
amount, if any,
o the Class A servicing fee for the related monthly period and overdue
Class A servicing fee, if any, and
o the Class A Investor Default Amount, if any, for the related monthly
period exceeds the Class A Available Funds for the related monthly
period.
"CLASS B AVAILABLE FUNDS" means, with respect to any monthly period, an
amount equal to the Class B Floating Allocation of collections of finance charge
receivables allocated to the investor interest with respect to such monthly
period.
"CLASS B FIXED ALLOCATION" means, with respect to any monthly period, the
percentage equivalent (which percentage will never exceed 100%) of a fraction,
the numerator of which is equal to the Class B Investor Interest as of the close
of business on the last day of the Revolving Period, and the denominator of
which is equal to the investor interest as of the close of business on the last
day of the Revolving Period.
"CLASS B FLOATING ALLOCATION" means, with respect to any monthly period,
the percentage equivalent (which percentage will never exceed 100%) of a
fraction, the numerator of which is equal to the Class B Investor Interest as of
the close of business on the last day of the preceding monthly period (or with
respect
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<PAGE>
to the first monthly period, as of the closing date) and the denominator of
which is equal to the Adjusted Investor Interest as of the close of business on
that day.
"CLASS B INVESTOR CHARGE-OFF" means the amount by which the collateral
interest would have been reduced below zero by the Class B Investor Default
Amount, but not more than the Class B Investor Default Amount for that transfer
date.
"CLASS B INVESTOR DEFAULT AMOUNT" means, on each transfer date, an amount
equal to the product of the Class B Floating Allocation applicable during the
related monthly period times the Investor Default Amount for that monthly
period.
"CLASS B INVESTOR INTEREST" for any date means an amount equal to
o the aggregate initial principal amount of the Class B certificates, minus
o the aggregate amount of principal payments made to Class B
certificateholders prior to that date, minus
o the aggregate amount of Class B Investor Charge-Offs for all prior
transfer dates*, minus
o the aggregate amount of Reallocated Class B Principal Collections for all
prior transfer dates for which the collateral interest has not been
reduced*, minus
o an amount equal to the aggregate amount by which the Class B Investor
Interest has been reduced to fund the Class A Investor Default Amount on
all prior transfer dates* plus
o the aggregate amount of Excess Spread allocated and available on all
prior transfer dates for the purpose of reimbursing amounts deducted
according to clauses marked with an asterisk (*) above;
provided, that the Class B Investor Interest may not be reduced below zero.
"CLASS B MONTHLY INTEREST" means, with respect to any distribution date,
the product of
o the Class B certificate rate for the related interest period,
o the actual number of days in that interest period divided by 360 and
o the outstanding principal balance of the Class B certificates as of the
related record date;
provided, for the first distribution date, Class B Monthly Interest will be
equal to the interest accrued on the initial outstanding principal balance of
the Class B certificates at the applicable Class B certificate rate for the
period from the closing date through , 1999.
"CLASS B MONTHLY PRINCIPAL" means, with respect to any transfer date
relating to the Controlled Accumulation Period or the Rapid Amortization Period,
after the Class A certificates have been paid in full (after taking into account
payments to be made on the related distribution date), an amount equal to the
lesser of
o the Available Investor Principal Collections on deposit in the principal
account for that transfer date (minus the portion of the Available
Investor Principal Collections applied to Class A Monthly Principal on
that transfer date) and
o the Class B Investor Interest for that transfer date.
"CLASS B REQUIRED AMOUNT" means the sum equal to
o the amount, if any, by which the sum of
-- Class B Monthly Interest due on the related distribution date and
overdue Class B Monthly Interest and Class B additional interest on
the overdue amount, if any, and
-- the Class B servicing fee for the related monthly period and
overdue Class B servicing fee, if any, exceeds the Class B
Available Funds for that monthly period and
o the Class B Investor Default Amount, if any, for that related monthly
period.
"COLLATERAL AVAILABLE FUNDS" means, with respect to any monthly period, an
amount equal to the Collateral Floating Allocation of collections of Finance
Charge Receivables allocated to the investor interest for that monthly period.
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<PAGE>
"COLLATERAL CHARGE-OFF" means the excess of the Collateral Default Amount
over the amount of Excess Spread available to fund such amount but not greater
than the lesser of the Collateral Default Amount and the collateral interest for
that transfer date.
"COLLATERAL DEFAULT AMOUNT" means on each transfer date an amount equal to
the product of the Collateral Floating Allocation applicable during the related
monthly period and the Investor Default Amount for that monthly period
"COLLATERAL FIXED ALLOCATION" means, for any monthly period, the percentage
equivalent (which percentage will never exceed 100%) of a fraction, the
numerator equal to the collateral interest as of the close of business on the
last day of the Revolving Period, and the denominator of which is equal to the
investor interest as of the close of business on the last day of the Revolving
Period.
"COLLATERAL FLOATING ALLOCATION" means, with respect to any monthly period,
the percentage equivalent (which percentage will never exceed 100%) of a
fraction, the numerator equal to the collateral interest as of the close of
business on the last day of the preceding monthly period (or with respect to the
first monthly period, as of the closing date) and the denominator equal to the
Adjusted Investor Interest as of the close of business on that day.
"COLLATERAL MONTHLY INTEREST" means with respect to any transfer date the
product of
o an amount equal to LIBOR plus % per annum, or such lesser amount as
may be designated in the respective loan agreement;
o the actual number of days in the related interest period divided by 360;
and
o the collateral interest as of the related record date or, with respect to
the first transfer date, the Initial Collateral Interest.
"COLLATERAL MONTHLY PRINCIPAL" means:
o with respect to any transfer date relating to the Revolving Period
following any reduction of the Required Collateral Interest, an amount
equal to the lesser of
-- the excess, if any, of the collateral interest (after giving effect
to reductions for any Collateral Charge-Offs and Reallocated
Principal Collections on that transfer date and after giving effect
to any adjustments thereto for the benefit of the Class A
certificateholders and the Class B certificateholders on that
transfer date) over the Required Collateral Interest on that
transfer date, and
-- the Available Investor Principal Collections on that transfer date
or
o with respect to any transfer date relating to the Controlled Accumulation
Period or Rapid Amortization Period, an amount equal to the lesser of
-- the excess, if any, of the collateral interest (after giving effect
to reductions for any Collateral Charge-Offs and Reallocated
Principal Collections on that transfer date and after giving effect
to any adjustments thereto for the benefit of the Class A
certificateholders and the Class B Certificateholders on that
transfer date) over the Required Collateral Interest on that
transfer date, and
-- the excess, if any, of
-- the Available Investor Principal Collections on that transfer
date over
-- the sum of the Class A Monthly Principal plus the Class B
Monthly Principal for that transfer date.
"CONTROLLED ACCUMULATION AMOUNT" means
o for any transfer date with respect to the Controlled Accumulation Period,
prior to the payment in full of the Class A Investor Interest $ ;
provided, that if the commencement of the Controlled Accumulation Period
is delayed the Controlled Accumulation Amount may be higher than the
amount stated above for each transfer date with respect to the Controlled
Accumulation Period and will be determined by the servicer in accordance
with the pooling and servicing agreement based on the principal payment
rates for the accounts and on the investor interests of other series
(other than certain
S-51
<PAGE>
excluded series) which are scheduled to be in their revolving periods and
then scheduled to create Shared Principal Collections during the
Controlled Accumulation Period and
o for any transfer date with respect to the Controlled Accumulation Period
after the payment in full of the Class A Investor Interest, an amount
equal to the Class B Investor Interest on that transfer date.
"DTC" means the Depository Trust Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EUROCLEAR" means the Euroclear System.
"EXCESS FINANCE CHARGE COLLECTIONS" means the collections of finance charge
receivables and certain other amounts allocable to the investor interest of any
series that is included in Group I greater than the amounts necessary to make
required payments for that series (including payments to any related credit
enhancement providers) that are payable out of collections of finance charge
receivables.
"EXCESS SPREAD" means the balance, if any, remaining after the trustee
allocates the money available in the finance charge account to pay interest,
servicing fees and other amounts from the Class A Available Funds, Class B
Available Funds and Collateral Available Funds.
"FIXED INVESTOR PERCENTAGE" means, with respect to any monthly period, the
percentage equivalent of a fraction, the numerator of which is the investor
interest as of the close of business on the last day of the Revolving Period and
the denominator of which is the greater of
o the sum of
-- the aggregate amount of principal receivables as of the close of
business on the last day of the prior monthly period and*
-- the principal amount on deposit in the excess funding account as of
the close of business on such day and
o the sum of the numerators used to calculate the investor percentages for
allocations with respect to principal receivables for all outstanding
series for such monthly period; provided, however, that with respect to
any monthly period in which an account addition date occurs or in which
an account removal date occurs, the amount in the clause marked with an
asterisk (*) above will be the quotient of
-- the sum of
-- the aggregate amount of principal receivables in the trust as
of the close of business on the last day of the prior monthly
period for the period from and including the first day of such
monthly period to but excluding the related account addition
date or account removal date and
-- the aggregate amount of principal receivables in the trust at
the beginning of the day on the related account addition date
or account removal date after adjusting for the aggregate
amount of principal receivables added to or removed from the
trust on the related account addition date or account removal
date, as the case may be, for the period from and including
the related account addition date or account removal date to
and including the last day of such monthly period over
-- the actual number of days in the monthly period.
"FLOATING INVESTOR PERCENTAGE" means, with respect to any monthly period,
the percentage equivalent of a fraction, the numerator of which is the Adjusted
Investor Interest as of the close of business on the last day of the preceding
monthly period (or with respect to the first monthly period, the initial
investor interest) and the denominator of which is the greater of
o the sum of
-- the aggregate amount of principal receivables as of the close of
business on the last day of the preceding monthly period (or with
respect to the first monthly period, the aggregate amount of
principal receivables as of the close of business on the day
immediately preceding the closing date)* and
S-52
<PAGE>
-- the principal amount on deposit in the excess funding account as of
the close of business on such day and
o the sum of the numerators used to calculate the investor percentages for
allocations with respect to finance charge receivables, default amounts
or principal receivables, as applicable, for all outstanding Series on
such date of determination;
provided, however, that with respect to any monthly period in which an addition
of accounts occurs or in which a removal of accounts occurs, the amount in
clause marked with an asterisk (*) above will be the quotient of
-- the sum of
-- the aggregate amount of principal receivables in the trust as
of the close of business on the last day of the prior monthly
period for the period from and including the first day of such
monthly period to but excluding the account addition date or
account removal date and
-- the aggregate amount of principal receivables in the trust as
of the beginning of the day on the related account addition
date or account removal date after adjusting for the aggregate
amount of principal receivables added to or removed from the
trust on the related account addition date or account removal
date, as the case may be, for the period from and including
the related account addition date or account removal date to
and including the last day of such monthly period over
-- the actual number of days in the monthly period.
"INITIAL COLLATERAL INTEREST" means $ .
"LIBOR" means, as of any LIBOR determination date, the rate for deposits in
United States dollars for a period equal to the relevant interest period which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on that date. If
that rate does not appear on Telerate Page 3750, the rate for that LIBOR
determination date will be determined on the basis of the rates at which
deposits in United States dollars are offered by the reference banks at
approximately 11:00 a.m., London time, on that day to prime banks in the London
interbank market for a period equal to the relevant interest period. The trustee
will request the principal office of each of the reference banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for that LIBOR determination date will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate for that LIBOR
determination date will be the arithmetic mean of the rates quoted by major
banks in New York City, selected by the Servicer, at approximately 11:00 a.m.,
New York City time, on that day for loans in United States dollars to leading
European banks for a period equal to the relevant interest period.
"PLAN ASSET REGULATION" means 29 CFR Section 2510.3-101 issued by the DOL
relating to Plan assets.
"PORTFOLIO YIELD" means, for any monthly period, the annualized percentage
equivalent of a fraction, the numerator of which is the sum of collections of
finance charge receivables, Principal Funding Investment Proceeds and amounts
withdrawn from the reserve account deposited into the finance charge account and
allocable to the certificates, Adjustment Payments made by the transferor with
respect to Adjustment Payments required to be made but not made in prior monthly
periods, if any, and the collateral interest for such monthly period, calculated
on a cash basis after subtracting the Investor Default Amount for such monthly
period, and the denominator of which is the investor interest as of the close of
business on the last day of such monthly period.
"PRINCIPAL FUNDING INVESTMENT PROCEEDS" means investment earnings (net of
investment losses and expenses) on funds on deposit in the principal funding
account.
"PRINCIPAL SHORTFALLS" means the scheduled or permitted principal
distributions to certificateholders and deposits to principal funding accounts,
if any, for any series which have not been covered out of the collections of
principal receivables allocable to such series and certain other amounts for
that series.
"REALLOCATED CLASS B PRINCIPAL COLLECTIONS" means, for any monthly period,
collections of principal receivables allocable to the Class B Investor Interest
for the related monthly period in an amount not to exceed the amount applied to
fund the Class A Required Amount, if any; provided, the amount will not
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<PAGE>
exceed the Class B Investor Interest after giving effect to any Class B Investor
Charge-Offs for that transfer date.
"REALLOCATED COLLATERAL PRINCIPAL COLLECTIONS" means, for any monthly
period, collections of principal receivables allocable to the collateral
interest for the related monthly period in an amount not greater than the amount
applied to fund the Class A Required Amount and the Class B Required Amount, if
any; provided, the amount will not exceed the collateral interest after giving
effect to any Collateral Charge-Offs for the related transfer date.
"REALLOCATED PRINCIPAL COLLECTIONS" means, for any monthly period,
o the Reallocated Class B Principal Collections for such monthly period, if
any, plus
o the Reallocated Collateral Principal Collections for that monthly period,
if any.
"RECOVERIES" means recoveries on charged-off accounts in the trust
portfolio.
"REQUIRED AMOUNT" means, for any monthly period,
o the Class A Required Amount plus
o the Class B Required Amount, each for that monthly period.
"REQUIRED COLLATERAL INTEREST" with respect to any transfer date means
o the Initial Collateral Interest and
o thereafter on each transfer date an amount equal to % of the sum of
the Class A Adjusted Investor Interest, the Class B Investor Interest and
the collateral interest on that transfer date, after taking into account
deposits into the principal funding account on that transfer date and
payments to be made on the related distribution date, and the collateral
interest on the prior transfer date after any adjustments made on that
transfer date, but not less than $ ;
provided,
o that if certain reductions in the collateral interest are made or if a
Pay Out Event occurs, the Required Collateral Interest for such transfer
date will equal the Required Collateral Interest for the transfer date
immediately preceding the occurrence of that reduction or Pay Out Event,
o in no event will the Required Collateral Interest exceed the unpaid
principal amount of the certificates as of the last day of the monthly
period preceding that transfer date after taking into account payments to
be made on the related distribution date and
o the Required Collateral Interest may be reduced to a lesser amount at any
time if the Rating Agency Condition is satisfied.
"REQUIRED RESERVE ACCOUNT AMOUNT" means, for any transfer date, on or after
the Reserve Account Funding Date will be equal to
o % of the outstanding principal balance of the Class A certificates
or
o any other amount designated by the transferor; provided, if the
designation is of a lesser amount, the transferor will have provided the
servicer, the collateral interest holder and the trustee with evidence
that the Rating Agency Condition has been satisfied and the transferor
will have delivered to the trustee a certificate of an authorized officer
to the effect that, based on the facts known to that officer at that
time, in the reasonable belief of the transferor, the designation will
not cause a Pay Out Event or an event that, after the giving of notice or
the lapse of time, would cause a Pay Out Event to occur with respect to
Series 1999- .
"RESERVE ACCOUNT FUNDING DATE" means the transfer date with respect to the
monthly period which commences no later than three months prior to the
commencement of the Controlled Accumulation Period, or an earlier date the
servicer may determine.
S-54
<PAGE>
SUBJECT TO COMPLETION, DATED , 1999
Prospectus
<TABLE>
<S> <C>
DILLARD CREDIT CARD MASTER TRUST I A certificate is not a deposit and
Issuer neither the certificates nor the
DILLARD ASSET FUNDING COMPANY underlying accounts or receivables
Transferor are insured or guaranteed by the
DILLARD NATIONAL BANK Federal Deposit Insurance Corporation
Servicer or any other governmental agency.
ASSET BACKED CERTIFICATES This prospectus may be used to offer
and sell any series of certificates
only if accompanied by the prospectus
supplement for that series.
</TABLE>
THE TRUST--
o may periodically issue asset backed certificates in one or more series with
one or more classes; and
o will own--
o receivables in a portfolio of private label consumer revolving
credit card accounts;
o payments due on those receivables; and
o other property described in this prospectus and in the prospectus
supplement.
THE CERTIFICATES--
o will represent interests in the trust only, will be paid only from the
assets of the trust and will not represent interests in or obligations of
Dillard Asset Funding Company, the servicer or any of their affiliates;
o offered by this prospectus will be rated in one of the four highest rating
categories by at least one nationally recognized rating organization;
o may have one or more forms of enhancement; and
o will be issued as part of a designated series which may include one or more
classes of certificates and enhancement.
THE CERTIFICATEHOLDERS--
o will receive interest and principal payments from a varying percentage of
credit card account collections.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1999
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust and Related Parties.................. 1
The Trust.................................... 1
Dillard's Inc................................ 1
Mercantile Stores Company, Inc............... 2
Dillard National Bank........................ 2
Mercantile Stores National Bank.............. 2
Dillard Asset Funding Company................ 2
Dillard's Credit Card Activities............... 3
General...................................... 3
Origination of Credit Card Accounts.......... 4
Underwriting................................. 5
Billing and Payments......................... 6
Collection of Delinquent Accounts............ 9
Recoveries................................... 11
Year 2000 Compliance......................... 11
The Receivables................................ 13
Maturity Considerations........................ 14
Use of Proceeds................................ 16
Description of the Certificates................ 16
General...................................... 16
Book-Entry Registration...................... 18
Definitive Certificates...................... 21
Interest Payments............................ 21
Principal Payments........................... 22
Revolving Period............................. 23
Controlled Amortization Period............... 23
Principal Amortization Period................ 24
Accumulation Period.......................... 24
Rapid Accumulation Period.................... 25
Rapid Amortization Period.................... 26
Transfer and Assignment of
Receivables............................... 27
Exchanges.................................... 27
Representations and Warranties............... 29
Addition of Trust Assets..................... 32
Removal of Accounts.......................... 34
Collection and Other Servicing
Procedures ................ .............. 35
Discount Option.............................. 35
Trust Accounts............................... 35
Funding Period............................... 36
Companion Series............................. 38
Investor Percentage and Transferor
Percentage................................ 38
Application of Collections................... 39
Shared Excess Finance Charge
Collections............................... 41
Shared Principal Collections................. 41
Defaulted Receivables; Rebates and Fraudulent
Charges; Investor Charge-Offs............. 42
Final Payment of Principal; Termination...... 43
Pay Out Events............................... 44
<CAPTION>
PAGE
--
<S> <C>
Servicing Compensation and Payment of
Expenses.................................. 45
Matters Regarding the Transferor and the
Servicer.................................. 45
Servicer Guarantee........................... 47
Servicer Default............................. 47
Reports to Certificateholders................ 48
Evidence as to Compliance.................... 49
Amendments................................... 50
List of Certificateholders................... 51
The Trustee.................................. 51
Description of the Purchase Agreements......... 52
General...................................... 52
Representations and Warranties............... 52
Covenants.................................... 53
Repurchase Events............................ 54
Merger and Consolidation..................... 54
Credit Enhancement............................. 55
General...................................... 55
Subordination................................ 56
Letter of Credit............................. 56
Cash Collateral Guaranty or Account.......... 56
Collateral Interest.......................... 57
Surety Bond or Insurance Policy.............. 57
Spread Account............................... 58
Reserve Account.............................. 58
Certificate Ratings............................ 58
Legal Aspects of the Receivables............... 59
Transfer of Receivables...................... 59
Matters Relating to Bank Receivership........ 60
Matters Relating to Bankruptcy of the
Transferor, DIC and MFI................... 61
Consumer Protection Laws..................... 62
Claims and Defenses of Cardholders Against
the Trust................................. 63
Federal Income Tax Consequences................ 64
General...................................... 64
Treatment of the Certificates as Debt........ 65
Taxation of Interest Income of U.S.
Certificate Owners........................ 66
Sale, Exchange or Retirement of
Certificates.............................. 66
Possible Alternative Characterizations....... 66
Non-U.S. Certificate Owners.................. 67
Information Reporting and Backup
Withholding............................... 69
State and Local Taxation..................... 69
Plan of Distribution........................... 69
Legal Matters.................................. 70
Reports to Certificateholders.................. 70
Where You Can Find More Information............ 71
Glossary of Terms.............................. 72
</TABLE>
i
<PAGE>
OVERVIEW OF THE INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two separate
documents that progressively provide more detail:
o this prospectus, which provides general information, some of which
may not apply to a particular series of certificates, including your
series, and
o the prospectus supplement, which will describe the specific terms of
your series of certificates, including:
o the timing and amount of interest and principal payments;
o information about the receivables;
o information about credit enhancement for each class;
o credit ratings; and
o the method for selling the certificates.
WHENEVER INFORMATION IN THE PROSPECTUS SUPPLEMENT IS MORE SPECIFIC THAN THE
INFORMATION IN THIS PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
prospectus supplement, including the information incorporated by reference. We
have not authorized anyone to provide you with different information.
We include cross-references in this prospectus and in the prospectus
supplement to captions in these materials where you can find further related
discussions. The table of contents included in this prospectus and the
prospectus supplement provide the pages on which these captions are located.
This prospectus uses terms that are defined in the "Glossary of Terms" in
this prospectus. We indicate defined terms in bold.
ii
<PAGE>
THE TRUST AND RELATED PARTIES
THE TRUST
The Dillard Credit Card Master Trust I was formed pursuant to a pooling and
servicing agreement in accordance with the laws of the State of New York among
Dillard Asset Funding Company, Dillard National Bank, as servicer, and The Chase
Manhattan Bank, as trustee. Certificates of one or more series representing
interests in the trust in amounts, at prices and on terms to be determined at
the time of sale and to be provided in supplements to this prospectus are to be
offered under the agreement. A summary of previously issued and outstanding
series will be provided in each prospectus supplement. The trust will not engage
in any business activity other than
o acquiring and holding receivables;
o issuing series of certificates and the transferor certificate that
evidences the transferor interest;
o making payments on the certificates and engaging in related
activities, including, with respect to any series, obtaining any
credit enhancement; and
o entering into a related credit enhancement agreement.
As a consequence, the trust is not expected to have any need for additional
capital resources other than the assets of the trust.
DILLARD'S INC.
Dillard's Inc. is a regional group of conventional department stores
operating, as of December 1, 1999, stores in
o Alabama
o Arizona
o Arkansas
o California
o Colorado
o Florida
o Georgia
o Idaho
o Illinois
o Indiana
o Iowa
o Kansas
o Kentucky
o Louisiana
o Minnesota
o Mississippi
o Missouri
o Montana
o Nebraska
o Nevada
o New Mexico
o North Carolina
o Ohio
o Oklahoma
o South Carolina
o Tennessee
o Texas
o Virginia
o Utah
o Wyoming
The stores feature branded and private label goods in the middle to
upper-middle price ranges and cater to a broad spectrum of the population.
Dillard's operates its stores under the following names:
o Dillard's
o J.B. White
o Bacon's
o Lion
The company is incorporated under the laws of the State of Delaware. The
executive offices of the company are located at 1600 Cantrell Road, Little Rock,
Arkansas 77201, telephone number: 501-376-5200.
The company is currently subject to the periodic reporting and other
financial requirements of the Securities Exchange Act of 1934, as amended, in
accordance with which it files reports and other information with the Securities
Exchange Commission. You may inspect and copy the reports and other information
filed with the Commission at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at
its regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. You may obtain copies of this material from the public reference section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. This material may also be accessed electronically by means of
the Commission's website at http://www.sec.gov.
1
<PAGE>
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.
MERCANTILE STORES NATIONAL BANK
Dillard National Bank, formerly known as Mercantile Stores National Bank, a
wholly-owned banking subsidiary of Dillard's, was formed in 1997 and is
headquartered in Baton Rouge, Louisiana. DNB-LA. is currently chartered as a
national bank and is regulated primarily by the Comptroller. DNB-LA.'S
activities are predominantly related to credit card lending and the origination,
acquisition and administration of private label revolving credit card accounts.
DNB-LA. historically originated and acquired accounts created for use in
Mercantile's stores. An affiliate, Mercantile Credit Corp., a Louisiana
corporation provides servicing for Mercantile's private label credit card
program.
DILLARD ASSET FUNDING COMPANY
Dillard Asset Funding Company, a Delaware business trust, was formed in
August 1998 pursuant to a trust agreement among Chase Manhattan Bank Delaware,
as owner trustee, Condev Nevada, Inc., a Nevada corporation and a wholly-owned
subsidiary of Dillard's and its administrators. DNB and DNB-LA. have transferred
their interests in substantially all of the receivables they own to Dillard
Asset Funding Company. In turn, Dillard Asset Funding Company has transferred
its interests in those transferred receivables to the trust. The trust will
offer certificates of beneficial interest in the receivables from time to time
through a prospectus supplement. In this prospectus and in the related
prospectus supplement, we will refer to Dillard Asset Funding Company as the
transferor. The transferor was formed for the limited purposes of purchasing,
holding, owning and transferring receivables and any activities incidental to
these purposes. The owner trustee of the transferor is located at 1201 Market
Street, Wilmington, Delaware 19801, telephone number (302) 984-3300.
The transferor also maintains an interest in the receivables in the trust
because it will hold the transferor certificate. The balance of the transferor
certificate will change as the balances of the underlying receivables increase
and decrease as customers of Dillard's and other affiliated stores purchase
additional goods and services with their DILLARD'S CARDS and as customers make
monthly payments and other adjustments to the balances they maintain on their
DILLARD'S CARDS. The principal balance of the certificates you purchase will
decrease only as the terms of the pooling and servicing agreement dictate.
2
<PAGE>
DILLARD'S CREDIT CARD ACTIVITIES
GENERAL
The receivables which the transferor has conveyed to the trust represent
amounts due by holders of revolving credit card accounts offered by DNB and
DNB-LA. to purchase merchandise and services sold by retail stores owned and
operated by Dillard's and its subsidiaries. DNB and DNB-LA. will originate or
open the accounts for Dillard's customers. In this prospectus and in the
prospectus supplement DNB and DNB-LA. as originators. DNB and DNB-LA. have sold
the receivables in substantially all of those accounts to the transferor under
the terms of the purchase agreements described elsewhere in this prospectus. See
"Description of the Purchase Agreements" in this prospectus.
Dillard's department stores and its subsidiaries have offered a private
label credit card program to creditworthy customers for over 25 years. Prior to
its acquisition by Dillard's, Mercantile offered private label credit card
programs to creditworthy customers for over 20 years.
Currently, DNB services the Dillard's accounts at its facilities located in
Gilbert, Arizona and MCC services the Mercantile accounts at its facilities
located in Baton Rouge, Louisiana. DNB and MCC may utilize subservicers for some
or all of these accounts from time to time.
Additional accounts are expected to be added, from time to time, to the
trust. There can be no assurance, however, that additional accounts will be
added or that, if added, the receivables in the additional accounts will
constitute a material portion of the receivables in the trust.
Accounts which are acquired, but not originated by DNB or DNB-LA. may be
originated under policies and procedures which differ from those of DNB or
DNB-LA. Dillard's does not expect any of these differences to have a material
adverse effect on the credit quality of the receivables in the trust or on the
interests of the certificateholders. See "Description of the
Certificates--Collection and Other Servicing Procedures" in this prospectus.
In addition, Dillard's has purchased and may in the future purchase
accounts from other private label credit card issuers. Dillard's currently
offers only one type of credit card, the DILLARD'S CARD. Prior to October 17,
1998, Mercantile offered its own credit card known as the MERCANTILE CARD.
Credit card accounts that have been purchased by Dillard's, such as the
Mercantile accounts, were originally opened using criteria established by the
institution from which the accounts were purchased and may not have been subject
to the same level of credit review as accounts established by DNB. Unless
otherwise specified in the related prospectus supplement receivables in acquired
accounts may only be added to the trust if the rating agencies selected to rate
the certificates confirm that the then-current ratings of the certificates will
not be affected by the addition. Dillard's does not expect any of these
differences to have a material adverse effect on the credit quality of the
receivables in the trust or on the interests of the certificateholders.
The accounts have various payment structures, including varying minimum
payment levels and fees. Except as described below, there are currently four
types of customer payment terms under the Credit Cards which can be chosen in
connection with the purchase of merchandise or services at any Dillard's
department store:
<TABLE>
<S> <C>
o Regular Revolving o Reduced Rate
o Extended Revolving o Silver Club
</TABLE>
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:
<TABLE>
<S> <C>
o Regular Option o Special Option
o Prestige Option o Home Option
</TABLE>
3
<PAGE>
The detailed terms of the Mercantile Card are described in "Billing and
Payments--Customers Terms--Mercantile Cards" section in this prospectus.
MERCANTILE CARD holders currently can choose only the Regular Option in
connection with new purchases of merchandise or services at any Dillard's or
Mercantile department store. Payments for purchases of merchandise or services
made by MERCANTILE CARD holders prior to October 17, 1998 under the Special
Option, Prestige Option or Home Option will be unaffected by this change.
Dillard's may from time to time offer its customers incentives to either
open an account or to use a Dillard's credit card. Dillard's does not expect any
of these promotions or incentives to have a material adverse effect on the
credit quality of the receivables in the trust or on the interests of the
certificateholders.
Each DILLARD'S or MERCANTILE CARD holder is subject to an agreement
governing the terms and conditions of his or her account. Pursuant to that
agreement, DNB or DNB-LA. reserves the right to change or terminate any terms,
conditions, services or features of the accounts, including increasing or
decreasing periodic finance charges, other charges or minimum payments, and to
sell or transfer the accounts and any amounts owed on the accounts to another
creditor.
ORIGINATION OF CREDIT CARD ACCOUNTS
Currently, DNB originates all new accounts for all Dillard's and Mercantile
department stores. While no new accounts are originated by DNB-LA. at this time,
DNB-LA. may acquire or originate accounts in the future. As a result,
receivables generated under accounts originated by DNB should gradually increase
as a percentage of Dillard's entire portfolio of accounts.
The DILLARD'S and MERCANTILE CARDS can be used to purchase merchandise and
services from any Dillard's or Mercantile department store. Amounts due for the
purchases will be included in the receivables.
The accounts were principally generated through:
o telemarketing and direct-mail solicitation for accounts on a pre-approved
credit basis,
o in-store applications made available to prospective cardholders at
department stores and
o applications mailed directly to prospective cardholders or generated on
the internet.
The majority of the accounts have historically been generated through
pre-approved telemarketing solicitations and in-store applications, although
this emphasis may change from time to time in the future. Dillard's does not
expect any change in emphasis to have a material adverse effect on the credit
quality of the receivables in the trust or on the interests of the
certificateholders.
o Pre-Approved Telemarketing and Direct Mail Solicitations
The originators obtain lists of prospects located within a specified radius
of a Dillard's department store from independent consumer credit reporting
agencies. The lists identify individuals who live within the specified areas and
satisfy credit criteria established by the respective originator, such as never
having previously filed for bankruptcy and possessing a specified credit score
from the credit bureau. Individuals qualifying for pre-approved telemarketing or
direct mail solicitations are offered a DILLARD'S CARD without having to
complete a detailed credit application. A significant portion of telemarketing
calls may be made by third party telemarketing companies. Pre-approved
telemarketing and direct mail solicitations are made periodically, generally
once each calendar quarter, although prior to October 17, 1998 such
solicitations had been made by DNB-LA. only in connection with the opening of
new Mercantile stores.
o In-Store Instant Credit Applications
Instant credit is also offered to qualifying applicants at the time of
purchase. An applicant is required to complete an application and present
acceptable identification. The information is subsequently phoned into a
processing center where a representative of the originator uses the information
to obtain credit bureau and internally developed reports on the applicant. The
decision to either approve or decline the applicant is determined automatically
based on the results of the reports and can be made in as few as two to three
minutes.
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<PAGE>
o Mail-in and Internet Applications
In addition to instant credit in-store applications, the originators also
offer a mail-in form which can be completed at the leisure of the prospective
customer. A credit evaluation is conducted using a proprietary underwriting
model and an independent credit bureau report. The same application is also
available on the Internet.
o Campus Programs
The originators also originate new accounts through campaigns targeted at
college students. Tables are set up at college campuses and offers are made for
accounts with minimal limits, typically $400, to individuals who have no
derogatory credit history.
UNDERWRITING
In determining whether to establish an account for and issue a DILLARD'S
CARD to a customer, the originators use underwriting procedures which use a
purely quantitative approach. There is no subjective decision making process
utilized. DNB and DNB-LA. rely heavily upon credit scores obtained from
independent credit bureaus and underwriting models developed specifically for
DNB and DNB-LA. Underwriting methods differ depending on the type of application
submitted by a prospective customer.
o Instant Credit Model/Neutral Network Score
For in-store instant credit, a sales clerk submits the information provided
by an applicant to an originator's processing center where the applicant's
information is automatically evaluated against established credit bureau and
proprietary models. An application must meet or exceed minimum thresholds under
both credit bureau and proprietary models in order to be approved. In connection
with this process, an instant credit model, also known as a neural network, was
developed by DNB as a more precise means of predicting good and bad credit
accounts rather than relying solely upon credit bureau scores and was developed
utilizing a sample of Dillard's accounts. The applicant attributes used in
neural network modeling include the same information derived from credit bureau
reports: state of residence, number of inquiries, number of satisfactory trades,
credit bureau score, number of major derogatory trade lines and credit card
references. This information is then weighted in accordance with the historical
patterns illustrated by credit customers of Dillard's stores.
o Application Scorecard
The originators currently employ a proprietary model, known as an
application scorecard, and a credit report issued by an independent credit
reporting agency in evaluating mail-in applications. The scorecard is segmented
into two categories: one for applicants 25 years of age and under and another
for applicants older than 25. The scorecard contains information about the
applicant that is not readily available from the credit bureaus such as whether
he or she is a home owner or has a checking account. In order to obtain a
DILLARD'S CARD an applicant must possess both a satisfactory scorecard report
and a satisfactory credit score from the independent credit reporting agency.
o Credit Limits
Credit limits are assigned to new customers according to their respective
credit scores. Credit lines for new accounts typically range from $400 to
$3,000. Proprietary behavioral scoring is conducted on accounts on a monthly
basis and is used to determine a cardholder's eligibility for credit line
increases periodically. Behavioral scoring considers factors such as payment
history and duration as a cardholder. Accounts must be current to be considered
for an increase in credit limit. In addition, periodic general limit increases
are considered based upon the length of time an account has been open and the
credit score ranking.
o Mercantile Cards
In determining whether to generate a Mercantile account for and issue a
MERCANTILE CARD to a customer, DNB-LA. also used underwriting procedures based
almost exclusively on a quantitative analysis of an applicant's information.
Credit decisions were based primarily upon credit scores obtained from
5
<PAGE>
independent credit bureaus and either a likelihood to file for bankruptcy score
for pre-approved applications or a debt-to-income ratio for in-store and mail-in
applications.
Information contained in an in-store credit application received in a
Mercantile store was phoned in to DNB-LA. servicing center in Baton Rouge,
Louisiana. Mailed-in applications were likewise directed to DNB-LA.'S servicing
center. Upon receipt, information contained in the application together with
information received by an independent credit reporting agency was evaluated by
a credit analyst against DNB-LA.'S computer model which calculated the
applicant's credit score. The credit score was based upon the applicant's
debt-to-income ratio and a credit score provided by the independent credit
reporting agency. Applications which were declined by DNB-LA.'S computer model
could not be manually overridden by a DNB-LA. credit analyst. However,
applications approved by DNB-LA.'S computer model could, in some instances, be
declined manually by a DNB-LA. credit analyst if traits deemed to have negative
credit implications were manually identified. An applicant with an inadequate
credit score from the relevant independent credit reporting agency was denied a
MERCANTILE CARD regardless of his or her debt-to-income ratio or bankruptcy
propensity score. With respect to identifying potential customers to whom
pre-approved applications could be sent, DNB-LA. would determine a potential
customer's credit score based upon the credit score received from an independent
credit reporting agency together with a proprietary bankruptcy propensity score.
Credit limits for MERCANTILE CARDS were assigned to new customers according
to their respective credit scores. Credit lines for new accounts typically
ranged from $500 to $4,000.
DNB-LA. automatically scored all active Mercantile accounts on a monthly
basis pursuant to proprietary behavioral scoring models. The behavioral scores
were statistically derived from real data relating to the Mercantile accounts
such as payments, purchases and length of MERCANTILE CARD ownership. The
behavioral score was used to determine eligibility for credit limit increases.
Credit increases could be granted semi-annually. Mercantile accounts had to be
current to be considered for an increase in credit limit.
BILLING AND PAYMENTS
The accounts have various billing and payment structures, including varying
minimum payment levels and fees. Monthly billing statements are sent by the
originators or their servicers to cardholders. The following information
reflects the current billing and payment characteristics of the accounts.
The originators or their servicers currently use eight billing cycles. All
cycles have fixed statement closing dates throughout the month. New accounts are
assigned to a billing cycle according to the first letter of the obligor's last
name. The billing cycles are as follows:
<TABLE>
<CAPTION>
LETTER RANGE BILLING DATE
- ------------- ------------
<S> <C>
A-B 6th
C-D 9th
E-G 12th
H-K 15th
L-M 18th
N-R 21st
S-T 24th
U-Z 27th
</TABLE>
On the billing date for a billing cycle, the activity in the related
accounts during the month ending on the billing date are processed and billed to
cardholders.
Customer Terms--Dillard's Credit Cards
Dillard's currently issues only one type of credit card, the DILLARD'S
CARD. There are four types of customer terms which can be used to charge
purchases of goods and services at any Dillard's department store with a
DILLARD'S CARD: Regular Revolving, Extended Revolving, Reduced Rate and Silver
Club.
6
<PAGE>
o Regular Revolving. Regular Revolving terms do not have any restrictions
on the type or amounts of merchandise or services charged up to the
amount of the credit limit. Minimum monthly payments for Regular
Revolving purchases are the greater of $20 or 1/10 of the outstanding
balance.
o Extended Revolving. Extended Revolving terms are sometimes offered to
allow longer-term financing for some big ticket items, such as furniture,
electronics and major appliances and are subject to a minimum purchase.
The monthly payment terms for these purchases are the greater of $20 or
1/20 of the highest balance.
o Reduced Rate Revolving. Reduced Rate Revolving terms are sometimes
offered in connection with special promotions on the same type of
merchandise for which the Extended Revolving terms are used. Reduced Rate
Revolving purchases offer lower finance charges, but generally require a
greater minimum purchase. The minimum monthly payment for Reduced Rate
Revolving purchases is the greater of $20 or 1/12 of the highest balance.
o Silver Club Revolving. Silver Club Revolving terms are sometimes offered
for specialty items such as china and silver purchases. The required
minimum purchase is greater than what is needed to be eligible for
Extended Revolving or Reduced Rate Revolving terms and require a minimum
monthly payment of 1/12 of the highest balance. Silver Club Revolving
purchases do not carry any finance charges as long as the minimum monthly
payments are made by the due dates.
Credit Card Finance Charges--DNB
A fixed monthly finance charge is assessed on the average daily balance in
each account owned by DNB for each billing cycle. Monthly periodic finance
charges for a billing cycle are not assessed on new purchases made during the
billing cycle if
o on the first day of the billing cycle there was no balance outstanding;
o if the balance outstanding on the first day of the billing cycle is paid
in full during the billing cycle; or
o if on the last day of the billing cycle there is no balance outstanding.
The monthly periodic finance charge assessed on outstanding balances is
calculated by multiplying
o the average daily balance during the billing cycle by
o the applicable monthly periodic finance charge.
The current annual percentage rates for the DILLARD'S CARDS serviced by DNB
range from 4.9% to 19.8% under the Regular Revolving terms. The current annual
percentage rates under the Extended Revolving, Reduced Rate Revolving and Silver
Club Revolving terms range from 0% to 19.8%. In addition, DNB offers from time
to time temporary promotional rates and the periodic finance charges on a
limited number of accounts may be either greater than or less than those
assessed by the originators generally. To the extent that the amount of any
finance charge applicable to a balance is less than $0.50, it is increased to
$0.50. Periodic finance charges may be changed from current levels in the
future.
Customer Terms--Mercantile Credit Cards
Prior to October 17, 1998, DNB-LA. issued the Mercantile Card. While DNB
began issuing DILLARD'S CARDS for all Dillard's and Mercantile customers on
October 17, 1998, the previously issued MERCANTILE CARDS and the related
Mercantile accounts remained outstanding. There were historically four types of
customer payment terms under the MERCANTILE CARD which could be used in
connection with the purchase of merchandise or services at any Mercantile store.
However, MERCANTILE CARD holders currently can choose only the Regular Option in
addition to any of the DILLARD'S CARD special or extended customer terms in
connection with new purchases of merchandise or services at any Dillard's or
Mercantile department store. Payments for purchases of merchandise or services
made by MERCANTILE CARD holders prior to October 17, 1998 under the Special
Option, Prestige Option or Home Option will be unaffected by this change.
7
<PAGE>
o Regular Option. Regular Option terms do not have any restrictions on the
type or amounts of merchandise or services charged up to the amount of
the credit limit. Minimum monthly payments for Regular Option purchases
are the greater of $10 or 1/12of the outstanding balance. A finance
charge is assessed on the unpaid balance.
o Special Option. Special Option terms were designed for larger purchases,
with no limit on the types of goods which could be purchased. Special
Option terms entitle the holder of a MERCANTILE CARD to a 90 day interest
free period if he or she pays 1/3 of the balance each month. If the
interest free option is not exercised, the required minimum monthly
payment is equal to the greater of $10 or 1/24 of the highest new
balance.
o Prestige Option. Prestige Option terms were available solely for
purchases of specialty items such as china, silver, fine furs, and
designer clothing. Prestige Option terms required a minimum purchase. The
required minimum monthly payment is the higher of $15 or 1/12 of the
highest new balance. No interest accrues on the balance so long as the
minimum monthly payment is made.
o Home Option. Home Option terms were available only at Mercantile's
furniture stores. This option offered cardholders who satisfied a minimum
purchase requirement the option of 12 months interest free financing by
paying monthly the greater of $40 or 1/12 of the highest new balance. If
the interest free option is not exercised, the required minimum monthly
payment is equal to the greater of $15 or 1/36 of the highest new
balance.
Credit Card Finance Charges--DNB-La.
A fixed monthly finance charge is assessed on the average daily balance in
each account owned by DNB-LA. for each billing cycle. Monthly periodic finance
charges for a billing cycle are not assessed on new purchases made during the
billing cycle if
o on the first day of such billing cycle there was no balance
outstanding; or
o if the balance outstanding on the first day of such billing cycle is
paid in full during such billing cycle; or
o if on the last day of such billing cycle there is no balance
outstanding.
The monthly periodic finance charge assessed on outstanding balances is
calculated by multiplying
o the average daily balance during the billing cycle by
o the applicable monthly periodic finance charge.
The current annual percentage rates for MERCANTILE CARDS range from 4.9% to
21.0% under the Regular Option. The current annual percentage rates for the
Special Option, Prestige Option, Home Option, Extended Revolving, Reduced Rate
Revolving and Silver Club Revolving terms range from 0% to 21.0%. While DNB-LA.
has not traditionally done so, DNB-LA. may offer on a temporary basis periodic
finance charges on a limited number of accounts that are either greater than or
less than those assessed by the originators generally. To the extent that the
amount of any finance charge applicable to a balance is less than $0.50, it is
increased to $0.50. Periodic finance charges may be changed from current levels
in the future.
Fees
While the originators do not currently charge membership fees to
cardholders, except for VIP annual fees in the case of some MERCANTILE CARD
holders, they may charge accounts certain other fees including:
o a late fee, currently $20 for Dillard's accounts and $10 for Mercantile
accounts, if at least the required minimum monthly payment by the 15th
day after the next statement billing date on the monthly billing
statement is not received; and
o a fee of $15.00 for each check submitted by a cardholder in payment of an
account which is dishonored.
8
<PAGE>
Payments by a cardholder in connection with a DNB account are processed and
applied
o first to any billed fees; and
o then to billed and unpaid balances in the order determined by DNB.
Any excess is applied to unbilled balances in the order determined by DNB.
Payments by a cardholder in connection with a DNB-LA. account are processed
and applied
o first to any billed fees;
o next to billed and unpaid finance charges; and
o then to billed and unpaid balances in the order determined by such
DNB-LA.
Any excess is applied to unbilled balances in the order determined by such
DNB-LA.
There can be no assurance that fees and other charges will remain at
current levels in the future.
COLLECTION OF DELINQUENT ACCOUNTS
Efforts to collect delinquent credit card receivables are made by personnel
and collection agencies of the originators and attorneys retained by the
originators. Collection efforts include the mailing of delinquency notices,
telephone calls and the referral of delinquent accounts to collection agencies
depending upon the length an account is delinquent. The following describes the
current collection procedures utilized by the originators.
DNB
DNB considers an account delinquent if a payment due is not received by DNB
by the date of the statement following the statement on which the amount is
first stated to be due. DNB categorizes delinquent accounts into two categories
for purposes of pursuing payment:
o Front-end delinquencies, which are accounts that are one payment past
due, up to 30 days past due; and
o Back-end delinquencies, which are accounts that are more than one payment
past due, more than 30 days past due, and accounts for which there is no
working phone number.
An account delinquency is measured by reference to the billing date, not
the due date. Each delinquency category has a dedicated group of collectors who
manage the collection process. In addition, charged-off balances are transferred
to the recovery unit which has its own dedicated employees.
Back-end collectors utilize an automated dialing system to telephone
delinquent accounts. The system leaves pre-recorded messages on answering
machines when customers are not home. In addition, Back-end collectors attempt
to contact the customer by regular mail and making manual phone calls. Back-end
collectors also utilize a phone number and address verification system and
attempt to call nearby acquaintances if the customer cannot be reached at home
or at work. If the customer answers the phone, the Back-end collector talks to
the customer from a provided script. All Back-end collection stations are also
equipped with a caller-id program which identifies and retains the phone numbers
from which customers call. Generally, DNB includes a request for payment of
overdue amounts on billing statements issued after the account becomes
delinquent. In addition, after a period determined by its behavioral scoring
system, DNB mails a separate notice to the cardholder notifying him or her of
the delinquency and possible revocation of the credit card and requesting
payment of the delinquent amount. Once an account becomes a Back-End
delinquency, all purchasing ability is automatically terminated. Based upon
behavioral scoring models, DNB may suspend or terminate an account before it
becomes a Back-end account.
Delinquent customers are encouraged to either pay the delinquent and
current minimum payment balances in a local Dillard's department store or via a
system which allows collectors to take check payments by phone upon receiving
the appropriate account information.
9
<PAGE>
New collectors are provided with three to four days of classroom
instruction upon hiring. They are familiarized with the computer systems, screen
layouts and DNB'S collection philosophy, in addition to using role playing to
sharpen listening and negotiating skills. Upon completion of the classroom
instruction, new collectors are paired with an experienced agent for on the job
training.
Collectors are monitored for quality control. Managers listen randomly to
calls made by each collector. On-going training is available if the supervisor
determines that a collector is ineffective.
Collection procedures are determined by a behavioral scoring system that
uses statistical models and basic account financial information to determine the
steps to be followed at various stages of delinquency. Generally, DNB includes a
request for payment of overdue amounts on billing statements issued after the
account becomes delinquent. In addition, after a period determined by its
behavioral scoring system, DNB mails a separate notice to the cardholder
notifying him or her of the delinquency and possible revocation of his or her
credit card and requesting payment of the delinquent amount. Based on DNB'S
analysis of a cardholder's behavior through its behavioral scoring system, DNB
may take any or all of the above actions at an earlier point in time. In some
cases, depending on the financial profile of the cardholder and the stated
reason for and magnitude of a delinquency, DNB may enter into arrangements with
a delinquent cardholder to extend or otherwise change the payment schedule.
DNB'S policy is to charge off an account during the billing cycle
immediately following the cycle in which the account became seven payments, 180
days past due, 210 days past billing cycle or delinquent. If DNB receives notice
that a cardholder is the subject of a bankruptcy proceeding, DNB charges off the
cardholder's account upon the earlier of the end of the month in which notice of
the bankruptcy is received and the time period described in the previous
sentence. Charged-off accounts are sent to the recovery unit, collection
agencies or attorneys.
Mercantile Credit Corporation
MCC forwards an account to its collections department if it is two
payments, or 30 days, overdue. An account delinquency is measured by reference
to the billing date, not the due date. If an account is one payment past due,
the credit limit may be lowered depending on the accountholder's behavioral
score. If an account is two payments past due the account is forwarded to the
collections department and the customer's charging privileges are revoked. If
the balance of a delinquent account is less than $200, the collections
department will mail notification of the delinquency to the cardholder and will
attempt to reach the customer through a predictive dialing system similar to
that used by DNB. If the balance of a delinquent account is greater than $200
but less than $1,300, the account is put into a work que to be handled by a
collection team. If the delinquent balance is greater that $1,300 the account
will be assigned to a senior collector. The predictive dialing system is used to
contact customers if there is a good telephone number on file. If there is not a
good telephone number on file, efforts are made to locate the customer including
calling the nearest relative he or she identified on the credit application.
Accounts are removed from the predictive dialer list after they are 5 payments
or 120 days past due or after 15 days of no contact.
New collectors undergo approximately 10 days of training upon hiring. They
are familiarized with the computer systems, screen layouts and MCC'S collection
philosophy, in addition to using role playing to sharpen listening and
negotiating skills. Upon completion of the classroom instruction, new collectors
are paired with an experienced agent for on the job training.
Team leaders monitor collectors for quality control. These managers
randomly listen to customer calls and review daily activity reports prepared by
collectors.
Collection procedures are determined by an adaptive control system that
uses statistical models and basic account financial information to determine the
steps to be followed at various stages of delinquency. Generally, MCC includes a
request for payment of overdue amounts on billing statements issued after the
account becomes delinquent. In addition, after a period determined by the
control system generally 30 days, MCC mails a separate notice to the cardholder
notifying him or her of the delinquency and possible revocation of his or her
credit card and requesting payment of the delinquent amount. Based on MCC'S
analysis of a cardholder's behavior through the control system, MCC may take any
or all of the above
10
<PAGE>
actions at an earlier point in time. In some cases, depending on the financial
profile of the cardholder and the stated reason for and magnitude of a
delinquency, MCC may enter into arrangements with a delinquent cardholder to
extend or otherwise change the payment schedule.
MCC'S policy is to charge off an account during the billing cycle
immediately following the cycle in which such account became seven payments, or
180 days past due, or 210 days past billing date delinquent. If MCC or DNB-LA.
receives notice that a cardholder is the subject of a bankruptcy proceeding, the
account is charged off as of the billing date following the date on which the
notice is received. Accounts are sent to collection agencies or attorneys. If a
collection agency has not succeeded in collecting on within six months, the
account is assigned to another collection agency.
RECOVERIES
Recoveries may be included in the assets of the trust to the extent, if
any, specified in the applicable series supplement for any series.
YEAR 2000 COMPLIANCE
The Year 2000 issue relates to the inability of information systems to
properly recognize dates beyond December 31, 1999 when processing date-sensitive
information. Many computer systems and software products may not be able to
correctly interpret dates after December 31, 1999 because the year value in a
date in these systems and products is represented by only two digits. Many of
these programs may fail to perform calculations correctly for date values of
January 1, 2000 and later and produce erroneous results. This could temporarily
prevent Dillard's and its subsidiaries from processing business transactions.
The management of Dillard's has recognized the need to address the Year
2000 issue within the internal operational systems of Dillard's and its
subsidiaries as well as with suppliers and other third parties. As with many
other companies, a significant number of Dillard's information systems have
required and will require modification over the next year in order to render
these systems Year 2000 compliant. Dillard's recognizes that failure to timely
resolve internal Year 2000 issues could result in
o an inability of Dillard's to order merchandise;
o to receive and distribute merchandise to its stores;
o to pay for merchandise received;
o to process credit card purchases made with, and payments made with
respect to, private label credit cards issued by the originators; and
o in the worst case, the total inability to sell merchandise and to
otherwise process its daily business for an indeterminate period of time
which could result in default or other events permitting Dillard's
lenders to terminate and accelerate Dillard's credit and accounts
receivable facilities;
each of which could materially and adversely affect Dillard's financial
condition and results of operations. However, Dillard's management presently
believes these scenarios are unlikely based on the progress Dillard's has made
in its Year 2000 compliance process.
Dillard's began initial efforts to address the Year 2000 issue in 1996.
Currently, the computer systems, including both information technology systems
and non-information technology systems, have been assessed and remediation,
testing and implementation of appropriate modifications or replacements for
systems which were evaluated as not being Year 2000 compliant have been
substantially completed. Additionally, Dillard's has obtained letters of
certification from its mission-critical computer system hardware and software
vendors indicating that such systems are Year 2000 compliant.
Non-information technology systems are primarily systems with embedded
processors such as elevators, telephone systems and security systems. At the
present time, the non-information technology systems within the reasonable
control of Dillard's have been substantially remediated, tested and applicable
corrections implemented.
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There are significant risks associated with the Year 2000 issue, many of
which, such as those associated with generating electrical power and
telecommunications, are beyond the reasonable control of Dillard's. Also, the
failure of a significant number of the company's business partners could have a
material adverse impact on the its operations. These risks also are largely
outside the control of Dillard's. Although the company believes its remediation
and contingency planning efforts adequately identify and address the Year 2000
issues that are within its reasonable control, there can be no assurance that
the company's efforts will be fully effective. Due to these significant risks,
Dillard's management is monitoring these efforts very closely. The Audit
Committee of the Board of Directors of Dillard's is periodically updated
concerning the status of the Corporation's Year 2000 efforts.
Dillard's is also addressing the Year 2000 issue with its non-information
technology systems. These systems include among other things, security, fire
prevention, and climate control. The review of these systems is substantially
complete.
With the exception of programs and applications of DNB and DNB-LA., and
based on the company's Year 2000 compliance efforts and project status to date,
Dillard's does not expect to need a significant contingency plan, and none has
been developed. Contingency plans for DNB and DNB-LA. are substantially
complete. However, Dillard's will continue to evaluate the need for contingency
plans as the Year 2000 project continues and will develop and implement
appropriate plans as needed and identified.
The external cost, including payments to equipment and service vendors, of
remediating noncompliant systems incurred thus far is approximately
$1.4 million in total. Dillard's believes the external costs to remediate all
systems will not exceed $2.5 million in total. Additionally, the company will
incur internal costs in connection with its remediation efforts. These internal
costs relate principally to the payroll costs of the information systems group
and other costs related to the normal operation of the company's data centers.
The company does not track these costs separately. All costs associated with
Year 2000 issues will be funded from the company's existing sources of
liquidity.
The company's cost of the Year 2000 project, and the dates on which the
company believes it will substantially complete Year 2000 modifications, are
based on management's best estimates. There is no certainty or guarantee that
these estimates will be achieved, and actual costs could be materially greater
than anticipated. Specific factors that might cause increased costs include, but
are not limited to, the availability and cost of personnel trained in Year 2000
remediation specialties, the ability to locate and correct all relevant computer
programs, non-compliance by merchandise and other suppliers and other third
parties, and similar uncertainties.
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THE RECEIVABLES
The assets of the trust will include
o receivables arising under private label revolving credit card
accounts selected from Dillard's entire portfolio of accounts and
owned by the originators;
o all monies due or to become due in payment of the receivables;
o all proceeds of the receivables;
o all proceeds of any credit insurance policies relating to the
receivables;
o the right to receive recoveries, if any, allocable to the trust if
specified in the prospectus supplement relating to your series;
o all monies on deposit in bank accounts of the trust including:
o any investments in which any monies are invested; and
o investment earnings on these amounts if specified in the
prospectus supplement relating to your series; and
o any credit enhancement for any particular series or class specified
in the prospectus supplement relating to your series.
The receivables will consist of
o principal receivables representing amounts charged by cardholders
for goods and services; and
o finance charge receivables representing
o related periodic finance charges;
o amounts charged or billed to the accounts for credit card fees
including
o late fees; and
o fees for dishonored checks; and
o any recoveries allocable to the trust.
A receivable is deemed to have been created at the end of the day on the
date of processing of that receivable. In calculating the aggregate amount of
principal receivables on any day, the amount of principal receivables is reduced
by the aggregate amount of credit balances in the accounts on that day.
The transferor may treat as finance charge receivables a portion of the
receivables arising in the related accounts that would otherwise be treated as
principal receivables. The fixed or variable percentage of principal receivables
that can be treated as finance charge receivables is specified in the prospectus
supplement relating to your series. If described in the prospectus supplement
relating to your series, finance charges for that series may be equal to, but
not greater than, a fixed percentage of the outstanding balance of some or all
receivables in the trust. See "Description of the Certificates--Discount Option"
and "Dillard's Credit Card Activities--Recoveries."
The receivables conveyed to the trust will arise in accounts selected
according to criteria provided in the pooling and servicing agreement
o as applied initially on the CUT-OFF DATE; and
o for additional ELIGIBLE ACCOUNTS to added to the trust, as of the
related date of their designation by the originators.
The transferor will have the right, subject to limitations and conditions
contained in the agreement, and in some circumstances will be obligated, to
o designate additional accounts from time to time;
o transfer to the trust all existing and future receivables of the
additional accounts; or
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o transfer to the trust participations in lieu of or in addition to those
receivables.
Any additional accounts must be ELIGIBLE ACCOUNTS as of the date the transferor
designates them as additional accounts. See "Description of the
Certificates--Representations and Warranties."
Furthermore, the transferor has the right, subject to limitations and
conditions contained in the agreement, to
o designate accounts for removal from the trust;
o accept the transfer of all existing and future receivables in the
accounts designated for removal; and
o require the trustee to reconvey all existing and future receivables
in the removed accounts to the transferor.
Throughout the term of the trust, the related accounts from which the
receivables arise will be
o the accounts designated by the transferor on the CUT-OFF DATE;
o plus any additional accounts;
o minus any removed accounts.
For each series of certificates, the transferor will represent and warrant to
the trust that, as of the closing date for each series and the date receivables
are conveyed to the trust, the receivables meet eligibility requirements. See
"Description of the Certificates--Representations and Warranties."
The prospectus supplement relating to each series of certificates will
provide information about the trust portfolio as of the date specified. This
information will include, but not be limited to
o the amount of principal receivables;
o the amount of finance charge receivables;
o the range and average of principal balances of the accounts;
o the range and average of credit limits of the accounts;
o the geographic distribution of the accounts;
o the types of accounts; and
o delinquency statistics relating to the accounts.
A maximum of 5% of the aggregate principal balance of the accounts in the
Dillard's portfolio will have characteristics that vary in a manner materially
unfavorable to certificateholders as of the date you make your investment
decision to purchase the certificates.
MATURITY CONSIDERATIONS
Collections of principal receivables for each series are expected to be
o distributed to you as a certificateholder on the distribution date
specified in the prospectus supplement relating to your series
during the CONTROLLED AMORTIZATION PERIOD or the PRINCIPAL
AMORTIZATION PERIOD; or
o accumulated for distribution to you on a scheduled payment date to
one or more classes of certificateholders during an ACCUMULATION
PERIOD consisting of
o a CONTROLLED ACCUMULATION PERIOD and
o under limited circumstances, if specified in the prospectus
supplement relating to your series, a RAPID ACCUMULATION PERIOD.
However, if a PAY OUT EVENT occurs and the RAPID AMORTIZATION PERIOD begins,
collections of principal receivables will be paid to you as a certificateholder
in the manner described below and in the prospectus supplement relating to your
series.
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The related prospectus supplement will specify
o when the CONTROLLED AMORTIZATION PERIOD, PRINCIPAL AMORTIZATION
PERIOD, or ACCUMULATION PERIOD, as applicable, will begin;
o the principal payments expected or available to be received or
accumulated during the CONTROLLED AMORTIZATION PERIOD, PRINCIPAL
AMORTIZATION PERIOD, ACCUMULATION PERIOD, or on the scheduled
payment date;
o the manner and order of principal accumulations and payments among
the classes of a series of certificates;
o the payment rate assumptions on which the expected principal
accumulations and payments are based; and
o the PAY OUT EVENTS which, if any were to occur, would lead to the
commencement of a
o RAPID AMORTIZATION PERIOD; or
o if specified in the related prospectus supplement, a RAPID
ACCUMULATION PERIOD.
No assurance can be given, however, that the principal receivables allocated to
be paid to certificateholders or any specified class of certificateholders will
be available for distribution or accumulation for payment to certificateholders
on each distribution date during the CONTROLLED AMORTIZATION PERIOD, PRINCIPAL
AMORTIZATION PERIOD, ACCUMULATION PERIOD, or on the scheduled payment date, as
applicable.
In addition, the transferor can give no assurance that the payment rate
assumptions for any series will prove to be correct. Unless otherwise specified,
the related prospectus supplement will provide historical data on
o payments by cardholders;
o total charge-offs; and
o other related information concerning Dillard's portfolio of
accounts.
There can be no assurance that future events will be consistent with the
historical data.
The amount of collections of receivables may vary from month to month due
to
o seasonal variations;
o general economic conditions; and
o payment habits of individual cardholders.
There can be no assurance that collections of principal receivables relating to
the trust portfolio of accounts, and thus the rate at which the related
certificateholders can expect to receive or accumulate payments of principal on
their certificates during an AMORTIZATION PERIOD or ACCUMULATION PERIOD, or on
any scheduled payment date, as applicable, will be similar to any historical
experience provided in the prospectus supplement relating to your series. If a
PAY OUT EVENT occurs, the average life and maturity of a series of certificates
could be significantly reduced.
The actual payment rate for any series of certificates may be slower than
the payment rate used to determine
o the amount of collections of principal receivables scheduled or
available to be distributed during the CONTROLLED AMORTIZATION
PERIOD or PRINCIPAL AMORTIZATION PERIOD; or
o accumulated for later payment to certificateholders or any specified
class of certificateholders during an ACCUMULATION PERIOD or on the
scheduled payment date, as applicable.
A PAY OUT EVENT may occur which would initiate the RAPID AMORTIZATION
PERIOD. There can be no assurance that the actual number of months elapsed
from the date of issuance of your series of certificates to the final
distribution date for the certificates will equal the expected number of
months. In addition, if after the issuance of a series, a related companion
series is issued and a RAPID AMORTIZATION PERIOD commences, payments to the
certificateholders of the companion series may be delayed. See "Description
of the Certificates--Companion Series."
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USE OF PROCEEDS
The net proceeds from the sale of each series of certificates will be used
in the manner specified in the related prospectus supplement.
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued in series. Each series will represent an
interest in the trust other than the interests represented by any other series
of certificates issued by the trust or the transferor certificate. Each series
will be issued pursuant to the pooling and servicing agreement and a series
supplement to the agreement. The following is a summary of the material
provisions of the agreement and those common to each series of certificates.
GENERAL
The assets of the trust will be allocated among the
o certificateholders of each series of the trust;
o holder of the transferor certificate of the trust; and
o the credit enhancement provider, if any, described in the prospectus
supplement relating to your series.
The transferor certificate
o will be owned initially by the transferor;
o will represent the undivided interest in the trust not represented
by
o the certificates issued and outstanding under the trust or
o the rights, if any, of any credit enhancement providers to
receive payments from the trust;
o will entitle its holder to a percentage equal to this individual
interest of all cardholder payments from the receivables in the
trust; and
o may, if provided in the related prospectus supplement, be
transferred in whole or in part subject to limitations and
conditions in the agreement.
The certificates of each series
o will represent interests in the trust only;
o will not represent interests in or obligations of the transferor,
Dillard's or any of its affiliates;
o are not insured or guaranteed by the FDIC or any other governmental
agency;
o will represent the right to receive, on a monthly basis, the
respective certificateholder's portion of the collections of
o finance charge receivables;
o principal receivables; and
o defaulted accounts;
o to the extent needed to make required payments under the
agreement and the related series supplement relating to your
series; and
o subject to any reallocation of such amounts if provided in the
series supplement relating to your series;
o will be paid interest and principal
o on distribution dates;
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o to certificateholders in whose names the certificates were
registered on the record dates; and
o in the amounts, for the periods and on the dates specified in the
related prospectus supplement;
o will be represented by certificates registered in the name of the
nominee of DTC unless otherwise specified in the prospectus
supplement relating to your series and except as described below;
o will be available for beneficial ownership in minimum denominations
and integral multiples of $1,000; and
o will be available in book-entry form only unless otherwise specified
in the prospectus supplement relating to your series.
The investor interest
o in the trust will remain constant for each series of certificates
during the REVOLVING PERIOD except under limited circumstances or as
otherwise specified in the related prospectus supplement; and
o for a series will decline while the series is amortizing as customer
payments of principal receivables are collected and distributed to
or accumulated for distribution to the certificateholders.
The transferor interest
o will fluctuate each day to reflect the changes in the amount of the
principal receivables in the trust which will vary each day as new
principal receivables in the applicable accounts are created and
others are paid;
o will generally increase to reflect reductions in the investor
interest for such series; and
o may also be reduced as the result of an exchange.
The related prospectus supplement will specify the investor percentages for
the allocation of collections of
o principal receivables;
o finance charge receivables; and
o receivables in defaulted accounts
during the REVOLVING PERIOD, any AMORTIZATION PERIOD and any ACCUMULATION
PERIOD, as applicable. If the offered certificates of a series include more than
one class of certificates, the assets of the trust allocable to the certificates
may be further allocated among each class in the series as described in the
prospectus supplement.
See "Description of the Certificates--Investor Percentage and Transferor
Percentage; --Matters Regarding the transferor and the Servicer; --Defaulted
Receivables; --Rebates and Fraudulent Charges;
- --Investor Charge-Offs; and --Exchanges."
The transferor has been informed by DTC that DTC's nominee will be Cede.
Accordingly, Cede is expected to be the holder of record of each series of
certificates. No owner of beneficial interests in the certificates will be
entitled to receive a certificate representing the person's interest in the
certificates. Unless and until certificates in fully registered, certificated
form are issued for any series under the limited circumstances described in this
prospectus, all references to actions by certificateholders will refer to
actions taken by DTC upon instructions from the DTC participants, and all
references to distributions, notices, reports and statements to
certificateholders will refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the certificates for distribution to
certificate owners as required by DTC procedures. See "--Book-Entry
Registration" and "--Definitive Certificates."
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If so specified in the prospectus supplement relating to a series,
application will be made to list one or more classes of the certificates of the
series on the Luxembourg Stock Exchange, or all or a portion of one or more
classes of the series on any other exchange specified in the prospectus
supplement.
BOOK-ENTRY REGISTRATION
Certificateholders may hold their certificates through DTC in the United
States, or Cedelbank or Euroclear in Europe if they are participants of these
systems, or indirectly through organizations that are participants in such
systems or as otherwise described in the prospectus supplement relating to your
series.
Cede & Co., as nominee for DTC, will hold the certificates in global form.
Cedelbank and Euroclear will hold omnibus positions on behalf of the Cedelbank
customers and the Euroclear participants through customers' securities accounts
in Cedelbank's and Euroclear's names on the books of their depositaries which in
turn will hold these positions in customers' securities accounts in the
depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a banking organization within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a clearing corporation within the meaning
of the New York Uniform Commercial Code and a clearing agency registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended. DTC holds securities for its participants and facilitates the
clearance and settlement among DTC participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic book-entry
changes in DTC participants' accounts, eliminating the need for physical
movement of securities certificates. DTC participants include securities brokers
and dealers, banks, trust companies, clearing corporations and other
organizations. Indirect access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a DTC participant, either
directly or indirectly. The rules applicable to DTC and the DTC participants are
on file with the Securities and Exchange Commission.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Cedelbank customers and Euroclear participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures. Cross-market transfers between persons holding directly or
indirectly through DTC participants, on the one hand, and directly or indirectly
through Cedelbank customers or Euroclear participants, on the other, will be
effected by DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its depositary; however, the cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in the system in accordance
with its rules and procedures and within its established European time
deadlines. The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
depositary to take action to effect final settlement on its behalf by delivering
securities to or receiving securities from DTC, and making or receiving payment
in accordance with normal procedures for same-day funds settlement applicable to
DTC. Cedelbank customers and Euroclear participants may not deliver instructions
directly to the depositaries.
Because of time-zone differences, credits of securities in Cedelbank or
Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Cedelbank customer or Euroclear participant on such day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank customer or a Euroclear participant will be received with value on the
DTC settlement date but will be available in the relevant Cedelbank or Euroclear
cash account only as of the business day following settlement in DTC.
Purchases of certificates under the DTC system must be made by or through
DTC participants, which will receive a credit for the certificates on DTC's
records. The ownership interest of each actual certificate Owner is in turn to
be recorded on the DTC participants' and Indirect Participants' records.
Certificate owners will not receive written confirmation from DTC of their
purchase, but certificate owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
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holdings, from the DTC participant or Indirect Participant through which the
certificate owner entered into the transaction. Transfers of ownership interests
in the certificates are to be accomplished by entries made on the books of DTC
participants acting on behalf of certificate owners. Certificate owners will not
receive certificates representing their ownership interest in certificates,
except in the event that use of the book-entry system for the certificates is
discontinued.
To facilitate subsequent transfers, all certificates deposited by DTC
participants with DTC are registered in the name of DTC's nominee, Cede. The
deposit of certificates with DTC and their registration in the name of Cede
effects no change in beneficial ownership. DTC has no knowledge of the actual
certificate owners of the certificates; DTC's records reflect only the identity
of the DTC participants to whose accounts such certificates are credited, which
may or may not be the certificate owners. The DTC participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC participants,
by DTC participants to Indirect Participants, and by DTC participants and
Indirect Participants to certificate owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede will consent or vote with respect to certificates.
Under its usual procedures, DTC mails an omnibus proxy to the transferor as soon
as possible after the record date, which assigns Cede's consenting or voting
rights to those DTC participants to whose accounts the certificates are credited
on the record date which is identified in an attached listing.
Principal and interest payments on the certificates will be made to DTC.
DTC's practice is to credit DTC participants' accounts on the applicable
distribution date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on the
distribution date. Payments by DTC participants to certificate owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
street name and will be the responsibility of the DTC participant and not of
DTC, the trustee or the transferor, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal and
interest to DTC is the responsibility of the trustee, disbursement of such
payments to DTC participants shall be the responsibility of DTC, and
disbursement of such payments to certificate owners shall be the responsibility
of DTC participants and indirect participants.
DTC may discontinue providing its services as securities depository with
respect to the certificates at any time by giving reasonable notice to the
transferor or the trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, definitive certificates are
required to be printed and delivered. The transferor may decide to discontinue
use of the system of book-entry transfers through DTC or a successor securities
depository. In that event, definitive certificates will be delivered to
certificateholders. See "--Definitive Certificates."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the transferor believes to be reliable, but
the transferor takes no responsibility for the accuracy thereof.
Cedelbank is incorporated under the laws of Luxembourg as a professional
depository. Cedelbank holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedelbank customers through electronic book-entry changes in accounts of
Cedelbank customers, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedelbank in any of 36 currencies,
including United States dollars. Cedelbank provides to its Cedelbank customers,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedelbank deals with domestic markets in over 30 countries through
established depository and custodial relationships. Cedelbank has established an
electronic bridge with Morgan Guaranty Trust as the Operator of the Euroclear
System in Brussels to facilitate settlement of trades between Cedelbank and
Morgan Guaranty Trust. Cedelbank currently accepts over 110,000 securities
issues on its books. As a professional depository, Cedelbank is subject to
regulation by the Luxembourg Commission for the Supervision of the Financial
Sector, which supervises Luxembourg
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banks. Cedelbank customers are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations and may include the
underwriters of any series of certificates. Cedelbank customers in the United
States are limited to securities brokers and dealers and banks. Currently,
Cedelbank has approximately 2,000 customers located in over 80 countries,
including all major European countries, Canada and the United States. Indirect
access to Cedelbank is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Cedelbank customer, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 34 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by the Euroclear Operator,
Morgan Guaranty Trust Company of New York's Brussels, Belgium office, under
contract with Euro-clear Clearance System, S.C., a Belgian cooperative
corporation. All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear participants. Euroclear
participants include banks including central banks, securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any series of certificates. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law.
These terms and conditions govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear System,
and receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under these terms and conditions only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Distributions for certificates held through Cedelbank or Euroclear will be
credited to the cash accounts of Cedelbank customers or Euroclear participants
in accordance with the relevant system's rules and procedures, to the extent
received by its depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See "Federal
Income Tax Consequences." Cedelbank or the Euroclear Operator, as the case may
be, will take any other action permitted to be taken by a certificateholder
under the pooling and servicing agreement on behalf of a Cedelbank customer or
Euroclear participant only in accordance with its relevant rules and procedures
and subject to its depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
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DEFINITIVE CERTIFICATES
The certificates of each series will be issued as definitive certificates
in fully registered, certificated form to certificate owners or their nominees
rather than to DTC or its nominee, only if
o the transferor advises the trustee for the series in writing that
o DTC is no longer willing or able to discharge properly its
responsibilities as depository for the series of certificates;
and
o the trustee or the transferor is unable to locate a qualified
successor;
o the transferor, at its option, advises the trustee in writing that
it elects to terminate the book-entry system through DTC;
o after the occurrence of a servicer default, certificate owners
representing not less than 50%, or a percentage specified in the
prospectus supplement relating to your series, of the Investor
Interest advise the trustee and DTC through DTC participants in
writing that the continuation of a book-entry system through DTC or
its successor is no longer in the best interest of the certificate
owners; or
o otherwise specified in the related prospectus supplement.
Once any of the events described in the immediately preceding paragraph
occurs, DTC is required to notify all DTC participants of the availability
through DTC of definitive certificates. Upon surrender by DTC of the definitive
certificate representing the certificates and instructions for re-registration,
the trustee will issue the certificates as definitive certificates, and the
trustee will then recognize the holders of the definitive certificates as
holders under the pooling and servicing agreement.
Distribution of principal and interest on the certificates will be made by
the trustee directly to holders of definitive certificates in accordance with
the procedures described here and in the pooling and servicing agreement.
Interest payments and any principal payments on each distribution date will be
made to holders in whose names the definitive certificates were registered at
the close of business on the related record date. Distributions will be made by
check mailed to the address of such holder as it appears on the register
maintained by the trustee or, if the holder holds more than an aggregate
principal amount of such definitive certificates to be specified in the pooling
and servicing agreement, by wire transfer to the holder's account. The final
payment on any certificate, whether definitive certificates or the certificates
registered in the name of Cede representing the certificates, however, will be
made only upon its presentation and surrender at the office or agency specified
in the notice of final distribution to certificateholders. The trustee will
provide such notice to registered certificateholders not later than the fifth
day of the month of the final distributions. In addition, if the certificates
are listed on the Luxembourg Stock Exchange, payments of principal and interest,
including the final payment on any certificate, will also be made at the offices
of Banque Generale du Luxembourg, S.A.
Definitive certificates will be transferable and exchangeable at the
offices of any of the transfer agents and registrars, which will initially be
and the trustee, respectively. No service charge will be imposed for any
registration of transfer or exchange, but the transfer agent and registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith. The transfer agent and registrar will
not be required to register the transfer or exchange of definitive certificates
for a period of fifteen days preceding the due date for any payment on the
definitive certificates.
INTEREST PAYMENTS
For each series and class of certificates, interest will
o accrue from the date specified in the prospectus supplement relating
to your series on the applicable investor interest at the applicable
certificate rate, which may be a fixed, floating or other type of
rate as specified in the prospectus supplement relating to your
series;
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o be distributed to certificateholders in the amounts and on the
distribution dates, which may be monthly, quarterly, semiannually or
as otherwise specified in the prospectus supplement relating to your
series; and
o be funded from:
o collections of finance charge receivables allocated to the
investor interest during the preceding monthly period or monthly
periods;
o one or more interest funding accounts used to deposit collections
or other amounts pending distribution to the certificateholders
of the series or class as described in the prospectus supplement
relating to your series, or the portion allocable to the class,
if the distribution dates for payment of interest for the series
or class occur less frequently than monthly; and
o some of the investment earnings on funds held in accounts of the
trust and from any applicable credit enhancement, if necessary,
or other amounts as specified in the prospectus supplement
relating to your series.
The prospectus supplement relating to your series will specify
o whether your series, if it has more than one class of certificates,
will have a separate interest funding account for each class; and
o describe for your series and class
o the amounts and sources of interest payments to be made to you;
o the certificate rate for each class; and
o for a series or each class bearing interest at a floating
certificate rate
o the initial certificate rate;
o the dates and the manner for determining later certificate
rates;
o the formula, index or other method for determining the
certificate rates; and
o any cap or other limitations on any certificate rate.
PRINCIPAL PAYMENTS
The principal of the certificates of each offered series
o will be scheduled to be repaid either
o in installments commencing on a principal commencement date
specified in the prospectus supplement relating to your series in
which case the series will have either a
o CONTROLLED AMORTIZATION PERIOD or
o PRINCIPAL AMORTIZATION PERIOD; or
o on an expected scheduled payment date specified in, or determined
in the manner specified in, the prospectus supplement relating to
your series in which case the series will have an ACCUMULATION
PERIOD, as described below;
o will not be repaid to certificateholders during the Revolving Period
unless otherwise provided for in the prospectus supplement relating
to your series; and
o will be repaid from collections of principal receivables received
during the related monthly period or periods as specified in the
prospectus supplement relating to your series and allocated to the
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series or class and from other sources specified in the prospectus
supplement relating to your series which will be:
o distributed to the certificateholders in the amounts and on
distribution dates specified in the prospectus supplement
relating to your series; or
o accumulated in a principal funding account established for the
benefit of the certificateholders for later distribution to
certificateholders on the scheduled payment date in the amounts
specified in the prospectus supplement relating to your series.
If a PAY OUT EVENT occurs and the RAPID AMORTIZATION PERIOD begins for
the series or class or under other circumstances described here, principal:
o may begin to be repaid earlier than the applicable principal
commencement date or scheduled payment date; and
o may be repaid in full later than the applicable expected payment
date, scheduled payment date or other expected date.
If a series has more than one class of certificates, each class may have a
different:
o method of paying principal;
o principal commencement date; or
o scheduled payment date.
The prospectus supplement relating to your series will describe the manner,
timing and priority of payments of principal to certificateholders of each
class.
REVOLVING PERIOD
o The REVOLVING PERIOD will begin on the closing date and end with the
commencement of an AMORTIZATION PERIOD or an ACCUMULATION PERIOD.
o No principal will be payable to certificateholders until the principal
commencement date or the scheduled payment date for the series or class,
as described below, unless otherwise provided for in the related
prospectus supplement.
o As described in this prospectus and in the prospectus supplement relating
to your series, collections of principal receivables not allocable to the
investor interest will, subject to limitations in the agreement,
o be paid from the trust to the holder of the transferor certificate;
or
o if specified in the prospectus supplement relating to your series,
will be treated as SHARED PRINCIPAL COLLECTIONS and paid to the
holders of other series of certificates issued by the trust.
See "Description of the Certificates--Pay Out Events" in this prospectus and the
prospectus supplement relating to your series for a discussion of the events
which might lead to early termination of the Revolving Period.
CONTROLLED AMORTIZATION PERIOD
The prospectus supplement relating to your series or class of certificates
may specify a CONTROLLED AMORTIZATION PERIOD:
o which will commence at the close of business on a date specified in
the related prospectus supplement and continue until the earliest of
o the commencement of the RAPID AMORTIZATION PERIOD;
o payment in full of the investor interest of the certificates of
such series or class and, if so specified in the prospectus
supplement relating to your series, of the collateral interest,
if any, for the series; and
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o the SERIES TERMINATION DATE for your series; and
o during which the CONTROLLED AMORTIZATION AMOUNT will be distributed
to certificateholders then scheduled to receive distributions
consisting of principal distributions
o on each distribution date from:
o collections of principal receivables allocable to the
respective investor interest; and
o other amounts if so specified in the prospectus supplement;
o in an amount equal to
o the CONTROLLED AMORTIZATION AMOUNT specified in the related
prospectus supplement;
o plus any existing deficit CONTROLLED AMORTIZATION AMOUNT
arising from prior distribution dates; and
o in the priority among the classes as provided for in the
prospectus supplement relating to your series.
PRINCIPAL AMORTIZATION PERIOD
The prospectus supplement relating to your series or class of certificates
may specify a PRINCIPAL AMORTIZATION PERIOD:
o which will commence at the close of business on a date specified in
the related prospectus supplement and continue until the earliest of
o the commencement of the RAPID AMORTIZATION PERIOD;
o payment in full of the investor interest of the certificates of
such series or class and, if specified in the prospectus
supplement relating to your series, of the collateral interest,
if any, for the series; and
o the SERIES TERMINATION DATE for your series; and
o during which principal distributions will be made to
certificateholders then scheduled to receive principal payments in
amounts and in the order among the classes determined in the manner
specified in the prospectus supplement relating to your series on
each distribution date from
o collections of principal receivables allocable to the respective
investor interest; and
o other amounts if specified in the prospectus supplement relating
to your series.
ACCUMULATION PERIOD
The prospectus supplement relating to your series or class of certificates
may specify an ACCUMULATION PERIOD:
o which will commence at the close of business on a date specified in
or determined in the manner specified in the prospectus supplement
relating to your series and continue until the earliest of
o the commencement of the RAPID AMORTIZATION PERIOD, or, if so
specified in the related prospectus supplement, the RAPID
ACCUMULATION PERIOD;
o payment in full of the investor interest of the certificates of
the series or class and, if so specified in the prospectus
supplement relating to your series, of the collateral interest,
if any, for the series; and
o the SERIES TERMINATION DATE for the series; and
o during which distributions of principal will be made to
certificateholders of the series or class on the scheduled payment
date
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o from the PRINCIPAL FUNDING ACCOUNT:
o representing collections of
o principal receivables allocable to the investor
interest of the series; and
o other amounts if specified in the prospectus
supplement relating to your series;
o deposits into which will be made on the business day
immediately prior to each distribution date or other business
day specified in the related prospectus supplement which, for
each transfer date, will be limited to the CONTROLLED DEPOSIT
AMOUNT which is equal to:
o the CONTROLLED ACCUMULATION AMOUNT specified in the
prospectus supplement relating to your series;
o plus any deficit CONTROLLED ACCUMULATION AMOUNT from
prior distribution dates;
o funds in which may be
o invested in permitted investments subject to a
guaranteed rate or investment contract or other
arrangement intended to assure a minimum return on
the investment of such funds; and
o investment earnings from which may be applied to pay interest
on the series of certificates; and
o in the order among the classes as provided for in the prospectus
supplement relating to your series.
Your series or class may be subject to a principal payment guaranty or other
similar arrangement in order to enhance the likelihood of payment in full of
principal at the end of an ACCUMULATION PERIOD if specified in the prospectus
supplement relating to your series. If a series has more than one class of
certificates, each class may have a separate principal funding account and an
account for the CONTROLLED ACCUMULATION AMOUNT. In addition, the related
prospectus supplement may describe priorities among the classes with respect to
deposits of principal into the principal funding accounts.
RAPID ACCUMULATION PERIOD
The prospectus supplement relating to a series or a class with a CONTROLLED
ACCUMULATION PERIOD may specify a RAPID ACCUMULATION PERIOD which will commence
from the day on which a PAY OUT EVENT has occurred and continue until the
earliest of:
o the commencement of the RAPID AMORTIZATION PERIOD;
o payment in full of the investor interest of the certificates of the
series and, if so specified in the prospectus supplement relating to
your series, of the collateral interest, if any, for the series; and
o the related SERIES TERMINATION DATE.
During this period distributions of principal will be made to
certificateholders of the series or class on the scheduled payment date from
deposits in the principal funding account.
o representing collections of
o principal receivables allocable to the investor interest of the
series; and
o other amounts if specified in the prospectus supplement relating
to your series; and
o deposits into which will be made on the business day immediately
prior to each distribution date or other business day specified in
the prospectus supplement relating to your series which will not be
limited to the CONTROLLED DEPOSIT AMOUNT.
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o funds in which may be invested in permitted investments subject to a
guaranteed rate or investment contract or other arrangement intended
to assure a minimum return on the investment of such funds; and
o investment earnings from which may be applied to pay interest on the
series of certificates.
The series or class may be subject to a principal payment guaranty or other
similar arrangement in order to enhance the likelihood of payment in full of
principal at the end of a respective RAPID ACCUMULATION PERIOD.
See "Description of the Certificates--Pay Out Events" in this prospectus and the
prospectus supplement relating to your series for a discussion of the events
which might lead to commencement of a Rapid Accumulation Period.
RAPID AMORTIZATION PERIOD
There will be a RAPID AMORTIZATION PERIOD
o beginning on
o the day on which a PAY OUT EVENT has occurred for a series; or
o if so specified in the prospectus supplement relating to a series
with a CONTROLLED ACCUMULATION PERIOD, from the time specified in
the related prospectus supplement
o after a PAY OUT EVENT has occurred; and
o the RAPID ACCUMULATION PERIOD has commenced;
o until the earlier of
o the date on which the investor interest of the certificates of
the series and the ENHANCEMENT INVESTED AMOUNT or the collateral
interest, if any, for the series have been paid in full; and
o the related SERIES TERMINATION DATE
o during which distributions of principal will be made
o to certificateholders of the series or class and, when
applicable, to the CREDIT ENHANCEMENT provider
o monthly on or before each distribution date for the series in the
manner and order set out in the prospectus supplement relating to
your series
o from collections of principal receivables allocable to the
series' investor interest and other amounts if specified in the
prospectus supplement relating to your series
o without being limited by any
o CONTROLLED DEPOSIT AMOUNT or
o CONTROLLED AMORTIZATION AMOUNT; and
o the first distribution date during which any and all funds on
deposit in a principal funding account for the series or any class
will be paid to the certificateholders of the series or class.
See "Description of the Certificates-Pay Out Events" in this prospectus and the
prospectus supplement relating to your series for a discussion of the events
which might lead to commencement of the Rapid Amortization Period.
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TRANSFER AND ASSIGNMENT OF RECEIVABLES
The transferor transferred and assigned at the time of formation of the
trust all of its right, title and interest in and to all
o existing receivables in the related accounts; and
o unless otherwise specified in the prospectus supplement relating to
your series, future receivables in the accounts.
The transferor obtained its interest in these receivables under the PURCHASE
AGREEMENTS.
See "Description of the Purchase Agreements" in this prospectus.
In connection with each initial transfer and in connection with each
subsequent transfer of receivables to the trust, the transferor
o has indicated in its computer files that the related receivables
have been conveyed to the trust;
o has provided to the trustee computer files or microfiche lists,
containing a true and complete list showing each account, identified
by account number and by total outstanding balance on the date of
transfer;
o will not deliver to the trustee any other records or agreements
relating to the accounts or the receivables, except in connection
with additions or removals of accounts;
o except as stated above, will not segregate the records and
agreements relating to the accounts and the receivables maintained
by the transferor or the servicer from other documents and
agreements relating to other credit card accounts and receivables;
o except as stated above, will not stamp or mark to reflect the
transfer of the receivables to the trust; and
o will file UNIFORM COMMERCIAL CODE financing statements for the
receivables meeting the requirements of applicable state law.
See "Risk Factors--Transfer of Receivables" in the prospectus supplement
relating to your series and "Legal Aspects of the Receivables" for a description
of the risks associated with these transfer procedures and the impact on your
certificates.
EXCHANGES
For each series, the pooling and servicing agreement will provide for the
trustee to issue two types of certificates:
o one or more series of certificates which are
o transferable; and
o have the characteristics described below; and
o the transferor certificate which
o evidences the transferor interest;
o initially will be held by the transferor; and
o will be transferable only as provided in the pooling and
servicing agreement.
The prospectus supplement relating to your series may also provide that the
holder of the transferor certificate may
o exchange
o the transferor certificate; or
o the transferor certificate and the certificates evidencing any
series of certificates issued by the trust;
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o for
o one or more new series which may include series offered pursuant
to this prospectus; and
o a reissued transferor certificate;
o pursuant to any one or more series supplements; and
o without obtaining any consent from any certificateholder of any
series previously outstanding from the trust.
For each exchange, the transferor will
o specify all the principal terms of the new series to be issued;
o deliver to the trustee confirmation that the exchange will not
result a rating agency lowering any rating of any previously issued
series and comply with the other exchange requirements in the
agreement;
o offer the new series under a prospectus or other disclosure document
in offerings pursuant to this prospectus or in transactions either
registered under or exempt from the Securities Act of 1933, as
amended directly, through one or more other underwriters or
placement agents, in fixed-price offerings or in negotiated
transactions or other method;
o establish a period during which amortization or accumulation of the
principal amount thereof is intended to occur which may have a
different length and begin on a different date than the period for
any other series;
The pooling and servicing agreement also provides that
o the trustee will hold any form of credit enhancement only on behalf
of the series with respect to which it relates;
o the holder of the transferor certificate may
o deliver a different form of credit enhancement agreement for each
series;
o specify different certificate rates and monthly servicing fees
for each series or a particular class within the series; and
o vary between series the terms upon which a series or a particular
class within a series may be repurchased by the transferor;
o one or more series may
o be in their amortization or accumulation periods while other
series are not; and
o have the benefit of a credit enhancement which is available only
to that series;
o some series may be subordinated to other series, or classes within a
series may have different priorities;
o there will be no limit to the number of exchanges that may be
performed;
o the holder of the transferor certificate may perform an exchange by
notifying the trustee at least three days in advance of the date
upon which the exchange is to occur:
o the designation of any series to be issued on the date of the
exchange; and
o with respect to each series and, if applicable, each class of
each series:
o its initial principal amount, or method for calculating the
amount, which amount may not be greater than the current
principal amount of the transferor certificate;
o its certificate rate or method of calculating the rate; and
o the provider of credit enhancement, if any, which is expected
to provide support with respect to it;
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o the trustee will authenticate any series only upon delivery to it of
the following items,
o a series supplement specifying the principal terms of the series;
o an opinion of counsel that states, unless otherwise stated in the
series supplement, the certificates of the series will be
characterized as indebtedness for federal income tax purposes;
and
o an opinion of counsel that states, for federal income tax
purposes,
o the issuance will not adversely affect the tax
characterization as debt of certificates of any outstanding
series or class that were characterized as debt at the time of
their issuance;
o following such issuance, the trust will not be deemed to be an
association or publicly traded partnership taxable as a
corporation;
o the issuance will not cause or constitute an event in which
gain or loss would be recognized by any certificateholder or
the trust;
o if required by the related series supplement, the form of credit
enhancement;
o if credit enhancement is required by the series supplement, an
appropriate credit enhancement agreement executed by the
transferor and the issuer of the credit enhancement;
o written confirmation from each rating agency that the exchange
will not result in the rating agency's reducing or withdrawing
its rating on any then outstanding series rated by it;
o an officer's certificate of the transferor to the effect that
after giving effect to the exchange the transferor would not be
required to add additional accounts pursuant to the pooling and
servicing agreement and the transferor interest would be at least
equal to at a specified minimum transferor interest; and
o the existing transferor certificate and, if applicable, the
certificates representing the series to be exchanged;
o upon satisfaction of the above conditions, the trustee will cancel
the existing transferor certificate and the certificates of the
exchanged series, if applicable, and authenticate the new series and
a new transferor certificate.
REPRESENTATIONS AND WARRANTIES
Subject to limited and specified exceptions and limitations, the transferor
makes representations and warranties to the trust in the pooling and servicing
agreement to the effect that, among other things:
o the transferor
o is duly organized and in good standing;
o has or had the power and authority to:
o execute, deliver and perform its obligations under the pooling
and servicing agreement and PURCHASE AGREEMENTS; and
o transfer the receivables to the trust; and
o consummate the other transactions contemplated by the pooling
and servicing agreement and the PURCHASE AGREEMENTS.
o the execution, delivery and performance of the transferor's
obligations under the pooling and servicing agreement and PURCHASE
AGREEMENTS:
o will not materially conflict with or constitute a material
default under any instrument, contract or agreement to which the
transferor is a party; and
o will not violate any requirements of law applicable to the
transferor; and
o no proceedings are pending or, to the best of the transferor's
knowledge, threatened, against the transferor before any court
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o asserting the invalidity of the certificates of the series;
o seeking to prevent the consummation of the transactions
contemplated by the pooling and servicing agreement or PURCHASE
AGREEMENTS; or
o seeking any determination or ruling that would materially and
adversely affect the validity or enforceability of the agreement
or PURCHASE AGREEMENTS.
If any of these representations and warranties
o proves to have been incorrect in any material respect when made;
o continues to be incorrect for 60 days after notice to the transferor
by the related trustee or to the transferor and the related trustee
by the certificateholders holding more than 50% of the investor
interest of the related series, and
o as a result the interests of the certificateholders are materially
and adversely affected and continue to be materially and adversely
affected during the 60 day period;
then the trustee or certificateholders holding more than 50% of the investor
interest may give notice to the transferor, and to the related trustee in the
latter instance, declaring that a PAY OUT EVENT has occurred and commencing the
RAPID AMORTIZATION PERIOD.
The transferor makes representations and warranties to the trust relating
to the receivables in the trust including that,
o as of the CUT-OFF DATE, or as of the date of the designation of
additional accounts, each applicable account was an ELIGIBLE
ACCOUNT;
o as of the closing date of the initial transfer of the receivables to
the trust, each of the receivables then existing in the applicable
accounts is an ELIGIBLE RECEIVABLE; and
o as of the date of creation of any new receivable, the new receivable
is an ELIGIBLE RECEIVABLE and the representations and warranties
below relating to the transfer of the receivables constituting
either a valid transfer and assignment or a grant of a first
priority perfected security interest is true and correct with
respect to the receivable.
If as a result of a breach of any representation and warranty set out in the
paragraph above:
o the receivables in the related accounts are charged off as
uncollectible;
o the trust's rights in, to or under the receivables or its proceeds
are impaired; or
o the proceeds of the receivables are not available for any reason to
the trust free and clear of any lien;
then
o within 60 days, or a longer period as may be agreed to by the
trustee, of the earlier to occur of
o the discovery of the breach by the transferor or servicer; or
o receipt by the transferor of written notice of the breach given
by the trustee; or
o with respect to breaches relating to prior liens, immediately upon
the earlier to occur of the discovery or notice; and
the transferor will accept reassignment of each principal receivable of the
INELIGIBLE RECEIVABLE on the terms and conditions set out below; provided that
no such reassignment shall be required to be made with respect to the INELIGIBLE
RECEIVABLE if, on any day within the applicable period or a longer period as may
be agreed to by the trustee, the representations and warranties for the
INELIGIBLE RECEIVABLE will then be true and correct in all material respects.
The transferor will accept reassignment of each INELIGIBLE RECEIVABLE by
o directing the servicer to deduct the amount of each INELIGIBLE
RECEIVABLE from the aggregate amount of principal receivables used
to calculate the transferor interest until the transferor interest
is zero; and
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o the transferor making a deposit in the principal account in
immediately available funds in an amount equal to the amount by
which the transferor interest would have been reduced below zero.
Any deduction or deposit will be considered a repayment in full of the
INELIGIBLE RECEIVABLE. The obligation of the transferor to accept reassignment
of any INELIGIBLE RECEIVABLE is the sole remedy for any breach of the
representations and warranties set out above for the receivable available to the
certificateholders or the trustee on behalf of certificateholders.
The transferor makes representations and warranties to the trust to the
effect, among other things, that as of the closing date of the initial series of
certificates issued by the trust
o the agreement will constitute a legal, valid and binding obligation
of the transferor; and
o the transfer of receivables by the transferor to the trust will
constitute either
o a valid transfer and assignment to the trust of all right, title
and interest of the transferor in and to existing and future
receivables, other than receivables in additional accounts, and
the proceeds of receivables, including amounts in any of the
accounts established for the benefit of certificateholders; or
o the grant of a first priority perfected security interest in the
receivables, except for tax liens, and the proceeds of
receivables, including amounts in any of the accounts established
for the benefit of certificateholders, which is effective as to
each receivable upon the creation of the security interest.
In the event of a breach of any of the representations and warranties described
immediately above, either
o the trustee; or
o the holders of certificates evidencing undivided interests in the
trust aggregating more than 50% of the aggregate investor interest
of all series outstanding under the trust
may direct the transferor to accept reassignment of the trust portfolio within
60 days of the notice, or within a longer period specified in the notice.
The transferor will be obligated to accept reassignment of the receivables
on a distribution date occurring within the applicable period. The reassignment
will not be required to be made, however, if at any time during the applicable
period, or some longer period provided, the representations and warranties will
then be true and correct in all material respects. The deposit amount for the
reassignment will be equal to
o the investor interest and ENHANCEMENT INVESTED AMOUNT, if any for
each series outstanding under the trust on the last day of the
monthly period preceding the distribution date on which the
reassignment is scheduled to be made
o less the amount, if any, previously allocated for payment of
principal to the certificateholders on the distribution date;
o plus an amount equal to all accrued and unpaid interest;
o less the amount, if any, previously allocated for payment of the
interest on the distribution date.
The payment of the reassignment deposit amount and the transfer of all
other amounts deposited for the preceding month in the distribution account will
be
o considered a payment in full of the investor interest and the
ENHANCEMENT INVESTED AMOUNT, if any, for each series required to be
repurchased; and
o distributed upon presentation and surrender of the certificates for
each of the series.
The obligation of the transferor to make this deposit will constitute the sole
remedy for a breach of the representations and warranties described in this
paragraph available to the trustee or the certificateholders.
The definition of ELIGIBLE ACCOUNT may be changed by amendment to the
agreement without the consent of the related certificateholders if
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o the transferor delivers to the trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of
the transferor, the amendment will not as of the date of the
amendment adversely affect in any material respect the interest of
the certificateholders; and
o the amendment will not result in a withdrawal or reduction of the
rating of any outstanding series under the trust.
Unless otherwise specified in the prospectus supplement relating to your
series, it will not be required or anticipated that the trustee will make any
initial or periodic general examination of the receivables or any records
relating to the receivables for the purpose of establishing
o the presence or absence of defects;
o compliance with the transferor's representations and warranties; or
o for any other purpose.
The servicer, however, will deliver to the trustee on or before March 31 of each
year or another date specified in the related prospectus supplement an opinion
of counsel as to the validity of the security interest of the trust in and to
the receivables and other components of the trust specified in the opinion.
ADDITION OF TRUST ASSETS
As described above under "The Receivables" additional accounts will be
included as accounts for the trust:
o from time to time at the option of the transferor; and
o as required under the circumstances and in the amounts specified in
the prospectus supplement for a particular series;
o without satisfying the RATING AGENCY CONDITION so long as the net
account additions to the trust on a quarterly or annual basis do not
exceed pre-set limits specified in the pooling and servicing
agreement;
o at which time, the transferor will convey to the trust its interest
in all existing and future receivables of the additional accounts.
The total amount of receivables in the trust will fluctuate from day to day
because the amount of new receivables arising in the accounts and the amount of
payments collected on existing receivables usually differ each day.
Each additional account
o must be an ELIGIBLE ACCOUNT at the time of its designation;
o may not be of the same credit quality as the initial accounts;
o may have been originated by an originator using credit criteria
different from those which were applied by the originator to the
initial accounts; or
o may have been acquired by an originator from an institution which
may have had different credit criteria.
In addition to or in lieu of additional accounts, the transferor will be
permitted to add PARTICIPATIONS to the trust.
PARTICIPATIONS
o may be evidenced by one or more certificates of ownership issued
under a separate PARTICIPATION AGREEMENT entered into by the
transferor;
o will entitle the certificateholder to receive percentages of
collections generated by the pool of assets from time to time other
than the receivables originally sold to the trust and to other
rights and remedies specified in the PARTICIPATION AGREEMENT;
o may have their own credit enhancement, pay out events, servicing
obligations and servicer defaults;
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o all of which are likely to be enforceable by a separate trustee
under the PARTICIPATION AGREEMENT; and
o may be different from those specified here.
The rights and remedies of the trust as the holder of a PARTICIPATION and
therefore the certificateholders will be subject to all the terms and provisions
of the related PARTICIPATION AGREEMENT.
The pooling and servicing agreement may be amended to permit the addition
of a PARTICIPATION in the trust without the consent of the related
certificateholders if
o the transferor delivers to the trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of
the transferor, the amendment will not as of the date of the
amendment adversely affect in any material respect the interest of
such certificateholders; and
o the amendment will not result in a withdrawal or reduction of the
rating of any outstanding series under the trust.
To the extent required under the Securities Act, any PARTICIPATIONS
transferred to the trust
o will have been
o registered under the Securities Act; or
o held for at least the Rule 144(k) holding period, and
o will be acquired in secondary market transactions not from the
issuer or an affiliate.
If the transferor chooses to add PARTICIPATIONS to the trust, the
prospectus supplement relating to your series will contain a brief discussion,
to the extent such discussion is material, of the business of and availability
of information for each underlying issuer of PARTICIPATIONS and information
concerning market prices of the underlying securities.
Except as described in the following paragraph, a conveyance by the
transferor to the trust of receivables in additional accounts or PARTICIPATIONS
IS SUBJECT TO THE FOLLOWING CONDITIONS, AMONG OTHERS:
o the transferor will
o give the trustee, each rating agency and the servicer written
notice that the additional accounts or PARTICIPATIONS will be
included, specifying the approximate aggregate amount of the
receivables or interests to be transferred;
o have delivered to the trustee a written assignment, including an
acceptance by the trustee on behalf of the trust for the benefit
of the certificateholders, relating to the additional accounts or
PARTICIPATIONS;
o have delivered to the trustee a computer file or microfiche list,
dated the date of the assignment, containing a true and complete
list of the additional accounts or PARTICIPATIONS;
o represent and warrant that
o each additional account is, as of the date the receivables in
the account are first added to the trust, an ELIGIBLE ACCOUNT,
and each receivable in the additional account is, as of the
addition date, an ELIGIBLE RECEIVABLE;
o no selection procedures believed by the transferor to be
materially adverse to the interests of the certificateholders
were utilized in selecting the additional accounts from the
available ELIGIBLE ACCOUNTS from the applicable originator;
and
o as of the addition date, the transferor is not insolvent;
o deliver an opinion of counsel on the security interest of the
trust in the receivables in the additional accounts or the
participations transferred to the trust; and
o unless otherwise specified in the prospectus supplement relating to
your series, the addition of additional accounts or PARTICIPATIONS
will generally not require the consent of any rating agency then
rating any series of certificates outstanding under the trust if the
net addition of accounts or PARTICIPATIONS do not exceed pre-set
limits specified in the pooling and servicing agreement.
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Subject to these pre-set limits, additional accounts will be automatically added
to the accounts on an ongoing basis; provided, however, that automatic inclusion
and transfer will not occur for an account if:
o the account does not qualify as an ELIGIBLE ACCOUNT or
o the transferor otherwise designates the account as an account which
is not to be included as an account in the trust.
The transferor will deliver to the trustee a computer file or microfiche
list of all such included accounts. In connection with any such automatic
addition of additional accounts, the transferor will be required to make the
representations and warranties described in the preceding paragraph.
In addition to the periodic reports otherwise required to be filed by the
servicer with the SEC pursuant to the Exchange Act, the servicer intends to
file, on behalf of the trust, a Report on Form 8-K with respect to any addition
to the trust of receivables in additional accounts or PARTICIPATIONS that would
have a material effect on the composition of the assets of the trust.
REMOVAL OF ACCOUNTS
The transferor may, but will not be obligated to, designate from time to
time accounts to be removed accounts. The designation of accounts to be removed
o will cause the underlying receivables to be subject to deletion and
removal from the trust;
o may be restricted to specified periods or prohibited if so specified
in the related prospectus supplement; and
o may not occur more than once in any monthly period.
The transferor will be permitted to designate and require reassignment to
it of the receivables from removed accounts only upon satisfaction of the
following conditions:
o the removal of any receivables of any removed accounts will not, in
the reasonable belief of the transferor, cause a PAY OUT EVENT for
any series to occur;
o the transferor will have delivered to the trustee for execution a
written assignment and a computer file or microfiche list containing
a true and complete list of all removed accounts identified by
account number and the aggregate amount of the receivables in the
removed accounts;
o the transferor will represent and warrant that no selection
procedures believed by the transferor to be materially adverse to
the interests of the holders of any series of certificates
outstanding under the trust were utilized in selecting the removed
accounts to be removed from the trust;
o each rating agency then rating each series of certificates
outstanding under the trust will have received notice of the
proposed removal of accounts and the transferor will have received
notice from each rating agency that the proposed removal will not
result in a downgrade of its then current rating for any series;
o the satisfaction of any other conditions as are specified in the
prospectus supplement relating to your series; and
o the transferor will have delivered to the trustee a certificate
confirming the items set out above.
Notwithstanding the above, the transferor will be permitted to designate as
a removed account without the consent of the trustee, certificateholders or
rating agencies any account that has a zero balance and which the transferor
will remove from its computer file.
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COLLECTION AND OTHER SERVICING PROCEDURES
For each series of certificates, the servicer will be responsible for
servicing and administering the receivables in accordance with the servicer's
policies and procedures for servicing credit card receivables comparable to the
receivables. Servicing functions to be performed for the receivables include:
o processing statements;
o mailing, collecting and recording payments;
o investigating payment delinquencies; and
o communicating with obligors.
The servicer may delegate some or all of these servicing functions to one or
more subservicers who agree to perform these functions in accordance with the
servicer's policies and procedures. Currently, the servicer has appointed MCC,
an affiliate of DNB, as a subservicer for the Mercantile accounts.
DISCOUNT OPTION
The transferor may at any time designate a percentage of the amount of
receivables arising in the accounts allocated to the trust on and after the date
the option is exercised that otherwise would have been treated as principal
receivables to be treated as finance charge receivables. The designation will
become effective upon satisfaction of the requirements set out in the pooling
and servicing agreement, including confirmation by each rating agency in writing
of its then current rating on each outstanding series of the trust. Collections
of receivables to which this option is applicable that otherwise would be
principal receivables will be deemed collections of finance charge receivables
and will be applied as such, unless otherwise provided in the prospectus
supplement relating to your series.
TRUST ACCOUNTS
Unless otherwise specified in a prospectus supplement, the trustee will
establish and maintain in the name of the trust
o a finance charge account;
o a principal account;
o one or more distribution accounts; and
o a collection account.
These accounts will be separate accounts in a segregated trust account for the
benefit of the certificateholders of all related series, including any series
offered pursuant to this prospectus. The distribution accounts and the
collection account will be ELIGIBLE DEPOSIT ACCOUNTS. The trustee will have the
power to establish series accounts in series supplements, including
o an interest funding account;
o a principal funding account;
o a pre-funding account; or
o or other accounts specified in the related series supplement.
Each of the series accounts will be held for the benefit of the
certificateholders of the related series and for the purposes set out in the
related prospectus supplement.
Unless otherwise specified in the related prospectus supplement, funds in
the principal account and the finance charge account for the trust will be
invested, at the direction of the servicer, in the following permitted
investments:
o obligations fully guaranteed by the U.S.;
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o demand deposits, time deposits or certificates of deposit of
depository institutions or trust companies, the certificates of
deposit of which have a rating in the highest rating category from
Moody's Investors Service, Inc. and Standard & Poor's Rating Service
unless otherwise specified in the prospectus supplement relating to
your series and bankers' acceptances issued by any of these
depository institutions or trust companies;
o commercial paper having, at the time of the trust's investment, a
rating in the highest rating category from Moody's Investors
Service, Inc. and Standard & Poor's Rating Services unless otherwise
specified in the prospectus supplement relating to your series;
o banker's acceptances from the highest-rated financial institutions;
o repurchase agreements transacted with either
o an entity subject to the United States federal bankruptcy code or
o a financial institution insured by the FDIC or any broker-dealer
with retail customers that is under the jurisdiction of the
Securities Investors Protection Corp.; and
o any other investments which convert to cash within a finite period,
if agreed to by the rating agencies rating the related series.
Unless specified in the prospectus supplement, any earnings net of losses
and investment expenses on funds in the finance charge account or the principal
account will be paid to the transferor. Funds in any other series account
established by a series supplement may be invested in permitted investments or
otherwise as provided in the prospectus supplement relating to your series. The
servicer will have the revocable power to withdraw funds from the collection
account and to instruct the trustee to make withdrawals and payments from the
finance charge account and the principal account for the purpose of carrying out
the servicer's duties under the agreement. The related prospectus supplement
will identify a paying agent. The paying agent will have the revocable power to
withdraw funds from the distribution account for the purpose of making
distributions to you.
FUNDING PERIOD
For any series of certificates, the prospectus supplement relating to your
series may specify that during a FUNDING PERIOD beginning on the closing date
and ending on a specified date before the commencement of an AMORTIZATION PERIOD
or the ACCUMULATION PERIOD for the series;
o the aggregate amount of principal receivables in the trust allocable
to the series may be less than the aggregate principal amount of the
certificates of the series;
o the PRE-FUNDING AMOUNT, which may be up to 100% of the aggregate
principal amount of the certificates of the series, will be held in
a pre-funding account pending
o the transfer of additional receivables to the trust; or
o the reduction of the investor interests of other series issued by
the trust.
The prospectus supplement relating to your series will specify that the FUNDING
PERIOD for the series will
o end on a specified date or earlier under circumstances described in
the prospectus supplement, such as the commencement of the RAPID
AMORTIZATION PERIOD;
o have a length that may be contingent upon another event such as
o the generation by the transferor of additional principal
receivables or
o the term of the AMORTIZATION PERIOD or ACCUMULATION PERIOD of a
related companion series; and
o in any case have an actual length no longer than one year.
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Generally, the AMORTIZATION PERIOD or ACCUMULATION PERIOD of a related companion
series will depend upon the payment rate of the receivables in the trust. Until
the end of the FUNDING PERIOD of a series paired with a related companion
series, the certificates of the series will evidence an undivided interest in:
o receivables to the extent of the investor interest in the series;
and
o funds on deposit in the pre-funding account and permitted
investments of the funds to the extent of the difference between
o the aggregate principal amount of the certificates of the series and
o the initial investor interest.
See "Maturity Considerations."
The related prospectus supplement will specify:
o the initial investor interest for the series;
o the aggregate principal amount of the certificates of the series;
and
o the date by which the investor interest is expected to equal the
aggregate principal amount of the certificates of the series.
The investor interest will increase as receivables are delivered to the trust as
the investor interests of other series of the trust are reduced. The investor
interest may also decrease due to INVESTOR CHARGE-OFFS.
During the FUNDING PERIOD,
o funds on deposit in the pre-funding account for a series of
certificates will be withdrawn and paid to the transferor to the
extent of any increases in the investor interest; and
o if so specified in the related prospectus supplement;
o monies in the pre-funding account will be
o invested by the trustee in permitted investments; or
o subject to a guaranteed rate or investment agreement or other
similar arrangement; and
o in connection with each distribution date during the FUNDING
PERIOD;
o investment earnings on funds in the pre-funding
account during the related monthly period; and
o any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement
will be withdrawn from the pre-funding account and
deposited into the finance charge account for distribution
in respect of interest on the certificates of the related
series in the manner specified in the prospectus supplement
relating to your series.
In the event that the investor interest does not for any reason equal the
aggregate principal amount of the certificates of the series by the end of the
FUNDING PERIOD;
o any amount remaining in the pre-funding account and any additional
amounts specified in the prospectus supplement relating to your
series will be payable to the certificateholders of the series in
the manner and at such time as set out in that prospectus
supplement;
o an early repayment of certificate principal will result; and
o the certificateholders of the series will not receive the benefit of
the certificate rate for the period of time originally expected on
the amount of such early repayment.
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COMPANION SERIES
If specified in the prospectus supplement relating to your series that your
series of certificates may be paired with one or more companion series issued by
the trust on or prior to the commencement of the AMORTIZATION PERIOD or
ACCUMULATION PERIOD for the series.
o As the investor interest of the series having a companion series is
reduced, the investor interest in the trust of the companion series will
be increased.
o If a PAY OUT EVENT occurs for the series having a companion series or for
the companion series when the series is in an AMORTIZATION PERIOD,
o the investor percentage for collections of principal receivables for
the series and
o the investor percentage for collections of principal receivables for
the companion series
may be reset as provided in the related prospectus supplement.
o Resetting of the investor percentage may have the effect of reducing the
amount of collections of principal receivables allocable to the series
that is paired with the companion series.
While the issuance of a companion series will be subject to the conditions
described under "--Exchanges," there can be no assurance that the terms of a
companion series might not have an impact on the timing or amount of payments
received on the series with which it is paired. See "Maturity Considerations."
INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
The servicer will allocate
o all amounts collected on finance charge receivables;
o all amounts collected on principal receivables; and
o all receivables in defaulted accounts
among
o the investor interest of each series issued by the trust and between
each class of each series;
o the transferor interest; and
o the interest of credit enhancement providers if provided for in the
related prospectus supplement.
The servicer will make each allocation by reference to:
o the applicable investor percentage of each series;
o the transferor percentage; and
o the credit enhancement provider's percentage for your series if
provided for in the related prospectus supplement.
The prospectus supplement relating to your series will specify
o the investor percentage; and
o if applicable, the credit enhancement provider's percentage or the
method of calculating the percentage for the allocations of
collections of
o principal receivables;
o finance charge receivables; and
o receivables in defaulted accounts
during, as applicable,
o the REVOLVING PERIOD;
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o any AMORTIZATION PERIOD; and
o the ACCUMULATION PERIOD; and
o for each series of certificates having more than one class, the
method of allocation between each class.
The transferor percentage will, in all cases, be equal to
o 100%
o minus the aggregate investor percentages for all series then
outstanding;
o minus, if applicable, the credit enhancement provider's percentages,
for all series then outstanding.
APPLICATION OF COLLECTIONS
The servicer will
o deposit any payment it collects on the receivables into the
collection acount:
o no later than the second business day following the date of
processing;
o unless otherwise specified in the prospectus supplement relating
to your series; and
o except as otherwise provided below; and
o make the deposits and payments to the accounts and parties as
indicated below on the same day as any deposit is made; provided,
however,
o that for as long as DNB remains the servicer under the agreement,
and
o the servicer provides to the trustee a letter of credit or
other credit support acceptable to each rating agency; and
o the transferor has not received a notice from the rating
agency that the letter of credit would result in the lowering
of the rating agency's then existing rating of the related
series, and if the trust has issued more than one series, any
series of certificates then issued and outstanding thereunder,
or
o Dillard's, so long as the servicer is wholly-owned by Dillard's,
has and maintains a long-term unsecured debt rating in one of the
four highest categories assigned by each of Moody's and
Standard & Poor's, or
o some other arrangement is made by the servicer which is approved
in writing by the rating agencies,
then the servicer may make the deposits and payments on a monthly or
other periodic basis on the respective transfer date in an amount equal
to the net amount of the deposits and payments which would have been
made had the conditions of this section not applied.
Unless otherwise specified in the prospectus supplement relating to your series
whether the servicer is required to make monthly or daily deposits from the
collection account into the finance charge account or the principal account with
respect to any monthly period;
o the servicer will only be required to deposit collections from the
collection account into
o the finance charge account;
o the principal account; or
o any series account established by a related series supplement
up to
o the required amount to be deposited into any account; or
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o without duplication, distributed on or prior to the related
distribution date to certificateholders or to the provider of
credit enhancement; and
o if at any time prior to the distribution date the amount of
collections deposited in the collection account exceeds the amount
required to be deposited pursuant to this section above, the
servicer will be permitted to withdraw the excess from the
collection account.
Unless otherwise specified in the prospectus supplement relating to your
series, the servicer will withdraw the following amounts from the collection
account for application as indicated:
o an amount equal to the transferor percentage of the aggregate amount
of the deposits in respect of principal receivables and finance
charge receivables will be paid or held for payment to the holder of
the transferor certificate, provided that
o if after giving effect to the inclusion in the trust of all
receivables on or prior to the date of processing the transferor
interest would be reduced below the minimum transferor interest;
o then the excess will be deposited in the principal account or
other specified account and will be used as described in the
related prospectus supplement, including for payment to other
series of certificates issued by the trust;
o a defeasance amount equal to the applicable investor percentage of
the aggregate amount of the deposits in respect of finance charge
receivables will be deposited into the finance charge account for
allocation and distribution as described in the related prospectus
supplement;
o during the REVOLVING PERIOD, an amount equal to the applicable
investor percentage of the aggregate amount of the deposits in
respect of principal receivables will be invested or held for
investment in [principal receivables], provided that
o if after giving effect to the inclusion in the trust of all
receivables on or prior to the date of processing the transferor
interest would be reduced below the minimum transferor interest;
o then the excess will be deposited in the principal account or
other specified account and will be used as described in the
related prospectus supplement, including for payment to other
series of certificates issued by the trust;
o during the CONTROLLED AMORTIZATION PERIOD or ACCUMULATION PERIOD, as
applicable, an amount equal to the applicable investor percentage of
such deposits in respect of principal receivables up to the amount,
if any, as specified in the related prospectus supplement will be
deposited in the principal account or principal funding account, as
applicable, for allocation and distribution to certificateholders as
described in the related prospectus supplement, provided that
o if collections of principal receivables exceed the principal
payments which may be allocated or distributed to
certificateholders,
o then the excess amount will be paid to the holder of the
transferor certificate until the transferor interest is reduced
to the minimum transferor interest, and then will be deposited in
the principal account or other specified account and will be used
as described in the related prospectus supplement, including for
payment to other series of certificates issued by the trust; and
o during the PRINCIPAL AMORTIZATION PERIOD, if applicable, and the
RAPID AMORTIZATION PERIOD, an amount equal to the applicable
investor percentage of such deposits in respect of principal
receivables will be deposited into the principal account for
application and distribution as provided in the related prospectus
supplement.
In the case of a series of certificates having more than one class, the
amounts in the collection account will be allocated and applied to each class in
the manner and order of priority described in the related prospectus supplement.
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Any principal collections not paid to the transferor because the transferor
interest is zero, together with any adjustment payments as described below,
o will be paid to and held in the principal account and paid to the
transferor if and to the extent that the transferor interest is
equal to or greater than zero; or
o if an AMORTIZATION PERIOD or ACCUMULATION PERIOD has commenced, will
o be held for distribution to the certificateholders on the related
distribution date or
o accumulated for distribution on the scheduled payment date as
applicable, and distributed to the certificateholders of each
class or held for and distributed to the certificateholders of
other series of certificates issued by the trust in the manner
and order of priority specified in the related prospectus
supplement.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any series may be included in a group of series. The prospectus supplement
relating to your series will specify whether the series will be included in a
group and will identify any previously issued series included in the group. If
so specified in the prospectus supplement relating to your series, the
certificateholders of a series or class within a group may be entitled to
receive all or a portion of shared excess finance charge collections for another
series within the group to cover any shortfalls for amounts payable from
collections of finance charge receivables allocable to the series or class.
Unless otherwise provided in the related prospectus supplement, with
respect to any series, shared excess finance charge collections for any monthly
period will equal the excess of collections of
o finance charge receivables;
o annual membership fees, if any; and
o other amounts allocated to the investor interest of the series or
class
over the sum of
o interest accrued for the current month and overdue monthly interest
on the certificates of the series or class;
o accrued and unpaid investor servicing fees for the series or class
payable from collections of finance charge receivables;
o the INVESTOR DEFAULT AMOUNT for the series or class;
o unreimbursed INVESTOR CHARGE-OFFS for the series or class; and
o other amounts specified in the prospectus supplement relating to
your series.
See "--Application of Collections" and "--Defaulted Receivables; Rebates and
Fraudulent Charges; Investor Charge-Offs."
SHARED PRINCIPAL COLLECTIONS
If specified in the prospectus supplement relating to your series,
principal collections allocated to the investor interest of a series but not
needed to make payments or deposits for that series will be applied to cover
principal payments due to or for the benefit of certificateholders of other
series and the allocation of SHARED PRINCIPAL COLLECTIONS may be among series
within a group. Any reallocation will not result in a reduction in the investor
interest of the series to which the collections were initially allocated.
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DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES; INVESTOR CHARGE-OFFS
Unless specified in the prospectus supplement relating to your series, for
each series of certificates the INVESTOR DEFAULT AMOUNT
o will be calculated by the servicer on the fourth business day before
the transfer date for the preceding monthly period;
o will be equal to the aggregate amount of the investor percentage of
principal receivables in accounts which in the monthly period were
written off as uncollectible in accordance with the servicer's or
the related originator's policies and procedures for servicing
credit card receivables, comparable to the receivables; and
o in the case of a series of certificates having more than one class,
will be allocated among the classes in the manner described in the
prospectus supplement relating to your series.
If so provided in the prospectus supplement relating to your series, an
amount equal to the INVESTOR DEFAULT AMOUNT for any monthly period may be paid
from other amounts, including:
o collections in the finance charge account; or
o credit enhancements;
and applied to pay principal to certificateholders or the holder of the
transferor certificate. In the case of a series of certificates having one or
more classes of subordinated certificates, the prospectus supplement relating to
your series may provide that all or a portion of amounts otherwise allocable to
the subordinated certificates may be paid to the holders of senior certificates
to make up any INVESTOR DEFAULT AMOUNT allocable to the holders of senior
certificates.
For each series of certificates, INVESTOR CHARGE-OFFS
o will reduce the investor interest for the series for any monthly
period;
o will be reimbursed on any distribution date to the extent amounts on
deposit in the finance charge account and otherwise available for
reimbursement exceed interest, fees and any aggregate INVESTOR
DEFAULT AMOUNT payable on that date; and
o in the case of a series of certificates having more than one class,
will be allocated among the several classes in the manner and
priority set out in the related prospectus supplement.
The transferor interest will be reduced, on a net basis, by the amount of
any principal receivable adjusted by the servicer or related originator because
o of transactions occurring in respect of a rebate or refund to a
cardholder; or
o the principal receivable was created in respect of merchandise which
was refused or returned by a cardholder; and
o any principal receivable which is discovered to have been created
through a fraudulent or counterfeit charge.
In the event that the exclusion of these receivables from the calculation of the
transferor interest would cause the transferor interest to be less than the
minimum transferor interest, the transferor will be required to pay an amount
equal to the deficiency.
If so specified in the prospectus supplement relating to a series, the
transferor may terminate its substantive obligations in respect of the series or
the trust by:
o depositing with the trustee, from amounts representing, or acquired
with, collections of receivables, money or permitted investments
sufficient to:
o make all remaining scheduled interest and principal payments on
the series or all outstanding series of certificates of the
trust, as the case may be on the dates scheduled for such
payments; and
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o pay all amounts owing to any credit enhancement provider for the
series or all outstanding series, as the case may be;
o if such action would not result in a PAY OUT EVENT for any series.
Prior to its first exercise of its right to substitute money or permitted
investments for receivables, the transferor will deliver to the trustee
o an opinion of counsel to the effect that such deposit and
termination of obligations will not result in the trust being
required to register as an investment company within the meaning of
the Investment Company Act of 1940, as amended; and
o a TAX OPINION.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
With respect to each series, the transferor may repurchase the certificates
o on any distribution date
o after the total investor interest of the series and the
ENHANCEMENT INVESTED AMOUNT is reduced to an amount less than or
equal to 5% or a different amount specified in the related
prospectus supplement of the initial investor interest; and
o if conditions set out in the pooling and servicing agreement are
met.
Unless otherwise specified in the related prospectus supplement, the repurchase
price will be equal to
o the total investor interest of the series less the amount, if any,
on deposit in any principal funding account with respect to the
series;
o plus the ENHANCEMENT INVESTED AMOUNT, if any, for the series;
o plus accrued and unpaid interest on the certificates and interest or
other amounts payable on the ENHANCEMENT INVESTED AMOUNT or the
collateral interest, if any, through the day preceding the
distribution date on which the repurchase occurs.
The certificates of each series will be retired on the day following the
distribution date on which the final payment of principal is scheduled to be
made to the certificateholders, whether as a result of optional reassignment to
the transferor or otherwise. Each prospectus supplement will specify a SERIES
TERMINATION DATE; provided, however, that the certificates may be subject to
prior termination as provided above. If the investor interest is greater than
zero on the SERIES TERMINATION DATE, the trustee or servicer may be required to
o sell or cause to be sold receivables in the manner provided in the
pooling and servicing agreement and series supplement; and
o pay the net proceeds of the sale and any collections on the
receivables, in an amount at least equal to the sum of
o the investor interest;
o the ENHANCEMENT INVESTED AMOUNT, if any, for the series; and
o accrued interest due on the above.
Unless the servicer and the holder of the transferor certificate instruct
the trustee otherwise, the TRUST TERMINATION DATE will be the earliest of:
o the day after the distribution date on which the aggregate investor
interest and ENHANCEMENT INVESTED AMOUNT or collateral interest, if any,
for each outstanding series is zero;
o July 15, 2021, or
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o if the receivables are sold, disposed of or liquidated following the
occurrence of an insolvency event, immediately following such sale,
disposition or liquidation.
Upon the termination of the trust and the surrender of the transferor
certificate, the trustee will convey to the holder of the transferor certificate
all right, title and interest of the trust in and to the receivables and other
funds of the trust.
PAY OUT EVENTS
Unless specified in the prospectus supplement relating to your series, the
REVOLVING PERIOD will continue through the date specified in the prospectus
supplement relating to your series unless a PAY OUT EVENT occurs prior to that
date. A PAY OUT EVENT occurs for all series issued by the trust upon the
occurrence of any of the following events:
o specified events of insolvency or receivership relating to the
transferor or Dillard's, DNB or DNB-LA.;
o the transferor is unable for any reason to transfer receivables to
the trust in accordance with the provisions of the pooling and
servicing agreement; or
o the trust becomes subject to regulation as an investment company
within the meaning of the Investment Company Act of 1940, as
amended.
In addition, a PAY OUT EVENT may occur for any series upon the occurrence
of any other event specified in the prospectus supplement relating to your
series.
On the date on which a PAY OUT EVENT is deemed to have occurred, the RAPID
AMORTIZATION PERIOD will begin. If, because of the occurrence of a PAY OUT
EVENT, the RAPID AMORTIZATION PERIOD begins earlier than the scheduled
commencement of an AMORTIZATION PERIOD or prior to a scheduled principal payment
date, certificateholders will begin receiving distributions of principal earlier
than they otherwise would have, which may shorten the average life of the
certificates.
In addition to the consequences of a PAY OUT EVENT discussed above, unless
otherwise specified in the prospectus supplement relating to your series if
pursuant to provisions of federal law, the transferor voluntarily enters
liquidation or a receiver is appointed for the transferor on the day of the
event,
o the transferor will immediately cease to transfer principal
receivables to the trust;
o promptly give notice to the trustee of the event;
o within 15 days, the trustee will publish a notice of the liquidation
or the appointment stating that the trustee intends to sell, dispose
of, or otherwise liquidate the receivables in a commercially
reasonable manner;
o unless otherwise instructed within a specified period by
certificateholders representing undivided interests aggregating more
than 50% of the investor interest of each the series, or if any
series has more than one class, of each class, and any other person
specified in the pooling and servicing agreement or the series
supplement, issued and outstanding, the trustee will sell, dispose
of, or otherwise liquidate the receivables in a commercially
reasonable manner and on commercially reasonable terms; and
o the proceeds from the sale, disposition or liquidation of the
receivables will be treated as collections of the receivables and
applied as specified above in "--Application of Collections" and in
the related prospectus supplement.
If the only PAY OUT EVENT to occur is either the insolvency of the
transferor or the appointment of a conservator or receiver for the transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the receivables and the commencement of the RAPID
AMORTIZATION PERIOD. In addition, a conservator or receiver may have the power
to cause the early sale of the receivables and the early retirement of the
certificates. See "Legal Aspects of the Receivables--Matters Relating to Bank
Receivership."
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SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the prospectus supplement, for your series of
certificates, the servicer's compensation for its servicing activities and
reimbursement for its expenses will take the form of the payment to it of a
servicing fee payable at the times and in the amounts specified in the
prospectus supplement.
The investor servicing fee will be
o funded from collections of finance charge receivables allocated to
the investor interest; and
o paid each month, or on such other specified periodic basis, from
o amounts allocated and on deposit in the finance charge account;
or
o in limited circumstances, from amounts available from credit
enhancement and other sources, if any.
The remainder of the servicing fee for the trust will be allocable to
o the transferor interest;
o the investor interests of any other series issued by the trust; and
o the interest represented by the ENHANCEMENT INVESTED AMOUNT or the
collateral interest, if any, for the series, as described in the
prospectus supplement relating to your series.
Neither the trust nor the certificateholders will have any obligation to
pay the portion of the servicing fee allocable to the transferor interest.
The servicer will pay from its servicing compensation expenses incurred in
connection with servicing the receivables including, without limitation, payment
of
o the fees and disbursements of the trustee and independent certified
public accountants; and
o other fees which are not expressly stated in the pooling and
servicing agreement to be payable by the trust or the
certificateholders other than the trust's federal, state, and local
income and franchise taxes, if any.
MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
Dillard National Bank, a wholly-owned banking subsidiary of Dillard's,
initially will service the receivables. The servicer may appoint any affiliate
as a sub-servicer to service any or all of the receivables. In limited
circumstances, the servicer or sub-servicer may resign or be removed, in which
event the trustee or a third party servicer may be appointed as successor
servicer. The principal executive office of the servicer is located at 396 N.
William Dillard Drive, Gilbert, Arizona 85233, telephone number (602) 503-5504.
The servicer will receive a servicing fee from the trust in respect of each
series in the amounts and at the times specified in the prospectus supplement
relating to your series. The servicing fee may be payable from finance charge
receivables or other amounts as specified in the prospectus supplement relating
to your series.
With respect to each series of certificates, the servicer may not resign
from its obligations and duties under the pooling and servicing agreement,
except upon determination that performance of its duties is no longer
permissible under applicable law. No resignation will become effective until the
trustee or a successor to the servicer has assumed the servicer's
responsibilities and obligations under the pooling and servicing agreement. DNB
has delegated some of its servicing duties to MCC; however, delegation does not
relieve it of its obligation to perform its duties in accordance with the
agreement.
The servicer will indemnify the trust and trustee from and against any
reasonable
o loss;
o liability;
o expense;
o damage; or
o injury
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suffered or sustained by reason of any acts or omissions or alleged acts or
omissions of the servicer or any sub-servicer with respect to the activities of
the trust or the trustee; provided, however, that the servicer will not
indemnify,
o the trustee for liabilities imposed by reason of fraud, negligence,
or willful misconduct by the trustee in the performance of its
duties under the pooling and servicing agreement; or
o the trust, the certificateholders or the certificate owners for
o liabilities arising from actions taken by the trustee at the
request of certificateholders;
o any losses, claims, damages or liabilities incurred by any of
them in their capacities as investors, including without
limitation, losses incurred as a result of defaulted receivables
or receivables which are written off as uncollectible; or
o any liabilities, costs or expenses of the trust, the
certificateholders or the certificate owners arising under any
tax law, including without limitation, any federal, state or
local income or franchise tax or any other tax imposed on or
measured by income or any interest or penalties on or arising
from a failure to comply with such taxes, the certificateholders
or the certificate owners required to be paid by the trust in
connection with the pooling and servicing agreement to any taxing
authority.
In addition, subject to limited exceptions, the transferor will indemnify
an injured party for any losses, claims, damages or liabilities other than those
incurred by a certificateholder as an investor in the certificates or those
which arise from any action of a certificateholder arising out of or based upon
the arrangement created by the pooling and servicing agreement as though the
pooling and servicing agreement created a partnership under the New York Revised
Limited Partnership Act in which the transferor is a general partner.
Neither the transferor nor the servicer nor any of their respective
directors, officers, employees or agents will be
o under any other liability to the related trust, trustee,
certificateholders or any other person for any action taken, or for
refraining from taking any action, in good faith pursuant to the
pooling and servicing agreement; or
o protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence of the
transferor, the servicer or any respective person in the performance
of its duties or by reason of reckless disregard of obligations and
duties thereunder.
Neither the servicer nor any sub-servicer is under any obligation to appear
in, prosecute or defend any legal action which is not incidental to its
servicing responsibilities under the pooling and servicing agreement and which
in its opinion may expose it to any expense or liability.
In addition to exchanges, if applicable, the transferor may transfer its
interest in all or a portion of the transferor certificate, provided that prior
to any transfer the trustee receives
o written notification from each rating agency that the transfer will
not result in a lowering of its then existing rating of the
certificates of each outstanding series rated by it; and
o a TAX OPINION.
Any person
o into which, in accordance with the agreement, the transferor or the
servicer may be merged or consolidated; or
o resulting from any merger or consolidation to which the transferor
or the servicer is a party; or
o succeeding to the business of the transferor or the servicer,
will be the successor to the transferor or the servicer, as the case may be,
under the pooling and servicing agreement upon
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o execution of a supplement to the pooling and servicing agreement;
and
o delivery of an opinion of counsel as to the compliance of the
transaction with the applicable provisions of the pooling and
servicing agreement.
SERVICER GUARANTEE
If so provided in the prospectus supplement related to your series, the
obligations of the servicer under the agreement may be guaranteed by Dillard's
or any of its subsidiaries pursuant to a servicer guarantee in favor of the
trustee.
SERVICER DEFAULT
Unless otherwise specified in the prospectus supplement relating to your
series, in the event of any servicer default, either
o the trustee; or
o certificateholders representing undivided interests aggregating more
than 50% of the investor interests for all series of certificates of
the trust,
may, by written notice to the servicer and to the trustee if given by the
certificateholders
o terminate all of the rights and obligations of the servicer as
servicer under the agreement and in and to the receivables and the
proceeds of the receivables; and
o appoint a new servicer.
The rights and interest of the transferor under the agreement and in the
transferor interest will not be affected by the termination. The trustee will as
promptly as possible appoint a successor servicer. If no successor servicer has
been appointed and has accepted its appointment by the time the servicer ceases
to act as servicer, all authority, power and obligations of the servicer under
the pooling and servicing agreement shall pass to and be vested in the trustee.
The trustee shall give the transferor the right of first refusal to
purchase the receivables on terms equivalent to the best purchase offer as
determined by the trustee if:
o the trustee is unable to obtain any bids from eligible successor
servicers;
o the servicer delivers an officer's certificate to the effect that it
cannot in good faith cure the servicer default which gave rise to a
transfer of servicing; and
o the trustee is legally unable to act as successor servicer.
Unless otherwise specified in the prospectus supplement relating to your
series, a servicer default under the agreement refers to any of the following
events:
o failure by the servicer to make any payment, transfer or deposit, or
to give instructions to the trustee to make payments, transfers or
deposits, on the date the servicer is required to do so under the
agreement or any series supplement or within the applicable grace
period, which will not exceed 10 business days;
o failure on the part of the servicer to observe or perform in any
respect any other covenants or agreements of the servicer which has
a material adverse effect on the certificateholders of any series
issued and outstanding under the trust and which continues
unremedied for a period of 60 days after written notice and
continues to have a material adverse effect on the
certificateholders; or the delegation by the servicer of its duties
under the agreement, except as specifically permitted;
o any representation, warranty or certification made by the servicer
in the agreement, or in any certificate delivered pursuant to the
agreement, proves to have been incorrect when made which has a
material adverse effect on the certificateholders of any series
issued and outstanding under
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the trust, and which continues to be incorrect in any material
respect for a period of 60 days after written notice and continues
to have a material adverse effect on the certificateholders;
o the occurrence of events of bankruptcy, insolvency or receivership
of the servicer, or
o such other event specified in the prospectus supplement relating to
your series.
Unless otherwise stated in the related prospectus supplement, a delay in or
failure of performance described in the first three paragraphs above that does
not exceed the applicable grace period will not constitute a servicer default if
the delay or failure could not be prevented by the exercise of reasonable
diligence by the servicer and the delay or failure was caused by an act of God
or other similar occurrence.
Upon the occurrence of any such event, the servicer will
o not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the
pooling and servicing agreement; and
o provide the trustee, any credit enhancement provider, the transferor
and the holders of certificates of each series issued and
outstanding under the trust prompt notice of the failure or delay by
it, together with a description of the cause of the failure or delay
and its efforts to perform its obligations.
In the event of a servicer default, if a conservator or receiver is
appointed for the servicer and no servicer default other than such
conservatorship or receivership or the insolvency of the servicer exists, the
conservator or receiver may have the power to prevent either trustee or the
majority of the certificateholders from engaging a successor servicer.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified in the related prospectus supplement, for each
series of certificates, on each distribution date, or as soon thereafter as is
practicable, as specified in the related prospectus supplement, the paying agent
will forward to each certificateholder of record a statement prepared by the
servicer including, among other things:
o the total amount distributed;*
o the amount of the distribution on the distribution date allocable to
principal on the certificates;*
o the amount of the distribution allocable to interest on the
certificates;*
o the amount of collections of principal receivables processed during
the preceding month or months since the last distribution date and
allocated in respect of the certificates;
o the aggregate amount of
o principal receivables;
o the investor interest; and
o the investor interest as a percentage of the aggregate amount of
the principal receivables
in the trust as of the end of the last day of the preceding monthly
period or periods since the last distribution date;
o the aggregate outstanding balance of accounts which are at least a
specified number of days delinquent by class of delinquency as of
the end of the last day of the preceding monthly period or periods
since the last distribution date;
o the aggregate INVESTOR DEFAULT AMOUNT for the preceding monthly
period or periods since the last distribution date;
o the amount of INVESTOR CHARGE-OFFS and reimbursements of previous
INVESTOR CHARGE-OFFS for the preceding monthly period or periods
since the last distribution date;
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o the amount of the investor servicing fee for the preceding monthly
period or periods since the last distribution date;
o the amount available under any enhancement and credit enhancement,
if any, as of the close of business on the distribution date;
o the pool factor as of the end of the related record date consisting
of a seven-digit decimal expressing the ratio of the investor
interest to the initial investor interest;
o the aggregate amount of collections on finance charge receivables
and annual membership fees processed during the preceding monthly
period or periods since the last distribution date;
o the portfolio yield, as the term is used in the related prospectus
supplement and relating to the series, for the preceding monthly
period or periods since the last distribution date;
o information relating to the floating or variable certificate rates,
if applicable, for the monthly period or periods ending on such
distribution date; and
o if a series of certificates uses a pre-funding account, the amounts
on deposit in the pre-funding account.
In the case of a series of certificates having more than one class, the
statements forwarded to certificateholders will provide information as to each
class of certificates, as appropriate.
On or before January 31 of each calendar year or on another date specified
in the prospectus supplement relating to your series, the paying agent will
furnish to each person who at any time during the preceding calendar year was a
certificateholder of record, a statement prepared by the servicer containing the
information required to be contained in the regular monthly report to
certificateholders, as set out in clauses marked with a * above aggregated for
the calendar year or the applicable portion of the year during which the person
was a certificateholder, together with other customary information consistent
with the treatment of the certificates as debt as the trustee or the servicer
deems necessary or desirable to enable the certificateholders to prepare their
United States tax returns.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the prospectus supplement relating to your
series, on or before March 31 of each calendar year, or such other date as
specified in the related prospectus supplement, the servicer will cause a firm
of independent certified public accountants to furnish
o a report to the effect that the accounting firm has examined
management's assertion that
o as of the date of the report, the system of internal control over
servicing of securitized credit card receivables met the criteria
for effective internal control described in the report entitled
"Internal Control--Integrated Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission; and
o in their opinion, management's assertion is fairly stated, in all
material respects; and
o a report, prepared using generally accepted attestation standards to
the effect that such accountants have compared the amounts set forth
in at least two of the monthly certificates forwarded by the
servicer during the period covered by such report which will be the
twelve-month period ending on December 31 of the preceding calendar
year with the servicer's computer reports which were the source of
such amounts and found them to be in agreement or will disclose any
exceptions noted and that such firm has recalculated the
mathematical accuracy of amounts derived in the monthly
certificates.
The agreement will provide for delivery to the trustee on or before
August 31 of each calendar year, or some other date as specified in the
prospectus supplement relating to your series, of an annual statement signed by
an officer of the servicer to the effect that
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o the servicer has fully performed its obligations under the agreement
throughout the preceding year; or
o if there has been a default in the performance of any obligation,
specifying the nature and status of the default.
AMENDMENTS
Unless otherwise specified in the prospectus supplement, the agreement and
any series supplement may be amended by the transferor, the servicer and the
trustee, without the consent of certificateholders of any series then
outstanding to,
o cure any ambiguity;
o revise exhibits and schedules;
o correct or supplement any provision which may be inconsistent with
any other provision in the agreement; or
o add any other provisions with respect to matters or questions
arising under and which are not inconsistent with the provisions of
the pooling and servicing agreement or series supplement.
No amendment described above, however, may adversely affect in any material
respect the interests of the certificateholders of any series then outstanding.
The agreement and any series supplement may be amended by the transferor,
the servicer and the trustee without the consent of any of the
certificateholders of any series then outstanding for the purpose of adding,
changing or eliminating any provision of or any right of the holders of
certificates under the agreement, provided that
o the servicer has furnished the trustee with an officer's certificate
to the effect that the amendment will not materially and adversely
affect the interests of any certificateholder;
o the amendment will not cause the trust to be characterized as a
corporation for federal income tax purposes or otherwise have a
material adverse effect on the federal income taxation of any
series; and
o the servicer has given each rating agency ten business days' prior
written notice of the amendment and will have received written
confirmation from each rating agency that the rating of the
certificates of any series will not be reduced or withdrawn as a
result of the amendment.
No amendment described above, however, may effect any of the amendments
that require unanimous certificateholder consent as set forth in the next
paragraph, or
o reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on certificates of any
series;
o change the definition of or the manner of calculating the interest
of any certificateholder of any series;
o alter the requirements for changing the percentage by which the
minimum transferor interest for certificates of any series is
determined;
o change the manner in which the transferor interest of any series is
determined; or
o reduce the percentage required in the following paragraphs to
consent to such amendment.
The pooling and servicing agreement may also be amended by the transferor, the
servicer and the trustee with the consent of the holders of the certificates
evidencing undivided interests aggregating more than 50% of the investor
interest of each series adversely affected for the purpose of
o adding any provisions to;
o changing in any manner; or
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o eliminating any of the provisions of
the agreement or of modifying in any manner the rights of holders of
certificates.
No such amendment, however, may
o reduce in any manner the amount of, or delay the timing of,
distributions required to be made on any certificate of the series
without the consent of all the related certificateholders;
o change the definition of or the manner of calculating
o the investor interest;
o the investor percentage; or
o the INVESTOR DEFAULT AMOUNT
of the series without the consent of each holder of certificates
adversely affected by the change; or
o reduce the percentage of undivided interests the holders of which
are required to consent to any such amendment, without the consent
of each affected holder of certificates.
LIST OF CERTIFICATEHOLDERS
With respect to each series of certificates, upon written request of
certificateholders of record representing undivided interests in the trust
aggregating not less than 10% or some other percentage specified in the
prospectus supplement of the investor interest, the trustee
o after having been adequately indemnified by such certificateholders
for its costs and expenses; and
o having given the servicer notice that a request has been made;
will afford the certificateholders access during business hours to the current
list of certificateholders of the trust for purposes of communicating with other
certificateholders regarding their rights under the agreement.
See "--Book-Entry Registration" and "--Definitive Certificates" above.
THE TRUSTEE
The transferor, the servicer and their respective affiliates may from time to
time enter into normal banking and trustee relationships with the trustee and
its affiliates. The trustee, the transferor, the servicer and any of their
affiliates may hold certificates in their own names. In addition, for purposes
of meeting the legal requirements of applicable local jurisdictions, the trustee
will have the power to appoint a co-trustee or separate trustees of all or any
part of the trust. In the event of such an appointment,
o all rights, powers, duties and obligations conferred or imposed on
the trustee by the pooling and servicing agreement will be conferred
or imposed on the trustee and separate trustee or co-trustee
jointly; or
o in any jurisdiction in which the trustee will be incompetent or
unqualified to perform required acts, singly upon the separate
trustee or co-trustee who will exercise and perform those rights,
powers, duties and obligations solely at the direction of the
trustee.
The trustee may resign at any time, in which event the transferor will be
obligated to appoint a successor trustee. The transferor may also remove the
trustee if
o the trustee ceases to be eligible to continue as trustee under the
agreement; or
o if the trustee becomes insolvent.
In such circumstances, the transferor will be obligated to appoint a
successor trustee. Any resignation or removal of the trustee and appointment of
a successor trustee does not become effective until acceptance of the
appointment by the successor trustee.
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DESCRIPTION OF THE PURCHASE AGREEMENTS
GENERAL
The transferor will obtain its interest in the receivables under purchase
agreements between the transferor and one or more originators or other persons.
Pursuant to a PURCHASE AGREEMENT, the respective RECEIVABLES SELLER will
transfer to the transferor all receivables in specified accounts as of the
specified cut-off date. The transferor has entered into the following PURCHASE
AGREEMENTS:
o the DIC Purchase Agreement dated as of August 14, 1998 with DIC;
o the MFI Purchase Agreement dated as of August 14, 1998 with MERSCO
FACTORS;
o the DNB Purchase Agreement dated as of August 14, 1998 with DNB; and
o the MSNB Purchase Agreement dated as of August 14, 1998 with DNB-LA.
Under the PURCHASE AGREEMENTS, each of DIC, MERSCO FACTORS, DNB and DNB-LA.
transferred to the transferor
o all then existing and thereafter arising receivables in each account
identified on a list of accounts delivered to the transferor; and
o all monies due or to become due with respect to the receivables and
respective accounts as of the close of business on August 12, 1998.
Under the DIC Purchase Agreement and the MFI Purchase Agreement, DIC and
MERSCO FACTORS sold receivables arising under accounts originated by and
previously purchased from DNB and DNB-LA., respectively. Neither DIC nor MERSCO
FACTORS has originated or currently originates accounts and no additional
receivables or interests in receivables are expected to be transferred to either
entity in the future.
In addition, under their PURCHASE AGREEMENTS, each of DNB and DNB-LA.
transferred to the transferor
o all receivables then existing and thereafter arising in each account
created after August 12, 1998; and
o all monies due or to become due with respect to the receivables as
of the date of creation of the receivables.
With respect to any series of certificates, the transferor will transfer to
the trust the receivables identified in the related prospectus supplement and
pooling and servicing agreement and will assign to the trust its rights in, to
and under the PURCHASE AGREEMENTS with respect to the receivables.
The transferor may enter into additional PURCHASE AGREEMENTS with one or
more additional originators, or may modify the existing PURCHASE AGREEMENTS as
described in the prospectus supplement relating to the series of certificates
purchased by you. Each PURCHASE AGREEMENT will contain substantially similar
terms, or, for any series of certificates, other terms approved by the rating
agencies rating the series. The material terms of the PURCHASE AGREEMENTS are
summarized below. This summary is not a complete description of the terms of the
PURCHASE AGREEMENTS. You should refer to the form of the PURCHASE AGREEMENT for
a complete description.
REPRESENTATIONS AND WARRANTIES
In each PURCHASE AGREEMENT, the related RECEIVABLES SELLER will represent
and warrant that, among other things,
o it is duly organized and is validly existing and is in good standing
under the laws of the jurisdiction of its incorporation with power,
authority and legal right to acquire and own the receivables
transferred by it;
o the PURCHASE AGREEMENT constitutes a legal, valid and binding
obligation of the RECEIVABLES SELLER, enforceable against the
RECEIVABLES SELLER in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws
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affecting the enforcement of creditors' rights in general and by
general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law;
o the PURCHASE AGREEMENT constitutes either**
o a valid transfer, assignment and conveyance to the transferor of
all right, title and interest of the RECEIVABLES SELLER in, to
and under the receivables transferred by the RECEIVABLES SELLER
and all proceeds of the receivables, and the receivables and
proceeds will be held by the transferor free and clear of any
lien of any person claiming through or under the RECEIVABLES
SELLER or any of its affiliates; or
o a grant of a perfected, first priority, security interest as
defined in the UCC in the property to the transferor, subject to
specified exceptions.
o each existing account is an ELIGIBLE ACCOUNT and the transferor in
did not use an adverse selection procedure in selecting the accounts
to be added to the trust from among the ELIGIBLE ACCOUNTS in the
RECEIVABLES SELLER'S portfolio;*
o each receivable transferred is an ELIGIBLE RECEIVABLE;*
o each receivable transferred has been or will be conveyed to the
transferor*
o free and clear of any lien of any person claiming through or
under the RECEIVABLES SELLER or any of its affiliates; and
o in compliance, in all material respects, with all requirements of
law applicable to the RECEIVABLES SELLER;
o all consents, licenses, approvals or authorizations of, or
registrations or declarations with, any governmental authority
required to be obtained, effected or given by the RECEIVABLES SELLER
in connection with the conveyance of receivables to the transferor
under the PURCHASE AGREEMENT have been duly obtained, effected or
given and are in full force and effect;*
o the RECEIVABLES SELLER has the corporate power and authority to
o execute and deliver and perform its obligations under the
PURCHASE AGREEMENT; and
o sell and assign to the transferor the receivables transferred and
to be transferred and has duly authorized the transfers by all
necessary corporate action on the part of the RECEIVABLES SELLER;
and
o the RECEIVABLES SELLER is, and after giving effect to the transfers
contemplated to occur on any date under the PURCHASE AGREEMENT, will
be, solvent.
COVENANTS
Each RECEIVABLES SELLER will agree, among other things,
o to execute and file financing statements, and cause to be executed
and filed continuation and other statements, all in such manner and
in places as may be required by law fully to perfect and preserve
the sale to the transferor of the receivables transferred by the
RECEIVABLES SELLER;
o not to change its name, identity or corporate structure in any
manner that would, could or might make any financing statement or
continuation statement filed by it seriously misleading unless it
gives the transferor at least 60 days prior written notice and files
financing statements or amendments as may be necessary to continue
the perfection of the transferor's interest in all receivables sold
transferred by the RECEIVABLES SELLER;
o except for the conveyances under the PURCHASE AGREEMENTS and as
contemplated by the pooling and servicing agreement, not to sell,
pledge, assign or transfer to any other person any of the assets
transferred by the RECEIVABLES SELLER to the transferor under its
PURCHASE AGREEMENT and not to grant, create, incur, assume or suffer
to exist any lien thereon;*
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o to defend the right, title and interest of the transferor in, to and
under all transferred assets against all claims of third parties
claiming through or under the RECEIVABLES SELLER;* and
o not to make any change or modification to its credit and collection
policy, that could reasonably be expected to have a material adverse
effect on the transferor, as transferor.
REPURCHASE EVENTS
Each RECEIVABLES SELLER will agree with the transferor that in the event of
o a breach of any of the RECEIVABLES SELLER'S representations and
warranties contained in clauses marked with an * above under the
description "Representations and Warranties," unless the breach is
cured in all material respects within a period acceptable to the
transferor, but not more than 150 days, or
o a breach by the RECEIVABLES SELLER of its covenant described in
clauses marked with an * above under the description "Covenants,"
which breach has a material adverse effect on the transferor's
interest in the receivable, or
o a breach of any of the RECEIVABLES SELLER'S representations and
warranties contained in clause marked with ** above under the
description "Representations and Warranties,"
the RECEIVABLES SELLER will, upon request by the transferor, repurchase the
WARRANTY RECEIVABLE from the transferor by delivering the respective WARRANTY
PAYMENT.
The obligation of each RECEIVABLES SELLER to repurchase any WARRANTY
RECEIVABLE transferred by it as to which a breach has occurred and is continuing
will, if the obligation is fulfilled, constitute the sole remedy against the
RECEIVABLES SELLER for the breach available to the transferor or the trustee.
Upon receipt by the transferor of the WARRANTY PAYMENT, the transferor will
assign, without recourse, representation or warranty, to the applicable
RECEIVABLES SELLER all of the transferor's right, title and interest in, to and
under and all monies due on the WARRANTY RECEIVABLE.
If so provided in the prospectus supplement related to a series of
certificates, the obligations of the RECEIVABLES SELLERS, or any of them, to
repurchase receivables under the circumstances described in the preceding
paragraph may be guaranteed by DILLARD'S or any of its subsidiaries under a
REPURCHASE GUARANTEE in favor of the transferor. In such cases, the rights of
the transferor under a REPURCHASE GUARANTEE will be assigned to the trustee for
the benefit of the certificateholders of the series.
MERGER AND CONSOLIDATION
Any Person
o into which a RECEIVABLES SELLER may be merged or consolidated
o resulting from any merger, conversion or consolidation to which
the RECEIVABLES SELLER is a party,
o succeeding to the business of the RECEIVABLES SELLER, or
o more than 50% of the voting stock of which is owned, directly or
indirectly, by DILLARD'S; and
o which person in any of the foregoing cases executes an agreement of
assumption to perform every obligation of the RECEIVABLES SELLER
under its PURCHASE AGREEMENT;
will succeed to the RECEIVABLES SELLER under its PURCHASE AGREEMENT without the
execution or filing of any paper or any further act on the party of any of the
parties to the PURCHASE AGREEMENT; provided, however, that the RECEIVABLES
SELLER will have delivered to the transferor and the trustee an opinion of
counsel either stating that:
o in the opinion of counsel, all financing statements and continuation
statements and amendments have been executed and filed that are
necessary to fully preserve and protect the interest of the
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transferor and the trustee, respectively, in the receivables
transferred by the RECEIVABLES SELLER and reciting the details of
the filings; or
o stating that, in the opinion of counsel, no such action is necessary
to preserve and protect these interests.
CREDIT ENHANCEMENT
GENERAL
For any series, credit enhancement may be provided for one or more classes.
Credit enhancement may be in the form of
o the subordination of one or more classes of the certificates of the
series;
o a letter of credit;
o the establishment of a cash collateral guaranty or account;
o a collateral interest;
o a surety bond;
o an insurance policy;
o a spread account;
o a reserve account;
o the use of cross support features;
o another method of credit enhancement described in the related
prospectus supplement; or
o any combination of the foregoing.
If so specified in the prospectus supplement relating to your series, any
form of credit enhancement may be structured so as to be drawn upon by more than
one class.
The type, characteristics and amount of the credit enhancement for any
series or class will be determined based on several factors, including
o the characteristics of the receivables and accounts included in the
trust portfolio as of the closing date for the series;
o and the desired rating for each class; and
o the requirements of each rating agency rating the certificates of
the series or class.
Unless otherwise specified in the prospectus supplement for your series,
the credit enhancement will not
o provide protection against all risks of loss; and
o guarantee repayment of the entire principal balance of the
certificates and interest.
If losses occur which exceed the amount covered by the credit enhancement
or which are not covered by the credit enhancement, certificateholders will bear
their allocable share of deficiencies.
If credit enhancement is provided with respect to a series, the prospectus
supplement relating to your series will include a description of
o the amount payable under the credit enhancement;
o any conditions to payment not otherwise described here;
o the conditions, if any, under which the amount payable under the
credit enhancement may be reduced and under which the credit
enhancement may be terminated or replaced; and
o any material provision of any agreement relating to the credit
enhancement.
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Additionally, the prospectus supplement relating to your series may set out
information for any credit enhancement provider, including
o a brief description of its principal business activities;
o its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business;
o if applicable, the identity of regulatory agencies which exercise
primary jurisdiction over the conduct of its business;
o its total assets, and its stockholders' or policy holders' surplus,
if applicable; and
o other appropriate financial information as of the date specified in
the prospectus supplement.
If so specified in the related prospectus supplement, credit enhancement
for a series may be available to pay principal of the certificates of the series
following the occurrence of PAY OUT EVENTS for the series. In such event, the
credit enhancement provider may have an interest in cash flows in respect of the
receivables to the extent described in the prospectus supplement relating to
your series.
SUBORDINATION
If so specified in the prospectus supplement relating to your series, one
or more of any series will be subordinated as described in the prospectus
supplement to the extent necessary to fund payments to senior certificates. The
rights of the holders of any subordinated certificates to receive distributions
of principal and/or interest on any distribution date for the series will be
subordinated in right and priority to the rights of the holders of senior
certificates, but only to the extent described in the prospectus supplement. If
so specified in the prospectus supplement relating to your series, subordination
may apply only in the event of losses not covered by another form of credit
enhancement. The prospectus supplement relating to your series will also set out
information concerning
o the amount of subordination of a class or classes of subordinated
certificates in a series;
o the circumstances in which the subordination will be applicable;
o the manner, if any, in which the amount of subordination will be
applicable;
o the manner, if any, in which the amount of subordination will
decrease over time; and
o the conditions under which amounts available from payments that
would otherwise be made to holders of the subordinated certificates
will be distributed to holders of senior certificates.
If collections of receivables otherwise distributable to holders of a
subordinated class of a series will be used as support for a class of another
series, the related prospectus supplement will specify the manner and conditions
for applying such a cross-support feature.
LETTER OF CREDIT
If specified in the prospectus supplement relating to your series, support
for a series or one or more classes thereof will be provided by one or more
letters of credit. A letter of credit may provide limited protection against
losses in addition to or in lieu of other credit enhancement. The issuer of the
letter of credit will be obligated to honor demands under the letter of credit,
to the extent of the amount available under the letter of credit, to provide
funds under the circumstances and subject to such conditions as are specified in
the related prospectus supplement.
CASH COLLATERAL GUARANTY OR ACCOUNT
If so specified in the prospectus supplement relating to your series,
support for a series or one or more classes thereof will be provided by
o a cash collateral guaranty
-- secured by the deposit of cash or permitted investments in a
segregated cash collateral account; and
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-- reserved for the beneficiaries of the Cash Collateral Guaranty;
or
o by a segregated cash collateral account alone.
The amount available under the Cash Collateral Guaranty or the cash collateral
account will be the lesser of
o amounts on deposit in the cash collateral account; and
o an amount specified in the prospectus supplement.
The prospectus supplement will set out the circumstances under which payments
are made to beneficiaries of the Cash Collateral Guaranty from the cash
collateral account or from the cash collateral account directly.
COLLATERAL INTEREST
If specified in the prospectus supplement, support for a series or one or
more classes thereof will be provided initially by collateral interest in an
amount initially equal to a percentage of the certificates of the series as
specified in the prospectus supplement. The series may also have the benefit of
a Cash Collateral Guaranty or cash collateral account with an initial amount on
deposit, if any, as specified in the prospectus supplement which will be
increased
o to the extent the transferor elects, subject to conditions specified
in the related prospectus supplement, to apply collections of
principal receivables allocable to the collateral interest to
decrease the collateral interest;
o to the extent collections of principal receivables allocable to the
collateral interest are required to be deposited into the cash
collateral account as specified in the related prospectus
supplement; and
o to the extent excess collections of finance charge receivables are
required to be deposited into the cash collateral account as
specified in the related prospectus supplement.
The total amount of the credit enhancement available pursuant to the
collateral interest and, if applicable, the Cash Collateral Guaranty or cash
collateral account will be the lesser of
o the sum of the collateral interest;
o the amount on deposit in the cash collateral account; and
o an amount specified in the related prospectus supplement.
The related prospectus supplement will set out the circumstances under which
holders of certificates will receive payments
o under a Cash Collateral Guaranty;
o under a cash collateral account; or
o which otherwise would be made to holders of the collateral interest.
SURETY BOND OR INSURANCE POLICY
If specified in the prospectus supplement relating to your series,
insurance for a series or one or more classes will be provided by one or more
insurance companies. The insurance will guarantee, for one or more classes of
the related series, distributions of interest or principal in the manner and
amount specified in the prospectus supplement.
If specified in the prospectus supplement relating to your series, a surety
bond will be purchased for the benefit of the holders of any series or class of
a series to assure distributions of interest or principal for the series or
class of certificates in the manner and amount specified in the prospectus
supplement.
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SPREAD ACCOUNT
If specified in the prospectus supplement relating to your series, support
for a series or one or more classes will be provided by the periodic deposit of
available excess cash flow from the trust assets into a Spread Account intended
to assist with subsequent distribution of interest and principal on the
certificates of the class or series in the manner specified in the prospectus
supplement.
RESERVE ACCOUNT
If specified in the related prospectus supplement relating to your series,
support for a series or one or more classes will be provided by the
establishment of a reserve account. The reserve account may be funded, to the
extent provided in the related prospectus supplement, by
o an initial cash deposit;
o the retention of periodic distributions of principal or interest or
both otherwise payable to one or more classes or certificates,
including any subordinated certificates; or
o the provision of a letter of credit, guarantee, insurance policy or
other form of credit or any combination of the above.
The reserve account will be established to assist with the subsequent
distribution of principal or interest on the certificates of the series or class
in the manner provided in the prospectus supplement relating to your series.
CERTIFICATE RATINGS
Any rating of the certificates by a rating agency will indicate:
o its view on the likelihood that certificateholders will receive
required interest and principal payments; and
o its evaluation of the receivables and the availability of any credit
enhancement for the certificates.
Among the things a rating will not indicate are:
o the likelihood that interest or principal payments will be paid on a
scheduled date;
o the likelihood that a PAY OUT EVENT will occur;
o the likelihood that a United States withholding tax will be imposed
on non-U.S. Certificateholders;
o the marketability of the certificates;
o the market price of the certificates; or
o whether the certificates are an appropriate investment for any
purchaser.
A rating will not be a recommendation to buy, sell or hold the
certificates. A rating may be lowered or withdrawn at any time by a rating
agency. The designation of additional accounts without prior rating agency
confirmation may result in a suspension, downgrade or withdrawal of its rating
for the certificates.
The transferor will request a rating of the certificates offered by this
prospectus and the prospectus supplement from at least one rating agency. It
will be a condition to the issuance of the certificates of each series or class
offered pursuant to this prospectus and the related prospectus supplement,
including each series that includes a pre-funding account, that they be rated in
one of the four highest rating categories by at least one nationally recognized
rating agency. The rating or ratings applicable to the certificates of each
series or class offered will be disclosed in the related prospectus supplement.
Rating agencies other than those requested could assign a rating to the
certificates and such ratings could be lower than any rating assigned by a
rating agency chosen by the transferor.
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LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The transferor will represent and warrant in the agreement that the
transfer of receivables by it to the trust is either
o a valid transfer and assignment to the trust of all right, title and
interest of the transferor in and to the related receivables except
for the interest of the transferor as holder of the transferor
certificate; or
o the grant to the trust of a security interest in such receivables.
The transferor will also represent and warrant in the agreement that, in the
event the transfer of receivables by the transferor to the trust is deemed to
create a security interest under the Delaware UCC there will exist a valid,
subsisting and enforceable first priority perfected security interest in the
receivables created in favor of the trust on and after their creation, except
for tax and other governmental liens, subject to the limitations described
below. For a discussion of the trust's rights arising from a breach of these
warranties, see "Description of the Certificates--Representations and
Warranties."
The transferor will represent as to receivables to be conveyed, that the
receivables are accounts or general intangibles for purposes of the UCC. Both
the transfer and assignment of accounts and chattel paper and the transfer of
accounts as security for an obligation are treated under Article 9 of the UCC as
creating a security interest and are subject to its provisions, and the filing
of an appropriate financing statement is required to perfect the security
interest of the trust. If a transfer of general intangibles is deemed to create
a security interest, the UCC applies and filing an appropriate financing
statement or statements is also required in order to perfect the trust's
security interest. Financing statements covering the receivables have been and
will be filed with the appropriate governmental authority to protect the
interests of the trust in the receivables. If a transfer of general intangibles
is deemed to be a sale, then the UCC is not applicable and no further action
under the UCC is required to protect the trust's interest from third parties.
There are limited circumstances under the UCC in which a prior or
subsequent buyer of receivables coming into existence after a closing date could
have an interest in the receivables with priority over the trust's interest.
Under the pooling and servicing agreement, however, the transferor will
represent and warrant that it transferred the receivables to the trust free and
clear of the lien of any third party. In addition, the transferor has covenanted
and will covenant that it will not sell, pledge, assign, transfer or grant any
lien on any receivable or any interest in any receivable other than to the
trust. A tax or government lien or other nonconsensual lien on property of the
transferor arising prior to the time a receivable comes into existence may also
have priority over the interest of the trust in the receivable. While DNB is the
servicer, collections will be commingled with DILLARD'S general funds and used
for DILLARD'S benefit prior to each distribution date. Accordingly, in the event
of the insolvency of DILLARD'S, DNB or other subsidiaries of DILLARD'S, the
trust may not have a perfected security interest in such collections. So long as
DNB, however, remains the servicer, unless
o the servicer has provided to the trustee a letter of credit or other
credit support acceptable to each rating agency and the transferor
shall not have received a notice from the rating agency that the
letter of credit would result in the lowering of the rating agency's
then existing rating of the related series and, if the trust has
issued more than one series, any series of certificates then issued
and outstanding,
o DILLARD'S, so long as the servicer is wholly-owned by DILLARD'S, has
and maintains a long-term unsecured debt rating in one of the four
highest categories assigned by each of Moody's and Standard &
Poor's, or
o some other arrangement is made by the servicer which is approved in
writing by the rating agencies,
DNB will be obligated to cease commingling collections and commence depositing
collections into the collection account within two business days after the date
of processing.
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MATTERS RELATING TO BANK RECEIVERSHIP
DNB and DNB-LA. are originators of some or all of the receivables. In
addition, DNB is the initial servicer. DNB and DNB-LA. are chartered as national
banking associations and are subject to regulation and supervision by the
Comptroller. If either DNB or DNB-LA. becomes insolvent or is in an unsound
condition or if other similar circumstances occur, the Comptroller is authorized
to appoint the FDIC as receiver.
In connection with the issuance of a series of certificates which is
supported by receivables transferred by DNB or DNB-LA. to the transferor,
counsel will advise the trustee, based upon the assumptions and limitations
contained in a written legal opinion, that the sale of receivables by DNB or
DNB-LA., as appropriate, would constitute either a valid sale or a grant of a
security interest, as defined in the UCC, in the property to the transferor
which, upon the filing of specified financing statements will be a perfected
security interest.
To the extent that
o an originator granted a security interest in its receivables to the
transferor, which security interest is subsequently assigned to the
trust,
o the interest was validly perfected before the originator's
insolvency,
o the interest was not taken or granted in contemplation of the
originator's insolvency or with the intent to hinder, delay or
defraud the originator or its creditors,
o the pooling and servicing agreement is continuously a record of the
originator, and
o the pooling and servicing agreement represent a bona fide and arm's
length transaction undertaken for adequate consideration in the
ordinary course of business and that the trustee is the secured
party and is not an insider or affiliate of the originator,
the valid perfected security interest of the trustee would be enforceable, to
the extent of the trust's actual direct compensatory damages, notwithstanding
the insolvency of, or the appointment of a receiver or conservator for, the
originator and payments to the trust for the receivables up to the amount of
such damages should not be subject to an automatic stay of payment or to
recovery by the FDIC as conservator or receiver of the originator. If, however,
the FDIC
o were to assert that the security interest in favor of either the
transferor or the trust was unperfected or unenforceable;
o were to require either the transferor or the trustee to establish
its right to those payments by submitting to and completing the
administrative claims procedure established under FIRREA; or
o the conservator or receiver were to request a stay of proceedings
with respect to an originator as provided under FIRREA,
delays in payments on the certificates and possible reductions in the amount of
those payments could occur. The provides that actual, direct compensatory
damages shall be measured as of the date of the appointment of the conservator
or receiver.
Upon the appointment of a conservator or receiver or upon a voluntary
liquidation with respect to DNB or DNB-LA. a termination event under the
applicable receivables purchase agreement will occur and, with respect to DNB, a
servicer default will occur. If no servicer default other than the
conservatorship or receivership of the servicer exists, the conservator or
receiver for the servicer may have the power to prevent either the trustee or
the certificateholders from appointing a successor servicer. In addition, if DNB
or DNB-LA. is an originator of receivables, a conservator or receiver may have
the power to prohibit the continued transfer of principal receivables to the
trust. If, as a result, the applicable originator is no longer able to transfer
receivables to the transferor, a PAY OUT EVENT may, if specified in the related
prospectus supplement, occur for a series of certificates under the trust.
Pursuant to each originator's purchase agreement, newly created principal
receivables will not be transferred to the transferor on and after any
receivables appointment or voluntary liquidation, and the trustee will proceed
to sell, dispose of or otherwise liquidate the receivables originated by the
originator in a commercially reasonable manner and on commercially reasonable
terms, unless otherwise instructed within a specified period by holders of
certificates representing undivided interests
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aggregating more than 50% of the investor interest of each series or, if any
series has more than one class, of each class, and any other person specified in
the pooling and servicing agreement or a related series supplement, or unless
otherwise required by the FDIC as receiver or conservator of DNB. Under the
pooling and servicing agreement, the proceeds from the sale of the receivables
would be treated as collections of the receivables and the investor percentage
of the proceeds would be distributed to the certificateholders. However, if the
only PAY OUT EVENT to occur is either the insolvency of the transferor or the
appointment of a conservator or receiver for the transferor, the conservator or
receiver may have the power to prevent the early sale, liquidation or
disposition of the receivables and the commencement of the RAPID AMORTIZATION
PERIOD. See "Description of the Certificates--Pay Out Events."
The occurrence of most events of insolvency, conservatorship or
receivership with respect to the servicer will result in a servicer default,
which servicer default, in turn, could result in a PAY OUT EVENT. If no other
servicer default other than the commencement of such bankruptcy or similar event
exists, a conservator or receiver of the servicer may have the power to prevent
the trustee and the securityholders from appointing a successor servicer.
MATTERS RELATING TO BANKRUPTCY OF THE TRANSFEROR, DIC AND MFI
The transferor will not engage in any activities except
o purchasing accounts receivable from DILLARD'S and DILLARD'S
subsidiaries,
o forming the trust,
o transferring accounts receivable to the trust, and
o engaging in activities incident to, or necessary or convenient to
accomplish, the foregoing.
The transferor has no intention of filing, and Condev Nevada Inc. has no
intention of causing the filing of a voluntary petition under the United States
federal bankruptcy code or any similar applicable state law with respect to the
transferor so long as the transferor is solvent and does not reasonably foresee
becoming insolvent.
The voluntary or involuntary application for relief under the United States
federal bankruptcy code or any similar applicable state law with respect to
DILLARD'S or any of its affiliates, other than the transferor but including DIC
and MFI, should not necessarily result in a similar voluntary application with
respect to the transferor so long as the transferor is solvent and does not
reasonably foresee becoming insolvent either by reason of the insolvency of a
DILLARD'S ENTITY or otherwise. In connection with the issuance of a series of
certificates, counsel will advise the trustee, based upon the assumptions and
limitations contained in a written legal opinion, that the assets and
liabilities of the transferor would not be substantively consolidated with the
assets and liabilities of any DILLARD'S ENTITY in the event of an application
for relief under the United States federal bankruptcy code with respect to the
DILLARD'S ENTITY. In addition, in connection with the issuance of a series of
certificates, counsel will advise the trustee, based upon the assumptions and
limitations contained in a written legal opinion, that the sale of receivables
by a receivables seller other than DNB or DNB-LA. would constitute a valid sale
and, therefore, the receivables would not be property of the receivables seller
in the event of the filing of an application for relief by or against the
receivables seller under the United States federal bankruptcy code. The
foregoing conclusions are reasoned conclusions, based upon various assumptions
regarding factual matters and future events, as to which there necessarily can
be no assurance. If a bankruptcy trustee for a DILLARD'S ENTITY, or the
DILLARD'S ENTITY as debtor-in-possession, or a creditor of the DILLARD'S ENTITY
were to take the view that the DILLARD'S ENTITY and the transferor should be
substantively consolidated then delays in payments on the certificates of each
series or, should the bankruptcy court rule in favor of any such trustee,
debtor-in-possession or creditor, reductions in such payments on such
certificates could result. In addition, if a bankruptcy trustee for a
receivables seller other than DNB-LA. or DNB, or the receivables seller as
debtor-in-possession, or a creditor of the receivables seller were to take the
view that the transfer of the receivables from the receivables seller to the
transferor should be recharacterized as a pledge of the receivables, then delays
in payments on the certificates of each series or, should the bankruptcy court
rule in favor of any the trustee, debtor-in-possession or creditor, reductions
in the payments on the certificates could result.
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In Octagon Gas Systems, Inc. V. Rimmer; 995 F.2d 948 (10th Cir. 1993), cert
denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a true sale, the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If the
transferor, DIC or MFI were to become subject to a bankruptcy proceeding or if
DNB or DNB-LA. were to become subject to a receivership and a court were to
follow the 10th Circuit's reasoning, holders of the securities issued by the
trust might experience delays in payment or possibly losses in their investment
in the securities. Counsel to the transferor has advised it that the facts of
Octagon are distinguishable from those in the sale transactions between each of
the receivables sellers and the transferor and the transferor and the trust and
the reasoning of the 10th Circuit appears to be inconsistent with established
precedent and the UCC.
The pooling and servicing agreement provides that, upon the bankruptcy or
appointment of a receiver for the transferor or DILLARD'S, a PAY OUT EVENT with
respect to all series will occur, and under the pooling and servicing agreement,
no new principal receivables will be transferred to the trust. If the only PAY
OUT EVENT to occur is either the insolvency of the transferor or the appointment
of a bankruptcy trustee or receiver for the transferor, the receiver or
bankruptcy trustee for the transferor may have the power to continue to require
the transferor to transfer new principal receivables to the trust and to prevent
the early sale, liquidation or disposition of the receivables and the
commencement of the EARLY AMORTIZATION PERIOD. See "Description of the
Certificates--Pay Out Events."
CONSUMER PROTECTION LAWS
The relationships of the cardholder and credit card issuer and the lender
are extensively regulated by federal and state consumer protection laws. With
respect to credit cards issued by an originator, the most significant laws
include the federal
o Truth-in-Lending, Equal Credit Opportunity,
o Fair Credit Reporting,
o Fair Debt Collection Practice, and
o Electronic Funds Transfer Acts.
These statutes impose disclosure requirements when a credit card account is
advertised and when it is opened,
o at the end of monthly billing cycles, and
o at year end.
In addition, these statutes
o limit customer liability for unauthorized use,
o prohibit discriminatory practices in extending credit, and
o impose specific limitations on the type of account-related charges
that may be assessed.
Cardholders are entitled under these laws to
o have payments and credits applied to the credit card accounts
promptly,
o to receive prescribed notices, and
o to require billing errors to be resolved promptly.
The trust may be liable for violations of consumer protection laws that apply to
the receivables, either as assignee from the transferor with respect to
obligations arising before transfer of the receivables to the trust or as a
party directly responsible for obligations arising after the transfer. In
addition, a cardholder may be entitled to assert the violations by way of
set-off against his obligation to pay the amount of receivables owing. The
transferor will warrant that all related receivables have been and will be
created in compliance with the requirements of the laws. The servicer will also
agree to indemnify the trust, among other things, for
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any liability arising from the violations caused by the servicer. For a
discussion of the trust's rights arising from the breach of these warranties,
see "Description of the Certificates--Representations and Warranties."
Various proposed laws and amendments to existing laws have from time to
time been introduced in Congress and state and local legislatures that, if
enacted, would further regulate the credit card industry. Among other things,
the proposed law would impose a ceiling on the rate at which a financial
institution may assess finance charges and fees on credit card accounts that
would be substantially below the rates of the finance charges and fees the
originators currently assesses on its accounts. In particular, on June 19, 1997,
a proposal to amend the Federal Truth-in-Lending Act was introduced in the House
of Representatives and referred to the Committee on Banking and Financial
Services, which would, among other things,
o prohibit the imposition and amount of minimum finance charges and
other fees,
o specify methods of calculating finance charges, and
o require prior notice of any increase in the interest rate assessed
with respect to a credit card account.
Although such proposed legislation has not been enacted, there can be no
assurance that such a bill will not become law in the future. The potential
effect of any legislation which limits the amount of finance charges and fees
that may be charged on credit cards could be to reduce the portfolio yield on
the accounts. If portfolio yield is reduced, a PAY OUT EVENT may occur, and the
RAPID AMORTIZATION PERIOD would commence.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the certificateholders if it results in any related
receivables being written off as uncollectible when the amount available under
any credit enhancement is equal to zero. See "Description of the
Certificates--Defaulted Receivables; Rebates and Fraudulent Charges; Investor
Charge-Offs."
CLAIMS AND DEFENSES OF CARDHOLDERS AGAINST THE TRUST
The UCC provides that
o unless an obligor under an account has made an enforceable agreement
not to assert defenses or claims arising out of a transaction, the
rights of the trust, as assignee, are subject to
o all the terms of the contract between the originator and the
obligor and
o any defense or claim arising under the contract, to rights of
set-off and to any other defense or claim of the obligor against
the originator that accrues before the obligor receives
notification of the assignment; and
o any obligor is authorized to continue to pay the originator until
o the obligor receives notification, reasonably identifying the
rights assigned, that the amount due or to become due has been
assigned and that payment is to be made to the trustee or
successor servicer; and
o if requested by the obligors, the trustee or successor servicer
has furnished reasonable proof of assignment.
No agreement not to assert defenses has been entered into and no notice of the
assignment of the receivables to the trust will be sent to the cardholders
obligated on the accounts in connection with the transfer of the receivables to
the trust.
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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 CODE, the final,
temporary and proposed Treasury regulations promulgated thereunder, and
administrative and judicial decisions or rulings, all of which are subject to
change, which change may be retroactive.
The discussion does not address all of the tax consequences relevant to a
particular certificate owner in light of that certificate owner's circumstances,
nor does it address the U.S. federal income tax consequences that may be
relevant to some certificate owners that are subject to special treatment under
the CODE, such as
o banks,
o financial institutions,
o dealers in securities,
o regulated investment companies,
o real estate investment trusts,
o tax-exempt entities,
o persons holding certificates as part of a hedging, integrated, conversion
or constructive sale transaction or a straddle,
o persons whose functional currency is not the U.S. dollar, or
o life insurance companies.
Moreover, this summary does not address the U.S. federal alternative minimum tax
consequences, if any, of an investment in the certificates or any state, local
or foreign tax laws that may be applicable to the certificates, or to a
certificate owner.
Each prospective certificate owner is urged to consult its own tax adviser
in determining the federal, state, local and foreign income and any other tax
consequences of the purchase, ownership and disposition of a certificate.
Prospective investors should note that no ruling will be sought from the
Internal Revenue Service with respect to any of the U.S. federal income tax
consequences discussed here, and opinions of counsel, such as those described
below, are not binding on the IRS or the courts. Consequently, no assurance can
be given that the IRS will not take positions contrary to those described below.
In addition, the opinions of Simpson Thacher & Bartlett described below are
based upon the representations and assumptions in the opinions, including, but
not limited to, the assumption that all of the relevant parties will comply with
the terms of the pooling and servicing agreement and the other related
documents. If such representations are inaccurate and/or the relevant parties
fail to comply with the terms of the pooling and servicing agreement or the
other related documents, the conclusions of tax counsel described in the
opinions and the discussion of the U.S. federal income tax consequences here may
not be accurate.
For purposes of this discussion, a U.S. Certificate Owner means a
certificate owner that is
o a citizen or resident of the United States,
o a corporation or partnership created or organized in the United
States or under the laws of the United States or any political
subdivision thereof,
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o an estate the income of which is subject to United States federal
income taxation regardless of its source, or
o a trust if it is subject to the supervision of a court within the
United States and one or more United States persons, within the
meaning of section 7701(a)(30) of the CODE, have the authority to
control all substantial decisions of the trust or it has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a United States person.
For purposes of this discussion, the term non-U.S. Certificate Owner means any
certificate owner other than a U.S. Certificate Owner.
TREATMENT OF THE CERTIFICATES AS DEBT
The transferor will express in the pooling and servicing agreement its
intent that the certificates will be debt for all U.S. and foreign income and
franchise tax purposes. The transferor, by entering into the pooling and
servicing agreement, and each investor, by the acceptance of a beneficial
interest in a certificate, will agree to treat the certificates as debt for such
purposes. However, the pooling and servicing agreement generally refers to the
transfer of receivables as a "transfer, assignment and conveyance," and the
transferor will treat the pooling and servicing agreement, for some non-tax
accounting purposes, as causing a transfer of an ownership interest in the
receivables and not as creating a debt obligation.
For U.S. federal income purposes, the economic substance of a transaction
often determines its tax consequences. The form of a transaction, while a
relevant factor, is generally not conclusive evidence of the economic substance
of the transaction. In appropriate circumstances, the courts have allowed the
IRS, as well as taxpayers, in more limited circumstances, to treat a transaction
in accordance with its economic substance, as determined under U.S. federal
income tax law, even though the participants in the transaction have
characterized it differently for non-tax purposes. In Commissioner v. Danielson,
378 F.2d 771 (3d Cir. 1967), the Third Circuit Court of Appeals substantially
limited the circumstances in which a taxpayer for tax purposes could ignore the
form of a transaction. Some courts have followed this decision while others have
not. The Danielson case related to the treatment of a bargained-for allocation
of purchase price, which various taxpayers were characterizing in different
ways, and the application of the Danielson rationale to the certificates, where
all of the parties have agreed on a consistent tax characterization of the
transaction, is arguably not appropriate. However, in United States v. Scharrer,
1999 WL 39131 (M.D. Fla. 1999), the District Court, citing Danielson, reversed a
bankruptcy court's decision that a purported sale of lease payments was a
borrowing, on the grounds that the form of the transaction was a sale rather
than a borrowing. While the facts of the case differ from those involving the
certificates, the case extends Danielson to sale/borrowing transactions.
Nevertheless, tax counsel has advised that in a properly presented case the
Danielson doctrine would not prevent a determination of the tax characterization
of the certificates based on the economic substance of the transaction.
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.
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TAXATION OF INTEREST INCOME OF U.S. CERTIFICATE OWNERS
Unless otherwise specified in the related prospectus supplement, the
certificates will not be issued at a discount from their stated principal amount
in excess of a statutory de minimis amount. Consequently, unless otherwise
disclosed in a related prospectus supplement, the certificates will not be
considered to have been issued with Original Issue Discount within the meaning
of Section 1273 of the CODE and a U.S. Certificate Owner generally will include
the stated interest on a certificate in gross income at the time the interest
income is received or accrued in accordance with the U.S. Certificate Owner's
regular method of tax accounting, provided that the stated interest is
considered to be unconditionally payable for U.S. federal income tax purposes.
Under the applicable Treasury regulations, the stated interest on the
certificates will be considered unconditionally payable only if the terms and
conditions of the certificates make the likelihood of late payment or
non-payment of such stated interest a remote contingency. Since the trust and
trustee will have no discretion to withhold, delay or otherwise defer scheduled
monthly payments of stated interest on the certificates, provided the trust has
sufficient cash on hand to allow the trustee to make the interest payments, the
transferor intends to take the position that late payment or non-payment of
stated interest on the certificates is a remote contingency and, therefore, the
stated interest is unconditionally payable.
If, however, the stated interest on the certificates is not considered
unconditionally payable, the stated interest on the certificates will be
considered original issue discount and a U.S. Certificate Owner will be required
to include the stated interest in income, as original issue discount, on a daily
economic accrual basis regardless of the U.S. Certificate Owner's regular method
of tax accounting and in advance of receipt of the cash related to such income.
In addition, if the stated interest on the certificates is not paid in full on a
distribution date, the certificates may at such time, and at all later times, be
considered to be issued with original issue discount and all certificate owners
would be required to include such stated interest in income as original issue
discount on an economic accrual basis.
SALE, EXCHANGE OR RETIREMENT OF CERTIFICATES
Upon a sale, exchange, retirement or other disposition of a certificate, a
U.S. Certificate Owner generally will recognize gain or loss equal to the
difference between
o the amount realized on the sale, exchange, retirement or other
disposition, less an amount equal to any accrued but unpaid interest that
the U.S. Certificate Owner has not included in gross income previously,
which will be taxable as such, and
o the U.S. Certificate Owner's adjusted tax basis in the certificate.
Such gain or loss generally will be capital gain or loss. Capital gains of
individuals derived in respect of capital assets held for more than one year are
eligible for reduced rates of taxation. Capital losses generally may be used
only to offset capital gains.
POSSIBLE ALTERNATIVE CHARACTERIZATIONS
Although, as described above, it is the opinion of tax counsel that the
certificates will be properly characterized as debt for U.S. federal income tax
purposes, its opinion is not binding on the IRS and thus no assurance can be
given that such a characterization will prevail. If the IRS were to contend
successfully that some or all of the certificates or any collateral interest
were not debt obligations for U.S. federal income tax purposes, all or a portion
of the trust could be classified as a partnership or a publicly traded
partnership taxable as a corporation for such purposes. Because in the opinion
of tax counsel the certificates will be characterized as debt for U.S. federal
income tax purposes and because any beneficial owner of an interest in a
collateral interest will agree to treat that interest as debt, no attempt will
be made to comply with any IRS reporting or other requirements that would apply
if all or a portion of the trust were treated as a partnership or a corporation.
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.
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federal income tax. Rather, each item of income, gain, loss and deduction of the
partnership generated through the ownership of the related receivables would be
taken into account directly in computing the taxable income of the transferor or
the beneficial owner of the transferor certificate and any certificate owners
treated as partners in the partnership in accordance with their respective
partnership interests. The amount and timing of income reportable by any
certificate owners treated as partners in the partnership would likely differ
from that reportable by the certificate owners had they been treated as owning
debt. Moreover, unless the partnership were treated as engaged in a trade or
business, an individual's and, under some circumstances, a trust's share of
expenses of such partnership would be miscellaneous itemized deductions that, in
the aggregate, are allowed as deductions only to the extent that they exceed two
percent of the individual's adjusted gross income, and would be subject to
reduction if the individual's adjusted gross income exceeded specified limits.
As a result, a certificate owner subject to the limitations may be taxed on a
greater amount of income than the stated rate on the certificates. In addition,
all or a portion of any taxable income allocated to a certificate owner that is
a pension, profit sharing or employee benefit plan or other tax exempt entity,
including an individual retirement account, may, under some circumstances,
constitute unrelated business taxable income which generally would be taxable to
the certificate owner under the CODE.
Alternatively, if the trust were treated in whole or in part as a publicly
traded partnership taxable as a corporation, the trust would be subject to U.S.
federal income tax at corporate tax rates on the taxable income generated by its
ownership of the receivables. Entity-level tax could result in reduced
distributions to certificate owners. In addition, the distributions from the
trust would not be deductible in computing the taxable income of the deemed
corporation, except to the extent that any certificates were treated as debt of
the corporation and distributions to the related certificate owners were treated
as payments of interest. Moreover, distributions to certificate owners not
treated as holding debt would be treated as dividends for U.S. federal income
tax purposes to the extent of the current and accumulated earnings and profits
of the deemed corporation.
NON-U.S. CERTIFICATE OWNERS
Assuming all of the certificates are considered to be debt of the transferor for
U.S. federal income tax purposes, under present U.S. federal income and estate
tax law, and subject to the discussion below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required for the payment
by the transferor or any withholding agent of principal or interest on a
certificate owned by a non-U.S. Certificate Owner, provided
(i) that the beneficial owner does not actually or constructively own
10% or more of the total combined voting power of all classes of
stock of the transferor entitled to vote within the meaning of
section 871(h)(3) of the CODE and the regulations thereunder,
(ii) the beneficial owner is not a controlled foreign corporation that
is related to the transferor through stock ownership,
(iii) the beneficial owner is not a bank whose receipt of interest on
a certificate is described in section 881(c)(3)(A) of the CODE,
and
(iv) the beneficial owner satisfies the statement requirement,
described generally below, set forth in section 871(h) and
section 881(c) of the CODE and the regulations thereunder; and
(b) a certificate beneficially owned by an individual who at the time of death
is a non-U.S. Certificate Owner will not be subject to U.S. federal estate
tax as a result of the individual's death, provided that
(i) the individual does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of the
transferor entitled to vote within the meaning of
section 871(h)(3) of the CODE, and
(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.
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To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of the certificate, or a financial institution holding the certificate on
behalf of the owner, must provide, in accordance with specified procedures, the
transferor and/or any withholding agent with a statement to the effect that the
beneficial owner is not a U.S. Certificate Owner. Currently, these requirements
will be met if
o the beneficial owner provides his name and address, and certifies,
under penalties of perjury, that he is not a U.S. Certificate Owner,
which certification may be made on an IRS Form W-8 or successor
form, or
o a financial institution holding the certificate on behalf of the
beneficial owner certifies, under penalties of perjury, that the
statement has been received by it and furnishes the transferor or
any withholding agent with a copy.
Under recently finalized Treasury regulations, the statement requirement
referred to in (a)(iv) above may also be satisfied with other documentary
evidence for interest paid after December 31, 2000 for an offshore account or
through some foreign intermediaries.
If a non-U.S. Certificate Owner cannot satisfy the requirements of the
portfolio interest exception of paragraph (a) above, payments of interest made
to such non-U.S. Certificate Owner will be subject to a 30% withholding tax
unless the beneficial owner of the certificate provides the transferor or any
withholding agent with a properly executed
o IRS Form 1001, or successor forms, claiming an exemption from, or
reduction in the rate of, the withholding tax under the benefit of a tax
treaty, or
o IRS Form 4224 , or successor forms, stating that interest paid on the
certificate is not subject to the withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or
business in the United States.
Under the recently finalized Treasury regulations, non-U.S. Certificate Owners
will generally be required to provide IRS Form W-8 in lieu of IRS Form 1001 and
IRS Form 4224, although alternative documentation may be applicable in some
situations.
If a non-U.S. Certificate Owner is engaged in a trade or business in the
United States and interest on the certificate is effectively connected with the
conduct of such trade or business, the non-U.S. Certificate Owner, although
exempt from the withholding tax discussed above, will be subject to U.S. federal
income tax on such interest income on a net income basis in the same manner as
if it were a U.S. Certificate Owner. In addition, if such non-U.S. Certificate
Owner is a foreign corporation, it may be subject to a branch profits tax equal
to 30%, or a lower treaty rate, of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, such
interest income will be included in such foreign corporation's earnings and
profits.
Any gain realized upon the sale, exchange, retirement or other disposition
of a certificate by a non-U.S. Certificate Owner generally will not be subject
to U.S. federal income tax or withholding unless
o the gain is effectively connected with a trade or business carried on by
the non-U.S. Certificate Owner in the United States,
o in the case of a non-U.S. Certificate Owner who is an individual, such
individual is present in the United States for 183 days or more in the
taxable year of the sale, exchange, retirement or other disposition, and
other conditions are met, or
o in the case of any gain that represents accrued but unpaid interest, the
requirements described in (a) above are satisfied.
If the certificates were treated as an equity interest in a partnership,
other than a publicly traded partnership taxable as a corporation, the
recharacterization could cause a non-U.S. Certificate Owner to be 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,
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on its allocable share of the net income from the partnership. Further, some
withholding obligations may apply to income allocable, or distributions made, to
a foreign partner. That withholding would be at the highest applicable rate in
effect with respect to the non-U.S. Certificate Owner. Alternatively, if some or
all of the certificates were treated as equity interests in a publicly traded
partnership taxable as a corporation, any related dividend distributions to a
non-U.S. Certificate Owner generally would be subject to withholding tax at the
rate of 30%, unless that rate were reduced under an applicable tax treaty. See
"--Possible Alternative Characterizations" above.
Special rules may apply to non-U.S. Certificate Owners, such as controlled
foreign corporations, passive foreign investment companies and foreign personal
holding companies, as defined and that are subject to special treatment under
the CODE. Such entities should consult their own tax advisors to determine the
U.S. federal, state, local and other tax consequences that may be relevant to
them.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to some payments
of principal and interest paid on certificates and to the proceeds of sale of a
certificate made to U.S. Certificate Owners other than some exempt recipients
such as corporations. A 31% backup withholding tax will apply to such payments
if the U.S. Certificate Owner fails to provide a taxpayer identification number
or certification of exempt status or fails to report in full dividend and
interest income.
No information reporting or backup withholding will be required for
payments made by the transferor or any withholding agent to a non-U.S.
Certificate Owner if a statement described in (a)(iv) above under
"--Non-U.S. Certificate Owners" has been received and the payor does not have
actual knowledge that the beneficial owner is a U.S. Certificate Owner.
Backup withholding and information reporting may apply to the proceeds of
the sale of a certificate by a non-U.S. Certificate Owner within the United
States or conducted through some U.S. related financial intermediaries unless
the statement described in (a)(iv) above under "--Non-U.S. Certificate Owners"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States person or the holder otherwise establishes
an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against the certificate owner's U.S. federal income tax
liability provided the required information is furnished to the IRS.
STATE AND LOCAL TAXATION
The discussion above does not address the tax consequences of the purchase,
ownership or disposition of a certificate under any state or local tax law. Each
investor should consult its own tax adviser regarding state and local tax
consequences.
PLAN OF DISTRIBUTION
The transferor may sell certificates
o through underwriters or dealers,
o directly to one or more purchasers, or
o through agents.
The prospectus supplement relating to your series will describe the terms
of the offering of any certificates offered, including, without limitation, the
names of any underwriters, the purchase price of the certificates and the
proceeds to the transferor from the sale, any underwriting discounts and other
items 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
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o will be acquired by the underwriters for their own account, and
o may be resold from time to time in one or more transactions,
including
o negotiated transactions,
o at a fixed public offering price and
o at varying prices to be determined at the time of sale or at the
time of commitment.
The certificates may be offered to the public either through underwriting
syndicates represented by managing underwriters or by underwriters without a
syndicate. Unless otherwise provided in the prospectus supplement, the
obligations of the underwriters to purchase the certificates will be subject to
the satisfaction of specified conditions, and the underwriters will be obligated
to purchase all of the certificates if any of the certificates are purchased.
Any initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
Certificates may also be sold directly by the transferor or through agents
designated by the transferor from time to time. Any agent involved in the offer
or sale of certificates will be named, and any commissions payable by the
transferor to the agent will be disclosed, in the related prospectus supplement.
Unless otherwise indicated in the prospectus supplement, any such agent will act
on a best efforts basis for the period of its appointment.
Any underwriters, agents or dealers participating in the distribution of
certificates may be deemed to be underwriters, and any discounts or commissions
received by them on the sale or resale of certificates may be deemed to be
underwriting discounts and commissions, under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the transferor
to indemnification by the transferor against certain civil liabilities,
including liabilities under the Securities Act, or to contribution for
respective payments that the agents or underwriters may be required to make.
Agents and underwriters may be affiliates or customers of, engage in
transactions with, or perform services for, the transferor or its affiliates in
the ordinary course of business.
Each underwriting agreement will provide that the transferor will indemnify
the related underwriters against liabilities, including liabilities under the
federal securities laws, or contribute to any amounts the underwriters are
required to pay with respect to those liabilities.
LEGAL MATTERS
Unless otherwise specified in the related prospectus supplement, the
legality of the investor certificates and certain legal matters relating to the
tax consequences of the issuance of the investor certificates will be passed
upon for the transferor by Simpson Thacher & Bartlett and certain matters
concerning creditors' rights will be passed upon for the transferor by Simpson
Thacher & Bartlett. The legality of the investor certificates will be passed
upon for any underwriters by underwriter's counsel specified in the related
prospectus supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless and until definitive certificates are issued, monthly and annual
reports, containing information concerning the trust and prepared by the
servicer, will be sent on behalf of the trust to Cede as nominee of DTC and
registered holder of the related certificates, pursuant to the pooling and
servicing agreement. See "Description of the Certificates--Book-Entry
Registration," "--Reports to Certificateholders" and "--Evidence as to
Compliance." The reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The servicer does not
intend to send any financial reports of Dillard's or any of its affiliates to
certificateholders or to the certificate owners. The servicer will file or will
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.
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WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement relating to the certificates with the
SEC. This prospectus is part of the registration statement, but the registration
statement includes additional information.
The servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about the trust.
You may read and copy any reports, statements or other information we file
at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at (800) SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings are
also available to the public on the SEC Internet site http://www.sec.gov.
The SEC allows us to incorporate by reference information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus. Information that we file later with the SEC will
automatically update the information in this prospectus. In all cases, you
should rely on the later information over different information included in this
prospectus or the prospectus supplement. We incorporate by reference any future
annual, monthly and special SEC reports and proxy materials filed by or on
behalf of the trust until we terminate our offering of the certificates.
As a recipient of this prospectus, you may request a copy of any document
we incorporate by reference, except exhibits to the documents (unless the
exhibits are specifically incorporated by reference), at no cost, by writing or
calling us at: Dillard Asset Funding Company, c/o Chase Manhattan Bank Delaware,
1201 Market Street, Wilmington, Delaware 19801, (302) 984-3300.
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GLOSSARY OF TERMS
The following glossary of terms is not complete. You should refer to the
prospectus supplement for additional definitions.
Some of the definitions contained in this glossary of terms may not
necessarily apply to your series of certificates.
"ACCUMULATION PERIOD" means either a Controlled Accumulation Period or a
Rapid Accumulation Period.
"AMORTIZATION PERIOD" means a Controlled Amortization Period, a Principal
Amortization Period or a Rapid Amortization Period.
"CEDE" means Cede & Co., as DTC Nominee.
"CEDELBANK" means Cedelbank, societe anonyme, an institution administering
a book-entry settlement system for trading of securities in Europe.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANION SERIES" means:
o a series which has been paired with a previously issued series and has an
investor interest that increases as the investor interest of the
previously issued series decreases; or
o any series designated as a Companion Series in the related series
supplement.
"CONTROLLED ACCUMULATION PERIOD" means a period:
o beginning on a date specified in the related supplement after the
Revolving Period and
o ending on the earliest of
-- the start of the Rapid Accumulation Period,
-- the start of the Rapid Amortization Period, and
-- the Series Termination Date; and
during which collections of principal receivables up to the amount specified in
the related supplement are deposited monthly into the principal funding account.
"CONTROLLED AMORTIZATION AMOUNT" means a designated amount scheduled to be
paid on each distribution date during the Controlled Amortization Period as
specified in the related prospectus supplement.
"CONTROLLED AMORTIZATION PERIOD" means a period:
o beginning on a date specified in the related supplement and
o ending on the earlier of
-- the start of the Rapid Amortization Period and
-- the Series Termination Date; and
during which collections of principal receivables up to an amount specified in
the related prospectus supplement are paid to certificateholders on each
distribution date.
"CONTROLLED DEPOSIT AMOUNT" has the meaning described under "Description of
the Certificates--Accumulation Period."
"CREDIT ENHANCEMENT" has the meaning described under "Credit
Enhancement--General."
"CUT-OFF DATE" means [ ].
"DIC" means Dillard Investment Co., Inc. a Delaware corporation.
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"DILLARD'S" means Dillard's, Inc., a corporation organized under the laws
of Delaware.
"DILLARD'S CARDS" means the private label credit card program offered by
Dillard's.
"DILLARD'S ENTITY" means Dillard's or any of its affiliates (including DIC
and MFI)
"DNB" means Dillard National Bank, a national banking association organized
and existing under the laws of the United States and having its headquarters in
Gilbert, AZ.
"DNB-LA." means Dillard National Bank (formerly known as Mercantile Stores
National Bank) a national banking association organized and existing under the
laws of the United States and having its headquarters in Baton Rouge, LA.
"DOL" means the U.S. Department of Labor.
"EARLY AMORTIZATION PERIOD" means such period which may be commenced by the
receiver or bankruptcy trustee for the transferor upon a the occurrence of a Pay
Out Event.
"ELIGIBLE ACCOUNT" means as of the Cut-Off Date (or, with respect to
additional accounts as of the relevant addition date),each account owned by an
originator
o which is payable in dollars,
o for which the obligor has provided, as its most recent billing
address, an address which is located in the United States or its
territories or possessions,
o which the originator has not classified on its electronic records as
counterfeit, deleted, fraudulent, stolen or lost, and
o which has not been charged off by the originator in its customary
and usual manner for charging off such accounts as of the Cut-Off
Date (or, with respect to additional accounts, as of the relevant
addition date).
"ELIGIBLE DEPOSIT ACCOUNT" means, either
o a segregated account with an Eligible Institution or
o a segregated trust account with the corporate trust department of a
depository institution organized under the laws of the United States
or any one of the states, including the District of Columbia (or any
domestic branch of a foreign bank), acting as a trustee for funds
deposited in that account, so long as any of the securities of that
depository institution have an investment grade credit rating from
each rating agency.
"ELIGIBLE INSTITUTION" means
o the servicer so long as the RATING AGENCY CONDITION is satisfied,
o a depository institution (which may be the trustee or an affiliate)
organized under the laws of the United States or any one of the
states which at all times
-- has either
-- a long-term unsecured debt rating of "A2" or better by
Moody's or
-- a certificate of deposit rating of "P-1" by Moody's,
-- has either
-- a long-term unsecured debt rating of "AAA" by Standard &
Poor's or
-- a certificate of deposit rating of "A-l+" by Standard &
Poor's and
-- is a member of the FDIC or
o any other institution that is acceptable to the rating agencies.
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"ELIGIBLE RECEIVABLE" means a receivable:
o under an Eligible Account (in the case of accounts conveyed to the
trust on the initial closing date and in the case of additional
accounts conveyed to the trust on the relevant addition date);
o which was created in compliance, in all material respects, with all
legal requirements of law applicable to the originator and pursuant
to a credit card agreement which complies, in all material respects,
with all legal requirements applicable to that originator;
o with respect to which all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
governmental authority required to be obtained, effected or given by
that originator in connection with the creation of that receivable
or the execution, delivery and performance by that originator of the
credit card agreement pursuant to which that receivable was created,
have been duly obtained, effected or given and are in full force and
effect as of such date of creation;
o as of the related closing date, or in the case of receivables in
additional accounts as of the relevant addition date, the transferor
had good title, free and clear of all liens, except for permitted
liens, arising under or through the transferor or any of its
affiliates;
o which is the legal, valid and binding payment obligation of the
obligor, enforceable against that obligor in accordance with its
terms, except as affected by bankruptcy, insolvency, reorganization,
moratorium and other similar laws, now or hereafter in effect,
relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a suit in equity or at
law) and an implied covenant of good faith and fair dealing; and
o which constitutes an "account" under and as defined in Article 9 of
the UCC.
"ENHANCEMENT INVESTED AMOUNT" means a subordinated investor interest in
cash flows in respect of the receivables to the extent described in the related
supplement.
"ERISA" means, the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"FINAL REGULATIONS" has the meaning attributed to such term as defined in
the Code.
"FUNDING PERIOD" means the period beginning on the closing date and ending
on a specified date before the commencement of an Amortization Period or
Accumulation Period.
"GENERAL ACCOUNT REGULATIONS" has the meaning attributed to such term under
ERISA.
"INELIGIBLE RECEIVABLE" means a principal receivable that upon a breach of
any representation or warranty, is ineligible because the receivables in the
related account is reassigned and charged off as uncollectible, the trust's
rights in, to or under the receivable or its proceeds are impaired or the
proceeds of the receivable is not available for any reason to the trust free and
clear of any lien.
"INVESTOR CHARGE-OFF" means, for any monthly period, for any series or
class, the amount by which the related monthly interest and overdue monthly
interest (together with, if applicable, additional interest due on the overdue
amount), the accrued and unpaid investor servicing fees payable from collections
of finance charge receivables, the Investor Default Amount and any other
required fees exceeds amounts available to pay such amounts out of collections
of finance charge receivables, available Credit Enhancement amounts, if any, and
other sources specified in the related supplement, if any, but not more than
such Investor Default Amount.
"INVESTOR DEFAULT AMOUNT" means, for any monthly period, and for any series
or class, the aggregate amount of the applicable investor percentage of
principal receivables in default accounts.
"MCC" means Mercantile Credit Corporation, a corporation organized and
existing under the laws of Louisiana.
"MERCANTILE ACCOUNTS" means the revolving credit card accounts originated
by DNB-La. prior to October 17, 1998.
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<PAGE>
"MERCANTILE CARDS" means the Mercantile private label credit card program
offered by Mercantile prior to Dillard's acquisition of Mercantile Stores.
"MERSCO FACTORS" means Mersco Factors, Inc., a Delaware corporation.
"MINIMUM TRANSFEROR INTEREST" means, for any period, the interest of the
sum of
o the average principal receivables for that period;
o the average principal amount on deposit in the excess funding
account; and
o the principal funding account and any other account specified from
time to time pursuant to the pooling and servicing agreement or the
series supplement for that period;
provided, however, that the transferor may reduce the Minimum Transferor
Interest to not less than the interest of the sum of the amounts specified in
the first two clauses above upon satisfaction of the Rating Agency Condition and
other conditions in the pooling and servicing agreement.
"PARTICIPATIONS" means trust participants added by the transferor,
representing undivided interests in a pool of assets primarily consisting of
receivables arising under private label consumer revolving credit card accounts
owned by the transferor.
"PARTICIPATION AGREEMENT" means a separate pooling and servicing agreement
or similar agreement entered into by the transferor which entitles the
certificateholder to receive percentages of collections generated by the pool of
assets subject to that participation agreement and other specified rights and
remedies.
"PAY OUT EVENT" means either automatically or after specified notice, upon
o the failure of the transferor to make payments or transfers of funds
for the benefit of the certificateholders within the time periods
stated in the pooling and servicing agreement*,
o material breaches of representations, warranties or covenants of the
transferor*,
o bankruptcy or insolvency events involving the transferor, Dillard's
or an originator,
o a reduction of the average of the Portfolio Yields for any three
consecutive monthly periods to a rate that is less than the average
of the Base Rates for such period,
o the trust becoming subject to regulation as an investment company
within the meaning of the Investment Company Act of 1940, as
amended*,
o the failure of the transferor to convey receivables arising under
additional accounts when required by the pooling and servicing
agreement,
o the occurrence of a servicer default which would have a material
adverse effect on the certificateholders,
o insufficient funds in the distribution account to pay the Class A
Investor Interest or the Class B Investor Interest in full on the
Class A Scheduled Payment Date or the Class B Scheduled Payment
Date, respectively,
o the transferor's interest in the trust becoming less than the
Minimum Transferor Interest, or
o the transferor becomes unable for any reason to transfer receivables
to the trust in accordance with the provisions of the pooling and
servicing agreement.
"PLAN" means:
o an employee benefit plan within the meaning of Section 3(3) of
ERISA;
o a plan within the meaning of Section 4975 of the tax code; or
o any entity which may be deemed to hold the assets of any of those
plans under ERISA or the regulations promulgated under ERISA
(including, without limitation, an insurance company general
account).
"PRE-FUNDING AMOUNT" means for any series of certificates specified in the
related prospectus supplement during the Funding Period, the amount by which the
aggregate amount of principal receivables in the trust allocable to such series
is less than the aggregate principal amount of the certificates of such series.
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<PAGE>
"PRINCIPAL AMORTIZATION PERIOD" means the period, if applicable, when an
amount equal to the applicable investor percentage of the deposits in respect of
principal receivables will be deposited into the principal account for
application and distribution as provided in the related prospectus supplement.
"PRINCIPAL AMOUNT" means the principal amount held in a trust account
established by the trustee, equaling the deficiency, if any, between the amount
of principal receivables in trust allocable to a series and the aggregate
principal amount of the certificates of the series.
"PURCHASE AGREEMENTS" means
o the DIC Receivables Purchase Agreement, dated as of August 14, 1998,
between DIC and the transferor;
o the MFI Receivables Purchase Agreement, dated as of August 14, 1998,
between Mersco Factors and the transferor;
o the DNB Receivables Purchase Agreement, dated as of August 14, 1998,
between DNB and the transferor; and
o the MSNB Receivables Purchase Agreement, dated as of August 14,
1998, between DNB-La. and the transferor; or
o any agreement whereby a Receivables Seller transfers to the
transferor all receivables then existing and thereafter arising in
and all monies due or to become due with respect to a specified
account(s) as of the specified cut-off date.
"RAPID ACCUMULATION PERIOD" means, with respect to any series, or any class
within a series, a period commencing from the day on which a Pay Out Event
occurred and continuing until the earliest of the
o commencement of the Rapid Amortization Period,
o payment in full of the investor interest (and the collateral
interest if so specified in the related prospectus supplement) or
o related Series Termination Date.
During the Rapid Accumulation Period, distributions to the certificateholders on
the scheduled payment dates will be made from deposits in the principal funding
account, from deposits made on the business day immediately prior to each
distribution date or from funds which may be invested in permitted investments.
"RAPID AMORTIZATION PERIOD" means the period from the day on which a Pay
Out Event has occurred with respect to a series or, if so specified in the
supplement relating to a series with a Controlled Accumulation Period, from the
time specified in the related supplement after a Pay Out Event has occurred and
the Rapid Accumulation Period has commenced, to the earlier of
o the date on which the investor interest of the certificates of that
series and the Enhancement Invested Amount or the collateral
interest, if any, with respect to such series have been paid in full
and
o the related Series Termination Date, during which collections of
principal receivables allocable to the investor interest of such
series (and other amounts if so specified in the related supplement)
will be distributed as principal payments to the certificateholders
of that series and, in some circumstances, to the credit enhancement
provider, monthly on or before each distribution date with respect
to that series in the manner and order of priority specified in the
related supplement.
"RATING AGENCY CONDITION" means the notification in writing by each rating
agency that a proposed action will not result in such rating agency reducing or
withdrawing its then-existing rating of the investor certificates of any
outstanding series or class for which it is a rating agency.
"RECEIVABLES SELLER" means one or more of the originators or a party to a
Purchase Agreement or other Purchase Agreement with the transferor whereby the
transferor obtains the interest to receivables.
"REGULATION" has the meaning attributed to such term under ERISA.
"REVOLVING PERIOD" means the period beginning on the relevant closing date
and ending with the commencement of an Amortization Period or an Accumulation
Period.
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<PAGE>
"SERIES TERMINATION DATE" means, as specified in the related prospectus
supplement, the final date on which the principal and interest with respect of
the related series of certificates will be scheduled to be distributed, unless
the certificates are subject to prior termination.
"SERVICER TRANSFER" means, unless otherwise specified in the related
supplement, the termination of all of the rights and obligations of the servicer
under the pooling and servicing agreement in and the receivables and the
proceeds thereof and the appointment of a new servicer by the trustee in the
event of a servicer default and delivery of written notice to the servicer (and
to the trustee if given by the certificateholders) by either the trustee or
certificateholders representing undivided interests aggregating more than 50% of
the investor interests for all series of certificates of the trust.
"SHARED PRINCIPAL COLLECTIONS" means collections applied to cover principal
payments due to or for the benefit of certificateholders of other series to the
extent that collections of principal receivables and other amounts allocated to
the Investor Interest of any series are not needed to make payments or deposits
for that series.
"TAX OPINION" means, with respect to any action, an opinion of counsel
delivered to the trust and the trustee to the effect that, for U.S. federal
income tax purposes,
o such action will not adversely affect the tax characterization as
debt of investor certificates of any outstanding series or class
that were characterized as debt at the time of their issuance,
o following such action the trust will not be deemed to be an
association (or a "publicly traded partnership" within the meaning
of Section 7704(b) of the Code) taxable as a corporation and
o such action will not cause or constitute a taxable event in which
gain or loss would be recognized by any investor certificateholder
or the trust.
"TRUST TERMINATION DATE" means
o if a trust extension shall not have occurred, the earlier to occur
of
-- the first business day after the distribution date following the
date on which funds shall have been deposited in the
distribution account or the applicable series account for the
payment of investor certificateholders of each series then
issued and outstanding sufficient to pay in full such
certificates,
-- the date specified in the pooling and servicing agreement and
-- July 15, 2021, and
o if a trust extension has occurred, the date specified in the trust
extension.
"UCC" means the Uniform Commercial Code as in effect in the State of
Delaware.
"WARRANTY PAYMENT" means the payment from the Receivables Seller to the
transferor in connection with the Receivables Seller's repurchase of the
Warranty Receivables.
"WARRANTY RECEIVABLE" means receivables initially transferred by the
Receivables Seller to the transferor which must be repurchased by the
Receivables Seller, upon the request of the transferor, due to breach of the
Receivables Seller's representations and warranties in connection with such
receivables.
"WITHHOLDING AGENT" has the meaning attributed to such term as defined in
the Code.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except under limited circumstances, the globally offered Dillard Credit
Card Master Trust Asset Backed Certificates to be issued in series from time to
time will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of The Depository Trust
Company, Cedelbank or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same day funds.
Secondary market trading between investors holding Global Securities
through Cedelbank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice.
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules of procedures applicable to
U.S. corporate obligations.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedelbank and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders, as described below, of Global Securities will be subject
to U.S. withholding taxes unless such holders meet specified requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interest in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedelbank and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Custody accounts of investors electing to hold their Global Securities
through DTC will be credited with their holdings against payment in same-day
funds on the settlement date.
Investors electing to hold their Global Securities through Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary market
trading between Cedelbank Customers or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedelbank or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Customer or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Customer or
Euroclear Participant at least one business day prior to settlement. Cedelbank
or Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will
78
<PAGE>
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date. Payment will then be
made by the respective depositary to the DTC Participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the Cedelbank
Customer's or Euroclear Participant's account. The Global Securities credit will
appear the next day, European time, and the cash debit will be back-valued to,
and the interest on the Global Securities will accrue from, the value date,
which would be the preceding day when settlement occurred in New York. If
settlement is not completed on the intended value, the Cedelbank or Euroclear
cash debit will be valued instead as of the actual settlement date.
Cedelbank Customers and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedelbank or Euroclear. Under this approach,
they may take on credit exposure to Cedelbank or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Customers or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedelbank Customers or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedelbank
Customer's or Euroclear Participants's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedelbank Customers or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedelbank or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedelbank Customers and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Customer or Euroclear
Participant at least one business day prior to settlement. In these cases,
Cedelbank or Euroclear will instruct the respective Depositary, as appropriate,
to deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date. The payment will
then be reflected in the account of the Cedelbank Customer or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedelbank
Customer's or Euroclear Participant's account would be back-valued to the value
date (which would be the preceding day, when settlement occurred in New York).
Should the Cedelbank Customer or Euroclear Participant have a line of credit
with its respective clearing system and elect to be in debit in anticipation of
receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Cedelbank Customer's or Euroclear Participant's account
would instead be valued as of the actual settlement date. Finally, day traders
that use Cedelbank or Euroclear and that purchase Global Securities from DTC
Participants for delivery to Cedelbank Customers or Euroclear Participants
should note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(1) borrowing through Cedelbank or Euroclear for one day until the
purchase side of the day trade is reflected in their Cedelbank or
Euroclear accounts in accordance with the clearing system's
customary procedure.
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(2) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement which would give the
Global Securities sufficient time to be reflected in their
Cedelbank or Euroclear account in order to settle the sale side of
the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant
is at least one day prior to the value date for the sale to the
Cedelbank Customer or Euroclear Participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedelbank or Euroclear, or through DTC if the holder has an address outside the
U.S., will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest including original issue document on registered debt issued
by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
(1) Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form
W-8--Certificate of Foreign Status. If the information shown on
Form W-8 changes, a new Form W-8 must be filed within 30 days of
such change.
(2) Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation
or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in
the United States, can obtain an exemption from the withholding
tax by filing Form 4224--Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade or
Business in the United States.
(3) Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate
Owners residing in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate, depending on
the treaty terms, by filing Form 1001 C Ownership, Exemption or
Reduced Rate Certificate. If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless
the filer alternatively files Form W-8. Form 1001 may be filed by
the Certificate Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain
a complete exemption from the withholding tax by filing Form
W-9--Payer's Request for Taxpayer Identification Number and
Certification.
U.S. Federal Income Tax Reporting Procedure. The Certificate
Owner of a Global Security or, in the case of a Form 1001 or a
Form 4224 filer, his agent, files by submitting the appropriate
form to the person through whom it holds, the clearing agency,
in the case of persons holding directly on the books of the
clearing agency. Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
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PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee.............................................. $ 132,000
Printing and Engraving........................................ 100,000
Trustee's Fees................................................ 10,000
Legal Fees and Expenses....................................... 160,000
Blue Sky Fees and Expenses.................................... 5,000
Accountants' Fees and Expenses................................ 60,000
Rating Agency Fees............................................ 200,000
Miscellaneous Fees............................................ 5,000
----------
Total......................................................... $ 672,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Trust Agreement, the Trust will agree to indemnify the Trustee or
any predecessor Trustee for, and to hold the Trustee harmless against any loss,
damage, claim, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or admission of
such Trust Agreement, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties under such Trust Agreement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
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**
5.1 -- Opinion of Simpson Thacher & Bartlett*
8.1 -- Opinion of Simpson Thacher & Bartlett with respect to certain tax matters (included in opinion
filed as Exhibit 5.1)*
10.1 -- DNB Purchase Agreement, dated as of August 14, 1998, between DAFC and DNB**
10.2 -- MSNB Purchase Agreement, dated as of August 14, 1998, between DAFC and DNB-La.**
10.3 -- DIC Purchase Agreement, dated as of August 14, 1998, between DAFC and DIC**
10.4 -- MFI Purchase Agreement, dated as of August 14, 1998, between DAFC and Mersco Factors**
10.5 -- Pooling and Servicing Agreement, dated as of August 1, 1998, among DAFC, DNB and The Chase
Manhattan Bank, as trustee**
10.6 -- Amended and Restated VFC Series 1998 Supplement, dated as of January 1, 1998, among DAFC, DNB and
The Chase Manhattan Bank, as trustee**
23 -- Consent of Simpson Thacher & Bartlett (included in opinion filed as Exhibit 5.1)*
</TABLE>
- ------------------
* Filed herewith
** Previously filed
(B) FINANCIAL STATEMENTS
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant on behalf of the Dillard Credit Card Master
Trust (the "Trust") hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933 (the "ACT"); (ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
aggregate, represent a fundamental change in the information set forth in
the Registration Statement; notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement; provided, however, that (a)(i) and (a)(ii) will not
apply if the information required to be included in a post-effective
amendment thereby is contained in periodic reports filed pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(b) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the
termination of the offering.
(d) That, for purposes of determining any liability under the Act,
each filing of the Trust's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(e) That insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(f) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) under the Act shall be deemed to be part of this Registrant Statement
as of the time it was declared effective.
(g) That, for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUND TO BELIEVE THAT IT MEETS ALL
THE REQUIREMENTS FOR FILING ON FORM S-3, REASONABLY BELIEVES THAT THE SECURITY
RATING REQUIREMENT CONTAINED IN TRANSACTION REQUIREMENT B.5 OF FORM S-3 WILL BE
MET BY THE TIME OF THE SALE OF THE SECURITIES REGISTERED HEREUNDER AND HAS DULY
CAUSED THIS PRE-EFFECTIVE AMENDMENT NO. 5 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED AS OF
JANUARY 12, 2000.
DILLARD ASSET FUNDING COMPANY
as Originator of the Trust
By: /s/ David Helm
----------------------------------
David Helm
Administrator
DILLARD NATIONAL BANK,
as Servicer on behalf of the Trust
By:
/s/ Randal L. Hankins
----------------------------------
Randal L. Hankins
Authorized Signatory
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
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**
5.1 -- Opinion of Simpson Thacher & Bartlett*
8.1 -- Opinion of Simpson Thacher & Bartlett with respect to certain tax matters (included in
opinion filed as Exhibit 5.1)*
10.1 -- DNB Purchase Agreement, dated as of August 14, 1998, between DAFC and DNB**
10.2 -- MSNB Purchase Agreement, dated as of August 14, 1998, between DAFC and DNB-La.**
10.3 -- DIC Purchase Agreement, dated as of August 14, 1998, between DAFC and DIC**
10.4 -- MFI Purchase Agreement, dated as of August 14, 1998, between DAFC and Mersco Factors**
10.5 -- Pooling and Servicing Agreement, dated as of August 1, 1998, among DAFC, DNB and The
Chase Manhattan Bank, as trustee**
10.6 -- Amended and Restated VFC Series 1998 Supplement, dated as of January 1, 1998, among
DAFC, DNB and The Chase Manhattan Bank, as trustee**
23 -- Consent of Simpson Thacher & Bartlett (included in opinion filed as Exhibit 5.1)*
</TABLE>
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* Filed herewith
** Previously filed
<PAGE>
DILLARD CREDIT CARD MASTER TRUST I
DILLARD ASSET FUNDING COMPANY
(Transferor)
DILLARD NATIONAL BANK
(Servicer)
DILLARD NATIONAL BANK
(formerly Mercantile Stores National Bank)
DILLARD'S INC.
UNDERWRITING AGREEMENT
(Standard Terms)
January ___, 2000
Chase Securities Inc.
As Underwriter and as
Representative of the
several Underwriters
named in the
Terms Agreement
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
Dillard Asset Funding Company ("DAFC"), a Delaware business trust, was
formed pursuant to that certain Trust Agreement, dated as of August 14, 1998, by
and among Condev Nevada Inc., a Nevada corporation, as depositor, Chase
Manhattan Bank Delaware, as owner trustee, and certain administrators thereof.
DAFC proposes to cause the Dillard Credit Card Master Trust I (the "Trust") to
issue the Asset Backed Certificates designated in the applicable Terms Agreement
(as hereinafter defined) (the "Certificates"). The Certificates will be issued
pursuant to a Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") described in the applicable Terms Agreement among DAFC, as
Transferor (the "Transferor"), Dillard National Bank ("DNB"), as Servicer (the
"Servicer"), and the trustee identified in the applicable Terms Agreement (the
"Trustee"), as supplemented by the Series Supplement having the date stated in
the applicable Terms Agreement, among the Transferor, the Servicer and the
Trustee (the "Supplement"). The Series of Certificates designated in the
applicable Terms Agreement will be sold in a public offering through the
underwriters listed on Schedule I to the applicable Terms Agreement (the
"Underwriters"). Certificates of any Series sold to the Underwriters shall be
sold pursuant to a Terms Agreement by and among DAFC, DNB, Dillard National Bank
(formerly Mercantile Stores National Bank) ("DNB-La."), Dillard's Inc. (the
"Corporation") and the Underwriters, a form of which is attached hereto as
Exhibit A (a "Terms Agreement"), which incorporates by reference this
Underwriting Agreement (this
<PAGE>
"Agreement," which may include the applicable Terms Agreement if the context so
requires). Any Series of Certificates sold pursuant to any Terms Agreement may
include the benefits of a letter of credit, cash collateral guaranty or account,
collateral interest, surety bond, insurance policy, spread account, reserve
account or other similar arrangement for the benefit of the Certificateholders
of such Series ("Credit Enhancement"). With respect to any such Credit
Enhancement, the Corporation, DNB, DNB-La. or DAFC may enter into an agreement
(the "Credit Enhancement Agreement") by and between such party(ies) and the
provider of the Credit Enhancement (the "Credit Enhancement Provider"). Each
Certificate will represent a specified percentage undivided interest in the
Trust. The assets of the Trust include, among other things, certain amounts due
on a portfolio of private label revolving credit card accounts transferred to
DAFC (the "Receivables"), and the benefit of the Credit Enhancement, if any. To
the extent not defined herein, capitalized terms used herein have the meanings
assigned to such terms in the Pooling and Servicing Agreement. Unless otherwise
stated herein or in the applicable Terms Agreement, as the context otherwise
requires or if such term is otherwise defined in the Pooling and Servicing
Agreement, each capitalized term used or defined herein or in the applicable
Terms Agreement shall relate only to the Series of Certificates designated in
the applicable Terms Agreement and no other Series of Asset Backed Certificates
issued by the Trust.
Section 1. Representations and Warranties of the Corporation, DNB, DNB-La.
and DAFC. (A) Upon the execution of the applicable Terms Agreement, each of the
Corporation, DNB, DNB-La. and DAFC represents and warrants to the Underwriters
that as of the date of such Terms Agreement:
(a) DAFC has prepared and filed with the Securities and Exchange Commission
(the "Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 (having the
registration number stated in the applicable Terms Agreement), including a form
of prospectus, relating to the Certificates. Such registration statement, as
amended at the time it was declared effective by the Commission, including all
material incorporated by reference therein, including all information contained
in any Additional Registration Statement (as defined herein) and deemed to be
part of such registration statement as of the time such Additional Registration
Statement (if any) was declared effective by the Commission pursuant to the
General Instructions of the Form on which it was filed and including all
information (if any) deemed to be a part of such registration statement as of
the time it was declared effective by the Commission pursuant to Rule 430A(b)
("Rule 430A(b)") under the Act (such registration statement, the "Initial
Registration Statement") has been declared effective by the Commission. If any
post-effective amendment has been filed with respect to the Initial Registration
Statement, prior to the execution and delivery of the applicable Terms
Agreement, the most recent such amendment has been declared effective by the
Commission. If (i) an additional registration statement, including the contents
of the Initial Registration Statement incorporated by reference therein and
including all information (if any) deemed to be a part of such additional
registration statement pursuant to Rule 430A(b)(the "Additional Registration
Statement") relating to the Certificates has been filed with the
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<PAGE>
Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so
filed, has become effective upon filing pursuant to Rule 462(b), then the
Certificates have been duly registered under the Act pursuant to the Initial
Registration Statement and such Additional Registration Statement or (ii) an
Additional Registration Statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing pursuant to Rule
462(b), then upon such filing the Certificates will have been duly registered
under the Act pursuant to the Initial Registration Statement and such Additional
Registration Statement. If DAFC does not propose to amend the Initial
Registration Statement or, if an Additional Registration Statement has been
filed and DAFC does not propose to amend it and if any post-effective amendment
to either such registration statement has been filed with the Commission prior
to the execution and delivery of the applicable Terms Agreement, the most recent
amendment (if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing pursuant to Rule
462(c) under the Act or, in the case of any Additional Registration Statement,
Rule 462(b). The Initial Registration Statement and any Additional Registration
Statement are hereinafter referred to collectively as the "Registration
Statements" and individually as a "Registration Statement." Copies of the
Registration Statements, together with any post-effective amendments have been
furnished to the Underwriters. DAFC proposes to file with the Commission
pursuant to Rule 424 ("Rule 424") under the Act a supplement (the "Prospectus
Supplement") to the form of prospectus included in a Registration Statement
(such prospectus, in the form it appears in a Registration Statement or in the
form most recently revised and filed with the Commission pursuant to Rule 424 is
hereinafter referred to as the "Basic Prospectus") relating to the Certificates
and the plan of distribution thereof. The Basic Prospectus and the Prospectus
Supplement, together with any amendment thereof or supplement thereto, is
hereinafter referred to as the "Final Prospectus." Except to the extent that the
Underwriters shall agree in writing to a modification, the Final Prospectus
shall be in all substantial respects in the form furnished to the Underwriters
prior to the execution of the relevant Terms Agreement, or to the extent not
completed at such time, shall contain only such material changes as DAFC has
advised the Underwriters, prior to such time, will be included therein. Any
preliminary form of the Prospectus Supplement which has heretofore been filed
pursuant to Rule 424 is hereinafter called a "Preliminary Final Prospectus;"
(b) The Initial Registration Statement, including such amendments thereto
as may have been required on the date of the applicable Terms Agreement, and the
Additional Registration Statement (if any), relating to the Certificates, have
been filed with the Commission and such Initial Registration Statement as
amended, and the Additional Registration Statement (if any), have become
effective. No stop order suspending the effectiveness of the Initial
Registration Statement or the Additional Registration Statement (if any) has
been issued and no proceeding for that purpose has been instituted or, to the
knowledge of any of the Corporation, DNB, DNB-La. or DAFC, threatened by the
Commission;
(c) The Initial Registration Statement conforms, and any amendments or
supplements thereto and the Final Prospectus will conform, in all material
respects to the requirements of the Act, and do not and will not, as of the
applicable effective date as to the Initial Registration Statement and any
amendment thereto, as of the applicable filing date as to the Final Prospectus
and any supplement thereto, and as of the Closing Date, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Additional Registration Statement (if any) and the Initial Registration
Statement conform, in all material respects to the requirements of the Act, and
do not and will not, as of the applicable effective date as to the Additional
Registration Statement, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not
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<PAGE>
misleading; provided, however, that this representation and warranty shall apply
only during the period that a prospectus relating to the Certificates is
required to be delivered under the Act by dealers in connection with the initial
public offering of such Certificates (such period being hereinafter sometimes
referred to as the "prospectus delivery period"); provided, further, that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished in writing to DAFC
by or on behalf of the Underwriters specifically for use in connection with the
preparation of a Registration Statement and the Final Prospectus;
(d) As of the Closing Date, the representations and warranties of DAFC, as
Transferor, and DNB, as Servicer, in the Pooling and Servicing Agreement and the
Supplement will be true and correct, except to the extent such representations
and warranties related to a prior date;
(e) As of the Closing Date, (i) the representations and warranties of DNB
and DAFC, in the Receivables Purchase Agreement (the "DNB Purchase Agreement"),
dated as of August 14, 1998, pursuant to which certain Receivables were
transferred to DAFC by DNB, will be true and correct and (ii) the
representations and warranties of DNB-La. and DAFC, in the Receivables Purchase
Agreement (the "DNB-La. Purchase Agreement" and, collectively with the DNB
Purchase Agreement, the "Purchase Agreements"), dated as of August 14, 1998,
pursuant to which certain Receivables were transferred to DAFC by DNB-La., will
be true and correct, except to the extent such representations and warranties
related to a prior date;
(f) DAFC has been duly organized and is validly existing as a business
trust in good standing under the laws of the State of Delaware, with power and
authority to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted, and had at all
relevant times, and now has, power, authority and legal right to acquire, own
and sell the Receivables;
(g) The Certificates have been duly authorized, and, when issued and
delivered pursuant to the Pooling and Servicing Agreement and the Supplement,
duly authenticated by the Trustee and paid for by the Underwriters in accordance
with the terms of this Agreement and the applicable Terms Agreement, will be
duly and validly executed, issued and delivered and entitled to the benefits
provided by the Pooling and Servicing Agreement and the Supplement; each of the
Pooling and Servicing Agreement and the Supplement have been duly authorized
and, when executed and delivered by DAFC, as Transferor, each of the Pooling and
Servicing Agreement and the Supplement will (assuming due execution and delivery
by the Trustee) constitute a valid and binding agreement of DAFC; the Purchase
Agreements, the Certificates, the Pooling and Servicing Agreement and the
Supplement conform to the descriptions thereof in the Final Prospectus in all
material respects; and, if applicable, when executed by DAFC, as Transferor, the
Credit Enhancement Agreement will (assuming due execution and delivery by the
Trustee and Credit Enhancement Provider) constitute a valid and binding
agreement of DAFC;
(h) No consent, approval, authorization or order of, or filing with, any
court or governmental agency or body is required to be obtained or made by the
Corporation, DNB, DNB-La. or DAFC for the consummation of the transactions
contemplated by this Agreement,
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<PAGE>
the applicable Terms Agreement, the Purchase Agreements, the Pooling and
Servicing Agreement or the Supplement except such as have been obtained and made
under the Act, such as may be required under state securities laws and the
filing of any financing statements required to perfect the Trust's interest in
the Receivables;
(i) None of the Corporation, DNB, DNB-La. or DAFC is in violation of its
organizational documents or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any agreement or
instrument to which it is a party or by which it or its properties is bound
which would have a material adverse effect on the transactions contemplated
herein, in the Pooling and Servicing Agreement, the Supplement or the Purchase
Agreements. The execution, delivery and performance of this Agreement, the
applicable Terms Agreement, the Pooling and Servicing Agreement, the Supplement,
the Purchase Agreements and the Credit Enhancement Agreement, and the issuance
and sale of the Certificates and compliance with the terms and provisions
thereof will not result in a breach or violation of any of the terms of, or
constitute a default under, any statute, rule, regulation or order of any
governmental agency or body or any court having jurisdiction over such party or
any of its properties or any material agreement or instrument to which the
Corporation, DNB, DNB-La. or DAFC is a party or by which such party is bound or
to which any of the properties of such party is subject, or the organizational
documents of such party except for any such breaches or violations or defaults
as would not individually or in the aggregate have a material adverse effect on
the transactions contemplated herein, in the Pooling and Servicing Agreement,
the Supplement or the Purchase Agreements;
(j) Other than as set forth or contemplated in the Final Prospectus, there
are no legal or governmental proceedings pending or, to the knowledge of the
Corporation, DNB, DNB-La. and DAFC, threatened to which any of the Corporation,
DNB, DNB-La. or DAFC or their subsidiaries is or may be a party or to which any
property of the Corporation, DNB, DNB-La. or DAFC or their subsidiaries are or
may be the subject which, if determined adversely to the Corporation, DNB,
DNB-La. or DAFC, could individually or in the aggregate reasonably be expected
to have a material adverse effect on the Corporation, DNB, DNB-La. or DAFC's
credit card business or on the interests of the holders of the Certificates; and
there are no contracts or other documents of a character required to be filed as
an exhibit to the Initial Registration Statement or the Additional Registration
Statement (if any) or to be described in the Initial Registration Statement, the
Additional Registration Statement (if any) or the Basic Prospectus which are not
filed or described as required;
(k) Each of this Agreement and the applicable Terms Agreement have been
duly authorized, executed and delivered by the Corporation, DNB, DNB-La. and
DAFC;
(l) Each of the Pooling and Servicing Agreement, the Supplement, the
Certificates and the Receivables conforms in all material respects with the
descriptions thereof contained in the Registration Statement and the Final
Prospectus;
(m) Deloitte & Touche LLP, who have audited certain financial statements of
the Corporation, DNB and DNB-La., are independent public accountants as required
by the Act;
-5-
<PAGE>
(n) Neither the Trust nor the Transferor is an "investment company" or
under the "control" of an "investment company" within the meaning thereof as
defined in the Investment Company Act of 1940, as amended;
(o) Any taxes, fees and other governmental charges imposed upon the
Transferor or on the assets of the Trust in connection with the execution,
delivery and issuance by the Transferor of this Agreement, the Pooling and
Servicing Agreement, the Supplement or the Certificates and which are due at or
prior to each Closing Date have been or will have been paid by or on behalf of
the Transferor at or prior to such Closing Date;
(p) Neither the Pooling and Servicing Agreement nor the Supplement needs to
be qualified under the Trust Indenture Act of 1939, as amended, and the rules
and regulations of the Commission thereunder;
(q) Each of the Corporation, DNB, DNB-La. and DAFC possesses all material
licenses, certificates, authorizations and permits issued by, and has made all
declarations and filings with, the appropriate state, federal or foreign
regulatory agencies or bodies which are necessary or desirable for the ownership
of its respective properties or the conduct of its respective businesses as
described in the Final Prospectus, except where the failure to possess or make
the same would not have, singularly or in the aggregate, a material adverse
effect on the Receivables, the Certificates or its condition (financial or
otherwise), results of operations, business or prospects; and
(r) Except as disclosed in the Registration Statement and the Prospectus,
none of the Corporation, DNB, DNB-La. or DAFC (i) has any material lending or
other relationship with any bank or lending affiliate of any Underwriter, or
(ii) intends to use any of the proceeds from the sale of the Certificates to
repay any outstanding debt owed to any affiliate of any Underwriter.
(s) DNB has been duly organized and is validly existing as a national
banking association in good standing under the laws of the United States of
America, with power and authority to own its properties and to conduct its
business as such properties are presently owned and such business is presently
conducted, and is duly qualified to do business and is in good standing in each
state of the United States where the nature of its business requires it to be so
qualified;
(t) DNB-La. has been duly organized and is validly existing as a national
banking association in good standing under the laws of the United States of
America, with power and authority to own its properties and to conduct its
business as such properties are presently owned and such business is presently
conducted, and is duly qualified to do business and is in good standing in each
state of the United States where the nature of its business requires it to be so
qualified; and
(u) The Corporation has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority to own its properties and to conduct its business as such
properties are presently owned and such
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<PAGE>
business is presently conducted, and is duly qualified to do business and is in
good standing in each state of the United States where the nature of its
business requires it to be so qualified.
Section 2. Purchase and Sale. Subject to the terms and conditions and in
reliance upon the covenants, representations and warranties herein set forth,
DAFC agrees to sell to the Underwriters, and the Underwriters agree to purchase
from DAFC, the principal amount of Certificates set forth opposite each
Underwriter's name in Schedule I to the applicable Terms Agreement. The purchase
price for the Certificates shall be as set forth in the applicable Terms
Agreement.
DAFC acknowledges and agrees that Chase Securities Inc. may sell
Certificates to any of its affiliates, and that any such affiliates may sell
such Certificates to Chase Securities Inc.
Section 3. Delivery and Payment. Unless otherwise provided in the
applicable Terms Agreement, payment for Certificates shall be made to DAFC or to
its order by wire transfer of same day funds at the offices of Simpson Thacher &
Bartlett in New York, New York at 10:00 A.M., New York City time, on the Closing
Date (as hereinafter defined) specified in the Terms Agreement, or at such other
time on the same or such other date as the Underwriters and DAFC may agree upon.
The time and date of such payment for the Certificates as specified in the
applicable Terms Agreement are referred to herein as the "Closing Date." As used
herein, the term "Business Day" means any day other than a day on which banks
are permitted or required to be closed in New York City.
Unless otherwise provided in the applicable Terms Agreement, payment for
the Certificates shall be made against delivery to the Underwriters of the
Certificates registered in the name of Cede & Co. as nominee of The Depository
Trust Company and in such denominations as the Underwriters shall request in
writing not later than two full Business Days prior to the Closing Date. DAFC
shall make the Certificates available for inspection by the Underwriters in New
York, New York not later than one full Business Day prior to the Closing Date.
Section 4. Offering by Underwriters. It is understood that the Underwriters
propose to offer the Certificates for sale to the public, which may include
selected dealers, as set forth in the Final Prospectus.
Section 5. Covenants of the Dillard's Entities. Each of the Corporation,
DNB, DNB-La. and DAFC covenants and agrees with the Underwriters that upon the
execution of each Terms Agreement:
(a) Promptly following the execution of such Terms Agreement, DAFC will
prepare a Prospectus Supplement setting forth the amount of Certificates covered
thereby and the terms thereof not otherwise specified in the Basic Prospectus,
the price at which such Certificates are to be purchased by the Underwriters,
the initial public offering price, the selling concessions and allowances, and
such other information as DAFC deems appropriate. DAFC will file such Prospectus
Supplement with the Commission pursuant to Rule 424 within the time prescribed
therein and will provide evidence satisfactory to the Underwriters of such
timely filing. In addition, to the extent that the Underwriters (i) have
provided to DAFC Collateral Term Sheets
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<PAGE>
(as defined below) that the Underwriters have provided to prospective investors,
DAFC will file such Collateral Term Sheets as an exhibit to a report on Form 8-K
within two business days of its receipt thereof, or (ii) have provided to DAFC
Structural Term Sheets or Computational Materials (each as defined below) that
such Underwriters have provided to a prospective investor, DAFC will file or
cause to be filed with the Commission a report on Form 8-K containing such
Structural Term Sheet and Computational Materials, as soon as reasonably
practicable after the date of such Terms Agreement, but in any event, not later
than the date on which the Final Prospectus is filed with the Commission
pursuant to Rule 424.
(b) During the prospectus delivery period, before filing any amendment or
supplement to the Initial Registration Statement, the Additional Registration
Statement (if any) or the Final Prospectus, DAFC will furnish to the
Underwriters copies of the proposed amendment or supplement for review and will
not file any such proposed amendment or supplement to which any Underwriter
reasonably objects.
(c) During the prospectus delivery period, the Corporation, DNB, DNB-La.
and DAFC will advise the Underwriters promptly after it receives notice thereof,
(i) when any amendment to any Registration Statement shall have become
effective, (ii) of any request by the Commission for any amendment or supplement
to any Registration Statement or the Final Prospectus or for any additional
information, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the initiation or
threatening of any proceeding for that purpose, (iv) of the issuance by the
Commission of any order preventing or suspending the use of any Final Prospectus
relating to the Certificates or the initiation or threatening of any proceedings
for that purpose and (v) of any notification with respect to any suspension of
the qualification of the Certificates for offer and sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose; and will use
its best efforts to prevent the issuance of any such stop order or notification
and, if any is issued, will promptly use its best efforts to obtain the
withdrawal thereof.
(d) If, at any time during the prospectus delivery period, any event occurs
as a result of which the Final Prospectus as then supplemented would include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it shall be necessary to amend or
supplement the Final Prospectus to comply with the Act, DAFC promptly will
prepare and file or cause to be prepared and filed with the Commission, an
amendment or a supplement which will correct such statement or omission or
effect such compliance.
(e) DAFC will endeavor to qualify the Certificates for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Underwriters shall
reasonably request and will continue such qualification in effect so long as
reasonably required for distribution of the Certificates; provided, however,
that DAFC shall not be obligated to qualify to do business in any jurisdiction
in which it is not currently so qualified; and provided, further, that DAFC
shall not be required to file a general consent to service of process in any
jurisdiction.
(f) DAFC will promptly furnish to each Underwriter, without charge, copies
of each Registration Statement (including exhibits thereto), one of which will
be signed, and to each Underwriter conformed copies of each Registration
Statement (without exhibits thereto)
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<PAGE>
and, during the prospectus delivery period, copies of any Preliminary Final
Prospectus and the Final Prospectus and any supplement thereto, in each case, in
such quantities as each Underwriter may reasonably request.
(g) For a period from the date of this Agreement until the retirement of
the Certificates, or until such time as the Underwriters shall cease to maintain
a secondary market in the Certificates, whichever first occurs, DAFC will
deliver to each Underwriter (i) the annual statements of compliance, (ii) the
annual independent certified public accountants' reports furnished to the
Trustee, (iii) all documents required to be distributed to Certificateholders of
the Trust and (iv) all documents filed with the Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or any order of
the Commission thereunder, in each case as provided to the Trustee or filed with
the Commission, as soon as such statements and reports are furnished to the
Trustee or filed or, if an affiliate of DAFC is not the Servicer, as soon
thereafter as practicable.
(h) DAFC will pay all expenses incident to the performance of its
obligations under this Agreement, including without limitation: (i) expenses of
preparing, printing and reproducing each Registration Statement, the Preliminary
Final Prospectus, the Final Prospectus, this Agreement, the applicable Terms
Agreement, the Pooling and Servicing Agreement, the Supplement, any Credit
Enhancement Agreement and the Certificates, (ii) the cost of delivering the
Certificates and the Final Prospectus to the Underwriters, (iii) any fees
charged by investment rating agencies for the rating of such Certificates, (iv)
the reasonable expenses and costs incurred in connection with "blue sky"
qualification of the Certificates for sale in those states designated by the
Underwriters and the printing of memoranda relating thereto (including fees and
disbursements of counsel for the Underwriters); and (v) the fees and expenses,
if any, incurred with respect to any filing with the National Association of
Securities Dealers, Inc. and with respect to any stock exchange listing.
(i) To the extent, if any, that the rating provided with respect to the
Certificates by the rating agency or agencies that initially rate the
Certificates is conditional upon the furnishing of documents or the taking of
any other actions by the Corporation, DNB, DNB-La. or DAFC, such party shall
furnish such documents and take any such other actions.
(j) DAFC will cause the Trust to make generally available to
Certificateholders and to the Underwriters as soon as practicable an earnings
statement covering a period of at least twelve months beginning with the first
fiscal quarter of the Trust occurring after the effective date of the Initial
Registration Statement (or, if later, the effective date of the Additional
Registration Statement), which shall satisfy the provisions of Section 11(a) of
the Act and Rule 158 of the Commission promulgated thereunder.
(k) For a period of 30 days from the date of each Final Prospectus, DAFC
will not offer, sell, contract to sell or otherwise dispose of any credit card
asset-backed securities transferred to DAFC which are substantially similar to
the Certificates offered thereby without the prior written consent of each
Underwriter or unless such securities are referenced in the Terms Agreement.
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<PAGE>
Section 6. Representations and Warranties of the Underwriters. Each
Underwriter represents, warrants, covenants and agrees with the Corporation,
DNB, DNB-La. and DAFC that:
(a) It either (A) will not provide any potential investor with a Collateral
Term Sheet (which is required to be filed with the Commission within two
business days of first use under the terms of the Public Securities Association
Letter as described below), or (B) will, substantially contemporaneously with
its first delivery of such Collateral Term Sheet to a potential investor,
deliver such Collateral Term Sheet to DAFC.
(b) It either (A) will not provide any potential investor with a Structural
Term Sheet or Computational Materials, or (B) will timely provide any such
Structural Term Sheet or Computational Materials to DAFC.
(c) It either (A) will not provide any potential investor with a Series
Term Sheet or (B) will timely provide any Series Term Sheet to DAFC.
(d) Each Collateral Term Sheet will bear a legend indicating that the
information contained therein will be superseded by the description of the
collateral contained in the Prospectus Supplement and, except in the case of the
initial Collateral Term Sheet, that such information supersedes the information
in all prior Collateral Term Sheets.
(e) Each Structural Term Sheet and Series Term Sheet and all Computational
Materials will bear a legend substantially as follows (or in such other form as
may be agreed prior to the date of this Agreement):
This information does not constitute either an offer to sell
or a solicitation of an offer to buy any of the securities
referred to herein. Information contained herein is
confidential and provided for information only, does not
purport to be complete and should not be relied upon in
connection with any decision to purchase the securities. This
information supersedes any prior versions hereof and will be
deemed to be superseded by any subsequent versions including,
with respect to any description of the securities or the
underlying assets, the information contained in the final
Prospectus and accompanying Prospectus Supplement. Offers to
sell and solicitations of offers to buy the securities are
made only by the final Prospectus and the related Prospectus
Supplement.
(f) It agrees to provide to DAFC any accountants' letters obtained relating
to the Collateral Term Sheets, Structural Term Sheets and Computational
Materials, which accountants' letters shall be addressed to DAFC.
(g) It has not, and will not, without the prior written consent of DAFC,
provide any Collateral Term Sheets, Structural Term Sheets, Series Term Sheets
or Computational Materials to any investor after the date of the related Terms
Agreement.
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<PAGE>
(h) It has only issued or passed on and shall 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 is a person of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996, it has
complied and shall 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, and if that Underwriter is an authorized
person under Chapter III of Part I of the Financial Services Act 1986, it has
only promoted and shall 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 in the Prospectus 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.
For purposes of this Agreement, "Collateral Term Sheets" and "Structural
Term Sheets" shall have the respective meanings assigned to them in the February
13, 1995 letter of Cleary, Gottlieb, Steen & Hamilton on behalf of the Public
Securities Association (which letter, and the SEC staff's response thereto, were
publicly available February 17, 1995). The term "Collateral Term Sheet" as used
herein includes any subsequent Collateral Term Sheet that reflects a substantive
change in the information presented. "Computational Materials" has the meaning
assigned to it in the May 17, 1994 letter of Brown & Wood on behalf of Kidder,
Peabody & Co., Inc. (which letter, and the SEC staff's response thereto, were
publicly available May 20, 1994). "Series Term Sheet" has the meaning assigned
to it in the April 4, 1996 letter of Latham & Watkins on behalf of Greenwood
Trust Company (which letter, and the SEC staff's response thereto, were publicly
available April 5, 1996).
Section 7. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase and pay for Certificates on the
Closing Date shall be subject to the accuracy of the representations and
warranties of the Corporation, DNB, DNB-La. and DAFC contained herein, to the
accuracy of the statements of such parties made in any certificates pursuant to
the terms hereof, to the performance by such parties of their respective
obligations hereunder and under the applicable Terms Agreement and to the
following additional conditions:
(a) The Final Prospectus shall have been filed with the Commission pursuant
to Rule 424 in the manner and within the applicable time period prescribed for
such filing by the rules and regulations of the Commission under the Act and in
accordance with Section 5(a) of this Agreement; and, as of the Closing Date, no
stop order suspending the effectiveness of any Registration Statement shall have
been issued, and no proceedings for such purpose shall have been instituted or
threatened by the Commission; and all requests for additional information from
the Commission with respect to any Registration Statement shall have been
complied with to the reasonable satisfaction of the Representative.
(b) Subsequent to the date of this Agreement, there shall not have occurred
(i) any change, or any development involving a prospective change, in or
affecting particularly the business or properties of the Corporation, DNB,
DNB-La. or DAFC which materially impairs the
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<PAGE>
investment quality of the Certificates; (ii) any suspension or material
limitation of trading of securities generally on the New York Stock Exchange or
the American Stock Exchange; (iii) a declaration of a general moratorium on
commercial banking activities in New York by either Federal or New York State
authorities; or (iv) any material outbreak, declaration or escalation of
hostilities or other calamity or crisis the effect of which on the financial
markets of the United States is such as to make it, in the judgment of the
Representative, impracticable to market the Certificates on the terms specified
herein and the applicable Terms Agreement.
(c) The Underwriters shall have received a certificate of a Vice President
or other proper officer of each of the Corporation, DNB, DNB-La. and DAFC, dated
the Closing Date, in which such officer, to the best of his knowledge, shall
state that (i) the representations and warranties of the Corporation, DNB,
DNB-La. and DAFC in this Agreement are true and correct in all material
respects, (ii) the Corporation, DNB, DNB-La. and DAFC have complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Date, (iii) no stop order suspending the
effectiveness of a Registration Statement has been issued and no proceedings for
that purpose have been instituted or are threatened by the Commission and (iv)
the Final Prospectus does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) Each of the Corporation, DNB, DNB-La. and DAFC shall have furnished to
the Underwriters the opinions of Simpson Thacher & Bartlett, counsel for such
parties, dated the Closing Date, in substantially the forms attached hereto as
Exhibits B through __, with only such changes as shall in form and substance be
satisfactory to the Representative and counsel for the Underwriters.
(e) The Underwriters shall have received from Cadwalader, Wickersham &
Taft, counsel for the Underwriters, one or more opinions, each dated the Closing
Date, with respect to the validity of the Certificates, the Initial Registration
Statement, the Additional Registration Statement (if any), the Final Prospectus,
and such other related matters as the Representative may reasonably require, and
DAFC shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass on such matters.
(f) The Underwriters shall have received from local counsel one or more
opinions, each dated the Closing Date, with respect to certain matters regarding
the Uniform Commercial Code and state income and franchise tax, as adopted in
each of the relevant jurisdictions, each in form and substance satisfactory to
the Representative and counsel for the Underwriters.
(g) The Underwriters shall have received from Richards, Layton & Finger,
counsel to the owner trustee, an opinion, dated the Closing Date, with respect
to certain corporate matters, in form and substance satisfactory to the
Representative and counsel for the Underwriters.
(h) At the date of the applicable Terms Agreement and at the Closing Date,
Deloitte & Touche LLP (or such other independent public accountants as shall be
named in the
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<PAGE>
applicable Terms Agreement), certified independent public accountants for DAFC,
shall have furnished to the Underwriters a letter or letters, dated respectively
as of the date of the applicable Terms Agreement and as of the Closing Date
confirming that they are certified independent public accountants within the
meaning of the Act and the Exchange Act, and the respective applicable published
rules and regulations thereunder and substantially in the form heretofore agreed
and otherwise in form and in substance satisfactory to the Representative and
counsel for the Underwriters.
(i) The Underwriters shall receive evidence satisfactory to it that, on or
before the Closing Date, UCC-1 financing statements have been or are being filed
in the appropriate office or offices in each relevant jurisdiction, reflecting
the interest of the Trustee in the Receivables and the proceeds thereof.
(j) The Underwriters shall have received from Pryor Cashman Sherman & Flynn
LLP, counsel to the Trustee, an opinion, dated the Closing Date, to the effect
that:
(i) The Trustee has been duly organized and is validly existing as a
banking corporation under the laws of New York and has the corporate power
and authority to conduct business and affairs as a trustee.
(ii) The Trustee has the corporate power and authority to perform the
duties and obligations of trustee under, and to accept the trust
contemplated by, the Pooling and Servicing Agreement, the Supplement and
the Credit Enhancement Agreement.
(iii) Each of the Pooling and Servicing Agreement, the Supplement and
the Credit Enhancement Agreement has been duly authorized, executed, and
delivered by the Trustee and constitutes a legal, valid and binding
obligation of the Trustee enforceable against the Trustee in accordance
with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law).
(iv) The Certificates have been duly executed and authenticated by the
Trustee.
(v) Neither the execution nor the delivery by the Trustee of the
Pooling and Servicing Agreement, the Supplement and the Credit Enhancement
Agreement nor the consummation of any of the transactions contemplated
thereby require the consent or approval of, the giving of notice to, the
registration with, or the taking of any other action with respect to, any
governmental authority or agency under any existing federal or state law
governing the banking or trust powers of the Trustee.
(vi) The execution and delivery of the Pooling and Servicing
Agreement, the Supplement and the Credit Enhancement Agreement by the
Trustee and the performance by the Trustee of their respective terms do not
conflict with or result in a violation of (x) any law or regulation of any
governmental authority or agency under any existing federal or state law
governing the banking or trust powers of the Trustee, or (y) the
Certificate of Incorporation or By-laws of the Trustee.
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<PAGE>
(k) The Underwriters shall be named as recipients or shall have received
reliance letters, if applicable, with respect to any opinions delivered to DAFC
by counsel of the Credit Enhancement Provider, if any.
(l) The Underwriters shall have received evidence satisfactory to them that
the Certificates shall be rated in accordance with the applicable Terms
Agreement by the Rating Agency.
(m) The Underwriters shall have received a certificate of a Vice President
or other proper officer of the Servicer, dated the Closing Date, in which such
officer, to the best of his or her knowledge, shall state that the
representations and warranties of the Servicer in the Pooling and Servicing
Agreement and the Supplement are true and correct.
(n) All proceedings in connection with the transactions contemplated by
this Agreement and all documents incident hereto shall be reasonably
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters in all material respects and the Underwriters and counsel for the
Underwriters shall have received such information, certificates and documents as
the Underwriters or counsel for the Underwriters may reasonably request.
If any of the conditions specified in this Section 7 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriters and their counsel, this Agreement and all
obligations of the Underwriters hereunder may be cancelled at, or at any time
prior to, the Closing Date by the Underwriters. Notice of such cancellation
shall be given to the Corporation and DAFC in writing or by telephone or
facsimile confirmed in writing.
Section 8. Reimbursement of Underwriters' Expenses. If the sale of the
Certificates provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 7 (other than the condition
set forth in paragraph (b) of Section 7) is not satisfied, or because of any
refusal, inability or failure on the part of the Corporation, DNB, DNB-La. or
DAFC to perform any agreement herein or comply with any provision hereof other
than by reason of a default by the Underwriters, the Corporation, DNB, DNB-La.
and DAFC will jointly and severally reimburse the Underwriter for all
out-of-pocket expenses (including fees and disbursements of counsel) that shall
have been incurred by it in connection with the proposed purchase and sale of
the Certificates and upon demand such parties shall pay the full amount thereof
to the Representative.
Section 9. Indemnification and Contribution. (a) DAFC agrees to indemnify
and hold harmless the Underwriters, each of the directors thereof, each of the
officers who are involved in the Offering and each person, if any, who controls
each Underwriter within the meaning of the Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or any other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement as originally filed or in any
amendment thereof, or in any Preliminary Final
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<PAGE>
Prospectus or the Final Prospectus, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and agrees to reimburse each such
indemnified party for any legal or other expenses reasonably incurred by it in
connection with investigating or preparing to defend or defending any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that (i) DAFC will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made in any of such documents in reliance upon and in conformity with
written information furnished to DAFC by or on behalf of the Underwriters
specifically for use therein, and (ii) such indemnity with respect to any
Preliminary Final Prospectus shall not inure to any benefit of any Underwriter
(or any person controlling any of the Underwriters) from whom the person
asserting any such loss, claim, damage or liability purchased the Certificates
which are the subject thereof if such person did not receive a copy of the Final
Prospectus (or the Final Prospectus as supplemented) at or prior to the
confirmation of the sale of such Certificates to such person in any case where
such delivery is required by the Act and the untrue statement or omission of a
material fact contained in such Preliminary Final Prospectus was corrected in
the Final Prospectus (or the Final Prospectus as supplemented). This indemnity
agreement will be in addition to any liability which DAFC may otherwise have.
(b) Each Underwriter agrees to indemnify and hold harmless DAFC, each of
the directors thereof, each of the officers who signs a Registration Statement,
and each person who controls DAFC within the meaning of the Act, to the same
extent as the foregoing indemnities from DAFC to the Underwriters, but only with
reference to written information furnished to DAFC by or on behalf of each
Underwriter specifically for use in the preparation of the documents referred to
in the foregoing indemnity. This indemnity agreement will be in addition to any
liability which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 9, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 9 unless the indemnifying party is materially prejudiced thereby.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to appoint counsel satisfactory to such indemnified party
to represent the indemnified party in such action; provided, however, that, if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to appoint counsel to defend such action
and approval by the indemnified party of such counsel, the indemnifying party
will not be liable to such indemnified party under this Section 9 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall
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<PAGE>
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel, approved
by the Underwriter(s) being indemnified in the case of paragraph (a) of this
Section 9, representing the indemnified parties under such paragraph (a) who are
parties to such action), (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party; and except that, if clause (i)
or (iii) is applicable, such liability shall be only in respect of the counsel
referred to in such clause (i) or (iii).
(d) If the foregoing indemnification provisions of this
Section 9 are unavailable or insufficient to hold harmless an indemnified party,
then each indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability (i) in such proportion as shall
be appropriate to reflect the relative benefits received by the Transferor on
the one hand and the Underwriters on the other from the offering of the
Certificates or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Transferor on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, as well as any other relevant equitable considerations. The
relative benefits received by the Transferor on the one hand and the
Underwriters on the other with respect to such offering shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Certificates purchased under this Agreement (before deducting expenses) received
by the Transferor bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Certificates purchased under
this Agreement. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Transferor on the one hand or the Underwriters on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The Transferor and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 9(d) were to be determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 9(d)
shall be deemed to include, for purposes of this Section 9(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9(d), no Underwriter nor any person controlling any
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Certificates underwritten by it and
distributed to the public were offered to the public less the amount of any
damages which such Underwriter or such controlling person has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the
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<PAGE>
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 9(d) are several in proportion to their respective underwriting
obligations and not joint.
Section 10. Obligations of the Corporation, DNB and DNB-La. Each of the
Corporation, DNB and DNB-La. agrees with the Underwriters, for the sole and
exclusive benefit of the Underwriters and each person who controls the
Underwriters within the meaning of either the Act or the Exchange Act and not
for the benefit of any assignee thereof or any other person or persons dealing
with the Underwriters, in consideration of and as an inducement to its agreement
to purchase the Certificates from DAFC, jointly and severally to indemnify and
hold harmless the Underwriters against any failure by DAFC to perform its
obligations to the Underwriters (including its contribution obligation) pursuant
to Section 9 hereof; provided, however, that the aggregate liability of the
Corporation, DNB or DNB-La. for the foregoing indemnity shall not exceed an
amount equal to the aggregate principal amount of the Certificates.
Section 11. Default by an Underwriter. If, on the Closing Date, any
Underwriter or Underwriters default in the performance of its or their
obligations under this Agreement, the Representative may make arrangements for
the purchase of such Certificates by other persons satisfactory to DAFC and the
Representative, including any of the Underwriters, but if no such arrangements
are made by the Closing Date, then each remaining non-defaulting Underwriter
shall be severally obligated to purchase the Certificates which the defaulting
Underwriter or Underwriters agreed but failed to purchase on the Closing Date in
the respective proportions which the principal amount of Certificates set forth
opposite the name of each remaining non-defaulting Underwriter in Schedule I to
the Terms Agreement bears to the aggregate principal amount of Certificates set
forth opposite the names of all the remaining non-defaulting Underwriters in
Schedule I to the Terms Agreement; provided, however, that the remaining
non-defaulting Underwriters shall not be obligated to purchase any of the
Certificates on the Closing Date if the aggregate principal amount of
Certificates which the defaulting Underwriter or Underwriters agreed but failed
to purchase on such date exceeds one-eleventh of the aggregate principal amount
of the Certificates to be purchased on the Closing Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase in total more than
110% of the principal amount of the Certificates which it agreed to purchase on
the Closing Date pursuant to the terms of Section 2. If the foregoing maximums
are exceeded and the remaining Underwriters or other underwriters satisfactory
to the Representative and DAFC do not elect to purchase the Certificates which
the defaulting Underwriter or Underwriters agreed but failed to purchase, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter or DAFC, except that the provisions of Section 12 shall not
terminate and shall remain in effect. As used in this Agreement, the term
"Underwriter" includes, for all purposes of this Agreement unless the context
otherwise requires, any party not listed in Schedule I to the Terms Agreement
who, pursuant to this Section 11, purchases Certificates which a defaulting
Underwriter agreed but failed to purchase.
Section 12. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Corporation, DNB, DNB-La., DAFC and of the Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results
-17-
<PAGE>
thereof, made by or on behalf of the Corporation, DNB, DNB-La. or DAFC or any of
the officers, directors or controlling persons referred to in Section 9 hereof,
and will survive delivery of and payment for the Certificates. The provisions of
Sections 8, 9 and 10 hereof shall survive the termination or cancellation of
this Agreement.
Section 13. Notices. All communication hereunder shall be in writing and,
if sent to the Underwriters will be mailed, delivered or telecopied and
confirmed to them at 270 Park Avenue, New York, New York 10017, Attention: David
A. Howard Jr., Telecopy No: (212) 834-6564; if sent to DAFC, will be mailed,
delivered or telecopied and confirmed to them care of Dillard Asset Funding
Company, c/o Chase Manhattan Bank Delaware, 1201 Market Street, Wilmington,
Delaware 19801, Telecopy No.: (302) _______, Attention: James Freeman; or if
sent to DNB or DNB-La., will be mailed, delivered or telecopied and confirmed to
them care of Dillard National Bank at 396 N. William Dillard Drive, Gilbert,
Arizona 85702, Telecopy No.: (602) _________, Attention: ______________; or if
sent to the Corporation, will be mailed, delivered or telecopied and confirmed
to them care of Dillard's Inc. at 1600 Cantrell Road, Little Rock, Arkansas
72201, Telecopy No.: (501) _________, Attention: ______________.
Section 14. Secondary Trust or Special Purpose Vehicle. Each Underwriter
severally represents that it will not, at any time that such Underwriter is
acting as an "underwriter" (as defined in Section 2(11) of the Act) with respect
to the Certificates, transfer, deposit or otherwise convey any Certificates into
a trust or other type of special purpose vehicle that issues securities or other
instruments backed in whole or in part by, or that represents interests in, such
Certificates without the prior written consent of the Corporation and DAFC.
Section 15. Miscellaneous. This Agreement is to be governed by, and
construed in accordance with, the laws of the State of New York; it may be
executed in two or more counterparts, each of which when so executed and
delivered shall be an original, but all of which together shall constitute one
and the same instrument. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns and
the officers and directors and controlling persons referred to in Section 9
hereof, and no other person shall have any right or obligation hereunder. This
Agreement supersedes all prior agreements and understandings between the parties
relating to the subject matter hereof, other than those contained in the Terms
Agreement executed in connection herewith. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought. Any covenant, provision,
agreement or term of this Agreement that is prohibited or is held to be void or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
Section 16. Effectiveness. This Agreement shall become effective upon
execution and delivery hereof.
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<PAGE>
If you are in agreement with the foregoing, please sign the counterpart
hereof and return it to DAFC, whereupon this letter and your acceptance shall
become a binding agreement by and among the Corporation, DNB, DNB-La., DAFC and
the Underwriters.
Very truly yours,
DILLARD'S INC.
By
----------------------------------------------
Name:
Title:
DILLARD NATIONAL BANK
By
----------------------------------------------
Name:
Title:
DILLARD NATIONAL BANK (f/k/a
MERCANTILE STORES NATIONAL BANK)
By
----------------------------------------------
Name:
Title:
DILLARD ASSET FUNDING COMPANY
BY: CHASE MANHATTAN BANK
DELAWARE, as owner trustee
By
------------------------------------------
Name:
Title:
<PAGE>
The foregoing Agreement is
hereby confirmed and accepted
as of the date hereof.
CHASE SECURITIES INC.
as Underwriter and as Representative
of the several Underwriters named in
the Terms Agreement
By
-------------------------------------
Name:
Title:
<PAGE>
Exhibit A
FORM OF TERMS AGREEMENT
-----------------------
DILLARD CREDIT CARD MASTER TRUST
CLASS A _____% ASSET BACKED CERTIFICATES, SERIES 2000-___
TERMS AGREEMENT
---------------
Dated: ________ , 2000
To: Dillard's Inc.
Dillard National Bank
Dillard National Bank (formerly Mercantile Stores National Bank)
Dillard Asset Funding Company
Re: Underwriting Agreement dated January ____ , 2000
Series Designation: Series 2000-__
Underwriters:
The Underwriters named on Schedule I attached hereto are the "Underwriters"
for the purpose of this Agreement and for the purposes of the above-referenced
Underwriting Agreement as such Underwriting Agreement is incorporated herein and
made a part hereof.
Terms of the Certificates:
Initial
Invested Interest Rate
Class Amount or Formula Price to Public (1)
- ----- ------ ---------- -------------------
Class A $[________] _________% ______%
(1) Plus accrued interest at the applicable rate from _______, 2000.
Distribution Dates: Class A: the ______ day of each month (or if such ______ day
is not a business day the next succeeding business day), commencing _______,
2000.
A-1
<PAGE>
Certificate Ratings:
Class A: ______ by Standard & Poor's
______by Moody's
Credit Enhancement Provider:
Trustee: The Chase Manhattan Bank
Pooling and Servicing Agreement: The Amended and Restated Pooling and Servicing
Agreement, dated as of __________ __, 2000, as amended, among Dillard Asset
Funding Company, as Transferor, Dillard National Bank as Servicer, and The Chase
Manhattan Bank, as Trustee, on behalf of the Certificateholders of Dillard
Credit Card Master Trust.
Supplement: Series 2000-___ Supplement, dated as of __________ __, 2000, among
Dillard Asset Funding Company, as Transferor, Dillard National Bank as Servicer,
and The Chase Manhattan Bank, as Trustee, on behalf of the Series 2000-__
Certificateholders.
Purchase Price:
The purchase price payable by the Underwriters for the Certificates covered
by this Agreement will be the following percentage of the principal amounts to
be issued:
Per Class A Certificate: ______%
Registration Statement: Registration No. 333-67855
Underwriting Commissions, Concessions and Discounts:
The Underwriter's discounts and commissions, the concessions that the
Underwriter may allow to certain dealers, and the discounts that such dealers
may reallow to certain other dealers, each expressed as a percentage of the
principal amount of the Class A Certificates, shall be as follows:
Underwriting
Discounts Selling
Class and Concessions Concessions Reallowance
----- --------------- ----------- -----------
Class A _____% ______% ____%
Closing Date: ______ ______, 2000, 10:00 a.m., New York Time
Location of Closing: [Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York 10017]
Payment for the Certificates: Wire transfer of same day funds
Opinion Modifications:
A-2
<PAGE>
Other securities being offered concurrently:
A-3
<PAGE>
The Underwriters agree, severally and not jointly, subject to the terms and
provisions of the above referenced Underwriting Agreement which is incorporated
herein in its entirety and made a part hereof, to purchase the respective
principal amounts of the above referenced Series of Certificates set forth
opposite their names on Schedule I hereto.
CHASE SECURITIES INC.
As Underwriter and as Representative of
the several Underwriters named
in Schedule I hereto
By:
----------------------
Name:
Title:
Accepted:
DILLARD'S INC.
By:
----------------------
Name:
Title:
DILLARD NATIONAL BANK
By:
----------------------
Name:
Title:
DILLARD NATIONAL BANK (f/k/a
MERCANTILE STORES NATIONAL BANK)
By:
----------------------
Name:
Title:
DILLARD ASSET FUNDING COMPANY
BY: CHASE MANHATTAN BANK DELAWARE,
as owner trustee
By:
-----------------------------------
Name:
Title:
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SCHEDULE I
UNDERWRITERS
$[_________] Principal Amount of Class A Floating Rate Asset Backed
Certificates, Series 2000-___
Principal Amount
Chase Securities Inc. $[_________]
Total $[_________]
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(212) 455-2000
January 12, 2000
Dillard Asset Funding Company
c/o Chase Manhattan Bank Delaware
1202 Market Street
Wilmington, DE 19801
Re: Dillard Credit Card Master Trust
Asset-Backed Certificates
Ladies and Gentlemen:
We have acted as counsel for Dillard Asset Funding Company, a Delaware
business trust (the "Company") and Dillard National Bank, a national banking
association ("DNB") in connection with the filing by the Company, on behalf of
the Dillard Credit Card Master Trust (the "Master Trust"), with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, of a
Registration Statement on Form S-3, Registration No. 333-67855 (the
"Registration Statement"), registering asset-backed certificates representing
undivided interests in certain assets of the Master Trust (the "Certificates").
The Certificates of a particular series will be issued pursuant to an Amended
and Restated Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") between the Company, DNB as Servicer (the "Servicer") and The Chase
Manhattan Bank, as Trustee (the "Trustee"), substantially in the form filed as
Exhibit 4.1 to the Registration Statement, and a related Series Supplement to
the Pooling and Servicing Agreement (a "Series Supplement") between the Company,
the Servicer and the Trustee, substantially in the form filed as Exhibit 4.2 to
the Registration Statement.
We have examined the Registration Statement, the form of Pooling and
Servicing Agreement and the form of Series Supplement. We also have examined the
originals, or duplicates or certified or conformed copies, of such records,
agreements, instruments and other documents and have made such other and further
investigations as we have deemed relevant and necessary in connection with the
opinions expressed herein. As to
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Dillard Asset Funding Company -2- January 12, 2000
questions of fact material to this opinion, we have relied upon certificates of
public officials and of officers and representatives of the Company and DNB.
In rendering the opinions set forth below, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as duplicates or certified
or conformed copies, and the authenticity of the originals of such latter
documents.
Based upon the foregoing, and subject to the qualifications and
limitations set forth herein, we are of the opinion that:
1. When the Pooling and Servicing Agreement has been duly
authorized, executed and delivered by each of the Company and DNB and
the Trustee, such Pooling and Servicing Agreement will constitute a
binding obligation of the Company and DNB.
2. When the Series Supplement relating to a particular series
of Certificates has been duly authorized, executed and delivered by
each of the Company and DNB and the Trustee, such Series Supplement
will constitute a binding obligation of the Company and DNB.
3. When the Certificates of a particular series have been duly
authorized by the Company, when such Certificates have been duly
executed and authenticated in accordance with the terms of the Pooling
and Servicing Agreement and the related Series Supplement and when such
Certificates have been delivered and sold as contemplated by the
Registration Statement, such Certificates will be validly issued, fully
paid and nonassessable and outstanding and entitled to the benefits
provided for by the Pooling and Servicing Agreement and such Series
Supplement.
Our opinions set forth above in paragraphs 1 and 2 are subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally and general equitable principles (whether considered in a proceeding
in equity or at law).
The statements set forth in the Prospectus included in the Registration
Statement (the "Prospectus") under the caption "Federal Income Tax Consequences"
insofar as they purport to constitute summaries of matters of United States
federal income tax law and regulations or legal conclusions with respect
thereto, constitute accurate summaries of the matters described therein in all
material respects. We hereby confirm and adopt as our opinion as to the material
federal income tax consequences of the purchase, ownership and disposition of
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Dillard Asset Funding Company -3- January 12, 2000
the certificates that which is stated as our opinion under the caption
"Federal Income Tax Consequences" in the Prospectus.
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than the law of the State of
New York and the Federal law of the United States.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
and Exhibit 8.1 to the Registration Statement and the use of our name under the
captions "Legal Matters" and "Federal Income Tax Consequences" in the
Prospectus.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
