<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 15, 2000
Prospectus Supplement to Prospectus, Dated June 15, 2000
DILLARD CREDIT CARD MASTER TRUST I
Issuer
DILLARD ASSET FUNDING COMPANY, Transferor
DILLARD NATIONAL BANK, Servicer
$200,000,000 CLASS A FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 2000-1
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Class A Certificates
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Principal Amount $ 200,000,000
Price $ ( %)
Underwriters' Commissions $ 500,000 (0.25%)
Proceeds to the Issuer $ ( %)
Certificate Rate one-month LIBOR +
% p.a.
Interest Payment Dates monthly on the 15th
First Interest Payment Date August 15, 2000
Scheduled Principal Payment Date June 15, 2005
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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
CHASE SECURITIES INC.
BANC ONE CAPITAL MARKETS, INC.
BANC OF AMERICA SECURITIES LLC
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.
<PAGE>
TO UNDERSTAND THE STRUCTURE OF THESE SECURITIES, YOU MUST READ CAREFULLY THE
ATTACHED PROSPECTUS AND THIS SUPPLEMENT IN THEIR ENTIRETY.
TABLE OF CONTENTS
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PAGE
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Summary of Terms............................... S-3
Structural Summary............................. S-4
Selected Portfolio Summary Data................ S-6
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 Portfolio..................... S-9
Allocations of Charged-Off Receivables Could
Result in a Loss to You................... S-10
Adjustments Due to Rebates, Exchanges and
Merchandise Returns 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
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-11
Geographic Concentrations in the Receivables
Pool May Impact the Timing and Amount of
Payments to You........................... S-12
Dillard's Credit Card Portfolio................ S-13
General...................................... S-13
Delinquency and Loss Experience.............. S-13
Recoveries................................... S-14
Management Discussion and Analysis............. S-15
The Receivables................................ S-16
General...................................... S-16
Dilution Experience.......................... S-19
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Maturity Considerations........................ S-20
Controlled Accumulation Period............... S-20
Rapid Amortization Period.................... S-20
Pay Out Events............................... S-20
Payment Rates................................ S-21
Receivable Yield Considerations................ S-22
Use of Proceeds................................ S-22
Description of the Certificates................ S-23
General...................................... S-23
Status of the Certificates................... S-24
Interest Payments............................ S-24
Principal Payments........................... S-25
Postponement of Controlled Accumulation
Period.................................... S-26
Subordination................................ S-26
Allocation Percentages....................... S-26
Reallocation of Cash Flows................... S-27
Application of Collections................... S-27
Allocations of Collections of Finance Charge
Receivables............................... S-30
Allocations of Collections of Principal
Receivables............................... S-31
Shared Excess Finance Charge Collections..... S-32
Shared Principal Collections................. S-32
Adjustment Payments.......................... S-32
Defaulted Receivables; Dilutions; Investor
Charge-Offs............................... S-32
Principal Funding Account.................... S-33
Reserve Account.............................. S-34
Companion Series............................. S-34
Pay Out Events............................... S-35
Servicing Compensation and Payment of
Expenses.................................. S-35
The Certificates............................. S-36
Exchanges.................................... S-36
Reports to Certificateholders................ S-36
Listing and General Information................ S-37
ERISA Considerations........................... S-37
Class A Certificates......................... S-37
Consultation with Counsel.................... S-38
Underwriting................................... S-39
Legal Matters.................................. S-40
Glossary of Terms.............................. S-41
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S-2
<PAGE>
SUMMARY OF TERMS
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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/Clearstream Banking/Euroclear
Trust Assets: Receivables originated in private label revolving credit accounts, including
recoveries on charged-off receivables
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Series Structure: Amount
Class A $200,000,000
Class B* $ 58,064,516
Annual Servicing Fee: 2.00%
Anticipated Ratings:**
(Moody's / S&P) "Aaa"/"AAA"
Credit Enhancement: subordination of Class B certificates
Minimum Transferor Interest: 10% February to November;
12% December to January
Interest Rate: 1-month LIBOR + %
Interest Accrual Method: actual / 360
Interest Payment Dates: monthly on the 15th
Interest Rate Index Reset Date: For any interest payment date, 2 business days before
the related interest accrual period
First Interest Payment Date: August 15, 2000
Commencement of Controlled Accumulation
Period (subject to adjustment): June 15, 2004
Scheduled Principal Payment Date: June 15, 2005
Series 2000-1 Legal Final Maturity: June 15, 2009
Application for Exchange Listing: Luxembourg
CUSIP Number
ISIN Number
Common Code
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* Not offered hereby.
** 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 attached 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 2000-1 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
subordination of Class B certificates which will be held by an affiliate or
subsidiary of Dillard's.
The effect of subordination is that the subordinated interest will absorb any
net losses allocated to the certificates, and make up any shortfalls in cash
flow, before your interest is affected. On the closing date the Class B interest
will be $58,064,516 or 22.5% 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;
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 your series 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 June 15, 2005. In order to accumulate the
funds to pay Class A certificateholders on the scheduled payment date, the trust
will conduct a controlled accumulation by setting aside principal collections in
a principal funding account. The trust will deposit funds into the principal
funding account during a controlled accumulation period. The length of the
controlled accumulation period may be as long as twelve months, but will be
shortened if the transferor expects that a shorter period will suffice for the
accumulation of the Class A payment amount. The accumulation period will end on
the scheduled payment date for Class A, when the funds on deposit in the
principal funding account will be paid to Class A, or upon the occurrence of a
pay out event.
If Class A is not fully repaid on its scheduled payment date, Class A will begin
to receive
S-4
<PAGE>
monthly payments of principal until it 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
The Class A certificates may be repaid earlier than their 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 for the related interest period plus the servicing fee for
the related month converted to a per annum interest rate. If the average
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, the Class A
certificates will receive monthly payments of principal until they are 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 June 15,
2009, which is the final payment date for your series.
TAX STATUS OF CLASS A 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 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.
MAILING ADDRESS AND TELEPHONE NUMBER OF REGISTRANT
The mailing address of Dillard Asset Funding Company is c/o Chase Manhattan Bank
USA, N.A., 1201 Market Street, Wilmington, Delaware 19801 and the telephone
number is (302) 575-5000.
S-5
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SELECTED PORTFOLIO SUMMARY DATA
[PIE CHART APPEARS HERE]
Geographic Disribution of Receivables in Portfolio
State Pecent
----- ------
Texas 26.2%
Florida 10.2%
Louisiana 7.2%
Ohio 5.9%
Alabama 4.4%
Tennessee 4.0%
Oklahoma 4.0%
Missouri 3.9%
Arizona 3.6%
Kentucky 3.4%
Arkansas 3.3%
Other 23.9%
The chart above shows the geographic distribution by state of receivables
in the portfolio as of the billing cycles ended in March 2000. Other than the
states specifically shown in the chart, no state represents more than 3% of
receivables in the portfolio.
[BAR CHART APPEARS HERE]
Percent of Receivables by
Age of Accounts in Portfolio
(months)
0-3 2.1
4-15 8.0
16-27 8.3
28-39 8.7
40-51 7.3
52-63 5.9
64-75 4.4
76+ 55.3
The chart above shows the percent of receivables by age of accounts in the
portfolio as of the billing cycles ended in March 2000. This chart shows that
59.7% of the accounts in the portfolio have been open for more than 63 months.
S-6
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PORTFOLIO PAYMENT DATA
The chart below shows portfolio yield, payment rate and net charge-off rate
for each month from January 1997 to March 2000. For purposes of the following
chart, March, June, September and December are five-week fiscal months. All
other months are four-week fiscal months. As a result of their conversion to a
new credit system in August 1999, Dillard's was able to record charge-offs a
month earlier than previously under the old system. However, to bring the
portfolio up to date with the current system Dillard's recorded two months of
charge-offs in one month. As a result of this one-time charge the net default
rate significantly increased in October 1999.
[LINE CHART APPEARS HERE]
Payment Data
Jan-97 17% 19% 5%
Feb-97 18% 19% 4%
Mar-97 18% 22% 5%
Apr-97 18% 18% 4%
May-97 18% 18% 5%
Jun-97 18% 21% 5%
Jul-97 18% 18% 6%
Aug-97 18% 17% 5%
Sep-97 18% 21% 5%
Oct-97 19% 17% 5%
Nov-97 19% 19% 6%
Dec-97 19% 22% 5%
Jan-98 18% 19% 5%
Feb-98 19% 19% 5%
Mar-98 19% 22% 5%
Apr-98 19% 18% 5%
May-98 19% 18% 5%
Jun-98 19% 21% 5%
Jul-98 19% 18% 6%
Aug-98 19% 18% 5%
Sep-98 19% 20% 6%
Oct-98 19% 17% 5%
Nov-98 18% 17% 7%
Dec-98 18% 19% 7%
Jan-99 21% 18% 6%
Feb-99 19% 18% 7%
Mar-99 19% 21% 7%
Apr-99 18% 17% 6%
May-99 18% 17% 6%
Jun-99 19% 20% 5%
Jul-99 18% 17% 6%
Aug-99 21% 17% 6%
Sep-99 22% 20% 7%
Oct-99 20% 17% 11%
Nov-99 21% 19% 6%
Dec-99 22% 19% 6%
Jan-00 19% 19% 5%
Feb-00 20% 18% 6%
Mar-00 23% 20% 6%
The "portfolio yield" for any month means the total amount of billed
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 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.
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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 payment 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 the Class A certificates 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, which may reduce the portfolio yield and
cause a pay out event to occur.
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. 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.
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S-8
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THE TRANSFEROR MAY NOT BE ABLE TO ADD If the transferor's percentage interest in the accounts of the trust
ACCOUNTS TO PORTFOLIO falls to 10% or less from February to November or to 12% or less from
December to January, it will be required to maintain that level by
designating additional accounts for the 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. A significant decline in the
amount of new receivables generated by the accounts in the trust
could result in reduced portfolio yield, which could cause a pay out
event to occur. 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.
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S-9
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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
MERCHANDISE RETURNS COULD REDUCE PAYMENTS rebates, exchanges, merchandise returns and similar occurrences. The
TO YOU 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.
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S-10
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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 to 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 to 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.
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
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S-11
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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.
GEOGRAPHIC CONCENTRATIONS IN THE The receivables in the portfolio as of the billing cycles ended in
RECEIVABLES POOL MAY IMPACT THE TIMING AND March 2000 were obligations of Dillard's credit cardholders with
AMOUNT OF PAYMENTS TO YOU primary addresses in Texas, Florida and Louisiana representing 26.2%,
10.2% and 7.2%, respectively, of receivables in the 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-12
<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. Since the trust was created in
1998, the tabular presentations throughout this prospectus supplement contain
trust portfolio data for March 31, 2000, December 31, 1999 and December 31,
1998. All other periods contain Dillard's portfolio data. As of the billing
cycles ended in March 2000, the receivables in the trust portfolio represented
approximately 99.8% of the Dillard's portfolio.
DELINQUENCY AND LOSS EXPERIENCE
The originators consider an account delinquent if a payment is not received
by the date of the statement following the statement on which the amount is
first stated to be due.
Efforts to collect delinquent credit card receivables are made by the
servicer's account management department, collection agencies and attorneys
retained by the servicer. Efforts to collect delinquent credit card receivables
may also be made by the account management department of subservicers retained
by the servicer, and collection agents and attorneys retained by these
subservicers.
It is the policy of the originators to charge off an account at the billing
cycle in which the account became seven payments (210 days from the initial
billing date) delinquent. If an originator receives notice that a cardholder is
the subject of a bankruptcy proceeding, the account is accelerated to bill six
payments past due at its next billing. Then the account is charged off when it
becomes seven payments delinquent. Charged-off accounts are sent to an internal
recovery unit, collection agencies or attorneys.
The following tables describe delinquency and loss experience for the three
months ended March 31, 2000 and for the years ended December 31, 1999, 1998 and
1997, respectively.
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,
----------------------------------------------------------------
MARCH 31, 2000 1999 1998 1997
------------------------- ------------------------- ------------------------- ----------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
DELINQUENT TOTAL DELINQUENT TOTAL DELINQUENT TOTAL DELINQUENT
NUMBER OF DAYS DELINQUENT AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT
-------------------------------- ---------- ------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
30 to 59 Days................... $ 59,423 4.5% $ 42,162 3.0% $ 50,742 3.3% $ 57,820
60 to 89 Days................... 18,470 1.4 15,048 1.1 25,816 1.7 22,446
90 Days or More................. 28,095 2.1 31,898 2.3 58,663 3.8 44,184
-------- --- -------- ----- -------- ----- --------
Total....................... $105,988 8.0% $ 89,108 6.4% $135,221 8.8% $124,450
======== === ======== ===== ======== ===== ========
<CAPTION>
December 31,
--------------
1997
---------------
PERCENTAGE OF
TOTAL
NUMBER OF DAYS DELINQUENT RECEIVABLES
-------------------------------- -------------
<S> <C>
30 to 59 Days................... 3.4%
60 to 89 Days................... 1.3
90 Days or More................. 2.6
-----
Total....................... 7.3%
=====
</TABLE>
S-13
<PAGE>
In the table below, "average receivables outstanding" means the average of
the daily receivable balance during the period indicated. The gross charge-offs
shown below include only the principal portion of charged-off receivables, do
not include the amount of any reductions in average receivables outstanding due
to fraud, returned goods or customer disputes and exclude charges relating to
changes in the servicer's charge-off policies. The net charge-offs as a
percentage of average receivables outstanding for the three months ended March
31, 2000 is an annualized figure.
PORTFOLIO LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------------
MARCH 31, 2000 1999 1998 1997
----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding.................... $ 1,383,521 $1,387,501 $1,601,806 $1,621,623
Gross Charge-Offs.................................. 21,453 99,771 102,426 94,066
Recoveries......................................... 5,423 20,465 12,497 13,060
Net Charge-Offs.................................... 16,030 79,306 89,929 81,006
Net Charge-Offs as a Percentage of Average
Receivables Outstanding.......................... 4.6% 5.7% 5.6% 5.0%
</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
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-14
<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 Portfolio Delinquency Experience table presented above indicates that
accounts in the credit card portfolio, 60 days or more delinquent, totaled 3.5%
and 3.4% of total receivables at March 31, 2000 and December 31, 1999,
respectively. Accounts in the credit card portfolio, 60 days or more delinquent,
at December 31, 1999 and 1998 were 3.4% and 5.5% of total receivables,
respectively. Accounts in the credit card portfolio, 60 days or more delinquent,
at December 31, 1998 and 1997 were 5.5% and 3.9% of total receivables,
respectively.
The improvement in delinquency experience is a result of steps taken by
Dillard's since the acquisition of Mercantile, such as improved origination and
underwriting processes and enhanced collection efforts.
The Portfolio Loss Experience table presented above indicates that net
charge-offs, as a percent of average receivables, were 4.6% (annualized) and
5.7% for the three month period ended March 31, 2000 and the year ended
December 31, 1999, respectively. Net charge-offs as a percent of average
receivables for the years ended December 31, 1999 and 1998 were 5.7% and 5.6%,
respectively. Net charge-offs as a percent of average receivables for the years
ended December 31, 1998 and 1997 were 5.6% and 5.0%, respectively.
The integration process of converting Mercantile's credit and collections
systems to Dillard's credit and collection systems produced higher net
charge-off levels in 1998 and 1999 than the net charge-off levels experienced by
Dillard's in previous years.
Dillard's attributes increases in portfolio yield to a combination of a
higher APR for all new accounts, lengthened payment terms and increased late
fees.
S-15
<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. 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 March 2000, the portfolio had
o total balances of
o $1.3 billion in principal receivables; and
o $21.3 million in finance charge receivables;
o accounts with an average
o principal balance of $440, excluding accounts without an outstanding
principal balance; and
o credit limit of $2,120, excluding corporate accounts which have no
pre-set credit limits;
o percentage of total receivable balance to total credit limit of 9.5%; and
o cardholders with billing addresses in 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. See "Description of the
Certificates--Collection and Other Servicing Procedures" in the attached
prospectus.
S-16
<PAGE>
The following tables summarize the portfolio by various criteria as of the
billing cycles ended in March 2000. Because the future composition of the
portfolio may change over time, these tables are not necessarily indicative of
the composition of the portfolio at any subsequent time.
COMPOSITION BY ACCOUNT BALANCE
(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..................................... 269,725 3.3% $ (4,834) (0.4)%
No Balance......................................... 5,153,088 63.3 -- --
$0.01 to $500.00................................... 1,884,707 23.2 355,103 26.9
$500.01 to $1,000.00............................... 485,308 6.0 340,680 25.8
$1,000.01 to $3,000.00............................. 303,608 3.7 482,985 36.6
$3,000.01 to $5,000.00............................. 31,035 0.4 113,460 8.6
Over $5,000.00..................................... 5,288 0.1 33,270 2.5
--------- ----- ----------- -----
Total......................................... 8,132,759 100.0% $ 1,320,664 100.0%
========= ===== =========== =====
</TABLE>
COMPOSITION BY CREDIT LIMIT
(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.............................................. 1,537,469 18.9% $ 127,482 9.6%
$0.01 to $1,000.00................................. 2,154,275 26.5 243,182 18.4
$1,000.01 to $3,000.00............................. 3,303,080 40.6 520,963 39.5
$3,000.01 to $5,000.00............................. 1,051,851 12.9 321,287 24.3
$5,000.01 to $10,000.00............................ 85,368 1.1 106,951 8.1
Over $10,000.00.................................... 716 0.0 799 0.1
--------- ----- ----------- -----
Total......................................... 8,132,759 100.0% $ 1,320,664 100.0%
========= ===== =========== =====
</TABLE>
COMPOSITION BY PERIOD OF DELINQUENCY
(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...................... 7,970,460 98.0% $ 1,214,676 92.0%
30 to 59 days delinquent........................... 91,289 1.1 59,423 4.5
60 to 89 days delinquent........................... 28,716 0.4 18,470 1.4
90 days delinquent or more......................... 42,294 0.5 28,095 2.1
--------- ----- ----------- -----
Total......................................... 8,132,759 100.0% $ 1,320,664 100.0%
========= ===== =========== =====
</TABLE>
S-17
<PAGE>
COMPOSITION BY ACCOUNT SEASONING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES PERCENTAGE OF
ACCOUNT AGE ACCOUNTS ACCOUNTS OUTSTANDING TOTAL RECEIVABLES
--------------------------------------------------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
Not More than 3 Months............................. 139,020 1.7% $ 27,174 2.1%
Over 3 Months to 15 Months......................... 795,263 9.8 106,268 8.0
Over 15 Months to 27 Months........................ 1,134,579 14.0 109,945 8.3
Over 27 Months to 39 Months........................ 696,211 8.6 115,312 8.7
Over 39 Months to 51 Months........................ 525,452 6.4 95,868 7.3
Over 51 Months to 63 Months........................ 386,996 4.7 77,778 5.9
Over 63 Months to 75 Months........................ 284,873 3.5 58,052 4.4
Over 75 Months..................................... 4,170,365 51.3 730,267 55.3
--------- ----- ----------- -----
Total......................................... 8,132,759 100.0% $ 1,320,664 100.0%
========= ===== =========== =====
</TABLE>
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
(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............................................ 309,852 3.8% $ 57,620 4.4%
Arizona............................................ 269,071 3.3 47,860 3.6
Arkansas........................................... 177,474 2.2 43,566 3.3
California......................................... 69,751 0.9 8,834 0.7
Colorado........................................... 295,090 3.6 31,664 2.4
Florida............................................ 953,058 11.7 134,189 10.2
Georgia............................................ 221,894 2.7 33,496 2.5
Idaho.............................................. 32,960 0.4 1,892 0.1
Illinois........................................... 89,461 1.1 10,447 0.8
Indiana............................................ 75,932 0.9 7,256 0.6
Iowa............................................... 39,865 0.5 3,268 0.2
Kansas............................................. 239,509 2.9 31,876 2.4
Kentucky........................................... 328,498 4.0 45,405 3.4
Louisiana.......................................... 541,654 6.7 95,675 7.2
Michigan........................................... 22,610 0.3 2,506 0.2
Mississippi........................................ 184,559 2.3 31,863 2.4
Missouri........................................... 428,798 5.3 51,820 3.9
Montana............................................ 34,694 0.4 3,478 0.3
Nebraska........................................... 75,995 1.0 9,558 0.7
Nevada............................................. 69,723 0.9 14,292 1.1
New Mexico......................................... 84,834 1.0 16,496 1.3
New York........................................... 12,446 0.2 1,359 0.1
North Carolina..................................... 248,332 3.1 32,901 2.5
Ohio............................................... 660,146 8.1 77,909 5.9
Oklahoma........................................... 254,748 3.1 52,602 4.0
Pennsylvania....................................... 17,755 0.2 1,385 0.1
South Carolina..................................... 251,402 3.1 34,062 2.6
Tennessee.......................................... 395,905 4.9 52,487 4.0
Texas.............................................. 1,369,763 16.8 345,405 26.2
Utah............................................... 65,958 0.8 7,993 0.6
Virginia........................................... 214,061 2.6 20,194 1.5
Wyoming............................................ 16,600 0.2 1,890 0.1
Other.............................................. 80,361 1.0 9,416 0.7
--------- ----- ----------- -----
Total......................................... 8,132,759 100.0% $ 1,320,664 100.0%
========= ===== =========== =====
</TABLE>
S-18
<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 1997 through March 2000. 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.
[LINE CHART APPEARS HERE]
Dilution Percentage
Jan-97 2.3
Feb-97 2.2
Mar-97 3.1
Apr-97 2.5
May-97 2.7
Jun-97 3.1
Jul-97 2.3
Aug-97 2.4
Sep-97 3.1
Oct-97 2.6
Nov-97 2.8
Dec-97 4.8
Jan-98 2.4
Feb-98 2
Mar-98 3.1
Apr-98 2.6
May-98 2.5
Jun-98 2.9
Jul-98 2.1
Aug-98 2.2
Sep-98 3
Oct-98 2.2
Nov-98 2.7
Dec-98 4.6
Jan-99 2.3
Feb-99 2
Mar-99 3
Apr-99 2.4
May-99 2.4
Jun-99 2.7
Jul-99 2.2
Aug-99 2.1
Sep-99 3.1
Oct-99 2.4
Nov-99 2.6
Dec-99 4.9
Jan-00 2.4
Feb-00 2.2
Mar-00 3
S-19
<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.
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 June 2004 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 May 2005 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 to
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 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 CLASS A INVESTOR INTEREST or until
the Series 2000-1 termination date.
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;
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 in full on the Class A scheduled payment date;
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."
S-20
<PAGE>
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 each of the
calendar years ended December 31, 1997, December 31, 1998 and December 31, 1999
and for the three calendar months ended March 31, 2000 for the portfolio. In
each case these rates are calculated as a percentage of total opening monthly
account balances during the periods shown.
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 total outstanding receivables at the
beginning of the month.
CARDHOLDER MONTHLY PAYMENT RATES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------
2000 1999 1998 1997
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Highest Month................................................... 19.5% 21.4% 21.7% 21.6%
Lowest Month.................................................... 17.8 16.5 17.1 17.2
Monthly Average................................................. 18.8 18.1 18.8 19.1
</TABLE>
For accounts originated by DNB prior to October 18, 1999 (except for
originations in a ten state test market), the minimum monthly payment is
generally determined 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. See "Billing and
Payments--Customer Terms--Dillard's Credit Cards" in the attached prospectus.
For all accounts that were originated by DNB-LA. and for all accounts
originated by DNB after October 18, 1999 (and for those accounts that were
originated by DNB in the ten state test market), the minimum monthly payment is
generally determined 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. See
"Billing and Payments--Customer Terms--Dillard's 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 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 to the final distribution date 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 on the Class A scheduled payment date. See
"Certificate Ratings" and "Maturity Considerations" in the attached prospectus.
S-21
<PAGE>
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts for the
calendar years ended December 31, 1997, December 31, 1998 and December 31, 1999
and for the three calendar months ended March 31, 2000 in the 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 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 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 three months
ended March 31, 2000 is an annualized figure.
PORTFOLIO YIELD
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ---------------------------------------
2000 1999 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Finance Charges and Fees Billed......................... $ 74,738 $ 276,023 $ 300,743 $ 314,609
Average Receivables Outstanding......................... 1,383,521 1,387,501 1,601,806 1,621,623
Yield from Finance charges and Fees Billed.............. 21.6% 19.9% 18.8% 19.4%
</TABLE>
Revenues vary for each account based on the type and volume of activity for
each account. See "Dillard's Credit Card Portfolio" and "The
Receivables--Additional Portfolio Information" in this supplement and "Dillard's
Credit Card Activities" in the attached prospectus.
USE OF PROCEEDS
Dillard's will apply a portion of the net proceeds from the sale of the
certificates, which is expected to be approximately $ , (i) to repay
all or a portion of the principal of previously issued variable funding
securities, a substantial portion of which may be held by certain of the
underwriters or their affiliates or entities for which the underwriters or their
affiliates provide liquidity and/or act as administrator and (ii) to pay the
purchase price of the receivables.
S-22
<PAGE>
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 June 15, 2005 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 and CLASS B AVAILABLE FUNDS;
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.
S-23
<PAGE>
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 which will initially be
held by an affiliate of Dillard's are subordinated to payments on the Class A
certificates as described in this prospectus supplement.
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 August 15, 2000. 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 August 15, 2000. 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 August 15, 2000; 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
close of business on the related distribution 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 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 determines LIBOR on each LIBOR determination date which will be
the second London business day prior to the distribution date on which that
interest period begins except for the initial interest period where LIBOR will
be two business days prior to the closing date. For the purposes of calculating
S-24
<PAGE>
LIBOR, a business day is any business day on which dealings in deposits in
United States dollars are transacted in the London interbank market.
The Class A certificate rate applicable to the current and immediately
preceding interest period may be obtained by telephoning the trustee at
(212) 976-7148. If the Class A certificates are approved for listing on the
Luxembourg Stock Exchange, the trustee will cause the Class A certificate rate
as well as the amount of CLASS A 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
scheduled payment date in an amount equal to the principal amount of your
certificates and subject to the conditions and exceptions set forth below.
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.
Controlled Accumulation Period.
On each transfer date during the CONTROLLED ACCUMULATION PERIOD, the
servicer 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 payment date using funds from the principal
funding 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 or CLASS B 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 2000-1 termination date.
After payment in full of the CLASS A INVESTOR INTEREST, the Class B
certificateholder will be entitled to receive AVAILABLE INVESTOR PRINCIPAL
COLLECTIONS on each transfer date other than the transfer date prior to the
Series 2000-1 termination date and on the Series 2000-1 termination date. The
Class B certificateholder will receive payments until the earlier of the date
the CLASS B INVESTOR INTEREST is paid in full and the Series 2000-1 termination
date.
S-25
<PAGE>
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 June 2004 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. To the extent the
reduction is not reimbursed, the amount of principal and interest
distributable to the Class B certificateholders will be reduced.
After the commencement of the RAPID AMORTIZATION PERIOD, no principal will be
paid to the Class B certificateholder until the CLASS A INVESTOR INTEREST is
paid in full. See "--Allocation Percentages," "--Reallocation of Cash Flows" and
"--Application of Collections--Excess Spread."
ALLOCATION PERCENTAGES
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; and
o Class B certificateholders will be based on the CLASS B 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;
and
o Class B certificateholders based on the CLASS B FLOATING ALLOCATION.
S-26
<PAGE>
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; and
o Class B certificateholders will be based on the CLASS B 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, if any, 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 2000-1 for that transfer date; then
o REALLOCATED CLASS B PRINCIPAL COLLECTIONS for the related 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 then
o provided that the reduction will not be by more than the CLASS A
INVESTOR DEFAULT AMOUNT for that 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 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."
Reductions of the CLASS A INVESTOR INTEREST described above will be
reimbursed by, and the CLASS A 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 have been fully reimbursed, reductions of the
CLASS B INVESTOR 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
S-27
<PAGE>
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 certificateholders. 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 an eligible deposit account or distributed to a
certificateholder, the servicer will be permitted to withdraw the excess from
the collection account.
Payment of Interest, Fees and Other Items.
On each transfer date, the trustee will apply the CLASS A AVAILABLE FUNDS
and CLASS B 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, if none of the transferor, an affiliate of the transferor
or the trustee is the servicer, an amount equal to the Class A
servicing fee for the related monthly period, plus the amount of
any overdue Class A servicing fees, 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;
o Fourth, an amount equal to the total amount of CLASS A INVESTOR
CHARGE-OFFS which have not been previously reimbursed will be
treated as a portion of AVAILABLE INVESTOR PRINCIPAL COLLECTIONS
and deposited into the principal account for the transfer date;
o Fifth, if the transferor, an affiliate of the transferor or the
trustee is the servicer, an amount equal to the Class A servicing
fee for the related monthly period, plus the amount of any
overdue Class A servicing fees, will be paid to the servicer; and
o Sixth, 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, if none of the transferor, an affiliate of the transferor
or the trustee is the servicer, an amount equal to the Class B
servicing fee for the related monthly period, plus the amount of
any overdue Class B servicing fees, will be paid to the servicer,
and
S-28
<PAGE>
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
written 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 described under
"--Payment of Interest, Fees and Other Items" above;
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;
o if none of the transferor, an affiliate of the transferor or the
trustee is the servicer, an amount equal to any overdue servicing
fee relating to the Class B Certificates, will be paid to the
servicer;
o an amount equal to the total CLASS B 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 on 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 REQUIRED CLASS B INVESTOR
INTEREST for reasons other than the payment of principal to the
Class B certificateholder (but not in excess of the total 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 on 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 balance, if any, after giving effect to the payments made
pursuant to the 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 2000-1. 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-29
<PAGE>
ALLOCATIONS OF COLLECTIONS OF FINANCE CHARGE RECEIVABLES
<TABLE>
<S> <C>
------------------------------------------
Collections of Finance Charge Receivables
Allocated to Your Series
------------------------------------------
|
|
----------------------------------------------------
| |
------------------------- -------------------------
Class A Investor Interest Class B Investor Interest
------------------------- -------------------------
| |
----------------------------------------------------- ------------------------
1. Class A Interest Payment 1. Class B Investor Fee,
2. Class A Servicing Fee for an Unaffiliated Servicer if applicable
3. Class A Default Amount ------------------------
4. Reimburse Class B Investor Interest |
5. Class A Servicing Fee for an Affiliated Servicer |
---------------------------------------------------- |
|
|
------------------------------------
|
--------------------- ---------------------
Excess Collections of Excess Finance Charge
Finance Charges ------ Collections from
Other Series
--------------------- ---------------------
|
|
--------------------------------------------------------
1. Class A Interest Payment
2. Class A Servicing Fee for an Unaffiliated Servicer
3. Class A Default Amount
4. Reimburse Class A Investor Interest
5. Class A Servicing Fee for an Affiliated Servicer
6. Unpaid Class B Servicing Fee
7. Class B Default Amount
8. Reimburse Class B Investor Interest
9. Required Reserve Account Amount
10. Other Series of Certificates
--------------------------------------------------------
</TABLE>
Payments of Principal. On each transfer date, the trustee, acting on the
servicer's written 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 CLASS B MONTHLY PRINCIPAL will be paid to
the Class B certificateholders in accordance with the pooling and
servicing agreement; and
o some or all of the balance will be paid to the Class B
certificateholder only if the ADJUSTED INVESTOR INTEREST is
greater than the FIXED INVESTOR PERCENTAGE of the total amount of
principal receivables in the trust on such day and the REQUIRED
CLASS B INVESTOR INTEREST;
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 CLASS A MONTHLY PRINCIPAL
for the transfer date); or
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, some or all of the balance of
AVAILABLE INVESTOR PRINCIPAL COLLECTIONS not applied to CLASS A
MONTHLY PRINCIPAL or CLASS B MONTHLY PRINCIPAL will be treated as
SHARED PRINCIPAL
S-30
<PAGE>
COLLECTIONS and applied as described under "Description of the
Certificates--Shared Principal Collections" in this prospectus
supplement and in the attached prospectus with any remaining amounts
generally being paid to the transferor.
The final distribution of principal and interest on the certificates will
be made no later than the Series 2000-1 termination date in the manner provided
in "Description of the Certificates--Final Payment of Principal; Termination" in
the attached prospectus.
The Series 2000-1 termination date will be the earliest of:
o the distribution date on which the investor interest is paid in
full;
o the June 2009 distribution date; or
o the TRUST TERMINATION DATE.
After the Series 2000-1 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 will be allocated and applied to Series 2000-1. 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.
ALLOCATIONS OF COLLECTIONS OF PRINCIPAL RECEIVABLES
<TABLE>
<S> <C> <C>
------------------------------------
Collections of Principal Receivables
Allocated to Your Series
------------------------------------
|
------------------------------------------|
| |
| -------------------------
| Class B Investor Interest
| -------------------------
| |
------------------------- -----------------------------------------------------
Class A Investor Interest Reallocation to unpaid:
------------------------- 1. Class A Interest Payment
| 2. Class A Servicing Fee for an Unaffiliated Servicer
| 3. Class A Default Amount
| 4. Reimburse Class B Investor Interest
| 5. Class A Servicing Fee for an Affiliated Servicer
| -----------------------------------------------------
| |
|-----------------------------------------
|
---------------------------- ----------------------------
Available Investor Principal Shared Principal Collections
Collections ---------------- from Other Series
---------------------------- ----------------------------
|
|
|
|
-------------------------------------------
During accumulation or amortization period:
1. Class A Principal Payment or Deposit
2. Class B Principal Payment
-------------------------------------------
|
|
-----------------------------
Shared Principal Collections
to Other Series, if necessary
-----------------------------
|
|
-----------------------------
Dillard Asset Funding Company
-----------------------------
</TABLE>
S-31
<PAGE>
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. Upon the issuance of this
series, Group I will be 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 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
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, payments to the
certificateholders.
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.
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 an ADJUSTMENT PAYMENT when due,
EXCESS SPREAD and REALLOCATED PRINCIPAL COLLECTIONS for Series 2000-1 may be
applied. To the extent these amounts are insufficient to cover the portion of
the unpaid ADJUSTMENT PAYMENTS allocated to Series 2000-1, there will be an
INVESTOR CHARGE-OFF as described below.
DEFAULTED RECEIVABLES; DILUTIONS; INVESTOR CHARGE-OFFS
On or before each transfer date, the servicer will:
o calculate the INVESTOR DEFAULT AMOUNT for the preceding monthly
period;
o allocate the CLASS A INVESTOR DEFAULT AMOUNT to the Class A
certificateholders; and
o allocate the CLASS B INVESTOR DEFAULT AMOUNT to the Class B
certificateholder.
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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 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 later transfer date by the amount of EXCESS SPREAD allocated
and available for that purpose.
Class B Certificates
If the CLASS B INVESTOR DEFAULT AMOUNT exceeds the available amount of
EXCESS SPREAD which is allocated and available to fund the amount as described
above under "--Application of Collections--Excess Spread," then the CLASS B
INVESTOR INTEREST will be reduced by the CLASS B INVESTOR CHARGE-OFFS. Any
reduction in the CLASS B INVESTOR INTEREST reduced by:
o CLASS B INVESTOR CHARGE-OFFS; or
o allocations to Class A certificates;
will be reimbursed on any later transfer date by the amount of EXCESS SPREAD
allocated and available for that purpose.
PRINCIPAL FUNDING ACCOUNT
Under the Series 2000-1 supplement, the trustee at the direction of the
servicer will:
o establish and maintain the principal funding account; and
o during the CONTROLLED ACCUMULATION PERIOD and RAPID AMORTIZATION
PERIOD, transfer collections from the principal account to the
principal funding account as described under "--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 2000-1; 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
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o included in collections of finance charge receivables to be applied
to the payment of CLASS A MONTHLY INTEREST.
RESERVE ACCOUNT
On each transfer date, the trustee, acting on the servicer's instructions,
will fund the reserve account
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 Class B certificateholder 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
deposit it in the finance charge account and treat as CLASS A
AVAILABLE FUNDS; and
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 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, 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 Class B certificateholder.
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
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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.
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 June 2004 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 evidencing undivided
interests totaling more than 50% of the Class A 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 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 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 June
2005 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.
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The servicing fee for Class A will be payable to the servicer only as described
above under "--Application of Collections."
The servicer will pay expenses out of the servicing fee it receives,
including fees and expenses of the trustee and independent certified public
accountants and other fees not stated to be paid by the trust. The servicer will
not be responsible for the payment of any federal, state or local taxes 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 has been made to list the certificates on the Luxembourg Stock
Exchange.
The Class A 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 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
refers to distributions, notices, reports and statements to DTC or CEDE, as the
registered holder of the Class A certificates for distribution to certificate
owners in accordance with DTC procedures. Certificateholders may hold their
certificates through DTC in the U.S. or CLEARSTREAM BANKING 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. CLEARSTREAM BANKING and EUROCLEAR will hold
omnibus positions on behalf of the CLEARSTREAM BANKING customers and the
EUROCLEAR Participants, respectively, through customers' securities accounts in
CLEARSTREAM BANKING'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 pooling and servicing agreement 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
transferor, and any certificateholder may then look only to the transferor for
payment. The paying agents for the certificates will be and
the trustee.
EXCHANGES
The transferor certificate is transferable only as provided in the
agreement. The agreement also provides that the holder of the transferor
certificate may tender the transferor certificate to the trustee in exchange for
one or more new series and a reissued transferor certificate as described in the
attached prospectus.
REPORTS TO CERTIFICATEHOLDERS
On each transfer date, the trustee will forward to each certificateholder
of record a statement prepared by the servicer containing the items described in
"Description of the Certificates--Reports to Certificateholders" in the attached
prospectus. In addition, the statement will include the amount, if any,
withdrawn from the principal funding account for the transfer date.
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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LISTING AND GENERAL INFORMATION
Application will be made to list the Class A 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 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 certificates have been accepted for clearance through the
facilities of DTC, CLEARSTREAM BANKING and EUROCLEAR. The CUSIP number for the
Class A certificates is ; the International Securities Identification
Number (ISIN) for the Class A certificates is US ; the Common Code number
for the Class A certificates is .
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 January 29, 2000 and Quarterly Report on Form 10-Q for the quarter
ended April 29, 2000. 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 2000-1
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 certain pension,
profit sharing or other employee benefit plans, individual retirement accounts
or annuities and employee annuity plans and Keogh plans (collectively, "PLANS")
from engaging in certain transactions involving "plan assets" with persons that
are "parties in interest" under ERISA or "disqualified persons" under the CODE
(collectively, "PARTIES IN INTEREST") with respect to the PLAN. A violation of
these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and Section 4975 of the CODE for such persons, unless a
statutory, regulatory or administrative exemption is available. PLANS that are
governmental plans (as defined in section 3(32) of ERISA) and certain church
plans (as defined in section 3(33) of ERISA) are not subject to ERISA
requirements.
CLASS A CERTIFICATES
A violation of the prohibited transaction rules could occur if the Class A
certificates were to be purchased with assets of any PLAN if the transferor, the
trustee, any of the underwriters or any of their affiliates were a PARTY IN
INTEREST with respect to such PLAN, unless a statutory, regulatory or
administrative exemption is available or an exemption applies under a regulation
(the "PLAN ASSET REGULATION") issued by the Department of Labor ("DOL"). The
transferor, the trustee, any of the underwriters 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 of the underwriters or any
of their
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affiliates and consult their counsel regarding the purchase in light of the
considerations described below and in the attached 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 attached
prospectus.
The underwriters currently do not expect that the Class A certificates will
be held by at least 100 independent investors and, therefore, do not expect that
such Class A certificates will qualify as publicly-offered securities under the
regulation referred to in the preceding paragraph. Accordingly, the Class A
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 A certificate, each Class A certificateholder will be
deemed to have represented and warranted that it is not and will not be subject
to the foregoing limitation.
If a purchaser's representations were untrue, transactions involving the
trust and PARTIES IN INTEREST with respect to a PLAN that purchases or holds
Class A certificates might be prohibited under Section 406 of ERISA and/or
Section 4975 of the CODE and result in excise tax and other liabilities under
ERISA and Section 4975 of the CODE unless an exemption were available. The five
DOL class exemptions 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.
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 assets were considered "plan assets," and the applicability
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
the light of the "Risk Factors" and other factors discussed in this prospectus
supplement.
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UNDERWRITING
We have entered into an underwriting agreement dated , 2000 with
the underwriters. The underwriting agreement provides that we will sell to the
underwriters and the underwriters will purchase from us $200,000,000 principal
amount of the Class A certificates in the amounts indicated in the tables below.
The underwriters will purchase all of the certificates if any of the
certificates are purchased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS A
CLASS A UNDERWRITERS CERTIFICATES
------------------------------------------------------------------------------------ -------------------
<S> <C>
Chase Securities Inc................................................................ $ 66,666,668
Banc One Capital Markets, Inc....................................................... $ 66,666,666
Banc of America Securities LLC...................................................... $ 66,666,666
Total............................................................................... $ 200,000,000
</TABLE>
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 underwriters may offer the Class A
certificates to selected dealers at that price less a concession of [ ]%. The
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 has 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;
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.
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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.
We may apply all or any portion of the net proceeds of this offering to
repay the principal of variable funding securities previously issued. One or
more of the underwriters, or their respective affiliates or entities for which
their respective affiliates act as administrator and/or provide liquidity lines,
may have acted as a purchaser of the variable funding securities and may receive
a portion of the proceeds as a principal payment on such security.
LEGAL MATTERS
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 the
underwriters by Cadwalader, Wickersham & Taft.
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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 2000-1.
"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 and the
series servicing fee for such monthly period, and
o the denominator of which is the Class A Investor Interest as of the close
of business on the last day of such monthly period.
"CLASS A 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
2000-1 supplement on that transfer date.
"CLASS A 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 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.
"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.
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"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 , .
"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 date,
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 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 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
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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 Class B Investor 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 PRINCIPAL" means:
o with respect to any transfer date relating to the Revolving Period
following any reduction of the Required Class B Investor Interest, an
amount equal to the lesser of
-- the excess, if any, of the Class B Investor Interest (after giving
effect to reductions for any Class B Investor 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 on that transfer date) over the Required
Class B Investor 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 Class B Investor Interest (after giving
effect to reductions for any Class B Investor 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 on that transfer date) over the Required
Class B Investor Interest on that transfer date, and
-- the excess, if any, of
-- the Available Investor Principal Collections on that transfer
date over
-- the Class A 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
$16.7 million; 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 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 and Class B
Available Funds.
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<PAGE>
"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
-- 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 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 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
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<PAGE>
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 CLASS B INVESTOR INTEREST" means $58,064,516.
"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.
"MINIMUM TRANSFEROR INTEREST" means 10% for February to November and 12%
for December to January.
"PLAN ASSET REGULATION" means 29 CFR ss. 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, 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 exceed
the Class B Investor Interest after giving effect to any Class B Investor
Charge-Offs for that transfer date.
"REALLOCATED PRINCIPAL COLLECTIONS" means, for any monthly period, the
Reallocated Class B Principal Collections for such monthly period, if any.
"RECOVERIES" means recoveries on charged-off accounts in the trust
portfolio.
"REQUIRED CLASS B INVESTOR INTEREST" with respect to any transfer date
means
o the Initial Class B Investor Interest and
o thereafter on each transfer date an amount equal to 22.5% of the sum of
the Class A Adjusted Investor Interest and the Class B Investor 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 Class B Investor 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 Class B Investor Interest are made or
if a Pay Out Event occurs, the Required Class B Investor Interest for
such transfer date will equal the Required Class B Investor Interest for
the transfer date immediately preceding the occurrence of that reduction
or Pay Out Event,
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<PAGE>
o in no event will the Required Class B Investor 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 Class B Investor 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 Class B certificateholder 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 2000-1.
"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 based upon a formula set forth in the Series 2000-1
supplement.
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<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 15, 2000
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.
JUNE 15, 2000
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.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Trust and Related Parties.................. 1
The Trust.................................... 1
Dillard's Inc................................ 1
Mercantile Stores Company, Inc............... 1
Dillard National Bank........................ 1
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................................. 4
Billing and Payments......................... 5
Collection of Delinquent Accounts............ 6
Recoveries................................... 7
The Receivables................................ 8
Maturity Considerations........................ 9
Use of Proceeds................................ 11
Description of the Certificates................ 11
General...................................... 11
Book-Entry Registration...................... 13
Definitive Certificates...................... 16
Interest Payments............................ 16
Principal Payments........................... 17
Revolving Period............................. 18
Controlled Amortization Period............... 18
Principal Amortization Period................ 19
Accumulation Period.......................... 19
Rapid Accumulation Period.................... 20
Rapid Amortization Period.................... 21
Transfer and Assignment of
Receivables............................... 22
Exchanges.................................... 22
Representations and Warranties............... 24
Addition of Trust Assets..................... 27
Removal of Accounts.......................... 29
Collection and Other Servicing
Procedures ................ .............. 30
Discount Option.............................. 30
Trust Accounts............................... 30
Funding Period............................... 31
Companion Series............................. 33
Investor Percentage and Transferor
Percentage................................ 33
Application of Collections................... 34
Shared Excess Finance Charge
Collections............................... 36
Shared Principal Collections................. 36
Defaulted Receivables; Rebates and Fraudulent
Charges; Investor Charge-Offs............. 37
Final Payment of Principal; Termination...... 38
Pay Out Events............................... 39
<CAPTION>
PAGE
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<S> <C>
Servicing Compensation and Payment of
Expenses.................................. 40
Matters Regarding the Transferor and the
Servicer.................................. 40
Servicer Guarantee........................... 42
Servicer Default............................. 42
Reports to Certificateholders................ 43
Evidence as to Compliance.................... 44
Amendments................................... 45
List of Certificateholders................... 46
The Trustee.................................. 46
Description of the Purchase Agreements......... 47
General...................................... 47
Representations and Warranties............... 47
Covenants.................................... 48
Repurchase Events............................ 49
Merger and Consolidation..................... 49
Credit Enhancement............................. 50
General...................................... 50
Subordination................................ 51
Letter of Credit............................. 51
Cash Collateral Guaranty or Account.......... 51
Collateral Interest.......................... 52
Surety Bond or Insurance Policy.............. 52
Spread Account............................... 53
Reserve Account.............................. 53
Certificate Ratings............................ 53
Legal Aspects of the Receivables............... 54
Transfer of Receivables...................... 54
Matters Relating to Bank Receivership........ 55
Matters Relating to Bankruptcy of the
Transferor, DIC and MFI................... 56
Consumer Protection Laws..................... 57
Claims and Defenses of Cardholders Against
the Trust................................. 58
Federal Income Tax Consequences................ 59
General...................................... 59
Treatment of the Certificates as Debt........ 60
Taxation of Interest Income of U.S.
Certificate Owners........................ 61
Sale, Exchange or Retirement of
Certificates.............................. 61
Possible Alternative Characterizations....... 61
Non-U.S. Certificate Owners.................. 62
Information Reporting and Backup
Withholding............................... 64
State and Local Taxation..................... 64
Employee Benefit Plan Considerations........... 64
Plan of Distribution........................... 66
Legal Matters.................................. 66
Reports to Certificateholders.................. 67
Where You Can Find More Information............ 67
Glossary of Terms.............................. 68
</TABLE>
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<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 30 states, mostly in the southwest,
southeast and midwest. 39% of the stores are located in Texas, Florida and Ohio.
The stores feature branded and private label goods in the middle to
upper-middle price ranges and cater to a broad spectrum of the population.
The company is incorporated under the laws of the State of Delaware. The
executive offices of the company are located at 1600 Cantrell Road, Little Rock,
Arkansas 77201, telephone number (501) 376-5200.
The company is currently subject to the periodic reporting and other
financial requirements of the Securities Exchange Act of 1934, as amended, in
accordance with which it files reports and other information with the Securities
Exchange Commission. You may inspect and copy the reports and other information
filed with the Commission at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at
its regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. You may obtain copies of this material from the public reference section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. This material may also be accessed electronically by means of
the Commission's website at http://www.sec.gov.
MERCANTILE STORES COMPANY, INC.
On August 18, 1998 the company acquired the stock of Mercantile Stores
Company, Inc., a Delaware corporation. Mercantile is a conventional department
store retailer engaged in the general merchandising business. The Company has
converted all Mercantile stores into Dillard's stores.
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.
1
<PAGE>
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. When acquired by
Dillard's DNB-LA.'S activities were 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. DNB-LA. no longer originates new accounts.
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 USA, N.A.,
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) 575-5000.
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 conveyed to the trust represent amounts due by holders of
revolving credit card accounts offered by DNB to purchase merchandise and
services sold by retail stores owned and operated by Dillard's and its
subsidiaries. DNB originates or opens the accounts for Dillard's customers. In
this prospectus and in the prospectus supplement DNB and DNB-LA. are referred to
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.
Currently, DNB services the Dillard's accounts at its facilities located in
Gilbert, Arizona and in Baton Rouge, Louisiana. DNB 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 may be originated
under policies and procedures which differ from those of DNB. 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 adversely 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. The payment terms may vary based on the type of
purchase made by the cardholder.
The detailed terms of the Dillard's Card are described in "Billing and
Payments--Customer Terms--Dillard's Credit Cards" section in this prospectus.
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 cardholder is subject to an agreement governing the terms and
conditions of his or her account. Pursuant to that agreement, DNB 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.
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ORIGINATION OF CREDIT CARD ACCOUNTS
Currently, DNB originates all new accounts.
The DILLARD'S CARD can be used to purchase merchandise and services from
any Dillard's department store. Amounts due for the purchases will be included
in the receivables.
The accounts are principally generated through in-store applications made
available to prospective cardholders at department stores. In addition,
Dillard's also generates accounts by telemarketing and direct-mail solicitation
for accounts on a pre-approved credit basis and by applications mailed directly
to prospective cardholders or generated through the internet.
The majority of the accounts in the trust had historically been generated
through pre-approved telemarketing solicitations.
o In-Store Instant Credit Applications
In-store applicants are offered instant credit 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 conduct a
credit evaluation using a proprietary underwriting model and an independent
credit bureau report on the applicant. The decision to either approve or decline
the applicant is determined automatically based on the results of the credit
evaluation and can be made in as few as two to three minutes.
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.
o Mail-in and Internet Applications
In addition to in-store instant credit applications, the originators also
offer a mail-in form which can be obtained at a Dillard's department store or on
the Internet and can be completed at the leisure of the prospective customer. A
credit evaluation is conducted in the same manner as in-store instant credit
applications.
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 relies heavily upon credit scores obtained from independent credit
bureaus and underwriting models developed specifically for DNB. Underwriting
methods differ depending on the type of application submitted by a prospective
customer.
o Instant Credit Model/Neural 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, using 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 the
instant credit model 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
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information is then weighted in accordance with the historical patterns
illustrated by credit customers of Dillard's stores.
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.
BILLING AND PAYMENTS
The accounts have various billing and payment structures, including varying
minimum payment levels and fees. Monthly billing statements are sent by DNB to
cardholders. The following information reflects the current billing and payment
characteristics of the accounts.
DNB uses twenty-eight billing cycles. All cycles have fixed statement
closing dates throughout the month. New accounts are assigned to a billing cycle
randomly.
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. Dillard's is able to provide a variety of customer terms for purchases
under the card.
o Regular Revolving. Regular terms for accounts originated since
October 18, 1999 include minimum monthly payments of $10 or 1/12 of the
outstanding balance and a 21% APR. Older accounts have regular terms of
$20 or 1/10 of the outstanding balance and a 19.8% APR. Dillard's is
considering converting all accounts to the new terms.
Dillard's may offer promotional terms for certain purchases. For example
Dillard's offers interest free options to qualified cardholders who purchase
furs, fine jewelry, crystal, china and silver. Cardholders can choose a 12 month
interest free option or extended 36 month payment terms. In some locations on
purchases in excess of $100, Dillard's is offering interest free terms if the
cardholder pays the entire balance due in three months or 24 month extended
payment terms. Dillard's expects to continue to experiment with varied payment
terms in an effort to increase usage of the Dillard's Card and to increase yield
on the accounts.
Credit Card Finance Charges--DNB
A finance charge is assessed on the daily balance for each account for each
billing cycle. Finance charges for a billing cycle are not assessed on new
purchases made during the billing cycle
o if 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 finance charge assessed for each day on which there is an outstanding
balance is calculated by multiplying
o the balance on such day by
o the applicable finance charge divided by the number of days in the
applicable billing cycle.
The current regular annual percentage rates for the DILLARD'S CARDS range
from 19.8% to 21%. In addition, DNB offers from time to time temporary
promotional rates for specified items purchased that are
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lower than those assessed 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 Dillard's does not currently charge membership fees to cardholders,
it does charge accounts certain other fees including:
o a late fee, currently $20, 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 $20 for each check submitted by a cardholder in payment of an
account which is dishonored.
Payments by a cardholder are processed and applied
o first to any billed fees; and
o then to billed and unpaid balances in the order determined by DNB.
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
current collection procedures.
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.
Collectors utilize an automated dialing system to telephone delinquent
accounts. The system can leave 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.
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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. Ongoing 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. 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.
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.
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THE RECEIVABLES
The assets of the trust will include
o all receivables in Dillard's 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
o transfer to the trust participations in lieu of or in addition to those
receivables.
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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 from those reflected in the related prospectus
supplement 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 CLEARSTREAM BANKING 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.
CLEARSTREAM BANKING and Euroclear will hold omnibus positions on behalf of the
CLEARSTREAM BANKING customers and the Euroclear participants through customers'
securities accounts in CLEARSTREAM BANKING 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 CLEARSTREAM BANKING 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 CLEARSTREAM BANKING 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. CLEARSTREAM BANKING customers and Euroclear participants may not deliver
instructions directly to the depositaries.
Because of time-zone differences, credits of securities in CLEARSTREAM
BANKING 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
CLEARSTREAM BANKING customer or Euroclear participant on such day. Cash received
in CLEARSTREAM BANKING or Euroclear as a result of sales of securities by or
through a CLEARSTREAM BANKING customer or a Euroclear participant will be
received with value on the DTC settlement date but will be available in the
relevant CLEARSTREAM BANKING 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
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receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the DTC participant or Indirect
Participant through which the certificate owner entered into the transaction.
Transfers of ownership interests in the certificates are to be accomplished by
entries made on the books of DTC participants acting on behalf of certificate
owners. Certificate owners will not receive certificates representing their
ownership interest in certificates, except in the event that use of the
book-entry system for the certificates is discontinued.
To facilitate subsequent transfers, all certificates deposited by DTC
participants with DTC are registered in the name of DTC's nominee, CEDE. The
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.
CLEARSTREAM BANKING is incorporated under the laws of Luxembourg as a
professional depository. CLEARSTREAM BANKING holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between CLEARSTREAM BANKING customers through electronic
book-entry changes in accounts of CLEARSTREAM BANKING customers, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CLEARSTREAM BANKING in any of 36 currencies, including United States
dollars. CLEARSTREAM BANKING provides to its CLEARSTREAM BANKING customers,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. CLEARSTREAM BANKING deals with domestic markets in over 30 countries
through established depository and custodial relationships. CLEARSTREAM BANKING
has established an electronic bridge with Morgan Guaranty Trust as the Operator
of the Euroclear System in Brussels to facilitate settlement of trades between
CLEARSTREAM BANKING and Morgan Guaranty Trust. CLEARSTREAM
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BANKING currently accepts over 110,000 securities issues on its books. As a
professional depository, CLEARSTREAM BANKING is subject to regulation by the
Luxembourg Commission for the Supervision of the Financial Sector, which
supervises Luxembourg banks. CLEARSTREAM BANKING 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.
CLEARSTREAM BANKING customers in the United States are limited to securities
brokers and dealers and banks. Currently, CLEARSTREAM BANKING has approximately
2,000 customers located in over 80 countries, including all major European
countries, Canada and the United States. Indirect access to CLEARSTREAM BANKING
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CLEARSTREAM
BANKING 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 CLEARSTREAM BANKING or
Euroclear will be credited to the cash accounts of CLEARSTREAM BANKING 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." CLEARSTREAM BANKING 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 CLEARSTREAM BANKING 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, CLEARSTREAM BANKING and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of certificates among
participants of DTC, CLEARSTREAM BANKING 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
the trustee. 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, semi-annually
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--The Transferor May Not Be Able to Add Accounts to Portfolio"
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; and
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 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, 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 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; or
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.
If a partnership holds certificates, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. A certificate owner that is a partner of a partnership holding such
certificates should consult its own tax advisor.
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, in more limited circumstances, taxpayers, 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. However, since a 1967 case,
courts have substantially limited the circumstances in which a taxpayer for tax
purposes can ignore the form of a transaction. Nevertheless, tax counsel has
advised that in a properly presented case this would not prevent a determination
of the tax characterization of the certificates based on the economic substance
of the transaction.
President Clinton's Fiscal 2001 Budget Proposal includes a legislative
proposal that would codify the 1967 rule if tax indifferent parties are
involved. The proposal would only apply to transactions entered into on or after
the date of first committee action. As currently drafted, it is unclear whether
the proposal would apply to securities such as the certificates. It is
impossible to predict whether the proposed legislation will be enacted and, if
so, in what form. Prospective investors should consult their own tax advisors
regarding the proposed legislation.
The determination of whether the economic substance of a purported sale of
an interest in property is, instead, a loan secured by such transferred property
has been made by the IRS and the courts on the basis of numerous factors
designed to determine whether the seller has relinquished, and the purchaser has
obtained, substantial incidents of ownership in the transferred property. Among
those factors, the primary factors examined are whether the purchaser has the
opportunity to gain if the property increases in value, and has the risk of loss
if the property decreases in value. Tax counsel is of the opinion that, although
no transaction closely comparable to that contemplated herein has been the
subject of any Treasury regulation, revenue ruling or judicial decision, the
certificates will properly be characterized as indebtedness for U.S. federal
income tax purposes. In addition, tax counsel is of the opinion that the trust
will not be classified as an association or publicly traded partnership taxable
as a corporation for such purposes. Except where indicated to the contrary, the
following discussion assumes that the certificates will be considered debt for
U.S. federal income tax purposes.
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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 IRS Form
W-8BEN 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 IRS Form W-8BEN, 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 IRS Form W-8ECI, 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 Ownergenerally 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, or
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.
If the certificates were treated as an equity interest in a partnership,
other than a publicly traded partnership taxable as a corporation, the
recharacterization could cause a non-U.S. Certificate Owner to be treated as
engaged in a trade or business in the United States. In that event, the non-U.S.
Certificate Owner would be required to file a U.S. federal income tax return
and, in general, would be subject to U.S. federal income tax including, in the
case of a non-U.S. Certificate Owner that is a corporation, the branch profits
tax, on its allocable share of the net income from the partnership. Further,
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
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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.
EMPLOYEE BENEFIT PLAN CONSIDERATIONS
ERISA and the CODE impose certain requirements on those employee benefit
plans to which they apply and on those persons who are fiduciaries with respect
to such PLANS. In accordance with ERISA'S general fiduciary standards, before
investing in certificates, a PLAN fiduciary should determine whether such an
investment (i) is permitted under the governing PLAN instruments; (ii) is
appropriate for the PLAN in view of its overall investment policy and the
composition and diversification of its portfolio; and (iii) is prudent
considering the factors discussed in this prospectus and the prospectus
supplement.
Section 406 of ERISA and Section 4975 of the CODE prohibit certain
transactions involving the assets of a PLAN and persons who have certain
specified relationships to the PLAN ("parties in interest" within the meaning of
ERISA or "disqualified persons" within the meaning of the CODE). Prohibited
transactions may generate excise taxes and other liabilities. Thus, a PLAN
fiduciary considering an investment in offered certificates should also consider
whether such an investment might constitute or give rise to a prohibited
transaction under ERISA or the CODE.
For example, regardless of whether the trust was deemed to hold "plan
assets" of PLANS that are certificate owners (as discussed below), the purchase
of certificates by a PLAN with respect to which the transferor, the trustee, or
underwriters or any of their affiliates is a "party in interest" under ERISA or
a
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"disqualified person" under the CODE could constitute a prohibited transaction
under the CODE or ERISA, unless an exemption is applicable. Accordingly,
fiduciaries of a PLAN with respect to which the transferor, the trustee, or
underwriters or any of their affiliates is a "party in interest" or
"disqualified person" should consult their own counsel concerning the propriety
of the investment prior to making the purchase. Certain transactions involved in
the operation of the trust might also be deemed to constitute prohibited
transactions under ERISA and the CODE, if assets of the trust were deemed to be
assets of an investing PLAN. The U.S. Department of Labor (the "DOL") has issued
a regulation (the "REGULATION") concerning whether or not a PLAN'S assets would
be deemed to include an interest in the underlying assets of an entity (such as
the trust) for purposes of the reporting and disclosure and fiduciary
responsibility provisions of ERISA. If assets of the trust were deemed to be
assets of an investing PLAN, any person who is a "fiduciary," as described in
the preceding paragraph, with respect to trust assets will be a fiduciary of the
investing PLAN, thus increasing the scope of activities which could be
considered prohibited transactions under ERISA and the CODE. If investments by
PLANS are made in the trust, the trust could be deemed to hold plan assets
unless one of the exceptions contained in the REGULATION is applicable to the
trust.
The REGULATION contains an exception which provides that if a PLAN acquires
a "publicly-offered security," the issuer of the security is not deemed to hold
plan assets solely by reason of such acquisition. A publicly-offered security is
a security that is (i) freely transferable, (ii) part of a class of securities
that is owned by 100 or more investors independent of the issuer and of one
another and (iii) either (A) part of a class of securities registered under
section 12(b) or 12(g) of the Exchange Act, or (B) sold to the plan as part of
an offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
later time as may be allowed by the SEC) after the end of the fiscal year of the
issuer during which the offering of such securities to the public occurred.
Although it is anticipated that the conditions of this exception may be met with
respect to certain classes of certificates, no assurance can be given, and no
monitoring or other measures will be taken to ensure that the exception will be
met with respect to any such class.
The REGULATION also states that an entity's assets will not be deemed to be
plan assets if equity participation in the entity by "benefit plan investors"
(e.g. employee welfare benefit plans and employee pension benefit plans defined
pursuant to Section 3(3) of ERISA, trusts described in Section 401(a) of the
CODE or a plan described in Section 403(a) of the CODE, which trust or plan is
exempt from tax under Section 501(a) of the CODE, an individual retirement
account or annuity under Section 408 of the CODE and any entity whose underlying
assets include plan assets by reason of a plan's investment in the entity) is
not "significant." Equity participation in an entity by benefit plan investors
is not significant on any date if, immediately after the most recent acquisition
of any equity interests in the entity, less than 25% of the value of each class
of equity interests in the entity (excluding the value of any equity interests
held by the transferor, the trustee or its affiliates) is held by benefit plan
investors. No assurance can be given as to whether the value of any class of
equity interests in the trust held by benefit plan investors will be less than
25% or whether the value will remain below 25%.
If the trust were deemed to hold "plan assets" of PLANS that are
certificate owners, transactions involving the trust and "parties in interest"
or "disqualified persons" with respect to such PLANS might be prohibited under
Section 406 of ERISA and Section 4975 of the CODE, unless an exemption is
applicable.
In light of the foregoing, fiduciaries of a PLAN considering the purchase
of certificates should consult their own counsel regarding whether the assets of
the trust which are represented by the certificates would be considered plan
assets, the consequences that would apply if the trust's assets were considered
plan assets and the applicability of exemptive relief from the prohibited
transaction rules.
In particular, insurance companies considering the purchase of certificates
of any series should consult their own employee benefits counsel or other
appropriate counsel with respect to the United States Supreme Court's decision
in John Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 114 S.
Ct. 517 (1993) ("JOHN HANCOCK"). Accordingly, investors should analyze whether
John Hancock, Section 401(c) and the regulations thereunder may have an impact
with respect to their purchase of the certificates of any series.
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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
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.
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REPORTS TO CERTIFICATEHOLDERS
Unless and until definitive certificates are issued, monthly and annual
reports, containing information concerning the trust and prepared by the
servicer, will be sent on behalf of the trust to Cede as nominee of DTC and
registered holder of the related certificates, pursuant to the pooling and
servicing agreement. See "Description of the Certificates--Book-Entry
Registration," "--Reports to Certificateholders" and "--Evidence as to
Compliance." The reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The servicer does not
intend to send any financial reports of Dillard's or any of its affiliates to
certificateholders or to the certificate owners. The servicer will file or will
cause to be filed with the SEC the periodic reports of the trust required under
the Exchange Act and the rules and regulations of the SEC.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement relating to the certificates with the
SEC. This prospectus is part of the registration statement, but the registration
statement includes additional information.
The servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about the trust.
You may read and copy any reports, statements or other information we file
at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at (800) SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings are
also available to the public on the SEC Internet site http://www.sec.gov.
The SEC allows us to incorporate by reference information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus. Information that we file later 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.
"CLEARSTREAM BANKING" means Clearstream Banking, societe anonyme, an
institution administering a book-entry settlement system for trading of
securities in Europe (formerly known as Cedelbank).
"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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"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.
"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
(a) 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*,
(b) material breaches of representations, warranties or covenants of
the transferor*,
(c) bankruptcy or insolvency events involving the transferor,
Dillard's or an originator,
(d) a reduction of the average of the Portfolio Yields for any three
consecutive monthly periods to a rate that is less than the
average of the Base Rates for such period,
(e) the trust becoming subject to regulation as an investment company
within the meaning of the Investment Company Act of 1940, as
amended*,
(f) the failure of the transferor to convey receivables arising under
additional accounts when required by the pooling and servicing
agreement,
(g) the occurrence of a servicer default which would have a material
adverse effect on the certificateholders,
(h) insufficient funds in the distribution account to pay the Class A
Investor Interest or the Class B Investor Interest in full on the
Class A Scheduled Payment Date or the Class B Scheduled Payment
Date, respectively,
(i) the transferor's interest in the trust becoming less than the
Minimum Transferor Interest, or
(j) the transferor becomes unable for any reason to transfer
receivables to the trust in accordance with the provisions of the
pooling and servicing agreement.
"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.
"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
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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.
"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
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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.
"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.
"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.
"UNIFORM COMMERCIAL CODE" OR "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, Clearstream Banking 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 Clearstream Banking 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 Clearstream Banking or Euroclear and
DTC Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream Banking 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, Clearstream Banking 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 Clearstream
Banking 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 Clearstream Banking and/or Euroclear
Participants. Secondary market trading between Clearstream Banking Customers or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC seller and Clearstream Banking or Euroclear
purchaser. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream Banking Customer or a Euroclear
Participant, the purchaser will send instructions to Clearstream Banking or
Euroclear through a Clearstream Banking Customer or Euroclear Participant at
least one business day prior to
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settlement. Clearstream Banking or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date.
Payment will then be made by the respective depositary to the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Clearstream Banking 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
Clearstream Banking or Euroclear cash debit will be valued instead as of the
actual settlement date.
Clearstream Banking 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 Clearstream Banking or Euroclear.
Under this approach, they may take on credit exposure to Clearstream Banking or
Euroclear until the Global Securities are credited to their accounts one day
later.
As an alternative, if Clearstream Banking or Euroclear has extended a line
of credit to them, Clearstream Banking 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, Clearstream Banking 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 Clearstream Banking 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 Clearstream Banking 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 Clearstream Banking or Euroclear seller and DTC
purchaser. Due to time zone differences in their favor, Clearstream Banking
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 Clearstream Banking or Euroclear through a
Clearstream Banking Customer or Euroclear Participant at least one business day
prior to settlement. In these cases, Clearstream Banking 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 Clearstream Banking Customer or Euroclear Participant the following day,
and receipt of the cash proceeds in the Clearstream Banking 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
Clearstream Banking 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 Clearstream Banking Customer's or Euroclear Participant's
account would instead be valued as of the actual settlement date. Finally, day
traders that use Clearstream Banking or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Clearstream Banking Customers
or Euroclear Participants should note that these trades would automatically
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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 Clearstream Banking or Euroclear for one day
until the purchase side of the day trade is reflected in their
Clearstream Banking or Euroclear accounts in accordance with the
clearing system's customary procedure.
(2) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement which would give the
Global Securities sufficient time to be reflected in their
Clearstream Banking 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
Clearstream Banking Customer or Euroclear Participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream Banking 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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