<PAGE>
DRAFT 11/26/96
--------------
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1996
REGISTRATION NO. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------
DEUTSCHE FLOORPLAN RECEIVABLES MASTER TRUST
(ISSUER WITH RESPECT TO CERTIFICATES)
--------------------------
DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 655 Maryville Centre Drive 88-0355652
(State or other Jurisdiction of St. Louis, Missouri 63141-5832 (I.R.S. Employer
Incorporation or Organization) (314) 523-3000 Identification Number)
</TABLE>
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
--------------------------
Naran Burchinow
Senior Vice President, General Counsel and Secretary
Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, Missouri 63141-5832
(314) 523-3030
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
--------------------------
With copies to:
Jason H. P. Kravitt, Esq. Stuart M. Litwin, Esq.
Mayer, Brown & Platt Mayer, Brown & Platt
190 S. LaSalle Street 190 S. LaSalle Street
Chicago, IL 60603-3441 Chicago, IL 60603-3441
Approximate date of commencement of proposed sale to the public: As soon as
practicable after Registration Statement becomes effective.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
Proposed Proposed Maximum Amount of
Title of Each Class of Amount to Maximum Offering Aggregate Offering Registration
Securities to Be Registered Be Registered/(2)/ Price Per Unit/(1) (2)/ Price/(1) (2)/ Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Floating Rate Asset Backed
Certificates, Series 1996-2, Class A..... $ 500,000 100% $ 500,000 $151.51
- ---------------------------------------------------------------------------------------------------------------------------
Floating Rate Asset Backed
Certificates, Series 1996-2, Class B..... $ 500,000 100% $ 500,000 $151.52
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................... $1,000,000 100% $1,000,000 $303.03
===========================================================================================================================
</TABLE>
/(1)/ Estimated solely for purposes of calculating the registration fee.
/(2)/ An indeterminate amount of Floating Rate Asset Backed Certificates,
Series 1996-2, Class A and Floating Rate Asset Backed Certificates, Series
1996-2, Class B are also being registered for the purpose of market making
transactions by Deutsche Morgan Grenfell, an affiliate of the Registrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
================================================================================
INTRODUCTORY NOTE
This Registration Statement contains the Prospectus relating to the offering
of Floating Rate Asset Backed Certificates, Series 1996-2, Class A and Floating
Rate Asset Backed Certificates Series 1996-2, Class B (collectively, the
"Certificates") to be created pursuant to a Pooling and Servicing Agreement,
among Deutsche Floorplan Receivables, L.P., as the seller (the "Seller"),
Deutsche Financial Services Corporation, as servicer, and The Chase Manhattan
Bank, as trustee, and the related Series 1996-2 Supplement. Because an affiliate
of the Seller intends to make a market in the Certificates for which it acts as
an underwriter, immediately following the form of the Prospectus relating to the
offering of the Certificates there follow alternate pages of the Prospectus,
which will be used by such affiliate in connection with any offers and sales
relating to market-making transactions in the Certificates. All other pages of
the form of the Prospectus are also to be used for the market-making Prospectus.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1996
PROSPECTUS
$_____________
DEUTSCHE FLOORPLAN RECEIVABLES MASTER TRUST
$_____________ FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-2, CLASS A
$_____________ FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-2, CLASS B
DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
SELLER
DEUTSCHE FINANCIAL SERVICES CORPORATION
SERVICER
The $________________ Floating Rate Asset Backed Certificates, Series 1996-2,
Class A (the "Class A Certificates") and the $______________ Floating Rate Asset
Backed Certificates, Series 1996-2, Class B (the "Class B Certificates" and
together with the Class A Certificates, the "Offered Certificates") offered
hereby evidence undivided interests in certain assets of the Deutsche Floorplan
Receivables Master Trust (the "Trust") created pursuant to a Pooling and
Servicing Agreement among Deutsche Floorplan Receivables, L.P., as the seller
(the "Seller"), Deutsche Financial Services Corporation, as servicer ("DFS" or
the "Servicer"), and The Chase Manhattan Bank, as trustee. The Trust will also
issue $____________ Floating Rate Asset Backed Certificates, Series 1996-2,
Class C (the "Class C Certificates" and, together with the Offered Certificates,
the "Certificates" or "Series 1996-2"), which are not being offered hereby. The
Trust assets include receivables (the "Receivables") generated from time to time
in a portfolio of revolving financing arrangements (the "Accounts") with dealers
and manufacturers to finance their inventory and their accounts receivable and
the collections on the Receivables, as more fully described herein. See "The
Trust." Certain assets of the Trust will be allocated to Certificateholders,
including the right to receive a varying percentage of each month's collections
with respect to the Receivables at the times and in the manner described herein.
See "Description of the Certificates--Allocation Percentages." The Seller will
own the remaining interest in the Trust not represented by the Certificates or
the certificates of any other Series issued by the Trust (the "Seller's
Interest"). From time to time, subject to certain conditions, the Seller may
offer other series of certificates (each, a "Series"), which may have terms
significantly different from the terms of the Certificates. (Continued on next
page).
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH ON PAGES __ TO __
UNDER "RISK FACTORS."
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER, DEUTSCHE
BANK AG OR ANY AFFILIATE THEREOF. NONE OF THE CERTIFICATES, THE RECEIVABLES OR
THE OTHER ASSETS OF THE TRUST ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) THE SELLER(2)
<S> <C> <C> <C>
Per Class A Certificate % % %
Per Class B Certificate % % %
Total $ $ $
</TABLE>
(1) The Seller has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses, estimated to be $ .
The Offered Certificates are offered subject to prior sale, when, as and if
issued to and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Offered
Certificates will be made in book-entry form only through the facilities of The
Depository Trust Company, Cedel Bank, societe anonyme ("Cedel Bank") and
Morgan Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear system, on or about ____________ 1996.
DEUTSCHE MORGAN GRENFELL
The date of this Prospectus is December __, 1996.
<PAGE>
(Continued from previous page).
Interest with respect to the Certificates will accrue from ____________, 1996,
and is payable on or about the fifteenth day of each January, April, July and
October (each an "Interest Payment Date"); provided that interest will be
payable monthly on or about the fifteenth of each month (each a "Distribution
Date") upon the occurrence of certain events as described herein[; provided
further, however, that unless such an event occurs prior to the Distribution
Date in ___________, 1997, the first Interest Payment Date will be __________,
1997]. The per annum rate of interest with respect to each class of Certificates
will be determined as described herein. See "Description of the Certificates--
Interest." The principal of the Certificates is scheduled to be paid on the
___________ Distribution Date.
Application is being made to list the Offered Certificates on the Luxembourg
Stock Exchange.
The Class B Certificates will be subordinated to the Class A Certificates as
described herein and the Class C Certificates will be subordinated to the Class
A Certificates and the Class B Certificates to the extent described herein. See
"Description of the Certificates--Distributions" and "--Investor Charge-
Offs."
Reference is made to the Index of Principal Terms on page __ for the location
herein of definitions of certain capitalized terms used herein.
NO ACTION HAS BEEN TAKEN OR WILL BE TAKEN BY THE SELLER OR THE UNDERWRITERS
THAT WOULD PERMIT A PUBLIC OFFERING OF THE OFFERED CERTIFICATES IN ANY COUNTRY
OR JURISDICTION OTHER THAN IN THE UNITED STATES WHERE ACTION FOR THAT PURPOSE IS
REQUIRED. ACCORDINGLY, THE OFFERED CERTIFICATES MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, AND NEITHER THIS PROSPECTUS NOR ANY CIRCULAR,
PROSPECTUS, FORM OF APPLICATION, ADVERTISEMENT OR OTHER MATERIAL MAY BE
DISTRIBUTED IN OR FROM OR PUBLISHED IN ANY COUNTRY OR JURISDICTION EXCEPT UNDER
CIRCUMSTANCES THAT WILL RESULT IN COMPLIANCE WITH ANY APPLICABLE LAWS AND
REGULATIONS. PERSONS INTO WHOSE HANDS THIS PROSPECTUS COMES ARE REQUIRED BY THE
SELLER AND THE UNDERWRITERS TO COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS
IN EACH COUNTRY OR JURISDICTION IN WHICH THEY PURCHASE, SELL OR DELIVER OFFERED
CERTIFICATES OR HAVE IN THEIR POSSESSION OR DISTRIBUTE THIS PROSPECTUS, IN ALL
CASES AT THEIR OWN EXPENSE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Seller has filed a Registration Statement (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the "Commission") with respect to the
Certificates offered pursuant to this Prospectus. This Prospectus, which forms
part of the Registration Statement, does not contain all of the information
contained in the Registration Statement and the exhibits thereto. For further
information, reference is made to the Registration Statement and amendments
thereof and exhibits thereto, which are available for inspection without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Commission maintains a public
access site on the Internet through the World Wide Web at which site reports,
information statements and other information, including all electronic filings,
may be viewed. The Internet address of such World Wide Web site is
http://www.sec.gov.
2
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports, containing information concerning the Trust and prepared by
the Servicer, will be sent on behalf of the Trust to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Certificates, pursuant to the Pooling and Servicing Agreement. The
availability of copies of such reports to DTC participants and ultimately to the
beneficial owners of the Offered Certificates ("Certificate Owners") will be
governed by arrangements among DTC and such parties, subject to any statutory or
regulatory requirements from time to time. See "Description of the Certificates
- --Reports" and "--Evidence as to Compliance." The Seller, on behalf of the
Trust, will file with the Commission such periodic reports with respect to the
Trust as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder. The
Seller intends to continue to file with respect to the Trust such periodic
reports pursuant to the requirements of the Exchange Act for the period after
such filings could be discontinued in reliance on Section 15(d) thereof until
the Certificates are no longer outstanding. For so long as the Offered
Certificates are outstanding, each such report shall be delivered to the
Luxembourg Stock Exchange on the date for delivery of such report. Copies of
such reports may be obtained at no charge at the offices of Banque Generale du
Luxembourg S.A., 50 Avenue J.F. Kennedy, L-2951, Luxembourg.
OTHER INFORMATION
Upon receipt of a request by an investor who has received an electronic
Prospectus from an Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
the Seller or such Underwriter will promptly deliver, or cause to be delivered,
without charge, a paper copy of the Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Trust pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of the offering of the Certificates,
shall be deemed to be incorporated by reference in this Prospectus. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
DFS will provide without charge to each person, including any beneficial owner
of Certificates, to whom a copy of this Prospectus is delivered, on the written
or oral request of any such person, a copy of any or all of the documents
incorporated herein by reference, except the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Deutsche Financial Services
Corporation, 655 Maryville Centre Drive, St. Louis, Missouri 63141-5832;
Telephone (314) 523-3000, Attention: General Counsel. In addition, for so long
as the Offered Certificates are listed on the Luxembourg Stock Exchange, copies
of the Registration Statement and all of the documents incorporated by reference
herein may be obtained at no charge at the offices of Banque Generale du
Luxembourg S.A., 50 Avenue J.F. Kennedy, L-2951, Luxembourg.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Reference is made
to the Index of Principal Terms on page __ for the location herein of the
definitions of certain capitalized terms used herein.
Offered Securities $________________ Floating Rate Asset Backed
Certificates, Series 1996-2, Class A (the
"Class A Certificates") and $______________
Floating Rate Asset Backed Certificates,
Series 1996-2, Class B (the "Class B
Certificates" and, together with the Class A
Certificates, the "Offered Certificates").
The Offered Certificates will represent
beneficial interests in the Trust only and
will not represent interests in or obligations
of Deutsche Financial Services Corporation,
Deutsche Floorplan Receivables, L.P.,
Deutsche Bank AG or any of their affiliates.
None of the Offered Certificates, the
Receivables or the
3
<PAGE>
other assets of the Trust are insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency
or instrumentality or by Deutsche Financial
Services Corporation, Deutsche Floorplan
Receivables, L.P., Deutsche Bank AG or any of
their affiliates.
Securities Not Offered The $____________ Floating Rate Asset Backed
Certificates, Series 1996-2, Class C (the
"Class C Certificates") initially will be
issued to the Seller although the Seller has
the right to sell the Class C Certificates, in
whole or part. Only the Offered Certificates
are being offered to the investors. The
Offered Certificates and the Class C
Certificates are referred to collectively
herein as the "Certificates" or "Series
1996-2." The holders of the Certificates are
referred to collectively herein as the
"Certificateholders" and individually as the
"Class A Certificateholders," "Class B
Certificateholders" and "Class C
Certificateholders."
The certificate evidencing the Seller's Interest
(the "Seller's Certificate") is not being
offered hereby.
Issuer Deutsche Floorplan Receivables Master Trust
(the "Trust"). The Trust was formerly known as
the ITT Floorplan Receivables Master Trust.
Seller Deutsche Floorplan Receivables, L.P. (the
"Seller"), a Delaware limited partnership, the
general partner of which is Deutsche Floorplan
Receivables, Inc., a wholly-owned subsidiary
of Deutsche Financial Services Corporation,
and the limited partner of which is Deutsche
Financial Services Corporation. The Seller was
formerly known as ITT Floorplan Receivables,
L.P.; its general partner was formerly known
as ITT Floorplan Receivables, Inc.; and its
limited partner was formerly known as ITT
Commercial Finance Corp.
Servicer Deutsche Financial Services Corporation ("DFS"
or, in its capacity as servicer, the
"Servicer"), a wholly-owned indirect
subsidiary of Deutsche Bank AG. The Servicer
was formerly known as ITT Commercial Finance
Corp.
Trustee The Chase Manhattan Bank (the "Trustee").
The Trust The Trust was formed pursuant to a Pooling and
Servicing Agreement, dated as of December 1,
1993, as amended and restated as of March 1,
1994, as further amended as of January 24,
1996, and as amended and restated as of
October 1, 1996 among the Seller, as seller,
DFS, as Servicer, and The Chase Manhattan
Bank, as Trustee (as supplemented and amended
from time to time thereafter (including as
supplemented by the Supplement relating to the
Certificates), the "Pooling and Servicing
Agreement"). The assets of the Trust currently
include and will include (a) certain
Receivables generated from time to time during
the term of the Trust under Accounts that
existed at the close of business on October
31, 1993 (the "Initial Cut-Off Date"), as well
as certain Receivables generated under any
Accounts added to the Trust from time to time
thereafter (less Receivables paid or charged
off and excluding (i) Receivables generated in
any Accounts removed from the Trust from time
to time after the Initial Cut-Off Date and
(ii) any undivided interest in the Receivables
in certain Accounts that has been transferred
to a third party), (b) all funds collected or
to be collected in respect of such
Receivables, (c) all funds on deposit in
certain accounts of the Trust, including funds
on deposit in the Excess Funding Account, the
Principal Funding Account, the Interest
Funding Account and the Reserve Fund, (d) any
other Enhancement issued with respect to any
other Series (the drawing on or payment of
such Enhancement not being available to
Certificateholders), (e) an assignment of a
security interest in certain consumer and
commercial products, accounts receivable or
other assets (collectively, the "Collateral
Security") securing the Receivables (exclusive
4
<PAGE>
of the Unsecured Receivables), and (f) the
Seller's rights, remedies, powers and
privileges under certain Floorplan Agreements
but only to the extent of the inventory
underlying the Receivables. See "The Trust."
The term "Enhancement" means, with respect to
any Series, any letter of credit, surety bond,
cash collateral account, guaranteed rate
agreement, maturity liquidity facility, tax
protection agreement, interest rate swap
agreement or other similar arrangement for the
benefit of certificateholders of such Series.
The Offered Certificates will not have the
benefit of any credit enhancement other than
(i) the subordination of the Class B
Certificates and Class C Certificates for the
benefit of each class of Certificates with an
earlier alphabetical designation, (ii) partial
subordination of the Seller's Interest as
described herein and (iii) the Reserve Fund.
See "Description of the Certificates--
Allocation of Collections; Deposits in
Collection Account; Limited Subordination of
Seller's Interest," "--Distributions from the
Collection Account; Reserve Fund" and
"--Distributions."
The Accounts The Accounts pursuant to which the Receivables
have been or will be generated are revolving
credit agreements entered into with DFS by
dealers to purchase or finance the consumer
and commercial product inventory or the
accounts receivable of dealers in such
products. The Accounts may also include
revolving credit facilities secured by
inventory, accounts receivable and other
assets of certain dealers, manufacturers or
distributors or unsecured revolving credit
facilities. The Accounts are selected from all
such credit agreements of DFS or its
affiliate, Deutsche Business Services
Corporation ("Deutsche BSC"), which meet the
criteria provided in the Pooling and Servicing
Agreement (the "Eligible Accounts"). Under
certain circumstances Accounts may be added
to, or removed from, the Trust. In the future
the Trust may include Receivables from
Accounts originated by other affiliates of
DFS, subject to satisfaction of the Rating
Agency Condition. (Unless otherwise specified,
references in this Prospectus to Receivables
originated or conveyed by DFS include those
originated or conveyed by Deutsche BSC or any
such other affiliate.) See "The Accounts,"
"Description of the Certificates--Addition of
Accounts" and "--Removal of Accounts."
The Receivables The Receivables have arisen or will arise in
the Accounts. The Receivables consist of
advances made or to be made by DFS to dealers
located in the United States to finance their
consumer and commercial product inventory or
to manufacturers or distributors located in
the United States to finance their inventory,
finished parts or other assets (such dealers,
manufacturers and distributors being referred
to as "Dealers"). Such products may include,
among others: computers and computer products,
manufactured housing, recreation vehicles,
boats and motors, consumer electronics and
appliances, keyboard and other musical
instruments, industrial and agricultural
equipment, office automation products,
snowmobiles and motorcycles. The types of
products may change over time. Certain
advances to Dealers are used by Dealers to
finance the accounts receivable that arise
from sales of their products. Generally, the
principal amount of an advance in respect of a
product is equal to the wholesale purchase
price of the product (in certain cases, at a
discount therefrom) and, subject to certain
exceptions, is due upon the retail sale of the
product or, in certain cases, in accordance
with a payment schedule. Advances in respect
of accounts receivable are generally limited
to 80%-85% of the aggregate amount of the
eligible accounts receivable. See "The Dealer
Floorplan Financing Business of DFS--Creation
of Receivables" and "--Payment Terms." The
Receivables bear interest at an adjustable
rate described herein. See "Description of the
Certificates--Interest." Certain Receivables
do not bear interest for a specified period
following their origination. A limited amount
of the Receivables are not secured by
collateral (the "Unsecured Receivables"). See
"The Dealer Floorplan Financing Business of
DFS--Creation of Receivables."
5
<PAGE>
DFS has entered into a Receivables Contribution
and Sale Agreement, dated as of December 1,
1993, as amended and restated as of March 1,
1994, as further amended as of January 24,
1996, and as amended and restated as of
October 1, 1996, among the Seller, as
purchaser, and DFS and Deutsche BSC, as
sellers (as amended from time to time, the
"Receivables Contribution and Sale
Agreement"). Pursuant to the Receivables
Contribution and Sale Agreement, DFS and
Deutsche BSC (a) contributed and sold,
respectively, as of the Initial Cut-off Date
and thereafter have sold and will sell to the
Seller all of their respective right, title
and interest in and to all Receivables meeting
certain eligibility criteria contained in the
Receivables Contribution and Sale Agreement
and the Pooling and Servicing Agreement
("Eligible Receivables") and (b) have assigned
and will assign their respective security
interests in the Collateral Security to the
Seller. At its option, DFS may contribute (or
cause to be contributed) Receivables and
security interests in Collateral Security to
the Seller. The Seller in turn has transferred
and will transfer such Receivables and
security interest in the Collateral Security
to the Trust pursuant to the Pooling and
Servicing Agreement. The Seller has assigned
to the Trust its rights with respect to the
Receivables under the Receivables Contribution
and Sale Agreement. See "Description of the
Receivables Contribution and Sale Agreement."
All new Receivables arising under the Accounts
during the term of the Trust will be sold by
Deutsche BSC and sold or contributed by DFS to
the Seller and transferred by the Seller to
the Trust. Accordingly, the aggregate amount
of Receivables in the Trust will fluctuate
from day to day as new Receivables are
generated and as existing Receivables are
collected, charged off as uncollectible or
otherwise adjusted.
Discount Factor; Collections While finance charges are payable on the
Receivables generally, finance charges will
not begin to accrue on a portion of the
Receivables until a certain period of time has
elapsed after their origination. Therefore, in
order to create imputed interest in respect of
such Receivables for their non-interest
bearing period and for administrative
uniformity in accounting for Collections, a
portion of the Collections on each Receivable
that are not part of the finance charges, if
any, paid on that Receivable will be treated
as finance charges or non-principal
Collections (such non-principal Collections,
together with collections of finance charges,
being referred to as "Non-Principal
Collections"). The remainder of the
Collections on the Receivables will be treated
as principal collections ("Principal
Collections"). The portion of the balance of a
Receivable that will be treated as a finance
charge when such Receivable is collected will
be equal to the product of the balance of such
Receivable times the discount factor (the
"Discount Factor") in effect at the time of
the collection of such Receivable. As of
____________, 1996 (the "Series 1996-2 Cut-off
Date") the Discount Factor was 0.40%. The
Discount Factor may be adjusted as described
under "Description of the Certificates--
Discount Factor," but will in no event exceed
1%.
The Certificates The Offered Certificates will be issued in the
aggregate initial principal amount of
$_________________ in minimum denominations of
$1,000 and in integral multiples of $1,000 in
excess thereof. Except in certain limited
circumstances as described herein under
"Description of the Certificates--Definitive
Certificates," the Offered Certificates will
only be available in book-entry form.
The Trust's assets will be allocated in part
to the Certificateholders (the
"Certificateholders' Interest") and to the
certificateholders of any other outstanding
Series (such other certificateholders,
together with the Certificateholders, are
referred to as "certificateholders"), with the
remainder allocated to the Seller (the
"Seller's Interest"). A portion of the
Seller's Interest will be subordinated to the
Certificateholders' Interest, as described
6
<PAGE>
herein. See "Description of the Certificates--
Allocation of Collections; Deposits in
Collection Account; Limited Subordination of
Seller's Interest."
The Class B Certificates will be subordinated
to fund payments of principal and interest on
the Class A Certificates. The Class C
Certificates will be subordinated to fund
payments of principal and interest on the
Class A Certificates and the Class B
Certificates. See "Description of the
Certificates--Distributions."
The Class A Certificates will evidence
undivided interests in the assets of the Trust
and will represent the right to receive from
such assets funds up to (but not in excess of)
the amounts required to make payments of
interest on each Interest Payment Date on the
Class A Certificates at the Class A
Certificate Rate and the payment of principal
on the Expected Final Payment Date (or earlier
or later under certain circumstances) to the
extent of the Class A Invested Amount (which
may be less than the aggregate unpaid
principal amount of the Class A Certificates,
in certain circumstances, if the Investor
Default Amount exceeds funds allocable thereto
and the Class B Invested Amount and the Class
C Invested Amount have been reduced to zero).
The Class B Certificates will evidence
undivided interests in the assets of the Trust
and will represent the right to receive from
such assets funds up to (but not in excess of)
the amounts required to make payments of
interest on each Interest Payment Date on the
Class B Certificates at the Class B
Certificate Rate and the payment of principal
on the Expected Final Payment Date (or earlier
or later under certain circumstances) to the
extent of the Class B Invested Amount (which
may be less than the aggregate unpaid
principal amount of the Class B Certificates,
in certain circumstances, if the Investor
Default Amount exceeds funds allocable thereto
and the Class C Invested Amount has been
reduced to zero).
The Class C Certificates will evidence
undivided interests in the assets of the Trust
and will represent the right to receive from
such assets funds up to (but not in excess of)
the amounts required to make payments of
interest on each Interest Payment Date on the
Class C Certificates at the Class C
Certificate Rate and the payment of principal
on the Expected Final Payment Date (or earlier
or later under certain circumstances) to the
extent of the Class C Invested Amount (which
may be less than the aggregate unpaid
principal amount of the Class C Certificates,
in certain circumstances, if the Investor
Default Amount exceeds funds allocable
thereto).
Registration of Offered
Certificates The Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an
interest in the Offered Certificates will be
entitled to receive a definitive certificate
representing such person's interest except in
the event that Definitive Certificates are
issued under the limited circumstances
described herein. See "Description of the
Certificates--Definitive Certificates." Class
A and Class B Certificateholders may elect to
hold their interests through DTC, in the
United States, or Cedel Bank, societe anonyme
("Cedel Bank") or the Euroclear system
("Euroclear"), in Europe. Transfers within
DTC, Cedel Bank or Euroclear, as the case may
be, will be in accordance with the usual rules
and operating procedures of the relevant
system. Cross-market transfers between persons
holding directly or indirectly through DTC, on
the one hand, and counterparties holding
directly or indirectly through Cedel Bank or
Euroclear, on the other, will be effected in
DTC through Citibank, N.A. ("Citibank") or
Morgan Guaranty Trust Company of New York
("Morgan"), the relevant depositories
(collectively, the "Depositaries") of Cedel
Bank or Euroclear, respectively, and each a
participating member of DTC. See "Description
of the Certificates--Book-Entry Registration"
and "--Definitive Certificates."
7
<PAGE>
Issuance of New Series The Pooling and Servicing Agreement provides
that, pursuant to any one or more supplements
thereto (each, a "Supplement"), the Seller may
cause the Trustee to issue one or more new
Series of certificates (a "New Issuance"). The
issuance of the Certificates pursuant to the
Supplement related thereto will constitute a
New Issuance. The Pooling and Servicing
Agreement also provides that the Seller may
specify, with respect to any Series, the
Principal Terms of the Series. The Seller may
offer any Series to the public or other
investors under a prospectus or other
disclosure document in transactions either
registered under the Securities Act or exempt
from registration thereunder, directly or
through one or more underwriters or placement
agents.
Under the Pooling and Servicing Agreement and
pursuant to a Supplement, a New Issuance may
only occur upon delivery to the Trustee of the
following: (a) a Supplement specifying the
Principal Terms of such Series, (b) an opinion
of counsel to the effect that, for federal
income and Missouri income tax purposes, (x)
such issuance will not adversely affect the
characterization of the certificates of any
outstanding Series or class as debt or as
partnership interests, (y) such issuance will
not cause a taxable event to any
certificateholders and (z) such new Series
will be characterized as debt or as
partnership interests and (c) evidence that
the Rating Agency Condition has been
satisfied. "Rating Agency Condition" means,
with respect to any action, that each Rating
Agency will have notified the Seller, the
Servicer and the Trustee in writing that such
action will not result in a reduction or
withdrawal of the rating of any outstanding
Series or class of certificates with respect
to which it is a Rating Agency. See
"Description of the Certificates--New
Issuances."
Other Series Issuances The Trust has issued three Series prior to the
date hereof, two of which are still
outstanding. The outstanding Series are
referred to as the Floating Rate Asset Backed
Certificates, Series 1994-1 ("Series 1994-1"
and with respect to the certificates of such
Series, the "Series 1994-1 Certificates") and
the Floating Rate Asset Backed Certificates,
Series 1996-1 ("Series 1996-1" and with
respect to the certificates of such Series,
the "Series 1996-1 Certificates"). See "Annex
1: Other Issuances of Investor Certificates"
for a summary of the Series 1994-1
Certificates and the Series 1996-1
Certificates.
Allocations The Certificateholders' Interest will include
the right to receive (but only to the extent
needed to make required payments under the
Pooling and Servicing Agreement) varying
percentages of Collections collected during
each calendar month (a "Collection Period").
Collections and Defaulted Receivables for any
Collection Period will be allocated to the
Certificateholders' Interest as described
below and as more fully described under
"Description of the Certificates--Allocation
Percentages." Collections and Defaulted
Receivables not allocated to Series 1996-2
will be allocated to the Seller's Interest and
the certificateholders' interests in other
Series.
Non-Principal Collections and Defaulted
Receivables will be allocated at all times to
the Certificateholders' Interest based on the
Floating Allocation Percentage applicable
during the related Collection Period. The
Floating Allocation Percentage for any
Collection Period is the percentage obtained
by dividing (a) the Invested Amount on the
last day of the immediately preceding
Collection Period by (b) the product of (i)
the aggregate amount of the principal balances
of the Receivables (exclusive of all
Ineligible Receivables) on the last day of the
immediately preceding Collection Period and
(ii) 1 minus the Discount Factor (such
product, the "Pool Balance").
During the Revolving Period, subject to certain
limitations, Principal Collections allocable
to the Certificateholders' Interest will be
allocated and paid to the Seller or allocated
to any other Series in exchange for the
allocation to the Certificateholders' Interest
of an equal interest in the Receivables
balances
8
<PAGE>
that are new or that would otherwise be part
of the Seller's Interest or the interest of
the certificateholders of such other Series
or, in certain circumstances, will be
deposited into the Excess Funding Account.
During the Accumulation Period and any Early
Amortization Period, Principal Collections
will be allocated to the Certificateholders'
Interest based on the Principal Allocation
Percentage. The Principal Allocation
Percentage for a Collection Period during the
Accumulation Period and any Early Amortization
Period is the percentage equivalent of a
fraction, the numerator of which is the
Invested Amount on the last day of the
Revolving Period and the denominator of which
is the Pool Balance on the last day of the
immediately preceding Collection Period.
Unless an Early Amortization Event shall have
occurred, monthly deposits of principal with
respect to the Certificates to the Principal
Funding Account will not exceed the Controlled
Distribution Amount and, subject to certain
limitations, any Principal Collections not
required to be deposited in the Principal
Funding Account will be paid to the Seller or
allocated to any other Series as described
herein. See "Description of the Certificates--
Allocation Percentages--Principal Collections
for all Series."
Interest Interest on the respective outstanding principal
balance of each class of Offered Certificates
will accrue at the applicable Certificate Rate
and will be payable quarterly to
Certificateholders on the fifteenth day of
each January, April, July and October (or, if
such day is not a business day, on the next
succeeding business day) (each, an "Interest
Payment Date"); provided that following the
occurrence of an Early Amortization Event
(unless, in limited circumstances with respect
to the addition of Accounts, such Early
Amortization Event shall have been cured), the
interest shall be paid monthly on the
fifteenth of each month (or, if such day is
not a business day, on the next succeeding
business day) (each, a "Distribution Date")[;
provided further, however, that unless such an
Early Amortization Event has occurred prior to
the Distribution Date in ___________, 1997,
the first Interest Payment Date will be
__________, 1997]. Interest payable on an
Interest Payment Date will accrue during each
Interest Period following the preceding
Interest Payment Date on the Certificates at
the applicable Class A Certificate Rate, Class
B Certificate Rate and Class C Certificate
Rate. An "Interest Period" will be the period
from and including a Distribution Date (or, in
the case of the first Distribution Date, from
and including ____________, 1996 (the "Closing
Date")) to but excluding the next Distribution
Date. Interest due but not paid on any
Interest Payment Date will be due on the next
Interest Payment Date together with, to the
extent lawfully payable, interest on such
amount at the applicable Certificate Rate to
the extent described under "Description of the
Certificates--Distributions from the
Collection Account; Reserve Fund."
Interest on the outstanding principal balance of
the Class A Certificates will accrue for each
Interest Period at a rate per annum equal to
the lesser of (i) LIBOR plus ____% per annum
and (ii) the related Net Receivables Rate (the
"Class A Certificate Rate"). Interest on the
outstanding principal balance of the Class B
Certificates will accrue for each Interest
Period at a rate per annum equal to the lesser
of (i) LIBOR plus ____% per annum and (ii) the
related Net Receivables Rate (the "Class B
Certificate Rate"). Interest on the
outstanding principal balance of the Class C
Certificates will accrue for each Interest
Period at a rate per annum equal to the lesser
of (i) LIBOR plus ____% per annum and (ii) the
related Net Receivables Rate (the "Class C
Certificate Rate" and, together with the Class
A Certificate Rate and the Class B Certificate
Rate, the "Certificate Rates").
Interest payments on the Certificates will be
paid from Certificateholder Non-Principal
Collections for the related Collection Period,
withdrawals, if any, from the Reserve Fund,
Investment Proceeds, if any, and, under
certain
9
<PAGE>
circumstances, Available Seller's Collections
to the extent of the Available Subordinated
Amount.
Principal It is expected that the final principal payment
with respect to the Offered Certificates will
be made on the Distribution Date in
___________ (the "Expected Final Payment
Date"). The final principal payment with
respect to the Certificates may be paid
earlier than the Expected Final Payment Date
if an Early Amortization Event occurs, or
later under certain circumstances described
herein. See "Maturity and Principal Payment
Considerations" and "Description of the
Certificates--Optional Repurchase."
Excess Funding Account On each Distribution Date during the Revolving
Period, if (a) the Pool Balance at the end of
the preceding Collection Period is less than
the Pool Balance at the end of the second
preceding Collection Period and (b) the Pool
Balance at the end of the preceding Collection
Period is less than the Required Participation
Amount for such Distribution Date (calculated
before giving effect to any deposits to the
Excess Funding Account and any excess funding
account for any other Series in their
revolving periods to be made on such
Distribution Date), then certain Available
Certificateholder Principal Collections will
be deposited in the Excess Funding Account on
such Distribution Date. Except as provided
herein, any funds on deposit in the Excess
Funding Account will be withdrawn on a
subsequent Distribution Date and paid to the
Seller or allocated to one or more Series
which are in amortization, early amortization
or accumulation periods to the extent of any
increases in the Invested Amount as a result
of the addition of Receivables to the Trust
or, in certain circumstances, the repayment of
other Series. See "Description of the
Certificates--Excess Funding Account" and
"--Distributions." Upon the commencement of an
Early Amortization Period or the Accumulation
Period, funds on deposit in the Excess Funding
Account will be deposited into the Principal
Funding Account. No funds will be deposited
into the Excess Funding Account during any
Early Amortization Period. See "Description of
the Certificates--Excess Funding Account" and
"--Distributions."
Revolving Period During the Revolving Period, Principal
Collections allocable to the
Certificateholders' Interest generally will be
paid to the Seller, deposited to the Excess
Funding Account or allocated to another Series
(in effect, in exchange for the allocation to
the Certificateholders' Interest of an equal
interest in the Receivables balances that are
new or that would otherwise be part of the
Seller's Interest or the interest of the
certificateholders of such other Series) in
order to maintain the sum of the Invested
Amount and the amount, if any, in the Excess
Funding Account at a constant level. The
"Revolving Period" will be the period
beginning at the close of business on the
Closing Date and ending on the earlier of (x)
the day immediately preceding the Accumulation
Period Commencement Date and (y) the business
day immediately preceding the day on which an
Early Amortization Event occurs (unless, in
limited circumstances with respect to the
addition of Accounts, such Early Amortization
Event shall have been cured). See "Description
of the Certificates--Early Amortization
Events" for a discussion of certain events
which might lead to the early termination of
the Revolving Period.
Accumulation Period Unless an Early Amortization Period commences,
the Offered Certificates will have an
accumulation period (the "Accumulation
Period"), which will commence on the
Accumulation Period Commencement Date, and
continue until the earlier of (a) the
commencement of an Early Amortization Period
and (b) the Expected Final Payment Date. The
Accumulation Period permits the accumulation
of certain collections in installments over a
specified period in anticipation of a full
principal payment with respect to the Offered
Certificates on the Expected Final Payment
Date. During the Accumulation Period,
Principal Collections allocable to the
Certificateholders' Interest and
10
<PAGE>
certain other amounts allocable to the
Certificateholders' Interest will be deposited
on or before each Distribution Date in a trust
account (the "Principal Funding Account") and,
together with any amounts in the Excess
Funding Account, used to make principal
distributions to Certificateholders when due.
The amount to be deposited in the Principal
Funding Account on any Distribution Date will
be limited to an amount equal to the
Controlled Distribution Amount. See
"Description of the Certificates--
Distributions from the Collection Account;
Reserve Fund--Principal Collections."
The Accumulation Period with respect to the
Certificates is scheduled to begin on the
first day of the __________ Collection Period
(the "Accumulation Period Commencement Date"),
subject to postponement as described below in
this paragraph. Upon written notice to the
Trustee, the Servicer may elect to postpone
the Accumulation Period Commencement Date, and
extend the length of the Revolving Period,
subject to certain conditions including those
set forth below. The Servicer may make such
election only if the Accumulation Period
Length (determined as described below) is less
than four months. On each Determination Date,
beginning with the Determination Date
occurring in the ____________ Collection
Period, the Servicer will determine the
"Accumulation Period Length," which is the
number of months expected to be required such
that sufficient funds are on deposit in the
Principal Funding Account no later than the
Expected Final Payment Date to pay the
outstanding principal balances of the
Certificates, based on (a) the expected
monthly collections of Receivables (other than
interest and other non-principal charges and
the portion equal to the product of the
Discount Factor and the balance of the
Receivables ("Principal Receivables"))
expected to be distributable to the
Certificateholders assuming a principal
payment rate no greater than the lowest
Monthly Payment Rate on the Receivables for
the preceding three months and (b) the amount
of principal expected to be distributable to
certificateholders of Series which are not
expected to be in their revolving periods
during the Accumulation Period. If the
Accumulation Period Length is less than four
months, the Servicer may, at its option,
postpone the Accumulation Period Commencement
Date such that the number of months included
in the Accumulation Period will be equal to or
exceed the Accumulation Period Length.
The effect of the foregoing calculation is to
permit the reduction of the length of the
Accumulation Period based on the investor
interest of certain other Series which are
scheduled to be in their revolving periods
during the Accumulation Period and on
increases in the principal payment rate
occurring after the issuance date with respect
to Series 1996-2. Notwithstanding the
foregoing, the Accumulation Period
Commencement Date may not be postponed beyond
the first day of the _______________
Collection Period.
Funds on deposit in the Principal Funding
Account will be available to pay the Class A
Certificateholders the Class A Invested Amount
on the Expected Final Payment Date. If the
aggregate principal amount of deposits made to
the Principal Funding Account is insufficient
to pay the Class A Invested Amount on the
Expected Final Payment Date, the Early
Amortization Period will commence. Although it
is anticipated that scheduled principal will
be available for distribution to the Class A
Certificateholders on the Expected Final
Payment Date, no assurance can be given in
that regard.
On the Expected Final Payment Date, provided
that the Class A Invested Amount is paid in
full on the Expected Final Payment Date and
the Early Amortization Period has not
commenced, Principal Collections will be
payable to the Class B Certificateholders in
respect of the Class B Invested Amount as
described herein. See "Description of the
Certificates--Distributions." If such
Principal Collections are insufficient to pay
the Class B Invested Amount in full on the
Expected Final Payment Date, the Early
Amortization Period will commence. Although
it is anticipated that scheduled principal
will be
11
<PAGE>
available for distribution to the Class B
Certificateholders on the Expected Final
Payment Date, no assurance can be given in
that regard.
Other Series issued by the Trust may have either
an accumulation period or an amortization
period. Such accumulation periods or
amortization periods may have different
lengths and begin on different dates. Thus,
certain Series may be in their revolving
periods, while others are in periods during
which Principal Collections are distributed
to, or reserved for, such other Series.
Early Amortization Period The Certificates will be subject to early
payment following the occurrence of an Early
Amortization Event through the monthly
application of the Certificateholders'
allocable share of Principal Collections.
During the period beginning on the day on
which an Early Amortization Event has occurred
and ending on the earlier of (a) the payment
in full of the outstanding principal balance
of the Certificates, (b) the Termination Date
and (c) if such Early Amortization Period has
resulted from the occurrence of an Early
Amortization Event caused by the failure of
the Seller to convey Receivables in Additional
Accounts to the Trust within five business
days after the day on which it is required by
the Pooling and Servicing Agreement, the end
of the first Collection Period during which
such an Early Amortization would no longer be
deemed to exist (the "Early Amortization
Period"), the Revolving Period or the
Accumulation Period, as the case may be, will
terminate and Principal Collections and
certain other amounts allocable to the
Certificateholders' Interest will no longer be
deposited in the Excess Funding Account or
paid to the Seller or the holders of any other
outstanding Series as described above but
instead will be distributed to the
Certificateholders monthly on each
Distribution Date beginning with the
Distribution Date following the Collection
Period in which an Early Amortization Period
commences. See "Description of the
Certificates--Early Amortization Events" for a
description of events that might result in the
commencement of an Early Amortization Period.
During an Early Amortization Period,
distributions of principal on the Certificates
will not be subject to the Controlled
Distribution Amount. See "Description of the
Certificates--Distributions from the
Collection Account; Reserve Fund--Principal
Collections." In addition, on the first
Distribution Date during an Early Amortization
Period (a) any amounts on deposit in the
Interest Funding Account (as needed to pay
accrued interest on the Certificates) will be
paid to the Certificateholders and (b) any
amounts on deposit in the Excess Funding
Account, the Principal Funding Account and the
Interest Funding Account (after the payment of
accrued interest on such date) will be paid to
the Certificateholders up to the excess of the
outstanding principal balance of the
Certificates over unreimbursed Investor
Charge-Offs. See "Description of the
Certificates--Distributions."
Other Series may have early amortization events
that are different from the Early Amortization
Events for Series 1996-2. Thus, certain Series
may be in an early amortization period while
other Series are in revolving, accumulation or
amortization periods.
Reserve Fund An Eligible Deposit Account will be established
and maintained in the name of the Trustee for
the benefit of the Certificateholders (the
"Reserve Fund"). On the Closing Date, the
Seller will cause to be deposited with the
Trustee, and the Trustee will deposit in the
Reserve Fund, funds in an amount equal to 2%
of the aggregate initial principal balance of
the Certificates. Any amounts on deposit in
the Reserve Fund will be withdrawn to make
payments of interest on the Certificates and
for certain other purposes, and funds
withdrawn from the Reserve Fund may be
replenished, in the circumstances described
under "Description of the Certificates--
Distributions from the Collection Account;
Reserve Fund." A withdrawal from the Reserve
Fund will constitute an Early Amortization
Event in the circumstances described under
"Description of the Certificates--Early
Amortization Events."
12
<PAGE>
Servicing The Servicer (initially, DFS) is responsible for
servicing, managing and making collections on
the Receivables [and will, except as provided
below, deposit such collections in the
Collection Account within two business days
following the date on which the Servicer
records the collection thereof on its computer
file of accounts, generally up to the amount
of such collections required to be distributed
to Certificateholders with respect to the
related Collection Period. In certain
circumstances, the Servicer will be permitted
to use for its own benefit and not segregate
collections on the Receivables received by it
during each Collection Period until no later
than the business day prior to the date on
which such funds are required to be
distributed to investors.] See "Description of
the Certificates--Allocation of Collections;
Deposits in Collection Account; Limited
Subordination of Seller's Interest."
On the second business day preceding each
Distribution Date (each a "Determination
Date"), the Servicer will calculate the
amounts to be allocated as described herein in
respect of collections on Receivables received
with respect to the related Collection Period
to the Certificateholders, to the holders of
other outstanding Series or to the Seller as
described herein. See "Description of the
Certificates--Allocation of Collections;
Deposits in Collection Account; Limited
Subordination of Seller's Interest."
In certain limited circumstances DFS may resign
or be removed as Servicer, in which event
either the Trustee, or, so long as it meets
certain eligibility standards set forth in the
Pooling and Servicing Agreement, a third-party
servicer may be appointed as successor
servicer. DFS is permitted to delegate any of
its duties as Servicer to any of its
affiliates, but any such delegation will not
relieve the Servicer of its obligations under
the Pooling and Servicing Agreement. The
Servicer will receive a monthly servicing fee
and certain other amounts as described herein
as servicing compensation from the Trust. See
"Description of the Certificates--Servicing
Compensation and Payment of Expenses."
Mandatory Reassignment and
Transfer of Certain
Receivables The Seller has made certain representations and
warranties in the Pooling and Servicing
Agreement with respect to the Receivables in
its capacity as Seller and DFS has made
certain representations and warranties in the
Pooling and Servicing Agreement in its
capacity as Servicer. If the Seller breaches
certain of its representations and warranties
with respect to any Receivables and such
breach remains uncured for a specified period
and has a materially adverse effect on the
Certificateholders' Interest or the interests
of the holders of other outstanding Series
therein, the Seller may, subject to certain
conditions, be required to repurchase the
Receivables to which such breach relates or,
in certain cases, all of the Receivables. If
DFS, as Servicer, fails to comply in all
material respects with certain covenants or
warranties with respect to any Receivables and
such noncompliance is not cured within a
specified period after DFS becomes aware or
receives notice thereof from the Trustee and
such noncompliance has a materially adverse
effect on the Certificateholders' Interest or
such other certificateholders' interests
therein, all Receivables affected will be
purchased by DFS. In the event of a transfer
of servicing obligations to a successor
Servicer, such successor Servicer, rather than
DFS, would be responsible for any failure to
comply with the Servicer's covenants and
warranties arising thereafter.
Tax Matters In the opinion of special tax counsel for the
Seller and the Trust, the Offered Certificates
will be characterized as debt for federal
income tax purposes and, in the opinion of
Missouri counsel for the Seller and the Trust,
the Offered Certificates will be characterized
as debt for Missouri income tax purposes. Each
Certificateholder, by the acceptance of an
Offered Certificate, will agree to treat the
Offered Certificates as debt for federal,
state and local income tax purposes. The
Offered Certificates may be issued with
original issue discount. See "Federal Income
Tax Considerations" and "State and Local Tax
13
<PAGE>
Consequences" for additional information
concerning the application of federal and
Missouri tax laws.
ERISA Considerations Subject to considerations described below, the
Class A Certificates are eligible for purchase
by employee benefit plan investors. Under a
regulation issued by the Department of Labor,
the Trust's assets would not be deemed "plan
assets" of an employee benefit plan holding
the Class A Certificates if certain conditions
are met, including that the Class A
Certificates must be held, upon completion of
the public offering made hereby, by at least
100 investors who are independent of the Trust
and of one another. The Underwriters expect
that the Class A Certificates will be held by
at least 100 independent investors at the
conclusion of the offering, although no
assurance can be given, and no monitoring or
other measures will be taken to ensure, that
such condition will be met with respect to the
Class A Certificates. The Seller anticipates
that the other conditions of the regulation
will be met. If the Trust's assets were deemed
to be "plan assets" of an employee benefit
plan investor (e.g., if the 100 independent
investor criterion is not satisfied),
violations of the "prohibited transaction"
rules of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
could result and generate excise tax and other
liabilities under ERISA and section 4975 of
the Internal Revenue Code of 1986, as amended
(the "Code"), unless a statutory, regulatory
or administrative exemption is available. It
is uncertain whether existing exemptions from
the "prohibited transaction" rules of ERISA
would apply to all transactions involving the
Trust's assets if such assets were treated for
ERISA purposes as "plan assets" of employee
benefit plan investors. Accordingly,
fiduciaries or other persons contemplating
purchasing the Class A Certificates on behalf
of or with "plan assets" of any employee
benefit plan should consult their counsel
before making a purchase.
The Underwriters currently do not expect that
the Class B Certificates will be held by at
least 100 such persons and, therefore, do not
expect that the Class B Certificates will
qualify as publicly-offered securities under
the regulation referred to in the preceding
paragraph. Accordingly, the Class B
Certificates may not be acquired by (a) any
employee benefit plan that is subject to
ERISA, (b) any plan or other arrangement
(including an individual retirement account or
Keogh plan) that is subject to section 4975 of
the Code or (c) any entity whose underlying
assets include "plan assets" under the
regulation by reason of any such plan's
investment in the entity. By its acceptance of
a Class B Certificate or an interest therein,
each Class B Certificateholder and owner of a
beneficial interest in the Class B
Certificates will be deemed to have
represented and warranted that it is not
subject to the foregoing limitation. See
"ERISA Considerations."
Amendments The Pooling and Servicing Agreement and any
Supplement may be amended by the Seller, the
Servicer and the Trustee in the circumstances
described in the Pooling and Servicing
Agreement. In certain circumstances, no
consent of any Certificateholders will be
required for such an amendment. In addition,
the Pooling and Servicing Agreement or any
Supplement may be amended by the Servicer and
the Trustee at the direction of the Seller
without the consent of any of the
Certificateholders (a) to add, modify or
eliminate such provisions as may be necessary
or advisable in order to enable the Seller or
any of its affiliates (including Deutsche Bank
AG) to minimize or avoid capital charges under
any applicable law, rule, regulation or
guideline relating to regulatory or risk-based
capital, (b) to enable all or a portion of the
Trust to qualify as a partnership for federal
income tax purposes, and to modify or
eliminate provisions of the Pooling and
Servicing Agreement or any Supplement relating
to the intended availability of such
treatment, (c) to enable all or a portion of
the Trust to qualify as a "financial asset
securitization investment trust" (and to
modify or eliminate provisions of the Pooling
and Servicing Agreement or any Supplement in
connection therewith), or (d) to enable the
Seller or any of its affiliates to comply with
or obtain more favorable treatment under any
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law or regulation or any accounting rule or
principle, so long as in each case the Rating
Agency Condition has been satisfied and, in
the case of (b) or (c), the Seller and the
Trustee have received an opinion of counsel to
the effect that such amendment will not affect
the characterization of the certificates of
any outstanding Series or class as debt or as
partnership interests. See "Risk Factors--
Amendments Without the Consent of
Certificateholders" and "Description of the
Certificates--Amendments."
Offered Certificate Ratings It is a condition to the issuance of the Class A
Certificates that they be rated in the highest
long-term rating category by at least one
nationally recognized rating agency (a "Rating
Agency"). It is a condition to the issuance of
the Class B Certificates that they be rated in
one of the three highest rating categories by
at least one Rating Agency. The rating of the
Offered Certificates addresses the likelihood
of the ultimate payment of principal and the
timely payment of interest, at the applicable
Certificate Rate, on the Offered Certificates.
However, a Rating Agency does not evaluate,
and the rating of the Offered Certificates
will not address, the likelihood of payment of
the outstanding principal of the Offered
Certificates by any date, including the
Expected Final Payment Date, other than the
Termination Date, or the likelihood of the
payment of any Carry-over Amount. A rating is
based primarily on the credit underlying the
Receivables and the level of subordination of
the Seller's Interest and the subordination of
the Class B Certificates and the Class C
Certificates for the benefit of each class of
Certificates with an earlier alphabetical
designation.
A security rating is not a recommendation to
buy, sell or hold securities and is subject to
revision or withdrawal in the future by the
assigning Rating Agency. Each rating should be
evaluated independently of any other rating.
See "Risk Factors--Ratings of the
Certificates."
Risk Factors Prospective investors should consider the
factors set forth under "Risk Factors" on
pages __ through __.
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<PAGE>
RISK FACTORS
Possible Prepayment of Certificates. Because an Early Amortization Event may
occur which would initiate an Early Amortization Period, the Seller may exercise
its option to repurchase the Certificateholders' Interest or the Seller may have
to repurchase the Certificateholders' Interest upon the breach of certain
representations and warranties, the final distribution of principal on a class
of Certificates may be made prior to the scheduled termination of the Revolving
Period or prior to the Expected Final Payment Date. See "Description of the
Certificates--Early Amortization Events," "--Optional Repurchase" and "--
Representations and Warranties." Certificateholders will bear the risk of being
able to reinvest principal received on the Certificates at a yield at least
equal to their yield on the Certificates. If an investor acquires a Certificate
at a discount, the repayment of principal of the Certificate later than on the
Expected Final Payment Date will likely result in a lower than anticipated
yield. In addition, if an investor acquires Certificates at a premium, repayment
of principal at a rate that is faster than the rate anticipated by such investor
will result in a yield to that investor that is lower than anticipated by that
investor. See "Maturity and Principal Payment Considerations."
Limited Liquidity. There is currently no market for the Certificates. The
Underwriters currently intend to make a market in the Offered Certificates, but
the Underwriters are not under an obligation to do so. There can be no assurance
that a secondary market will develop or, if a secondary market does develop,
that it will provide the Certificateholders with liquidity of investment or that
it will continue for the life of the Offered Certificates.
Limited Assets. The Trust will not have any significant assets or sources of
funds other than the Receivables. The Certificates will be payable only from the
assets of the Trust. Holders of the Certificates must rely for repayment upon
payments on the Receivables and, if and to the extent available, amounts on
deposit in the Reserve Fund. However, amounts to be deposited in the Reserve
Fund are limited in amount. If the Reserve Fund is exhausted, the Trust will
depend solely on current collections on the Receivables to make payments on the
Certificates. If losses occur with respect to Receivables which are not covered
by payments on other Receivables or by the Reserve Fund, Certificateholders may
be unable to receive payment in full of principal and interest on their
respective Certificates.
Limited Obligations. The Certificates will not represent an interest in or
obligation of the Seller, DFS, Deutsche Bank AG or any of their affiliates. The
only obligations of the foregoing entities with respect to the Certificates or
the Receivables will be (i) the obligations (if any) of the Seller and Servicer,
if applicable, pursuant to certain limited representations and warranties made
with respect to the Receivables and (ii) the Servicer's servicing obligations
under the Pooling and Servicing Agreement. Neither the Certificates nor the
underlying Receivables will be guaranteed or insured by the Federal Deposit
Insurance Corporation or any other governmental agency or instrumentality, or by
the Seller, DFS, Deutsche Bank AG, or any of their affiliates. PROCEEDS OF THE
ASSETS INCLUDED IN THE TRUST (INCLUDING THE RECEIVABLES) WILL BE THE SOLE SOURCE
OF PAYMENTS ON THE CERTIFICATES, AND THERE WILL BE NO RECOURSE TO THE SELLER,
DFS, DEUTSCHE BANK AG, ANY OF THEIR AFFILIATES OR ANY OTHER ENTITY IN THE EVENT
THAT SUCH PROCEEDS ARE INSUFFICIENT OR OTHERWISE UNAVAILABLE TO MAKE PAYMENTS
PROVIDED FOR UNDER THE CERTIFICATES.
Possible Prior Interests in Receivables. There are certain limited
circumstances under the Uniform Commercial Code (the "UCC") and applicable
federal law in which prior or subsequent transferees of Receivables could have
an interest in such Receivables with priority over the Trust's interest. Claims
of such transferees could reduce the amount of collections on the Receivables
available for distribution to Certificateholders. See "Certain Legal Aspects of
the Receivables--Transfer of Receivables." Under the Receivables Contribution
and Sale Agreement, DFS has warranted to the Seller and, under the Pooling and
Servicing Agreement, the Seller has warranted to the Trust that the Receivables
have been or will be transferred free and clear of the lien of any third party
(exclusive of any Participation of a third party). Each of DFS and the Seller
has also covenanted that it will not sell, pledge, assign, transfer or grant any
lien on any Receivable or, except as described under "Description of the
Certificates--Supplemental Certificates," the Seller's Certificate (or any
interest therein) other than to the Trust or in the form of a Participation.
With respect to participations of third parties in the Receivables, see "The
Dealer Floorplan Financing Business of DFS--Participation Arrangements."
Certain Risks Relating to the Insolvency of DFS, Deutsche BSC or the Seller.
Each of DFS and Deutsche BSC has warranted to the Seller in the Receivables
Contribution and Sale Agreement that the initial contribution and subsequent
sales of the Receivables by it to the Seller are valid sales of the Receivables
to the Seller. In addition, DFS, Deutsche BSC and the Seller have and will treat
the transactions described herein as a sale of the Receivables to the Seller and
DFS and Deutsche BSC have and will take all actions that are required under
Missouri law and Georgia law, respectively, to perfect the Seller's ownership
interest in the Receivables. See "Certain Legal Aspects of the Receivables--
Transfer of Receivables." Notwithstanding the foregoing, if DFS or Deutsche BSC
were to become a debtor in a bankruptcy case and a creditor or trustee-in-
bankruptcy of such debtor or such debtor itself were to take the position that
the sale of Receivables to the Seller should be recharacterized as a pledge of
such Receivables to secure
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<PAGE>
a borrowing of such debtor, then delays in payments of collections of
Receivables to the Seller could occur or (should the court rule in favor of any
such trustee, debtor or creditor) delays in such payments or reductions in the
amount of such payments could result. If the transfer of Receivables to the
Seller is recharacterized as a pledge, a tax or government lien on the property
of DFS or Deutsche BSC arising before any Receivables originated by it come into
existence may have priority over the Seller's interest in such Receivables. See
"Certain Legal Aspects of the Receivables--Certain Matters Relating to
Bankruptcy." If the transactions contemplated herein are treated as a sale, the
Receivables would not be part of DFS's or Deutsche BSC's bankruptcy estate and
would not be available to DFS's or Deutsche BSC's creditors.
In addition, in Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.),
cert. denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the
Tenth Circuit said, in effect, that accounts sold by a debtor under Article 9 of
the UCC would remain property of the debtor's bankruptcy estate. If, following a
bankruptcy of DFS, Deutsche BSC or the Seller, a court were to follow the
reasoning of the Tenth Circuit, delays in distributions of collections on or in
respect of the Receivables could occur, and reductions (which, in certain
circumstances, could be substantial) in the amount of payments to
Certificateholders could result.
In addition, if DFS or Deutsche BSC were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to request a bankruptcy court to order that DFS or Deutsche BSC, as
applicable, be substantively consolidated with the Seller, delays in and
reductions in the amount of distributions on the Certificates could occur.
The Seller has warranted in the Pooling and Servicing Agreement that the
transfer of the Receivables to the Trust is a valid sale of the Receivables to
the Trust. The Seller has agreed to take all actions that are required under
Missouri law to perfect the Trust's interest in the Receivables and the Seller
has warranted that the Trust will at all times have a first priority perfected
ownership interest therein and, with certain exceptions, in the proceeds
thereof. However, the transfer of the Receivables to the Trust could be deemed
to create a security interest therein. If the transfer of the Receivables to the
Trust were deemed to create a security interest therein under the UCC as in
effect in Missouri, a tax or statutory lien on property of DFS, Deutsche BSC or
the Seller arising before a Receivable is transferred to the Trust may have
priority over the Trust's interest in such Receivables. If the Seller were to
become a debtor in a bankruptcy case and a bankruptcy trustee or the Seller as
debtor in possession or a creditor of the Seller were to take the position that
the transfer of the Receivables from the Seller to the Trust should be
recharacterized as a pledge of such Receivables, then delays in distributions on
the Certificates or, should the bankruptcy court rule in favor of any such
trustee, debtor in possession or creditor, delays and reductions in such
distributions could result.
If certain events relating to the bankruptcy of DFS or the Seller were to
occur, then an Early Amortization Event would occur and, pursuant to the terms
of the Pooling and Servicing Agreement, additional Receivables would not be
transferred to the Trust and distributions of principal on the Certificates
would not be subject to the Controlled Distribution Amount. See "Certain Legal
Aspects of the Receivables--Transfer of Receivables" and "--Certain Matters
Relating to Bankruptcy of DFS, the Seller or Deutsche FRI."
Payments made in respect of repurchases of Receivables by DFS or the Seller
pursuant to the Pooling and Servicing Agreement may be recoverable by DFS or the
Seller as debtor in possession or by a creditor or a trustee-in-bankruptcy of
DFS or the Seller as a preferential transfer from DFS or the Seller if such
payments are made within one year prior to the filing of a bankruptcy case in
respect of DFS or the Seller.
Risk of Commingling. The Servicer, no later than two business days after the
processing date, will deposit all collections received with respect to the
Receivables (excluding, with certain exceptions, certain portions thereof
allocable to the Seller) in each Collection Period into the Collection Account.
Notwithstanding the foregoing requirement for daily deposits, for so long as
certain conditions are satisfied, DFS need not deposit collections into the
Collection Account until the business day immediately preceding the related
Distribution Date, at which time DFS will make such deposits in an amount equal
to the net amount of such deposits and withdrawals which would have been made
had the conditions referred to in this sentence not applied.
Until such payments on the Receivables collected by the Servicer are deposited
into the Collection Account, such funds may be used by the Servicer for its own
benefit and will not be segregated from the assets of the Servicer, and the
proceeds of any short-term investment of such funds will accrue to the Servicer.
The Servicer will pay no fee to the Trust or any Certificateholder for any use
by the Servicer of funds representing collections on the Receivables. See
"Description of the Certificates--Allocation of Collections; Deposits to
Collection Account; Limited Subordination of Seller's Interest." If the
Servicer became insolvent, the Certificateholders might incur a loss with
respect to collections not deposited in the Collection Account.
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<PAGE>
Effect of Insolvency Laws on Enforceability of Receivables. Application of
federal and state bankruptcy and debtor relief laws could affect the interests
of the Certificateholders in the Receivables if such laws result in any
Receivables being written off as uncollectible or result in delays in payments
due on such Receivables. See "Description of the Certificates--Defaulted
Receivables and Recoveries."
Lack of Security Interest in Certain Cases. The Seller has represented and
warranted in the Pooling and Servicing Agreement that each Receivable, other
than Unsecured Receivables, is at the time of creation generally secured by a
first priority perfected security interest in the related product, account
receivable or other asset; provided that such perfected security interest need
not be of a first priority in the case of Receivables arising in an Account for
which the payment terms are on a scheduled payment plan basis and whose maximum
credit limit does not exceed $250,000, if such Account was designated for the
Trust on or before March 23, 1994 (the "Series 1994-1 Closing Date"). Claims
of secured parties with first priority perfected security interests in such
accounts, accounts receivable or other assets could reduce the amount of
collections on the related Receivables available for distribution to
Certificateholders. Generally, under applicable state laws, a security interest
in goods or accounts receivable which secure wholesale financing obligations may
be perfected by the filing of UCC financing statements. DFS endeavors to take
all actions necessary under applicable state laws to perfect DFS's security
interest in the goods or accounts receivable. However, at the time a product is
sold, DFS's security interest in the product will terminate. Therefore, if a
Dealer is not required to remit, or fails to remit, to DFS amounts owed with
respect to products that have been sold, the related Receivables will no longer
be secured by such products, and delays or reductions in the amounts of
collections on such Receivables could result.
Effect of Timing of Origination of, and Payments on, Receivables on Payments
on the Certificates. Receivables arising from the purchase of inventory financed
by DFS are generally payable by Dealers either upon retail sale of the related
product or, in some cases, in accordance with a predetermined schedule, whether
or not the product has been sold. Such scheduled payment dates range, in
substantially all cases, from 10 up to 180 days, but usually not more than 90
days, after the Dealer receives the product. The timing of sales of products is
uncertain and varies depending on the product type. Moreover, the relative
portions of the Trust's pool of Receivables made up of Receivables secured by
products, Receivables secured by accounts receivable, Receivables secured by
other assets and Unsecured Receivables may vary over time and cannot be
predicted. The mix of products securing Receivables may also be expected to vary
over time and cannot be predicted. As a result, it is possible that the credit
quality of the Receivables in the Trust, as a whole, may decline as a result of
the addition of additional Receivables. In addition, there is no assurance that
there will be additional Receivables created under the Accounts or that any
particular pattern of Dealer repayments will occur. The payment of principal on
the Certificates is dependent on Dealer repayments, and Collections during the
Accumulation Period may not be sufficient to fully amortize the Certificates on
the Expected Final Payment Date. In addition, a significant decline in the
amount of Receivables generated could cause an Early Amortization Event.
However, a decline in the amount of Receivables generated would initially be
absorbed by an increase in the Excess Funding Account. The Pooling and Servicing
Agreement provides that the Seller will be required to transfer Receivables in
Additional Accounts to the Trust in the event that the amount of the Pool
Balance is not maintained at a certain minimum level. If an insolvency event
relating to DFS or the Seller were to occur, then an Early Amortization Event
would occur, additional Receivables would not be transferred to the Trust and
distributions of principal on the Certificates would not be subject to the
Controlled Distribution Amount. See "The Dealer Floorplan Financing Business of
DFS" and "Maturity and Principal Payment Considerations" and see also
"Description of the Certificates--Early Amortization Events" for a discussion
of other events which might lead to the occurrence of an Early Amortization
Period.
In addition, because a portion of the Receivables do not bear interest until a
period of time has elapsed from their origination, the Receivables will be sold
to the Trust at a discount, which is received as Receivables are collected, in
order to generate imputed interest collections. As a result, reductions in the
payment rate will result in a reduction in the amount of imputed interest
collections and the amounts available to pay interest on the Certificates and
the Servicing Fee and to cover defaults and delinquencies on the Receivables.
Under certain circumstances, typically those involving a Dealer in default or
about to become in default, DFS may change the due date or offer the Dealer
extended payment terms. See also "--Ability of the Servicer to Change Payment
Terms" below.
Addition of Trust Assets; Additional Product Types. The Seller expects, and in
some cases will be obligated, to designate Additional Accounts, the Receivables
in which will be conveyed to the Trust. Such Additional Accounts may include
Accounts with Dealers originated by DFS under criteria different from those
which were applied to the Dealers on previously designated Additional Accounts,
because such Accounts were originated at a different date. Such Accounts may
also provide financing for products of types different from those included in
the Trust on the Closing Date. Consequently, there can be no assurance that
Additional Accounts designated in the future will relate to the same types of
products or will be of the same credit quality as previously designated Accounts
or that new product types that, if applicable, secure the Receivables in new
Accounts will provide security that is as favorable as that provided by existing
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<PAGE>
product types. The designation of Additional Accounts will be subject to the
satisfaction of certain conditions described herein under "Description of the
Certificates--Addition of Accounts."
Basis Risk. The Receivables generally bear interest at prime rates announced
by certain banks plus a margin. DFS may reduce the interest rates applicable to
any of the Receivables, so long as DFS does not reasonably expect any such
reduction to result in an Early Amortization Event. Certain Receivables are
originated at a discount and do not bear interest for a specified period after
their origination. It is possible that with respect to any Interest Period,
LIBOR plus the margin used to compute the applicable Certificate Rate will
exceed the Net Receivables Rate for the preceding Collection Period. In such
event, interest will accrue on such Certificates during such Interest Period at
a rate equal to the Net Receivables Rate. A reduction in interest rates on any
Receivables, or the inclusion of a greater proportion of non-interest bearing
Receivables in the Pool Balance, could have the effect of reducing or possibly
eliminating the positive spread, if any, between the Net Receivables Rate and
the applicable Certificate Rates based upon LIBOR, with a corresponding risk of
a reduction in yield to Certificateholders. While the distribution of Carry-over
Amounts would mitigate the effect of such reduction in yield, the Carry-over
Amounts are distributable only to the extent of the funds available therefor as
described under "Description of the Certificates--Distributions from the
Collection Account; Reserve Fund" and there can be no assurance that Carry-over
Amounts, if any, will be distributed. See "The Accounts--Yield Information."
Trust's Relationship to DFS. DFS is not obligated to make any payments in
respect of the Certificates or the Receivables (other than the obligation of DFS
to purchase certain Receivables from the Trust due to the failure to comply with
certain covenants or representations and warranties, as described under
"Description of the Certificates--Servicer Covenants" and "Description of the
Receivables Contribution and Sale Agreement--Representations and Warranties").
However, the Trust is completely dependent upon DFS for the generation of new
Receivables. There can be no assurance that DFS will continue to generate
Receivables at the same rate as in prior years. See "--Social, Economic and
Other Factors; Competition" below.
Moreover, if an insolvency event were to occur with respect to DFS, (i)
Receivables would no longer be transferred to the Seller or the Trust and an
Early Amortization Event would occur and (ii) any Delayed Funding Receivables
that had not yet been funded may not become funded and may be executory
contracts subject to disaffirmance by DFS's trustee-in-bankruptcy, in which case
the related Dealers would no longer be obligated to pay such Delayed Funding
Receivables, which the Trust has already paid for. In addition, if DFS were to
cease acting as Servicer, delays in processing payments on the Receivables and
information in respect thereof could occur and result in delays in payments to
the Certificateholders.
Social, Economic and Other Factors; Competition. DFS's ability to generate new
Receivables, and the Dealer's ability to make payments on the Receivables owned
by the Trust, will depend upon the sales of the products relating to such
Receivables. The level of sales of such products will be affected by a variety
of social and economic factors, including national and regional unemployment
levels and levels of economic activity in general, interest rates and consumer
perceptions of economic conditions. In addition, DFS competes with various other
financing sources, including independent finance companies, manufacturer-
affiliated finance companies and banks, which are in the business of providing
floorplan financing arrangements to dealers. If, for any reason, DFS were unable
to or ceased to generate new Receivables, an Early Amortization Event would
occur. See "Maturity and Principal Payment Considerations" below.
Credit Enhancement. Credit enhancement of the Certificates will be provided by
the subordination of the Seller's Interest to the extent of the Available
Subordinated Amount as described herein and amounts in the Reserve Fund and by
the subordination of the Class B Certificates and the Class C Certificates for
the benefit of each class of Certificates with an earlier alphabetical
designation. The amount of such credit enhancement is limited and will be
reduced from time to time as described herein. If the amount available under
such credit enhancement is reduced to zero, Certificateholders will bear
directly the credit and other risks associated with their undivided interest in
the Trust and will be more likely to suffer a loss on their investment in the
Certificates. See "Description of the Certificates--Allocation of Collections;
Deposits in Collection Account; Limited Subordination of Seller's Interest" and
"Risk Factors--Subordination of Class B Certificates." Credit enhancement
provided to any other Series will not be available to the Series 1996-2
Certificates.
Subordination of Class B Certificates. The Class B Certificates will be
subordinated to fund payments of principal and interest on the Class A
Certificates. Payments of principal in respect of the Class B Certificates will
not commence until after the Class A Invested Amount has been paid in full.
Class B Monthly Interest accrued during the related Interest Period(s) will not
be paid on an Interest Payment Date until accrued Class A Monthly Interest for
such Interest Payment Date has been paid in full. Moreover, the Class B Invested
Amount is subject to reduction on any Distribution Date if the Available
Subordinated Amount is reduced to zero, the Class C Invested Amount is reduced
to zero and the Deficiency Amount is greater than zero. If the Class B Invested
Amount suffers such a reduction, there will be a reduction in the amount of
collections allocable to the Class B Certificateholders, resulting in a possible
delay or
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reduction in principal and interest payments on the Class B Certificates.
Moreover, in the event of a sale of the Receivables in the Trust due to the
occurrence of an insolvency event with respect to the Seller or due to the
Invested Amount being greater than zero on the Termination Date, the portion of
the net proceeds of such sale will be paid first to Class A Certificateholders
until accrued and unpaid Class A Monthly Interest and all Class A Additional
Interest is paid in full and the Class A Invested Amount is reduced to zero and
then to Class B Certificateholders until accrued and unpaid Class B Monthly
Interest and all Class B Additional Interest is paid in full and the Class B
Invested Amount is reduced to zero. See "Description of the Certificates--
Allocation Percentages," "--Distributions from the Collection Account; Reserve
Fund," "--Distributions" and "--Investor Charge-Offs."
Negative Carry. If funds are deposited in the Excess Funding Account at any
time, such funds are expected to be invested in Eligible Investments and, as a
result, would be expected to earn a rate of return lower than the yield on a
comparable amount of Receivables. Accordingly, any deposit of funds in the
Excess Funding Account may be expected to reduce the amount of Non-Principal
Collections available to the Trust, until DFS is able to generate sufficient
Receivables to permit such funds to be released from the Excess Funding Account.
Requirement of Consent of the Holders of Certificates of Other Series. Under
certain circumstances, the consent or approval of the holders of a specified
percentage of the aggregate unpaid principal amount of all outstanding investor
certificates of all outstanding Series will be required to direct certain
actions, including amending the Pooling and Servicing Agreement in certain
circumstances and directing a reassignment of the entire portfolio of
Receivables. In addition, following the occurrence of an insolvency event with
respect to the Seller, the holders of certificates evidencing more than 50% of
the aggregate unpaid principal amount of each Series or each class of each
Series (and any holder of a Supplemental Certificate) will be required to direct
the Trustee not to sell or otherwise liquidate the Receivables.
Amendments Without the Consent of Certificateholders. The Pooling and
Servicing Agreement or any Supplement may be amended by the Seller, the Servicer
and the Trustee, without certificateholder consent, so long as any such action
shall not, as evidenced by an opinion of counsel, adversely affect in any
material respect the interests of the certificateholders. Notwithstanding the
foregoing, the Pooling and Servicing Agreement may be amended by the Servicer,
the Seller and the Trustee without the consent of any of the Certificateholders
to change in any manner the treatment of Delayed Funding Receivables under the
Pooling and Servicing Agreement, but only upon satisfaction of the Rating Agency
Condition. In addition, the Pooling and Servicing Agreement or any Supplement
may be amended by the Servicer and the Trustee at the direction of the Seller
without the consent of any of the Certificateholders (1) to add, modify or
eliminate such provisions as may be necessary or advisable in order to enable
the Seller or any of its affiliates (including Deutsche Bank AG) to minimize or
avoid capital charges under any applicable law, rule, regulation or guideline
relating to regulatory or risk-based capital, (2) to enable all or a portion of
the Trust to qualify as a partnership for federal income tax purposes under
applicable regulations on the classification of entities as partnerships or
corporations under the Code adopted as final regulations after the date hereof,
and to the extent that such regulations eliminate or modify the need therefor,
to modify or eliminate existing provisions of the Pooling and Servicing
Agreement or any Supplement relating to the intended availability of partnership
treatment of the Trust for federal income tax purposes, (3) to enable all or a
portion of the Trust to qualify as, and to permit an election to be made to
cause the Trust to be treated as, a "financial asset securitization investment
trust," as described in the provisions of the "Small Business Job Protection
Act of 1996," H.R. 3448 (and, in connection with any such election, to modify
or eliminate existing provisions of the Pooling and Servicing Agreement or any
Supplement relating to the intended Federal income tax treatment of the
Certificates and the Trust in the absence of such election, which may include
elimination of the sale of Receivables upon the occurrence of an insolvency
event with respect to the Seller pursuant to the Pooling and Servicing Agreement
and certain provisions of the Pooling and Servicing Agreement relating to the
liability of the Seller), or (4) to enable the Seller or any of its affiliates
to comply with or obtain more favorable treatment under any law or regulation or
any accounting rule or principle, so long as in each case the Rating Agency
Condition has been satisfied and, in the case of (2) or (3), the Seller and the
Trustee have received an opinion of counsel to the effect that such amendment
will not adversely affect the characterization of the certificates of any
outstanding Series or class as debt or as partnership interests; provided,
however, that if any such amendment occurs while Series 1994-1 is outstanding an
opinion of counsel for the Seller, addressed and delivered to the Trustee, shall
be required providing that such amendment will not adversely affect in an
material respect the interests of any investor certificateholders of Series
1994-1. See "Description of the Certificates--Amendments."
Additional Series. The Trust, as a master trust, is expected to issue
additional Series (which may be represented by different classes within a
Series) from time to time. A Supplement delivered in connection with the
issuance of other Series will specify certain Principal Terms applicable to such
Series. Such Principal Terms may include methods for determining applicable
allocation percentages and allocating collections, provisions creating different
or additional security or other credit enhancement, different classes of
certificates (including subordinated classes of certificates) and any other
amendment or supplement to the Pooling and Servicing Agreement which is made
applicable only to such Series. The provisions of such a Supplement may give the
holders of the related certificates or the provider of any
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Enhancement for the related Series consent, approval or other rights that may
cause the Seller, the Servicer or the Trustee to take or refrain from taking
certain actions under the Pooling and Servicing Agreement, which may affect the
interests of the Certificateholders. No such Supplement, however, may change the
terms of the Certificates or the terms of the Pooling and Servicing Agreement as
applied to the Certificates. See "Description of the Certificates--New
Issuances". As long as the Offered Certificates are outstanding, satisfaction of
the Rating Agency Condition will be a condition to the execution of any such
Supplement. There can be no assurance, however, that the terms of any other
Series might not have an impact on the timing or amount of payments received by
a Certificateholder. The issuance of an additional Series does not require the
consent of or notice to any Certificateholders.
Ability of Servicer to Change Payment Terms. DFS, as Servicer, will have the
right to change payment terms and various other terms with respect to the
Receivables, subject to the conditions described below. In servicing the
Receivables, DFS, as Servicer, will be required to service and administer the
Receivables and collect payments due under the Receivables in accordance with
its customary and usual servicing procedures for servicing receivables owned by
it and comparable to the Receivables. In addition, DFS, as Servicer, will
covenant that it will only change the terms relating to the Receivables
generally if, in its reasonable judgment, no Early Amortization Event will occur
as a result of the change. Except as specified above, there are no restrictions
on the ability of the Servicer to change the terms of the Receivables. While the
Servicer has no current intention of taking actions which would change the
payment or other terms of the Receivables, other than in accordance with its
customary and usual procedures, there can be no assurances that changes in the
marketplace or prudent business practice might not result in a determination to
do so. Any such changes could impact the repayment of principal on the
Certificates. See "Maturity and Principal Payment Considerations."
Ability to Change Discount Factor. As described under "Description of the
Certificates--Discount Factor," in order to create imputed interest in respect
of those Receivables that have a non-interest-bearing period and for uniformity
in accounting for collections, a portion of the Collections on each Receivable
that are not part of the finance charges, if any, paid on that Receivable will
be treated as Non-Principal Collections. The portion of the balance of a
Receivable that will be treated as a Non-Principal Collection will be equal to
the product of the balance of such Receivable times the Discount Factor. As of
the Series 1996-2 Cut-off Date, the Discount Factor was 0.40%. The Discount
Factor may be adjusted upwards or downwards, without the consent of
Certificateholders, as described under "Description of the Certificates--
Discount Factor," but may in no event exceed 1%. Any increase in the Discount
Factor will result in a higher amount of Non-Principal Collections on the
Receivables and a lower amount of Principal Collections than would otherwise
occur. Conversely, any decrease in the Discount Factor would result in a lower
amount of Non-Principal Collections and a higher amount of Principal Collections
than would otherwise occur.
Ratings of the Certificates. It is a condition to the issuance of the Class A
Certificates that they be rated in the highest long-term rating category by at
least one nationally recognized rating agency (such rating agency and each other
rating agency designated by the Seller in the related Supplement in respect of
any outstanding Series or class, a "Rating Agency"). It is a condition to the
issuance of the Class B Certificates that they be rated in one of the three
highest rating categories by at least one Rating Agency. A rating is based
primarily on the credit underlying the Receivables and the level of
subordination of the Seller's Interest. The rating of the Offered Certificates
addresses the likelihood of the ultimate payment of principal and the timely
payment of interest, at the applicable Certificate Rate, on the Offered
Certificates. However, a Rating Agency does not evaluate, and the rating of the
Offered Certificates does not address, the likelihood that any Carry-over Amount
will be paid or the likelihood that the outstanding principal amount of the
Offered Certificates will be paid by any date, including the Expected Final
Payment Date, other than the Termination Date. There is no assurance that a
rating will remain for any given period of time or that a rating will not be
lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances so warrant. A security rating is not a recommendation to buy,
sell, or hold securities and is subject to revision or withdrawal in the future
by the assigning rating agency. Each rating should be evaluated independently of
any other rating.
Book-Entry Registration. The Offered Certificates will be initially
represented by one or more certificates registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the Class A or Class
B Certificateholders or their nominees. Because of this, unless and until
Definitive Certificates are issued, Class A and Class B Certificateholders will
not be recognized by the Trustee as "Certificateholders" (as that term is used
in the Pooling and Servicing Agreement). Consequently, until such time
beneficial owners of the Offered Certificates ("Certificate Owners") will only
be able to exercise the rights of Certificateholders indirectly through DTC,
Cedel Bank, Euroclear and their participating organizations. See "Description
of the Certificates--Book-Entry Registration" and "--Definitive
Certificates."
DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
AND DEUTSCHE FLOORPLAN RECEIVABLES, INC.
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DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
The Seller is a limited partnership formed under the laws of the State of
Delaware, of which Deutsche Floorplan Receivables, Inc. ("Deutsche FRI") is
the general partner and DFS is the limited partner. DFS's limited partnership
interest in the Seller constitutes ninety-nine percent (99%) of the total
partnership interests in the Seller, with the remaining one percent (1%) owned
by the general partner. The Seller was formerly known as ITT Floorplan
Receivables, L.P.; its general partner was formerly known as ITT Floorplan
Receivables, Inc.; and its limited partner was formerly known as ITT Commercial
Finance Corp. The Seller was organized for limited purposes, which include
purchasing receivables from DFS and its affiliates and transferring such
receivables to third parties and any activities incidental to and necessary or
convenient for the accomplishment of such purposes. The principal executive
offices of the Seller are located at 655 Maryville Centre Drive, St. Louis,
Missouri 63141-5832. The telephone number of such offices is (314) 523-3000.
The Seller has taken steps in structuring the transactions contemplated hereby
that are intended to ensure that the voluntary or involuntary application for
relief by DFS under the United States Bankruptcy Code or similar applicable
state laws ("Insolvency Laws") will not result in consolidation of the assets
and liabilities of the Seller with those of DFS. These steps include the
creation of Deutsche FRI as a separate, limited-purpose subsidiary pursuant to a
certificate of incorporation containing certain limitations (including
restrictions on the nature of Deutsche FRI's business and a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the unanimous affirmative vote of all of its directors). Deutsche
FRI's Certificate of Incorporation includes a provision that requires Deutsche
FRI to have not less than two directors who qualify under the Articles of
Incorporation as an "Independent Director." No assurance can be given,
however, that such a consolidation will not occur. See "Risk Factors--Certain
Legal Aspects."
If Additional Accounts are added to the Trust, DFS may make additional
contributions of capital to the Seller to fund a portion of the purchase price
of the Receivables arising in Additional Accounts.
DEUTSCHE FLOORPLAN RECEIVABLES, INC.
Deutsche Floorplan Receivables, Inc., a wholly-owned subsidiary of DFS, was
incorporated in the State of Nevada on October 22, 1993. Deutsche FRI was
formerly known as ITT Floorplan Receivables, Inc. Deutsche FRI was organized for
limited purposes, which include acting as the general partner in a limited
partnership engaged in purchasing receivables from DFS and its affiliates,
transferring such receivables to third parties, acting as general partner in
limited partnerships that acquire receivables and any activities incidental to
and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of Deutsche FRI are located at Bank of America
Plaza, 300 South Fourth Street, Suite 1100, Las Vegas, Nevada 89101. The
telephone number of such offices is (702) 385-1668.
THE TRUST
The Trust was formed in accordance with the laws of the State of New York
pursuant to the Pooling and Servicing Agreement. The Seller has conveyed and
will convey to the Trust, without recourse, the Receivables arising under the
Accounts. The property of the Trust will consist of the Receivables existing in
the Accounts on the Initial Cut-Off Date, all Receivables generated in the
Accounts from time to time thereafter during the term of the Trust as well as
Receivables generated in any Accounts added to the Trust from time to time (less
Receivables paid or charged off and excluding (i) Receivables in any Accounts
that are removed from the Trust from time to time after the Initial Cut-Off Date
and (ii) any undivided interest in the Receivables in certain Accounts that has
been transferred to a third party as described under "The Dealer Floorplan
Financing Business of DFS--Participation Agreements"), an assignment of all the
Seller's rights and remedies under the Receivables Contribution and Sale
Agreement, all funds collected or to be collected in respect of the Receivables,
all funds on deposit in certain accounts of the Trust including funds on deposit
in the Excess Funding Account, the Principal Funding Account, the Interest
Funding Account, the Reserve Fund and any other Enhancement issued with respect
to any other Series, a security interest in the other Collateral Security and
rights of the Seller with respect to the financed inventory under the Floorplan
Agreements. See "Description of the Certificates--Addition of Accounts." See
"Description of the Receivables Contribution and Sale Agreement" for a summary
of certain terms of the Receivables Contribution and Sale Agreement.
The property of the Trust may include Enhancements for the benefit of
certificateholders of other Series. The Certificateholders will not have any
interest in any Enhancements provided for the benefit of the certificateholders
of other Series. Pursuant to the Pooling and Servicing Agreement the Seller will
be allowed (subject to certain limitations
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and conditions), and in some circumstances will be obligated, to designate from
time to time Additional Accounts to be included as Accounts and to convey to the
Trust the Receivables of such Additional Accounts, and to designate from time to
time certain Accounts to be removed and to require the Trustee to convey
receivables in such Removed Accounts to the Seller. The Seller may, but is not
obligated to, cause the Trust to convey to it an interest in certain
Receivables, which the Seller may transfer or participate to others.
The Trust has been formed for this and like transactions pursuant to the
Pooling and Servicing Agreement and prior to formation had no assets or
obligations. The Trust will not engage in any business activity other than
acquiring and holding the Receivables and the other assets of the Trust and
proceeds therefrom, issuing the Certificates and the Seller's Certificate (and
any Supplemental Certificates), issuing additional Series and making payments
thereon and related activities. As a consequence, the Trust is not expected to
have any need for, or source of, capital resources other than the assets of the
Trust.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be paid to the Seller
as consideration for the transfer of the Receivables to the Trust. The Seller
will use such proceeds for general operating purposes (including the
distribution thereof to its limited partner, DFS). DFS may use the proceeds it
receives to repay inter-company debt and for other general corporate purposes.
THE DEALER FLOORPLAN FINANCING BUSINESS OF DFS
GENERAL
The Receivables sold or to be sold to the Seller have been or will generally
be selected from extensions of credit made by DFS to (i) dealers, manufacturers
and distributors ("Dealers") of certain consumer and commercial products in
order to enable such Dealers to acquire inventory (the "Floorplan Business")
and (ii) Dealers to finance their accounts receivable arising from the sales of
their products (the "Accounts Receivable Business"). The products financed
within the Floorplan Business may include, among others: computers and computer
products, manufactured housing, recreation vehicles, boats and motors, consumer
electronics and appliances, keyboards and other musical instruments, industrial
and agricultural equipment, office automation products, snowmobiles, and
motorcycles. The types of products financed may change over time. The
receivables arising from the Floorplan Business are herein called the
"Floorplan Receivables" and receivables arising from the Accounts Receivable
Business are called the "A/R Receivables." Occasionally, specific transactions
under the Accounts Receivable Business are documented as sales of receivables by
the originator thereof to DFS. Asset Based Receivables and Unsecured
Receivables, which have been sold to the Trust and may be sold, are described
below.
The Floorplan Receivables are generally secured by the products being financed
and, in limited cases, by other personal property, personal guarantees,
mortgages on real estate, assignments of certificates of deposit, or letters of
credit. The amount of the advances are generally equal to 100% of the invoice
price of the product. The A/R Receivables are secured by the accounts receivable
owed to the Dealer against which such extension of credit was made and, in
limited cases, by other personal property of such borrowers, mortgages on real
estate, assignments of certificates of deposit or letters of credit. The
accounts receivable which are pledged to DFS as collateral may or may not be
secured by collateral. The amount advanced generally does not exceed 80%--85% of
the amount of the eligible accounts receivable. Both Floorplan Receivables and
A/R Receivables are generally full recourse obligations of the related Dealer.
DFS originates and services its receivables from its principal office in St.
Louis, Missouri and in branch offices located throughout the United States.
Receivables originated in the State of Louisiana arise from extensions of credit
to Dealers by Deutsche BSC, which Receivables are serviced by DFS. In the
future, Receivables in the Trust may include Receivables originated by other
affiliates of DFS, subject to satisfaction of the Rating Agency Condition.
References in this Prospectus to originations by DFS will be deemed to include
originations by Deutsche BSC and any such other affiliate.
CREDIT UNDERWRITING PROCESS
A Dealer requesting the establishment of a credit line with DFS is required to
submit an application and financial information, including audited or unaudited
financial statements and, in some cases, tax returns. DFS attempts to talk
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to, or receive reference letters from, several of the applicant's current
creditors and may also obtain a credit agency report on the applicant's credit
history. In addition to such current financial information and historical credit
information, DFS will consider the following factors: the reason for the request
for the extension of credit; the need for the credit line; the products to be
financed and the financial status of the manufacturer of such products, if any,
that would enter into a related Floorplan Agreement; and the experience of the
Dealer's management. The determination of whether to extend credit and of the
amount to be extended is based upon a weighing of the above factors. The Dealer
credit underwriting process of DFS also involves the use of its Expert Credit
System ("ECS"), which employs artificial intelligence technology to simulate
the analytical approach of senior underwriting personnel. By utilizing a
standardized review process to analyze credit information, ECS adds greater
consistency to underwriting decisions across geographic areas and product lines.
While all Dealer applications are processed through ECS, DFS does not use ECS as
a credit scoring system that results in a numerical score that approves or
disapproves the extension of credit or that indicates what amount of credit may
be extended.
Extensions of credit lines in excess of $10,000,000 if secured and $5,000,000
if unsecured may be approved by management of Deutsche Financial Services
Holding Corporation or Deutsche Bank AG. Extensions of credit up to $10,000,000
if secured and $5,000,000 if unsecured may be approved by the president of DFS;
and extensions of credit up to $5,000,000 may be approved by DFS's director of
portfolio control. A DFS Division President may approve extensions of credit in
amounts which vary by program but do not exceed $1,500,000. Less senior officers
have lower levels of approval authority. DFS reviews individual Dealer credit
limits (i) prior to any increase in such credit limit, (ii) generally every 12
to 18 months and (iii) upon becoming aware that the Dealer is experiencing
financial difficulties or is in default on its obligations under its agreement
with DFS.
CREATION OF RECEIVABLES
The Floorplan Business is typically documented by an agreement between DFS and
the Dealer which provides for both the extension of credit and a grant of
security interest. Such agreements are generally for an unspecified period of
time and create discretionary lines of credit, which DFS may terminate at any
time in its sole discretion, subject, however, to prevailing standards of
commercial reasonableness and good faith, which may require commercially
reasonable notice and other accommodations by DFS. Absent default by the Dealer,
the outstanding Floorplan Receivables owed by such Dealer cannot be accelerated,
even if the line of credit is terminated. After the effective date of
termination, DFS is under no obligation to continue to provide additional
financing, but the then current outstanding balance will be repayable in
accordance with the Pay-as-Sold or Scheduled Payment Plan terms of such Dealer's
program with DFS, as described below.
With respect to the Floorplan Receivables, advances made for the purchase of
inventory are most commonly arranged in the following manner: The Dealer will
contact the manufacturer, distributor or other vendor (each, a "Manufacturer")
and place a purchase order for a shipment of inventory. If the Manufacturer has
been advised that DFS is the Dealer's inventory financing source, the
Manufacturer will contact DFS to obtain an approval number with respect to such
purchase order. Upon such request, DFS will determine whether (i) the
Manufacturer is in compliance with its Floorplan Agreement, (ii) the Dealer is
in compliance with its program with DFS and (iii) such purchase order is within
the Dealer's credit limit. If so, DFS will issue an approval number to the
Manufacturer. The Manufacturer will then ship the inventory and directly submit
its invoice for such purchase order to DFS for payment. Interest or finance
charges normally begin to accrue on the Dealer's accounts as of the invoice
date. The proceeds of the loan being made by DFS to the Dealer are paid directly
to the Manufacturer in satisfaction of the invoice price and will normally be
funded at that time. In some cases, however, DFS will negotiate a delay in
funding the advance for a period which in most cases ranges from a few days to
up to 30 days, and in some cases ranges up to 90 days, after the date of the
invoice. Any such receivable that is funded on a delayed basis (a "Delayed
Funding Receivable") will be sold to and paid for by the Trust on the date of
the invoice, even though such receivable is not funded by DFS until a later time
(i.e., when DFS pays the advance to the Manufacturer in payment of the invoice
price). DFS and the Manufacturer may also agree that DFS may discount the
invoice price of the inventory ordered by the Dealer. Under this arrangement,
the Manufacturer will deem itself paid in full upon receipt of such discounted
amount. Typically, in exchange for the float permitted by the payment delay
and/or the discount, DFS will agree to provide the Manufacturer's Dealers with
reduced interest, or perhaps no interest, for some period of time. Thus, the
Dealer's financing program may provide for so-called "interest free" or "free
flooring" periods during which no interest or finance charges will accrue on
their accounts.
The creation of Asset Based Receivables and Unsecured Receivables is discussed
under "--Asset Based Receivables" and "--Unsecured Receivables" below.
PAYMENT TERMS
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DFS's Floorplan Business provides two basic payment terms to Dealers: Pay-as-
Sold financing programs or Scheduled Payment Plan. Under a "Pay-as-Sold"
program, the Dealer is obligated to pay interest or finance charges monthly, but
principal repayment with respect to any particular item of inventory financed by
DFS is due and payable only upon the sale of such item by the Dealer or at a
predetermined maturity date. On occasion, DFS may require particular Dealers to
begin repaying principal in installments if the unit has not been sold within a
specified period of time. These payments are referred to as "curtailments."
Even if a unit is subject to curtailment payments, the outstanding balance with
respect to such unit will remain fully payable if such unit is sold. Pay-as-Sold
programs are principally offered in the motorcycle, recreation vehicle, boat and
motor, agricultural equipment, and other product lines in which the individual
inventory price is high and the product inventory turn is relatively slow.
"Scheduled Payment Plans", in contrast, require that principal be repaid in
accordance with a particular schedule. Depending upon the product line and the
particular inventory turns of the individual Dealer, the majority of these
payment terms are generally no longer than ninety (90) days. Under a Scheduled
Payment Plan, the Dealer is only obligated to make payments in accordance with
an agreed upon schedule, regardless of when the item of inventory is actually
sold.
With respect to A/R Receivables, the Dealer is obligated to pay interest or
finance charges monthly. Principal repayment is due in the amount of the
collections on the underlying accounts receivable at the time of such
collections. With respect to Asset Based Receivables, interest is payable
monthly, while principal is payable upon the end of the term of the credit
facility, or, if earlier, when and to the extent principal outstandings exceed
eligible collateral at negotiated advance rates. With respect to Unsecured
Receivables, interest is payable monthly, while principal may be payable either
on Pay-as-Sold or Scheduled Payment Plan terms.
FLOORPLAN AGREEMENTS WITH MANUFACTURERS
DFS will provide financing for products for a particular Dealer, in most
instances, only if DFS has also entered into a floorplanning agreement (the
"Floorplan Agreement") with the Manufacturer of such product. Pursuant to the
Floorplan Agreement, the Manufacturer will agree, among other matters, to
purchase from DFS those products sold by such Manufacturer to a Dealer and
financed by DFS if DFS acquires possession of such products pursuant to
repossession, voluntary surrender, or other circumstances. This arrangement
reduces the time, expense and risk normally associated with a secured lender's
disposition of collateral. The terms of such repurchase obligations may vary,
both by industry and by Manufacturer. In some instances, the Manufacturer will
be obligated to repurchase the product for a price equal to the unpaid principal
balance owed by the Dealer for the product in question whenever DFS acquires
possession thereof. On occasion, different terms may be negotiated. Such terms
may provide for a smaller purchase price, or a purchase price which declines
over time, or time periods beyond which no obligation to purchase by the
Manufacturer shall apply. Certain Floorplan Agreements may also eliminate the
repurchase obligation or reduce the purchase price payable by the Manufacturer,
depending upon the condition of the inventory acquired by DFS.
In determining whether to include a Manufacturer's products in its Floorplan
Business, DFS considers the Manufacturer's financial status, its number of years
in the business, the number of years the product has been sold and whether its
products are sold nationally or in a limited area. In general, the more
favorable DFS's determination of such factors, the larger the amount of Dealer
outstanding payables to DFS that will be permitted. DFS generally reviews
Manufacturers annually in the case of Manufacturers whose Dealers have
outstanding payables to DFS in excess of $10,000,000 and less frequently in the
case of other Manufacturers.
BILLING PROCEDURES
At the beginning of each month DFS sends to each Account obligor a billing
statement for the interest, if any, and any other non-principal charges accrued
or arising in the prior month. Payment is generally due in respect of such
statement by the 15th of such month.
DEALER MONITORING
Inventory inspections are performed to physically verify the collateral used
to secure a Dealer's loan, check the condition of the inventory, account for any
missing inventory and collect funds due to DFS. The inventory inspection, or
"floorcheck," is one of the key tools for monitoring inventory financed by DFS
on Pay-as-Sold terms. Floorchecks are usually performed every 30--45 days, or
every 60--75 days for industrial or agricultural equipment. These floorchecks
are performed by field service representatives ("FSRs") who are specially
trained to audit Dealer inventory.
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DFS has developed the "Field Audit System," a computerized field audit
communications network providing FSRs with timely and accurate inventory reports
on the day of inspection. Any discrepancies in a Dealer's inventory or payment
schedule, or other problems discovered by an FSR, are promptly reported to
regional office management.
Floorchecks generally are not performed on Dealers on Scheduled Payment Plans.
However, DFS monitors these Dealers for payment delinquencies. The regional
office makes telephone contact with delinquent Dealers after a Scheduled Payment
Plan payment of $10,000 or more is 5 days past due in order to resolve any
problems. If a Dealer is 10 days past due with a Scheduled Payment Plan payment
in an amount greater than $100,000 or 15 days past due with a payment of
$10,00 0--$100,000, FSRs will visit the Dealer to verify the related collateral
and report their findings to the regional office.
In addition to monitoring an A/R Receivables Dealer's weekly activity, one of
the key control elements of the A/R Receivables program is the field audit,
during which an accounts receivable auditor reviews certain books and records of
an A/R Receivables Dealer. The audits are performed generally on a quarterly
basis. Any deficiencies revealed during the audit are discussed with the Dealer
and reported to regional office management.
REALIZATION ON RECEIVABLES
Upon any default by a Dealer of its obligations to DFS under the related
financing agreement and expiration of any and all applicable notice and cure
periods that may have been agreed to between DFS and such Dealer, DFS may
declare such Dealer's obligations immediately due and payable and enforce all of
its legal rights and remedies, including commencement of proceedings to realize
upon any collateral, subject to prevailing standards of commercial
reasonableness and good faith. Upon learning of such a default, DFS makes
contact with the Dealer to determine whether it can develop a workout
arrangement with the Dealer to cure all defaults. If disputes with the Dealer
exist, such disputes may be submitted to arbitration. If DFS determines that
such an arrangement to cure a default cannot be successfully implemented, the
Dealer's payment obligations are accelerated. DFS then attempts to obtain
possession of the collateral, except in the case of Unsecured Receivables or A/R
Receivables, and in the case of A/R Receivables, DFS attempts to collect
directly from the obligors on the accounts receivable (with respect to certain
Accounts relating to A/R Receivables, DFS will already control the collection of
accounts receivable through the use of lockboxes). If a Manufacturer is
obligated to repurchase the collateral under a Floorplan Agreement as described
above under "--Floorplan Agreements with Manufacturers," the collateral is
delivered to the related Manufacturer. DFS repossesses, stores and then attempts
to sell all other salable collateral in a commercially reasonable manner. See
"The Accounts--Loss Experience."
ASSET BASED RECEIVABLES
Other receivables ("Asset Based Receivables") that may be sold to the Seller
arise from asset based revolving credit facilities provided to certain Dealers.
These facilities typically involve a revolving line of credit, often for a
contractually committed period of time, pursuant to which the borrower may draw
the lesser of the maximum amount of such line of credit or a specifically
negotiated loan availability amount. The loan availability amount is determined
by multiplying agreed upon advance rates against the value of certain types of
assets. In these facilities, DFS will most typically lend against finished
inventory and parts in the Dealer's possession which are free and clear of other
liens and otherwise in compliance with specified standards. DFS will also lend
in accordance with an advance rate against a borrower's eligible accounts
receivable. DFS's asset based revolving credit facilities are usually secured by
the assets which constitute the borrowing base against which the loan
availability amount is calculated and, occasionally, by other personal property,
mortgages or other assets of the borrower. Asset Based Receivables are not
always supported by any Floorplan Agreement with a Manufacturer.
UNSECURED RECEIVABLES
Certain receivables ("Unsecured Receivables") constitute unsecured advances
to Dealers that are made in the same manner as in the case of Floorplan
Receivables. As of ____________, 1996, __% of the total balance of Receivables
in the Trust Portfolio were Unsecured Receivables.
PRIVATE LABEL PROGRAMS
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Under DFS's so-called "Private Label" programs, DFS will agree to provide
inventory financing and accounts receivable financing for Dealers of a
Manufacturer under the name of the Manufacturer. Presently DFS operates under
the following names: Carrier Distribution Credit Corporation, to provide
financing for Dealers of products manufactured or sold by Carrier Corporation
(heating, ventilation and air conditioning); Resellers Credit Corporation, to
provide financing to Dealers of products manufactured or sold by Ingram Micro,
Inc. (computer products); IE Financial Services, to provide financing to Dealers
of products manufactured or sold by Intelligent Electronics, Inc. (computer
products); MicroAge Commercial Credit, to provide financing to Dealers of
products manufactured or sold by MicroAge Computer Centers, Inc. (computer
products); Snapper Finance Company, to provide financing to Dealers of products
manufactured or sold by Snapper, Inc. (lawn mowers and other garden products);
and Tracker Marine L.P., which provides financing to Dealers of products
manufactured by Tracker Marine L.P. (boats and motors). The Manufacturer may or
may not have an equity participation in certain of the receivables funded by
such Private Label programs. Other private label programs may be developed from
time to time.
PARTICIPATION ARRANGEMENTS
From time to time DFS will enable other financing sources to participate in
certain of its credit facilities ("Participations"). Pursuant to a typical
Participation, the documentation for the underlying line of credit will remain
in the name of DFS, as lender. In a separate contractual arrangement with DFS,
the participant will agree to provide a portion of the funding for such facility
in exchange for an agreed upon interest rate. Occasionally, fees and other
charges may also be shared with the participant. In certain cases, DFS will
advise a borrower that the size of its credit facility is expressly conditioned
upon the availability of participants in the facility. In those situations, if
no participants can be found, or if such participants cease to participate, the
size of the credit facility may be reduced. In other circumstances, there will
be no such condition and DFS may be obligated to maintain a credit facility
notwithstanding its expectation that a portion of it would be participated. The
Receivables to be sold by DFS to the Seller, and in turn by the Seller to the
Trust, may include the non-participated portion of receivables from accounts
which have been participated. In addition, subject to substantially the same
limitations that apply to the removal of Accounts, the Seller may cause the
Trust to transfer an interest in certain Receivables to the Seller, which may
thereafter transfer such interest to another person in the form of a
Participation. In addition, DFS may, from time to time, enter into syndicated
credit facilities, pursuant to which multiple lenders, including DFS, will
jointly establish a credit facility administered by a lender agent. Under these
facilities, DFS and its co-lenders will agree, pursuant to the terms of the loan
agreement with the borrower, to provide a portion of the overall credit facility
up to their respective maximum commitment amounts. In return, DFS and its co-
lenders generally share in the interest and principal payments and other fees
and charges on a pro-rata basis.
THE ACCOUNTS
GENERAL
The Receivables arise in the Accounts. The Accounts have been selected from
all the accounts that were Eligible Accounts (the "Eligible Portfolio") at the
Initial Cut-Off Date. In order to be included in the Eligible Portfolio, each
Account must be an account established by DFS in the ordinary course of business
and meet certain other criteria provided in the Pooling and Servicing Agreement.
See "Description of the Certificates--Representations and Warranties."
Pursuant to the Pooling and Servicing Agreement, the Seller and, pursuant to
the Receivables Contribution and Sale Agreement, DFS have the right (subject to
certain limitations and conditions), and in some circumstances the Seller is
obligated, to designate from time to time additional qualifying Accounts to be
included as Accounts and to convey to the Trust the Receivables of such
Additional Accounts, including Receivables thereafter created. These accounts
must meet the eligibility criteria set forth above as of the date such accounts
are designated as Additional Accounts. DFS will convey the Receivables then
existing, with certain exceptions, or thereafter created under such Additional
Accounts to the Seller, which will in turn convey them to the Trust. See
"Description of the Certificates--Addition of Accounts."
As of ____________, 1996, there was $_______ million of Receivables in the
total U.S. portfolio of DFS of which $_______ million of Receivables were
included in the Trust as of such date. The tables set forth below under the
heading "--Description of the Trust Portfolio" contain information as of
____________, 1996 with respect to the Receivables in the Trust (collectively,
the "Trust Portfolio").
The sum in any column in the tables set forth below may not equal the
indicated total due to rounding.
27
<PAGE>
DESCRIPTION OF THE TRUST PORTFOLIO
The following tables set forth the composition of the Trust Portfolio, as of
1996, by business line and payment plan. Due to the variability
- --------------,
and uncertainty with respect to the rates at which Receivables are created,
paid or otherwise reduced, the characteristics set forth below may vary
significantly as of any other date of determination.
COMPOSITION OF RECEIVABLES IN THE TRUST PORTFOLIO BY BUSINESS LINE
1996
-------------,
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER PERCENTAGE OF
-------------- -------- --------------
BUSINESS LINE RECEIVABLES RECEIVABLES OF NUMBER OF
- ------------- ----------- -------------- -------- --------------
BALANCES BALANCES ACCOUNTS ACCOUNTS
----------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Floorplan Receivables $ % %
Accounts Receivable....
Asset Based Lending....
Unsecured..............
----------- -------------- -------- --------------
Total........... $ 100.0% 100.0%
=========== ============== ======== ==============
</TABLE>
COMPOSITION OF FLOORPLAN RECEIVABLES IN THE
TRUST PORTFOLIO BY PAYMENT PLAN
1996
-------------,
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER PERCENTAGE OF
-------------- -------- --------------
PAYMENT PLAN RECEIVABLES RECEIVABLES OF NUMBER OF
- ------------- ----------- -------------- -------- --------------
BALANCES BALANCES ACCOUNTS ACCOUNTS
----------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Pay-as-Sold............. $ % %
Scheduled Payment Plan..
----------- -------------- -------- --------------
Total............ $ 100.0% 100.0%
=========== ============== ======== ==============
</TABLE>
The following tables set forth the composition of the Receivables in the
Trust Portfolio by account balance, product type and geographic distribution of
such Receivables. Due to the variability and uncertainty with respect to the
rates at which Receivables are created, paid or otherwise reduced, the
characteristics set forth below may vary significantly as of any other date of
determination.
28
<PAGE>
COMPOSITION OF RECEIVABLES IN THE TRUST PORTFOLIO BY ACCOUNT BALANCE
AS OF , 1996
-----------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER PERCENTAGE OF
RECEIVABLES RECEIVABLES OF NUMBER OF
ACCOUNT BALANCE RANGE BALANCE BALANCES ACCOUNTS ACCOUNTS
- --------------------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C>
$1 to $999,999.99 $ % %
$1,000,000 to $2,499,999.99..
$2,500,000 to $4,999,999.99..
$5,000,000 to $9,999,999.99..
Over $10,000,000.00..........
----------- ------------- -------- -------------
Total................. $ 100.0% 100.0%
=========== ============= ======== =============
</TABLE>
COMPOSITION OF RECEIVABLES IN THE TRUST PORTFOLIO BY PRODUCT TYPE
AS OF , 1996
----------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER PERCENTAGE OF
RECEIVABLES RECEIVABLES OF NUMBER OF
PRODUCT TYPE BALANCE BALANCES ACCOUNTS ACCOUNTS
- ------------ ----------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Computers and Computer Products $ % %
Manufactured Housing....................
Accounts Receivable(1)..................
Recreation Vehicles.....................
Boats and Motors........................
Industrial and Agricultural Equipment...
Motorcycles.............................
Snowmobiles.............................
Other(2)................................
Consumer Electronics and Appliances.....
Keyboard and Other Musical Instruments..
----------- ------------- -------- -------------
Total............................ $ 100.0% 100.0%
=========== ============= ======== =============
</TABLE>
- --------------
(1) Accounts Receivable includes Asset Based Receivables of $ million.
(2) Includes, among other products, heating, ventilating, and air-conditioning
equipment, and irrigation systems.
29
<PAGE>
GEOGRAPHIC DISTRIBUTION OF RECEIVABLES IN THE TRUST PORTFOLIO
AS OF 1996
------------,
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER PERCENTAGE OF
RECEIVABLES RECEIVABLES OF NUMBER OF
STATE BALANCE BALANCES ACCOUNTS ACCOUNTS
- ----- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C>
California $ % %
Texas............
Florida..........
Georgia..........
Oregon...........
Washington.......
New York.........
North Carolina...
Michigan.........
Virginia.........
Minnesota........
New Jersey.......
Other States(1).. %
--------- ----------- ------- -----------
Total..... $ 100.0% 100.0%
========= =========== ======= ===========
</TABLE>
- --------------
(1) The percentage of the Receivables Balance represented by Receivables in
each state not specifically listed is less than 3% of the Receivables
Balance.
YIELD INFORMATION
The Receivables bear interest in their accrual periods at rates generally
equal to a prime rate selected in the related financing agreement plus a margin.
Certain Receivables do not bear interest for a specified period after their
origination. For 1995, the receivables in DFS's U.S. portfolio had a yield of
11.48% per annum, of which (i) approximately 7.80% was attributable to yield
from the payment of interest accruing on those receivables and (ii)
approximately 3.68% was attributable to the payment of the discounted portion of
the receivables balances and other income. For the first 9 months of 1996, the
receivables in DFS's U.S. portfolio had a yield of _____% per annum, of which
(i) approximately ____% was attributable to yield from the payment of interest
accruing on those receivables and (ii) approximately ____% was attributable to
the payment of the discounted portion of the receivables balances and other
income. The reduction of yield for the first nine months of 1996 compared to
1995 reflects competitive pricing pressures as well as seasonality in DFS's U.S.
portfolio. With respect to the Receivables in the Trust, the Trust will receive
the yield attributable to the payment of interest accruing on the Receivables
(i.e., the type of yield referred to in clause (i) in the preceding sentence),
but not the yield attributable to the payment of the discounted portion of the
receivable balance attributable to DFS's funding the receivable at a discount at
the origination of the receivable (i.e., the type of yield referred to in clause
(ii) of the preceding sentence). However, in order to create imputed interest,
the Trust has been and will be purchasing all of the Receivables from the Seller
at the Discount Factor (0.40% as of the Series 1996-2 Cut-off Date) and will
receive the interest payments on the Receivables in accordance with their terms.
If the receivables in DFS's U.S. portfolio during 1995 were originated at a
discount equal to a Discount Factor of 0.40% and had a Monthly Payment Rate of
50% and the collection of such discount amounts were treated as interest, during
1995 the yield on such receivables would have been 10.20%. If the receivables in
DFS's U.S. portfolio during the first 9 months of 1996 were originated at a
discount equal to a Discount Factor of 0.40% and had a Monthly Payment Rate of
50% and the collection of such discount amounts were treated as interest, during
the first 9 months of 1996 the yield on such receivables would have been _____%.
The Trust's yield on its Receivables will be affected by the interest rates
borne by Receivables, the Discount Factor and the rate at which the Receivable
balances are paid.
MAJOR CUSTOMERS; MAJOR MANUFACTURERS
30
<PAGE>
At __________, 1996 no one Dealer accounted for more than 5% of the aggregate
balance of the Receivables in the Trust. At __________, 1996 no one Manufacturer
was obligated under Floorplan Agreements relating to Receivables in the Trust
aggregating more than 10% of the aggregate balance of such Receivables. No
prediction can be made as to what percentage of the Receivables in the future
may be obligations of a single Dealer or be related to a single Manufacturer
under its Floorplan Agreements. See "Description of the Certificates--
Ineligible Receivables and the Overconcentration Amounts."
DELINQUENCY EXPERIENCE
The following table sets forth the delinquency experience as of the dates
indicated for the entire U.S. portfolio. Because the Eligible Accounts from
which the Receivables in the Trust will be generated constitute only a portion
of DFS's entire U.S. portfolio, the actual delinquency experience with respect
to the Eligible Accounts may be different. There can be no assurance that the
delinquency experience for the Receivables in the future will be similar to the
experience shown below.
DELINQUENCY EXPERIENCE FOR TOTAL U.S. PORTFOLIO
RECEIVABLES BALANCES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
AS OF
____________, 1995 1994 1993 1992 1991
1996 --------- --------- --------- --------- ---------
-----------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Principal Balance.............. $ $4,124.0 $3,560.3 $2,924.6 $2,757.4 $2,186.1
SAU/NSF 31 days or more(1)............... 2.4 1.2 1.9 5.4 7.7
Scheduled Payment Plan past due 31 days
or more(2)............................ 13.7 2.7 0.8 1.3 3.6
-------- -------- -------- -------- --------
Total............................. $ $ 16.1 $ 3.9 $ 2.7 $ 6.7 $ 11.3
================ ======== ======== ======== ======== ========
SAU/NSF 31 days or more/Aggregate
Principal Balance..................... % 0.06% 0.03% 0.06% 0.20% 0.35%
Scheduled Payment Plan past due 31 days
---------------- -------- -------- -------- -------- --------
or more/Aggregate Principal Balance... % 0.33% 0.08% 0.03% 0.05% 0.16%
-------- -------- -------- -------- --------
Total/Aggregate Principal Balance........ % 0.39% 0.11% 0.09% 0.24% 0.52%
================ ======== ======== ======== ======== ========
</TABLE>
- --------------
(1) A "SAU/NSF" Account is one that is deemed delinquent when (i) in the case
of a Pay-as-Sold receivable, there is an unpaid receivable balance as to
which the related product has been sold and such receivable balance not
paid by the related Dealer or (ii) a check from the related Dealer has been
returned because of insufficient funds.
(2) Includes an immaterial amount of Canadian receivables, which are not part
of the U.S. portfolio.
LOSS EXPERIENCE
The following table sets forth DFS's average principal receivables balance and
loss experience for each of the periods shown with respect to its U.S.
portfolio. Because the Eligible Accounts will be only a portion of the entire
U.S. portfolio, actual loss experience with respect to the Eligible Accounts may
be different. There can be no assurance that the loss experience for the
Receivables in the future will be similar to the historical experience set forth
below with respect to the U.S. portfolio. The historical experience set forth
below includes the effect of the financial obligations of Manufacturers in
respect of repossessed products as described above under "The Dealer Floorplan
Financing Business of DFS--Floorplan Agreements with Manufacturers." If
Manufacturers are not able to perform such obligations in the future, the loss
experience in respect of the U.S. portfolio and the Receivables may be adversely
affected. See "Risk Factors--Trust's Relationship to DFS."
31
<PAGE>
Loss Experience for the U.S. Portfolio
(Dollars in Millions)
Year Ended December 31,
--------------------------------------------------
<TABLE>
<CAPTION>
____ Months
Ended
1996 1995 1994 1993 1992 1991
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Principal Receivables
Balance(1).................. $ $4,014.1 $3,135.4 $2,712.1 $2,321.6 $1,826.5
Gross Losses................... 13.5 12.5 14.6 29.1 24.5
Net Losses(2).................. 7.9 7.1 10.2 24.3 17.3
Net Losses/Liquidations........ % 0.03% 0.03% 0.06% 0.20% 0.20%
Net Losses/Average Principal
Receivables Balance(3)...... % 0.20% 0.23% 0.38% 1.05% 0.95%
</TABLE>
- --------------
(1) Average Principal Receivables Balance is the average weekly principal
balances for the twelve months ending on the last day of the period.
(2) Net Losses in any period are gross losses less recoveries for such period.
Recoveries include recoveries from collateral security in addition to
recoveries from the products.
(3) The percentage indicated for the _____ months ended ____________, 1996 is
not annualized.
AGING EXPERIENCE
The following table provides the age distribution of inventory for all dealers
in the U.S. portfolio, as a percentage of total principal outstanding at the
date indicated. Because the Eligible Accounts will only be a portion of the
entire U.S. portfolio, actual age distribution with respect to the Eligible
Accounts may be different.
AGE DISTRIBUTION FOR THE U.S. PORTFOLIO(1)
(DOLLARS IN MILLIONS)
Receivable Balances
<TABLE>
<CAPTION>
As of As of As of December 31,
____________, ____________, --------------------------------------
Days 1996 1995 1995 1994 1993 1992
- ---------- ------------ ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1-30 $ $ $1,052.3 $1,158.2 $ 932.2 $ 801.5
31-60 767.3 615.2 440.9 488.2
61-90 364.6 293.0 213.0 277.5
91-120 275.6 249.0 170.8 205.7
121-180 291.6 243.4 171.1 166.5
181-270 222.6 169.5 125.8 129.6
Over 270 391.3 239.3 192.8 250.6
------- -------
Total $3,365.3 $2,967.6 $2,246.6 $2,319.6
==== ======== ======== ======== ========
</TABLE>
32
<PAGE>
PERCENTAGE OF RECEIVABLES BALANCE
<TABLE>
<CAPTION>
As of As of As of December 31,
____________, ____________, ------------------------------
Days 1996 1995 1995 1994 1993 1992
- ---------- ------------- ------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1-30 % % 31.3% 39.0% 41.5% 34.6%
31-60 22.8 20.7 19.6 21.0
61-90 10.8 9.9 9.5 12.0
91-120 8.2 8.4 9.5 8.9
121-180 8.7 8.2 7.6 7.2
181-270 6.6 5.7 5.6 5.6
Over 270 11.6 8.1 8.6 10.8
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
- --------------
(1) Excludes asset based receivables and receivables secured by accounts
receivable. Age distribution is not available prior to March 31, 1992.
33
<PAGE>
DEUTSCHE FINANCIAL SERVICES CORPORATION
DFS was incorporated in Nevada in 1975. It is an indirect, wholly-owned
subsidiary of Deutsche Bank AG. DFS was formerly known as ITT Commercial Finance
Corp. The stock of ITT Commercial Finance Corp. was acquired by Deutsche
Financial Services Holding Corporation, a wholly owned subsidiary of Deutsche
Bank North America Holding Corporation, on May 2, 1995. Effective January 1,
1997, Deutsche Financial Services Holding Corporation will be merged into DFS.
DFS will be the surviving corporation. Following the aforementioned merger,
Melvin F. Brown, President and Chief Executive Officer of DFS will become its
Vice Chairman; Robert M. Martin, currently President and Chief Executive Officer
of Deutsche Financial Services Holding Corporation, will become President and
Chief Executive Officer of DFS; and Geoffrey D. Lyon, Executive Vice President
of DFS, will become President of the inventory finance group of DFS. DFS is a
financial services company which primarily provides inventory financing,
accounts receivable financing and asset based financing to dealers, distributors
and manufacturers of consumer and commercial durable goods. Industries served by
DFS include, but are not limited to: computers and computer products,
manufactured housing, recreation vehicles, boats and motors, consumer
electronics and appliances, keyboards and other musical instruments, industrial
and agricultural equipment, office automation products, snowmobiles, and
motorcycles. As of __________, 1996, none of the Dealers were affiliates of DFS
and none of the products being financed by the Receivables were made or
distributed by affiliates of DFS. In addition to owning the stock of DFS,
Deutsche Financial Services Holding Corporation is in the business of providing
equipment loans and leases, franchisee loans, vendor finance programs and
private label retail finance programs. Following the aforementioned merger, DFS
will continue to engage in such businesses of Deutsche Financial Services
Holding Corporation.
As of __________, 1996, DFS was providing inventory or accounts receivable
financing to over 13,000 dealers in the United States and its approved U.S.
manufacturer/distributor list exceeded 1,100.
DFS has offices in major metropolitan areas of the United States. Its
principal executive offices are located at 655 Maryville Centre Drive, St.
Louis, Missouri 63141-5832. The telephone number of such office is (314) 523-
3000.
DEUTSCHE BANK AG
Deutsche Bank AG is the largest banking institution in the Federal Republic of
Germany, with total assets at December 31, 1995 in excess of $500 billion. The
Deutsche Bank group has operations in over 50 countries and employs over 70,000
people. With a presence in all of the world's major financial centers, the
Deutsche Bank group offers a full range of financial services including private
banking, commercial and institutional banking, and investment banking through
Deutsche Morgan Grenfell Inc. ("Deutsche Morgan Grenfell").
DFS and Deutsche Morgan Grenfell are each indirect, wholly-owned subsidiaries
of Deutsche Bank AG. DFS is the limited partner of the Seller and the parent of
Deutsche FRI, the general partner of the Seller.
MATURITY AND PRINCIPAL PAYMENT CONSIDERATIONS
Principal with respect to the Certificates will not be payable until the
Distribution Date in ___________ (the "Expected Final Payment Date"), unless an
Early Amortization Event has occurred. Full amortization of the Certificates by
the Expected Final Payment Date depends on, among other things, repayment by
Dealers of the Receivables and may not occur if Dealer payments are insufficient
therefor. Because the Receivables are, in large part, paid upon retail sale of
the related product, the timing of such payments is uncertain. In addition,
there is no assurance that DFS will generate additional Receivables under the
Accounts or that any particular pattern of payments will occur. See "Description
of the Certificates--Interest" and "--Principal" and "The Dealer Floorplan
Financing Business of DFS."
The amount of new Receivables generated in any month and monthly payment rates
on the Receivables may vary because of seasonal variations in product sales and
inventory levels, retail incentive programs provided by product manufacturers
and various economic factors affecting product sales generally. The following
table sets forth the highest and lowest monthly payment rates for DFS's U.S.
portfolio during any month in the periods shown and the average of the monthly
payment rates for all months during the periods shown, in each case calculated
as the percentage equivalent of a fraction, the numerator of which is the
aggregate of all collections of principal plus non-cash reductions in the
principal balances of the Receivables in the U.S. portfolio during the period
and the denominator of which is the average aggregate principal balances of such
Receivables for such period. There can be no assurance that the rate of
Principal Collections will be similar to the historical experience set forth
below. Because the Eligible Accounts will be only a portion of the entire U.S.
portfolio, actual monthly payment rates with respect to the Eligible Accounts
may be different.
34
<PAGE>
DFS believes that the increase in payment rates since 1991 is due in part to
Dealers maintaining lower levels of inventory as well as to an increasing
percentage in the U.S. portfolio of Receivables which liquidate more frequently.
MONTHLY PAYMENT RATES FOR THE U.S. PORTFOLIO
<TABLE>
<CAPTION>
___ MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------
__________,
------------
1996 1995 1995 1994 1993 1992 1991
------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Highest Month........................ % 57% 62% 61% 53% 46% 44%
Lowest Month......................... % 49% 49% 43% 35% 37% 33%
Average of the Months in the Period.. % 53% 55% 53% 48% 42% 40%
</TABLE>
Because (i) an Early Amortization Event may occur which would initiate an
Early Amortization Period, (ii) the Seller may exercise its option to repurchase
the Certificateholders' Interest, or (iii) the Seller may have to repurchase the
Certificateholders' Interest upon the breach of certain representations and
warranties, the final distribution of principal on a class of Certificates may
be made prior to the scheduled termination of the Revolving Period or prior to
the Expected Final Payment Date. See "Description of the Certificates--Early
Amortization Events," "--Optional Repurchase" and "--Representations and
Warranties." Certificateholders will bear the risk of being able to reinvest
principal received on the Certificates at a yield at least equal to their yield
on the Certificates. If an investor acquires a Certificate at a discount, the
repayment of principal of the Certificate later than on the Expected Final
Payment Date will likely result in a lower than anticipated yield. In addition,
if an investor acquires Certificates at a premium, repayment of principal at a
rate that is faster than the rate anticipated by such investor will result in a
yield to that investor that is lower than anticipated by that investor.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing Agreement,
as supplemented by the Supplement relating to the Certificates (as so
supplemented and as further supplemented or amended from time to time, the
"Pooling and Servicing Agreement"), among the Seller, as Seller of the
Receivables, DFS, as Servicer of the Receivables, and the Trustee, substantially
in the form filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Copies of the Pooling and Servicing Agreement will be
filed with the Luxembourg Stock Exchange following the issuance of the
Certificates. The Trustee will make available for inspection a copy of the
Pooling and Servicing Agreement (without exhibits or schedules) to
Certificateholders of record on written request. See "--The Trustee" below.
The following summary describes certain terms of the Pooling and Servicing
Agreement, but it does not purport to be complete and is qualified in its
entirety by reference to the Pooling and Servicing Agreement.
The Certificates will evidence undivided beneficial interests in the assets of
the Trust allocated to the Certificateholders' Interest representing the right
to receive pari passu from such Trust assets funds up to (but not in excess of)
the amounts required to make payments of interest on and principal of the
Certificates pursuant to the Pooling and Servicing Agreement as described under
"--Allocation Percentages." The Certificates and the Pooling and Servicing
Agreement provide that they will be governed by and construed in accordance with
the laws of the State of New York. The Seller has submitted for any legal action
or proceeding relating to the Pooling and Servicing Agreement to the non-
exclusive general jurisdiction of the courts of the State of New York and the
courts of the United States of America for the Southern District of New York.
The Offered Certificates will initially be represented by one or more
certificates registered in the name of the nominee of DTC (together with any
successor depository selected by the Seller, the "Depository"), except as set
forth below. The Offered Certificates will be available for purchase in minimum
denominations of $1,000 and integral multiples thereof in book-entry form. The
Seller has been informed by DTC that DTC's nominee will be Cede & Co.
("Cede"). Accordingly, Cede is expected to be the holder of record of the
Offered Certificates. No Certificate Owner will be entitled to receive a
certificate representing such person's beneficial interest in the Offered
Certificates. Unless and until Definitive Certificates are issued under the
limited circumstances described herein, all references herein to actions by
Class A or Class B Certificateholders shall refer to actions taken by DTC upon
instructions from its Participants (as defined below), and all references herein
to distributions, notices, reports and statements to Class A and
35
<PAGE>
Class B Certificateholders shall refer to distributions, notices, reports and
statements to Cede, as the registered holder of the Offered Certificates. See
"--Book-Entry Registration" and "--Definitive Certificates" below.
INTEREST
Interest on the respective outstanding principal balance of each class of
Offered Certificates will accrue at the applicable Certificate Rate for such
class and will be payable to the Certificateholders on each Interest Payment
Date; provided, however, that during an Early Amortization Period, interest will
be paid on each Distribution Date[; provided further, however, that unless an
Early Amortization Period has occurred prior to the Distribution Date in
___________, 1997, the first Interest Payment Date will be __________, 1997].
Certificateholder Non-Principal Collections will be deposited into the Interest
Funding Account and used to make interest payments to the Certificateholders on
each Interest Payment Date. Interest to be deposited into the Interest Funding
Account on each Distribution Date will accrue from and including the preceding
Distribution Date (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding such Distribution Date (each such
period, an "Interest Period"). Interest for any Distribution Date will be
calculated on the basis of the actual number of days in the related Interest
Period divided by 360 and interest due but not deposited into the Interest
Funding Account on any Distribution Date will be deposited into the Interest
Funding Account on the next Distribution Date. Interest payable but not paid to
Certificateholders on an Interest Payment Date will be payable on the next
Interest Payment Date together with, to the extent lawfully payable, interest on
such amount at the applicable Certificate Rate to the extent described under
"Description of the Certificates--Distributions from the Collection Account;
Reserve Fund." Interest payments on the Offered Certificates will be derived
from Certificateholder Non-Principal Collections for the related Collection
Period, withdrawals, if any, from the Reserve Fund, Investment Proceeds, if any,
and, under certain circumstances, collections allocable to the Seller.
Interest on the outstanding principal balance of the Class A Certificates will
accrue for each Interest Period at a rate per annum equal to the lesser of (i)
LIBOR (calculated as described below) plus ____% per annum and (ii) the related
Net Receivables Rate (as described below) (the "Class A Certificate Rate").
Interest on the outstanding principal balance of the Class B Certificates will
accrue for each Interest Period at a rate per annum equal to the lesser of (i)
LIBOR plus ____% per annum and (ii) the related Net Receivables Rate (the
"Class B Certificate Rate"). Interest on the outstanding principal balance of
the Class C Certificates will accrue for each Interest Period at a rate per
annum equal to the lesser of (i) LIBOR plus ____% per annum and (ii) the related
Net Receivables Rate (the "Class C Certificate Rate" and, together with the
Class A Certificate Rate and the Class B Certificate Rate, the "Certificate
Rates"). The "Net Receivables Rate" with respect to each Distribution Date
immediately following an Interest Period is (i) the weighted average of the
interest rates borne by the Receivables during the second Collection Period
preceding such Distribution Date (interest payments on the Receivables at such
rates will be due and payable in the Collection Period preceding such
Distribution Date), plus (ii) the product of (x) the Monthly Payment Rate for
the Collection Period preceding such Distribution Date, (y) the Discount Factor
for such Distribution Date and (z) twelve, less (iii) 2% per annum, unless the
Servicing Fee has been waived for such Collection Period. The "Monthly Payment
Rate" for a Collection Period is the percentage equivalent of a fraction, the
numerator of which is the Principal Collections (without deducting therefrom the
discount portion) collected during such Collection Period and the denominator of
which is the average daily aggregate principal balance of the Receivables
(without deducting therefrom the discount portion) for such Collection Period.
If the applicable Certificate Rate for a class of Certificates for any
Distribution Date is based on the Net Receivables Rate, the "Carry-Over
Amount" for such class, which equals the excess of (a) Class A Monthly
Interest, Class B Monthly Interest or Class C Monthly Interest, as applicable,
for such Distribution Date determined as if the applicable Certificate Rate were
based on the LIBOR formula set forth below over (b) the actual Class A Monthly
Interest, Class B Monthly Interest or Class C Monthly Interest, as applicable,
for such Distribution Date, will be paid to the holders of the applicable class
of Certificates on subsequent Interest Payment Dates to the extent available
from Non-Principal Collections and Investment Proceeds after distribution of the
Monthly Interest for such Interest Payment Date. The ratings of the Offered
Certificates do not address the likelihood of the payment of any Carry-Over
Amount.
The Class B Certificates will be subordinated to fund payments of interest
(and principal) on the Class A Certificates. See "Description of the
Certificates--Distributions."
"Adjustment Date" shall mean with respect to any Interest Period, the second
London Business Day prior to the Interest Payment Date preceding such Interest
Period (and with respect to an Interest Period commencing on an Interest Payment
Date, the second London Business Day preceding such Interest Payment Date);
provided that with respect to the first Interest Period and each other Interest
Period prior to the first Interest Payment Date, the Adjustment Date will be a
date determined prior to the Closing Date.
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"LIBOR" shall mean, with respect to any Interest Period, the offered rates
for deposits in United States dollars having a maturity of three months (the
"Index Maturity") commencing on the related Adjustment Date which appears on
Telerate Page 3750 as of approximately 11:00 A.M., London time, on such date of
calculation as determined by the Trustee. If at least two such offered rates
appear on Telerate Page 3750, LIBOR will be the arithmetic mean (rounded
upwards, if necessary, to the nearest one-sixteenth of a percent) of such
offered rates. If fewer than two such quotations appear, LIBOR with respect to
such Interest Period will be determined at approximately 11:00 A.M., London
time, on such Adjustment Date on the basis of the rate at which deposits in
United States dollars having the Index Maturity are offered to prime banks in
the London interbank market by four major banks in the London interbank market
selected by the Trustee and in a principal amount equal to an amount of not less
than US $1,000,000 and that is representative for a single transaction in such
market at such time. The Trustee will request the principal London office of
each of such banks to provide a quotation of its rate. If at least two such
quotations are provided, LIBOR will be the arithmetic mean (rounded upwards as
aforesaid) of such quotations. If fewer than two quotations are provided, LIBOR
with respect to such Interest Period will be the arithmetic mean (rounded
upwards as aforesaid) of the rates quoted at approximately 11:00 A.M., New York
City time, on such Adjustment Date by three major banks in New York, New York
selected by the Trustee for loans in United States dollars to leading European
banks having the Index Maturity and in a principal amount equal to an amount of
not less than US $1,000,000 and that is representative for a single transaction
in such market at such time; provided, however, that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, LIBOR in effect for the
applicable period will be LIBOR in effect for the previous period; provided
further, however, that on any Adjustment Date during the Early Amortization
Period, the "Index Maturity" shall equal one month. For so long as the Offered
Certificates are listed on the Luxembourg Stock Exchange, the applicable LIBOR
rate will be provided to Banque Generale du Luxembourg S.A. on the first day of
each applicable Interest Period and published as described under "Listing and
General Information."
"London Business Day" shall mean any business day on which dealings in
deposits in United States dollars are transacted in the London interbank market.
PRINCIPAL
In general, no principal payments will be made to the Certificateholders until
the Expected Final Payment Date or, upon the occurrence of an Early Amortization
Event, until the first Distribution Date following such event. On each
Distribution Date with respect to the Revolving Period, Principal Collections
allocable to the Certificateholders' Interest, subject to certain limitations,
will either be (a) allocated to the Excess Funding Account as described herein,
(b) allocated to one or more Series which are in amortization, early
amortization or accumulation periods to cover principal payments due to the
investor certificateholders of any such Series or which provide for excess
funding accounts or similar arrangements or (c) if no such Series is then
amortizing or accumulating principal or otherwise does not provide for excess
funding accounts or similar arrangements, paid to the Seller to maintain the
Certificateholders' Interest or held as Unallocated Principal Collections.
See "--Allocation Percentages--Principal Collections for all Series" and
"--Distributions from the Collection Account; Reserve Fund--Principal
Collections" below.
Unless and until an Early Amortization Event shall have occurred and until the
outstanding principal balance of the Certificates is paid in full, on each
Distribution Date with respect to the Accumulation Period, Principal Collections
allocable to the Certificateholders' Interest plus certain other amounts
comprising Monthly Principal will no longer be paid for the benefit of another
Series or to the Seller as described above but instead an amount thereof up to
the Controlled Distribution Amount for each such Distribution Date will be
deposited in the Principal Funding Account. The funds on deposit in the
Principal Funding Account (including any amounts deposited therein from the
Excess Funding Account) will be used to pay the outstanding principal balance of
the Certificates on the Expected Final Payment Date. If on such date the amount
in the Principal Funding Account is less than the outstanding principal balance
of the Certificates, the amounts in such accounts will nevertheless be
distributed to Certificateholders on such date, the Early Amortization Period
will commence and on each Distribution Date thereafter the Certificateholders
will receive distributions of Monthly Principal and Monthly Interest until the
outstanding principal balance of the Certificates has been paid in full or the
Termination Date has occurred.
It is expected that the final principal payment with respect to the Offered
Certificates will be made on the Expected Final Payment Date, but the principal
of the Certificates may be paid earlier or, depending on the actual payment rate
on the Receivables, later, as described under "Risk Factors--Effect of Timing of
Origination of, and Payments on, Receivables on Payments on the Certificates."
If the Receivables are sold or repurchased as described below, principal
payments on the Certificates will be made on the Distribution Date following
such sale or repurchase. See "--Allocation Percentages--Principal Collections
for all Series" and "--Distributions from the Collection Account; Reserve Fund--
Principal Collections."
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The Class B Certificates will be subordinated to fund payments of principal
(and interest) on the Class A Certificates. See "Description of the
Certificates--Distributions."
Distributions on the Certificates will be made on each applicable Distribution
Date to the holders of Certificates in whose names the Certificates were
registered (expected to be Cede, as nominee of DTC, with respect to the Offered
Certificates) at the close of business on the day preceding such Distribution
Date (or, if Definitive Certificates are issued, on the last day of the
preceding calendar month) (each a "Record Date"). However, the final
distribution on the Certificates will be made only upon presentation and
surrender of the Certificates. Distributions will be made to DTC in immediately
available funds.
BOOK-ENTRY REGISTRATION
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 UCC and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and facilitate
the clearance and settlement of securities transactions between Participants
through electronic computerized book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants include
the Underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
Purchases of Offered Certificates under the DTC system must be made by or
through Participants, which will receive a credit for the Offered Certificates
on DTC's records. The ownership interest of each actual Certificate Owner is in
turn to be recorded on the Participants' and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchase, but Certificate Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Participant or Indirect Participant through which the
Certificate Owner entered into the transaction. Transfers of ownership interests
in the Offered Certificates are to be accomplished by entries made on the books
of Participants acting on behalf of Certificate Owners. Certificate Owners will
not receive certificates representing their ownership interest in Offered
Certificates, except in the event that use of the book-entry system for the
Offered Certificates is discounted.
To facilitate subsequent transfers, all Offered Certificates deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede. The deposit of Offered 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; DTC's records reflect only the identity of the
Participants to whose accounts such Offered Certificates are credited, which may
or may not be the Certificate Owners. The Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by 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 the Offered
Certificates. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns Cede's
consenting or voting rights to those Participants to whose accounts the Offered
Certificates are credited on the record date (identified in a listing attached
thereto).
Principal and interest payments on the Offered Certificates will be made to
DTC. DTC's practice is to credit Participants' accounts on the applicable
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such Distribution Date. Payments by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, the Trustee or the Seller, 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 Participants shall be the responsibility of DTC, and disbursement of
such payments to the Certificate Owners shall be the responsibility of
Participants and Indirect Participants.
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Under a book-entry format, Class A and Class B Certificateholders will
receive payments after the applicable Distribution Date because, while payments
are required to be forwarded to Cede, as nominee for DTC, on each such date,
DTC will forward such payments to its Participants which thereafter will be
required to forward them to Indirect Participants or Class A or Class B
Certificateholders. It is anticipated that the only Class A and Class B
Certificateholder (as such terms are used in the Pooling and Servicing
Agreement) will be Cede, as nominee of DTC, and that Certificate Owners will not
be recognized by the Trustee as Class A or Class B Certificateholders under the
Pooling and Servicing Agreement.
Because DTC can only act on behalf of Participants, who in turn act on behalf
of Indirect Participants and certain banks, the ability of a Certificate Owner
to pledge Offered Certificates to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Offered
Certificates, may be limited due to the lack of a physical certificate for such
Offered Certificates.
DTC may discontinue providing its services as securities depository with
respect to the Offered Certificates at any time by giving reasonable notice to
the Seller 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.
Cedel Bank is incorporated under the laws of Luxembourg as a professional
depository. Cedel Bank holds securities for its participating organizations
("Cedel Participants") and facilitates the clearance and settlement of
securities transactions between Cedel Participants through electronic book-entry
changes in accounts of Cedel Participants, thereby eliminating the need for
physical movement of certificates. Cedel Bank provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel Bank interfaces with domestic markets in several
countries. As a professional depository, Cedel Bank is subject to regulation by
the Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel Bank is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of Euroclear
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear 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. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for Euroclear on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries. Indirect access to
Euroclear is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking corporation
which is a member bank of the Federal Reserve System. As such, it is regulated
and examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to the Offered Certificates held through Cedel Bank
or Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "Federal Income Tax Considerations" and "State and Local Tax
Consequences." Cedel Bank or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Class A or Class B
Certificateholder under the Pooling and Servicing Agreement on behalf of a Cedel
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Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect such actions on
its behalf through DTC.
Holders of Offered Certificates may hold their Offered Certificates through
DTC (in the United States) or Cedel Bank or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems.
The Offered Certificates will initially be registered in the name of Cede &
Co., the nominee of DTC. Cedel Bank and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in Cedel
Bank's and Euroclear's names on the books of their respective depositories which
in turn will hold such positions in customers' securities accounts in the
depositories' names on the books of DTC. Citibank, N.A. ("Citibank") will act
as depositary for Cedel Bank and Morgan Guaranty Trust Company of New York
("Morgan") will act as depositary for Euroclear (in such capacities,
individually the "Depositary" and collectively the "Depositaries").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time zone differences, credits of securities received in Cedel Bank
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel Bank or
Euroclear as a result of sales of securities by or through a Cedel Participant
or Euroclear Participant to a Participant will be received with value on the DTC
settlement date but will be available in the relevant Cedel Bank or Euroclear
cash account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the Offered
Certificates, see "Federal Income Tax Considerations--Foreign Investors."
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Offered Certificates among participants of
DTC, Cedel Bank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
DEFINITIVE CERTIFICATES
Class A and Class B Certificates will be issued in fully registered,
certificated form to Certificate Owners or their nominees ("Definitive
Certificates"), rather than to DTC or its nominee, only if (i) the Seller
advises the Trustee in writing that DTC is no longer willing or able to properly
discharge its responsibilities as Depository with respect to the Class A and
Class B Certificates, as applicable, and the Trustee or the Seller is unable to
locate a qualified successor, (ii) the Seller, at its option, elects to
terminate the book-entry system through DTC with respect to such class or (iii)
after the occurrence of a Servicer Default, Class A or Class B
Certificateholders, as applicable, representing not less than 50% of the
aggregate unpaid principal amount of such Certificates advise the Trustee and
DTC through Participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of such
Certificateholders.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Class A or Class B
Certificates, as applicable. Upon surrender by DTC of the certificate or
certificates representing such Class A or Class B Certificates and instructions
for re-registration, the Trustee will issue such Class A or Class B
Certificates, as applicable, in the form of Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Class A or Class B Certificateholders under the Pooling and
Servicing Agreement ("Holders"). In the event that Definitive
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Certificates are issued or DTC ceases to be the clearing agency for the Class A
or Class B Certificates, the Pooling and Servicing Agreement provides that the
Class A or Class B Certificateholders will be notified of such event.
Distributions of principal of and interest on the Offered Certificates will be
made by the Trustee directly to Holders in accordance with the procedures set
forth herein and in the Pooling and Servicing Agreement. See "--Distributions
from the Collection Account; Reserve Fund" and "--Distributions" below.
Distributions on each Distribution Date or Interest Payment 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. The final distribution on any Certificate (whether Definitive
Certificates or the certificate or certificates registered in the name of Cede
representing the Certificates), however, will be made only upon presentation and
surrender of such Certificate on the final payment date at such office or agency
as is 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 distribution. The Trustee shall pay to
the Seller any monies held by it for the payment of principal or interest that
remain unclaimed for two years after such notice. After such payment to the
Seller, Certificateholders entitled to the money must look to the Seller for
payment as general creditors unless an applicable abandoned property law
designates another person.
Definitive Certificates will be transferable or exchangeable at the offices of
the Trustee, which shall initially be 450 West 33rd Street, New York, New York
10001. No service charge will be imposed for any registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith.
SUPPLEMENTAL CERTIFICATES
The Pooling and Servicing Agreement provides that the Seller may exchange a
portion of the certificate evidencing the Seller's Interest (the "Seller's
Certificate") for another certificate (a "Supplemental Certificate") for
transfer or assignment to a person designated by the Seller upon the execution
and delivery of a supplement to the Pooling and Servicing Agreement (which
supplement shall be subject to the amendment section of the Pooling and
Servicing Agreement to the extent that it amends any of the terms of the Pooling
and Servicing Agreement); provided that (a) the Seller shall after giving effect
thereto have an interest in the Pool Balance of not less than 2% of the Pool
Balance, (b) the Seller shall have delivered to the Trustee, each Rating Agency
and any Enhancement Provider a Tax Opinion (as defined below) with respect to
such exchange and (c) the Seller shall have delivered to the Trustee evidence of
satisfaction of the Rating Agency Condition. Any subsequent transfer or
assignment of a Supplemental Certificate is also subject to the conditions
described in clauses (b) and (c) in the preceding sentence.
NEW ISSUANCES
The Pooling and Servicing Agreement provides that the Trust will issue two
types of certificates: (i) one or more Series of investor certificates
(including the Certificates) which are transferable and have the characteristics
described below and (ii) the Seller's Certificate (and any Supplemental
Certificate) which will evidence the Seller's Interest and will be transferable
only upon the satisfaction of certain conditions described above under
"--Supplemental Certificates." The Pooling and Servicing Agreement provides
that, pursuant to one or more Supplements, the Seller may cause the Trustee to
issue one or more new Series. Under the Pooling and Servicing Agreement, the
Seller may specify, among other things, with respect to any Series: (a) its name
or designation, (b) its initial principal amount, (c) its certificate rate (or
the method for determining its certificate rate), (d) a date on which it will
begin its amortization period or controlled amortization period, if any, (e) the
method for allocating principal and interest to certificateholders, (f) the
percentage used to calculate monthly servicing fees, (g) the issuer and terms of
any Enhancement with respect thereto or the level of subordination provided by
the Seller's Interest, (h) the terms on which the certificates of such Series
may be exchanged for certificates of another Series, be subject to repurchase,
optional redemption or mandatory redemption by the Seller or be remarketed by
any remarketing agent, (i) the series termination date and (j) any other terms
permitted by the Pooling and Servicing Agreement (all such terms, the "Principal
Terms" of such Series). The Seller may offer any Series under a prospectus or
other disclosure document in transactions either registered under the Securities
Act or exempt from registration thereunder, directly or through one or more
underwriters or placement agents. There is no limit to the number of Series that
may be issued under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that the Seller may specify
Principal Terms of a new Series such that each Series has an amortization period
or accumulation period which may have a different length and begin on a
different date than the amortization period or accumulation period for any other
Series. Further, one or more Series may be in their early amortization periods
or accumulation periods while other Series are not. Thus, certain Series may be
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amortizing or accumulating principal, while other Series are not amortizing or
accumulating principal. Moreover, different Series may have the benefits of
different forms of Enhancement issued by different entities. Under the Pooling
and Servicing Agreement, the Trustee will hold each form of Enhancement only on
behalf of the Series (or a particular class within a Series) to which it
relates. The Pooling and Servicing Agreement also provides that the Seller may
specify different certificate rates and monthly servicing fees with respect to
each Series (or a particular class within a Series). In addition, the Seller has
the option under the Pooling and Servicing Agreement to vary between Series (or
classes within a Series) the terms upon which a Series (or classes within a
Series) may be repurchased by the Seller.
Under the Pooling and Servicing Agreement and pursuant to a Supplement, a new
Series may be issued only upon the satisfaction of certain specified conditions.
The Seller may cause the issuance of a new Series by notifying the Trustee at
least five business days in advance of the applicable Series Issuance Date. The
Pooling and Servicing Agreement provides that the Trustee will issue any such
Series only upon delivery to it of the following: (i) a Supplement in form
satisfactory to the Trustee signed by the Seller and the Servicer and specifying
the Principal Terms of such Series, (ii) the form of any Enhancement and any
related agreement, (iii) an opinion of counsel to the effect that, for federal
income and Missouri income tax purposes, (x) such issuance will not adversely
affect the characterization of the certificates (including the Certificates) of
any outstanding Series or class as debt or as partnership interests, (y) such
issuance will not cause a taxable event to any certificateholders (including the
Certificateholders) (an opinion of counsel to the effect referred to in clauses
(x) and (y) with respect to any action is referred to herein as a "Tax
Opinion") and (z) such new Series will be characterized as debt or as
partnership interests and (iv) evidence of satisfaction of the Rating Agency
Condition. Such issuance is also subject to the conditions that (a) the Seller
shall have represented and warranted that such issuance shall not, in the
reasonable belief of the Seller, cause an Early Amortization Event to occur and
(b) after giving effect to such issuance, the Seller's interest in the Pool
Balance shall not be less than 2% of the Pool Balance. In addition, it will be a
condition to the issuance of any new Series that all of the conditions listed in
the preceding sentence would be satisfied if the Delayed Funding Receivables in
the Trust were not in the Trust; provided that this condition will be eliminated
if the Seller has received evidence of satisfaction of the Rating Agency
Condition. Upon satisfaction of all such conditions, the Trustee will issue such
Series.
CONVEYANCE OF RECEIVABLES AND COLLATERAL SECURITY
On the date on which the initial Series was issued by the Trust (the "Initial
Closing Date"), the Seller sold and assigned to the Trust all of its right,
title and interest in and to the Receivables and the related Collateral Security
as of the Initial Cut-Off Date, all receivables thereafter created in the
Accounts and its interests in the related Collateral Security and the
Receivables Contribution and Sale Agreement, and the proceeds of all of the
foregoing. See "The Trust."
In connection with the contribution and sale of the Receivables to the Seller
by DFS and the transfer of the Receivables by the Seller to the Trust, DFS
indicated in their books and records, which may include computer records, that
the Receivables in the Accounts and the related Collateral Security had been
conveyed to the Trust. In addition, the Seller provided to the Trustee a
computer file or microfiche or written list containing a true and complete list
showing for each Account, as of the Initial Cut-Off Date, (i) its account number
and (ii) the outstanding balance of Principal Receivables in such Account. DFS
has retained and will retain and will not deliver to the Trustee any other
records or agreements relating to the Receivables. Except as set forth above,
the records and agreements relating to the Receivables have not been and will
not be segregated from those relating to other accounts of DFS, and the physical
documentation relating to the Receivables has not and will not be stamped or
marked to reflect the transfer of the Receivables to the Trust. The Seller filed
one or more financing statements in accordance with Missouri law (and, with
respect to Deutsche BSC, Georgia law) to perfect the Trust's interest in the
Receivables, the Collateral Security, the Receivables Contribution and Sale
Agreement and the proceeds thereof. See "Risk Factors--Certain Legal Aspects"
and "Certain Legal Aspects of the Receivables."
REPRESENTATIONS AND WARRANTIES
The Seller has made and will make representations and warranties to the
Trustee and the Trust relating to the Accounts, the Receivables and the
Collateral Security to the effect, among other things, that (a) as of the
Initial Cut-Off Date, the Closing Date and the date of issuance of any other
Series (a "Series Issuance Date") (or, in the case of an Additional Account,
as of the cut-off date for such Additional Account (the "Additional Cut-Off
Date") and the date the related Receivables are transferred to the Trust (an
"Addition Date")), each Account or Additional Account was or is an Eligible
Account or, if it was or is an Ineligible Account on such date, such Account is
being removed from the Trust in accordance with the requirements of the Pooling
and Servicing Agreement, (b) as of the Initial Cut-Off Date (or as of the
Additional Cut-Off Date, in the case of any Additional Accounts) or as of the
date any future Receivable
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is generated (a "Transfer Date"), each Receivable conveyed to the Trust is an
Eligible Receivable or, if such Receivable is not an Eligible Receivable, such
Receivable is conveyed to the Trust as described below under "--Eligible
Accounts and Eligible Receivables," (c) each Receivable and all Collateral
Security conveyed to the Trust on the Initial Closing Date and on each Transfer
Date or, in the case of Additional Accounts, on the Addition Date, and all of
the Seller's right, title and interest in the Receivables Contribution and Sale
Agreement, have been conveyed to the Trust free and clear of any liens, and (d)
all appropriate consents and governmental authorizations required to be obtained
by the Seller in connection with the conveyance of each such Receivable or
Collateral Security have been duly obtained. If the Seller breaches any
representation and warranty described in this paragraph and such breach remains
uncured for 30 days or such longer period as may be agreed to by the Trustee,
after the earlier to occur of the discovery of such breach by the Seller or the
Servicer or receipt of written notice of such breach by the Seller or the
Servicer, and such breach has a material adverse effect on the
Certificateholders' Interest or the interests of the holders of other
outstanding Series in any Receivable or Account, the Certificateholders'
Interest and such other certificateholders' interests in such Receivable or, in
the case of a breach relating to an Account, all Receivables in the related
Account ("Ineligible Receivables") will be reassigned to the Seller on the
terms and conditions set forth below and such Account shall no longer be
included as an Account.
Each such Receivable shall be reassigned to the Seller on or before the end of
the Collection Period in which such reassignment obligation arises by the Seller
directing the Servicer to deduct the principal balance of such Receivable
(discounted by the Discount Factor for the Collection Period preceding such
Determination Date) from the Pool Balance. In the event that such deduction
would cause the Pool Balance to be less than the Required Participation Amount
on the preceding Determination Date (after giving effect to the allocations,
distributions, withdrawals and deposits to be made on the Distribution Date
following such Determination Date), on the date on which such reassignment is to
occur the Seller will be obligated to make a deposit into the Collection Account
in immediately available funds in an amount equal to the amount by which the
Pool Balance would be less than the Required Participation Amount (the amount of
any such deposit being referred to herein as a "Transfer Deposit Amount"),
provided that if the Transfer Deposit Amount is not so deposited, the principal
balance of the related Receivables will be deducted from the Pool Balance only
to the extent the Pool Balance is not reduced below the Required Participation
Amount and any principal balance not so deducted will not be reassigned and will
remain part of the Trust. The reassignment of any such Receivable to the Seller
and the payment of any related Transfer Deposit Amount will be the sole remedy
respecting any breach of the representations and warranties described in the
preceding paragraph with respect to such Receivable available to
Certificateholders or the Trustee on behalf of Certificateholders.
The Seller will also make representations and warranties to the Trust to the
effect, among other things, that as of the Closing Date and each Series Issuance
Date (a) it is duly organized as a limited partnership and in good standing, it
has the authority to consummate the transactions contemplated by the Pooling and
Servicing Agreement and the Pooling and Servicing Agreement constitutes a valid,
binding and enforceable agreement of the Seller and (b) the Pooling and
Servicing Agreement constitutes a valid sale, transfer and assignment to the
Trust of all right, title and interest of the Seller in or under (i) the
Receivables and the Collateral Security, whether then existing or thereafter
created, (ii) the Receivables Contribution and Sale Agreement, and (iii) the
proceeds thereof (including proceeds in any of the accounts established for the
benefit of the certificateholders) and upon the filing of financing statements
under the UCC as then in effect in the State of Missouri, which is effective as
to each Receivable existing on the Closing Date (or as of the Addition Date, if
applicable) or, as to each Receivable arising thereafter, upon the creation
thereof the Trust, shall have a perfected ownership interest in such property.
In the event that the breach of any of the representations and warranties
described in this paragraph has a material adverse effect on the
Certificateholders' Interest or the interests of the holders of other
outstanding Series in the Receivables, then either the Trustee or the holders of
certificates of all outstanding Series (including the Certificates) evidencing
more than 50% of the aggregate unpaid principal amount of all outstanding
Series, by written notice to the Seller and the Servicer (and to the Trustee and
any issuer or provider of any Enhancement (an "Enhancement Provider") if given
by certificateholders), may direct the Seller to accept the reassignment of the
Certificateholders' Interest and the certificateholders' interests of other
Series within 60 days of such notice, or within such longer period specified in
such notice. The Seller will be obligated to accept the reassignment of the
Certificateholders' Interest and such other certificateholders' interests on a
Distribution Date occurring within such 60-day period. Such reassignment will
not be required to be made, however, if at the end of such applicable period,
the representations and warranties shall then be true and correct in all
material respects and any material adverse effect caused by such breach shall
have been cured. The portion of the price for such reassignment in respect of
the Certificates will be equal to the sum of (i) the Invested Amount of the
Certificates on the Determination Date preceding the Distribution Date on which
the purchase is scheduled to be made and (ii) accrued and unpaid interest on the
unpaid principal amount of the Certificates at the applicable Certificate Rates
(together with interest on overdue interest, to the extent lawfully payable).
The payment of the reassignment price for all outstanding Series, in immediately
available funds, will be considered a payment in full of the Certificateholders'
Interest and such other certificateholders' interests. The portion of such funds
allocable to the Certificateholders' Interest will be distributed upon
presentation and surrender of the Certificates. If the Trustee or the
certificateholders give a notice as provided above, the obligation of the Seller
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to make any such deposit will constitute the sole remedy respecting a breach of
the representations and warranties available to certificateholders or the
Trustee on behalf of the certificateholders.
ELIGIBLE ACCOUNTS AND ELIGIBLE RECEIVABLES
As stated elsewhere in this Prospectus, references to DFS in connection with
the origination or conveyance of Receivables include Deutsche BSC in its
origination and conveyance of Receivables and each other affiliate of DFS that
may originate or convey Receivables in the future (subject to satisfaction of
the Rating Agency Condition).
An "Eligible Account" is defined to mean each arrangement to provide a
revolving extension of credit by DFS to a Dealer (i) in order to finance the
purchase by a Dealer of consumer and commercial product inventory, (ii) as a
credit facility secured by the accounts receivable owned by such Dealer, (iii)
as a line of credit secured by unencumbered assets of such Dealer or (iv) as an
unsecured line of credit, which extension of credit, as of the date of
determination thereof (a) is established by DFS in the ordinary course of
business pursuant to a floorplan, accounts receivable, asset based or unsecured
lending financing agreement, (b) is in favor of a Dealer doing business in the
United States which is an eligible Dealer (which excludes Dealers subject to
voluntary or involuntary bankruptcy proceedings or voluntary or involuntary
liquidation), (c) is in existence and maintained and serviced by DFS and (d) in
respect of which no amounts have been charged off as uncollectible. Eligible
Accounts include Accounts in which another lender participates. See "The Dealer
Floorplan Financing Business of DFS--Participation Arrangements." Receivables
arising in Accounts in which another lender participates include only DFS's
undivided interest in the related advance and not the undivided interest therein
of the other lender.
An "Eligible Receivable" is defined to mean each Receivable: (a) which was
originated or acquired by DFS in the ordinary course of business, (b) which
arose under an Account that at such time was an Eligible Account, (c) which is
owned by DFS at the time of sale or contribution by DFS to the Seller, (d) which
represents the obligation of a Dealer to repay an advance made to or on behalf
of such Dealer, (e) which at the time of creation and at the time of transfer to
the Trust is, except in the case of an Unsecured Receivable, secured, to the
extent required by the related financing agreement, by a perfected first
priority security interest (whether by prior filing, purchase money security
interest statutory priority, or subordination agreement from prior filers) in
the products, accounts receivable or other collateral relating thereto (except
that such security interest need not be a first priority security interest in
the case of a Receivable arising in an Account for which the payment terms are
on a Scheduled Payment Plan basis and the maximum credit line is $250,000 or
less, but only if such Account was designated as an Account as of the Series
1994-1 Closing Date) and the perfection of such security interest is governed by
the laws of one or more of the States of the United States, the District of
Columbia or, if acceptable to each Rating Agency, a territory or possession of
the United States, (f) which was created in compliance in all respects with all
requirements of law applicable thereto and pursuant to a floorplan, accounts
receivable, asset based lending or unsecured receivable financing agreement
which complies in all respects with all requirements of law applicable to any
party thereto, (g) with respect to which all consents and governmental
authorizations required to be obtained by DFS or the Seller in connection with
the creation of such Receivable or the transfer thereof to the Trust or the
performance by DFS of the floorplan, accounts receivable, asset based lending or
unsecured receivable financing agreement pursuant to which such Receivable was
created, have been duly obtained and are in full force and effect, (h) as to
which at all times following the transfer of such Receivable to the Trust, the
Trust will have good and marketable title thereto free and clear of all liens
arising prior to the transfer or arising at any time, other than liens permitted
pursuant to the Pooling and Servicing Agreement, (i) which has been the subject
of a valid transfer and assignment from the Seller to the Trust of all the
Seller's interest therein (including any proceeds thereof), (j) which will at
all times be the legal and assignable payment obligation of the Dealer relating
thereto, enforceable against such Dealer in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy or other similar
laws, (k) which at the time of transfer to the Trust is not subject to any right
of rescission, setoff, or any other defense (including defenses arising out of
violations of usury laws) of the Dealer, (l) as to which, at the time of
transfer of such Receivable to the Trust, DFS and the Seller have satisfied all
their respective obligations with respect to such Receivable required to be
satisfied at such time, (m) as to which, at the time of transfer of such
Receivable to the Trust, neither DFS nor the Seller has taken or failed to take
any action which would impair the rights of the Trust or the certificateholders
therein, (n) which constitutes "chattel paper," an "account" or a "general
intangible" as defined in Article 9 of the UCC as then in effect in the State
of Missouri (the financing agreement giving rise to said Receivable may,
however, be subject by its terms, or by judicial interpretation, to the laws of
other states), (o) which was transferred to the Trust with all applicable
governmental authorizations and (p) if such Receivable has the benefit of a
Floorplan Agreement with a Manufacturer, such Floorplan Agreement provides,
subject to the specific terms thereof and any limitations therein (which may
vary among Floorplan Agreements), that the Manufacturer is obligated to
repurchase the products securing the Receivable upon the Servicer's repossession
thereof upon the related Dealer's default. For a description of the various
terms of the Floorplan Agreements, see "The Dealer Floorplan Financing Business
of DFS--Floorplan Agreements." Notwithstanding the foregoing, together with the
Ineligible Receivables
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referred to under "--Representations and Warranties" above, (i) all Receivables
that, at the time of its transfer to the Trust, have been SAU or NSF for more
than 30 days will also be "Ineligible Receivables," and (ii) the aggregate of
Receivables that, at the time of transfer of each such Receivable to the Trust,
have been SAU or NSF for a period of one to 30 days will also be "Ineligible
Receivables" to the extent that such aggregate amount exceeds 0.75% of the Pool
Balance at the end of such Collection Period. All Ineligible Receivables will be
transferred to the Trust, but the "Pool Balance" will for all purposes be
calculated by excluding all Ineligible Receivables from the Receivables. Delayed
Funding Receivables, as described under "The Dealer Floorplan Financing Business
of DFS--Creation of Receivables," will be Eligible Receivables, but, unless the
required statement from each Rating Agency is received as described under "--New
Issuances" above, Delayed Funding Receivables will be deemed not to be part of
the Pool Balance for purposes of determining whether a new Series of
certificates may be issued. Once a Receivable that was initially a Delayed
Funding Receivable is funded by DFS, then such Receivable will no longer be
considered to be a Delayed Funding Receivable for purposes of the Pooling and
Servicing Agreement. In addition, Delayed Funding Receivables (including any
Collections thereon and Defaulted Amounts in respect thereof) will cease to be
included in the Trust on the day, if any, on which an Insolvency Event in
respect of DFS occurs.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of the Receivables or any records relating to the
Receivables for the purpose of establishing the presence or absence of defects,
compliance with representations and warranties of the Seller or for any other
purpose. In addition, it is not anticipated or required that the Trustee will
make any initial or periodic general examination of the Servicer for the purpose
of establishing the compliance by the Servicer with its representations or
warranties, the observation of its obligations under the Pooling and Servicing
Agreement or for any other purpose. The Servicer, however, will deliver to the
Trustee on or before April 30 of each calendar year a certificate with respect
to its performance under the Pooling and Servicing Agreement and each
Supplement.
THE OVERCONCENTRATION AMOUNTS
The Available Subordinated Amount shall be adjusted to reflect, on each
Determination Date, the aggregate principal amount of Receivables in the Trust
on such Distribution Date which are A/R Receivable Overconcentrations, Asset
Based Receivable Overconcentrations, Dealer Overconcentrations, Manufacturer
Overconcentrations, Product Line Overconcentrations and Unsecured Receivable
Overconcentrations (the "Overconcentration Amount") allocable to the
Certificateholders' Interest.
"A/R Receivable Overconcentration" on any Determination Date means the
excess of (a) the aggregate of all amounts of Principal Receivables in accounts
created pursuant to Accounts Receivable Financing Agreements on the last day of
the Collection Period immediately preceding such Determination Date over (b) 20%
of the Pool Balance on the last day of such immediately preceding Collection
Period.
"Asset Based Receivable Overconcentration" on any Determination Date means
the excess of (a) the aggregate of all amounts of Principal Receivables in
Accounts created pursuant to Asset Based Lending Financing Agreements on the
last day of the Collection Period immediately preceding such Determination Date
over (b) 15% of the Pool Balance on the last day of such immediately preceding
Collection Period.
"Dealer Overconcentration" on any Determination Date means, (i) with respect
to any Account with a Dealer other than a Specified Dealer, the excess of (a)
the aggregate amount of Principal Receivables in such Account on the last day of
the Collection Period immediately preceding such Determination Date over (b) 2%
of the Pool Balance on the last day of such immediately preceding Collection
Period; and (ii) with respect to any Account with a Specified Dealer, the excess
of (a) the aggregate amount of Principal Receivables in such Account on the last
day of the Collection Period immediately preceding such Determination Date over
(b) 3% of the Pool Balance as of such immediately preceding Collection Period.
As used in this paragraph, "Specified Dealer" means, with respect to a Dealer,
that on the last day of such immediately preceding Collection Period any Account
with such Dealer is among one of the fifteen Accounts having the largest amount
of all Principal Receivables in all of the Accounts as of such last day.
"Manufacturer Overconcentration" on any Determination Date means the excess
of (a) the aggregate of all amounts of Principal Receivables in Accounts created
pursuant to Floorplan Agreements with a single Manufacturer on the last day of
the Collection Period immediately preceding such Determination Date over (b) 15%
of the Pool Balance on the last day of such immediately preceding Collection
Period.
"Product Line Overconcentration" on any Determination Date means, with
respect to Accounts created pursuant to Wholesale Financing Agreements, the
excess of (a) the aggregate of all amounts of Principal Receivables in such
Accounts that represent financing for a single product line on the last day of
the Collection Period immediately preceding
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such Determination Date over (b) 25% (40% in the case of computer products) of
the Pool Balance on the last day of such immediately preceding Collection
Period.
"Unsecured Receivable Overconcentration" on any Determination Date means,
without duplication, the sum of (i) the excess of (a) the aggregate of all
amounts of Principal Receivables in Accounts created pursuant to Unsecured
Receivable Financing Agreements on the last day of the Collection Period
immediately preceding such Determination Date over (b) 3% of the Pool Balance on
the last day of such immediately preceding Collection Period and (ii) the
aggregate of the Individual Unsecured Receivable Overconcentrations for such
Determination Date. The "Individual Unsecured Receivable Overconcentration" on
any Determination Date means, with respect to any Account for Unsecured
Receivables, the excess of (i) the aggregate of all amounts of Principal
Receivables in such Account on the last day of the Collection Period immediately
preceding such Determination Date over (ii) (a) in the case of a Dealer whose
unsecured debt is rated at least A- or its equivalent, 1% of the Pool Balance on
the last day of such immediately preceding Collection Period and (b) in the case
of a Dealer whose unsecured debt is rated less than A- or its equivalent or is
not rated, 0.5% of such Pool Balance.
Notwithstanding the above, in the case of each such Overconcentration, the
percentage in clause (b) (in the case of an Individual Unsecured Receivable
Concentration, both clause (a) and clause (b) and in the case of a Dealer
Overconcentration, the percentage in clause (i)(b) or (ii)(b)) may be increased
by the Seller, without the consent of any Certificateholder, to a level
acceptable to each Rating Agency as long as the Rating Agency Condition is
satisfied. See "--Allocation of Collections; Deposits in Collection Account;
Limited Subordination of Seller's Interest--Available Subordinated Amount."
ADDITION OF ACCOUNTS
Subject to the conditions described below, the Seller has the right to
designate from time to time additional accounts to be included as Accounts (the
"Additional Accounts"). In addition, the Seller is required to add the
Receivables of Additional Accounts if either (i) the Pool Balance (exclusive of
Delayed Funding Receivables) on the last day of any Collection Period is less
than the Required Participation Amount as of the following Distribution Date or
(ii) the Seller's Participation Amount (exclusive of Delayed Funding
Receivables) as of the following Distribution Date multiplied by the portion of
the Seller's Interest (exclusive of Delayed Funding Receivables) represented by
the Seller's Certificate is less than 5% of the Pool Balance (exclusive of
Delayed Funding Receivables) on such last day. In either case, unless certain
insolvency events have occurred with respect to the Seller, the Seller under the
Pooling and Servicing Agreement will be required to transfer and assign to the
Trust, within 10 business days after the end of such Collection Period,
interests in all Receivables arising in such Additional Accounts, whether such
Receivables are then existing or thereafter created. Any designation of
Additional Accounts is subject to the following conditions, among others: (i)
each such Additional Account must be an Eligible Account; (ii) the Seller shall
represent and warrant that the addition of such Additional Accounts shall not,
in the reasonable belief of the Seller, cause an Early Amortization Event to
occur; (iii) the Seller shall not select such Additional Accounts in a manner
that it believes is adverse to the interests of the certificateholders or any
Enhancement Provider; (iv) the Seller shall deliver a Tax Opinion, other than in
the case of a required addition, and certain other opinions of counsel with
respect to the addition of such Additional Accounts to the Trustee and any
Enhancement Provider and (v) if the Automatic Addition Condition is not
satisfied, the Rating Agency Condition has been satisfied. If the Automatic
Addition Condition is satisfied and the Account being added will contain
Receivables which represent a type of product not previously financed by DFS or
is supported by a Manufacturer that is not an Existing Manufacturer, then such
addition is subject to satisfaction of the Rating Agency Condition.
Each Additional Account must be an Eligible Account at the time of its
addition. However, since Additional Accounts may not have been a part of the
initial portfolio of DFS, they may not be of the same credit quality as the
initial Accounts. Additional Accounts may have been originated by DFS at a later
date using credit criteria different from those which were applied to the
initial Accounts.
"Automatic Addition Condition" shall mean, with respect to the addition of
Accounts that (i) during the calendar quarter in which such addition occurs, the
number of new Accounts for Dealers that are financing products of the type
already being financed by DFS and purchasing such products from Existing
Manufacturers does not exceed 5% of the number of all Accounts at the end of the
preceding calendar quarter, (ii) during the twelve months ending at the
beginning of such calendar quarter, the number of such new Accounts does not
exceed 20% of the number of all Accounts at the beginning of such twelve month
period, (iii) the average for the three months preceding the month of such
addition of the aggregate balance of Receivables that have been SAU or NSF for
more than 30 days does not exceed 1.25% of the Pool Balance at the end of the
month preceding the month of such addition, and (iv) the annualized average for
such three month period of the net losses incurred in respect of the Receivables
does not exceed 1.75% of the Pool Balance at the end of the month preceding the
month of such addition.
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"Existing Manufacturer" shall mean (i) each Manufacturer with which DFS has
entered into a business arrangement, either through a Floorplan Agreement or
another arrangement, on or prior to the Series 1994-1 Closing Date, (ii) each
Manufacturer with which DFS enters into such a business arrangement after the
Series 1994-1 Closing Date so long as the aggregate balances of the Receivables
subject to such Floorplan Agreement do not exceed the lesser of (a) 1% of the
Pool Balance at the beginning of the Collection Period in which the addition of
the related Account occurs and (b) $25 million and (iii) each Manufacturer with
which DFS enters into such a business arrangement after the Series 1994-1
Closing Date and as to which the Rating Agency Condition is satisfied.
"Required Participation Amount" for any date will mean an amount equal to
the sum of (a) the sum of the product for each Series of (i) the Required
Participation Percentage for such Series times (ii) the initial invested amount
of such Series minus the amount of any deposits into its excess funding account
in connection with a reduction in the Pool Balance plus the amount of any
withdrawals from its excess funding account in connection with an increase in
the Pool Balance plus (b) the Trust Available Subordinated Amount on the
immediately preceding Determination Date (after giving effect to the
allocations, distributions, withdrawals and deposits to be made on the
Distribution Date following such Determination Date).
"Required Participation Percentage" will mean, (a) with respect to Series
1996-2, [105%], (b) with respect to Series 1996-1, 105%, (c) with respect to
Series 1994-1, 105% and (d) with respect to any future Series, the percentage
specified therefor in the related Supplement; provided, however, that the Seller
may, upon ten days' prior notice to the Trustee, each Rating Agency and any
Enhancement Provider reduce the Required Participation Percentage to not less
than 100%, so long as the Rating Agency Condition has been satisfied.
REMOVAL OF ACCOUNTS; TRANSFERS OF PARTICIPATIONS
The Seller shall have the right at any time to require the removal from the
Trust of Eligible Accounts, including all amounts then held by the Trust or
thereafter received by the Trust in respect of the Eligible Accounts to be
removed. To remove any Eligible Account and such amounts, the Seller (or the
Servicer on its behalf) shall, among other things, (a) on or before the fifth
business day prior to the date of removal (the "Removal Date"), furnish to the
Trustee, any Enhancement Provider, and each Rating Agency a written notice (the
"Removal Notice") specifying the Removal Date; (b) on or before the fifth
business day after the Removal Date, the Seller shall have furnished to the
Trustee a computer file, microfiche list or other list of the Accounts (the
"Removed Accounts") that were removed on the Removal Date, specifying for each
Removed Account as of the date of the Removal Notice its number, the aggregate
amount outstanding in such Removed Account and the aggregate amount of
Receivables therein; (c) represent and warrant that the removal of any such
Eligible Account on the Removal Date will not, in the reasonable belief of the
Seller, cause an Early Amortization Event to occur or cause the Pool Balance to
be less than the Required Participation Amount; (d) represent and warrant that
no selection procedures believed by the Seller to be adverse to the interest of
the certificateholders were utilized in selecting the Removed Accounts; (e)
obtain evidence that the Rating Agency Condition has been satisfied; and (f) on
or before the related Removal Date, deliver to the Trustee and any Enhancement
Provider an officers' certificate confirming the items set forth in clauses (c),
(d) and (e) above and a Tax Opinion with respect to such removal.
All Receivables existing in the Removed Accounts will be assigned to the
Seller as of the Removal Date. On or prior to the tenth business day following
the date on which an Account becomes an Ineligible Account (which date will be
deemed the Removal Date for such Account), the Seller will commence the removal
of such Account from the Trust. However, all Receivables existing in any such
Account (other than an Account that was an Ineligible Account at the time it was
originally designated as an Account) as of the Removal Date will continue to be
a Trust asset.
The Seller may cause the Trust to transfer to the Seller a Participation in
the Receivables in one or more Accounts subject to the same limitations
described above with respect to the removal of Accounts, except that the removal
will relate to an undivided percentage interest in the Receivables in an Account
rather than a dollar amount. The Seller may thereafter transfer such
Participation to other persons.
Accounts that are terminated by their Dealers after they have paid the related
Receivables in full will be deemed to be removed from the Trust without having
to follow the procedures described above.
COLLECTION ACCOUNT
The Servicer has established and is required to maintain, or cause to be
established and maintained, an Eligible Deposit Account in the name of the
Trustee, on behalf of the Trust, for the benefit of the Seller,
certificateholders of
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all Series and any Enhancement Providers (the "Collection Account").
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution or trust company organized under the laws
of the United States or any one of the states thereof (or any domestic branch of
a foreign bank), having corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of such depository
institution or trust company has a credit rating from each Rating Agency in one
of its generic rating categories which signifies investment grade. "Eligible
Institution" means (a) the corporate trust department of the Trustee or (b) a
depository institution or trust company organized under the laws of the United
States or any one of the states thereof (or a domestic branch of a foreign bank)
which at all times (i) has either (x) a long-term unsecured debt rating
acceptable to each Rating Agency or (y) a certificate of deposit rating
acceptable to each Rating Agency and (ii) is a member of the FDIC. Funds in the
Collection Account generally will be invested in investments acceptable to each
such Rating Agency as being consistent with the then-current rating of the
certificates (collectively, "Eligible Investments"). Any earnings (net of
losses and investment expenses) on funds in the Collection Account will be
credited to the Collection Account. The Servicer will have the revocable power
to instruct the Trustee to make withdrawals and payments from the Collection
Account for the purpose of carrying out its duties under the Pooling and
Servicing Agreement.
EXCESS FUNDING ACCOUNT
The Servicer has established and is required to maintain an Eligible Deposit
Account in the name of the Trustee, on behalf of the Trust (the "Excess Funding
Account"). On each Distribution Date during the Revolving Period, if (a) the
Pool Balance at the end of the preceding Collection Period is less than the Pool
Balance at the end of the second preceding Collection Period and (b) the Pool
Balance at the end of the preceding Collection Period is less than the Required
Participation Amount for such Distribution Date (calculated before giving effect
to any deposits to the Excess Funding Account and any excess funding account for
any other Series in its revolving period to be made on such Distribution Date),
then certain Available Certificateholder Principal Collections will be deposited
in the Excess Funding Account on such Distribution Date. If (i) on any
Determination Date during the Revolving Period there are any funds in the Excess
Funding Account and (ii) the Pool Balance at the end of the preceding Collection
Period is greater than the Pool Balance at the end of the second preceding
Collection Period, then, the Invested Amount and the invested amounts (but, in
each case, not in excess of the initial principal amount of such Series) for all
other outstanding Series that provide for an excess funding account or similar
arrangement and are in their revolving periods shall be increased such that,
after giving effect to such increases, the Required Participation Amount is at
least equal to the Pool Balance. On such Determination Date, the Servicer shall
notify the Trustee of the amount, if any, of such increase in the Invested
Amount and the Trustee shall withdraw from the Excess Funding Account and pay to
the Seller or allocate to one or more other Series, on the immediately
succeeding Distribution Date, an amount equal to the amount of such increase in
the Invested Amount. To the extent that the Invested Amount is increased by any
payment to the Seller or any allocation to one or more other Series, the
Seller's Interest or such other Series' invested amount, as applicable, shall be
reduced by the amount of such payment. In addition, any increase in the Invested
Amount is subject to the condition that after giving effect to such increase the
Pool Balance equals or exceeds the sum of (A) the Required Participation Amount
(exclusive of the amount in clause (b) of the definition thereof), (B) the sum
of the Available Subordinated Amount and the sum of the required subordinated
amounts for all other Series (or, if such other Series shall have no required
subordinated amounts, the available subordinated amounts with respect to such
Series) and (C) the sum of any subordinated amounts supporting any Enhancement
for all other Series. Under certain circumstances, such deposits in and
withdrawals from the Excess Funding Account may be made on a daily basis. The
allocation of additional Receivables to increase the Invested Amount and the
invested amounts of such other Series will be pro rata based on the proportion
that the amount on deposit in the Excess Funding Account bears to the aggregate
amounts in all of the Trust's excess funding accounts (including the Excess
Funding Account) and similar arrangements for accommodating the fluctuation in
the principal balances of the Receivables. The deposit of amounts into the
Excess Funding Account and the excess funding accounts and such similar
arrangements for other Series will be based on the proportion that the Invested
Amount bears to the aggregate of the invested amounts (including the Invested
Amount) for all Series.
Any funds on deposit in the Excess Funding Account at the beginning of the
Early Amortization Period or the Accumulation Period will be deposited in the
Principal Funding Account. In addition, no funds will be deposited in the Excess
Funding Account during the Accumulation Period or any Early Amortization Period.
Funds on deposit in the Excess Funding Account will be invested by the Trustee
at the direction of the Servicer in investments rated in the highest short-term
category of each Rating Agency or in such other investments that are acceptable
to each Rating Agency. Such investments are required to mature by the next
Distribution Date. On each Distribution Date, all net investment income earned
on amounts in the Excess Funding Account since the preceding Distribution Date
will be withdrawn from the Excess Funding Account and applied as described
herein. See "--Distributions from the Collection Account; Reserve Fund" below.
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ALLOCATION PERCENTAGES
Allocation to the Certificateholders' Interest. The Servicer will allocate
amounts to the Certificateholders' Interest for each Collection Period as
follows:
(i) Non-Principal Collections and the Defaulted Amount will be allocated to
Certificateholders based on the Floating Allocation Percentage;
(ii) during the Revolving Period, Principal Collections will be allocated to
Certificateholders based on the Floating Allocation Percentage (subject to the
following sentence);
(iii) during the Accumulation Period and any Early Amortization Period,
Principal Collections will be allocated to Certificateholders based on the
Principal Allocation Percentage (subject to the following sentence); and
(iv) Miscellaneous Payments will at all times be allocated to
Certificateholders on the basis of the Series 1996-2 Allocation Percentage.
With respect to Principal Collections among Series for any Collection Period,
if the sum of (i) the sum of the floating allocation percentages (including the
Floating Allocation Percentage, if applicable) for each Series in its revolving
period and (ii) the principal allocation percentage (including the Principal
Allocation Percentage, if applicable) for each Series in its amortization,
accumulation or early amortization period exceeds 100%, then Principal
Collections for such Collection Period will be allocated among the Series pro
rata on the basis of such floating allocation percentages and principal
allocation percentages. Amounts not allocated to the Certificateholders as
described above will be allocated to the Seller and the other outstanding Series
of certificates, if any.
"Class A Initial Invested Amount" for any date means the initial principal
amount of the Class A Certificates, which is $________________, plus (x) the
product of (i) the Class A Percentage multiplied by (ii) the amount of any
withdrawals from the Excess Funding Account in connection with an increase in
Pool Balance since the Closing Date, minus (y) the product of (i) the Class A
Percentage multiplied by (ii) the amount of any additions to the Excess Funding
Account in connection with a reduction in the Pool Balance since the Closing
Date.
"Class A Invested Amount" for any date means an amount equal to the sum of
(a)(i) the Class A Initial Invested Amount, minus (ii) the aggregate amount of
principal payments made to Class A Certificateholders prior to such date, minus
(iii) the aggregate amount of all unreimbursed Class A Investor Charge-Offs.
"Class A Percentage" means the percentage equivalent of a fraction the
numerator of which is the outstanding principal balance of the Class A
Certificates and the denominator of which is the outstanding principal balance
of all Certificates.
"Class B Initial Invested Amount" for any date means the initial principal
amount of the Class B Certificates, which is $______________, plus (x) the
product of (i) the Class B Percentage multiplied by (ii) the amount of any
withdrawals from the Excess Funding Account in connection with an increase in
Pool Balance since the Closing Date, minus (y) the product of (i) the Class B
Percentage multiplied by (ii) the amount of any additions to the Excess Funding
Account in connection with a reduction in the Pool Balance since the Closing
Date.
"Class B Invested Amount" for any date means an amount equal to the sum of
(a)(i) the Class B Initial Invested Amount, minus (ii) the aggregate amount of
principal payments made to Class B Certificateholders prior to such date, minus
(iii) the aggregate amount of all unreimbursed Class B Investor Charge-Offs.
"Class B Percentage" means the percentage equivalent of a fraction the
numerator of which is the outstanding principal balance of the Class B
Certificates and the denominator of which is the outstanding principal balance
of all Certificates.
"Class C Initial Invested Amount" for any date means the initial principal
amount of the Class C Certificates, which is $____________, plus (x) the product
of (i) the Class C Percentage multiplied by (ii) the amount of any withdrawals
from the Excess Funding Account in connection with an increase in Pool Balance
since the Closing Date, minus (y) the product of (i) the Class C Percentage
multiplied by (ii) the amount of any additions to the Excess Funding Account in
connection with a reduction in the Pool Balance since the Closing Date.
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"Class C Invested Amount" for any date means an amount equal to the sum of
(a) (i) the Class C Initial Invested Amount, minus (ii) the aggregate amount of
principal payments made to Class C Certificateholders prior to such date, minus
(iii) the aggregate amount of all unreimbursed Class C Investor Charge-Offs.
"Class C Percentage" means the percentage equivalent of a fraction the
numerator of which is the outstanding principal balance of the Class C
Certificates and the denominator of which is the outstanding principal balance
of all Certificates.
"Floating Allocation Percentage" for any Collection Period means the
percentage equivalent (which shall never exceed 100%) of a fraction, the
numerator of which is the Invested Amount as of the last day of the immediately
preceding Collection Period and the denominator of which is the Pool Balance as
of such last day; provided, however, that, with respect to the first Collection
Period, the Floating Allocation Percentage shall mean the percentage equivalent
of a fraction, the numerator of which is the sum of the initial principal
balances of the Certificates and the denominator of which is the Pool Balance on
the Series 1996-2 Cut-Off Date.
"Invested Amount" means for any date the sum of the Class A Invested Amount,
the Class B Invested Amount and the Class C Invested Amount.
"Miscellaneous Payments" for any Collection Period means the sum of (a)
Adjustment Payments and Transfer Deposit Amounts received with respect to such
Collection Period and (b) Unallocated Principal Collections on such Distribution
Date available to be treated as Miscellaneous Payments as described below under
"--Principal Collections for all Series."
"Principal Allocation Percentage" for any Collection Period means the
percentage equivalent (which shall never exceed 100%) of a fraction, the
numerator of which is the Invested Amount as of the last day of the Revolving
Period and the denominator of which is the Pool Balance as of the last day of
the immediately preceding Collection Period; provided, however, that with
respect to that portion of any Collection Period that falls after the date on
which any Early Amortization Event occurs (unless, in limited circumstances with
respect to the addition of Accounts, such Early Amortization Event shall have
been cured), the Principal Allocation Percentage shall be reset using the Pool
Balance as of the close of business on the date on which such Early Amortization
Event shall have occurred and Principal Collections shall be allocated for such
portion of such Collection Period using such reset Principal Allocation
Percentage.
"Series 1996-2 Allocation Percentage" means, for any Collection Period, the
percentage equivalent of a fraction, the numerator of which is the Invested
Amount as of the last day of the immediately preceding Collection Period and the
denominator of which is the Trust Invested Amount as of such last day.
"Trust Available Subordinated Amount" means the sum of the Available
Subordinated Amount and the aggregate available subordinated amounts for all
other outstanding Series.
"Trust Invested Amount" means, with respect to any Collection Period, the
sum of the Invested Amount and the invested amounts for all other outstanding
Series.
The Floating Allocation Percentage and the Principal Allocation Percentage
will be adjusted for any Collection Period in which Additional Accounts are
designated to reflect the additional Receivables added to the Trust.
Principal Collections for all Series. Principal Collections allocated to the
Certificateholders' Interest, for any Collection Period with respect to the
Accumulation Period or any Early Amortization Period, will first be allocated to
make required payments of principal to the Principal Funding Account during the
Accumulation Period and to the Certificateholders during the Early Amortization
Period. See "--Distributions from the Collection Account; Reserve Fund--
Principal Collections" and "--Distributions." The Servicer will determine the
amount of Available Certificateholder Principal Collections for any Collection
Period remaining after such required payments or deposits into the Excess
Funding Account (with respect to the Revolving Period) and the amount of any
similar excess for any other Series ("Excess Principal Collections"). The
Servicer will allocate Excess Principal Collections to cover any principal
distributions to certificateholders for any Series which are either scheduled or
permitted and which have not been covered out of Principal Collections and
certain other amounts allocated to such Series ("Principal Shortfalls").
Excess Principal Collections will generally not be used to cover investor
charge-offs for any Series. Any such reallocation will not result in a reduction
in the invested amount of the Series to which such collections were initially
allocated. This feature permits amounts that may otherwise be payable to the
holder of the Seller's Certificate to be used for the benefit of Series of
certificates that would otherwise experience a shortfall or delay in the payment
of principal thereon. If Principal Shortfalls exceed Excess Principal
Collections for any Collection Period, Excess Principal Collections will be
allocated
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pro rata among the applicable Series based on the relative amounts of Principal
Shortfalls. To the extent that Excess Principal Collections exceed Principal
Shortfalls, the balance will be paid to the Seller if the Pool Balance
(determined after giving effect to any Principal Receivables transferred to the
Trust on such date) exceeds the Required Participation Amount for the
immediately preceding Determination Date (after giving effect to the
allocations, distributions, withdrawals and deposits to be made on the
Distribution Date immediately following such Determination Date). Any amount not
allocated to the Seller because the Pool Balance does not exceed the Required
Participation Amount will be held unallocated ("Unallocated Principal
Collections") until the Pool Balance exceeds the Required Participation Amount,
at which time such amount will be allocated to the Seller, or until an early
amortization event occurs or an amortization period commences for any Series,
after which such amount will be treated as a Miscellaneous Payment.
DISCOUNT FACTOR
While finance charges are payable on the Receivables generally, finance
charges will not begin to accrue on a portion of the Receivables until a certain
period of time has elapsed after their origination. Therefore, in order to
create imputed interest in respect of such Receivables for their non-interest
bearing period and for administrative uniformity in accounting for Collections,
a portion of the Collections on each Receivable that is not part of the finance
charges, if any, paid on that Receivable will be treated as Non-Principal
Collections. The portion of the balance of a Receivable that will be treated as
a finance charge when such Receivable is collected will be equal to the product
of the balance of such Receivable times the discount factor (the "Discount
Factor") in effect at the time of the collection of such Receivable.
As of the Series 1996-2 Cut-Off Date, the Discount Factor was 0.40% and will
be adjusted as described in this paragraph. If on any Distribution Date the Net
Receivables Rate for such Distribution Date less (i) the weighted average of the
certificate rates (as determined below in this paragraph) for all outstanding
Series of certificates for such Distribution Date less (ii) the annualized Net
Loss Rate (as defined in the Pooling and Servicing Agreement) for the preceding
twelve Collection Periods is less than 1%, then the Discount Factor for such
Distribution Date shall be adjusted upwards, rounded up to the nearest 0.1% (but
in no event will the Discount Factor exceed 1%), so that the Net Receivables
Rate less the rate in clause (i) less the rate in clause (ii) shall be equal to
1%; and the Discount Factor shall remain at such adjusted percentage amount
until it is further adjusted by the terms of this sentence or either of the
following two sentences. Notwithstanding the foregoing, the Seller, at its
discretion, may increase or decrease the Discount Factor, but in no event shall
the Discount Factor exceed 1% or be less than the percentage amount required by
the immediately preceding sentence or be greater than the percentage amount
required by the next sentence. Notwithstanding the foregoing, if the application
of the Discount Factor would cause the Pool Balance to be less than the Required
Participation Amount, then the Discount Factor shall be the percentage (which
shall in no event be less than 0%), rounded down to the nearest 0.1%, which,
when applied, will cause the Pool Balance to at least equal the Required
Participation Amount. For purposes of this definition, (i) if a certificate rate
is calculated as the lesser of (x) a fixed rate or a formula rate and (y) the
Net Receivables Rate, then such certificate rate shall be the rate in clause (x)
and (ii) if an interest rate swap agreement provides the interest distributable
on a Series or Class of certificates then the certificate rate for such Series
or Class of certificates shall be the interest rate payable to the related swap
counterparty.
ALLOCATION OF COLLECTIONS; DEPOSITS IN COLLECTION ACCOUNT; LIMITED SUBORDINATION
OF SELLER'S INTEREST
[The Servicer, no later than two business days after the processing date, will
deposit all collections received with respect to the Receivables (excluding,
with certain exceptions, certain portions thereof allocable to the Seller) in
each Collection Period into the Collection Account. Notwithstanding the
foregoing requirement for daily deposits, for so long as (i) DFS remains the
Servicer under the Pooling and Servicing Agreement, (ii) no Servicer Default has
occurred and is continuing and (iii) (x) DFS arranges for and maintains a letter
of credit or other form of Enhancement in respect of the Servicer's obligation
to make deposits of collections on the Receivables in the Collection Account
that is acceptable in form and substance to each Rating Agency or (y) DFS
otherwise obtains each Rating Agency confirmation described below, then, subject
to any limitations in the confirmations referred to below, DFS need not deposit
collections into the Collection Account on the day indicated in the preceding
sentence until the business day immediately preceding the date on which such
funds are required to be distributed to investors, at which time DFS will make
such deposits in an amount equal to the net amount of such deposits and
withdrawals which would have been made had the conditions of this sentence not
applied; provided, however, that prior to ceasing daily deposits as described
above the Seller shall have delivered to the Trustee evidence that the Rating
Agency Condition has been satisfied.] Until such Collections are deposited into
the Collection Account, such funds may be used by the Servicer for its own
benefit, and the proceeds of any short-term investment of such funds will accrue
to the Servicer. During such times as the Servicer holds collections and is
permitted to use such funds for its own benefit, the Certificateholders are
subject to risk of loss, including risk
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resulting from the bankruptcy or insolvency of the Servicer. The Servicer will
pay no fee to the Trust or any Certificateholder for any use by the Servicer of
funds representing collections on the Receivables.
In addition, during any Collection Period the Servicer will generally be
required to deposit Non-Principal Collections and Principal Collections into the
Collection Account only to the extent of, without duplication, the distributions
required to be made to certificateholders, the amounts required to be deposited
into any deposit, trust, reserve or similar account maintained for the benefit
of certificateholders and the amounts required to be paid to any Enhancement
Provider on the Distribution Date relating to such Collection Period and if, at
any time prior to such Distribution Date, the amount of collections deposited in
the Collection Account exceeds the amount required to be deposited, the Servicer
will be permitted to withdraw such excess from the Collection Account. In
addition, as an administrative convenience, the Servicer will be permitted to
make the deposit of Non-Principal Collections, Principal Collections and other
amounts net of distributions or payments to be made to the Servicer on such
date. However, the Servicer will account for such deposits, distributions and
payments as if they were made individually.
In respect of any date on which collections are made, the Servicer will
distribute directly to the Seller an amount equal to (a) the Excess Seller's
Percentage for the related Collection Period of Non-Principal Collections for
such date and (b) the Excess Seller's Percentage for the related Collection
Period of Principal Collections for such date, if the Seller's Participation
Amount (determined after giving effect to any Principal Receivables transferred
to the Trust on such date) exceeds the Trust Available Subordinated Amount for
the immediately preceding Determination Date (after giving effect to the
allocations, distributions, withdrawals and deposits to be made on the
Distribution Date immediately following such Determination Date). In addition,
during the Revolving Period, subject to certain limitations, the Servicer will
distribute directly to the Seller in respect of each such date an amount equal
to the Available Seller's Principal Collections for such date, if the Seller's
Participation Amount (determined after giving effect to any Principal
Receivables transferred to the Trust on such date) exceeds the Trust Available
Subordinated Amount for the immediately preceding Determination Date (after
giving effect to the allocations, distributions, withdrawals and deposits to be
made on the Distribution Date immediately following such date).
"Available Seller's Collections" for any date means the sum of (a) the
Available Seller's Non-Principal Collections for such date and (b) the Available
Seller's Principal Collections for such date; provided, however, that the
Available Seller's Collections will be zero for any Collection Period with
respect to which the Available Subordinated Amount is zero on the Determination
Date immediately following the end of such Collection Period.
"Available Seller's Non-Principal Collections" for any date means an amount
equal to the result obtained by multiplying (a) the excess of (i) the Seller's
Percentage for the related Collection Period over (ii) the Excess Seller's
Percentage for such Collection Period by (b) Non-Principal Collections for such
date.
"Available Seller's Principal Collections" for any date means an amount
equal to the product of (a) the excess of (i) the Seller's Percentage for the
related Collection Period over (ii) the Excess Seller's Percentage for such
Collection Period and (b) Principal Collections for such date.
"Excess Seller's Percentage" for any Collection Period means a percentage
(which percentage shall never be less than 0% nor more than 100%) equal to (a)
when used with respect to Non-Principal Collections and Defaulted Receivables,
100% minus the sum of (i) the aggregate of the floating allocation percentages
for each outstanding Series with respect to such Collection Period and (ii) the
percentage equivalent of a fraction, the numerator of which is the aggregate of
the available subordinated amounts for each outstanding Series as of the
Determination Date occurring in such Collection Period (after giving effect to
the allocations, distributions, withdrawals and deposits to be made on the
Distribution Date immediately following such Determination Date), and the
denominator of which is the Pool Balance as of the last day of the immediately
preceding Collection Period and (b) when used with respect to Principal
Collections, 100% minus the sum of (i) the sum of the aggregate of the principal
allocation percentages for each outstanding Series in its amortization,
accumulation or early amortization period with respect to such Collection Period
and the aggregate of the floating allocation percentages for each outstanding
Series in its revolving period with respect to such Collection Period and (ii)
the percentage described in clause (a) (ii) above for such Collection Period.
"Seller's Participation Amount" for any date means an amount equal to the
Pool Balance on such date minus the aggregate of invested amounts for all
outstanding Series on such date minus certain adjustments by the Servicer to
Receivables described in the first sentence of the last paragraph under
"--Defaulted Receivables and Recoveries" below.
"Seller's Percentage" means 100% minus (a) when used with respect to Non-
Principal Collections and Defaulted Receivables, the aggregate of the floating
allocation percentages for each outstanding Series (including the Certificates),
and (b) when used with respect to Principal Collections, the sum of (i) the
aggregate of the floating allocation
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percentages for each outstanding Series (including the Certificates, if
applicable) in its revolving period and (ii) the aggregate of the principal
allocation percentages for each outstanding Series (including the Certificates,
if applicable) in its amortization, accumulation or early amortization period,
but in each case shall not be less than 0%.
Deficiency Amount. On each Determination Date, the Servicer will determine for
the Certificates the amount (the "Deficiency Amount"), if any, by which (a)
the sum of (i) Monthly Interest for the following Distribution Date, (ii) any
Monthly Interest for any prior Distribution Dates required to be but not
deposited in the Interest Funding Account on a prior Distribution Date, (iii)
Additional Interest, if any, for such Distribution Date and any Additional
Interest for any prior Distribution Dates required to be but not deposited into
the Interest Funding Account on a prior Distribution Date, but only to the
extent permitted by applicable law, (iv) the Monthly Servicing Fee for such
Distribution Date, (v) the Investor Default Amount for such Distribution Date,
and (vi) the amount of any Adjustment Payment allocated to the Certificates for
such Distribution Date that has not been deposited in the Collection Account as
required under the Pooling and Servicing Agreement exceeds (b) the sum of
Investor Non-Principal Collections for such Distribution Date plus any
Investment Proceeds, if any, with respect to such Distribution Date. The lesser
of the Deficiency Amount and the Available Subordinated Amount is the "Required
Subordination Draw Amount."
Monthly Interest. "Monthly Interest" for any Distribution Date shall mean an
amount equal to the sum of the Class A Monthly Interest, the Class B Monthly
Interest and the Class C Monthly Interest.
"Class A Monthly Interest" on any Distribution Date shall be an amount equal
to the product of (i) the Class A Certificate Rate, (ii) a fraction the
numerator of which is the actual number of days in the related Interest Period
and the denominator of which is 360, and (iii) (A) the outstanding principal
balance of the Class A Certificates as of the close of business on the preceding
Distribution Date (after giving effect to all repayments of principal made to
Class A Certificateholders on such preceding Distribution Date, if any) or (B)
with respect to the first Distribution Date, the initial principal amount of the
Class A Certificates.
"Class B Monthly Interest" on any Distribution Date shall be an amount equal
to the product of (i) the Class B Certificate Rate, (ii) a fraction the
numerator of which is the actual number of days in the related Interest Period
and the denominator of which is 360, and (iii) (A) the outstanding principal
balance of the Class B Certificates as of the close of business on the preceding
Distribution Date (after giving effect to all repayments of principal made to
Class B Certificateholders on such preceding Distribution Date, if any) or (B)
with respect to the first Distribution Date, the initial principal amount of the
Class B Certificates.
"Class C Monthly Interest" on any Distribution Date shall be an amount equal
to the product of (i) the Class C Certificate Rate, (ii) a fraction the
numerator of which is the actual number of days in the related Interest Period
and the denominator of which is 360, and (iii) (A) the outstanding principal
balance of the Class C Certificates as of the close of business on the preceding
Distribution Date (after giving effect to all repayments of principal made to
Class C Certificateholders on such preceding Distribution Date, if any) or (B)
with respect to the first Distribution Date, the initial principal amount of the
Class C Certificates.
Additional Interest. "Additional Interest" for any Distribution Date shall
mean an amount equal to the sum of the Class A Additional Interest, the Class B
Additional Interest and the Class C Additional Interest.
On the Determination Date preceding each Interest Payment Date, the Servicer
shall determine the excess, if any (the "Class A Interest Shortfall"), of (x)
the sum of (i) the Class A Monthly Interest for the Interest Period applicable
to such Interest Payment Date plus (ii) the Class A Monthly Interest for each
Interest Period applicable to each other Distribution Date, if any, occurring
after the immediately preceding Interest Payment Date (or with respect to the
first Interest Payment Date, after the Closing Date) over (y) the amount which
will be available to be paid to the Class A Certificateholders from the Interest
Funding Account on such Interest Payment Date in respect thereof pursuant to the
Supplement relating to Series 1996-2. If, as of any Interest Payment Date, an
amount covering any Class A Interest Shortfall for any prior Distribution Date
shall not have been deposited into the Interest Funding Account, then an
additional amount ("Class A Additional Interest") equal to the product of (i)
the Class A Certificate Rate, (ii) a fraction the numerator of which is the
actual number of days in the period from and including such prior Interest
Payment Date to but excluding the current Interest Payment Date and the
denominator of which is 360, and (iii) such Class A Interest Shortfall (or the
portion thereof which has not been paid or deposited in the Interest Funding
Account) shall be payable as described herein with respect to the Class A
Certificates. See "--Distribution from the Collection Account; Reserve Fund--
Non-Principal Collections" below. Class A Additional Interest shall be payable
to the Interest Funding Account or distributed to Class A Certificateholders
only to the extent permitted by applicable law.
On the Determination Date preceding each Interest Payment Date, the Servicer
shall determine the excess, if any (the "Class B Interest Shortfall"), of (x)
the sum of (i) the Class B Monthly Interest for the Interest Period applicable
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to such Interest Payment Date plus (ii) the Class B Monthly Interest for each
Interest Period applicable to each other Distribution Date, if any, occurring
after the immediately preceding Interest Payment Date (or with respect to the
first Interest Payment Date, after the Closing Date) over (y) the amount which
will be available to be paid to the Class B Certificateholders from the Interest
Funding Account on such Interest Payment Date in respect thereof pursuant to the
Supplement relating to Series 1996-2. If, as of any Interest Payment Date, an
amount covering any Class B Interest Shortfall for any prior Distribution Date
shall not have been deposited into the Interest Funding Account, then an
additional amount ("Class B Additional Interest") equal to the product of (i)
the Class B Certificate Rate, (ii) a fraction the numerator of which is the
actual number of days in the period from and including such prior Interest
Payment Date to but excluding the current Interest Payment Date and the
denominator of which is 360, and (iii) such Class B Interest Shortfall (or the
portion thereof which has not been paid or deposited in the Interest Funding
Account) shall be payable as described herein with respect to the Class B
Certificates. See "--Distribution from the Collection Account; Reserve Fund--
Non-Principal Collections" below. Class B Additional Interest shall be payable
to the Interest Funding Account or distributed to Class B Certificateholders
only to the extent permitted by applicable law.
On the Determination Date preceding each Interest Payment Date, the Servicer
shall determine the excess, if any (the "Class C Interest Shortfall"), of (x)
the sum of (i) the Class C Monthly Interest for the Interest Period applicable
to such Interest Payment Date plus (ii) the Class C Monthly Interest for each
Interest Period applicable to each other Distribution Date, if any, occurring
after the immediately preceding Interest Payment Date (or with respect to the
first Interest Payment Date, after the Closing Date) over (y) the amount which
will be available to be paid to the Class C Certificateholders from the Interest
Funding Account on such Interest Payment Date in respect thereof pursuant to the
Supplement relating to Series 1996-2. If, as of any Interest Payment Date, an
amount covering any Class C Interest Shortfall for any prior Distribution Date
shall not have been deposited into the Interest Funding Account, then an
additional amount ("Class C Additional Interest") equal to the product of (i)
the Class C Certificate Rate, (ii) a fraction the numerator of which is the
actual number of days in the period from and including such prior Interest
Payment Date to but excluding the current Interest Payment Date and the
denominator of which is 360, and (iii) such Class C Interest Shortfall (or the
portion thereof which has not been paid or deposited in the Interest Funding
Account) shall be payable as described herein with respect to the Class C
Certificates. See "--Distribution from the Collection Account; Reserve Fund--
Non-Principal Collections" below. Class C Additional Interest shall be payable
to the Interest Funding Account or distributed to Class C Certificateholders
only to the extent permitted by applicable law.
Available Subordinated Amount. The "Available Subordinated Amount" for a
Determination Date is equal to (i) the result of (x) a fraction, the numerator
of which is the Invested Amount on the last day of the immediately preceding
Collection Period (or with respect to the first Determination Date with respect
to Series 1996-2, the Invested Amount on the issuance date for Series 1996-2),
and the denominator of which is the Pool Balance on such last day multiplied by
(y) the Trust Incremental Subordinated Amount, minus (ii) with certain
limitations, the aggregate of the Required Subordination Draw Amounts for all
preceding Distribution Dates.
"Incremental Default Amount" on any Determination Date equals (a) the
Overconcentration Default Amount on such Determination Date minus (b) the full
amount of any Defaulted Receivables included in the definition of
Overconcentration Default Amount which are subject to a reassignment or
assignment to the Seller or the Servicer in accordance with the terms of the
Pooling and Servicing Agreement (but not less than zero); provided, however,
that, if certain events of bankruptcy, insolvency or receivership have occurred
with respect to the Seller, the amount of such Defaulted Receivables which are
subject to reassignment to the Seller will not be so subtracted and, if certain
events of bankruptcy, insolvency or receivership have occurred with respect to
the Servicer, the amount of such Defaulted Receivables which are subject to
assignment to the Servicer will not be so subtracted.
"Overconcentration Default Amount" on any Determination Date means the
lesser of (a) the aggregate amount of Receivables which became Defaulted
Receivables during such Collection Period and which arose in an Account that is
included in the calculation of the Overconcentration Amount and (b) the
Overconcentration Amount on such Determination Date.
"Trust Incremental Subordinated Amount" on any Determination Date equals the
excess, if any, of (a) the Overconcentration Amount on such Determination Date
over (b) the Incremental Default Amount for such Determination Date.
DISTRIBUTIONS FROM THE COLLECTION ACCOUNT; RESERVE FUND
Non-Principal Collections. On each Distribution Date, the Trustee will apply
Certificateholder Non-Principal Collections and Investment Proceeds, if any,
deposited into the Collection Account in respect the related Collection Period
to make the following distributions in the following order of priority:
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(i) an amount equal to Class A Monthly Interest for such Distribution Date,
plus the amount of any Class A Monthly Interest for any prior Distribution Dates
not deposited in the Interest Funding Account or distributed on such prior
Distribution Dates (plus, but only to the extent permitted under applicable law,
the amount of any Class A Additional Interest for the immediately preceding
Interest Payment Date that has not been deposited in the Interest Funding
Account and, without duplication, any Class A Additional Interest previously due
but not deposited in the Interest Funding Account or distributed), shall be
deposited to the Interest Funding Account;
(ii) an amount equal to Class B Monthly Interest for such Distribution Date,
plus the amount of any Class B Monthly Interest for any prior Distribution Dates
not deposited in the Interest Funding Account or distributed on such prior
Distribution Dates (plus, but only to the extent permitted under applicable law,
the amount of any Class B Additional Interest for the immediately preceding
Interest Payment Date that has not been deposited in the Interest Funding
Account and, without duplication, any Class B Additional Interest previously due
but not deposited in the Interest Funding Account or distributed), shall be
deposited to the Interest Funding Account;
(iii) an amount equal to Class C Monthly Interest for such Distribution Date,
plus the amount of any Class C Monthly Interest for any prior Distribution Dates
not deposited in the Interest Funding Account or distributed on such prior
Distribution Dates (plus, but only to the extent permitted under applicable law,
the amount of any Class C Additional Interest for the immediately preceding
Interest Payment Date that has not been deposited in the Interest Funding
Account and, without duplication, any Class C Additional Interest previously due
but not deposited in the Interest Funding Account or distributed), shall be
deposited to the Interest Funding Account;
(iv) an amount equal to the Monthly Servicing Fee for such Distribution Date
shall be distributed to the Servicer (unless such amount has been netted against
deposits to the Collection Account as described above or waived as described
below);
(v) an amount equal to the Reserve Fund Deposit Amount, if any, for such
Distribution Date shall be deposited in the Reserve Fund;
(vi) an amount equal to the Investor Default Amount, if any, for such
Distribution Date shall be treated as a portion of Available Certificateholder
Principal Collections for such Distribution Date;
(vii) an amount required to reimburse unreimbursed Class A Investor Charge-
Offs, Class B Investor Charge-Offs and Class C Investor Charge-Offs (as
described below) shall be treated as a portion of Investor Principal Collections
for such Distribution Date;
(viii) any Class A Carry-over Amount, Class B Carry-over Amount or Class C
Carry-over Amount not previously distributed shall be deposited to the Interest
Funding Account; and
(ix) the balance, if any, shall constitute "Excess Servicing".
If Certificateholder Non-Principal Collections and Investment Proceeds are not
sufficient to make the entire distributions required by clauses (i), (ii),
(iii), (iv) and (vi), the Servicer will direct the Trustee to withdraw funds
from the Reserve Fund and apply such funds, to the extent available, to complete
the distributions pursuant to such clauses in the numerical order thereof.
If there is a Required Subordination Draw Amount for such Distribution Date,
the Servicer will apply or direct the Trustee to apply the Available Seller's
Collections on deposit in the Collection Account on such Distribution Date, but
only up to the amount of the Required Subordination Draw Amount, to make up the
shortfall in the distributions required by clauses (i)--(iv) and (vi) above and
that have not been made through the applications of funds from the Reserve Fund
described above. Any such Available Seller's Collections remaining after the
application thereof pursuant to the preceding sentence will be treated as a
portion of Available Certificateholder Principal Collections for such
Distribution Date and applied as described under "--Principal Collections"
below, but only up to the amount of unpaid Adjustment Payments allocated to
Series 1996-2. If the Required Subordination Draw Amount exceeds Available
Seller's Collections for such Distribution Date, the Available Subordinated
Amount will be further reduced in accordance with clause (ii) of the definition
of Available Subordinated Amount in an amount equal to such Available Seller's
Collections. If for such Distribution Date the sum of the Required Subordination
Draw Amount and the aggregate of the required subordination draw amounts for all
other Series outstanding exceeds the Available Seller's Collections on deposit
in the Collection Account on such Distribution Date, then such Available
Seller's Collections will be allocated to such Series (including Series 1994-1,
Series 1996-1 and Series 1996-2) pro rata on the basis of such required
subordination draw amounts (including the Required Subordination Draw Amount).
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"Certificateholder Non-Principal Collections" for any Distribution Date
means the portion of Non-Principal Collections for the related Collection Period
allocated to the Certificateholders' Interest as described under "--Allocation
Percentages--Allocation to the Certificateholders' Interest."
"Excess Servicing" for any Distribution Date means the amount described in
clause (ix) above.
"Investment Proceeds" for any Distribution Date means an amount equal to the
sum of (a) the net investment earnings credited to the Collection Account on the
related Determination Date with respect to funds held in the Interest Funding
Account, the Principal Funding Account, the Excess Funding Account and the
Reserve Fund and (b) the Series 1996-2 Allocation Percentage of net investment
earnings credited to the Collection Account on the related Determination Date
with respect to funds held in the Collection Account.
Reserve Fund. An Eligible Deposit Account will be established and maintained
in the name of the Trustee for the benefit of the Certificateholders (the
''Reserve Fund''). On the Closing Date, the Seller will cause to be deposited
with the Trustee, and the Trustee will deposit in the Reserve Fund, funds in an
amount equal to 2% of the aggregate initial principal balance of the
Certificates. The ''Reserve Fund Required Amount'' means an amount which upon
any Distribution Date will equal the product of 2% and the aggregate outstanding
balance of the Certificates as of such Distribution Date (after giving effect to
any change therein on such Distribution Date). If, after giving effect to the
allocations, distributions and deposits in the Reserve Fund described above
under "--Non-Principal Collections," the amount in the Reserve Fund is less
than the Reserve Fund Required Amount, the Trustee shall deposit any remaining
Certificateholder Non-Principal Collections and Investment Proceeds (to the
extent available pursuant to clause (v) under "--Non-Principal Collections"
above) for the related Collection Period into the Reserve Fund until the amount
in the Reserve Fund is equal to such Reserve Fund Required Amount. The "Reserve
Fund Deposit Amount" is the amount, if any, by which the Reserve Fund Required
Amount exceeds the amount on deposit in the Reserve Fund. Funds in the Reserve
Fund will be invested in the same manner in which funds in the Collection
Account may be invested. On each Determination Date, the Servicer will credit to
the Collection Account any investment earnings (net of losses and investment
expenses) with respect to the Reserve Fund. After the earlier of the payment in
full of the outstanding principal balance of the Certificates and the
Termination Date, any funds remaining on deposit in the Reserve Fund will be
paid to the Seller.
Excess Servicing. On each Distribution Date, the Servicer will allocate Excess
Servicing with respect to the Collection Period immediately preceding such
Distribution Date, in the following order of priority:
(a) an amount equal to the aggregate outstanding amounts of the Monthly
Servicing Fee which have been previously waived as described under "--Servicing
Compensation and Payment of Expenses" will be distributed to the Servicer; and
(b) the balance, if any, shall be distributed to the Seller.
Principal Collections. On each Distribution Date, the Servicer will allocate
Available Certificateholder Principal Collections as follows:
(a) for each Distribution Date with respect to the Revolving Period, all
Available Certificateholder Principal Collections will be allocated, first, if
(i) the Pool Balance at the end of the preceding Collection Period is less than
the Pool Balance at the end of the second preceding Collection Period and (ii)
the Pool Balance at the end of the preceding Collection Period is less than the
Required Participation Amount for such Distribution Date (calculated before
giving effect to any deposits to the Excess Funding Account and any excess
funding account for any other Series in their revolving periods to be made on
such Distribution Date), then the Servicer will cause to be deposited into the
Excess Funding Account an amount which will reduce the Invested Amount such
that, together with the deposits to the excess funding accounts (and the
resulting reductions in the invested amounts) for other outstanding Series in
their revolving periods for such Distribution Date, the Pool Balance is equal to
the Required Participation Amount and, second, to Excess Principal Collections
as described under "--Allocation Percentages--Principal Collections for all
Series"; and
(b) for each Distribution Date (x) with respect to the Accumulation Period or
(y) any Early Amortization Period (if a responsible officer of the Trustee has
actual knowledge thereof): (i) an amount equal to Monthly Principal for such
Distribution Date will be deposited to the Principal Funding Account; and (ii)
during the Accumulation Period, the balance, if any, will be allocated to Excess
Principal Collections.
In the event that the Invested Amount is greater than zero on the Termination
Date, any funds remaining in the Reserve Fund (after the application of funds in
the Reserve Fund as described above under "--Non-Principal
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Collections") will be treated as a portion of Available Certificateholder
Principal Collections for the Distribution Date occurring on the Termination
Date.
"Available Certificateholder Principal Collections" for any Distribution
Date means the sum of (a) the product of (i) the Floating Allocation Percentage,
with respect to the Revolving Period, or the Principal Allocation Percentage,
with respect to the Accumulation Period or any Early Amortization Period, for
the related Collection Period (or any partial Collection Period which occurs as
the first Collection Period during an Early Amortization Period) and (ii)
Principal Collections for the related Collection Period (or any partial
Collection Period which occurs as the first Collection Period during an Early
Amortization Period), (b) the amount, if any, of Non-Principal Collections,
funds in the Reserve Fund as described above, Excess Servicing and Available
Seller's Collections, allocated in each case to cover the Investor Default
Amount or reimburse Investor Charge-Offs and (c) the Series 1996-2 Allocation
Percentage of Miscellaneous Payments with respect to such Distribution Date.
"Controlled Amortization Amount" means an amount equal to the Invested
Amount as of the Determination Date on which the Accumulation Period Length is
determined (after giving effect to any changes therein on such date) divided by
the number of months comprising the Accumulation Period Length.
"Controlled Distribution Amount" for a Distribution Date means the excess,
if any, of (i) the product of the Controlled Amortization Amount and the number
of Distribution Dates with respect to the Accumulation Period through and
including such Distribution Date over (ii) the amount on deposit in the Excess
Funding Account and the Principal Funding Account (including any amounts
deposited therein from the Excess Funding Account), before giving effect to any
withdrawals from or deposits to such accounts on such Distribution Date.
"Monthly Principal" with respect to any Distribution Date relating to the
Accumulation Period or any Early Amortization Period will equal Available
Certificateholder Principal Collections for such Distribution Date; provided,
however, that for each Distribution Date with respect to the Accumulation
Period, Monthly Principal may not exceed the Controlled Distribution Amount for
such Distribution Date; and provided, further, that Monthly Principal will not
exceed the aggregate outstanding principal balances of the Certificates.
INTEREST FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the Trustee, on behalf
of the Trust, an Eligible Deposit Account for the benefit of the
Certificateholders (the "Interest Funding Account"). On each Distribution Date
Monthly Interest will be deposited in the Interest Funding Account as provided
above under "--Distributions from the Collection Account; Reserve Fund."
All amounts on deposit in the Interest Funding Account on any Distribution
Date (after giving effect to distributions to be made on such Distribution Date)
(the "Interest Funding Account Balance") will be invested from the date of
their deposit to a date on or prior to the next succeeding Distribution Date by
the Trustee at the direction of the Servicer in Eligible Investments. On each
Distribution Date, the interest and other investment income on the Interest
Funding Account Balance will be paid to the Collection Account and distributed
on such Distribution Date.
PRINCIPAL FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the Trustee, on behalf
of the Trust, an Eligible Deposit Account for the benefit of the
Certificateholders (the "Principal Funding Account"). On each Distribution
Date with respect to the Accumulation Period, Monthly Principal will be
deposited in the Principal Funding Account as provided above under
"--Distributions from the Collection Account; Reserve Fund"; provided that if an
Early Amortization Event occurs during the Accumulation Period (unless, in
limited circumstances with respect to the required addition of Accounts, such
Early Amortization Event shall have been cured), the Principal Funding Account
Balance (as defined below) shall be paid to the Certificateholders on the first
Distribution Date thereafter.
All amounts on deposit in the Principal Funding Account on any Distribution
Date (after giving effect to distributions to be made on such Distribution Date)
(the "Principal Funding Account Balance") will be invested from the date of
their deposit to a date on or prior to the succeeding Distribution Date by the
Trustee at the direction of the Servicer in Eligible Investments. On each
Distribution Date, the interest and other investment income on the Principal
Funding Account Balance will be applied as provided above under
"--Distributions from the Collection Account; Reserve Fund."
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DISTRIBUTIONS
Payments to Certificateholders will be made from the Interest Funding Account,
the Principal Funding Account and the Excess Funding Account. The Servicer shall
instruct the Trustee to apply the funds on deposit in the Interest Funding
Account, the Principal Funding Account and the Excess Funding Account and shall
instruct the Trustee to make, without duplication, the following distributions:
(a) On each Distribution Date which is an Interest Payment Date, available
amounts on deposit in the Interest Funding Account shall be distributed in the
following order of priority:
(i) to the Class A Certificateholders, an amount equal to (x) the sum of
Class A Monthly Interest for such Distribution Date, plus the Class A Monthly
Interest for any prior Distribution Date, if any, occurring after the
immediately preceding Interest Payment Date (or with respect to the first
Interest Payment Date, after the Closing Date), plus (y) any amount determined
on any prior Interest Payment Date pursuant to clause (x) that was not
distributed on any prior Interest Payment Date, plus (z) to the extent permitted
under applicable law, the amount of any Class A Additional Interest for the
current Interest Payment Date and, without duplication, any Class A Additional
Interest previously due but not distributed;
(ii) to the Class B Certificateholders, an amount equal to (x) the sum of
Class B Monthly Interest for such Distribution Date, plus the Class B Monthly
Interest for any prior Distribution Date, if any, occurring after the
immediately preceding Interest Payment Date (or with respect to the first
Interest Payment Date, after the Closing Date), plus (y) any amount determined
on any prior Interest Payment Date pursuant to clause (x) that was not
distributed on any prior Interest Payment Date, plus (z) to the extent permitted
under applicable law, the amount of any Class B Additional Interest for the
current Interest Payment Date and, without duplication, any Class B Additional
Interest previously due but not distributed;
(iii) to the Class C Certificateholders, an amount equal to (x) the sum of
Class C Monthly Interest for such Distribution Date, plus the Class C Monthly
Interest for any prior Distribution Date, if any, occurring after the
immediately preceding Interest Payment Date (or with respect to the first
Interest Payment Date, after the Closing Date), plus (y) any amount determined
on any prior Interest Payment Date pursuant to clause (x) that was not
distributed on any prior Interest Payment Date, plus (z) to the extent permitted
under applicable law, the amount of any Class C Additional Interest for the
current Interest Payment Date and, without duplication, any Class C Additional
Interest previously due but not distributed;
(iv) to the Class A Certificateholders, the sum of any Class A Carry-over
Amount for such Interest Payment Date plus any Class A Carry-over Amount for
each other Distribution Date, if any, occurring after the immediately preceding
Interest Payment Date (or with respect to the first Interest Payment Date, after
the Closing Date);
(v) to the Class B Certificateholders, the sum of any Class B Carry-over
Amount for such Interest Payment Date plus any Class B Carry-over Amount for
each other Distribution Date, if any, occurring after the immediately preceding
Interest Payment Date (or with respect to the first Interest Payment Date, after
the Closing Date); and
(vi) to the Class C Certificateholders, the sum of any Class C Carry-over
Amount for such Interest Payment Date plus any Class C Carry-over Amount for
each other Distribution Date, if any, occurring after the immediately preceding
Interest Payment Date (or with respect to the first Interest Payment Date, after
the Closing Date).
(b) On each Distribution Date during an Early Amortization Period (if a
responsible officer of the Trustee has actual knowledge of such Early
Amortization Period) and on any other Distribution Date after the end of the
Accumulation Period, the amount on deposit in the Excess Funding Account, the
Principal Funding Account and (after the payment of accrued interest and Carry-
over Amounts on the Certificates as described in paragraph (a) above) any
amounts in the Interest Funding Account shall be distributed to the
Certificateholders in the following order of priority: (A) first, to the Class A
Certificateholders until the outstanding principal balance of the Class A
Certificates has been reduced to zero; (B) second, to the Class B
Certificateholders until the outstanding principal balance of the Class B
Certificates has been reduced to zero; and (C) third, to the Class C
Certificateholders until the outstanding principal balance of the Class C
Certificates has been reduced to zero; provided, however, that the maximum
amount distributed pursuant to this paragraph on any such date shall not exceed
the excess of (x) the sum of the outstanding principal balance of the Class A,
Class B and Class C Certificates, as applicable, over (y) the sum of
unreimbursed Class A, Class B and Class C Investor Charge-Offs, each on such
date.
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DEFAULTED RECEIVABLES AND RECOVERIES
"Defaulted Receivables" on any Determination Date are (i) all Receivables
(other than all Ineligible Receivables) which were charged off as uncollectible
in respect of the immediately preceding Collection Period and (ii) all
Receivables which were Eligible Receivables when transferred to the Trust, which
arose in an Account which became an Ineligible Account after the date of
transfer of such Receivables to the Trust and which remained outstanding for any
six consecutive Determination Dates thereafter. DFS's charge-off policy is based
on SAU/NSF aging. For pay-as-sold accounts, receivables which are coded as
SAU/NSF are charged off at the end of the month in which such receivables had
been so coded for at least 181 days. For delinquent scheduled payment accounts,
DFS performs inventory inspections to evaluate its collateral position with the
related Dealer as DFS deems necessary. If the inspection reveals an
uncollateralized position, the shortage is coded SAU. The SAU will be charged
off on or before 181 days. "SAU" is the code on DFS's servicing records
representing the unpaid portion of a receivable balance as to which the related
Product has been sold but not paid in full. DFS's "NSF" code represents checks
from customers returned for insufficient funds. DFS's charge off policy may
change over time.
The "Defaulted Amount" for any Determination Date will be an amount (which
shall not be less than zero) equal to (a) the principal amount (exclusive of the
discounted portion that, if collected, would have been treated as a Non-
Principal Collection) of Receivables that became Defaulted Receivables during
the preceding Collection Period less (b) the full amount (exclusive of such
discounted portion) of any Defaulted Receivables subject to reassignment to the
Seller or purchase by the Servicer for such Collection Period unless certain
events of bankruptcy, insolvency, or receivership have occurred with respect to
either of the Seller or the Servicer, in which event the Defaulted Amount will
not be reduced for those Defaulted Receivables. Receivables will be charged off
as uncollectible in accordance with the Servicer's customary and usual policies
and procedures for servicing its own comparable revolving dealer wholesale loan
accounts. A portion of the Defaulted Amount equal to the product of (x) the
Defaulted Amount for such Collection Period and (y) the Floating Allocation
Percentage for such Collection Period will be allocated to the
Certificateholders. The portion of the Defaulted Amount allocated to the
Certificateholders is referred to as the "Investor Default Amount."
If the Servicer adjusts the amount of any Receivable because of a rebate,
refund, credit adjustment or billing error to a Dealer, or because such
Receivable was created in respect of inventory which was refused or returned by
a Dealer, the Seller's Participation Amount will be reduced by the amount of the
adjustment. Furthermore, if following such reduction the Pool Balance would be
less than the Required Participation Amount for the immediately preceding
Determination Date (after giving effect to the allocations, distributions,
withdrawals and deposits to be made on the Distribution Date immediately
following such Determination Date), the Seller will be required to deposit a
cash amount equal to such deficiency (up to the amount of such Adjustment) into
the Collection Account in immediately available funds (an "Adjustment
Payment") on the day on which such adjustment occurs.
INVESTOR CHARGE-OFFS
If on any Distribution Date (after giving effect to the allocations,
distributions, withdrawals and deposits to be made on such Distribution Date),
(i) the Available Subordinated Amount on the preceding Determination Date is
zero, (ii) the balance of the Reserve Fund on such Distribution Date is zero and
(iii) the Deficiency Amount is greater than zero, then the Class C Invested
Amount will be reduced by the amount of the excess of such Deficiency Amount
over any remaining Available Subordinated Amount on such Determination Date, but
not by more than the Investor Default Amount for the related Collection Period
(a "Class C Investor Charge-Off"). In the event that any such reduction of the
Class C Invested Amount would cause the Class C Invested Amount to be a negative
number, the Class C Invested Amount will be maintained at or reduced to zero,
and the Class B Invested Amount will be reduced by the aggregate amount of such
excess, but not more than the remaining Investor Default Amount for such
Collection Period (a "Class B Investor Charge-Off"). In the event that any
such reduction of the Class B Invested Amount would cause the Class B Invested
Amount to be a negative number, the Class B Invested Amount will be maintained
at or reduced to zero, and the Class A Invested Amount will be reduced by the
aggregate amount of such excess, but not more than the remaining Investor
Default Amount for such Collection Period (a "Class A Investor Charge-Off").
Class A Investor Charge-Offs, Class B Investor Charge-Offs and Class C Investor
Charge-Offs will thereafter be reimbursed (in that order) and the Class A
Invested Amount, Class B Invested Amount and Class C Invested Amount increased
(in that order) (but not by an amount in excess of the aggregate unreimbursed
Class A Investor Charge-Offs, Class B Investor Charge-Offs and Class C Investor
Charge-Offs, as the case may be) on any Distribution Date by the sum of (a) the
Series 1996-2 Allocation Percentage of Miscellaneous Payments with respect to
such Distribution Date and (b) the amount of Excess Servicing allocated and
available for that purpose as described above.
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OPTIONAL REPURCHASE
On any Distribution Date occurring after the Invested Amount of the
Certificates is reduced to 10% of the initial outstanding principal amount of
the Certificates or less, the Seller will have the option, subject to certain
conditions, to repurchase the Certificateholders' Interest. The purchase price
will be equal to such outstanding Invested Amount plus accrued and unpaid
interest on the Certificates through the day preceding the Distribution Date on
which the repurchase occurs. The purchase price will be deposited in the
Collection Account in immediately available funds on the Distribution Date on
which the Seller exercises such option. Following any such purchase, the
Certificateholders will have no further rights with respect to the
Certificateholders' Interest, other than the right to receive the final
distribution on the Certificates. In the event that the Seller fails for any
reason to deposit such purchase price, payments will continue to be made to the
Certificateholders as described under "--Distributions from the Collection
Account; Reserve Fund."
EARLY AMORTIZATION EVENTS
Commencing on the first Distribution Date following the Collection Period in
which an Early Amortization Event has occurred, Principal Collections allocable
to the Certificateholders' Interest will no longer be deposited in the Excess
Funding Account or paid to the Seller or allocated to any other Series but
instead will be distributed to Certificateholders monthly on each Distribution
Date, except as described below, and the Controlled Distribution Amount will no
longer apply to distributions of principal on the Certificates. An "Early
Amortization Event" refers to any of the following events:
1. failure by the Seller to convey Receivables in Additional Accounts to the
Trust within five business days after the day on which it is required to convey
such Receivables pursuant to the Pooling and Servicing Agreement;
2. failure on the part of the Seller, the Servicer or DFS, as applicable, (i)
to make any payment or deposit required by the Pooling and Servicing Agreement
or the Receivables Contribution and Sale Agreement, including but not limited to
any Transfer Deposit Amount or Adjustment Payment, on or before the date
occurring five business days after the date such payment or deposit is required
to be made therein; or (ii) to deliver a Distribution Date Statement on the date
required under the Pooling and Servicing Agreement (or within ten business days
after notice from the Trustee of such failure); (iii) to comply with its
covenant not to create any lien on a Receivable which failure has a material
adverse effect on the certificateholders and which continues unremedied for a
period of 60 days after written notice; provided, however, that an Early
Amortization Event shall not be deemed to have occurred if the Seller shall have
repurchased the related Receivables or, if applicable, all the Receivables
during such period in accordance with the provisions of the Pooling and
Servicing Agreement; or (iv) to observe or perform in any material respect any
other covenants or agreements set forth in the Pooling and Servicing Agreement
or the Receivables Contribution and Sale Agreement, which failure has a
materially adverse effect on the certificateholders and which continues
unremedied for a period of 45 days after written notice of such failure;
3. any representation or warranty made by DFS in the Receivables Contribution
and Sale Agreement or by the Seller in the Pooling and Servicing Agreement or
any information required to be given by the Seller to the Trustee to identify
the Accounts proves to have been incorrect in any material respect when made and
continues to be incorrect in any material respect for a period of 60 days after
written notice and as a result the interests of the certificateholders are
materially and adversely affected (excluding, however, any representation or
warranty made by the Seller that the Pooling and Servicing Agreement
constitutes, or the transfer of the Receivables to the Trust is, a valid sale,
transfer and assignment to the Trust of all right, title and interest of the
Seller in the Receivables and the Collateral Security if the Pooling and
Servicing Agreement constitutes the grant of a security interest in the
Receivables and Collateral Security); provided, however, that an Early
Amortization Event shall not be deemed to occur thereunder if the Seller has
repurchased the related Receivables or all such Receivables, if applicable,
during such period in accordance with the provisions of the Pooling and
Servicing Agreement;
4. the occurrence of certain events of bankruptcy, insolvency or receivership
relating to any of DFS, the Seller or Deutsche Bank North America Holding
Corporation (so long as DFS is a direct or indirect subsidiary of Deutsche Bank
North America Holding Corporation);
5. the Trust or the Seller becomes an investment company within the meaning of
the Investment Company Act of 1940, as amended;
6. any Servicer Default occurs;
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7. a Carry-over Amount is outstanding on six consecutive Distribution Dates
(after giving effect to the distribution on each such Distribution Date);
8. on any Determination Date, the average of the Monthly Payment Rates for
the three preceding Collection Periods, where the Monthly Payment Rate for a
Collection Period is the percentage obtained by dividing the aggregate of the
Receivables balances (without deducting therefrom the discount portion)
collected during such Collection Period by the average daily aggregate
Receivables balance (without deducting therefrom the discount portion) for such
Collection Period, is less than 27.5%;
9. the failure to pay the outstanding principal amount of the Certificates by
the Expected Final Payment Date;
10. the ratio (expressed as a percentage) of (i) the average for each month of
the net losses on the Receivables (exclusive of the Ineligible Receivables)
owned by the Trust (i.e., gross losses less recoveries on any such Receivables
(including, without limitation, recoveries from collateral security in addition
to recoveries from the products, recoveries from Manufacturers and insurance
proceeds)) during any three consecutive calendar months to (ii) the average of
the month-end aggregate balances of such Receivables (without deducting
therefrom the discount portion) for such three-month period, exceeds 5% on an
annualized basis; provided, that this clause (10) may be amended or waived with
the consent of the Seller and each Rating Agency and without the consent of any
Certificateholder;
11. the sum of all Eligible Investments and amounts on deposit in the Excess
Funding Account and any excess funding accounts for any other Series represents
more than 50% of the total assets of the Trust on each of six or more
consecutive Determination Dates, after giving effect to all payments made or to
be made on the Distribution Date next succeeding each such respective
Determination Date; and
12. on any Distribution Date, the balance of the Reserve Fund is less than 2%
of the aggregate outstanding principal balance of the Certificates, in each case
after giving effect to all deposits and distributions on such Distribution Date.
Upon the occurrence of any event described above, an Early Amortization Event
will be deemed to have occurred without any notice or other action on the part
of any other party immediately upon the occurrence of such event. The Early
Amortization Period will commence as of the day on which the Early Amortization
Event occurs. Monthly distributions of principal to the Certificateholders will
begin on the first Distribution Date following the Collection Period in which an
Early Amortization Period has commenced and will continue, to the extent
described under "--Distributions" above, on subsequent Distribution Dates.
In addition to the consequences of an Early Amortization Event discussed
above, if an insolvency event occurs with respect to the Seller, or the Seller
violates its covenant not to create any lien on any Receivable, in each case as
provided in the Pooling and Servicing Agreement, on the day of such insolvency
event or such violation, as applicable, the Seller will immediately cease to
transfer Receivables to the Trust and promptly give notice to the Trustee of
such insolvency event or violation, as applicable, and the Trust will be deemed
to have terminated, subject to the liquidation, winding up and dissolution
procedures described below. Under the terms of the Pooling and Servicing
Agreement (unless the provisions of the Pooling and Servicing Agreement have
been amended, as described under "--Amendments" below, to eliminate the
provisions relating to the sale of Receivables upon the occurrence of an
insolvency event with respect to the Seller), within 15 days the Trustee will
publish a notice of such insolvency event or violation stating that the Trustee
intends to sell, liquidate or otherwise dispose of the Receivables in a
commercially reasonable manner and on commercially reasonable terms, unless
within a specified period of time holders of Certificates and certificates of
each other outstanding Series representing more than 50% of the aggregate
outstanding principal amount of the certificates of each such Series (or, with
respect to any Series with two or more classes, the certificates of each such
class) and each person holding a Supplemental Certificate, instruct the Trustee
not to sell, liquidate or dispose of the Receivables and to continue
transferring Receivables as before such insolvency event or violation, as
applicable. If the portion of such proceeds allocated to the Certificateholders'
Interest and the proceeds of any collections on the Receivables in the
Collection Account allocable to the Certificateholders' Interest are not
sufficient to pay the aggregate unpaid principal balance of the Certificates in
full plus accrued and unpaid interest thereon, Certificateholders will incur a
loss. Notwithstanding the above, in the case of the violation of the covenant
not to create a lien on any Receivable, the Trust will not sell the Receivables
unless the proceeds allocable to the Certificateholders' Interest are sufficient
to pay the aggregate unpaid principal balance of the Certificates in full plus
accrued and unpaid interest thereon.
TERMINATION
The Trust will terminate on the earlier to occur of (a) the day following the
Distribution Date on which the aggregate Invested Amounts for all Series is
zero, if the Seller elects to terminate the Trust at such time, and (b)
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December 31, 2014. Upon termination of the Trust, all right, title and interest
in the Receivables and other funds of the Trust (other than amounts in the
Collection Account for the final distribution of principal and interest to
certificateholders) will be conveyed and transferred to the Seller.
In any event, the last payment of principal and interest on the Certificates
will be due and payable no later than the ___________ Distribution Date (the
"Termination Date"). In the event that the Invested Amount is greater than
zero on the Termination Date, the Trustee will sell or cause to be sold (and
apply the proceeds to the extent necessary to pay such remaining amounts to all
Certificateholders) an interest in the Receivables or certain Receivables, as
specified in the Pooling and Servicing Agreement, in an amount equal to the sum
of (a) 110% of the Invested Amount (after giving effect to deposits and
distributions otherwise to be made on the Termination Date) and (b) the
Available Subordinated Amount on the preceding Determination Date (after giving
effect to allocations to be made on the Distribution Date following such
Determination Date); provided, however, that in no event shall such amount
exceed the Series 1996-2 Allocation Percentage of Receivables on such
Termination Date. The net proceeds of such sale and any collections on the
Receivables will be paid first to Class A Certificateholders, until the accrued
and unpaid Class A Monthly Interest and all Class A Additional Interest is paid
in full and the Class A Invested Amount is reduced to zero, second to Class B
Certificateholders, until the accrued and unpaid Class B Monthly Interest and
all Class B Additional Interest is paid in full and the Class B Invested Amount
is reduced to zero, and third to Class C Certificateholders, until the accrued
and unpaid Class C Monthly Interest and all Class C Additional Interest is paid
in full the Class C Invested Amount is reduced to zero. Any remaining proceeds
will be paid to the Seller.
INDEMNIFICATION
The Pooling and Servicing Agreement provides that the Servicer will indemnify
the Trust and the Trustee from and against any loss, liability, expense, damage
or injury suffered or sustained arising out of any acts or omissions arising out
of activities of the Trust, the Trustee or the Servicer pursuant to the Pooling
and Servicing Agreement; provided that the Trust or the Trustee will not be so
indemnified if such acts or omissions constitute fraud, gross negligence, breach
of fiduciary duty or willful misconduct by the Trustee. In addition, the
Servicer will not indemnify the Trust, the Trustee or the certificateholders for
any act taken by the Trustee at the request of the certificateholders or for any
tax required to be paid by the Trust or the certificateholders or for any loss
as an investor in the certificates.
The Pooling and Servicing Agreement provides that, except as described above
and with certain other exceptions, neither the Seller, the Servicer, Deutsche
FRI nor any of their directors, officers, employees or agents will be under any
liability to the Trust, the Trustee, the certificateholders or any other person
for taking any action, or for refraining from taking any action, pursuant to the
Pooling and Servicing Agreement. However, neither the Seller, the Servicer,
Deutsche FRI nor any of their directors, officers, employees or agents will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence of any such person in the
performance of their duties or by reason of reckless disregard of their
obligations and duties thereunder.
In addition, the Pooling and Servicing Agreement provides that the Servicer is
not 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. The Servicer may, in its sole discretion, undertake any
such legal action which it may deem necessary or desirable for the benefit of
certificateholders with respect to the Pooling and Servicing Agreement and the
rights and duties of the parties thereto and the interest of the
certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer is responsible
for servicing, collecting, enforcing and administering the Receivables in
accordance with customary and usual procedures for servicing its own revolving
credit line dealer wholesale loans, except where the failure to so act would not
materially and adversely affect the rights of the Trust.
DFS covenants that it may only change the terms relating to the Accounts if
(i) in the Servicer's reasonable judgment, no Early Amortization Event will
occur as a result of the change and (ii) the change is made applicable to the
comparable segment of the portfolio of revolving credit line dealer wholesale
loan accounts with similar characteristics owned or serviced by DFS and not only
to the Accounts.
Servicing activities to be performed by the Servicer include collecting and
recording payments, communicating with dealers, investigating payment
delinquencies, evaluating the increase of credit limits, and maintaining
internal records with respect to each Account. Managerial and custodial services
performed by the Servicer on behalf of the Trust include
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providing assistance in any inspections of the documents and records relating to
the Accounts and Receivables by the Trustee pursuant to the Pooling and
Servicing Agreement, maintaining the agreements, documents and files relating to
the Accounts and Receivables as custodian for the Trust and providing related
data processing and reporting services for certificateholders and on behalf of
the Trustee.
SERVICER COVENANTS
In the Pooling and Servicing Agreement the Servicer covenants that: (a) it
will duly satisfy all obligations on its part to be fulfilled under or in
connection with the Receivables and Accounts, will maintain in effect all
qualifications required in order to service the Receivables and Accounts and
will comply in all material respects with all requirements of law in connection
with servicing the Receivables and the Accounts, the failure to comply with
which would have a material adverse effect on the certificateholders of any
outstanding Series; (b) it will not permit any rescission or cancellation of a
Receivable except as ordered by a court of competent jurisdiction or other
government authority; (c) it will do nothing to impair the rights of the
certificateholders in the Receivables; and (d) it will not reschedule, revise or
defer payments due on any Receivable except in accordance with its guidelines
for servicing revolving credit line dealer loans.
Under the terms of the Pooling and Servicing Agreement, if the Seller or the
Servicer discovers, or receives written notice, that any covenant of the
Servicer set forth above has not been complied with in all material respects and
such noncompliance has not been cured within 30 days thereafter (or such longer
period as the Trustee may agree to) and has a material adverse effect on the
interests of all certificateholders in any Receivable or Account, DFS, as
Servicer, will purchase such Receivable or all Receivables in such Account, as
applicable. Such purchase will be made on the Determination Date following the
expiration of the 30 day cure period and the Servicer will be obligated to
deposit into the Collection Account an amount equal to the amount of such
Receivable plus accrued and unpaid interest thereon in the Collection Account.
The amount of such deposit shall be deemed a "Transfer Deposit Amount." The
purchase by the Servicer constitutes the sole remedy available to the
certificateholders if such covenant or warranty of the Servicer is not satisfied
and the Trust's interest in any such purchased Receivables shall be
automatically assigned to the Servicer.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation with respect to the Receivables for its servicing
activities and reimbursement for its expenses will be a monthly servicing fee
(the "Servicing Fee") in an amount payable in arrears on each Distribution
Date prior to the Termination Date generally equal to one-twelfth of the product
of (a) 2% or, if the Servicing Fee has been waived as described below, 0% for
the Distribution Date in respect of which the Servicing Fee has been waived (the
"Servicing Fee Rate" and (b) the Series 1996-2 Allocation Percentage of the
Pool Balance as of the last day of the second preceding Collection Period. The
share of the Servicing Fee allocable to the Certificateholders with respect to
any Distribution Date (the "Monthly Servicing Fee") will generally be equal to
one-twelfth of the product of (a) the Servicing Fee Rate and (b) the Invested
Amount as of the last day of the second preceding Collection Period. The
remainder of the Servicing Fee shall be paid by the Seller and the
certificateholders of other Series. The Monthly Servicing Fee shall be payable
to the Servicer solely to the extent amounts are available for distribution
therefor in accordance with the terms of the Pooling and Servicing Agreement.
The Servicer will be permitted to waive its right to receive the Servicing Fee
on any Distribution Date, so long as it believes that sufficient Non-Principal
Collections will be available on a future Distribution Date to pay the Monthly
Servicing Fee relating to such waived Servicing Fee, in which case the Servicing
Fee and the Monthly Servicing Fee for such Distribution Date shall be deemed to
be zero.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Accounts and the Receivables
including, without limitation, payment of fees and disbursements of the Trustee
and independent accountants and all other fees and expenses which are not
expressly stated in the Pooling and Servicing Agreement to be payable by the
Trust or the certificateholders other than federal, state and local income and
franchise taxes, if any, of the Trust or the certificateholders.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the Pooling
and Servicing Agreement, except upon determination that such duties are no
longer permissible under applicable law. No such resignation will become
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effective until the Trustee or a successor to the Servicer has assumed the
Servicer's responsibilities and obligations under the Pooling and Servicing
Agreement.
Any person into which, in accordance with the Pooling and Servicing Agreement,
the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Servicer is a party, or any person
succeeding to the business of the Servicer, will be the successor to the
Servicer under the Pooling and Servicing Agreement.
SERVICER DEFAULT
In the event of any Servicer Default, the Trustee, by written notice to the
Servicer, may terminate all of the rights and obligations of the Servicer, as
servicer, under the Pooling and Servicing Agreement and in and to the
Receivables and the proceeds thereof and appoint a new Servicer (a "Service
Transfer"). The rights and interest of the Seller under the Pooling and
Servicing Agreement in the Seller's Interest will not be affected by any Service
Transfer. The Trustee shall as promptly as possible appoint a successor Servicer
and if no successor Servicer has been appointed by the Trustee and has accepted
such appointment by the time the Servicer ceases to act as Servicer, all rights,
authority, power and obligations of the Servicer under the Pooling and Servicing
Agreement shall pass to and be vested in the Trustee. Prior to any Service
Transfer, the Trustee will review any bids obtained from potential servicers
meeting certain eligibility requirements set forth in the Pooling and Servicing
Agreement to serve as successor Servicer for servicing compensation not in
excess of the Servicing Fee plus certain excess amounts payable to the Seller.
A "Servicer Default" refers to any of the following events:
1. failure by the Servicer to make any payment, transfer or deposit, or to
give instructions to the Trustee to make any payment, transfer or deposit or to
take action under any Enhancement, on the date the Servicer is required to do so
under the Pooling and Servicing Agreement, which is not cured within five
business days after written notice from the Trustee of such failure;
2. failure on the part of the Servicer duly to observe or perform (i) its
covenant not to create any lien on any Receivable which failure has a material
adverse effect on the certificateholders and which continues unremedied for a
period of 60 days after written notice to it; provided, however, that a Servicer
Default shall not be deemed to have occurred if the Seller or the Servicer shall
have repurchased the related Receivables or, if applicable, all the Receivables
during such period in accordance with the terms and provisions of the Pooling
and Servicing Agreement or (ii) any other covenants or agreements of the
Servicer in the Pooling and Servicing Agreement (exclusive of breaches of
covenants in respect of which the Servicer repurchases the related Receivables,
as described under "--Servicer Covenants") which failure has a materially
adverse effect on the certificateholders of any outstanding Series and which
continues unremedied for a period of 30 days after written notice thereof to the
Servicer;
3. any representation, warranty or certification made by the Servicer in the
Pooling and Servicing Agreement or in any certificate delivered pursuant to the
Pooling and Servicing Agreement proves to have been incorrect when made, which
has a materially adverse effect on the rights of the certificateholders of any
outstanding Series, and which materially adverse effect continues for a period
of 60 days after written notice; provided, however, that a Servicer Default
shall not be deemed to have occurred if the Seller or the Servicer shall have
repurchased the related Receivables or, if applicable, all the Receivables
during such period in accordance with the provisions of the Pooling and
Servicing Agreement; or
4. the occurrence of certain events of bankruptcy, insolvency or receivership
with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred
to under clause (1) above for a period of ten business days or referred to under
clauses (2) or (3) for a period of 60 business days, shall not constitute a
Servicer Default if such delay or failure was caused by an act of God or other
similar occurrence. Upon the occurrence of any such event, the Servicer shall
not be relieved from using its best efforts to perform its obligations in a
timely manner in accordance with the terms of the Pooling and Servicing
Agreement and the Servicer shall provide the Trustee, any Enhancement Provider,
the Seller and the certificateholders prompt notice of such failure or delay by
it, together with a description of its efforts to so perform its obligations.
The Servicer shall immediately notify the Trustee in writing of any Servicer
Default.
REPORTS
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On each Distribution Date (including the Expected Final Payment Date), the
Trustee will forward (or cause to be forwarded) to each Certificateholder of
record (which, in the case of Class A and Class B Certificateholders, is
expected to be Cede, as nominee for DTC, unless Definitive Certificates are
issued) a statement (the "Distribution Date Statement") prepared by the
Servicer setting forth the following information: (a) the aggregate amount of
collections, the aggregate amount of Non-Principal Collections and the aggregate
amount of Principal Collections processed during the immediately preceding
Collection Period and the amount on deposit in the Collection Account; (b) the
Series 1996-2 Allocation Percentage, the Floating Allocation Percentage and the
Principal Allocation Percentage for such Collection Period; (c) the total
amount, if any, distributed on the Certificates; (d) the amount of such
distribution allocable to principal on each class of Certificates; (e) the
amount of such distribution allocable to interest on each class of Certificates;
(f) the Investor Default Amount for such Distribution Date; (g) the Required
Subordination Draw Amount, if any, for the preceding Collection Period; (h) the
amount of the Class A, Class B and Class C Investor Charge-Offs and the amounts
of reimbursements thereof for the preceding Collection Period; (i) the amount of
the Monthly Servicing Fee for the preceding Collection Period; (j) the
Controlled Distribution Amount; (k) the Invested Amount (separately stating the
Class A, Class B and Class C Invested Amounts), the Excess Funding Account
balance and the outstanding principal balance of each class of Certificates for
such distribution (after giving effect to all distributions which will occur on
such Distribution Date); (l) the "pool factor" for each class of Certificates
as of the Determination Date with respect to such Distribution Date (consisting
of an eleven-digit decimal expressing the Invested Amount of each class as of
such Determination Date (determined after taking into account any reduction in
the Invested Amount for such class which will occur on such Distribution Date)
as a portion of the initial principal balance of such class); (m) the Available
Subordinated Amount for such Determination Date; (n) the Reserve Fund balance
for such date; and (o) the Principal Funding Account Balance and the Interest
Funding Account Balance with respect to such date.
On or before January 31 of each calendar year, the Trustee will furnish (or
cause to be furnished) to each person who at any time during the preceding
calendar year was a Certificateholder of record (which, in the case of Class A
and Class B Certificateholders, is expected to be Cede, as nominee for DTC,
unless Definitive Certificates are issued) a statement containing the
information required to be provided by an issuer of indebtedness under the Code
for such preceding calendar year or the applicable portion thereof during which
such person was a Certificateholder, together with such other customary
information as is necessary to enable the Certificateholders to prepare their
tax returns. Moreover, as long as the Class A and Class B Certificateholder of
record is Cede, as nominee for DTC, Certificate Owners will receive tax and
other information from Participants and Indirect Participants rather than from
the Trustee. See "Federal Income Tax Considerations" and "State and Local Tax
Consequences."
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that on or before April 30 of
each calendar year the Servicer will cause a firm of nationally recognized
independent public accountants (who may also render other services to the
Servicer or the Seller) to furnish a report relating to certain matters in
connection with the servicing of the Receivables.
The Pooling and Servicing Agreement provides for delivery to the Trustee on or
before April 30 of each calendar year of a statement signed by an officer of the
Servicer to the effect that the Servicer has fully performed, or caused to be
fully performed its obligations in all material respects under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
default in the performance of any such obligation, specifying the nature and
status of the default.
Copies of all statements, certificates and reports furnished to the Trustee
may be obtained by a request in writing delivered to the Trustee. See "--The
Trustee" below. For so long as the Offered Certificates are listed on the
Luxembourg Stock Exchange, (i) copies of such statements, certificates and
reports will be obtainable at the offices of Banque Generale du Luxembourg, (ii)
notices to holders of the Offered Certificates will be given by publication and
(iii) the Trustee will maintain a paying agent in Luxembourg, in each case as
described under "Listing and General Information."
AMENDMENTS
The Pooling and Servicing Agreement or any Supplement may be amended by the
Seller, the Servicer and the Trustee, without certificateholder consent, so long
as any such action shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of the certificateholders.
Notwithstanding the foregoing, the Pooling and Servicing Agreement may be
amended by the Servicer, the Seller and the Trustee without the consent of any
of the Certificateholders to change in any manner the treatment of Delayed
Funding Receivables under the Pooling and Servicing Agreement, but only upon
satisfaction of the Rating Agency Condition. In addition, the Pooling and
Servicing
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Agreement or any Supplement may be amended by the Servicer and the Trustee at
the direction of the Seller without the consent of any of the Certificateholders
(1) to add, modify or eliminate such provisions as may be necessary or advisable
in order to enable the Seller or any of its affiliates (including Deutsche Bank
AG) to minimize or avoid capital charges under any applicable law, rule,
regulation or guideline relating to regulatory or risk-based capital, (2) to
enable all or a portion of the Trust to qualify as a partnership for federal
income tax purposes under applicable regulations on the classification of
entities as partnerships or corporations under the Code adopted as final
regulations after the date hereof, and to the extent that such regulations
eliminate or modify the need therefor, to modify or eliminate existing
provisions of the Pooling and Servicing Agreement or any Supplement relating to
the intended availability of partnership treatment of the Trust for federal
income tax purposes, (3) to enable all or a portion of the Trust to qualify as,
and to permit an election to be made to cause the Trust to be treated as, a
"financial asset securitization investment trust," as described in the
provisions of the "Small Business Job Protection Act of 1996," H.R. 3448 (and,
in connection with any such election, to modify or eliminate existing provisions
of the Pooling and Servicing Agreement or any Supplement relating to the
intended Federal income tax treatment of the Certificates and the Trust in the
absence of such election, which may include elimination of the sale of
Receivables upon the occurrence of an insolvency event with respect to the
Seller pursuant to the Pooling and Servicing Agreement and certain provisions of
the Pooling and Servicing Agreement relating to the liability of the Seller), or
(4) to enable the Seller or any of its affiliates to comply with or obtain more
favorable treatment under any law or regulation or any accounting rule or
principle, so long as in each case the Rating Agency Condition has been
satisfied and, in the case of (2) or (3), the Seller and the Trustee have
received an opinion of counsel to the effect that such amendment will not
adversely affect the characterization of the certificates of any outstanding
Series or class as debt or partnership interests; provided, however, that if any
such amendment occurs while Series 1994-1 is outstanding an opinion of counsel
for the Seller, addressed and delivered to the Trustee, shall be required
providing that such amendment will not adversely affect in any material respect
the interests of any investor certificateholders of Series 1994-1.
The Pooling and Servicing Agreement or any Supplement may be amended by the
Seller, the Servicer and the Trustee with the consent of the holders of
certificates evidencing more than 50% of the aggregate unpaid principal amount
of the certificates of all adversely affected Series for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Pooling and Servicing Agreement or any Supplement or of modifying in any
manner the rights of certificateholders. No such amendment, however, may (a)
reduce in any manner the amount of, or delay the timing of, distributions
required to be made on any certificate, (b) change the definition of or the
manner of calculating the interest of any certificateholder, (c) reduce the
amount available under any Enhancement, (d) adversely affect the rating of any
Series or class by any Rating Agency without the consent of all holders of
certificates of such Series or class or (e) reduce the aforesaid percentage of
the unpaid principal amount of certificates the holders of which are required to
consent to any such amendment, in the case of (a), (b) and (c) without the
consent of the holder of such certificate and, in the case of (e), without the
consent of all certificateholders of the adversely affected Series. Promptly
following the execution of any such amendment (other than an amendment described
in the preceding paragraph), the Trustee will furnish written notice of the
substance of such amendment to each certificateholder.
The Pooling and Servicing Agreement may not be amended in any manner which
materially adversely affects the interests of any Enhancement Provider without
its prior consent.
LIST OF CERTIFICATEHOLDERS
Upon written request of any three or more certificateholders of record the
Trustee will afford such certificateholders access during business hours to the
current list of certificateholders for purposes of communicating with other
certificateholders with respect to their rights under the Pooling and Servicing
Agreement. See "--Book-Entry Registration" and "--Definitive Certificates."
The Pooling and Servicing Agreement does not provide for any annual or other
meetings of Certificateholders.
THE TRUSTEE
The Chase Manhattan Bank, a New York banking corporation, will act as Trustee
under the Pooling and Servicing Agreement. The Trustee is located at, and any
request for copies of statements, certificates and reports furnished to the
Trustee should be addressed to the Trustee at, 450 West 33rd Street, 15th Floor,
New York, New York 10001, Attention: Advanced Structured Products Group. The
Seller, 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 may hold Certificates in its own name with the same
rights it would have if it were not the Trustee. In addition, for purposes of
meeting the legal requirements of certain local jurisdictions, the Trustee shall
have the power to appoint a co-trustee or
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separate trustees of all or a part of the Trust. In the event of such
appointments, all rights, powers, duties and obligations shall be conferred or
imposed upon the Trustee and such separate trustee or co-trustee jointly, or in
any jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts singly upon such separate trustee or co-trustee, who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
The Trustee may resign at any time, in which event the Seller will be
obligated to appoint a successor Trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. In such
circumstances, the Servicer may appoint a successor Trustee. Any resignation or
removal of the Trustee and appointment of a successor Trustee does not become
effective until the acceptance of the appointment by the successor Trustee.
DESCRIPTION OF THE RECEIVABLES CONTRIBUTION AND SALE AGREEMENT
The following summary describes certain terms of the Receivables Contribution
and Sale Agreement, but it does not purport to be complete and is qualified in
its entirety by reference to the Receivables Contribution and Sale Agreement. If
other affiliates of DFS originate receivables and sell them to the Seller for
transfer to the Trust, such other affiliates will become parties to the
Receivables Contribution and Sale Agreement and make representations, warranties
and covenants similar to those described below with respect to DFS and Deutsche
BSC.
SALE OR TRANSFER OF RECEIVABLES
Pursuant to the Receivables Contribution and Sale Agreement, DFS and Deutsche
BSC have contributed or sold to the Seller all of their right, title and
interest in and to all of the Receivables and the Collateral Security as of the
Initial Cut-Off Date and all of the Receivables thereafter created with respect
thereto. Pursuant to the Pooling and Servicing Agreement, the Seller has
transferred to the Trust all of its right, title and interest in and to the
Receivables Contribution and Sale Agreement.
In connection with the contribution or sale of the Receivables to the Seller,
DFS and Deutsche BSC have and will continue to indicate in their books and
records, which may include their computer files, that the Receivables have been
sold or transferred to the Seller, and that such Receivables have been
transferred by the Seller to the Trust. In addition, DFS and Deutsche BSC
provided to the Seller a computer file or microfiche or written list containing
a true and complete list of all such Receivables, identifying the balances of
the Receivables as of the Initial Cut-Off Date. The records and agreements
relating to the Accounts and Receivables have not been, and will not be,
segregated by DFS and Deutsche BSC from other documents and agreements relating
to other accounts and receivables and have not been, and will not be, stamped or
marked to reflect the sale or transfer of the Receivables to the Seller, but the
books and records of DFS and Deutsche BSC which may include computer files,
evidence such sale or transfer. DFS and Deutsche BSC filed UCC financing
statements with respect to the Receivables meeting the requirements of Missouri
and Georgia state law, respectively. See "Risk Factors--Certain Legal Aspects"
and "Certain Legal Aspects of the Receivables--Transfer of Receivables."
REPRESENTATIONS AND WARRANTIES
Each of DFS and Deutsche BSC has or will make certain representations and
warranties to the Seller to the effect that, among other things, as of the
Initial Closing Date, the Closing Date and each Series Issuance Date, it was
duly incorporated and in good standing and that it has the authority to
consummate the transactions contemplated by the Receivables Contribution and
Sale Agreement.
Each of DFS and Deutsche BSC has or will also make representations and
warranties to the Seller relating to the Receivables to the effect, among other
things, that (a) as of the Initial Cut-Off Date and each closing date, each of
the Accounts is an Eligible Account and, in the case of Additional Accounts, on
the applicable Additional Cut-Off Date and each subsequent closing date, such
Additional Account is an Eligible Account and (b) on the Initial Closing Date,
each Additional Cut-Off Date and on each Transfer Date, each Receivable conveyed
on such date is an Eligible Receivable or, if such Receivable is not an Eligible
Receivable, such Receivable is conveyed to the Seller. In the event of a breach
of any representation and warranty set forth in this paragraph which results in
a transfer of such Receivable to the Seller pursuant to the Pooling and
Servicing Agreement, then DFS or Deutsche BSC, as the case may be, shall
repurchase such Receivable from the Seller on the date of such retransfer. The
purchase price for such Ineligible Receivable shall be the face amount thereof
plus any accrued and unpaid interest thereon.
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Each of DFS and Deutsche BSC has or will also make representations and
warranties to the Seller to the effect, among other things, that as of the
Initial Closing Date, the Closing Date and each Series Issuance Date (a) the
Receivables Contribution and Sale Agreement constitutes a legal, valid and
binding obligation of DFS or Deutsche BSC, as the case may be, and (b) the
Receivables Contribution and Sale Agreement constitutes a valid sale or transfer
to the Seller of all right, title and interest of DFS and Deutsche BSC in and to
the Receivables, whether then existing or thereafter created in the Accounts,
the Collateral Security and the proceeds thereof which is effective as to each
Receivable upon the creation thereof. If the breach of any of the
representations and warranties described in this paragraph results in the
obligation of the Seller under the Pooling and Servicing Agreement to accept
retransfer of the Receivables, DFS and Deutsche BSC will be obligated to
repurchase the Receivables retransferred to DFS for an amount of cash equal to
the amount of cash the Seller is required to deposit under the Pooling and
Servicing Agreement in connection with such retransfer.
DFS and Deutsche BSC will agree to indemnify the Seller and to hold the Seller
harmless from and against any and all losses, damages and expenses (including
reasonable attorneys' fees) suffered or incurred by the Seller if the foregoing
representations and warranties are materially false.
CERTAIN COVENANTS
In the Receivables Contribution and Sale Agreement, each of DFS and Deutsche
BSC has covenanted that it will perform its obligations under the agreements
relating to the Receivables and the Accounts in conformity with its then-current
policies and procedures relating to the Receivables and the Accounts.
Each of DFS and Deutsche BSC has covenanted further that, except for the sale
and conveyances under the Receivables Contribution and Sale Agreement and the
interests created under Participations, DFS and Deutsche BSC will not sell,
pledge, assign or transfer any interest in the Receivables to any other person.
Each of DFS and Deutsche BSC also has covenanted to defend and indemnify the
Seller for any loss, liability or expense incurred by the Seller in connection
with a breach by DFS or Deutsche BSC of any of its representations, warranties
or covenants contained in the Receivables Contribution and Sale Agreement.
In addition, DFS and Deutsche BSC have expressly acknowledged and consented to
the Seller's assignment of its rights relating to the Receivables under the
Receivables Contribution and Sale Agreement to the Trustee.
TERMINATION
The Receivables Contribution and Sale Agreement will terminate immediately
after the Trust terminates. In addition, if DFS or Deutsche BSC becomes party to
any bankruptcy or similar proceeding (other than as a claimant) and, if such
proceeding is not voluntary and is not dismissed within 60 days of its
institution, DFS or Deutsche BSC, as the case may be, will immediately cease to
sell or transfer Receivables to the Seller and will promptly give notice of such
event to the Seller and to the Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
On the Initial Closing Date, DFS contributed, and Deutsche BSC sold,
Receivables to the Seller, which Receivables were immediately sold and assigned
to the Trust. The Seller has represented and warranted and will represent and
warrant on the Closing Date that such sale to the Trust constituted a valid
transfer and assignment to the Trust of all right, title and interest of the
Seller in and to the Receivables and that, under the UCC (as in effect in
Missouri), there exists a valid, subsisting and enforceable first priority
perfected ownership interest in the Receivables, in existence at the time of the
formation of the Trust or at the date of addition of any Additional Accounts, in
favor of the Trust and a valid, subsisting and enforceable first priority
perfected ownership interest in the Receivables created thereafter in favor of
the Trust on and after their creation. However, the transfer of Receivables by
the Seller to the Trust could be deemed to create a security interest under the
UCC. For a discussion of the Trust's rights arising from these representations
and warranties not being satisfied, see "Description of the Certificates--
Representations and Warranties."
Each of DFS, Deutsche BSC and the Seller has represented that the Receivables
are "chattel paper", "accounts" or "general intangibles" for purposes of
the UCC as in effect in Missouri (in the case of Deutsche BSC, Georgia). If the
Receivables are deemed to be chattel paper and the transfer thereof by either
DFS or Deutsche BSC to the Seller
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or by the Seller to the Trust is deemed either to be a sale or to create a
security interest, the UCC as in effect in Missouri (in the case of Deutsche
BSC, Georgia) applies and the transferee must either take possession of the
chattel paper or file an appropriate financing statement or statements in order
to perfect its interest therein. If the Receivables are treated as accounts and
the transfer thereof by either DFS or Deutsche BSC to the Seller or by the
Seller to the Trust is deemed either to be a sale or to create a security
interest, the transferee must file an appropriate financing statement or
statements in order to perfect its interest therein under the UCC in Missouri
(in the case of Deutsche BSC, Georgia). If a transfer of general intangibles is
deemed to create a security interest, filing an appropriate financing statement
or statements is also required under the UCC as in effect in Missouri (in the
case of Deutsche BSC, Georgia) in order to perfect the Trust's security
interest. If a transfer of general intangibles is deemed to be a sale, then the
UCC as in effect in Missouri (in the case of Deutsche BSC, Georgia) is not
applicable and no further action under the UCC is required to protect the
Trust's interest from third parties. Financing statements covering the
Receivables have been filed under the UCC as in effect in Missouri (in the case
of Deutsche BSC, Georgia) by both the Seller and the Trust to perfect their
respective interests in the Receivables and continuation statements will be
filed as required to continue the perfection of such interests. The Receivables
will not be segregated or stamped to indicate the interest of the Seller or the
Trustee. Any interest in Receivables acquired by the Seller (and the Trust) will
be subject to the rights and defenses (including rights of setoff) of the
applicable Dealer against DFS or Deutsche BSC, as the case may be.
There are certain limited circumstances under the UCC and applicable federal
law in which prior or subsequent transferees of Receivables could have an
interest in such Receivables with priority over the Trust's interest. A
purchaser of the Receivables who gives new value and takes possession of the
instruments which evidence the Receivables (i.e., the chattel paper) in the
ordinary course of such purchaser's business may, under certain circumstances,
have priority over the interest of the Trust in the Receivables. A tax or other
government lien on property of DFS, Deutsche BSC or the Seller arising prior to
the time a Receivable is conveyed to the Trust may also have priority over the
interest of the Trust in such Receivable. Under the Receivables Contribution and
Sale Agreement, each of DFS and Deutsche BSC has warranted to the Seller, and
under the Pooling and Servicing Agreement the Seller has warranted to the Trust,
that the Receivables have been transferred free and clear of the lien of any
third party. Each of DFS, Deutsche BSC and the Seller has also covenanted that
it will not sell, pledge, assign, transfer or grant any lien on any Receivable
or, except as described under "Description of the Certificates--Supplemental
Certificates," the Seller's Certificate (or any interest therein) other than to
the Trust. In addition, while DFS is the Servicer, cash collections on the
Receivables may, under certain circumstances, be commingled with the funds of
DFS prior to deposit in the Collection Account. If DFS became subject to
bankruptcy proceedings, the Certificateholders might incur a loss with respect
to collections not deposited in the Collection Account. See "Risk Factors--Risk
of Commingling."
The Seller has warranted to the Trust that the transfer of the Receivables to
the Trust is a sale of the Receivables to the Trust. The Seller is required to
take all actions that are required under Missouri law to perfect the Trust's
ownership interest in the Receivables and the Seller has warranted to the Trust
that the Trust will at all times have a first priority perfected ownership
interest therein and, with certain exceptions, proceeds thereof. Nevertheless, a
tax or government lien on property of DFS, Deutsche BSC or the Seller arising
prior to the time a Receivable is conveyed to the Trust may have priority over
the interest of the Trust in such Receivable.
In administering the Receivables, the Servicer may exercise a right of set-off
in a Floorplan Agreement against a Manufacturer that becomes insolvent. It is
possible that such exercise of a right of set-off may take the form of not
funding a Delayed Funding Receivable owned by the Trust and applying such funds
toward an obligation of the Manufacturer in respect of a receivable owned by DFS
or one of its affiliates. The Dealer obligated under such Delayed Funding
Receivable may in turn take the position that DFS has failed to perform its
obligation under the Delayed Funding Receivable and, consequently, that it is
discharged from its obligation to pay such Delayed Funding Receivable.
CERTAIN MATTERS RELATING TO BANKRUPTCY OF DFS, THE SELLER OR DEUTSCHE FRI
Each of DFS and Deutsche BSC has warranted to the Seller in the Receivables
Contribution and Sale Agreement that the sale of the Receivables by it to the
Seller is a valid sale of the Receivables to the Seller. In addition, DFS,
Deutsche BSC and the Seller have agreed to treat the transactions described
herein as a sale of the Receivables to the Seller, and DFS and Deutsche BSC have
and will take all actions that are required under Missouri law (in the case of
Deutsche BSC, Georgia law) to perfect the Seller's ownership interest in the
Receivables. Notwithstanding the foregoing, if DFS or Deutsche BSC were to
become a debtor in a bankruptcy case and a creditor or trustee in bankruptcy of
such debtor or such debtor itself were to take the position that the sale of
Receivables from such debtor to the Seller should be recharacterized as a pledge
of such Receivables to secure a borrowing from such debtor, then delays in
payments of collections of Receivables to the Seller could occur or (should the
court rule in favor of any such trustee, debtor in possession or creditor)
reductions in the amount of such payments could result.
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In addition, if DFS or Deutsche BSC were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to request a court to order that DFS or Deutsche BSC, as applicable,
should be substantively consolidated with the Seller, delays in payments on the
Certificates could result. Should the bankruptcy court rule in favor of any such
creditor, trustee-in-bankruptcy or such debtor, reductions in such payments
could result.
With respect to a Delayed Funding Receivable, if DFS were to become a debtor
in a bankruptcy case prior to funding such Receivable, its trustee-in-bankruptcy
or its creditors may assert that such Delayed Funding Receivable is an executory
contract and such trustee-in-bankruptcy may disaffirm DFS's obligation to fund
such Receivable. Such a disaffirmance would discharge the obligation of the
Dealer on such Delayed Funding Receivable to pay such Receivable and the Trust
would suffer a loss in respect of such Receivable.
A limited partnership could become insolvent upon the insolvency of its
general partner. Deutsche FRI's certificate of incorporation provides that,
under certain circumstances, Deutsche FRI is required to have two independent
directors (as defined therein) in which event it shall not file a voluntary
application for relief under Title 11 of the United States Code (the
"Bankruptcy Code") without the affirmative vote of both independent directors.
Pursuant to the Pooling and Servicing Agreement, the Trustee, all
certificateholders and any Enhancement Provider will covenant that they will not
at any time institute against the Seller any bankruptcy, reorganization or other
proceedings under any federal or state bankruptcy or similar law. In addition,
certain other steps will be taken to avoid the Seller's and Deutsche FRI's
becoming a debtor in a bankruptcy case. Notwithstanding such steps, if the
Seller were to become a debtor in a bankruptcy case, and a bankruptcy trustee
for the Seller or the Seller as debtor in possession or a creditor of the Seller
were to take the position that the transfer of the Receivables from the Seller
to the Trust should be recharacterized as a pledge of such Receivables, then
delays in payments on the Certificates or (should the court rule in favor of any
such trustee, debtor in possession or creditor) reductions in the amount of such
payments could result.
The Seller and Deutsche FRI do not intend to file, and DFS has agreed that it
will not cause Deutsche FRI to file, a voluntary application for relief under
the Bankruptcy Code or any similar applicable state law so long as the Seller or
Deutsche FRI, as applicable, is solvent and does not foresee becoming insolvent.
If DFS or the Seller were to become a debtor in a bankruptcy case causing an
Early Amortization Event to occur, then, pursuant to the Receivables
Contribution and Sale Agreement, new Receivables would no longer be transferred
to the Seller and, pursuant to the Pooling and Servicing Agreement, only
collections on Receivables theretofore sold to the Seller and transferred to the
Trust would be available to be applied to pay interest accruing on the
Certificates and to pay the principal amount of the Certificates. Under such
circumstances, the Servicer is obligated to allocate all Principal Collections
to the oldest principal balance first. If such allocation method were to be
altered by the bankruptcy court, the rate of payment on the Certificates might
be adversely affected. In addition, distributions of principal on each
Certificate would not be subject to the applicable Controlled Distribution
Amount.
The occurrence of certain events of bankruptcy, insolvency or receivership
with respect to the Servicer will result in a Servicer Default, which Servicer
Default, in turn, will result in an Early Amortization Event. If no other
Servicer Default other than the commencement of such bankruptcy or similar event
exists, a trustee-in-bankruptcy of the Servicer may have the power to prevent
either the Trustee or the certificateholders from appointing a successor
Servicer.
In addition, under federal or state fraudulent transfer laws, a court could,
among other things, subordinate the rights of the Certificateholders in the
Receivables to the rights of creditors of DFS or Deutsche BSC, if a court were
to find, among other things, that DFS or Deutsche BSC, as applicable, received
less than reasonably equivalent value or fair consideration for such Receivables
and at the time of any transfers were insolvent. However, each of DFS and
Deutsche BSC believes that it will receive reasonably equivalent value or fair
consideration for the Receivables and that it will not be insolvent at the time
of such transfers.
Payments made in respect of repurchases of Receivables by DFS or the Seller
pursuant to the Pooling and Servicing Agreement may be recoverable by DFS or the
Seller, as debtor in possession, or by a creditor or a trustee-in-bankruptcy of
DFS or the Seller as a preferential transfer from DFS or the Seller if such
payments are made within one year prior to the filing of a bankruptcy case in
respect of DFS.
FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a discussion of the material federal income tax
consequences generally applicable to holders of the Offered Certificates, which
has been prepared based on the advice of Mayer, Brown & Platt ("Tax Counsel").
In the opinion of Tax Counsel such discussion, to the extent it includes matters
of law or legal conclusions with respect
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thereto, is accurate in all material respects. This discussion does not purport
to deal with all aspects of federal income taxation that may be relevant to
holders of the Offered Certificates in light of their personal investment
circumstances, nor to certain types of holders subject to special treatment
under the federal income tax laws (for example, banks, life insurance companies
and tax-exempt organizations). Prospective investors are advised to consult
their own tax advisors with regard to the federal income tax consequences of
holding and disposing of the Offered Certificates, as well as the tax
consequences arising under the laws of any state, foreign country or other
jurisdiction. This discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. No ruling on any of the issues
discussed below will be sought from the Internal Revenue Service (the "IRS").
Treatment of the Certificates as Debt. The Seller and the Certificateholders
will express in the Pooling and Servicing Agreement the intent that, for
federal, state and local income tax purposes and franchise taxes (imposed on or
measured by income), the Offered Certificates will be debt secured by the
Receivables. The Seller, by initially entering into the Pooling and Servicing
Agreement, and each Certificateholder, by the acceptance of an Offered
Certificate, will agree to treat the Offered Certificates as debt for federal,
state and local income tax purposes and franchise taxes (imposed on or measured
by income). However, the Pooling and Servicing Agreement generally refers to the
transfer of the Receivables as a "sale", and because different criteria are
used in determining the non-tax accounting treatment of the transaction, the
Seller will treat the Pooling and Servicing Agreement, for certain non-tax
purposes, as effecting a transfer of an ownership interest in the Receivables
and not as creating a debt obligation.
A basic premise of federal income tax law is that the economic substance of a
transaction generally determines the tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its economic
substance. In appropriate circumstances, the courts have allowed taxpayers, as
well as the IRS, to treat a transaction in accordance with its economic
substance, as determined under federal income tax law, even though the
participants in the transaction have characterized it differently for non-tax
purposes.
The determination of whether the economic substance of a property transfer is
a sale or a loan secured by the transferred property has been made by the IRS
and the courts on the basis of numerous factors designed to determine whether
the transferor has relinquished (and the transferee has obtained) substantial
incidents of ownership in the property. Among those factors, the primary factors
examined are whether the transferee has the opportunity to gain if the property
increases in value, and has the risk of loss if the property decreases in value.
Based upon its analysis of such factors, Tax Counsel is of the opinion that the
Offered Certificates will properly be characterized for federal income tax
purposes as debt that is secured by the Receivables and that the Trust will not
be treated as an association (or publicly traded partnership) taxable as a
corporation.
Interest Income to Certificateholders. Assuming the Certificateholders are
holders of debt obligations for federal income tax purposes, interest thereon
will be taxable as ordinary income for federal income tax purposes when received
by Certificateholders utilizing the cash basis method of accounting and when
accrued by Certificateholders utilizing the accrual method of accounting.
Interest received on the Offered Certificates may also constitute "investment
income" for purposes of certain limitations of the Code concerning the
deductibility of investment interest expense. In addition, a Certificateholder
who buys an Offered Certificate for less than its principal amount (assuming the
Offered Certificate is issued without OID) will be subject to the "market
discount" rules of the Code, and a Certificateholder who buys an Offered
Certificate for more than its principal amount will be subject to the premium
amortization rules of the Code. See "--Original Issue Discount" below for a
description of the federal income tax consequences if the Offered Certificates
are issued with OID.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the Offered Certificates (and the amount of interest withheld for
federal income taxes, if any) for each calendar year, except as to exempt
holders (generally, holders that are corporations, tax-exempt organizations,
qualified pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status as
nonresidents). As long as the only "Certificateholder" of record is Cede, as
nominee for DTC, Certificateholders and the IRS will receive tax and other
information only from Participants and Indirect Participants rather than from
the Trustee. Accordingly, each nonexempt Certificateholder will be required to
provide, under penalties of perjury, a certificate on IRS Form W-9 containing
such holder's name, address, federal taxpayer identification number and a
statement that such holder is not subject to backup withholding. Should a
nonexempt Certificateholder fail to provide the required certification, the
Trustee (or the Participants or Indirect Participants) will be required to
withhold (or cause to be withheld) 31% of the interest (and principal) otherwise
payable to the holder, and remit the withheld amounts to the IRS as a credit
against the holder's federal income tax liability.
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Original Issue Discount. The following summary is a general discussion of the
United States federal income tax consequences to Certificateholders who are
United States persons owning Offered Certificates issued with original issue
discount ("OID Certificates" and "OID", respectively).
In general, the OID with respect to any OID Certificate will equal the
difference between the principal amount of the Certificate and its issue price
(defined as the first price to the public at which a substantial amount of the
OID Certificates have been sold), if such excess is 0.25% or more of the OID
Certificate's principal amount multiplied by the number of complete years to its
maturity (the "de minimis amount"). Even if such excess is less than the de
minimis amount, because a failure to pay interest currently on the Offered
Certificate is not a default, it is possible that all stated interest could be
treated as principal for this purpose (and for purposes of the computations
described below) with the result that the Offered Certificates could be viewed
as OID Certificates. Tax Counsel is unable to opine as to whether the Offered
Certificates will be treated as issued with OID. Holders of OID Certificates
(including holders of Offered Certificates that report income on the cash method
of accounting) must include OID in income for United States federal income tax
purposes as it accrues under a method that takes account of the compounding of
interest, in advance of receipt of the related cash payments.
In general, each Certificateholder of an OID Certificate, whether such
Certificateholder uses the cash or accrual method of accounting for tax
purposes, will be required to include in ordinary gross income the sum of the
"daily portions" of OID on the Certificate for each day during the taxable
year that the Certificateholder owns the Offered Certificate. The daily portion
of OID on an OID Certificate is determined by allocating to each day in any
"accrual period" a ratable portion of the original issue discount allocable to
that accrual period. The term accrual period means the period between
Distribution Dates or the shorter period from the date of issue to the first
Distribution Date. In the case of an initial Certificateholder, the amount of
original issue discount on an OID Certificate allocable to each accrual period
is determined by (i) multiplying the "adjusted issue price" (as defined below)
of the Offered Certificate by a fraction, the numerator of which is the annual
yield to maturity of such Certificate and the denominator of which is the number
of accrual periods in a year, and (ii) subtracting from the product the amount
of interest paid during that accrual period. The "adjusted issue price" of an
OID Certificate at the beginning of any accrual period will be the sum of its
issue price and the amount of OID allocable to all prior accrual periods, minus
the amount of all payments (other than payments of interest) previously made
with respect to the OID Certificate. As a result of such "constant yield"
method of including OID income, the amounts so includible in income are lower in
the early years and greater in the later years than the amounts that would be
includible on a straight-line basis.
If an Early Amortization Event occurs, the early payments of principal as a
result of either such event could result in acceleration of income corresponding
to a portion of the unaccrued OlD.
In the event that a Certificateholder purchases an OID Certificate at an
"acquisition premium," i.e., at a price in excess of the Certificate's issue
price, plus the OID accrued prior to acquisition and minus any principal
payments made with respect to the OID Certificate prior to acquisition, the
amount includible in income in each taxable year as OID will be reduced by that
portion of the premium properly allocable to such year. Moreover, a
Certificateholder who purchases an OID Certificate at a price less than the
price described in the preceding sentence will be subject to the market discount
rules of the Code.
Sale or Exchange. A Certificateholder's tax basis in an Offered Certificate
generally will be the Certificateholder's cost increased by any interest
(including OID) included in income (and market discount, if any, if the
Certificateholder has elected to include accrued market discount in income on a
current basis) and decreased by the amount of any principal payment received
with respect to the Certificate. Gain or loss on the sale, exchange or
redemption of an Offered Certificate generally will be long-term capital gain or
loss if the Offered Certificate has been held for more than a year (assuming
that the Offered Certificate is held as a capital asset) except to the extent
that such gain represents market discount not previously included in the
Certificateholder's income. Capital losses generally may be used by a corporate
taxpayer only to offset capital gains and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income.
The Code currently provides for a top marginal tax rate applicable to ordinary
income of individuals of 39.6% while maintaining a maximum marginal rate for
long-term capital gains of individuals of 28%. The maximum tax rate on both
ordinary income and long-term capital gains of corporate taxpayers is 35%.
Possible Classification of the Pooling and Servicing Agreement as a
Partnership or Association. Although, as described above, it is the opinion of
Tax Counsel that the Offered Certificates will properly be characterized as debt
for federal income tax purposes, such opinion is not binding on the IRS and thus
no assurance can be given that such a characterization will prevail. If the IRS
were to contend successfully that the Offered Certificates were not debt for
federal income tax purposes, the arrangement among the Seller, the
Certificateholders and any other holder of investor
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certificates might be classified for federal income tax purposes as a
partnership, an association taxable as a corporation or a "publicly traded
partnership" taxable as a corporation.
If the Offered Certificates are treated as interests in such a partnership,
the partnership could be treated as a "publicly traded partnership".
Regulations published by the Treasury Department on December 4, 1995 (the
"Regulations") could cause the Trust to constitute a publicly traded
partnership even if all holders of interests in the publicly offered
Certificates are treated as holding debt. If the Trust were classified as a
publicly traded partnership, whether by reason of the treatment of publicly
offered Certificates as equity or by reason of the Regulations, it would avoid
taxation as a corporation if its income was not derived in the conduct of a
"financial business;" however, whether the income of the Trust would be so
classified is unclear.
Under the Code and the Regulations, a partnership will be classified as a
publicly traded partnership if equity interests therein are traded on an
"established securities market," or are "readily tradable" on a "secondary
market" or its "substantial equivalent." The Seller intends to take measures
designed to reduce the risk that the Trust could be classified as a publicly
traded partnership by reason of interests in the Trust other than the publicly
traded Certificates. Although the Seller expects such measures will ultimately
be successful, certain of the actions that may be necessary for avoiding the
treatment of such interests as "readily tradable" on a "secondary market" or
its "substantial equivalent" are not fully within the control of the Seller.
As a result, there can be no assurance that the measures the Seller intends to
take will in all circumstances be sufficient to prevent the Trust from being
classified as a publicly traded partnership under the Regulations.
If the partnership were not taxable as a corporation (because of an exception
for an entity whose income is interest income that is not derived in the conduct
of a financial business) it would not be subject to federal income tax. Rather,
each item of income, gain, loss, deduction and credit generated through the
ownership of the Receivables by the partnership would be passed through to the
partners in the partnership (including the Certificateholders) according to
their respective interests therein. Tax Counsel is unable to opine as to whether
the Trust would qualify for the exception for an entity whose income is interest
income not derived in the conduct of a financial business.
The income reportable by the Certificateholder as partners in such a
partnership could differ from the income reportable by the Certificateholders as
holders of debt. If the Certificateholders were treated as partners, a cash
basis Certificateholder might be required to report income when it accrues to
the partnership rather than when it is received by the Certificateholder.
Moreover, if the Offered Certificates are interests in a partnership, an
individual's share of expenses of the partnership would be miscellaneous
itemized deductions that in the aggregate are allowed only to the extent they
exceed two percent of the individual's adjusted gross income (and are subject to
certain other limitations), meaning that the individual might be taxed on a
greater amount of income than the stated interest on the Certificates. Finally,
if the Offered Certificates are interests in a partnership, any taxable income
allocated to a Certificateholder that is a pension, profit-sharing or employee
benefit plan or other tax-exempt entity (including an individual retirement
account) may constitute "unrelated business taxable income" generally taxable
to the holder under the Code.
If, alternatively, the arrangement created by the Pooling and Servicing
Agreement were treated as either an association or a "publicly traded
partnership" taxable as a corporation, the resulting entity would be subject to
federal income taxes at corporate tax rates on its taxable income generated by
ownership of the Receivables. Moreover, distributions by the entity would
probably not be deductible in computing the entity's taxable income and all or
part of distributions to Certificateholders would probably be treated as
dividend income to the Certificateholders. Such an entity-level tax could result
in reduced distributions to Certificateholders and the Certificateholders could
be liable for a share of such a tax.
Because the Offered Certificates will be treated as indebtedness for federal
income tax purposes, the Trustee (and Participants and Indirect Participants)
will not comply with the tax reporting requirements that would apply under these
alternative characterizations of the Offered Certificates.
FASIT. In August, 1996, the United States Congress passed and President
Clinton signed into law the "Small Business Job Protection Act of 1996,"
H.R. 3448 (the "Job Protection Act of 1996"). The Job Protection Act of 1996
creates a new type of entity for federal income tax purposes called a "financial
asset securitization investment trust" or "FASIT." The effective date of the
FASIT provisions of the Job Protection Act of 1996 is September 1, 1997. The Job
Protection Act of 1996 enables certain arrangements similar to the Trust to
elect to be treated as a FASIT. Under the FASIT provisions of the Job Protection
Act of 1996, a FASIT generally would avoid federal income taxation and could
issue securities substantially similar to the Certificates, and those securities
would be treated as debt for federal income tax purposes. Upon satisfying
certain conditions set forth in the Pooling and Servicing Agreement or the
Supplement with respect to Series 1996-2, the Seller and Servicer will be
permitted to amend the Pooling and Servicing Agreement or the Supplement with
respect to Series 1996-2 in order to enable all or a portion of the Trust to
qualify
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as a FASIT and to permit a FASIT election to be made with respect thereto, and
to make such modifications to the Pooling and Servicing Agreement or the
Supplement with respect to Series 1996-2 as may be permitted by reason of the
making of such an election. However, there can be no assurance that the Seller
will or will not cause any permissible FASIT election to be made with respect to
the Trust or amend the Pooling and Servicing Agreement or the Supplement with
respect to Series 1996-2 in connection with any election. In addition, if such
an election is made, it may cause a holder to recognize gain (but not loss) with
respect to any Certificates held by it, even though Tax Counsel will deliver its
opinion that an Offered Certificate will be treated as debt for federal income
tax purposes without regard to the election and the Offered Certificate would be
treated as debt following the election. Additionally, any such election and any
related amendments to the Pooling and Servicing Agreement or the Supplement with
respect to Series 1996-2 may have other tax and non-tax consequences to
Certificateholders. Accordingly, prospective Certificateholders should consult
their tax advisors with regard to the effects of any such election and any
permitted related amendments on them in their particular circumstances.
Foreign Investors. Tax Counsel has given its opinion that the Offered
Certificates will properly be classified as debt for federal income tax
purposes. If the Offered Certificates are treated as debt:
(a) interest paid to a nonresident alien or foreign corporation or partnership
would be exempt from U.S. withholding taxes (including backup withholding
taxes), provided the holder complies with applicable identification requirements
(and does not actually or constructively own 10% or more of the voting stock of
the Seller and is not a controlled foreign corporation with respect to the
Seller). Applicable identification requirements will be satisfied if there is
delivered to a securities clearing organization (or bank or other financial
institution that holds the Certificates on behalf of the customer in the
ordinary course of its trade or business) (i) IRS Form W-8 signed under
penalties of perjury by the beneficial owner of such Certificates stating that
the holder is not a U.S. person and providing such holder's name and address,
(ii) IRS Form 1001 signed by the beneficial owner of such Certificates or such
owner's agent claiming exemption from withholding under an applicable tax
treaty, or (iii) IRS Form 4224 signed by the beneficial owner of such
Certificates of such owner's agent claiming exemption from withholding of tax on
income connected with the conduct of a trade or business in the United States;
provided in any such case (x) the applicable form is delivered pursuant to
applicable procedures and is properly transmitted to the United States entity
otherwise required to withhold tax and (y) none of the entities receiving the
form has actual knowledge that the holder is a U.S. person or that any
certification on the form is false;
(b) a holder of an Offered Certificate who is a nonresident alien or foreign
corporation will not be subject to United States federal income tax on gain
realized on the sale, exchange or redemption of such Certificate, provided that
(i) such gain is not effectively connected to a trade or business carried on by
the holder in the United States, (ii) in the case of a holder that is an
individual, such holder is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange or redemption occurs and
(iii) in the case of gain representing accrued interest, the conditions
described in clause (a) are satisfied; and
(c) an Offered Certificate held by an individual who at the time of death is a
nonresident alien will not be subject to United States federal estate tax as a
result of such individual's death if, immediately before his death, (i) the
individual did not actually or constructively own 10% or more of the voting
stock of the Seller and (ii) the holding of such Certificate was not effectively
connected with the conduct by the decedent of a trade or business in the United
States.
If the IRS were to contend successfully that the Offered Certificates are
interests in a partnership (not taxable as a corporation), a Certificateholder
that is a nonresident alien or foreign corporation or partnership might be
adversely affected. If the Offered Certificates are recharacterized as interests
in an association taxable as a corporation or a "publicly traded partnership"
taxable as a corporation, to the extent distributions on the Offered
Certificates were treated as dividends, a nonresident alien individual or
foreign corporation would generally be taxed on the gross amount of such
dividends (and subject to withholding) at a rate of 30% unless such rate were
reduced by an applicable treaty.
STATE AND LOCAL TAX CONSEQUENCES
The activities to be undertaken by the Servicer in servicing and collecting
the Receivables may be considered to take place in Missouri. The State of
Missouri imposes a state income tax which is based partially upon the net income
of corporations, partnerships and other entities doing business in the State of
Missouri. This discussion is based upon present provisions of Missouri statutes
and the regulations promulgated thereunder, and applicable judicial or ruling
authority, all of which are subject to change, which change may be retroactive.
No ruling on any of the issues discussed below will be sought from the Missouri
Department of Revenue.
74
<PAGE>
If the Offered Certificates are treated as debt for federal income tax
purposes, in the opinion of Bryan Cave LLP ("Missouri Tax Counsel"), this
treatment will also apply for Missouri income tax purposes. Pursuant to this
treatment, the Trust will not be subject to the Missouri income tax and
Certificateholders not otherwise subject to Missouri tax would not become
subject to such tax solely because of their mere ownership of the Offered
Certificates. Certificateholders already subject to taxation in Missouri,
however, could be required to pay tax on the income generated from ownership of
these Certificates.
In the alternative, if the arrangement created by the Pooling and Servicing
Agreement is treated as a partnership (not taxable as a corporation) for federal
income tax purposes, in the opinion of Missouri Tax Counsel, the same treatment
should also apply for Missouri income tax purposes. Certificateholders, whether
Missouri residents or non-residents, who were partners in the constructive
partnership would be subject to Missouri income tax on their distributive shares
of the income from the constructive partnership. However, based on past and
current practices of the Missouri Department of Revenue classification of the
arrangement as a "partnership" would not cause a Certificateholder not
otherwise subject to taxation in Missouri to pay Missouri income tax on income
beyond that derived from the Offered Certificates.
If the arrangement created by the Pooling and Servicing Agreement is treated
as an association taxable as a corporation or a "publicly traded partnership"
taxable as a corporation, then the hypothetical entity could be subject to the
Missouri income tax. Such taxes could result in reduced distributions to
Certificateholders. A Certificateholder not otherwise subject to tax in Missouri
would not become subject to Missouri income tax as a result of its mere
ownership of such an interest.
Notwithstanding the foregoing, regardless of the treatment of the Offered
Certificates or the arrangement for federal income tax purposes, a
Certificateholder could be subject to Missouri income tax if such
Certificateholder participated in the negotiation of the Pooling and Servicing
Agreement or otherwise developed a taxable nexus to Missouri.
In the opinion of Missouri Tax Counsel, if the Trust is not treated as an
association taxable as a corporation for federal income tax purposes, the Trust
will not be subject to any Missouri franchise tax imposed under Chapter 147 of
the Revised Statutes of Missouri.
Because each state's income tax laws vary, it is impossible to predict the
income tax consequences to the Certificateholders in all of the state taxing
jurisdictions in which they are already subject to tax. Certificateholders are
urged to consult their own tax advisors with respect to state and local income
and franchise taxes.
DUE TO THE COMPLEXITY OF THESE RULES AND THE CURRENT UNCERTAINTY AS TO THE
MANNER OF THEIR APPLICATION TO THE TRUST AND CERTIFICATEHOLDERS, IT IS
PARTICULARLY IMPORTANT THAT POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX TREATMENT OF THEIR ACQUISITION, OWNERSHIP AND DISPOSITION OF
THE CERTIFICATES.
ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit-
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under
ERISA or "disqualified persons" under the Code with respect to the plan. A
violation of these "prohibited transaction" rules may generate excise tax and
other liabilities under ERISA and the Code for such person. For example, a
prohibited transaction would arise, unless an exemption (such as one of the
class exemptions described below) were available, if the Seller were a
disqualified person or party in interest with respect to a plan that acquired
Certificates. By its acceptance of a Class A Certificate or an interest therein,
each Class A Certificateholder and owner of any beneficial interest therein will
be deemed to represent and warrant that its purchase and holding of the
Certificate will not result in a nonexempt prohibited transaction under Section
406 of ERISA or Section 4975 of the Code.
Moreover, additional prohibited transactions could arise if the assets of the
Trust were deemed to constitute assets of any plan that owned Certificates. The
Department of Labor ("DOL") has issued a final regulation (the "Plan Assets
Regulation") concerning the definition of what constitutes the "plan assets"
of an employee benefit plan subject to ERISA or the Code, or an individual
retirement account ("IRA") (collectively referred to as "Benefit Plans").
Under the Plan Assets Regulation the assets and properties of certain
corporations, partnerships and certain other entities in which a Benefit Plan
acquires an "equity interest" could be deemed to be assets of the Benefit Plan
in certain
75
<PAGE>
circumstances. Accordingly, if Benefit Plans purchase Certificates, the Trust
could be deemed to hold plan assets of such Benefit Plan unless one of the
exceptions under the Plan Assets Regulation is applicable to the Trust.
Purchasers which are insurance companies should consult with their counsel
with respect to the recent United States Supreme Court decision interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Bank and Trust (114 S.Ct. 517). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be "plan assets" for ERISA purposes under certain circumstances.
Prospective purchasers should determine whether that decision affects their
ability to make purchases of the Certificates.
PLAN ASSETS AND THE AVAILABILITY OF EXEMPTIONS FOR CERTIFICATES
The Plan Assets Regulation contains an exception (the "Publicly-Offered
Securities Exception") that provides that if a Benefit Plan acquires a
"publicly-offered security", the issuer of the security is not deemed to hold
plan assets. A publicly-offered security is a security that is (i) freely
transferable, (ii) part of a class of securities that is held, upon completion
of the public offering made hereby, by 100 or more investors independent of the
Trust and of one another and (iii) either is (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 Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred.
It is anticipated that the Class A Certificates will meet the criteria of the
Publicly-Offered Securities Exception as set forth above. The Underwriters
expect that the Class A Certificates will be held by at least 100 independent
persons at the conclusion of the offering, although no assurance can be given,
and no monitoring or other measures will be taken to ensure, that such condition
will be met with respect to the Class A Certificates; there are no restrictions
imposed on the transfer of the Class A Certificates; and the Class A
Certificates will be sold as part of an offering pursuant to an effective
registration statement under the Securities Act, and then will be timely
registered under the Exchange Act.
If the Certificates fail to meet the criteria of the Publicly-Offered
Securities Exception and the Trust's assets are deemed to include assets of
Benefit Plans that are holders of Certificates, 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 ERISA prohibited transaction exemption is applicable. Thus, for
example, if a participant in any Benefit Plan is an obligor or guarantor of one
of the Receivables, under DOL interpretations the purchase of the Certificates
by such plan could constitute a prohibited transaction. There are five class
exemptions issued by the DOL that may apply in such event: DOL Prohibited
Transaction Exemption 84-14 (Class Exemption for Plan Asset Transactions
Determined by Independent Qualified Professional Asset Managers), 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds),
90-1 (Class Exemption for Transactions Involving Insurance Company Pooled
Separate Accounts), 95-60 (Class Exemption for Certain Transactions Involving
Insurance Company General Accounts), and 96-23 (Class Exemption for Plan Asset
Transactions Determined by an In-House Asset Manager). There is no assurance
that these exemptions, even if all of the conditions specified therein are
satisfied, will apply to all transactions involving the Trust's assets.
The Underwriters currently do not expect that the Class B Certificates will be
held by at least 100 such persons and, therefore, do not expect that the Class B
Certificates will qualify as publicly-offered securities under the Publicly-
Offered Securities Exemption. Accordingly, the Class B Certificates may not be
acquired 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 Publicly-Offered Securities Exemption
by reason of any such plan's investment in the entity. By its acceptance of a
Class B Certificate or an interest therein, each Class B Certificateholder and
owner of a beneficial interest in the Class B Certificates will be deemed to
have represented and warranted that it is not subject to the foregoing
limitation.
REVIEW BY BENEFIT PLAN FIDUCIARIES
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is especially important that any Benefit
Plan fiduciary who proposes to cause a Benefit Plan to purchase Certificates
should consult with its own counsel with respect to the potential consequences
under ERISA and the Code of the Benefit Plan's acquisition and ownership of
Certificates. Assets of a Benefit Plan should not be invested in the
Certificates unless it is clear that the assets of the Trust will not be plan
assets.
76
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Seller has agreed to cause the Trust to
sell to each of the underwriters listed below (the "Underwriters"), and each
of the Underwriters for whom Deutsche Morgan Grenfell is acting as the
representative (the "Representative"), has severally agreed to purchase the
principal amount of Offered Certificates set forth opposite the name below.
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
---------------------------- ----------------------------
AMOUNT OF CLASS A AMOUNT OF CLASS B
---------------------------- ----------------------------
UNDERWRITER CERTIFICATES TO BE PURCHASED CERTIFICATES TO BE PURCHASED
----------- ---------------------------- ----------------------------
<S> <C> <C>
Deutsche Morgan
Grenfell Inc.
---------------------------- ----------------------------
Total...... $
============================ ============================
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby if any of the Offered Certificates are purchased. In
the event of a default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the nondefaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Seller has been advised by the Representative that the several
Underwriters propose initially to offer the Offered Certificates to the public
at the public offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price less a concession not in excess of ___% of the
principal amount of the Class A Certificates and ___% of the principal amount of
the Class B Certificates. The Underwriters may allow and such dealers may
reallow to other dealers a discount not in excess of ___% of the principal
amount of the Class A Certificates and ___% of the principal amount of the Class
B Certificates. After the initial public offering, such public offering price,
concession and reallowance may be changed.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriters against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriters may be required to
make in respect thereof. The Underwriting Agreement provides that DFS will
indemnify the Underwriters against certain liabilities, including liabilities
under applicable securities laws, or contribute to payments the Underwriters may
be required to make in respect thereof.
Deutsche Morgan Grenfell and DFS are each indirect, wholly-owned subsidiaries
of Deutsche Bank AG. DFS is the limited partner of the Seller and the parent of
Deutsche Floorplan Receivables, Inc., the general partner of the Seller. Any
obligations of Deutsche Morgan Grenfell are the sole responsibility of Deutsche
Morgan Grenfell and do not create any obligation on the part of any affiliate of
Deutsche Morgan Grenfell.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for the
Seller by Naran U. Burchinow, Esq., General Counsel of the Servicer, and by
Mayer, Brown & Platt, Chicago, Illinois, and for the Underwriters by Mayer,
Brown & Platt, Chicago, Illinois. Certain federal income tax matters will be
passed upon for the Seller and the Trust by Mayer, Brown & Platt, Chicago,
Illinois, and certain Missouri income tax matters will be passed upon for the
Seller and the Trust by Bryan Cave LLP, St. Louis, Missouri.
LISTING AND GENERAL INFORMATION
1. Application is being made for listing the Offered Certificates on the
Luxembourg Stock Exchange. There can be no assurance that such application will
be accepted. In connection with the listing application made to the Luxembourg
Stock Exchange, the Agreement of Limited Partnership of the Seller, the Pooling
and Servicing Agreement and a legal
77
<PAGE>
notice relating to the issuance of the Offered Certificates will be deposited
prior to the listing with the Chief Registrar of the District Court of
Luxembourg, where copies thereof may be obtained upon request.
2. Copies of the Pooling and Servicing Agreement and the Receivable
Contribution and Sale Agreement will be available for inspection during the term
of the Offered Certificates, and for so long as the Offered Certificates are
listed on the Luxembourg Stock Exchange, copies of the statements, certificates
and reports furnished to the Trustee and copies of the reports to
Certificateholders to be delivered by the Trustee will be obtainable, at the
offices of Banque Generale du Luxembourg S.A., 50 Avenue J.F. Kennedy, L-2951,
Luxembourg.
3. The execution and delivery of the Pooling and Servicing Agreement and the
sale of the Offered Certificates were authorized by Deutsche Floorplan
Receivables, Inc., the general partner of the Seller, as of _________, 1996.
4. There has been no material adverse change in the information provided
herein with respect to the Receivables or the Trust since the Series 1996-2 Cut-
off Date.
5. Neither DFS nor any of its subsidiaries are involved in, nor are there any,
legal or arbitration proceedings or claims pending or threatened of which DFS is
aware which may have or have had during the 12 months prior to the date hereof a
material effect on the financial position of the Seller or of DFS and its
subsidiaries on a consolidated basis.
6. The Offered Certificates have been accepted for clearance through the Cedel
Bank and Euroclear systems. The Common Code for the Class A Certificates is
_______ and for the Class B Certificates is _______, and the ISIN number for the
Class A Certificates is ____________ and for the Class B Certificates is
____________.
7. For so long as the Offered Certificates are listed on the Luxembourg Stock
Exchange, notices to holders of the Offered Certificates will be given by
publication in a leading daily newspaper of general circulation in Luxembourg
or, if publication in Luxembourg is not practical, in Europe. Such publication
is expected to be made in the Luxemburger Wort. In addition, if Definitive
Certificates are issued, such notices will be mailed to the addresses of holders
of Definitive Certificates at the addresses therefor as they appear in the
register maintained by the Trustee prior to such mailing. Such notices will be
deemed to have been given on the date of such publication or mailing. The LIBOR
rate applicable to each Interest Period will be published in accordance with
this paragraph.
8. For so long as the Offered Certificates are listed on the Luxembourg Stock
Exchange, the Trustee will maintain a paying agent in Luxembourg. The initial
paying agent will be Chase Manhattan Luxembourg S.A., 5 Rue Plaetis, L-2338,
Luxembourg-Grund BP 240 L-2021. If Definitive Certificates are issued, they may
be presented for payment, transfer or exchange at the offices of the paying
agent.
9. No action has been taken or will be taken by the Seller or the Underwriters
that would permit a public offering of the Offered Certificates in any country
or jurisdiction other than in the United States where action for that purpose is
required. Accordingly, the Offered Certificates may not be offered or sold,
directly or indirectly, and neither this Prospectus nor any circular,
prospectus, form of application, advertisement or other material may be
distributed in or from or published in any country or jurisdiction except under
circumstances that will result in compliance with any applicable laws and
regulations. Persons into whose hands this Prospectus comes are required by the
Seller and the Underwriters to comply with all applicable laws and regulations
in each country or jurisdiction in which they purchase, sell or deliver Offered
Certificates or have in their possession or distribute this Prospectus, in all
cases at their own expense.
78
<PAGE>
INDEX OF PRINCIPAL TERMS
A/R Receivable Overconcentration.....................................
A/R Receivables......................................................
Accounts.............................................................
Accounts Receivable Business.........................................
Accumulation Period..................................................
Accumulation Period Commencement Date................................
Accumulation Period Length...........................................
Addition Date........................................................
Additional Accounts..................................................
Additional Cut-Off Date..............................................
Additional Interest..................................................
Adjustment Date......................................................
Adjustment Payment...................................................
Asset Based Receivable Overconcentration.............................
Asset Based Receivables..............................................
Automatic Addition Condition.........................................
Available Certificateholder Principal Collections....................
Available Seller's Collections.......................................
Available Seller's Non-Principal Collections.........................
Available Seller's Principal Collections.............................
Available Subordinated Amount........................................
Bankruptcy Code......................................................
Benefit Plans........................................................
Carry-Over Amount....................................................
Cede.................................................................
Cedel Bank...........................................................
Cedel Participants...................................................
Certificate Owners...................................................
<PAGE>
Certificate Rates....................................................
Certificateholder Non-Principal Collections..........................
Certificateholders...................................................
Certificateholders' Interest.........................................
Certificates.........................................................
Citibank.............................................................
Class A Additional Interest..........................................
Class A Certificate Rate.............................................
Class A Certificateholders...........................................
Class A Certificates.................................................
Class A Initial Invested Amount......................................
Class A Interest Shortfall...........................................
Class A Invested Amount..............................................
Class A Investor Charge-Off..........................................
Class A Monthly Interest.............................................
Class A Percentage...................................................
Class B Additional Interest..........................................
Class B Certificate Rate.............................................
Class B Certificateholders...........................................
Class B Certificates.................................................
Class B Initial Invested Amount......................................
Class B Interest Shortfall...........................................
Class B Invested Amount..............................................
Class B Investor Charge-Off..........................................
Class B Monthly Interest.............................................
Class B Percentage...................................................
Class C Additional Interest..........................................
Class C Certificate Rate.............................................
<PAGE>
Class C Certificateholders...........................................
Class C Certificates.................................................
Class C Initial Invested Amount......................................
Class C Interest Shortfall...........................................
Class C Invested Amount..............................................
Class C Investor Charge-Off..........................................
Class C Monthly Interest.............................................
Class C Percentage...................................................
Closing Date.........................................................
Code.................................................................
Collateral Security..................................................
Collection Account...................................................
Collection Period....................................................
Commission...........................................................
Controlled Amortization Amount.......................................
Controlled Distribution Amount.......................................
Cooperative..........................................................
curtailments.........................................................
de minimis amount....................................................
Dealer Overconcentration.............................................
Dealers..............................................................
Defaulted Amount.....................................................
Defaulted Receivables................................................
Deficiency Amount....................................................
Definitive Certificates..............................................
Delayed Funding Receivable...........................................
Depositaries.........................................................
<PAGE>
Depositary...........................................................
Depository...........................................................
Determination Date...................................................
Deutsche BSC.........................................................
Deutsche FRI.........................................................
Deutsche Morgan Grenfell.............................................
DFS..................................................................
Discount Factor......................................................
Distribution Date....................................................
Distribution Date Statement..........................................
DOL..................................................................
DTC..................................................................
Early Amortization Event.............................................
Early Amortization Period............................................
ECS..................................................................
Eligible Account.....................................................
Eligible Accounts....................................................
Eligible Deposit Account.............................................
Eligible Institution.................................................
Eligible Investments.................................................
Eligible Portfolio...................................................
Eligible Receivable..................................................
Eligible Receivables.................................................
Enhancement..........................................................
Enhancement Provider.................................................
ERISA................................................................
Euroclear............................................................
<PAGE>
Euroclear Operator...................................................
Euroclear Participants...............................................
Excess Funding Account...............................................
Excess Principal Collections.........................................
Excess Seller's Percentage...........................................
Excess Servicing.....................................................
Exchange Act.........................................................
Existing Manufacturer................................................
Expected Final Payment Date..........................................
FASIT................................................................
Field Audit System...................................................
financial asset securitization investment trust......................
Floating Allocation Percentage.......................................
Floorplan Agreement..................................................
Floorplan Business...................................................
Floorplan Receivables................................................
FSRs.................................................................
Holders..............................................................
Incremental Default Amount...........................................
Independent Director.................................................
Index Maturity.......................................................
Indirect Participants................................................
Individual Unsecured Receivable Overconcentration....................
Ineligible Receivables...............................................
Initial Closing Date.................................................
Initial Cut-Off Date.................................................
Insolvency Laws......................................................
<PAGE>
Interest Funding Account.............................................
Interest Funding Account Balance.....................................
Interest Payment Date................................................
Interest Period......................................................
Invested Amount......................................................
Investment Proceeds..................................................
Investor Default Amount..............................................
IRA..................................................................
IRS..................................................................
Job Protection Act of 1996...........................................
LIBOR................................................................
London Business Day..................................................
Manufacturer.........................................................
Manufacturer Overconcentration.......................................
Miscellaneous Payments...............................................
Missouri Tax Counsel.................................................
Monthly Interest.....................................................
Monthly Payment Rate.................................................
Monthly Principal....................................................
Monthly Servicing Fee................................................
Morgan...............................................................
Net Receivables Rate.................................................
New Issuance.........................................................
Non-Principal Collections............................................
NSF..................................................................
Offered Certificates.................................................
<PAGE>
OID..................................................................
OID Certificates.....................................................
Overconcentration Amount.............................................
Overconcentration Default Amount.....................................
Participants.........................................................
Participations.......................................................
Pay-as-Sold..........................................................
plan assets..........................................................
Plan Assets Regulation...............................................
Pool Balance.........................................................
Pooling and Servicing Agreement......................................
Principal Allocation Percentage......................................
Principal Collections................................................
Principal Funding Account............................................
Principal Funding Account Balance....................................
Principal Receivables................................................
Principal Shortfalls.................................................
Principal Terms......................................................
Private Label........................................................
Product Line Overconcentration.......................................
prohibited transaction...............................................
Publicly-Offered Securities Exception................................
Rating Agency........................................................
Rating Agency Condition..............................................
Receivables..........................................................
Receivables Contribution and Sale Agreement..........................
Record Date..........................................................
<PAGE>
Registration Statement...............................................
Regulations..........................................................
Removal Date.........................................................
Removal Notice.......................................................
Removed Accounts.....................................................
Representative.......................................................
Required Participation Amount........................................
Required Participation Percentage....................................
Required Subordination Draw Amount...................................
Reserve Fund.........................................................
Reserve Fund Deposit Amount..........................................
Reserve Fund Required Amount.........................................
Revolving Period.....................................................
SAU..................................................................
Scheduled Payment Plans..............................................
Securities Act.......................................................
Seller...............................................................
Seller's Certificate.................................................
Seller's Interest....................................................
Seller's Participation Amount........................................
Seller's Percentage..................................................
Series...............................................................
Series 1994-1........................................................
Series 1994-1 Certificates...........................................
Series 1994-1 Closing Date...........................................
Series 1996-1........................................................
<PAGE>
Series 1996-1 Certificates...........................................
Series 1996-2........................................................
Series 1996-2 Allocation Percentage..................................
Series 1996-2 Cut-off Date...........................................
Series Issuance Date.................................................
Service Transfer.....................................................
Servicer.............................................................
Servicer Default.....................................................
Servicing Fee........................................................
Servicing Fee Rate...................................................
Specified Dealer.....................................................
Supplement...........................................................
Supplemental Certificate.............................................
Tax Counsel..........................................................
Tax Opinion..........................................................
Termination Date.....................................................
Terms and Conditions.................................................
Transfer Date........................................................
Transfer Deposit Amount..............................................
Trust................................................................
Trust Available Subordinated Amount..................................
Trust Incremental Subordinated Amount................................
Trust Invested Amount................................................
Trust Portfolio......................................................
Trustee..............................................................
UCC..................................................................
Unallocated Principal Collections....................................
<PAGE>
Underwriters.........................................................
Underwriting Agreement...............................................
Unsecured Receivable Overconcentration...............................
Unsecured Receivables................................................
<PAGE>
ANNEX 1
OTHER ISSUANCES OF INVESTOR CERTIFICATES
This Annex 1 sets forth certain characteristics of Series 1994-1 and Series
1996-1.
SERIES 1994-1
- -------------
Initial principal balance $1,000,000,000
Scheduled interest payment dates The fifteenth day of each month (or, if such
day is not a business day, the next
succeeding business day)
Current outstanding principal $1,000,000,000
balance
Revolving Period February 28, 1994 to the earlier of
(i) the day immediately preceding the
Accumulation Period Commencement Date
(which day could be October 1, 1998) and
(ii) the business day immediately
preceding an Early Amortization Period
Expected Final Payment Date February 1999 Distribution Date
Termination Date February 2001 Distribution Date
<TABLE>
<CAPTION>
SERIES 1996-1
- -------------
<S> <C> <C>
Initial principal balance Class A: $1,000,000,000
Class B: $31,747,000
Class C: $26,456,000
Scheduled interest payment dates The fifteenth day of each January, April,
July and October (or, if such day is not a
business day, the next business day); in
certain circumstances, the scheduled
interest payment dates will be the
fifteenth day of each month (or, if such
business day is not a business day, the
next succeeding business day)
Current outstanding principal Class A: $1,000,000,000
balance Class B: $ 31,747,000
Class C: $ 26,456,000
</TABLE>
Revolving Period October 16, 1996 to the earlier of (i) the
close of business on the day immediately
preceding the Accumulation Period
Commencement Date (which day could be June
1, 1999) and (ii) the close of business on
the day an Early Amortization Period
commences
Expected Final Payment Date October 1999 Distribution Date
Termination Date October 2001 Distribution Date
A-1
<PAGE>
EXHIBIT B
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Certificates (the
"Global Securities") will be available only in book-entry form. Investors in
the Global Securities may hold such Global Securities through any of The
Depository Trust Company ("DTC"), Cedel Bank or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlements and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel Bank and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations and prior asset backed certificates issues.
Secondary cross-market trading between Cedel Bank or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel Bank and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject to
U.S. withholding taxes unless such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of CEDE
& CO. as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, Cedel Bank 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.
Investors electing to hold their Global Securities through DTC will follow the
settlement practices applicable to prior asset backed certificates issues.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel Bank 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.
B-1
<PAGE>
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior asset
backed certificates issues in same-day funds.
Trading between Cedel Bank and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel Bank or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel Bank or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel Bank
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, on the basis of a calendar year consisting
of twelve 30-day calendar months. Payment will then be made by the respective
Depositary of the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt 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 date (i.e., the trade fails), the Cedel Bank or Euroclear cash
debt will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to the
respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel Bank or Euroclear. Under this
approach, they may take on credit exposure to Cedel Bank or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel Bank or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel Bank or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel Bank or Euroclear through a Cedel Participant or Euroclear Participant
at least one business day prior to settlement. In these cases, Cedel Bank or
Euroclear will instruct the respective Depositary, as appropriate, to deliver
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of a
calendar year consisting of twelve 30-day calendar months. The payment will then
be reflected in the account of the Cedel Participant or Euroclear Participant
the following day, and receipt of the cash proceeds in the Cedel Participant's
or Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt of
the sale proceeds in its account, the back-valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date, (i.e., the trade fails), receipt of the cash proceeds
in the Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
B-2
<PAGE>
Finally, day traders that use Cedel Bank or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel Bank or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel Bank or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no later
than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedel Bank or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so that
the value date for the purchase from the DTC Participant is at least one day
prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel Bank 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 interest discount) on registered debt issued by
U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons (and each of which does not actually or
constructively own 10% or more of the voting stock of the Seller and is not a
controlled foreign corporation with respect to the Seller) 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.
Exemption for non-U.S. Persons with effectively connected income (Form 4224). A
non-U.S. Person, including a non-U.S. corporation or bank with a U.S. branch,
for which the interest income is effectively connected with its conduct of a
trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owner or
his agent.
Exemption of 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.
B-3
<PAGE>
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source. 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.
B-4
<PAGE>
PRINCIPAL OFFICES OF THE SELLER
DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
655 MARYVILLE CENTRE DRIVE
ST. LOUIS, MISSOURI 63141
UNITED STATES
LEAD MANAGER AND BOOKRUNNER
DEUTSCHE MORGAN GRENFELL
[CO-MANAGERS]
TRUSTEE, TRANSFER AGENT AND REGISTRAR AND PAYING AGENT (U.S.)
THE CHASE MANHATTAN BANK
450 WEST 33RD STREET, 15TH FLOOR
NEW YORK, NEW YORK 10001
UNITED STATES
ADDITIONAL PAYING AGENT
CHASE MANHATTAN LUXEMBOURG S.A.
5 RUE PLAETIS, L-2338
LUXEMBOURG-GRUND BP L-2021
LUXEMBOURG LISTING AGENT
BANQUE GENERALE DU LUXEMBOURG S.A.
50 AVENUE J.F. KENNEDY
L-2951, LUXEMBOURG
LEGAL ADVISER
(AS TO UNITED STATES LAW)
MAYER, BROWN & PLATT
190 S. LASALLE STREET
CHICAGO, ILLINOIS 60603
UNITED STATES
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG PEAT MARWICK, LLP
1010 MARKET STREET
St. LOUIS, MISSOURI 63101
UNITED STATES
<PAGE>
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY DEUTSCHE FLOORPLAN RECEIVABLES, L.P. OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OR AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................
Reports to Certificateholders...........
Other Information.......................
Incorporation of Certain Documents By... 3
Reference................................
Prospectus Summary.......................
Risk Factors.............................
Deutsche Floorplan Receivables, L.P.
and Deutsche Floorplan Receivables,
Inc.
The Trust................................
Use of Proceeds..........................
The Dealer Floorplan Financing Business
of DFS...................................
The Accounts.............................
Deutsche Financial Services
Corporation..............................
Deutsche Bank AG.........................
Maturity and Principal Payment
Considerations...........................
Description of the Certificates..........
Description of the Receivables
Contribution and Sale Agreement..........
Certain Legal Aspects of The
Receivables..............................
Federal Income Tax Considerations........
State and Local Tax Consequences.........
ERISA Considerations.....................
Underwriting.............................
Legal Matters............................
Listing and General Information..........
Index of Principal Terms.................
Annex 1.................................. A-1
Global Clearance, Settlement and Tax B-1
Documentation Procedures.................
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
DEUTSCHE FLOORPLAN
RECEIVABLES MASTER TRUST
$
-----------------
$ FLOATING RATE
------------
ASSET BACKED CERTIFICATES,
SERIES 1996-2, CLASS A
$ FLOATING RATE
------------
ASSET BACKED CERTIFICATES,
SERIES 1996-2, CLASS B
DEUTSCHE FLOORPLAN
RECEIVABLES, L.P.
SELLER
DEUTSCHE FINANCIAL
SERVICES CORPORATION
SERVICER
DEUTSCHE MORGAN GRENFELL
PROSPECTUS
DECEMBER ,1996
---
<PAGE>
[ALTERNATE COVER]
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1996
PROSPECTUS
$
-----------------
DEUTSCHE FLOORPLAN RECEIVABLES MASTER TRUST
$ FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-2,
---------------
CLASS A
$ FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-2,
---------------
CLASS B
DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
SELLER
DEUTSCHE FINANCIAL SERVICES CORPORATION
SERVICER
The $________________ Floating Rate Asset Backed Certificates, Series 1996-2,
Class A (the "Class A Certificates") and the $______________ Floating Rate
Asset Backed Certificates, Series 1996-2, Class B (the "Class B Certificates"
and together with the Class A Certificates, the "Offered Certificates")
offered hereby evidence undivided interests in certain assets of the Deutsche
Floorplan Receivables Master Trust (the "Trust") created pursuant to a Pooling
and Servicing Agreement among Deutsche Floorplan Receivables, L.P., as the
seller (the "Seller"), Deutsche Financial Services Corporation, as servicer
("DFS" or the "Servicer"), and The Chase Manhattan Bank, as trustee (the
"Trustee"). The Trust will also issue $____________ Floating Rate Asset Backed
Certificates, Series 1996-2, Class C (the "Class C Certificates" and, together
with the Offered Certificates, the "Certificates" or "Series 1996-2"), which
are not being offered hereby. The Trust assets include receivables (the
"Receivables") generated from time to time in a portfolio of revolving
financing arrangements (the "Accounts") with dealers and manufacturers to
finance their inventory and their accounts receivable and the collections on the
Receivables, as more fully described herein. See "The Trust." Certain assets
of the Trust will be allocated to Certificateholders, including the right to
receive a varying percentage of each month's collections with respect to the
Receivables at the times and in the manner described herein. See "Description
of the Certificates--Allocation Percentages." The Seller will own the remaining
interest in the Trust not represented by the Certificates or the certificates of
any other Series issued by the Trust (the "Seller's Interest"). From time to
time, subject to certain conditions, the Seller may offer other series of
certificates (each, a "Series"), which may have terms significantly different
from the terms of the Certificates. (Continued on next page).
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH ON PAGES __ TO __
UNDER "RISK FACTORS."
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER,
DEUTSCHE BANK AG OR ANY AFFILIATE THEREOF. NONE OF THE CERTIFICATES, THE
RECEIVABLES OR THE OTHER ASSETS OF THE TRUST ARE INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) THE SELLER(2)
Per Class A Certificate % % %
Per Class B Certificate % % %
$ $ $
Total
</TABLE>
(1) The Seller has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses, estimated to be $_______.
This Prospectus may be used by Deutsche Morgan Grenfell, an affiliate of
the Seller and the Servicer, in connection with market making transactions
in the Offered Certificates. Deutsche Morgan Grenfell may act as principal
or agent in such transactions. Such sales will be made at prices related to
prevailing market prices at the time of sale or otherwise. Certain
information in this Prospectus will be updated from time to time as
described in "Incorporation of Certain Documents by Reference."
DEUTSCHE MORGAN GRENFELL
The date of this Prospectus is _______, 1996.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PRELIMINARY PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
<PAGE>
[ALTERNATE PAGE]
UNDERWRITING
This Prospectus may be used by Deutsche Morgan Grenfell in connection with
offers and sales related to market-making transactions in the Offered
Certificates. Deutsche Morgan Grenfell may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of sale or otherwise. Deutsche Morgan Grenfell does not have
any obligation to make a market in the Offered Certificates, and it may
discontinue any such market-making activities at any time without notice, in its
sole discretion. Deutsche Morgan Grenfell is among the underwriters
participating in the initial distribution of the Offered Certificates.
Deutsche Morgan Grenfell and DFS are each indirect, wholly-owned subsidiaries of
Deutsche Bank AG. DFS is the limited partner of the Seller and the parent of
Deutsche Floorplan Receivables, Inc., the general partner of the Seller. Any
obligations of Deutsche Morgan Grenfell are the sole responsibility of Deutsche
Morgan Grenfell and do not create any obligation on the part of any affiliate of
Deutsche Morgan Grenfell.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for the
Seller by Naran U. Burchinow, Esq., General Counsel of the Servicer, and by
Mayer, Brown & Platt, Chicago, Illinois, and for the Underwriters by Mayer,
Brown & Platt, Chicago, Illinois. Certain federal income tax matters will be
passed upon for the Seller and the Trust by Mayer, Brown & Platt, Chicago,
Illinois, and certain Missouri income tax matters will be passed upon for the
Seller and the Trust by Bryan Cave, St. Louis, Missouri.
<PAGE>
[ALTERNATE BACK COVER]
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OR AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
||
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................
Reports to Certificateholders............
Other Information........................
Incorporation of Certain Documents By
Reference................................
Prospectus Summary.......................
Risk Factors.............................
Deutsche Floorplan Receivables, L.P.,
and Deutsche Floorplan Receivables,
Inc.b
The Trust................................
Use of Proceeds..........................
The Dealer Floorplan Financing Business
of DFS...................................
The Accounts.............................
Deutsche Financial Services
Corporation..............................
Deutsche Bank AG.........................
Maturity and Principal Payment
Considerations...........................
Description of the Certificates..........
Description of the Receivables
Contribution and Sale Agreement..........
Certain Legal Aspects of The
Receivables..............................
Federal Income Tax Considerations........
State and Local Tax Consequences.........
ERISA Considerations.....................
Underwriting.............................
Legal Matters............................
Listing and General Information..........
Index of Principal Terms.................
A-1
Annex 1..................................
Global Clearance, Settlement and Tax B-1
Documentation Procedures.................
</TABLE>
||
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
DEUTSCHE FLOORPLAN
RECEIVABLES MASTER TRUST
$_________________
$________________ FLOATING RATE
ASSET BACKED CERTIFICATES,
SERIES 1996-2, CLASS A
$______________ FLOATING RATE
ASSET BACKED CERTIFICATES,
SERIES 1996-2, CLASS B
DEUTSCHE FLOORPLAN
RECEIVABLES, L.P.
SELLER
DEUTSCHE FINANCIAL
SERVICES CORPORATION
SERVICER
DEUTSCHE MORGAN GRENFELL
PROSPECTUS
_______ , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the offering of the Certificates being registered under this Registration
Statement, other than underwriting discounts and commissions:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee...................... $
Printing and Engraving....................
Legal Fees and Expenses...................
Trustee Fees and Expenses.................
Blue Sky Fees and Expenses................
Rating Agency Fees........................
Miscellaneous.............................
Total................................ $
======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Ninth of Deutsche Floorplan Receivables, Inc.'s Articles of
Incorporation provides for indemnification of directors and officers of the
Registrant to the full extent permitted by Nevada law.
Section 78.751A of the Nevada General Corporation Law provides, in
substance, that Nevada corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they were
or are such directors, officers, employees or agents, against expenses incurred
in any such action, suit or proceeding. The Nevada General Corporation Law also
provides that the Registrant may purchase insurance on behalf of any such
director, officer, employee or agent.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement*
3.1 Form of Agreement of Limited Partnership of the Registrant**
4.1 Form of Pooling and Servicing Agreement**
4.2 Form of Series 1996-2 Supplement (including forms of Certificates)*
5.1 Opinion of Mayer, Brown & Platt as to legality of the Certificates
(including consent of such firm)*
8.1 Opinion of Mayer, Brown & Platt as to certain U.S. tax matters
(including consent of such firm)*
8.2 Opinion of Bryan Cave as to certain Missouri tax matters (including
consent of such firm)*
10.1 Form of Receivables Contribution and Sale Agreement**
23.1 Consent of Mayer, Brown & Platt (included in exhibits 5.1 and 8.1
hereof)*
23.2 Consent of Bryan Cave (included in exhibit 8.2 hereof)*
24.1 Power of Attorney (included at II-5 hereof)
_________________
* To be filed by amendment.
** Filed electronically with Amendment No. 2 to Registration Statement filed as
Registration No. 333-10943.
<PAGE>
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Act"), the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b) (1) or (4) or 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Act;
(ii) To reflect in the prospectus any fact or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information set forth in the
registration statement.
(4) For purposes of determining any liability under the Act, each
filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denomination and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(6) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(7) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-2
<PAGE>
B. Insofar as indemnification for liability arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Louis, State of Missouri on the 26th day of
November, 1996.
Deutsche Floorplan Receivables, L.P.
By: Deutsche Floorplan Receivables, Inc.,
General Partner
By: /s/ Richard H. Schumacher
-------------------------------
Name: Richard H. Schumacher
----------------------------
Title: President and Treasurer
-------------------------------
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard H. Schumacher, George J. Solovic, W.
Steven Culp and Naran U. Burchinow, and each of them, his/her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for and in his/her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as might or could be done in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities as officers and directors of Deutsche Floorplan Receivables, Inc. in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard H. Schumacher President and Treasurer November 26, 1996
- ------------------------- (Principal Executive Officer and
Richard H. Schumacher Principal Financial Officer)
/s/ George J. Solovic Senior Vice President and Controller November 26, 1996
- --------------------- (Principal Accounting Officer)
George J. Solovic
/s/ Richard C. Goldman Director November 26, 1996
- ----------------------
Richard C. Goldman
/s/ C. Don Brown Director November 26, 1996
- -----------------------
C. Don Brown
/s/ Phil Stout Director November 26, 1996
- ------------------------
Phil Stout
</TABLE>
II-5
<PAGE>
REGISTRATION NO. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------
EXHIBITS
FILED WITH
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1993
------------------------------------------------
DEUTSCHE FLOORPLAN RECEIVABLES MASTER TRUST
(ISSUER WITH RESPECT TO THE CERTIFICATES)
DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
(REGISTRANT)
================================================================================
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----
<C> <S> <C>
1.1 --Form of Underwriting Agreement*
3.1 --Form of Agreement of Limited Partnership**
4.1 --Form of Pooling and Servicing
Agreement**
4.2 --Form of Series 1996-2 Supplement (including form of Certificates)*
5.1 --Opinion of Mayer, Brown & Platt
as to legality of the Certificates
(including consent of such firm)*
8.1 --Opinion of Mayer, Brown & Platt
as to certain U.S. tax matters
(including consent of such firm)*
8.2 --Opinion of Bryan Cave as to certain
Missouri tax matters (including
consent of such firm)*
10.1 --Form of Receivables Contribution
and Sale Agreement**
23.1 --Consent of Mayer, Brown & Platt (included in
exhibits 5.1 and 8.1 hereof)*
23.2 --Consent of Bryan Cave (included in exhibit 8.2 hereof)*
24.1 --Power of Attorney (included at II-5 hereof)
</TABLE>
- --------------------------
* To be filed by amendment.
** Filed electronically with Amendment No. 2 to Registration Statement filed as
Registration No. 333-10943.
