<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-10943
PROSPECTUS
- -------------------------------------------------------------------------------
$1,031,747,000
DEUTSCHE FLOORPLAN RECEIVABLES MASTER TRUST
$1,000,000,000 FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-1, CLASS
A
$31,747,000 FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-1, CLASS B
DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
SELLER
DEUTSCHE FINANCIAL SERVICES CORPORATION
SERVICER
- -------------------------------------------------------------------------------
The $1,000,000,000 Floating Rate Asset Backed Certificates, Series 1996-1,
Class A (the "Class A Certificates") and the $31,747,000 Floating Rate Asset
Backed Certificates, Series 1996-1, 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 $26,456,000 Floating Rate Asset Backed
Certificates, Series 1996-1, Class C (the "Class C Certificates" and,
together with the Offered Certificates, the "Certificates" or "Series 1996-
1"), 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 20 TO 27
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 100% .225% 99.775%
Per Class B Certificate 100% .275% 99.725%
Total $1,031,747,000 $2,337,304.25 $1,029,409,695.75
</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 $836,000.
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 October 16, 1996.
DEUTSCHE MORGAN GRENFELL
CITICORP SECURITIES, INC.
DEAN WITTER REYNOLDS INC.
LEHMAN BROTHERS
SALOMON BROTHERS INC
The date of this Prospectus is October 8, 1996.
<PAGE>
(Continued from previous page).
Interest with respect to the Certificates will accrue from October 16, 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 December 1996, the first Interest Payment Date will be January 15,
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 October 1999 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 91 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.
3
<PAGE>
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 91 for the location herein of the
definitions of certain capitalized terms used herein.
Offered Securities........ $1,000,000,000 Floating Rate Asset Backed
Certificates, Series 1996-1, Class A (the "Class A
Certificates") and $31,747,000 Floating Rate Asset
Backed Certificates, Series 1996-1, 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 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 $26,456,000 Floating Rate Asset Backed
Certificates, Series 1996-1, 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 1996-1." 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.
4
<PAGE>
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 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
5
<PAGE>
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."
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
6
<PAGE>
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; While finance charges are payable on the Receivables
Collections.............. 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
July 31, 1996 (the "Series 1996-1 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
$1,031,747,000 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
7
<PAGE>
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
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 The Offered Certificates will initially be
Certificates............. 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
8
<PAGE>
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."
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 two Series prior to the date
hereof, only one of which is still outstanding. The
outstanding Series is 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
9
<PAGE>
1994-1 Certificates"). See "Annex 1: Other
Issuances of Investor Certificates" for a summary
of the Series 1994-1 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 1996-1 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 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
10
<PAGE>
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 December 1996, the first
Interest Payment Date will be January 15, 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
October 16, 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 .085% 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 .280% 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 .750% 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 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 October 1999 (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."
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<PAGE>
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
12
<PAGE>
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
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 June 1999 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 May
1999 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 1996-1. Notwithstanding the foregoing, the
Accumulation
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<PAGE>
Period Commencement Date may not be postponed
beyond the first day of the September 1999
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 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 The Certificates will be subject to early payment
Period................... 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
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<PAGE>
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 1996-1. 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."
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
15
<PAGE>
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
16
<PAGE>
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 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
17
<PAGE>
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 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 It is a condition to the issuance of the Class A
Ratings.................. 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.
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<PAGE>
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 20 through
27.
19
<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
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(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 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
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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.
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.
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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 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."
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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
1996-1 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 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."
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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
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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 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 1996-1 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
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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.
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.
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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
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
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<PAGE>
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. 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.
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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 $10,000-$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 July 31, 1996, 2% of the total balance of Receivables in the
Trust Portfolio were Unsecured Receivables.
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PRIVATE LABEL PROGRAMS
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
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<PAGE>
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 July 31, 1996, there was $3,713.3 million of Receivables in the total
U.S. portfolio of DFS of which $2,035.8 million of Receivables were included in
the Trust as of such date. Prior to the Closing Date, DFS will transfer to the
Seller and, in turn, the Seller will transfer to the Trust additional Accounts
which contained $1,342.2 million of Receivables as of July 31, 1996. In
addition, Accounts which contained $198.9 million of Receivables as of July 31,
1996 will be removed from the Trust. The tables set forth below under the
heading
"--Description of the Trust Portfolio" contain information as of July 31, 1996
with respect to the Receivables in the Trust after giving effect to Receivables
in the Accounts which will be added to or removed from the Trust on or before
the Closing Date (collectively, the "Trust Portfolio").
The sum in any column in the tables set forth below may not equal the
indicated total due to rounding.
DESCRIPTION OF THE TRUST PORTFOLIO
The following tables set forth the composition of the Trust Portfolio, as of
July 31, 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
JULY 31, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER PERCENTAGE OF
RECEIVABLES RECEIVABLES OF NUMBER OF
BUSINESS LINE BALANCE BALANCES ACCOUNTS ACCOUNTS
- ------------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Floorplan Receivables.......... $2,691.4 84.7% 10,702 97.5%
Accounts Receivable............ 207.9 6.5 183 1.7
Asset Based Lending............ 217.8 6.9 81 0.7
Unsecured...................... 62.0 2.0 11 0.1
-------- ----- ------ -----
Total...................... $3,179.1 100.0% 10,977 100.0%
======== ===== ====== =====
</TABLE>
COMPOSITION OF FLOORPLAN RECEIVABLES IN THE
TRUST PORTFOLIO BY PAYMENT PLAN
JULY 31, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER PERCENTAGE OF
RECEIVABLES RECEIVABLES OF NUMBER OF
PAYMENT PLAN BALANCE BALANCES ACCOUNTS ACCOUNTS
- ------------ ----------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Pay-as-Sold.................... $1,963.7 73.0% 9,304 86.9%
Scheduled Payment Plan......... 727.7 27.0 1,398 13.1
-------- ----- ------ -----
Total...................... $2,691.4 100.0% 10,702 100.0%
======== ===== ====== =====
</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.
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<PAGE>
COMPOSITION OF RECEIVABLES IN THE TRUST PORTFOLIO BY ACCOUNT BALANCE
AS OF JULY 31, 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.............. $1,560.8 49.1% 10,482 95.5%
$1,000,000 to $2,499,999.99.... 497.0 15.6 334 3.0
$2,500,000 to $4,999,999.99.... 329.8 10.4 94 0.9
$5,000,000 to $9,999,999.99.... 264.4 8.3 41 0.4
Over $10,000,000.00............ 527.1 16.6 26 0.2
-------- ----- ------ -----
Total...................... $3,179.1 100.0% 10,977 100.0%
======== ===== ====== =====
</TABLE>
COMPOSITION OF RECEIVABLES IN THE TRUST PORTFOLIO BY PRODUCT TYPE
AS OF JULY 31, 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..................... $ 589.3 18.5% 1,091 9.9%
Manufactured Housing.......... 544.3 17.1 1,181 10.8
Accounts Receivable(1)........ 425.7 13.4 264 2.4
Recreation Vehicles........... 384.6 12.1 619 5.6
Boats and Motors.............. 311.0 9.8 1,388 12.6
Industrial and Agricultural
Equipment.................... 310.6 9.8 716 6.5
Motorcycles................... 219.1 6.9 1,032 9.4
Snowmobiles................... 104.5 3.3 986 9.0
Other(2)...................... 134.9 4.2 3,113 28.4
Consumer Electronics and
Appliances................... 77.5 2.4 215 2.0
Keyboard and Other Musical
Instruments.................. 77.6 2.4 372 3.4
-------- ----- ------ -----
Total..................... $3,179.1 100.0% 10,977 100.0%
======== ===== ====== =====
</TABLE>
- --------
(1) Accounts Receivable includes Asset Based Receivables of $217.8 million.
(2) Includes, among other products, heating, ventilating, and air conditioning
equipment, and irrigation systems.
35
<PAGE>
GEOGRAPHIC DISTRIBUTION OF RECEIVABLES IN THE TRUST PORTFOLIO
AS OF JULY 31, 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..................... $ 408.5 12.8% 1,111 10.1%
Texas.......................... 240.2 7.6% 1,071 9.8%
Florida........................ 233.2 7.3% 900 8.2%
Georgia........................ 150.0 4.7% 435 4.0%
Oregon......................... 128.4 4.0% 275 2.5%
Washington..................... 120.1 3.8% 317 2.9%
New York....................... 118.2 3.7% 584 5.3%
North Carolina................. 115.3 3.6% 454 4.1%
Michigan....................... 106.8 3.4% 600 5.5%
Virginia....................... 104.7 3.3% 310 2.8%
Minnesota...................... 104.4 3.3% 388 3.5%
New Jersey..................... 97.4 3.1% 373 3.4%
Other States(1)................ 1,251.9 39.4% 4,159 37.9%
-------- ----- ------ -----
Total...................... $3,179.1 100.0% 10,977 100.0%
======== ===== ====== =====
</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 6 months of 1996,
the receivables in DFS's U.S. portfolio had a yield of 10.91% per annum, of
which (i) approximately 7.68% was attributable to yield from the payment of
interest accruing on those receivables and (ii) approximately 3.23% was
attributable to the payment of the discounted portion of the receivables
balances and other income. The reduction of yield for the first six 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 1996-1 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 6 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
6 months of 1996 the yield on such receivables would have been 10.08%. 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.
36
<PAGE>
MAJOR CUSTOMERS; MAJOR MANUFACTURERS
At June 30, 1996 no one Dealer accounted for more than 5% of the aggregate
balance of the Receivables in the Trust. At June 30, 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 JULY 31, ------------------------------------------------
1996 1995 1994 1993 1992 1991
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Principal
Balance................ $3,713.3 $4,124.0 $3,560.3 $2,924.6 $2,757.4 $2,186.1
SAU/NSF 31 days or
more(1)................ 2.2 2.4 1.2 1.9 5.4 7.7
Scheduled Payment Plan
past due 31 days or
more(2)................ 3.1 13.7 2.7 0.8 1.3 3.6
-------- -------- -------- -------- -------- --------
Total................. $ 5.3 $ 16.1 $ 3.9 $ 2.7 $ 6.7 $ 11.3
======== ======== ======== ======== ======== ========
SAU/NSF 31 days or
more/Aggregate
Principal Balance...... 0.06% 0.06% 0.03% 0.06% 0.20% 0.35%
Scheduled Payment Plan
past due 31 days or
more/Aggregate
Principal Balance...... 0.08% 0.33% 0.08% 0.03% 0.05% 0.16%
-------- -------- -------- -------- -------- --------
Total/Aggregate
Principal Balance...... 0.14% 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."
37
<PAGE>
LOSS EXPERIENCE FOR THE U.S. PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED JULY 31, ------------------------------------------------
1996 1995 1994 1993 1992 1991
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Principal
Receivables Balance(1). $3,943.6 $4,014.1 $3,135.4 $2,712.1 $2,321.6 $1,826.5
Gross Losses............ 6.8 13.5 12.5 14.6 29.1 24.5
Net Losses(2)........... 4.2 7.9 7.1 10.2 24.3 17.3
Net Losses/Liquidations. 0.03% 0.03% 0.03% 0.06% 0.20% 0.20%
Net Losses/Average
Principal Receivables
Balance(3)............. 0.11% 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 seven months ended July 31, 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 DECEMBER 31,
AS OF JULY 31, AS OF JULY 31, --------------------------------------
DAYS 1996 1995 1995 1994 1993 1992
- ---- -------------- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1-30.................... $ 978.4 $1,022.8 $1,052.3 $1,158.2 $ 932.2 $ 801.5
31-60................... 571.1 580.9 767.3 615.2 440.9 488.2
61-90................... 280.0 221.7 364.6 293.0 213.0 277.5
91-120.................. 214.6 185.7 275.6 249.0 170.8 205.7
121-180................. 326.5 288.1 291.6 243.4 171.1 166.5
181-270................. 289.3 261.5 222.6 169.5 125.8 129.6
Over 270................ 424.3 310.5 391.3 239.3 192.8 250.6
-------- -------- -------- -------- -------- --------
Total................... $3,084.2 $2,871.2 $3,365.3 $2,967.6 $2,246.6 $2,319.6
======== ======== ======== ======== ======== ========
PERCENTAGE OF RECEIVABLES BALANCE
<CAPTION>
AS OF DECEMBER 31,
AS OF JULY 31, AS OF JULY 31, --------------------------------------
DAYS 1996 1995 1995 1994 1993 1992
- ---- -------------- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1-30.................... 31.7% 35.6% 31.3% 39.0% 41.5% 34.6%
31-60................... 18.5 20.2 22.8 20.7 19.6 21.0
61-90................... 9.1 7.7 10.8 9.9 9.5 12.0
91-120.................. 7.0 6.5 8.2 8.4 7.6 8.9
121-180................. 10.6 10.0 8.7 8.2 7.6 7.2
181-270................. 9.4 9.1 6.6 5.7 5.6 5.6
Over 270................ 13.8 10.8 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.
38
<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 June 30, 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 June 30, 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 October 1999 (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
39
<PAGE>
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. 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>
SIX
MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------- ------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Highest Month................................ 56% 57% 62% 61% 53% 46% 44%
Lowest Month................................. 50% 49% 49% 43% 35% 37% 33%
Average of the Months in the Period.......... 53% 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.
40
<PAGE>
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 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
December 1996, the first Interest Payment Date will be January 15, 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 .085% 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 .280% 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 .750% 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.
41
<PAGE>
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.
"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
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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."
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
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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.
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
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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 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,
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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 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.
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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.
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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 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
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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 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
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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 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.
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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
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
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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 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
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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
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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.
"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
1996-1, 105%, (b) with respect to Series 1994-1, 105% and (c) 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
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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 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
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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.
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 1996-1 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.
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"Class A Initial Invested Amount" for any date means the initial principal
amount of the Class A Certificates, which is $1,000,000,000, 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 $31,747,000, 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 $26,456,000, 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.
"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 1996-1 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.
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"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 1996-1 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 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.
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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 1996-1 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 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.
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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.
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"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 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.
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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 1996-1. 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
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 1996-1. 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 1996-1. 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
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immediately preceding Collection Period (or with respect to the first
Determination Date with respect to Series 1996-1, the Invested Amount on the
issuance date for Series 1996-1), 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:
(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);
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(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 1996-1. 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 and Series 1996-1) pro rata on the basis of such
required subordination draw amounts (including the Required Subordination Draw
Amount).
"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 1996-1 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
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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 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 1996-1 Allocation Percentage of
Miscellaneous Payments with respect to such Distribution Date.
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"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."
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:
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(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
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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 1996-1 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.
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
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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;
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
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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)
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 October 2001 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 1996-1 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
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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 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.
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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 1996-1 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
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
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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
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
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of Principal Collections processed during the immediately preceding Collection
Period and the amount on deposit in the Collection Account; (b) the Series
1996-1 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
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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 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."
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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 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."
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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.
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.
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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 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."
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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.
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.
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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 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
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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.
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
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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
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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 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.
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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 1996-1, the Seller and Servicer will
be permitted to amend the Pooling and Servicing Agreement or the Supplement
with respect to Series 1996-1 in order to enable all or a portion of the Trust
to qualify 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 1996-1 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 1996-1 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 1996-1 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
85
<PAGE>
(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.
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.
86
<PAGE>
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
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.
87
<PAGE>
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.
88
<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.................... $ 200,000,000 $ 6,351,000
Citicorp Securities,
Inc.................... $ 200,000,000 $ 6,349,000
Dean Witter Reynolds
Inc.................... $ 200,000,000 $ 6,349,000
Lehman Brothers Inc..... $ 200,000,000 $ 6,349,000
Salomon Brothers Inc.... $ 200,000,000 $ 6,349,000
-------------- -----------
Total................. $1,000,000,000 $31,747,000
============== ===========
</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 .15%
of the principal amount of the Class A Certificates and .20% 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 .10% of the
principal amount of the Class A Certificates and .15% 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.
89
<PAGE>
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 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 October 4, 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 1996-1
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 7031807 and for the Class B Certificates is 7031831, and the ISIN number
for the Class A Certificates is US251548AB96 and for the Class B Certificates
is US251548AC79.
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.
90
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<S> <C>
A/R Receivable Overconcentration....................................... 52
A/R Receivables........................................................ 29
Accounts............................................................... 1
Accounts Receivable Business........................................... 28
Accumulation Period.................................................... 12
Accumulation Period Commencement Date.................................. 13
Accumulation Period Length............................................. 13
Addition Date.......................................................... 49
Additional Accounts.................................................... 53
Additional Cut-Off Date................................................ 49
Additional Interest.................................................... 61
Adjustment Date........................................................ 42
Adjustment Payment..................................................... 68
Asset Based Receivable Overconcentration............................... 52
Asset Based Receivables................................................ 32
Automatic Addition Condition........................................... 53
Available Certificateholder Principal Collections...................... 65
Available Seller's Collections......................................... 60
Available Seller's Non-Principal Collections........................... 60
Available Seller's Principal Collections............................... 60
Available Subordinated Amount.......................................... 62
Bankruptcy Code........................................................ 80
Benefit Plans.......................................................... 87
Carry-Over Amount...................................................... 42
Cede................................................................... 2, 41
Cedel Bank............................................................. 1, 9
Cedel Participants..................................................... 44
Certificate Owners..................................................... 2, 27
Certificate Rates...................................................... 11, 41
Certificateholder Non-Principal Collections............................ 64
Certificateholders..................................................... 4, 7, 27
Certificateholders' Interest........................................... 7
Certificates........................................................... 1, 4
Citibank............................................................... 9, 45
Class A Additional Interest............................................ 62
Class A Certificate Rate............................................... 11, 41
Class A Certificateholders............................................. 4
Class A Certificates................................................... 1, 4
Class A Initial Invested Amount........................................ 57
Class A Interest Shortfall............................................. 62
Class A Invested Amount................................................ 57
Class A Investor Charge-Off............................................ 69
Class A Monthly Interest............................................... 61
Class A Percentage..................................................... 57
Class B Additional Interest............................................ 62
Class B Certificate Rate............................................... 11, 41
Class B Certificateholders............................................. 4
Class B Certificates................................................... 1, 4
Class B Initial Invested Amount........................................ 57
Class B Interest Shortfall............................................. 62
</TABLE>
91
<PAGE>
<TABLE>
<S> <C>
Class B Invested Amount.................................................. 57
Class B Investor Charge-Off.............................................. 68
Class B Monthly Interest................................................. 61
Class B Percentage....................................................... 57
Class C Additional Interest.............................................. 62
Class C Certificate Rate................................................. 11, 41
Class C Certificateholders............................................... 4
Class C Certificates..................................................... 1, 4
Class C Initial Invested Amount.......................................... 57
Class C Interest Shortfall............................................... 62
Class C Invested Amount.................................................. 57
Class C Investor Charge-Off.............................................. 68
Class C Monthly Interest................................................. 61
Class C Percentage....................................................... 57
Closing Date............................................................. 11
Code..................................................................... 17, 81
Collateral Security...................................................... 5
Collection Account....................................................... 55
Collection Period........................................................ 10
Commission............................................................... 2
Controlled Amortization Amount........................................... 66
Controlled Distribution Amount........................................... 66
Cooperative.............................................................. 45
curtailments............................................................. 30
de minimis amount........................................................ 83
Dealer Overconcentration................................................. 52
Dealers.................................................................. 6, 28
Defaulted Amount......................................................... 68
Defaulted Receivables.................................................... 68
Deficiency Amount........................................................ 61
Definitive Certificates.................................................. 46
Delayed Funding Receivable............................................... 30
Depositaries............................................................. 9, 45
Depositary............................................................... 45
Depository............................................................... 41
Determination Date....................................................... 16
Deutsche BSC............................................................. 6
Deutsche FRI............................................................. 27
Deutsche Morgan Grenfell................................................. 39
DFS...................................................................... 1, 4
Discount Factor.......................................................... 7, 59
Distribution Date........................................................ 2, 11
Distribution Date Statement.............................................. 74
DOL...................................................................... 87
DTC...................................................................... 2
Early Amortization Event................................................. 69
Early Amortization Period................................................ 14
ECS...................................................................... 29
Eligible Account......................................................... 50
Eligible Accounts........................................................ 6
Eligible Deposit Account................................................. 55
Eligible Institution..................................................... 55
</TABLE>
92
<PAGE>
<TABLE>
<S> <C>
Eligible Investments..................................................... 55
Eligible Portfolio....................................................... 33
Eligible Receivable...................................................... 51
Eligible Receivables..................................................... 7
Enhancement.............................................................. 5
Enhancement Provider..................................................... 50
ERISA.................................................................... 17
Euroclear................................................................ 9
Euroclear Operator....................................................... 45
Euroclear Participants................................................... 45
Excess Funding Account................................................... 55
Excess Principal Collections............................................. 58
Excess Seller's Percentage............................................... 60
Excess Servicing......................................................... 64
Exchange Act............................................................. 2
Existing Manufacturer.................................................... 54
Expected Final Payment Date.............................................. 11, 39
FASIT.................................................................... 85
Field Audit System....................................................... 31
financial asset securitization investment trust.......................... 85
Floating Allocation Percentage........................................... 57
Floorplan Agreement...................................................... 31
Floorplan Business....................................................... 28
Floorplan Receivables.................................................... 29
FSRs..................................................................... 31
Holders.................................................................. 46
Incremental Default Amount............................................... 63
Independent Director..................................................... 27
Index Maturity........................................................... 42
Indirect Participants.................................................... 43
Individual Unsecured Receivable Overconcentration........................ 53
Ineligible Receivables................................................... 49, 51
Initial Closing Date..................................................... 48
Initial Cut-Off Date..................................................... 5
Insolvency Laws.......................................................... 27
Interest Funding Account................................................. 66
Interest Funding Account Balance......................................... 66
Interest Payment Date.................................................... 2, 11
Interest Period.......................................................... 11, 41
Invested Amount.......................................................... 57
Investment Proceeds...................................................... 64
Investor Default Amount.................................................. 68
IRA...................................................................... 87
IRS...................................................................... 81
Job Protection Act of 1996............................................... 85
LIBOR.................................................................... 42
London Business Day...................................................... 42
Manufacturer............................................................. 30
Manufacturer Overconcentration........................................... 52
Miscellaneous Payments................................................... 58
Missouri Tax Counsel..................................................... 86
Monthly Interest......................................................... 61
</TABLE>
93
<PAGE>
<TABLE>
<S> <C>
Monthly Payment Rate..................................................... 41
Monthly Principal........................................................ 66
Monthly Servicing Fee.................................................... 73
Morgan................................................................... 9, 45
Net Receivables Rate..................................................... 41
New Issuance............................................................. 9
Non-Principal Collections................................................ 7
NSF...................................................................... 68
Offered Certificates..................................................... 1, 4
OID...................................................................... 82
OID Certificates......................................................... 82
Overconcentration Amount................................................. 52
Overconcentration Default Amount......................................... 63
Participants............................................................. 43
Participations........................................................... 33
Pay-as-Sold.............................................................. 30
plan assets.............................................................. 17
Plan Assets Regulation................................................... 87
Pool Balance............................................................. 10
Pooling and Servicing Agreement.......................................... 5, 40
Principal Allocation Percentage.......................................... 58
Principal Collections.................................................... 7
Principal Funding Account................................................ 12, 66
Principal Funding Account Balance........................................ 66
Principal Receivables.................................................... 13
Principal Shortfalls..................................................... 58
Principal Terms.......................................................... 47
Private Label............................................................ 33
Product Line Overconcentration........................................... 52
prohibited transaction................................................... 17
Publicly-Offered Securities Exception.................................... 87
Rating Agency............................................................ 18, 26
Rating Agency Condition.................................................. 9
Receivables.............................................................. 1
Receivables Contribution and Sale Agreement.............................. 6
Record Date.............................................................. 43
Registration Statement................................................... 2
Regulations.............................................................. 84
Removal Date............................................................. 54
Removal Notice........................................................... 54
Removed Accounts......................................................... 54
Representative........................................................... 89
Required Participation Amount............................................ 54
Required Participation Percentage........................................ 54
Required Subordination Draw Amount....................................... 61
Reserve Fund............................................................. 15, 64
Reserve Fund Deposit Amount.............................................. 65
Reserve Fund Required Amount............................................. 64
Revolving Period......................................................... 12
SAU...................................................................... 68
Scheduled Payment Plans.................................................. 30
Securities Act........................................................... 2
</TABLE>
94
<PAGE>
<TABLE>
<S> <C>
Seller................................................................... 1, 4
Seller's Certificate..................................................... 4, 47
Seller's Interest........................................................ 1, 8
Seller's Participation Amount............................................ 61
Seller's Percentage...................................................... 61
Series................................................................... 1
Series 1994-1............................................................ 9
Series 1994-1 Certificates............................................... 9
Series 1994-1 Closing Date............................................... 22
Series 1996-1............................................................ 1, 4
Series 1996-1 Allocation Percentage...................................... 58
Series 1996-1 Cut-off Date............................................... 7
Series Issuance Date..................................................... 49
Service Transfer......................................................... 74
Servicer................................................................. 1, 4
Servicer Default......................................................... 74
Servicing Fee............................................................ 73
Servicing Fee Rate....................................................... 73
Specified Dealer......................................................... 52
Supplement............................................................... 9
Supplemental Certificate................................................. 47
Tax Counsel.............................................................. 81
Tax Opinion.............................................................. 48
Termination Date......................................................... 71
Terms and Conditions..................................................... 45
Transfer Date............................................................ 49
Transfer Deposit Amount.................................................. 49, 73
Trust.................................................................... 1, 4
Trust Available Subordinated Amount...................................... 58
Trust Incremental Subordinated Amount.................................... 63
Trust Invested Amount.................................................... 58
Trust Portfolio.......................................................... 34
Trustee.................................................................. 5
UCC...................................................................... 20
Unallocated Principal Collections........................................ 58
Underwriters............................................................. 89
Underwriting Agreement................................................... 89
Unsecured Receivable Overconcentration................................... 52
Unsecured Receivables.................................................... 6, 32
</TABLE>
95
<PAGE>
ANNEX 1
OTHER ISSUANCES OF INVESTOR CERTIFICATES
This Annex 1 sets forth certain characteristics of Series 1994-1.
Initial principal balance.. $1,000,000,000
Scheduled interest payment The fifteenth day of each month (or, if such day
dates..................... is not a business day, the next succeeding
business day)
Current outstanding
principal balance.........
$1,000,000,000
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 February 1999 Distribution Date
Date......................
Termination Date........... February 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.
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,
B-1
<PAGE>
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.
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:
B-2
<PAGE>
(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.
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-3
<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
CITICORP SECURITIES, INC.
DEAN WITTER REYNOLDS INC.
LEHMAN BROTHERS
SALOMON BROTHERS INC
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 IN-
FORMATION 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 UN-
DERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLIC-
ITATION OR AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JU-
RISDICTION 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................................................... 2
Reports to Certificateholders........................................... 3
Other Information....................................................... 3
Incorporation of Certain Documents By Reference......................... 3
Prospectus Summary...................................................... 4
Risk Factors............................................................ 20
Deutsche Floorplan Receivables, L.P. and Deutsche Floorplan Receivables,
Inc.................................................................... 27
The Trust............................................................... 28
Use of Proceeds......................................................... 28
The Dealer Floorplan Financing Business of DFS.......................... 28
The Accounts............................................................ 33
Deutsche Financial Services Corporation................................. 39
Deutsche Bank AG........................................................ 39
Maturity and Principal Payment Considerations........................... 39
Description of the Certificates......................................... 40
Description of the Receivables Contribution and Sale Agreement.......... 77
Certain Legal Aspects of The Receivables................................ 79
Federal Income Tax Considerations....................................... 81
State and Local Tax Consequences........................................ 86
ERISA Considerations.................................................... 87
Underwriting............................................................ 89
Legal Matters........................................................... 89
Listing and General Information......................................... 90
Index of Principal Terms................................................ 91
Annex 1................................................................. A-1
Global Clearance, Settlement and Tax Documentation Procedures........... B-1
</TABLE>
- -------------------------------------------------------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DIS-
TRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRIT-
ERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
DEUTSCHE FLOORPLAN
RECEIVABLES MASTER TRUST
$1,031,747,000
$1,000,000,000 FLOATING RATE
ASSET BACKED CERTIFICATES,
SERIES 1996-1, CLASS A
$31,747,000 FLOATING RATE
ASSET BACKED CERTIFICATES,
SERIES 1996-1, CLASS B
DEUTSCHE FLOORPLAN
RECEIVABLES, L.P.
SELLER
DEUTSCHE FINANCIAL
SERVICES CORPORATION
SERVICER
DEUTSCHE MORGAN GRENFELL
CITICORP SECURITIES, INC.
DEAN WITTER REYNOLDS INC.
LEHMAN BROTHERS
SALOMON BROTHERS INC
PROSPECTUS
OCTOBER 8, 1996
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE COVER]
SUBJECT TO COMPLETION, DATED OCTOBER 8, 1996
PROSPECTUS
- --------------------------------------------------------------------------------
$1,031,747,000
DEUTSCHE FLOORPLAN RECEIVABLES MASTER TRUST
$1,000,000,000 FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-1, CLASS
A
$31,747,000 FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-1, CLASS B
DEUTSCHE FLOORPLAN RECEIVABLES, L.P.
SELLER
DEUTSCHE FINANCIAL SERVICES CORPORATION
SERVICER
- --------------------------------------------------------------------------------
The $1,000,000,000 Floating Rate Asset Backed Certificates, Series 1996-1,
Class A (the "Class A Certificates") and the $31,747,000 Floating Rate Asset
Backed Certificates, Series 1996-1, 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 $26,456,000 Floating Rate Asset
Backed Certificates, Series 1996-1, Class C (the "Class C Certificates" and,
together with the Offered Certificates, the "Certificates" or "Series 1996-
1"), 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 20 TO 27
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 $836,000.
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 October , 1996.
<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.
89
<PAGE>
[ALTERNATE BACK COVER]
- --------------------------------------------------------------------------------
DEUTSCHE FLOORPLAN
RECEIVABLES MASTER TRUST
$1,031,747,000
$1,000,000,000 FLOATING RATE
ASSET BACKED CERTIFICATES,
SERIES 1996-1, CLASS A
$31,747,000 FLOATING RATE
ASSET BACKED CERTIFICATES,
SERIES 1996-1, CLASS B
DEUTSCHE FLOORPLAN
RECEIVABLES, L.P.
SELLER
DEUTSCHE FINANCIAL
SERVICES CORPORATION
SERVICER
DEUTSCHE MORGAN GRENFELL
PROSPECTUS
OCTOBER , 1996
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION 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. NEI-
THER 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................................................... 2
Reports to Certificateholders........................................... 3
Other Information....................................................... 3
Incorporation of Certain Documents By Reference......................... 3
Prospectus Summary...................................................... 4
Risk Factors............................................................ 20
Deutsche Floorplan Receivables, L.P., and Deutsche Floorplan
Receivables, Inc....................................................... 27
The Trust............................................................... 28
Use of Proceeds......................................................... 28
The Dealer Floorplan Financing Business of DFS.......................... 28
The Accounts............................................................ 33
Deutsche Financial Services Corporation................................. 39
Deutsche Bank AG........................................................ 39
Maturity and Principal Payment Considerations........................... 39
Description of the Certificates......................................... 40
Description of the Receivables Contribution and Sale Agreement.......... 77
Certain Legal Aspects of The Receivables................................ 79
Federal Income Tax Considerations....................................... 81
State and Local Tax Consequences........................................ 86
ERISA Considerations.................................................... 87
Underwriting............................................................ 89
Legal Matters........................................................... 89
Listing and General Information......................................... 90
Index of Principal Terms................................................ 91
Annex 1................................................................. A-1
Global Clearance, Settlement and Tax Documentation Procedures........... B-1
</TABLE>
- --------------------------------------------------------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING TRANS-
ACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBU-
TION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OB-
LIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
