<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus Dated October 3, 1997)
$400,000,000
DAYTON HUDSON CREDIT CARD MASTER TRUST
6.25% CLASS A ASSET BACKED CERTIFICATES, SERIES 1997-1
DAYTON HUDSON RECEIVABLES CORPORATION
TRANSFEROR
RETAILERS NATIONAL BANK
SERVICER
The $400,000,000 6.25% Class A Asset Backed Certificates, Series 1997-1 (the
"Class A Certificates") offered hereby will represent undivided interests in
certain assets of the Dayton Hudson Credit Card Master Trust (the "Trust")
created pursuant to a Pooling and Servicing Agreement (the "Pooling Agreement"),
among Dayton Hudson Receivables Corporation, as transferor (the "Transferor"),
Retailers National Bank ("RNB"), as servicer (the "Servicer") and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee"). Concurrently with
the issuance of the Class A Certificates, the Trust will issue $122,875,817
Class B Asset Backed Certificates, Series 1997-1 (the "Class B Certificates,"
and together with the Class A Certificates, the "Series 1997-1 Certificates").
The Class B Certificates are not offered hereby. The Transferor will initially
retain the Class B Certificates. The property of the Trust includes receivables
(the "Receivables") generated from time to time in a portfolio of consumer open
end credit card accounts (the "Accounts"), collections thereon, monies on
deposit in certain accounts and certain other property as more fully described
under "The Trust" in the Prospectus. The Transferor will own the remaining
undivided interest in the Trust not represented by the Series 1997-1
Certificates, any
(continued on next page)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CLASS A CERTIFICATES, AND THERE
IS NO ASSURANCE THAT ONE WILL DEVELOP OR, IF ONE DOES DEVELOP, THAT IT WILL
CONTINUE UNTIL THE CLASS A CERTIFICATES ARE PAID IN FULL. POTENTIAL INVESTORS
SHOULD CONSIDER, AMONG OTHER THINGS, THE RISK FACTORS SET FORTH IN "RISK
FACTORS" BEGINNING ON PAGE 23 IN THE PROSPECTUS.
THE CLASS A CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF THE TRANSFEROR, DAYTON HUDSON
CAPITAL CORPORATION OR THE SERVICER OR ANY AFFILIATE OF ANY OF THEM. A CLASS A
CERTIFICATE IS NOT A DEPOSIT AND NONE OF THE CLASS A CERTIFICATES, THE
UNDERLYING ACCOUNTS OR THE RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION (THE "FDIC") 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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
THE
PRICE TO UNDERWRITING TRANSFEROR
PUBLIC(1) DISCOUNT (1)(2)
Per Class A Certificate............. 99.78553% .30000% 99.48553%
<S> <C> <C> <C>
Total............................... $399,142,120 $1,200,000 $397,942,120
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________________________________________________________________________________
(1) Plus accrued interest, if any, at the Class A Certificate Rate from October
15, 1997.
(2) Before deduction of expenses payable by the Transferor, estimated to be
$600,000.
The Class A Certificates are offered by the Underwriters when, as and if issued
by the Trust and accepted by the Underwriters and subject to the Underwriters'
right to reject orders in whole or in part. It is expected that the Class A
Certificates will be offered globally and delivered in book-entry form on or
about October 15, 1997, through any of the facilities of The Depository Trust
Company, Cedel Bank, societe anonyme and the Euroclear System.
SALOMON BROTHERS INC
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
The date of this Prospectus Supplement is October 8, 1997
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Supplemental Certificate, the Participation issued to RNB and any other investor
certificates that have been or may be issued by the Trust. The Transferor may
offer from time to time other Series of Certificates that evidence undivided
interests in certain assets of the Trust, which may have terms significantly
different from the Series 1997-1 Certificates and which are not offered hereby.
The issuance of additional Series of Certificates may have an impact on the
timing or amount of payments received by holders of the Series 1997-1
Certificates (the "Series 1997-1 Certificateholders"). See "Description of the
Certificates--New Issuances" in the Prospectus. The Servicer initially will
service the Receivables.
Interest with respect to the Class A Certificates will accrue from October 15,
1997 (the "Closing Date") and is payable monthly on the 25th day of each month,
or if such day is not a Business Day, the next succeeding Business Day,
commencing November 25, 1997 (each, a "Distribution Date"). Principal on the
Class A Certificates is expected to be paid in full on the October 2002
Distribution Date (the "Class A Expected Final Payment Date"). Principal may be
paid to the holders of the Class A Certificates (the "Class A
Certificateholders") earlier or later under certain circumstances described
herein. See "Maturity Considerations."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A CERTIFICATES,
INCLUDING PURCHASES OF THE CLASS A CERTIFICATES TO STABILIZE THE MARKET PRICE
THEREOF, PURCHASES OF THE CLASS A CERTIFICATES TO COVER SOME OR ALL OF A SHORT
POSITION IN THE CLASS A CERTIFICATES MAINTAINED BY THE UNDERWRITERS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING" HEREIN.
THE CLASS A CERTIFICATES OFFERED HEREBY CONSTITUTE A SEPARATE SERIES OF
CERTIFICATES BEING OFFERED BY THE TRANSFEROR FROM TIME TO TIME PURSUANT TO ITS
PROSPECTUS DATED OCTOBER 3, 1997. THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN
COMPLETE INFORMATION ABOUT THE OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL
INFORMATION IS CONTAINED IN THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CLASS A
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
OTHER INFORMATION
The distribution of this Prospectus Supplement and the Prospectus and the
offering of the Class A Certificates in certain jurisdictions may be restricted
by law. Persons into whose possession this Prospectus Supplement and the
Prospectus come are required by the Underwriters to inform themselves about and
to observe any such restrictions.
As used in this Prospectus Supplement and the Prospectus, all references to
"dollars" and "$" refer to United States dollars.
S-2
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE
DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
A LISTING OF THE PAGES ON WHICH SOME OF SUCH TERMS ARE DEFINED IS FOUND IN THE
"INDEX OF TERMS FOR THE PROSPECTUS SUPPLEMENT" HEREIN AND IN THE "INDEX OF TERMS
FOR THE PROSPECTUS" IN THE PROSPECTUS.
<TABLE>
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Securities Offered....... $400,000,000 6.25% Class A Asset Backed
Certificates, Series 1997-1 (the "Class A
Certificates" or the "Offered Certificates").
Other Securities......... Simultaneously with the issuance of the Class A
Certificates, $122,875,817 Class B Asset Backed
Certificates, Series 1997-1 (the "Class B
Certificates," and together with the Class A
Certificates, the "Series 1997-1 Certificates")
are being issued by the Trust. The Class B
Certificates will be initially retained by the
Transferor and are not offered hereby. Initially
no interest will accrue with respect to the Class
B Certificates, although an interest rate may be
established for the Class B Certificates after the
issuance of the Series 1997-1 Certificates subject
to the conditions described under "Description of
the Class A Certificates--Transfer of the Class B
Certificates." Subject to the conditions described
under "Description of the Class A
Certificates--Transfer of the Class B
Certificates," the Transferor may transfer the
Class B Certificates without the consent of the
Class A Certificateholders.
Initial Invested
Amount................. $522,875,817 (the "Initial Invested Amount").
Class A Initial Invested
Amount................. $400,000,000 (the "Class A Initial Invested
Amount").
Class A Certificate
Rate................... 6.25% per annum (the "Class A Certificate Rate").
Interest Payment Date.... Each Distribution Date beginning with the November
25, 1997 Distribution Date (each, an "Interest
Payment Date").
Distribution Date........ The 25th day of each month or, if such day is not
a Business Day, the next succeeding Business Day,
commencing November 25, 1997 (each, a
"Distribution Date").
Class A Controlled
Accumulation Amount.... For each Distribution Date occurring during the
Accumulation Period, $33,333,333.34 (the "Class A
Controlled Accumulation Amount"); PROVIDED, that
such amount may be increased as a result of the
postponement of the commencement of the
Accumulation Period or the issuance of Additional
Certificates. See "Description of the Class A
Certificates--Postponement of Accumulation Period"
and "--Issuance of Additional Certificates."
Class A Expected Final
Payment Date........... The October 2002 Distribution Date.
Trust Cut-Off Date....... June 30, 1995 (the "Cut-Off Date").
Closing Date............. October 15, 1997 (the "Closing Date").
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The Trust................ Dayton Hudson Credit Card Master Trust (the
"Trust"). The Trust, as a master trust, is issuing
the Series 1997-1 Certificates and may issue
additional series (each, a "Series") of
certificates (collectively, the "Certificates")
from time to time. The Trust has previously issued
two other series. See "Annex I: Other Series." The
assets of the Trust (the "Trust Assets") include
and will include a portfolio of receivables (the
"Receivables") arising under the Accounts from
time to time, funds collected or to be collected
from Cardholders in respect of the Receivables,
monies on deposit in certain accounts of the
Trust, any Participation Interests (as defined in
the Prospectus) included in the Trust, funds
collected or to be collected with respect to such
Participation Interests and any Enhancement (as
defined in the Prospectus) with respect to a
particular Series or Class. The Trust Assets are
expected to change over the life of the Trust as
receivables in open end bank credit card accounts
and other open end credit accounts and related
assets are included in the Trust and as
receivables in accounts included in the Trust are
charged-off or removed. See "The Trust,"
"Description of the Certificates--New Issuances,"
"The Pooling and Servicing Agreement--Addition of
Trust Assets" and "--Removal of Accounts" in the
Prospectus.
The Transferor........... Dayton Hudson Receivables Corporation (the
"Transferor"), a corporation organized under the
laws of the State of Minnesota and a special
purpose subsidiary of Dayton Hudson Capital
Corporation ("DHCC"), is the Transferor of the
Receivables and originator of the Trust.
The Trustee.............. Norwest Bank Minnesota, National Association, in
its capacity as trustee under the Pooling
Agreement (the "Trustee").
The Receivables.......... The aggregate amount of Receivables as of June 30,
1997 was $2,054,828,523, of which $1,987,797,108
were Principal Receivables (as defined in the
Prospectus) and $67,031,415 were Finance Charge
Receivables (as defined in the Prospectus).
The Series 1997-1
Certificates........... The Class A Certificates will be available for
purchase in minimum denominations of $1,000 and in
integral multiples thereof, and will only be
available in book-entry form except in certain
limited circumstances as described in the
Prospectus under "Description of the
Certificates--Definitive Certificates." The Trust
Assets will be allocated among (a) the interest of
the holders of the Series 1997-1 Certificates,
including the Class B Certificates (the "Series
1997-1 Certificateholders' Interest"), (b) the
interest of the holders of Certificates of other
Series, if any, (c) the interest of the Transferor
and its permitted transferees and any holder of a
Supplemental Certificate (the "Transferor's
Interest") and (d) RNB as the holder of a
Participation, as described below. The Series
1997-1 Certificateholders' Interest will include
the right to receive, but only to the extent
needed to make required payments under the Pooling
Agreement and the supplement to the Pooling
</TABLE>
S-4
<PAGE>
<TABLE>
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Agreement relating to the Series 1997-1
Certificates (the "Series 1997-1 Supplement"),
varying percentages of collections of Finance
Charge Receivables and Principal Receivables and
will be allocated a varying percentage of the
Defaulted Amount (as defined in the Prospectus)
with respect to each Monthly Period (as defined in
the Prospectus). See "Description of the Class A
Certificates--Interest" and "--Principal."
The portion of the Trust Assets allocated to the
Series 1997-1 Certificateholders' Interest will be
further allocated between the holders of the Class
A Certificates (the "Class A Certificateholders'
Interest") and the holders of the Class B
Certificates (the "Class B Certificateholders'
Interest") as described herein. The Class A
Invested Amount and the Class B Invested Amount
will, except as otherwise described herein, remain
at $400,000,000 and $122,875,817, respectively,
during the Revolving Period. The Class A Adjusted
Invested Amount will decline as principal is
deposited in the Principal Funding Account during
the Accumulation Period and, if applicable, the
Class A Invested Amount will also decline as
principal is paid to the Class A
Certificateholders during the Early Amortization
Period (collectively with the Accumulation Period,
the "Amortization Period"). The Class B
Certificateholders' Interest may decline during
the Revolving Period if the Transferor receives
confirmation from each Rating Agency that such
reduction will not result in a Ratings Effect (as
defined in the Prospectus). The Class B
Certificateholders' Interest will also decline in
certain circumstances as a result of (a) the
allocation to the Class B Certificateholders'
Interest of Defaulted Amounts, including Defaulted
Amounts otherwise allocable to the Class A
Certificateholders' Interest and (b) the
reallocation of collections of Principal
Receivables otherwise allocable to the Class B
Certificateholders' Interest to fund certain
payments in respect of the Class A Certificates.
Any such reductions in the Class B
Certificateholders' Interest may be reimbursed out
of Excess Finance Charge Collections and Excess
Transferor Finance Charge Collections allocable to
the Series 1997-1 Certificates after the Class A
Certificateholders' Interest has been fully
reimbursed.
The Transferor's Interest will represent the right
to the Trust Assets not allocated to the Series
1997-1 Certificateholders' Interest, to the
interest of any holder of a Participation or to
the interest of any other Series. The aggregate
principal amount of the Transferor's Interest in
Receivables and amounts on deposit in the Special
Funding Account and the Principal Funding Account
(the "Transferor Amount") will fluctuate as the
amount of Principal Receivables in the Trust and
amounts on deposit in the Special Funding Account
and the Principal Funding Account change from time
to time. The Transferor's Interest may not be
transferred, except in limited circumstances
including through the issuance of a Supplemental
Certificate in accordance with
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S-5
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the terms of the Pooling Agreement. See
"Description of the Certificates--The Transferor
Certificate" in the Prospectus.
The Series 1997-1 Certificates represent interests
in the Trust and do not represent interests in or
recourse obligations of the Transferor, DHCC or
the Servicer or any affiliate of any of them. A
Series 1997-1 Certificate is not a deposit and
none of the Series 1997-1 Certificates, the
Accounts or the Receivables are insured or
guaranteed by the FDIC or any other governmental
agency.
The Class A
Certificates........... The Class A Certificates will evidence undivided
interests in the Trust Assets allocated to the
Class A Certificateholders' Interest and will
represent the right to receive from such assets
funds up to (but not in excess of) the amounts
required to make (i) payments of interest on the
Class A Certificates on each Distribution Date at
the Class A Certificate Rate, and (ii) deposits of
principal to the Principal Funding Account on each
Distribution Date during the Accumulation Period
or payments of principal on each Distribution Date
during an Early Amortization Period, in each case
to the extent of the Class A Principal (as defined
under "Description of the Class A Certifi-
cates--Application of Collections--Payment of
Principal"). The Class A Invested Amount may be
less than the aggregate unpaid principal amount of
the Class A Certificates, in certain
circumstances, if the Class A Invested Amount is
reduced by the portion allocable to the Class A
Certificates of the amount of Principal
Receivables which are charged-off as uncollectible
during a Monthly Period (the "Defaulted
Receivables") and which exceed available cash, the
Class B Invested Amount or any other Series or
Class issued in the future which is by its terms
subordinated to the Class A Certificates. See
"Description of the Class A
Certificates--Defaulted Receivables; Investor
Charge-Offs."
The Class B
Certificates........... The Class B Certificates (which are subordinated
to the Class A Certificates to the extent
described herein) will evidence undivided
interests in the Trust Assets allocated to the
Class B Certificateholders' Interest. Initially,
no interest will accrue on the Class B
Certificates, although, upon satisfaction of the
conditions described herein under "Description of
the Class A Certificates--Transfer of the Class B
Certificates," an interest rate may subsequently
be established for the Class B Certificates. The
Class B Certificates will represent the right to
receive from the Trust Assets allocated to the
Class B Certificateholders' Interest, subject to
the priority of distributions described herein,
funds up to (but not in excess of) the amounts
required to make payments of (i) interest, if any,
on the Class B Certificates on each Distribution
Date at the Class B Certificate Rate and (ii)
payments of outstanding principal on each
Distribution Date with respect to the Class B
Certificates during the Amortization Period;
PROVIDED, that the Class B Certificates are
subordinated to the Class A Certificates, and
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S-6
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will not be entitled to receive any payments of
principal until the Class A Invested Amount has
been paid in full, except to the extent of a
reduction in the required Class B Invested Amount
during the Revolving Period if the Transferor
receives confirmation from each Rating Agency that
such reduction will not result in a Ratings
Effect. See "Description of the Class A
Certificates--Description of the Class B Invested
Amount."
The Transferor's
Interest............... The Transferor's Interest at any time represents
the right to the Trust Assets in excess of the
Series 1997-1 Certificateholders' Interest, the
interest in the Receivables represented by any
Participation and the interests of the
Certificateholders of all other Series then
outstanding. The Transferor Amount will fluctuate
as the amount of the Principal Receivables held by
the Trust and the amounts on deposit in the
Special Funding Account and the Principal Funding
Account change from time to time. In addition, the
Transferor may cause the issuance of additional
Series from time to time and any such issuance
will have the effect of decreasing the Transferor
Amount to the extent of the Invested Amount of
such Series. The Transferor Amount (excluding the
interest represented by any Supplemental
Certificate) is required to be maintained at a
level not less than the Required Retained
Transferor Amount. "Required Retained Transferor
Amount" means the product of (i) the sum of (a)
the aggregate Principal Receivables and (b) the
amount on deposit in the Special Funding Account
(as defined in the Prospectus) and the amount of
certain other Trust Assets, including the
Principal Funding Account and (ii) the Required
Retained Transferor's Percentage. The "Required
Retained Transferor's Percentage" means the
highest of the required retained transferor's
percentages specified with respect to each Series
outstanding. The Required Retained Transferor's
Percentage for Series 1997-1 is 2%; PROVIDED,
HOWEVER, that such percentage may be adjusted from
time to time upon written notice from the
Transferor to the Trustee if such adjustment will
not result in a Ratings Effect and such action
shall not, as evidenced by a Tax Opinion, cause
the Trust to be characterized for Federal income
tax purposes as an association or publicly traded
partnership taxable as a corporation or otherwise
have any material adverse effect on the Federal
income taxation of any outstanding Series of
Certificates or any Certificateholder. The
Required Retained Transferor's Percentage for each
of Series 1995-1 and Series 1996-1 is 2%. See
"Annex I: Other Series." See also "Description of
the Certificates--New Issuances" in the
Prospectus. The Transferor's Interest may not be
transferred, except in limited circumstances,
including through the issuance of a Supplemental
Certificate in accordance with the terms of the
Pooling Agreement. See "Description of the
Certificates--The Transferor Certificate" in the
Prospectus. The Pooling Agreement provides that
the Transferor will be required to make an
Addition (as defined in
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the Prospectus) to the Trust if the Transferor
Amount (excluding the interest represented by any
Supplemental Certificate) is less than the
Required Retained Transferor Amount on the last
Business Day of any Monthly Period. A "Business
Day" is any day other than a Saturday or Sunday or
any other day on which national banking
associations or state banking institutions in New
York, New York, Minneapolis, Minnesota or Sioux
Falls, South Dakota are authorized or obligated by
law, executive order or governmental decree to be
closed.
Issuance of Additional
Series................. The Pooling Agreement provides that, pursuant to
any one or more supplements to the Pooling
Agreement (each, a "Supplement" or a "Series
Supplement"), the Transferor may cause the
Trustee, without the consent of the Series 1997-1
Certificateholders, to issue one or more new
Series of Certificates. Each such additional
Series may contain one or more classes (each, a
"Class"). Each such Series or Class will be
offered pursuant to a separate prospectus or other
offering document describing the material terms of
the Certificates of such Series or Class. The
Pooling Agreement authorizes the Trustee to issue
a certificate evidencing the Transferor's Interest
in the Trust, which certificate is to be held by
the Transferor initially, certificates (the
"Supplemental Certificates") to be held by
transferees representing interests in the
Transferor's Interest and one or more
participations (each, a "Participation") in the
Receivables. A Participation was issued to RNB
September 13, 1995. The certificate evidencing the
Transferor's Interest in the Trust and any
Supplemental Certificates are collectively
referred to as the "Transferor Certificate." The
issuance of a Series of Certificates will cause a
reduction in the Transferor's Interest represented
by the Transferor Certificate. However, at all
times the portion of the Transferor Amount held by
the Transferor (excluding the interest represented
by any Supplemental Certificate) must equal or
exceed the Required Retained Transferor Amount.
There can be no assurance that the terms of any
Series, including any Series issued from time to
time hereafter, might not have an impact on the
timing or amount of payments received by the
Series 1997-1 Certificateholders or the
Certificateholders of any other Series. Under the
Pooling Agreement, the Transferor may define, with
respect to any Series, the Principal Terms (as
defined in the Prospectus) of any Series to be
issued. See "Description of the Certificates--New
Issuances" in the Prospectus.
A new Series may only be issued upon satisfaction
of the conditions described under "Description of
the Certificates-- New Issuances" in the
Prospectus, including, among others, that (a) such
issuance will not result in a Ratings Effect and
(b) the Transferor shall have delivered to the
Trustee a certificate of an authorized officer to
the effect that, in the reasonable belief of the
Transferor, such issuance will not, based on the
facts known
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to such officer at the time of such certification,
cause an Early Amortization Event to occur with
respect to any Series.
Other Series............. The Trust has previously issued two other Series
that remain outstanding. See "Annex I: Other
Series" for a summary of the terms of the
previously issued Series that remain outstanding.
Additional Series are expected to be issued from
time to time by the Trust. See "Description of the
Certificates--New Issuances" in the Prospectus.
Collections.............. GENERAL. All collections of Receivables
("Collections") will be allocated by the Servicer
between amounts collected on Principal Receivables
and on Finance Charge Receivables. The Servicer
will allocate among the Certificateholders'
Interest (as defined in the Prospectus) of each
Series, including Series 1997-1, the Transferor's
Interest and the interest of the holder of any
Participation (a) all amounts collected with
respect to Finance Charge Receivables and
Principal Receivables with respect to each day
during each Monthly Period and (b) the Defaulted
Amount on each Distribution Date. Collections of
Finance Charge Receivables and the Defaulted
Amount will be allocated to Series 1997-1 at all
times based upon its Floating Allocation
Percentage. Recoveries will be treated as
Collections of Principal Receivables. Collections
of Principal Receivables will be allocated to
Series 1997-1 at all times based upon its
Principal Allocation Percentage.
FLOATING ALLOCATION PERCENTAGE. The "Floating
Allocation Percentage" for Series 1997-1 is equal
to the sum of the Class A Floating Allocation
Percentage and the Class B Floating Allocation
Percentage. The "Class A Floating Allocation
Percentage" and "Class B Floating Allocation
Percentage" mean, in each case, with respect to
any Monthly Period, the percentage equivalent of a
fraction, the numerator of which is the Class A
Adjusted Invested Amount or Class B Invested
Amount, respectively, (x) during the Revolving
Period or the Accumulation Period with respect to
Collections of Finance Charge Receivables and at
all times with respect to Defaulted Amounts, as of
the last day of the immediately preceding Monthly
Period (or, in the case of the first Monthly
Period, the Closing Date) and (y) during the Early
Amortization Period with respect to Collections of
Finance Charge Receivables, as of the last day of
the Monthly Period immediately preceding the
occurrence of an Early Amortization Event, and the
denominator of which is the greater of (a) the
total amount of Principal Receivables in the Trust
plus the amount on deposit in the Special Funding
Account on the applicable date and (b) when used
with respect to Collections of Finance Charge
Receivables, the sum of the numerators with
respect to all Classes of all Series and
Participations then outstanding used to calculate
the applicable allocation percentage. See
"Description of the Class A
Certificates--Allocation Percentages." Collections
of Finance Charge Receivables and the Defaulted
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Amounts allocated to Series 1997-1 in accordance
with its Floating Allocation Percentage will be
allocated among the Class A Certificates and Class
B Certificates in the manner and in the priority
described herein under "Description of the Class A
Certificates--Allocation Percentages" and
"--Application of Collections."
PRINCIPAL ALLOCATION PERCENTAGE. The "Principal
Allocation Percentage" for Series 1997-1 means,
generally, subject to certain limitations and
adjustments described herein, with respect to any
Monthly Period, the percentage equivalent of a
fraction, the numerator of which is (a) during the
Revolving Period, the Invested Amount as of the
last day of the immediately preceding Monthly
Period (or, in the case of the first Monthly
Period, the Closing Date), (b) during the
Accumulation Period, the Invested Amount as of the
last day of the Revolving Period; PROVIDED, that,
during the Accumulation Period on the date of
issuance of a new Series, at the option of the
Transferor, such amount may be reduced to an
amount not less than the greater of (x) the
Adjusted Invested Amount (as defined herein) on
such date and (y) the amount which would result in
a Principal Allocation Percentage which when
multiplied by the amount of Collections of
Principal Receivables for the preceding Monthly
Period would equal (I) the Class A Controlled
Deposit Amount for such Monthly Period plus 10% of
the Class A Controlled Accumulation Amount or, if
such date is on or after the Class A Expected
Final Payment Date and the Class A Invested Amount
has been paid in full, the Class B Invested
Amount, MINUS (II) the amount of any Available
Shared Principal Collections with respect to such
Monthly Period, and (c) during the Early
Amortization Period, the Invested Amount as of the
last day of the Revolving Period or, if less, the
last numerator used to calculate the Principal
Allocation Percentage in the Accumulation Period,
if any, and the denominator of which is the
greater of (a) (x) if only one Series is
outstanding (i) during the Revolving Period, the
sum of the total amount of Principal Receivables
in the Trust and the amount on deposit in the
Special Funding Account as of the last day of the
immediately preceding Monthly Period and (ii)
during the Amortization Period, the sum of the
total amount of Principal Receivables in the Trust
and the amount on deposit in the Special Funding
Account as of the last day of the Revolving Period
and (y) if more than one Series is outstanding,
the sum of the total amount of Principal
Receivables in the Trust and the amount on deposit
in the Special Funding Account as of the last day
of the immediately preceding Monthly Period (or,
in the case of the first Monthly Period, the
Closing Date) and (b) the sum of the numerators
used to calculate the principal allocation
percentages for all Series and Participations
outstanding as of the date of determination. See
"Description of the Class A
Certificates--Allocation Percentages." "Available
Shared Principal Collections" means, for any
Monthly Period, Shared
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Principal Collections available to be allocated to
the Certificates from each other Series that has a
controlled or scheduled amortization or
accumulation period beginning after the October
2002 Distribution Date. Collections of Principal
Receivables allocated to Series 1997-1 in
accordance with its Principal Allocation
Percentage will be allocated among the Class A
Certificates and Class B Certificates in the
manner and in the priority described under
"Description of the Class A
Certificates--Allocation Percentages" and
"--Application of Collections."
Interest................. Interest will accrue on the Class A Certificates
at the Class A Certificate Rate. Except as
otherwise provided herein, Collections of Finance
Charge Receivables and certain other amounts
allocable to the Series 1997-1 Certificateholders'
Interest will be used to make interest payments to
the Series 1997-1 Certificateholders on each
Distribution Date. See "Description of the Class A
Certificates--Interest."
Expected Principal
Payment Date........... Principal is scheduled to be paid in full on the
October 2002 Distribution Date for the Class A
Certificates, but may be paid earlier or later in
certain circumstances described in "Maturity
Considerations" and "Description of the Class A
Certificates-- Early Amortization Events." Unpaid
principal, together with interest, will be payable
monthly to Class A Certificateholders following
the Class A Expected Final Payment Date to the
extent principal has not been paid in full on the
Class A Expected Final Payment Date. However, no
payments of principal or interest will be made on
the Series 1997-1 Certificates after the Series
1997-1 Termination Date, regardless of whether
principal and interest have been paid in full with
respect thereto. See "Description of the Class A
Certificates-- Optional Termination; Final Payment
of Principal" and "--Series Termination."
Revolving Period......... The revolving period with respect to the Series
1997-1 Certificates (the "Revolving Period") will
commence on the Closing Date and will end on the
day before either the Accumulation Period or the
Early Amortization Period begins. The Accumulation
Period is scheduled to begin with the October 2001
Monthly Period. See "Description of the Class A
Certificates--Early Amortization Period" for a
discussion of the events which might lead to a
termination of the Revolving Period for the Series
1997-1 Certificates prior to the end of the
September 2001 Monthly Period. Subject to the
conditions set forth herein under "Description of
the Class A Certificates-- Postponement of
Accumulation Period," the end of the Revolving
Period and the beginning of the Accumulation
Period may be delayed to no later than the close
of business on the last day of the August 2002
Monthly Period. During the Revolving Period,
Collections of Principal Receivables otherwise
allocable to the Series 1997-1 Certificateholders'
Interest (other than collections of Principal
Receivables allocated to the Class B
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Certificateholders' Interest that are reallocated
and applied to pay any deficiency in the Required
Amount) will, subject to certain limitations, be
treated as Shared Principal Collections and
applied to cover principal payments due to or for
the benefit of Certificateholders of other Series,
if so specified in the related supplements (each,
a "Series Supplement") to the Pooling Agreement
for such other Series, or paid to the holder of
the Transferor Certificate. See "Description of
the Class A Certificates--Early Amortization
Events" for a discussion of the events which might
lead to the termination of the Revolving Period
prior to the commencement of the Accumulation
Period. In addition, see "Description of the Class
A Certificates-- Shared Principal Collections."
Principal Payments;
Accumulation Period.... The "Accumulation Period" means the period
scheduled to begin with the October 2001 Monthly
Period, but which may be postponed in the manner
described in "Description of the Class A
Certificates--Postponement of Accumulation
Period," and ending on the earliest of (1) the day
immediately preceding the day on which an Early
Amortization Event occurs with respect to the
Series 1997-1 Certificates, (2) the end of the
September 2002 Monthly Period and (3) the date of
the termination of the Trust. Unless an Early
Amortization Event shall have occurred with
respect to the Series 1997-1 Certificates, on each
Distribution Date with respect to the Accumulation
Period an amount equal to the lesser of (i)
Collections of Principal Receivables allocable to
the Class A Certificateholders' Interest, plus
Shared Principal Collections, if any, plus Shared
Transferor Principal Collections, if any,
allocable to the Class A Certificates plus certain
other amounts comprising Class A Principal, and
(ii) the Class A Controlled Accumulation Amount
for such Monthly Period plus any Class A Deficit
Controlled Accumulation Amount arising from prior
Monthly Periods, will be deposited in the
Principal Funding Account. The funds then on
deposit in the Principal Funding Account will be
paid to the Class A Certificateholders on the
Class A Expected Final Payment Date. If the funds
available for distribution to the Class A
Certificateholders on the Class A Expected Final
Payment Date are insufficient to pay the Class A
Invested Amount in full, all such funds will be
distributed to the Class A Certificateholders at
such time. Thereafter, until the Class A Invested
Amount has been paid in full or the Series 1997-1
Termination Date has occurred, principal and
interest will be payable to Class A
Certificateholders monthly on each Special Payment
Date. After the Class A Invested Amount has been
paid in full, and in certain limited circumstances
prior thereto, principal will be payable to the
Class B Certificateholder. See "Description of the
Class A Certificates--Principal" and
"--Description of the Class B Invested Amount."
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All amounts in the Principal Funding Account will
be invested by the Transferor (or, at the
direction of the Transferor, by the Servicer or
the Trustee on behalf of the Transferor) in
certain Eligible Investments. Investment earnings
(net of investment losses and expenses) on amounts
on deposit in the Principal Funding Account (the
"Principal Funding Investment Proceeds") during
the Accumulation Period will be treated as
Available Series 1997-1 Finance Charge
Collections. If, for any Interest Period, the
Principal Funding Investment Proceeds are less
than an amount equal to, for such Interest Period,
one-twelfth of the product of (a) the Class A
Certificate Rate in effect with respect to such
Interest Period and (b) the balance of the
Principal Funding Account as of the first day of
such Interest Period (the "Class A Covered
Amount"), the amount of such deficiency (the
"Principal Funding Investment Shortfall") will be
withdrawn from the Reserve Account (and included
as part of Available Series 1997-1 Finance Charge
Collections) to the extent that funds have been
deposited and are available therein and, if
necessary and available, from Reallocated Class B
Principal Collections.
Other Series which may be offered by the Trust in
the future may or may not have amortization
periods like the Accumulation Period or the Early
Amortization Period, and such periods may have
different lengths and begin on different dates
than the Accumulation Period or the Early
Amortization Period. Thus, certain Series may be
in their revolving periods, while others are in
periods during which Collections of Principal
Receivables are distributed to or accumulated for
the benefit of such other Series. In addition,
other Series may allocate Principal Receivables
based upon different principal allocation
percentages.
Early Amortization
Period................. During the period from the day on which an Early
Amortization Event has occurred to the date on
which the Invested Amount has been paid in full or
the Series 1997- 1 Termination Date has occurred
(the "Early Amortization Period"), Collections of
Principal Receivables and certain other amounts
allocable to the Series 1997-1 Certificateholders'
Interest (including Shared Principal Collections
and Shared Transferor Principal Collections, if
any) will be distributed as principal payments on
each Distribution Date first to the Class A
Certificates to the extent of Class A Principal
and then, after the Class A Invested Amount has
been paid in full, to the Class B Certificates.
During the Early Amortization Period, monthly
payments of principal with respect to the Class A
Certificateholders will not be limited to the
Class A Controlled Deposit Amount. An "Early
Amortization Event" would occur, either
automatically or after specified notice and
required Certificateholder vote, upon (a) the
failure of the Transferor to make certain payments
or transfers of funds for the benefit of the
Certificateholders within the time periods stated
in the Pooling Agreement, (b) material
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breaches of certain representations, warranties or
covenants of the Transferor, (c) certain
insolvency events relating to RNB, DHCC, the
Transferor or any holder of the Transferor
Certificate, (d) (i) a failure by DHCC or the
Transferor to make any Addition within five
Business Days after the Required Designation Date
or (ii) the Class B Invested Amount being less
than 5% of the Initial Invested Amount, (e) any
Servicer Default occurring which would have a
material adverse effect on the Series 1997-1
Certificateholders, (f) the average of the
Portfolio Yields for any three consecutive Monthly
Periods being reduced to a rate which is less than
the average of the Base Rates for such three
consecutive Monthly Periods, (g) the Trust
becoming an "investment company" within the
meaning of the Investment Company Act of 1940, as
amended, (h) the Transferor becoming unable for
any reason to transfer Receivables to the Trust in
accordance with the Pooling Agreement, (i) the
amount on deposit in the Special Funding Account
as a percentage of the sum of the aggregate amount
of Principal Receivables plus the amount on
deposit in the Special Funding Account becoming
equal to or greater than 30% on the last day of
three consecutive Monthly Periods or (j) the
Transferor Amount (excluding the interest
represented by any Supplemental Certificate) being
less than the Required Retained Transferor Amount.
See "Description of the Class A
Certificates--Early Amortization Events" for a
further discussion of the events which might lead
to the commencement of the Early Amortization
Period.
Application of
Collections............ FINANCE CHARGE COLLECTIONS. On each Distribution
Date, the sum of (x) the Floating Allocation
Percentage of Collections of Finance Charge
Receivables collected during the preceding Monthly
Period, (y) any investment earnings relating to
amounts on deposit in the Principal Funding
Account and the Reserve Account and (z) the lesser
of the Principal Funding Investment Shortfall and
the Available Reserve Account Amount
(collectively, the "Available Series 1997-1
Finance Charge Collections") for the related
Monthly Period will be allocated and distributed
as follows:
FIRST, to pay Class A Monthly Interest and
Carryover Class A Interest;
SECOND, to pay the Monthly Servicing Fee;
THIRD, an amount equal to the Class A Investor
Defaulted Amount, if any, to be allocated as
described under "Description of the Class A
Certificates--Application of Collections";
FOURTH, an amount equal to the Class B Investor
Defaulted Amount, if any, to be allocated as
described under "Description of the Class A
Certificates--Application of Collections";
FIFTH, an amount equal to unpaid Adjustment
Payment shortfalls, if any, to be allocated as
described under "Description of the Class A
Certificates--Application of Collections";
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SIXTH, an amount equal to unreimbursed Class A
Investor Charge-Offs, if any, to be allocated as
described under "Description of the Class A
Certificates--Application of Collections";
SEVENTH, an amount equal to unreimbursed
reductions in the Class B Invested Amount as a
result of Class B Investor Charge-Offs and
Reallocated Class B Principal Collections, if any,
to be allocated as described under "Description of
the Class A Certificates--Application of
Collections";
EIGHTH, to pay Class B Monthly Interest and
Carryover Class B Interest, if any;
NINTH, on each Distribution Date from and after
the Reserve Account Funding Date, but prior to the
date on which the Reserve Account is terminated,
an amount up to the excess, if any, of the
Required Reserve Account Amount over the Available
Reserve Account Amount, to be deposited into the
Reserve Account; and
TENTH, an amount equal to the remaining balance to
constitute Excess Finance Charge Collections and
to be allocated as described under "Description of
the Class A Certificates-- Application of
Collections."
For a more extensive discussion, see "Description
of the Class A Certificates--Application of
Collections--PAYMENT OF INTEREST, FEES AND OTHER
ITEMS" and "--EXCESS FINANCE CHARGE COLLECTIONS."
PRINCIPAL COLLECTIONS. During the Revolving
Period, the Principal Allocation Percentage of
Collections of Principal Receivables for each
Monthly Period may be treated as Shared Principal
Collections or paid to the holder of the
Transferor Certificate, unless the Required
Retained Transferor Amount exceeds the Transferor
Amount (excluding the interest represented by any
Supplemental Certificate), in which event such
Collections will be deposited into the Special
Funding Account to the extent of such excess. On
each Distribution Date with respect to the
Accumulation Period, Collections of Principal
Receivables allocable to the Class A
Certificateholders, up to the Class A Controlled
Deposit Amount, will be deposited in the Principal
Funding Account for distribution to the Class A
Certificateholders on the Class A Expected Final
Payment Date. On each Distribution Date after the
Class A Expected Final Payment Date and, if
earlier, following the occurrence of an Early
Amortization Event, the Principal Allocation
Percentage of Collections of Principal Receivables
allocable to Series 1997-1 for each Monthly Period
will be allocated as follows:
FIRST, to pay Class A Principal until the Class A
Invested Amount has been paid in full;
SECOND, after the Class A Invested Amount has been
paid in full to pay Class B Principal; and
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THIRD, any remaining funds to be treated as Shared
Principal Collections.
For a more extensive discussion, see "Description
of the Class A Certificates--Application of
Collections--PAYMENT OF PRINCIPAL."
Additional Amounts
Available to
Class A
Certificateholders... If the sum of the allocations and distributions
described under "Application of
Collections--FINANCE CHARGE COLLECTIONS" above,
exclusive of amounts constituting Excess Finance
Charge Collections, exceeds the Available Series
1997-1 Finance Charge Collections (such excess,
the "Required Amount"), Excess Finance Charge
Collections from other Series, if any, allocable
to Series 1997-1 as shared finance charge
collections, will be applied to fund the Required
Amount. If Excess Finance Charge Collections from
other Series allocable to Series 1997-1 with
respect to such Distribution Date are less than
the Required Amount, Excess Transferor Finance
Charge Collections allocable to Series 1997-1 will
be applied to fund the remaining Required Amount.
If Excess Transferor Finance Charge Collections
allocable to Series 1997-1 with respect to such
Distribution Date are less than the remaining
Required Amount, Reallocated Class B Principal
Collections with respect to the related Monthly
Period will be used to fund the Class A Required
Amount (as defined under "Description of the Class
A Certificates--Reallocation of Cash Flows"). If
the Reallocated Class B Principal Collections are
insufficient to fund the Class A Required Amount,
the Class B Invested Amount will be reduced by the
amount of such insufficiency (but not by more than
the Class A Investor Defaulted Amount) to avoid a
charge-off with respect to the Class A
Certificates. If the Class B Invested Amount is
reduced to zero, the Class A Invested Amount will
be reduced if the Required Amount for any
Distribution Date exceeds the sum of Excess
Finance Charge Collections from other Series
allocated to Series 1997-1, Excess Transferor
Finance Charge Collections allocated to Series
1997-1, and Reallocated Class B Principal
Collections for the related Monthly Period, but
not by more than the Class A Investor Defaulted
Amount for such Monthly Period, and the Class A
Certificateholders will bear directly the credit
and other risks associated with their undivided
interest in the Trust. See "Description of the
Class A Certificates--Reallocation of Cash Flows"
and "--Defaulted Receivables; Investor
Charge-Offs" herein.
Subordination of the
Class B Certificates... The Class B Certificates will be subordinated as
described herein to the extent necessary to fund
payments with respect to the Class A Certificates
as described herein. If the Class B Invested
Amount is reduced, the percentages of Collections
of Finance Charge Receivables allocable to the
Class B Certificateholders with respect to
subsequent Monthly Periods will be reduced. After
certain other distributions have been
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made, Finance Charge Collections allocable to
Series 1997-1 will be used to reimburse certain
reductions in the Class B Invested Amount. To the
extent the amount of such reduction in the Class B
Invested Amount is not so reimbursed, the amount
of principal distributable to the Class B
Certificateholders will be reduced. See
"Description of the Class A
Certificates--Allocation Percentages,"
"--Subordination of the Class B Certificates" and
"--Application of Collections--EXCESS FINANCE
CHARGE COLLECTIONS."
Sharing of Excess Finance
Charge Collections..... The Series 1997-1 Certificates will be included in
a group of Series ("Group I") which may be issued
by the Trust from time to time. The Series 1997-1
Certificates are the third Series to have been
issued by the Trust and on the Closing Date will
be the third Series in Group I. Subject to certain
limitations described under "Description of the
Class A Certificates-- Sharing of Excess Finance
Charge Collections," Excess Finance Charge
Collections, if any, with respect to a Series
included in Group I, including Series 1997-1, will
be applied to cover any shortfalls with respect to
amounts payable from collections of Finance Charge
Receivables allocable to any other Series in Group
I, PRO RATA based upon the amount of the
shortfall, if any, with respect to each Series in
Group I. There can be no assurance that any
additional Series will be issued by the Trust or
included in Group I. See "Description of the Class
A Certificates--Sharing of Excess Finance Charge
Collections."
Shared Principal
Collections............ Collections of Principal Receivables and certain
other amounts otherwise allocable to other Series,
if any, to the extent such collections are not
needed to make payments to or deposits for the
benefit of the certificateholders of such other
Series plus amounts specified in any Participation
Supplement to be treated as Shared Principal
Collections, if any, will be applied to cover
principal payments due to or for the benefit of
the Series 1997-1 Certificateholders, and
Collections of Principal Receivables and certain
other amounts otherwise allocable to Series 1997-1
Certificateholders, if any, to the extent such
collections are not needed to make payments to or
deposits for the benefit of Series 1997-1
Certificateholders, will be applied to cover
principal payments due to or for the benefit of
other Series. There can be no assurance that any
other Series will be issued by the Trust. See
"Description of the Class A Certificates--Shared
Principal Collections."
Sharing of Transferor
Principal and Finance
Charge Collections..... Subject to certain limitations described under
"Description of the Class A Certificates--Shared
Excess Transferor Finance Charge and Transferor
Principal Collections," amounts otherwise payable
to the Transferor with respect to collections of
Finance Charge Receivables, regardless of whether
such collections were initially allocated to the
Transferor or any Series, will be applied to cover
any shortfalls with respect to
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amounts payable from collections of Finance Charge
Receivables allocable to any Series, including
Series 1997-1, that has been designated to receive
Excess Transferor Finance Charge Collections, PRO
RATA based upon the amount of the remaining
shortfall, if any, with respect to each such
Series after the application of other amounts
including Excess Finance Charge Collections. Any
Excess Transferor Finance Charge Collections
remaining after such application plus amounts
payable to the Transferor with respect to
collections of Principal Receivables, regardless
of whether such collections were initially
allocated to the Transferor or any Series, to the
extent such collections are not needed to make
payments to the holder of any Supplemental
Certificate, will be applied, in certain
circumstances, to cover principal payments due to
or for the benefit of the Series 1997-1
Certificateholders. See "Description of the Class
A Certificates--Shared Excess Transferor Finance
Charge and Transferor Principal Collections."
Special Funding
Account................ On each day on which the Transferor Amount
(excluding the interest represented by any
Supplemental Certificate) would otherwise be less
than the Required Retained Transferor Amount,
funds (to the extent available therefor as
described herein) otherwise payable to the
Transferor will be deposited in the Special
Funding Account on each Business Day to maintain
the Transferor Amount (excluding the interest
represented by any Supplemental Certificate) at an
amount at least equal to the Required Retained
Transferor Amount. Funds on deposit in the Special
Funding Account will be withdrawn and paid to the
Transferor to the extent that on any day the
Transferor Amount (excluding the interest
represented by any Supplemental Certificate) will
exceed the Required Retained Transferor Amount
after such distribution. See "Description of the
Certificates--Special Funding Account" in the
Prospectus.
Any funds on deposit in the Special Funding
Account on each Distribution Date during the
Amortization Period will be allocated to the Class
A Certificateholders in an amount equal to the
lesser of any Principal Shortfall for Series
1997-1 and the amount allocated with respect
thereto pursuant to the Pooling Agreement, such
amount to be deposited in the Principal Funding
Account during the Accumulation Period or the
Collection Account during the Early Amortization
Period, and on each Distribution Date on and after
the Distribution Date on which the Class A
Invested Amount is paid in full, allocated to the
Class B Certificateholders in an amount not to
exceed the Class B Invested Amount after
subtracting amounts to be deposited in the
Collection Account with respect thereto and paid
to the Class B Certificateholders. No funds will
be deposited in the Special Funding Account during
any accumulation period, amortization period, or
early amortization period for any Series until the
principal funding account for such Series has been
fully funded with respect to any Distribution
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Date or the investor certificates of such Series
have been paid in full. See "Description of the
Class A Certificates--Application of
Collections--PAYMENT OF PRINCIPAL" herein and
"Description of the Certificates--Special Funding
Account" in the Prospectus.
Paired Series............ The Series 1997-1 Certificates may be paired with
one or more other Series or a portion of one or
more other Series issued by the Trust (each, a
"Paired Series") at or after the commencement of
the Accumulation Period. If a Paired Series is
issued with respect to Series 1997-1, following
the issuance of such Paired Series, as the Class A
Adjusted Invested Amount and the Class B Invested
Amount are reduced, the invested amount of the
Paired Series will increase by an equal amount.
This will have the effect of increasing the
invested amount of the Paired Series by an amount
that otherwise would have increased the Transferor
Amount. Upon payment in full of Series 1997-1, the
increase in the invested amount of the Paired
Series will be equal to the amount of the Invested
Amount paid to Certificateholders of Series 1997-1
since the issuance of such Paired Series. If an
early amortization event occurs with respect to
any such Paired Series prior to the payment in
full of the Series 1997-1 Certificates, the final
payment of principal to the Series 1997-1
Certificateholders may be delayed. See
"Description of the Class A Certificates--Paired
Series."
Servicing Fee............ The Servicer will receive a servicing fee payable
with respect to Series 1997-1 (the "Servicing
Fee") and each Series issued by the Trust as
servicing compensation from the Trust. The portion
of the Servicing Fee allocable to Series 1997-1
shall be payable monthly on each Distribution Date
and shall be equal to one twelfth of the product
of (x) the Servicing Fee Rate and (y) the sum of
the Class A Adjusted Invested Amount and the Class
B Invested Amount reduced by the Floating
Allocation Percentage of the amount on deposit in
the Special Funding Account as of the last day of
the Monthly Period second preceding the related
Distribution Date. The "Servicing Fee Rate" for
the Series 1997-1 Certificates will be 2% per
annum. See "Description of the Class A
Certificates--Servicing Compensation and Payment
of Expenses" herein and "The Pooling and Servicing
Agreement--Servicing Compensation and Payment of
Expenses" in the Prospectus.
Defeasance............... On any date prior to the Early Amortization Period
that the Transferor has deposited (x) in the
Principal Funding Account an amount equal to the
outstanding principal balance of the Class A
Certificates, which amount shall be invested in
Eligible Investments and (y) in the Reserve
Account, an amount equal to or greater than the
Class A Covered Amount, as estimated by the
Transferor, for the period from the date of the
deposit to the Principal Funding Account through
the Class A Expected Final Payment Date and has
satisfied certain other conditions, the
Certificates will no longer be entitled to the
security interest of
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the Trust in the Receivables and other Trust
assets (except as set forth herein), and the
percentages applicable to the allocation to the
Series 1997-1 Certificateholders of Collections of
Principal Receivables, Finance Charge Receivables
and Defaulted Receivables will be reduced to zero.
Upon the satisfaction of the foregoing conditions,
the Class B Invested Amount will be reduced to
zero. See "Description of the Class A
Certificates-- Defeasance."
Optional Repurchase...... The Class A Certificates will be subject to
optional repurchase by the Transferor on any
Distribution Date on or after the Distribution
Date on which the Class A Invested Amount is less
than or equal to 10% of the Class A Initial
Invested Amount. The purchase price will be equal
to the Class A Invested Amount and accrued and
unpaid interest on the Class A Certificates
through the day preceding such Distribution Date.
See "Description of the Class A
Certificates--Optional Termination; Final Payment
of Principal."
Series 1997-1 Termination
Date................... The August 2005 Distribution Date (the "Series
1997-1 Termination Date"). See "Description of the
Class A Certificates-- Series Termination."
Issuance of Additional
Certificates........... The Transferor may cause the Trustee to issue
additional Series 1997-1 Certificates ("Additional
Certificates") from time to time during the
Revolving Period, provided that certain conditions
specified in the Series 1997-1 Supplement are met,
including that, after giving effect to the
issuance of Additional Certificates, the total
amount of Principal Receivables in the Trust be
greater than the Required Principal Balance, and
that such issuance not result in a Ratings Effect.
Whenever Additional Certificates are issued, a PRO
RATA principal amount of each Class of Series
1997-1 Certificates will be issued and the Class A
Invested Amount and the Class B Invested Amount
will be increased accordingly. When issued, the
Additional Certificates of a Class will be
identical in all respects to the other outstanding
Series 1997-1 Certificates of that Class. See
"Description of the Class A Certificates--Issuance
of Additional Certificates."
Tax Status............... Subject to the matters discussed under "Certain
U.S. Federal Income Tax Consequences" in the
Prospectus, Special Tax Counsel to the Transferor
is of the opinion that, under existing law, the
Class A Certificates will properly be
characterized as debt for Federal income tax
purposes on the date of issuance. Under the
Pooling Agreement, the Transferor, the Servicer,
the Certificateholders and the Certificate Owners
will agree to treat the Certificates as debt for
Federal and state income tax purposes. See
"Certain U.S. Federal Income Tax Consequences" in
the Prospectus for additional information
concerning the application of Federal income tax
laws.
ERISA Considerations..... Under a regulation issued by the Department of
Labor, the Trust assets would not be deemed "plan
assets" of an employee
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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
Transferor and of one another. The Transferor
expects, although no assurance can be given, that
the Class A Certificates will be held by at least
100 independent investors at the conclusion of the
offering although no monitoring or other measures
will be taken to ensure that such condition will
be met. The Transferor anticipates that the other
conditions of the regulation will be met. If the
Trust Assets were deemed to be "plan assets" of an
employee benefit plan investor, it is uncertain
whether existing exemptions from the "prohibited
transaction" rules of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"),
would apply to all transactions involving the
Trust Assets. Accordingly, employee benefit plan
fiduciaries contemplating purchasing the Class A
Certificates should consult their counsel before
making a purchase. See "ERISA Considerations" in
the Prospectus.
Class A Certificate
Rating................. It is a condition to the issuance of the Class A
Certificates that they be rated "AAA" by Standard
& Poor's Ratings Group ("Standard & Poor's") and
"Aaa" by Moody's Investors Service, Inc.
("Moody's") (Moody's and Standard & Poor's are
collectively referred to herein as the "Rating
Agencies" or individually as a "Rating Agency").
The rating of the Class A Certificates is based
primarily on the value of the Receivables and the
subordination of the Class B Certificates. The
Rating Agencies do not evaluate, and the ratings
of the Class A Certificates do not address, the
likelihood that the principal of the Class A
Certificates will be paid in full by the Class A
Expected Final Payment Date. There is no assurance
that the rating will remain for any given period
of time or that the rating will not be lowered or
withdrawn by the applicable rating agency if in
its judgment circumstances so warrant. See "Risk
Factors-- Limited Nature of Rating" in the
Prospectus.
</TABLE>
S-21
<PAGE>
MATURITY CONSIDERATIONS
The Class A Invested Amount is payable to the Class A Certificateholders, to
the extent funds are available therefor in the Principal Funding Account, on the
Class A Expected Final Payment Date, which is the October 2002 Distribution Date
(the "Class A Expected Final Payment Date"), or earlier in the event of an Early
Amortization Event which results in the commencement of the Early Amortization
Period. The Class A Certificateholders will receive payments of principal on
each Distribution Date following the Monthly Period in which an Early
Amortization Event occurs (each such Distribution Date, a "Special Payment
Date") until the Class A Invested Amount has been paid in full or the Series
1997-1 Termination Date has occurred.
During the Accumulation Period, Collections of Principal Receivables
allocable to the Class A Certificates up to the Class A Controlled Deposit
Amount will be deposited in the Principal Funding Account on each Distribution
Date until the amount deposited in the Principal Funding Account is equal to the
Class A Invested Amount. The Class A Certificateholders will receive the amount
on deposit in the Principal Funding Account on the Class A Expected Final
Payment Date, including amounts deposited in the Principal Funding Account from
the Collection Account on such date.
On each Distribution Date during the Accumulation Period, an amount (the
"Class A Principal") will be deposited in the Principal Funding Account equal to
the Principal Allocation Percentage (as defined herein under "Description of the
Class A Certificates--Allocation Percentages--PRINCIPAL ALLOCATION PERCENTAGE")
of Principal Receivables received during the preceding Monthly Period and
certain other amounts allocable to principal (see "Description of the Class A
Certificates--Application of Collections-- PAYMENT OF PRINCIPAL"), but not more
than the Class A Controlled Deposit Amount, which is equal to the sum of the
Class A Controlled Accumulation Amount and any existing Class A Deficit
Controlled Accumulation Amount (both as defined under "Description of the Class
A Certificates--Application of Collections--PAYMENT OF PRINCIPAL") and, in any
event, not more than the Class A Adjusted Invested Amount. Should an Early
Amortization Event occur with respect to the Series 1997-1 Certificates and the
Early Amortization Period commence, distributions of principal to the Series
1997-1 Certificateholders will be made in the priority described herein without
regard to the Class A Controlled Deposit Amount until the earlier of the payment
in full of the Series Invested Amount and the Series 1997-1 Termination Date
occurs. See "Description of the Class A Certificates--Early Amortization
Events."
The Transferor may, on or after the date on which the Accumulation Period
commences for Series 1997-1, cause the Trust to issue another Series (or some
portion thereof, to the extent that the full principal amount of such other
Series is not otherwise outstanding at such time) as a Paired Series with
respect to Series 1997-1. Although no assurance can be given as to whether such
other Series will be issued and, if issued, the specific terms thereof, the
outstanding principal amount of such Series may vary from time to time whether
or not an Early Amortization Event occurs with respect to the Series 1997-1
Certificates, and the interest rate with respect to certificates of such other
Series will be established on its date of issuance and may be reset
periodically. Further, the early amortization events with respect to such other
Series may vary from the Early Amortization Events with respect to Series 1997-1
and may include early amortization events which are unrelated to the status of
the Transferor, the Servicer or the Receivables, such as events related to the
continued availability and rating of certain Enhancement Providers to such other
Series. If an early amortization event does occur with respect to any such
Paired Series prior to the payment in full of the Series 1997-1 Certificates,
the final payment of principal to the Series 1997-1 Certificateholders may be
delayed. In particular, the denominator of the Principal Allocation Percentage
may be increased upon the occurrence of an early amortization event with respect
to a Paired Series resulting in a possible reduction of the percentage of
Collections of Principal Receivables allocated to Series 1997-1 if such event
allowed the payment of principal at such time to the Paired Series and required
reliance by Series 1997-1 on clause (b) of the denominator of the Principal
Allocation Percentage for Series 1997-1. See "Description of the Class A
Certificates--Allocation Percentages--PRINCIPAL ALLOCATION PERCENTAGE" and
"--Paired Series."
S-22
<PAGE>
The ability of Class A Certificateholders to receive payments of principal
on the Class A Expected Final Payment Date depends on the payment rates on the
Receivables, the amount of outstanding Receivables, charge-offs and new
borrowings on the Accounts and the potential issuance by the Trust of additional
Series among other factors. Monthly payment rates on the Receivables may vary
because, among other things, Cardholders may fail to make a required minimum
payment, may only make payments as low as the minimum required amount or may
make payments as high as the entire outstanding balance. Monthly payment rates
may also vary due to seasonal purchasing and payment habits of Cardholders. See
"Composition and Historical Performance of the RNB Portfolio." The Transferor
cannot predict, and no assurance can be given, as to the Cardholder monthly
payment rates that will actually occur in any future period, as to the actual
rate of payment of principal of the Series 1997-1 Certificates or whether the
terms of any subsequently issued Series might have an impact on the amount or
timing of any such payment of principal. See "Risk Factors--Payment and Maturity
Considerations; Dependency on Cardholder Repayments" in the Prospectus and
"Description of the Class A Certificates--Shared Principal Collections" herein.
The amount of outstanding Receivables, charge-offs and new borrowings on the
Accounts may vary due to changes in credit terms, seasonal variations, changes
in Cardholders, the availability of other sources of credit, legal factors,
general economic conditions, spending and borrowing habits of individual
Cardholders and other factors. There can be no assurance that Collections of
Principal Receivables with respect to the Trust Portfolio (as defined in the
Prospectus), and thus the rate at which Class A Certificateholders could expect
payments of principal during the Accumulation Period to be deposited in the
Principal Funding Account, will be similar to the historical experience set
forth in the "Summary Payment Rate Information" table under the heading
"Composition and Historical Performance of the RNB Portfolio." Further, if an
Early Amortization Event occurs, the average life and maturity of the Class A
Certificates could be significantly reduced.
Due to the reasons set forth above, there can be no assurance that the
payment of principal with respect to the Class A Certificates will be made on
the Class A Expected Final Payment Date. See "Risk Factors--Payment and Maturity
Considerations; Dependency on Cardholder Repayments" in the Prospectus.
COMPOSITION AND HISTORICAL PERFORMANCE OF THE RNB PORTFOLIO
The following information reflects the composition and historical
performance of the RNB portfolio of credit card accounts (the "RNB Portfolio").
However, the amounts presented also include an immaterial amount of receivables
in certain Dayton Hudson commercial accounts which are not included in the RNB
Portfolio or the Trust Portfolio. The Trust Portfolio will be the same as the
RNB Portfolio on the Closing Date. Because the future composition of the
portfolios may change over time, these tables are not necessarily indicative of
the composition or performance of the RNB Portfolio or the Trust Portfolio at
any subsequent time.
S-23
<PAGE>
COMPOSITION OF THE RNB PORTFOLIO
DELINQUENCIES AS A PERCENTAGE OF THE RNB PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------------------------------------ ------------------------------------------------------
1997 1996 1996 1995
-------------------------- -------------------------- -------------------------- --------------------------
NUMBER OF DAYS DELINQUENT DELINQUENT DELINQUENT DELINQUENT
DELINQUENT AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- --------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30--59 days.... $ 75,773 3.75% $ 64,705 3.64% $ 68,223 3.12% $ 72,051 3.63%
60--89 days.... 34,053 1.69 23,775 1.34 29,420 1.35 26,570 1.34
90 days and
greater...... 69,493 3.44 47,481 2.67 56,162 2.57 47,893 2.42
----------- --- ----------- --- ----------- --- ----------- ---
Total...... $ 179,319 8.88% $ 135,961 7.65% $ 153,805 7.04% $ 146,514 7.39%
----------- --- ----------- --- ----------- --- ----------- ---
----------- --- ----------- --- ----------- --- ----------- ---
<CAPTION>
1994
--------------------------
NUMBER OF DAYS DELINQUENT
DELINQUENT AMOUNT PERCENTAGE
- --------------- ----------- -------------
<S> <C> <C>
30--59 days.... $ 55,341 3.12%
60--89 days.... 17,391 0.98
90 days and
greater...... 25,894 1.46
----------- ---
Total...... $ 98,626 5.56%
----------- ---
----------- ---
</TABLE>
- ------------------------------
(1) The delinquent amount represents the sum of cycle delinquencies in each
category as of the close of the respective monthly billing cycle periods,
which may differ from the respective month-end delinquencies in each
category. The percentages are the result of dividing the delinquent amount
by the cycle-end sum of billed balances on the applicable date.
LOSS EXPERIENCE FOR THE RNB PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------- ---------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Average Receivables Outstanding(2).................... $2,063,247 $1,821,234 $1,858,557 $1,660,261 $1,435,942
Gross Charge-Offs(3).................................. 83,558 69,507 140,571 107,057 90,020
Recoveries(4)......................................... 12,981 14,801 26,879 25,726 30,462
Net Losses............................................ 70,577 54,706 113,692 81,331 59,558
Net Losses as a Percentage of Average Receivables
Outstanding......................................... 6.84%(5) 6.01%(5) 6.12% 4.90% 4.15%
</TABLE>
- ------------------------------
(1) The amounts set forth in this table represent, for each category described
in the left-hand column of this table, the aggregate dollar amount of such
category as of the close of the respective monthly billing cycle periods,
which may differ from the month-end amount of each such category.
(2) The Average Receivables Outstanding for each year is calculated by averaging
the amount of Receivables outstanding at the end of each of the billing
cycles in each month from January through December of such year.
(3) Gross Charge-Offs generally include Finance Charge Receivables and late
payment fees charge-offs. However, DSD and Target numbers starting in
February 1995 exclude Finance Charge Receivables charge-offs and late
payment fees charge-offs. Gross Charge-Offs exclude fraud charge-offs.
(4) Recoveries generally include Finance Charge Receivables and late payment
fees recoveries. However, DSD and Target numbers starting in February 1995
exclude Finance Charge Receivables and late payment fees recoveries.
Recoveries include sales tax recoveries and are net of collection agency
fees.
(5) Annualized.
S-24
<PAGE>
REVENUE EXPERIENCE
The following table sets forth the total revenues from finance charges and
fees billed with respect to the RNB Portfolio for each of the periods shown. The
figures in the table represent amounts billed to accountholders before
deductions for charge-offs, returned merchandise, and customer disputes or other
expenses and reductions due to fraud.
REVENUE EXPERIENCE FOR THE RNB PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------- ---------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Average Receivables Outstanding(1).................... $2,063,247 $1,821,234 $1,858,557 $1,660,261 $1,435,942
Finance Charges and Fees(2)........................... 276,648 216,297 466,052 384,388 303,230
Yield from Finance Charges and Fees................... 26.82%(3) 23.75%(3) 25.08% 23.15% 21.12%
</TABLE>
- ------------------------------
(1) Average Receivables Outstanding for each year is calculated by averaging the
amount of Receivables outstanding at the end of each of the billing cycles
in each month from January through December of such year, which may differ
from the month end Receivables outstanding.
(2) Finance Charges and Fees represent the sum of the Finance Charges and Fees
from January through December of such year. Finance Charges and Fees
includes finance charges assessed net of Finance Charge Receivables waived
as customer service adjustment (generally includes Finance Charge
Receivables charge-offs), late fees assessed net of late fees waived as
customer service adjustment (generally includes late fees charge-offs),
return check fees, credit division miscellaneous income, RNB merchant fees
and RNB deferred billing fees. However, DSD and Target Finance Charges and
Fees exclude Finance Charge Receivables charge-offs and late fee charge-offs
starting in February 1995.
(3) Annualized.
PAYMENT RATES
The following table sets forth the highest and lowest cardholder monthly
payment rates for the RNB Portfolio during any single month on a sum of billing
cycles basis in the period shown and the average of the cardholder monthly
payment rates for all months during the periods shown, in each case calculated
as a percentage of the average of the beginning of the month account balances
during the periods shown. Payment rates shown in the table are based on amounts
which would be payments of Principal Receivables and Finance Charge Receivables
(exclusive of merchant fees and deferred billing fees) with respect to the
Accounts.
SUMMARY PAYMENT RATE INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------- ---------------------------------------
PAYMENT RATES 1997 1996 1996 1995 1994
- ------------------------------------------------------ -------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
High Monthly Rate..................................... 19.55% 20.63% 20.63% 22.19% 24.37%
Low Monthly Rate...................................... 18.01 18.52 17.66 20.03 21.32
Average Monthly Rate.................................. 18.71 19.50 18.73 20.99 22.80
</TABLE>
S-25
<PAGE>
THE RECEIVABLES
The aggregate amount of Receivables as of June 30, 1997 was $2,054,828,523.
This amount represents the aggregation of the receivables balance at the close
of the June 30, 1997 billing cycle periods for Mervyn's and actual June 30, 1997
receivables balances for DSD and Target. Of this amount $1,987,797,108 were
Principal Receivables and $67,031,415 were Finance Charge Receivables
(approximately 3.3% of the aggregate amount of Receivables). The Accounts had an
average Receivable balance of $279 excluding Accounts with a zero balance.
The following tables summarize the Trust Portfolio by various
characteristics as of June 30, 1997. References to "Receivables Outstanding" in
the following tables include both Finance Charge Receivables (excluding merchant
fees and deferred billing fees) and Principal Receivables. Because the future
composition of the Trust Portfolio may change over time, these tables are not
necessarily indicative of the composition of the Trust Portfolio at any
subsequent time.
COMPOSITION BY ACCOUNT BALANCE
OF TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PERCENTAGE OF TOTAL RECEIVABLES TOTAL RECEIVABLES
ACCOUNT BALANCE RANGE ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- ------------------------------------------- ------------ ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Credit Balance............................. 285,990 1.20% $ (8,159,482) (0.40)%
$0......................................... 16,444,068 69.07 0 0.00
$0.01 to $500.............................. 6,093,737 25.59 1,081,087,155 52.62
$500.01 to $1,000.......................... 716,937 3.01 488,027,679 23.75
$1,000.01 to $3,000........................ 241,995 1.02 361,082,210 17.57
$3,000.01 to $5,000........................ 18,441 0.08 69,247,690 3.37
$5,000.01 to $10,000....................... 6,879 0.03 44,817,190 2.18
Over $10,000............................... 1,215 0.00 18,726,081 0.91
------------ ------ ---------------- ------
Total.................................. 23,809,262 100.00% $ 2,054,828,523 100.00%
------------ ------ ---------------- ------
------------ ------ ---------------- ------
</TABLE>
COMPOSITION BY CREDIT LIMIT
OF TRUST PORTFOLIO(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PERCENTAGE OF TOTAL RECEIVABLES TOTAL RECEIVABLES
CREDIT LIMIT RANGE ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- ------------------------------------------- ------------ ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
$0 to $199................................. 1,160,442 4.87% $ 71,477,823 3.48%
$200 to $399............................... 4,878,830 20.49 362,197,853 17.63
$400 to $499............................... 3,108,565 13.06 161,081,307 7.84
$500 to $699............................... 5,227,872 21.96 286,439,792 13.94
$700 to $999............................... 4,352,971 18.28 345,775,491 16.83
$1,000 to $1,499........................... 1,898,042 7.97 273,932,154 13.33
$1,500 to $2,999........................... 2,318,463 9.74 288,946,993 14.06
$3,000 to $4,999........................... 397,438 1.67 125,175,513 6.09
$5,000 to $9,999........................... 454,355 1.91 102,584,353 4.99
$10,000 to $14,999......................... 8,751 0.04 19,928,429 0.97
$15,000 to $24,999......................... 2,722 0.01 10,798,589 0.52
Over $24,999............................... 811 0.00 6,490,226 0.32
------------ ------ ---------------- ------
Total.................................. 23,809,262 100.00% $ 2,054,828,523 100.00%
------------ ------ ---------------- ------
------------ ------ ---------------- ------
</TABLE>
- ------------------------
(1) Credit Limits do not include additional credit limits a Cardholder may have
under special payment plans.
S-26
<PAGE>
COMPOSITION BY PERIOD OF DELINQUENCY
OF TRUST PORTFOLIO(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PERCENTAGE OF TOTAL RECEIVABLES TOTAL RECEIVABLES
NUMBER OF DAYS DELINQUENT ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING(2) OUTSTANDING
- ------------------------------------------- ------------ ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Current.................................... 21,852,763 91.99% $ 1,377,171,000 68.25%
1--29 days................................. 1,410,235 5.93 461,611,000 22.88
30--59 days................................ 227,817 0.96 75,662,000 3.75
60--89 days................................ 94,340 0.40 34,018,000 1.69
90 days and greater........................ 171,347 0.72 69,272,000 3.43
------------ ------ ---------------- ------
Total.................................. 23,756,502 100.00% $ 2,017,734,000 100.00%
------------ ------ ---------------- ------
------------ ------ ---------------- ------
</TABLE>
- ------------------------
(1) The numbers of Accounts and Receivables outstanding represent the sum of
cycle delinquencies in each category as of the close of the respective
monthly billing cycle periods, which may differ from the respective
month-end delinquencies in each category.
(2) Data was rounded to the nearest thousand.
COMPOSITION BY ACCOUNT AGE
OF TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PERCENTAGE OF TOTAL RECEIVABLES TOTAL RECEIVABLES
AGE ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- ------------------------------------------- ------------ ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Less than or equal to 1 year............... 4,841,774 20.33% $ 363,421,499 17.69%
Over 1 year to 2 years..................... 3,509,145 14.74 252,229,587 12.28
Over 2 years to 3 years.................... 3,133,434 13.16 216,442,738 10.53
Over 3 years to 5 years.................... 3,447,052 14.48 268,194,156 13.05
Over 5 years............................... 8,877,857 37.29 954,540,543 46.45
------------ ------ ---------------- ------
Total.................................. 23,809,262 100.00% $ 2,054,828,523 100.00%
------------ ------ ---------------- ------
------------ ------ ---------------- ------
</TABLE>
S-27
<PAGE>
The following table sets forth the geographic concentrations of Accounts as
measured by percentage of Accounts and Receivables.
COMPOSITION OF ACCOUNTS
BY GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL NUMBER OF RECEIVABLES TOTAL RECEIVABLES
STATE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- ---------------------------------------------------- ---------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
Alabama............................................. 30,719 0.13% $ 2,182,676 0.11%
Alaska.............................................. 11,177 0.05 340,520 0.02
Arizona............................................. 711,667 2.99 54,009,732 2.63
Arkansas............................................ 29,430 0.12 1,786,584 0.09
California.......................................... 6,420,383 26.96 516,471,446 25.14
Colorado............................................ 629,888 2.65 31,741,004 1.54
Connecticut......................................... 11,578 0.05 302,553 0.01
Delaware............................................ 2,102 0.01 66,179 0.00
Florida............................................. 1,275,710 5.36 73,954,736 3.60
Georgia............................................. 375,518 1.58 19,660,227 0.96
Hawaii.............................................. 15,563 0.07 405,097 0.02
Idaho............................................... 117,736 0.49 5,229,566 0.25
Illinois............................................ 1,687,196 7.09 231,107,347 11.25
Indiana............................................. 365,581 1.54 28,886,495 1.41
Iowa................................................ 161,949 0.68 9,267,648 0.45
Kansas.............................................. 58,425 0.25 3,163,663 0.15
Kentucky............................................ 64,537 0.27 4,544,070 0.22
Louisiana........................................... 269,000 1.13 21,747,298 1.06
Maine............................................... 3,010 0.01 78,552 0.00
Maryland............................................ 110,006 0.46 5,887,966 0.29
Massachusetts....................................... 17,569 0.07 432,940 0.02
Michigan............................................ 2,586,554 10.86 305,823,579 14.88
Minnesota........................................... 1,744,563 7.33 216,445,939 10.53
Mississippi......................................... 36,040 0.15 2,139,114 0.10
Missouri............................................ 154,797 0.65 8,039,064 0.39
Montana............................................. 26,171 0.11 1,285,797 0.06
Nebraska............................................ 94,453 0.40 4,687,843 0.23
Nevada.............................................. 272,941 1.15 23,722,795 1.15
New Hampshire....................................... 3,369 0.01 76,104 0.00
New Jersey.......................................... 34,278 0.14 1,048,768 0.05
New Mexico.......................................... 184,593 0.78 12,538,272 0.61
New York............................................ 88,479 0.37 3,620,363 0.18
North Carolina...................................... 171,630 0.72 9,296,829 0.45
North Dakota........................................ 135,912 0.57 13,178,132 0.64
Ohio................................................ 366,942 1.54 27,654,634 1.35
Oklahoma............................................ 185,572 0.78 11,151,748 0.54
Oregon.............................................. 432,043 1.81 21,985,238 1.07
Pennsylvania........................................ 29,175 0.12 839,162 0.04
Rhode Island........................................ 2,624 0.01 70,640 0.00
South Carolina...................................... 33,439 0.14 2,067,860 0.10
South Dakota........................................ 75,010 0.32 6,656,670 0.32
Tennessee........................................... 162,688 0.68 11,059,217 0.54
Texas............................................... 2,627,692 11.03 225,234,784 10.97
Utah................................................ 328,767 1.38 19,663,139 0.96
Vermont............................................. 1,911 0.01 52,802 0.00
Virginia............................................ 107,132 0.45 6,442,161 0.31
Washington.......................................... 787,528 3.31 49,491,420 2.41
Washington, D.C..................................... 5,646 0.02 366,465 0.02
West Virginia....................................... 4,812 0.02 163,062 0.01
Wisconsin........................................... 601,470 2.53 52,092,097 2.54
Wyoming............................................. 26,345 0.11 1,141,721 0.06
Other(1)............................................ 127,942 0.54 5,526,805 0.27
---------- ------ -------------- ------
Total............................................... 23,809,262 100.00% $2,054,828,523 100.00%
---------- ------ -------------- ------
---------- ------ -------------- ------
</TABLE>
- ------------------------------
(1) Includes U.S. military, U.S. territories and non-U.S. accounts.
S-28
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Series 1997-1 Certificates will be
paid to the Transferor. The Transferor will use such proceeds for general
corporate purposes.
DESCRIPTION OF THE CLASS A CERTIFICATES
GENERAL
The Series 1997-1 Certificates will be issued pursuant to the Pooling
Agreement, and a series supplement thereto (the "Series 1997-1 Supplement")
relating to the Series 1997-1 Certificates, among the Transferor, the Servicer
and the Trustee. The Trustee will provide a copy of the Pooling Agreement
(without exhibits or schedules), including the Series 1997-1 Supplement, to
Series 1997-1 Certificateholders upon written request. The following summary
describes the material terms applicable to the Series 1997-1 Certificates and is
qualified in its entirety by reference to the Pooling Agreement and the Series
1997-1 Supplement.
The Series 1997-1 Certificates will initially be represented by one or more
certificates registered in the name of the nominee of The Depository Trust
Company ("DTC") (together with any successor depository selected by the
Transferor, the "Depository"), except as set forth below. The Series 1997-1
Certificates will be available for purchase in minimum denominations of $1,000
and in integral multiples thereof in book-entry form. The Transferor has been
informed by DTC that DTC's nominee will be Cede & Co. ("Cede"). See "Description
of the Certificates--Book-Entry Registration" and "--Definitive Certificates" in
the Prospectus.
Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries"), which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
For additional information regarding clearance and settlement procedures for the
Certificates, see Annex II hereto.
The Series 1997-1 Certificates will evidence undivided interests in the
Trust Assets allocated to the Series 1997-1 Certificateholders' Interest,
representing the right to receive from such Trust Assets funds up to (but not in
excess of) the amounts required to make payments of interest and principal with
respect thereto.
INTEREST
Interest will accrue on the unpaid principal amount of the Class A
Certificates during each Interest Period at the Class A Certificate Rate. Except
as otherwise provided herein, interest will be distributed to the Series 1997-1
Certificateholders monthly on each Distribution Date commencing November 25,
1997 and on each Distribution Date thereafter in an amount equal to the product
of the Class A Certificate Rate and the outstanding principal balance of the
Class A Certificates as of the close of business on the last day of the
preceding Monthly Period. Interest on the Class A Certificates will be
calculated on the basis of a 360-day year of twelve 30-day months, but for
purposes of calculating the interest payable with respect to the first Interest
Period, interest will accrue from and include the Closing Date to and including
November 24, 1997 (assuming that the month of October has 30 days).
Collections of Finance Charge Receivables and certain other amounts
allocable to the Series 1997-1 Certificateholders' Interest will be used to make
interest payments to Series 1997-1 Certificateholders on each Distribution Date.
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"Interest Period" means, with respect to any Distribution Date, a period
from and including the preceding Distribution Date to but excluding such
Distribution Date; PROVIDED, HOWEVER, that the initial Interest Period will
commence on the Closing Date.
PRINCIPAL
During the Revolving Period (which begins on the Closing Date and ends on
the day before either the Accumulation Period or the Early Amortization Period
begins), no principal payments will be made to the Class A Certificateholders.
On each Distribution Date during the Revolving Period, Collections of Principal
Receivables allocable to the Series 1997-1 Certificateholders' Interest, subject
to certain limitations, including the allocation of any Reallocated Class B
Principal Collections with respect to the related Monthly Period to pay the
Class A Required Amount, may be treated as Shared Principal Collections or paid
to the Transferor; PROVIDED, that certain available Collections of Principal
Receivables allocable to the Series 1997-1 Certificateholders' Interest may be
applied to reduce the Class B Invested Amount if each Rating Agency shall have
confirmed that such reduction would not result in a Ratings Effect.
On each Distribution Date during the Accumulation Period, principal in an
amount equal to Class A Principal will be deposited in the Principal Funding
Account for distribution to Class A Certificateholders on the Class A Expected
Final Payment Date. During any Early Amortization Period, an amount equal to
Class A Principal will be paid monthly on each Special Payment Date to the Class
A Certificateholders until the Class A Invested Amount is paid in full. If an
Early Amortization Event occurs during the Accumulation Period, the amount in
the Principal Funding Account will be paid to the Class A Certificateholders on
the first Special Payment Date. See "--Early Amortization Events" for a
discussion of events which might lead to the commencement of an Early
Amortization Period. See "--Application of Collections" for a discussion of the
method by which collections of Principal Receivables are allocated during either
an Accumulation Period or an Early Amortization Period. On each Distribution
Date during the Amortization Period on and after the Distribution Date on which
the Class A Invested Amount is paid in full, the Class B Certificateholders
shall be entitled to receive the Class B Principal.
POSTPONEMENT OF ACCUMULATION PERIOD
Upon written notice to the Trustee, and subject to certain conditions, the
Servicer may elect to postpone the commencement of the Accumulation Period,
thereby extending the length of the Revolving Period. The Servicer may make such
election only if the Accumulation Period Length (determined as described below)
is less than 12 months. On each Determination Date on and after the June 2001
Determination Date but prior to the commencement of the Accumulation Period, the
Servicer will determine the "Accumulation Period Length," which is the number of
months expected to be required to fully fund the Principal Funding Account in an
amount sufficient to pay the entire Class A Invested Amount no later than the
Class A Expected Final Payment Date, based on the assumptions that (a) the
payment rate with respect to Collections of Principal Receivables remains
constant at the lowest level of such payment rate during the twelve preceding
Monthly Periods (or such lower payment rate as the Servicer may select), (b) the
total amount of Principal Receivables in the Trust (and the principal amount on
deposit in the Special Funding Account, if any) remains constant at the level on
such date of determination, (c) no Early Amortization Event with respect to any
Series will subsequently occur, and (d) no additional Series (other than any
Series being issued on such date of determination) will be subsequently issued.
If the Accumulation Period Length is less than 12 months, the Servicer may, at
its option, postpone the commencement of the Accumulation Period such that the
number of months included in the Accumulation Period will equal 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 (a) the
certificateholders' interest of certain other Series, if any, which are
scheduled to be in their revolving periods during the Accumulation Period, (b)
the sharing of Collections allocable to any Participation and the Transferor
Interest and (c) increases in the principal payment rate, if any, occurring
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after the Closing Date. The length of the Accumulation Period will not be less
than one month and any election to shorten the Accumulation Period will be
subject to subsequent lengthening of the Accumulation Period on any subsequent
Determination Date. If the commencement of the Accumulation Period is postponed,
and if an Early Amortization Event occurs after the date originally scheduled as
the commencement of the Accumulation Period, it is probable that Series 1997-1
Certificateholders would receive some of their principal later than if the
Accumulation Period had not been postponed.
SUBORDINATION OF THE CLASS B CERTIFICATES
The Class B Certificateholders' Interest will be subordinated to the extent
necessary to fund payments with respect to the Class A Certificates. To the
extent the Class B Invested Amount is reduced, the percentage of collections of
Finance Charge Receivables allocable to the Class B Certificateholders in
subsequent Monthly Periods will be reduced. Moreover, to the extent the amount
of such reduction in the Class B Invested Amount is not reimbursed, the amount
of principal distributable to the Class B Certificateholders will be reduced.
See "--Allocation Percentages," "--Application of Collections-- Payment of
Interest, Fees and Other Items," "--Application of Collections--EXCESS FINANCE
CHARGE COLLECTIONS" and "--Reallocation of Cash Flows" herein.
If Available Series 1997-1 Finance Charge Collections, Excess Finance Charge
Collections from other Series, if any, allocable to the Series 1997-1
Certificates and Excess Transferor Finance Charge Collections, if any, allocable
to the Series 1997-1 Certificates for any Monthly Period are insufficient to pay
Class A Monthly Interest and any Carryover Class A Interest on the related
Distribution Date, the Class A Investor Defaulted Amount for such Monthly
Period, the Class A Servicing Fee for such Monthly Period, and the Class A
Percentage of the Series 1997-1 Allocation Percentage of the Adjustment Payments
not made on or prior to the related Distribution Date, then Reallocated Class B
Principal Collections will be applied to fund the remaining Class A Required
Amount and the Class B Invested Amount will be reduced by the amount of
Reallocated Class B Principal Collections so used.
If Reallocated Class B Principal Collections available with respect to such
Monthly Period are insufficient to fund the remaining Class A Required Amount,
then a portion of the Class B Invested Amount equal to such insufficiency (but
not in excess of the lesser of the Class A Investor Defaulted Amount for such
Monthly Period and the Class B Invested Amount) will be allocated to the Class A
Certificates to avoid a reduction in the Class A Invested Amount, and the Class
B Invested Amount will thereafter be reimbursed and the Class B Invested Amount
increased, on each Distribution Date by the amount, if any, of Finance Charge
Collections for such Distribution Date allocated and available for such purpose.
See "--Application of Collections--PAYMENT OF INTEREST, FEES AND OTHER ITEMS"
and "--Reallocation of Cash Flows" herein.
TRANSFER OF THE CLASS B CERTIFICATES
The Class A Certificates will have the benefit of the subordination of the
Class B Certificates which will be retained initially by the Transferor. The
Transferor may at any time, without consent of the Class A Certificateholders,
sell or transfer all or a portion of the Class B Certificates and, in connection
with any such sale or transfer, enter into a supplemental agreement with the
Trustee pursuant to which the Transferor may provide that the Class B
Certificates will bear interest at a specified rate, set forth the amount of
monthly interest due to Class B Certificateholders, provide for the payment of
additional amounts with respect to any shortfall of such amount and provide for
such other terms with respect to the Class B Certificates as may be specified
therein, PROVIDED that in each case (i) the Transferor shall have given notice
to the Trustee, the Servicer and the Rating Agencies of the proposed sale or
transfer of the Class B Certificates and such supplemental agreement at least
five Business Days prior to the consummation of such transfer or sale and the
execution of such supplemental agreement; (ii) the Trustee shall have been
notified in writing that such sale or transfer will not result in a Ratings
Effect; (iii) no Early Amortization Event shall have occurred prior to the
proposed sale or transfer or the execution of such
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supplemental agreement; (iv) the Transferor shall have delivered to the Trustee
a certificate of an authorized officer, dated the date of such sale or transfer
and the execution of such supplemental agreement, to the effect that, in the
reasonable belief of the Transferor, such sale or transfer and the effectiveness
of such supplemental agreement will not, based on the facts known to such
officer at the time of such certification, cause an Early Amortization Event to
occur with respect to any Series, including Series 1997-1; and (v) the
Transferor will have delivered a Tax Opinion (as defined in the Prospectus),
dated the date of such sale or transfer, with respect to such action.
DESCRIPTION OF THE CLASS B INVESTED AMOUNT
"Class B Invested Amount" means, when used with respect to any date, an
amount equal to (a) the Class B Initial Invested Amount, MINUS (b) the aggregate
amount of principal payments made to Class B Certificateholders prior to such
date, MINUS (c) the aggregate amount of Class B Investor Charge-Offs for all
prior Distribution Dates, MINUS (d) the aggregate amount of Reallocated Class B
Principal Collections for which the Class B Invested Amount has been reduced for
all prior Distribution Dates, PLUS (e) the sum of any reimbursed Class B
Investor Charge-Offs and Reallocated Class B Principal Collections and PLUS (f)
the amount of any increase in the Class B Invested Amount resulting from the
issuance of Additional Certificates. The Class B Invested Amount may be reduced
during the Revolving Period by distributing Collections of Principal Receivables
to the Class B Certificateholders; PROVIDED that (i) such reduction will not
result in a Ratings Effect and (ii) the Transferor shall have delivered to the
Trustee a certificate of an authorized officer stating that the Transferor
reasonably believes that such reduction will not, based on the facts known to
such officer at the time of such certification, cause an Early Amortization
Event to occur with respect to Series 1997-1.
"Class B Initial Invested Amount" means the aggregate initial principal
amount of the Class B Certificates, which is $122,875,817.
ALLOCATION PERCENTAGES
Pursuant to the Pooling Agreement, the Servicer will allocate daily among
the Series 1997-1 Certificateholders' Interest, the Certificateholders' Interest
for all other Series of Certificates issued and outstanding, the Transferor's
Interest and the interest of the holder of any Participations, all collections
of Finance Charge Receivables and Principal Receivables and the Defaulted Amount
with respect to each Date of Processing (as defined in the Prospectus).
FLOATING ALLOCATION PERCENTAGE. Collections of Finance Charge Receivables
and the Defaulted Amount with respect to any Monthly Period will be allocated to
the Series 1997-1 Certificateholders' Interest based on the Floating Allocation
Percentage. The "Floating Allocation Percentage" means, with respect to any date
of determination, the sum of the Class A Floating Allocation Percentage and
Class B Floating Allocation Percentage on such date.
"Class A Floating Allocation Percentage" means, with respect to any Monthly
Period, the percentage equivalent of a fraction, the numerator of which (x)
during the Revolving Period or the Accumulation Period with respect to
Collections of Finance Charge Receivables and at all times with respect to
Defaulted Amounts, is the Class A Adjusted Invested Amount as of the close of
business on the last day of the immediately preceding Monthly Period and (y)
during the Early Amortization Period with respect to Collections of Finance
Charge Receivables, is the Class A Adjusted Invested Amount as of the close of
business on the last day of the Monthly Period immediately preceding the
occurrence of an Early Amortization Event and the denominator of which is the
greater of (a) the total amount of Principal Receivables in the Trust plus the
amounts on deposit in the Special Funding Account as of the close of business on
such date and (b) when used with respect to Collections of Finance Charge
Receivables, the sum of the numerators with respect to all Classes of all Series
and Participations then outstanding used to calculate the applicable allocation
percentage.
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"Class B Floating Allocation Percentage" means, with respect to any Monthly
Period the percentage equivalent of a fraction, the numerator of which (x)
during the Revolving Period or the Accumulation Period with respect to
Collections of Finance Charge Receivables and at all times with respect to
Defaulted Amounts, is the Class B Invested Amount as of the close of business on
the last day of the immediately preceding Monthly Period and (y) during the
Early Amortization Period with respect to Collections of Finance Charge
Receivables, is the Class B Invested Amount as of the close of business on the
last day of the Monthly Period immediately preceding the occurrence of an Early
Amortization Event and the denominator of which is the greater of (a) the total
amount of Principal Receivables plus the amount on deposit in the Special
Funding Account as of the close of business on such date and (b) when used with
respect to Collections of Finance Charge Receivables, the sum of the numerators
with respect to all Classes of all Series and Participations then outstanding
used to calculate the applicable allocation percentage.
PRINCIPAL ALLOCATION PERCENTAGE. Collections of Principal Receivables will
be allocated to the Series 1997-1 Certificateholders' Interest based on the
Principal Allocation Percentage. Collections of recoveries will be treated as
Collections of Principal Receivables.
"Principal Allocation Percentage" means, with respect to any Monthly Period,
the percentage equivalent of a fraction, the numerator of which is (a) during
the Revolving Period, the Invested Amount as of the last day of the immediately
preceding Monthly Period (or, in the case of the first Monthly Period, the
Closing Date), (b) during the Accumulation Period, the Invested Amount as of the
last day of the Revolving Period; PROVIDED, that during the Accumulation Period
on the date of issuance of a new Series, at the option of the Transferor, such
amount may be reduced to an amount not less than the greater of (x) the Adjusted
Invested Amount on such date and (y) the amount which would result in a
Principal Allocation Percentage which when multiplied by the amount of
Collections of Principal Receivables for the preceding Monthly Period would
equal (I) the Class A Controlled Deposit Amount for such Monthly Period plus 10%
of the Class A Controlled Accumulation Amount or, if such date is on or after
the Class A Expected Final Payment Date and the Class A Invested Amount has been
paid in full, the Class B Invested Amount minus (II) the amount of any Available
Shared Principal Collections with respect to such Monthly Period, and (c) during
the Early Amortization Period, the Invested Amount as of the last day of the
Revolving Period or, if less, the last numerator used to calculate the Principal
Allocation Percentage in the Accumulation Period, if any, and the denominator of
which is the greater of (a)(x) if only one Series is outstanding (i) during the
Revolving Period, the sum of the total amount of Principal Receivables in the
Trust and the principal amount on deposit in the Special Funding Account as of
the last day of the immediately preceding Monthly Period and (ii) during the
Accumulation Period and the Early Amortization Period the sum of the total
amount of Principal Receivables in the Trust and the principal amount on deposit
in the Special Funding Account as of the last day of the Revolving Period and
(y), if more than one Series is outstanding, the sum of the total amount of
Principal Receivables in the Trust and the principal amount on deposit in the
Special Funding Account as of the last day of the immediately preceding Monthly
Period (or, in the case of the first Monthly Period, the Closing Date) and (b)
the sum of the numerators used to calculate the principal allocation percentages
for all Series and Participations outstanding as of the date as to which such
determination is being made; PROVIDED, FURTHER, that such calculations are
subject to adjustment to give effect to additions of Additional Accounts.
"Class B Principal Allocation Percentage" means, with respect to any Monthly
Period, the percentage equivalent of a fraction, the numerator of which is (a)
during the Revolving Period, the Class B Invested Amount as of the last day of
the immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the Closing Date), (b) during the Accumulation Period, the Class B
Invested Amount as of the last day of the Revolving Period and (c) during the
Early Amortization Period, the Class B Invested Amount as of the last day of the
Revolving Period or, if less, the last numerator used to calculate the Class B
Principal Allocation Percentage in the Accumulation Period, if any, and the
denominator of which is the greater of (a)(x) if only one Series is outstanding
(i) during the Revolving Period, the sum of the total
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amount of Principal Receivables in the Trust and the principal amount on deposit
in the Special Funding Account as of the last day of the immediately preceding
Monthly Period and (ii) during the Accumulation Period and the Early
Amortization Period the sum of the total amount of Principal Receivables in the
Trust and the principal amount on deposit in the Special Funding Account as of
the last day of the Revolving Period and (y), if more than one Series is
outstanding, the sum of the total amount of Principal Receivables in the Trust
and the principal amount on deposit in the Special Funding Account as of the
last day of the immediately preceding Monthly Period (or, in the case of the
first Monthly Period, the Closing Date) and (b) the sum of the numerators used
to calculate the principal allocation percentages for all Series and
Participations outstanding as of the date as to which such determination is
being made; PROVIDED, that such calculations are subject to adjustment to give
effect to additions of Additional Accounts.
As used herein, the following terms have the meanings indicated:
"Class A Invested Amount" for any date means an amount equal to (i) the
Class A Initial Invested Amount, MINUS (ii) the aggregate amount of principal
payments made to the Class A Certificateholders prior to such date, MINUS (iii)
the excess, if any, of the aggregate amount of Class A Investor Charge-Offs for
all prior Distribution Dates over the aggregate amount of any reimbursements of
Class A Investor Charge-Offs for all Distribution Dates prior to such date, PLUS
(iv) the amount of any increase in the Class A Invested Amount resulting from
the issuance of Additional Certificates and MINUS (v) the amount of any
reduction in the Class A Invested Amount as a result of the purchase by the
Transferor and subsequent cancellation of Class A Certificates.
"Class A Adjusted Invested Amount" for any Business Day means an amount
equal to the Class A Invested Amount minus the aggregate principal amount on
deposit in the Principal Funding Account on such Business Day.
"Adjusted Invested Amount" for any Business Day means an amount equal to the
Class A Adjusted Invested Amount on such Business Day plus the Class B Invested
Amount on such Business Day.
"Invested Amount" for any date means an amount equal to the sum of the Class
A Invested Amount and the Class B Invested Amount on such date.
"Series Invested Amount" for any date means an amount equal to the sum of
the Class A Adjusted Invested Amount and the Class B Invested Amount on such
date.
APPLICATION OF COLLECTIONS
PAYMENT OF INTEREST, FEES AND OTHER ITEMS. On each Distribution Date, the
Trustee shall allocate and distribute the Available Series 1997-1 Finance Charge
Collections for the related Monthly Period in the following priority:
(i) to pay Class A Monthly Interest and Carryover Class A Interest,
(ii) to pay the Monthly Servicing Fee,
(iii) an amount equal to the aggregate Class A Investor Defaulted Amount
for such Distribution Date will be (a) during the Revolving Period, treated
as Shared Principal Collections and (b) during the Amortization Period, on
and prior to the date on which an amount equal to the Class A Invested
Amount is paid in full or available in the Principal Funding Account for
distribution to the Class A Certificateholders, deposited in the Principal
Funding Account or Collection Account for payment to the Class A
Certificateholders as described in "--PAYMENT OF PRINCIPAL" below,
(iv) an amount equal to the aggregate Class B Investor Defaulted Amount
for such Distribution Date will be (a) during the Revolving Period, treated
as Shared Principal Collections and (b) during the Amortization Period, on
and prior to the date on which an amount equal to the Class A Invested
Amount is paid in full or available in the Principal Funding Account for
distribution to the Class A
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Certificateholders, deposited in the Principal Funding Account or Collection
Account for payment to the Class A Certificateholders as described in
"--PAYMENT OF PRINCIPAL" below, and thereafter, retained in the Collection
Account for distribution to the Class B Certificateholders on such
Distribution Date,
(v) an amount equal to the Series 1997-1 Allocation Percentage of any
Adjustment Payment which the Transferor is required but fails to make
pursuant to the Pooling Agreement will be, (a) during the Revolving Period,
treated as Shared Principal Collections, (b) during the Amortization Period,
on and prior to the day on which an amount equal to the Class A Invested
Amount is paid in full or deposited in the Principal Funding Account,
retained in the Principal Funding Account or Collection Account for payment
to the Class A Certificateholders as described in "--PAYMENT OF PRINCIPAL"
below and (c) on and after the date such payment to the Class A
Certificateholders or retention in the Principal Funding Account for the
benefit of the Class A Certificateholders has been made, distributed to the
Class B Certificateholders to the extent of the Class B Invested Amount,
(vi) an amount equal to the unreimbursed Class A Investor Charge-Offs,
if any, will be applied to reimburse Class A Investor Charge-Offs, such
amount during the Revolving Period to be treated as Shared Principal
Collections, and during the Amortization Period, on and prior to the day on
which an amount equal to the Class A Invested Amount is paid in full or
available in the Principal Funding Account for distribution to the Class A
Certificateholders, to be retained in the Principal Funding Account for
payment to the Class A Certificateholders or paid to the Class A
Certificateholders as described in "--PAYMENT OF PRINCIPAL" below,
(vii) an amount equal to the unreimbursed reductions in the Class B
Invested Amount as a result of Class B Investor Charge-Offs and Reallocated
Class B Principal Collections, if any, will be (a) during the Revolving
Period, treated as Shared Principal Collections and (b) during the
Amortization Period, on and prior to the date on which an amount equal to
the Class A Invested Amount is paid in full or available in the Principal
Funding Account for distribution to the Class A Certificateholders,
deposited in the Principal Funding Account or Collection Account for payment
to the Class A Certificateholders as described in "--PAYMENT OF PRINCIPAL"
below, and thereafter, retained in the Collection Account for distribution
to the Class B Certificateholders,
(viii) to pay Class B Monthly Interest and Carryover Class B Interest,
(ix) on each Distribution Date from and after the Reserve Account
Funding Date, but prior to the date on which the Reserve Account is
terminated, an amount up to the excess, if any, of the Required Reserve
Account Amount over the Available Reserve Account Amount, will be deposited
into the Reserve Account, and
(x) the balance, if any, will constitute Excess Finance Charge
Collections and will be allocated and distributed as described under
"--EXCESS FINANCE CHARGE COLLECTIONS" below.
"Class A Monthly Interest" means, with respect to any Distribution Date, an
amount equal to one-twelfth of the product of (i) the Class A Certificate Rate
and (ii) the outstanding principal balance of the Class A Certificates as of the
close of business on the last day of the preceding Monthly Period; PROVIDED,
HOWEVER, that with respect to the initial Distribution Date, Class A Monthly
Interest will be equal to the product of (i) the Class A Certificate Rate, (ii)
a fraction the numerator of which is 40 and the denominator of which is 360 and
(iii) the Class A Initial Invested Amount.
"Class B Monthly Interest" means, initially, zero. However, the Transferor
may, subsequent to the issuance of the Series 1997-1 Certificates, set an
interest rate for the Class B Certificates without the consent of the Class A
Certificateholders. See "--Transfer of the Class B Certificates" above.
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"Class A Additional Interest" means, with respect to any Distribution Date,
an amount equal to one-twelfth of the product of (i) the excess, if any, of
Class A Monthly Interest with respect to the preceding Distribution Date over
the amount available to be paid to Class A Certificateholders in respect of
interest on such preceding Distribution Date and (ii) the sum of the Class A
Certificate Rate and 2% per annum.
"Class B Additional Interest" means, with respect to any Distribution Date
on and after the setting of an interest rate for the Class B Certificates, an
amount equal to one-twelfth of the product of (i) the excess, if any, of Class B
Monthly Interest with respect to the preceding Distribution Date over the amount
available to be paid to Class B Certificateholders in respect of interest on
such preceding Distribution Date, if applicable and (ii) the sum of the Class B
Certificate Rate and 2% per annum.
"Additional Interest" means, with respect to any Distribution Date, the sum
of the Class A Additional Interest and Class B Additional Interest.
"Carryover Class A Interest" means, with respect to any Distribution Date,
(a) any Class A Monthly Interest due but not paid on any previous Distribution
Date plus (b) any Class A Additional Interest.
"Carryover Class B Interest" means, with respect to any Distribution Date,
(a) any Class B Monthly Interest, if any, due but not paid on any previous
Distribution Date plus (b) any Class B Additional Interest.
"Carryover Interest" means, with respect to any Distribution Date, the sum
of Carryover Class A Interest and Carryover Class B Interest.
"Investor Defaulted Amount" means, with respect to each Distribution Date,
an amount equal to the product of (a) the Floating Allocation Percentage for the
related Monthly Period and (b) the Defaulted Amount for the related Monthly
Period.
"Adjustment Payment" means any payment required to be made by the Transferor
into the Special Funding Account in an amount equal to the downward adjustment
of any Receivable by the Servicer for which Collections have not been received
and for which no charge-off has occurred which causes the Required Retained
Transferor Amount to exceed the Transferor Amount (excluding the interest
represented by any Supplemental Certificate). See "Description of the
Certificates--Dilution" in the Prospectus.
EXCESS FINANCE CHARGE COLLECTIONS. On each Distribution Date, the Trustee,
acting pursuant to the Servicer's instructions, will apply Excess Finance Charge
Collections allocated to Series 1997-1 from other Series issued by the Trust in
Group I FIRST to pay the Required Amount, if any, and SECOND treated as Excess
Transferor Finance Charge Collections.
Excess Finance Charge Collections from Series 1997-1 will be allocated FIRST
to pay Certificateholders of other Series in Group I to the extent of any
shortfalls, SECOND to pay any unpaid expenses or liabilities of the Trust and
THIRD treated as Excess Transferor Finance Charge Collections.
EXCESS TRANSFEROR FINANCE CHARGE COLLECTIONS. On each Distribution Date,
the Trustee, acting pursuant to the Servicer's instructions, will apply Excess
Transferor Finance Charge Collections allocated to Series 1997-1 FIRST to pay
the Required Amount remaining after application of Excess Finance Charge
Collections and SECOND treated as Shared Transferor Principal Collections.
PAYMENT OF PRINCIPAL. On each Distribution Date with respect to the
Revolving Period, the product of (a) the Principal Allocation Percentage and (b)
Collections of Principal Receivables with respect to such Distribution Date may
be treated as Shared Principal Collections and applied as described under "--
Shared Principal Collections"; PROVIDED, that to the extent of a reduction of
the required Class B Invested Amount during the Revolving Period, under certain
circumstances, such amount may be paid to the Class B Certificateholders. See
"--Description of the Class B Invested Amount." On each Distribution Date with
respect to the Accumulation Period, Collections of Principal Receivables
allocable to the
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Class A Certificateholders, in an amount equal to Class A Principal and not to
exceed the Class A Controlled Deposit Amount will be deposited in the Principal
Funding Account for distribution to the Class A Certificateholders on the Class
A Expected Final Payment Date. On each Distribution Date after the Class A
Expected Final Payment Date and, if earlier, following the occurrence of an
Early Amortization Event, the Trustee, acting pursuant to the Servicer's
instructions, will distribute the amount of funds on deposit in the Collection
Account available for payment of principal to the Certificateholders in the
following priority:
(i) to the Class A Certificateholders, an amount equal to Class A
Principal;
(ii) after the Class A Invested Amount has been paid in full, to the
Class B Certificateholders, an amount equal to Class B Principal; and
(iii) an amount equal to the excess, if any, will be treated as Shared
Principal Collections.
On each Distribution Date during the Amortization Period, funds on deposit
in the Special Funding Account distributable to Series 1997-1 will be applied as
follows:
(i) on each Distribution Date until the Class A Invested Amount is paid
in full, to the Class A Certificateholders in an amount equal to the lesser
of the Principal Shortfall for Series 1997-1 and the amount allocated with
respect thereto pursuant to the Pooling Agreement; PROVIDED, HOWEVER, such
amount shall not exceed the Class A Principal after subtracting therefrom
other amounts to be deposited in the Collection Account with respect thereto
as described below in "--Deposits in Collection Account;" and
(ii) on each Distribution Date on and after the Distribution Date on
which the Class A Invested Amount is paid in full, to the Class B
Certificateholders in an amount not to exceed the Class B Invested Amount
after subtracting therefrom other amounts to be deposited in the Collection
Account with respect thereto as described below in "--Deposits in Collection
Account."
"Class A Principal" with respect to any Distribution Date relating to the
Accumulation Period or the Early Amortization Period will equal the sum of (i)
an amount equal to the product of the Principal Allocation Percentage and the
aggregate amount of Collections of Principal Receivables with respect to the
preceding Monthly Period, (ii) any amount on deposit in the Special Funding
Account that is distributable to the Class A Certificates with respect to the
preceding Monthly Period, (iii) the amount, if any, that is allocated to the
Class A Certificates pursuant to clauses (iii), (iv), (v), (vi) and (vii) under
"--PAYMENT OF INTEREST, FEES AND OTHER ITEMS," (iv) the amount of Shared
Principal Collections allocated to the Class A Certificates with respect to the
preceding Monthly Period and (v) the amount of Shared Transferor Principal
Collections allocated to the Class A Certificates with respect to the preceding
Monthly Period; PROVIDED, HOWEVER, (a) with respect to any Distribution Date
during the Accumulation Period, Class A Principal may not exceed the Class A
Controlled Deposit Amount for such Distribution Date; (b) with respect to any
Distribution Date, Class A Principal may not exceed the Class A Adjusted
Invested Amount; and (c) with respect to the Series 1997-1 Termination Date, the
Class A Principal shall be an amount equal to the Class A Adjusted Invested
Amount.
"Class B Principal" with respect to any Distribution Date relating to the
Accumulation Period or the Early Amortization Period, on or after the
Distribution Date on which the Class A Invested Amount is paid in full, will
equal the lesser of: (x) the sum of (i) an amount equal to the product of the
Principal Allocation Percentage of Collections of Principal Receivables
(subtracting from such product the amount of Reallocated Class B Principal
Collections) with respect to the preceding Monthly Period, (ii) any amount on
deposit in the Special Funding Account that is distributable to the Class B
Certificates with respect to the preceding Monthly Period, (iii) the amount, if
any, that is allocated to the Class B Certificates pursuant to clauses (iv), (v)
and (vii) under "--PAYMENT OF INTEREST, FEES AND OTHER ITEMS" with respect to
such Distribution Date, (iv) the amount of Shared Principal Collections
allocated to the Class B Certificates with respect to the preceding Monthly
Period, (v) the amount of Shared Transferor Principal
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Collections allocated to the Class B Certificates with respect to the preceding
Monthly Period, and (vi) the amount, if any, of principal allocable to the Class
A Certificates for the payment of Class A Principal, but remaining after
distributions have been made to Class A Certificateholders and (y) the Class B
Invested Amount, PROVIDED, HOWEVER, that with respect to the Series 1997-1
Termination Date, the Class B Principal shall be an amount equal to the Class B
Invested Amount.
"Class A Controlled Accumulation Amount" means for any Distribution Date
with respect to the Accumulation Period, $33,333,333.34; PROVIDED that if the
commencement of the Accumulation Period is postponed in the manner described in
"--Postponement of Accumulation Period" (i) the Class A Controlled Accumulation
Amount may be greater than the amount stated above and will be determined by the
Servicer in accordance with the Pooling Agreement and (ii) the sum of the Class
A Controlled Accumulation Amounts for all Distribution Dates with respect to
such modified Accumulation Period shall not be less than the Class A Invested
Amount; and PROVIDED, FURTHER, that such amount may be increased as a result of
the issuance of Additional Certificates.
"Class A Controlled Deposit Amount" means, with respect to any Distribution
Date with respect to the Accumulation Period, an amount equal to the Class A
Controlled Accumulation Amount plus the Class A Deficit Controlled Accumulation
Amount for the immediately preceding Distribution Date, if any.
"Class A Deficit Controlled Accumulation Amount" means, on each Distribution
Date with respect to the Accumulation Period, the excess, if any, of the Class A
Controlled Deposit Amount for such Distribution Date over the amount distributed
from the Collection Account as Class A Principal, for such Distribution Date.
During the Revolving Period (which begins on the Closing Date and ends on
the day before an Amortization Period begins), no principal payments will be
made to Class A Certificateholders.
REALLOCATION OF CASH FLOWS
With respect to each Distribution Date, on each Determination Date the
Servicer will determine the Required Amount, if any, and will further determine
the amount of the Class A Required Amount. "Class A Required Amount" means, with
respect to each Distribution Date, an amount equal to the excess, if any, of (x)
the sum of (i) Class A Monthly Interest for the related Monthly Period, and any
Carryover Class A Interest with respect to amounts previously due but not paid
to the Class A Certificateholders on a prior Distribution Date, (ii) the Class A
Servicing Fee for the related Monthly Period, (iii) the Class A Investor
Defaulted Amount and (iv) the Class A Percentage of the Series 1997-1 Allocation
Percentage of the Adjustment Payments not made on or prior to the related
Distribution Date over (y) the Available Series 1997-1 Finance Charge
Collections plus any Excess Finance Charge Collections from other Series and
Excess Transferor Finance Charge Collections allocable to Series 1997-1. "Class
A Percentage" means the percentage equivalent of a fraction the numerator of
which is the Class A Adjusted Invested Amount and the denominator of which is
the sum of the Class A Adjusted Invested Amount and the Class B Invested Amount.
If Available Series 1997-1 Finance Charge Collections and such Excess Finance
Charge Collections and Excess Transferor Finance Charge Collections are
insufficient to pay the Required Amount, collections of Principal Receivables
allocable to the Class B Certificates for the related Monthly Period
("Reallocated Class B Principal Collections") will then be used to fund the
Class A Required Amount. If Reallocated Class B Principal Collections with
respect to the related Monthly Period, are insufficient to fund the Class A
Required Amount for such related Monthly Period, then the Class B Invested
Amount will be reduced by the amount of such excess (but not by more than the
Class A Investor Defaulted Amount for such Distribution Date). If such reduction
would cause the Class B Invested Amount to be a negative number, the Class B
Invested Amount will be reduced to zero, and the Class A Invested Amount will be
reduced by the amount by which the Class B Invested Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class A
Investor Defaulted Amount for such Distribution Date over the amount of
reduction of the Class B Invested Amount with respect to such
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Distribution Date as described above, to fund the Required Amount, which will
have the effect of slowing or reducing the return of principal to the Class A
Certificateholders. In such case, the Class A Certificateholders will bear
directly the credit and other risks associated with their undivided interest in
the Trust.
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
On each Determination Date, the Servicer will calculate the Investor
Defaulted Amount for the preceding Monthly Period. The term "Investor Defaulted
Amount" means, for any Monthly Period, the product of the Floating Allocation
Percentage with respect to such Monthly Period and the Defaulted Amount for such
Monthly Period. A portion of the Investor Defaulted Amount will be allocated to
the Class A Certificateholders (the "Class A Investor Defaulted Amount") on each
Distribution Date in an amount equal to the product of the Class A Floating
Allocation Percentage applicable during the related Monthly Period and the
Defaulted Amount for such Monthly Period. A portion of the Investor Defaulted
Amount will be allocated to the Class B Certificateholders (the "Class B
Investor Defaulted Amount") in an amount equal to the product of the Class B
Floating Allocation Percentage applicable during the related Monthly Period and
the Defaulted Amount for such Monthly Period. An amount equal to the Class A
Investor Defaulted Amount for each Monthly Period will be paid from the
Available Series 1997-1 Finance Charge Collections, Excess Finance Charge
Collections from other Series allocated to Series 1997-1 and Excess Transferor
Finance Charge Collections allocated to Series 1997-1 and/or from Reallocated
Class B Principal Collections for such Monthly Period, if applicable, and
applied as described above in "--Application of Collections--PAYMENT OF
INTEREST, FEES AND OTHER ITEMS." An amount equal to the Class B Investor
Defaulted Amount for each Monthly Period will be paid from the Available Series
1997-1 Finance Charge Collections, Excess Finance Charge Collections allocated
to Series 1997-1 and Excess Transferor Finance Charge Collections allocated to
Series 1997-1 and applied as described above in " --Application of
Collections--PAYMENT OF INTEREST, FEES AND OTHER ITEMS."
On each Distribution Date, if the Required Amount for such Distribution Date
exceeds the sum of Excess Finance Charge Collections allocable to Series 1997-1,
Excess Transferor Finance Charge Collections allocable to Series 1997-1 and
Reallocated Class B Principal Collections, the Class B Invested Amount will be
reduced by the amount of such excess, but not by more than the Class A Investor
Defaulted Amount for such Distribution Date. If such reduction would cause the
Class B Invested Amount to be a negative number, the Class B Invested Amount
will be reduced to zero, and the Class A Invested Amount will be reduced by the
amount by which the Class B Invested Amount would have been reduced below zero,
but not by more than the excess, if any, of the Class A Investor Defaulted
Amount for such Distribution Date over the amount of the reduction of the Class
B Invested Amount with respect to such Distribution Date as described above (a
"Class A Investor Charge-Off"), which will have the effect of slowing or
reducing the return of principal to the Class A Certificateholders. If the Class
A Invested Amount has been reduced by the amount of any Class A Investor
Charge-Offs, it will thereafter be increased on any Distribution Date (but not
by an amount in excess of the aggregate unreimbursed Class A Investor
Charge-Offs) by the amount of Available Series 1997-1 Finance Charge
Collections, Excess Finance Charge Collections from other Series and Excess
Transferor Finance Charge Collections in each case allocated and available for
such purpose as described under "--Application of Collections--PAYMENT OF
INTEREST, FEES AND OTHER ITEMS" and "--EXCESS FINANCE CHARGE COLLECTIONS."
If on any Distribution Date, the aggregate Investor Defaulted Amount and the
Series 1997-1 Allocation Percentage of unpaid Adjustment Payments for the
preceding Monthly Period exceed the sum of the Available Series 1997-1 Finance
Charge Collections, plus the Excess Finance Charge Collections allocable to
Series 1997-1, plus the Excess Transferor Finance Charge Collections allocable
to Series 1997-1 plus the amount of Reallocated Class B Principal Collections
for such Distribution Date, in each case which are allocated and available to
fund such amount, the Class B Invested Amount will be reduced by such excess,
but not by more than the Class B Investor Defaulted Amount for such Distribution
Date (a "Class B Investor Charge-Off").
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"Series 1997-1 Allocation Percentage" means, on any date of determination,
the percentage equivalent of a fraction, the numerator of which is the Series
Invested Amount and the denominator of which is the sum of the invested amounts
of all then outstanding Series.
DEPOSITS IN COLLECTION ACCOUNT
During the Revolving Period, the Servicer shall, prior to the close of
business on any Date of Processing, allocate (x) to the Series 1997-1
Certificateholders and deposit in the Collection Account (as defined in the
Prospectus) an amount equal to the product of (i) the Floating Allocation
Percentage and (ii) the aggregate amount of Collections of Finance Charge
Receivables on such Date of Processing, PROVIDED, HOWEVER, that, with respect to
each Monthly Period, such amount shall only be deposited until such time as the
amount deposited in the Collection Account equals the sum of Class A Monthly
Interest, Class B Monthly Interest, if any, Carryover Interest, if any, and the
Servicing Fee if RNB is not the Servicer, due on the next Distribution Date, and
(y) to the Series 1997-1 Certificateholders an amount equal to the product of
(A) the Principal Allocation Percentage on such Date of Processing and (B) the
aggregate amount of Collections of Principal Receivables on such Date of
Processing and pay such amount to the holder of the Transferor Certificate;
PROVIDED, HOWEVER, that such amount to be paid to the holder of the Transferor
Certificate on any Date of Processing shall be first, if any other Principal
Sharing Series is outstanding and in its Amortization Period, deposited in the
Collection Account for application, to the extent necessary, as Shared Principal
Collections on the related Distribution Date and second shall be paid to such
holder only if on such Date of Processing the Transferor Amount (excluding the
interest represented by any Supplemental Certificate) is greater than the
Required Retained Transferor Amount (after giving effect to all Principal
Receivables transferred to the Trust on such day) and otherwise shall be
deposited in the Special Funding Account to the extent necessary for the
Transferor Amount (excluding the interest represented by any Supplemental
Certificate) to be at least equal to the Required Retained Transferor Amount;
PROVIDED, FURTHER, that such amounts will be paid to the holder of the
Transferor Certificate subject to the obligation of the Transferor to make an
amount equal to the Reallocated Class B Principal Collections for each Monthly
Period available on the related Distribution Date for application as described
in "--Reallocation of Cash Flows." The daily allocation of Collections of
Finance Charge Receivables and of Principal Receivables will be made based on
estimated amounts as set forth in the Pooling Agreement. On each Determination
Date, with respect to the related Monthly Period, the Servicer will make any
appropriate adjustments to such estimated allocation based on the actual amount
of Collections of Finance Charge Receivables and Principal Receivables for such
Monthly Period. A "Principal Sharing Series" means a Series that, pursuant to
the Supplement therefor, is entitled to receive Shared Principal Collections.
During the Accumulation Period, the Servicer shall, prior to the close of
business on any Date of Processing, allocate (x) to the Series 1997-1
Certificateholders and deposit in the Collection Account an amount equal to the
product of (A) the Floating Allocation Percentage on such Date of Processing and
(B) the aggregate amount of Collections of Finance Charge Receivables on such
Date of Processing, PROVIDED, HOWEVER, that, with respect to each Monthly
Period, such amount shall only be deposited until such time as the amount
deposited in the Collection Account equals the sum of the amount of Class A
Monthly Interest, Class B Monthly Interest, if any, and Carryover Interest, if
any, and the Servicing Fee if RNB is not the Servicer, due on the next
Distribution Date, and (y) prior to the payment in full of the Class A Invested
Amount, to the Series 1997-1 Certificateholders and deposit in the Collection
Account an amount equal to the product of (A) the Principal Allocation
Percentage on such Date of Processing and (B) the aggregate amount of
Collections of Principal Receivables on such Date of Processing (for any such
date, a "Percentage Allocation"); PROVIDED, HOWEVER, that if the sum of such
Percentage Allocations with respect to the same Monthly Period exceeds the Class
A Controlled Deposit Amount for the related Distribution Date, then such excess
shall be first, if any other Principal Sharing Series is outstanding and in its
Amortization Period, deposited in the Collection Account for application, to the
extent necessary, as Shared Principal Collections on the related Distribution
Date and second shall not be treated as a
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Percentage Allocation and shall be paid to the holder of the Transferor
Certificate if the Transferor Amount (excluding the interest represented by any
Supplemental Certificate) on such Date of Processing is greater than the
Required Retained Transferor Amount (after giving effect to all Principal
Receivables transferred to the Trust on such day) and otherwise shall be
deposited in the Special Funding Account. The daily allocation of Collections of
Finance Charge Receivables and of Principal Receivables will be made based on
estimated amounts as set forth in the Pooling Agreement. On each Determination
Date, with respect to the related Monthly Period, the Servicer will make any
appropriate adjustments to such estimated allocation based on the actual amount
of Collections of Finance Charge Receivables and Principal Receivables for such
Monthly Period.
During the Early Amortization Period, the Servicer shall, prior to the close
of business on any Date of Processing, allocate (x) to the Series 1997-1
Certificateholders and deposit in the Collection Account an amount equal to the
product of (A) the Floating Allocation Percentage on such Date of Processing and
(B) the aggregate amount of Collections of Finance Charge Receivables on such
Date of Processing, and (y) to the Series 1997-1 Certificateholders and deposit
in the Collection Account an amount equal to the product of (A) the Principal
Allocation Percentage on such Date of Processing and (B) the aggregate amount of
Collections of Principal Receivables on such Date of Processing; PROVIDED,
HOWEVER, that after the date on which an amount of such Collections equal to the
Invested Amount has been deposited into the Collection Account for payment to
the Series 1997-1 Certificateholders, the amount determined in accordance with
this subparagraph (y) shall be first, if any other Principal Sharing Series is
outstanding and in its Amortization Period, deposited in the Collection Account
for application, to the extent necessary, as Shared Principal Collections on the
related Distribution Date and second shall be paid to the holder of the
Transferor Certificate only if the Transferor Amount (excluding the interest
represented by any Supplemental Certificate) on such Date of Processing is
greater than the Required Retained Transferor Amount (after giving effect to all
Principal Receivables transferred to the Trust on such day) and otherwise shall
be deposited in the Special Funding Account to the extent necessary for the
Transferor Amount (excluding the interest represented by any Supplemental
Certificate) to be at least equal to the Required Retained Transferor Amount.
During the Revolving Period and Accumulation Period, the Servicer shall,
prior to the close of business on any Transfer Date allocate to the Class A
Certificateholders and deposit in the Collection Account an amount equal to the
sum of (I) (A) the lesser of (1) the sum of (a) the product of (x) the Floating
Allocation Percentage with respect to the preceding Monthly Period and (y) the
aggregate amount of Collections of Finance Charge Receivables for the related
Monthly Period, (b) the amount of Excess Finance Charge Collections allocated to
Series 1997-1 for the related Monthly Period and (c) the amount of Excess
Transferor Finance Charge Collections allocated to Series 1997-1 for the related
Monthly Period, and (2) the aggregate of the amounts to be paid on such
Distribution Date as described in clauses (i) through (ix) in "--Application of
Collections--PAYMENT OF INTEREST, FEES AND OTHER ITEMS," less (B) the daily
amounts retained in the Collection Account during such Monthly Period as
described above with respect to the Revolving Period and the Accumulation
Period, respectively, (II) the excess of the amount of Reallocated Class B
Principal Collections over the amount of Collections of Principal Receivables
retained in the Collection Account as described above with respect to the
Revolving Period and Accumulation Period, (III) an amount equal to the PRO RATA
portion allocable to Series 1997-1 of shortfalls in amounts payable from
Collections of Finance Charge Receivables with respect to other Series in Group
I, not to exceed the Excess Finance Charge Collections for the related
Distribution Date, (IV) an amount equal to the amount of Shared Principal
Collections to be applied for the benefit of other Principal Sharing Series from
amounts that were originally allocated to Series 1997-1 not to exceed (a) during
the Revolving Period, the Principal Allocation Percentage of Principal
Collections for the related Monthly Period or (b) during the Accumulation
Period, the Principal Allocation Percentage of Principal Collections for the
related Monthly Period less the amount thereof applied to pay Class A Monthly
Principal on the related Distribution Date and (V) the amount of Shared
Transferor Principal Collections to be applied to
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make payments of Class A Monthly Principal and Class B Monthly Principal on the
related Distribution Date.
On the Closing Date, the Transferor will make a deposit to the Collection
Account in the amount of $1,597,222 to be allocated to the Series 1997-1
Certificates and applied as Available Series 1997-1 Finance Charge Collections.
PRINCIPAL FUNDING ACCOUNT
The Trustee will establish and maintain, or cause to be established and
maintained, an Eligible Deposit Account for the benefit of the Class A
Certificateholders, in the name of the Trustee, on behalf of the Trust, the
"Principal Funding Account." During the Accumulation Period, an amount equal to
Class A Principal (including the amount of any Shared Principal Collections and
Shared Transferor Principal Collections comprising a part thereof) which will
not exceed the Class A Controlled Deposit Amount will be deposited in the
Principal Funding Account on each Distribution Date as provided in
"--Application of Collections;" provided, that if an Early Amortization Event
occurs during the Accumulation Period, the amounts on deposit in the Principal
Funding Account shall be paid to the Class A Certificateholders on the first
Special Payment Date. All amounts deposited into the Principal Funding Account
prior to the Class A Expected Final Payment Date will be invested by the
Transferor (or, at the direction of the Transferor, by the Servicer or the
Trustee on behalf of the Transferor) in certain Eligible Investments. On each
Distribution Date, all investment income earned (net of losses and expenses) on
amounts on deposit in the Principal Funding Account (the "Principal Funding
Investment Proceeds") since the preceding Distribution Date will be withdrawn
from the Principal Funding Account and deposited into the Collection Account to
be applied as Available Series 1997-1 Finance Charge Collections.
RESERVE ACCOUNT
Pursuant to the Series 1997-1 Supplement, the Servicer will establish and
maintain with an Eligible Institution the reserve account as a segregated trust
account held for the benefit of the Certificateholders (the "Reserve Account").
The Reserve Account is established to provide additional available funds from
which to make payments of interest on the Certificates during the Accumulation
Period. On each Transfer Date from and after the Reserve Account Funding Date on
which the Required Reserve Account Amount is greater than zero, but prior to the
termination of the Reserve Account, the Trustee, acting pursuant to the
Servicer's instructions, will apply Finance Charge Collections allocated to the
Series 1997-1 Certificates (to the extent described above under "--Application
of Collections--PAYMENT OF INTEREST, FEES AND OTHER ITEMS") to increase the
amount on deposit in the Reserve Account (to the extent such amount is less than
the Required Reserve Account Amount). The "Reserve Account Funding Date" will be
the date specified by the Transferor for the commencement of the funding of the
Reserve Account. The "Required Reserve Account Amount" for any Distribution Date
on or after the Reserve Account Funding Date will be an amount, if any,
specified by the Transferor.
Provided that the Reserve Account has not terminated as described below, all
amounts on deposit in the Reserve Account on any Distribution Date (after giving
effect to any deposits to, or withdrawals from, the Reserve Account to be made
on such Distribution Date) will be invested to the following Transfer Date by
the Transferor (or, at the direction of the Transferor, by the Servicer or the
Trustee on behalf of the Transferor) in Eligible Investments. The interest and
other investment income (net of investment expenses and losses) earned on such
investments will be retained in the Reserve Account (to the extent the amount on
deposit is less than the Required Reserve Account Amount) and the balance, if
any, shall be deposited in the Collection Account and treated as Available
Series 1997-1 Finance Charge Collections.
On or before each Transfer Date with respect to the Accumulation Period and
on the first Transfer Date with respect to the Early Amortization Period, a
withdrawal will be made from the Reserve Account, and the amount of such
withdrawal will be deposited in the Collection Account and applied as Available
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Series 1997-1 Finance Charge Collections for such Transfer Date in an amount
equal to the lesser of (a) the Available Reserve Account Amount with respect to
such Transfer Date and (b) the Principal Funding Investment Shortfall with
respect to such Transfer Date. On each Transfer Date, the amount available to be
withdrawn from the Reserve Account (the "Available Reserve Account Amount") will
be equal to the lesser of the amount on deposit in the Reserve Account (before
giving effect to any deposit to be made to the Reserve Account on such Transfer
Date) and the Required Reserve Account Amount for such Transfer Date.
The Reserve Account will be terminated following the earliest to occur of
(a) the termination of the Trust pursuant to the Pooling Agreement, (b) the date
on which the Class A Invested Amount is paid in full and (c) if the Accumulation
Period has not commenced, the occurrence of an Early Amortization Event with
respect to the Certificates or, if the Accumulation Period has commenced, the
earlier of the first Transfer Date with respect to the Early Amortization Period
and the Class A Expected Final Payment Date. Upon the termination of the Reserve
Account, all amounts on deposit therein (after giving effect to any withdrawal
from the Reserve Account on such date as described above) will be applied in
accordance with the priority of payments described herein under "--Application
of Collections--PAYMENT OF INTEREST, FEES AND OTHER ITEMS."
SHARED PRINCIPAL COLLECTIONS
Collections of Principal Receivables for any Monthly Period allocated to the
Series 1997-1 Certificateholders' Interest will first be used to cover certain
amounts described in the Series 1997-1 Supplement (including any required
distributions to Certificateholders of such Series). The Servicer will determine
the amount of Collections of Principal Receivables for any Monthly Period (plus
certain other amounts described in the Series 1997-1 Supplement) allocated to
such Series 1997-1 remaining after covering such required deposits and
distributions and any similar amount remaining for any other Series plus the
amount of any payment received by the Trustee from the holder of any
Participation with respect to the purchase of such participation or any increase
in the principal amount of such a Participation (collectively, "Shared Principal
Collections"). The Servicer will allocate the Shared Principal Collections to
cover any principal distributions to Certificateholders and deposits to
principal funding accounts for any Series that are either scheduled or permitted
and that have not been covered out of the investor principal collections and
certain other amounts for such Series (collectively, "Principal Shortfalls"). If
Principal Shortfalls exceed Shared Principal Collections for any Monthly Period,
Shared Principal Collections will be allocated PRO RATA among the applicable
Series, including Series 1997-1, based on the respective Principal Shortfalls of
such Series. To the extent that Shared Principal Collections exceed Principal
Shortfalls, the balance will be paid to the holder of the Transferor
Certificate, PROVIDED that (a) such Shared Principal Collections will be
distributed to the holder of the Transferor Certificate only to the extent that
the Transferor Amount (excluding the interest represented by any Supplemental
Certificate) is greater than the Required Retained Transferor Amount (see
"--Deposits in Collection Account") and (b) in certain circumstances described
in the Prospectus under "Description of the Certificates--Special Funding
Account," such Shared Principal Collections will be deposited in the Special
Funding Account. Shared Principal Collections permit coverage of Principal
Shortfalls with respect to the Series 1997-1 Certificates by using Collections
of Principal Receivables that are initially allocable to other Series and that
would therefore otherwise be paid to the Transferor and in certain circumstances
may allow the Accumulation Period Length to be shortened. Any such reallocation
of collections of Principal Receivables will not result in a reduction in the
Invested Amount of the Series to which such collections were initially
allocated. There can be no assurance that there will be any Shared Principal
Collections with respect to any Monthly Period.
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SHARING OF EXCESS FINANCE CHARGE COLLECTIONS
Any Series may be included in a Group. Series 1997-1 will be the third
Series in Group I. Group I is currently the only Group in the Trust. Each Series
in Group I will be entitled to share Excess Finance Charge Collections in the
manner, and to the extent, described below with each other Series, if any, in
Group I. The Series Supplement with respect to each Series will specify whether
such Series will be included in a Group. Collections of Finance Charge
Receivables and certain other amounts allocable to the Certificateholders'
Interest of any Series that is included in Group I in excess of the amounts
necessary to make required payments with respect to such Series (including
payments to any related Enhancement Providers) that are payable out of
collections of Finance Charge Receivables (any such excess, the "Excess Finance
Charge Collections") will be applied to cover any shortfalls with respect to
amounts payable from collections of Finance Charge Receivables allocable to any
other Series included in Group I, PRO RATA based upon the amount of the
shortfall, if any, with respect to each other Series in Group I. In all cases,
any Excess Finance Charge Collections remaining after covering shortfalls with
respect to all outstanding Series in a Group will be treated as Excess
Transferor Finance Charge Collections. While any Series offered hereby may be
included in a Group, there can be no assurance that (a) any other Series will be
included in such Group or (b) there will be any Excess Finance Charge
Collections with respect to such Group for any Monthly Period. Excess Finance
Charge Collections permit coverage of shortfalls with respect to amounts payable
from Collections of Finance Charge Receivables allocable to Series 1997-1 by
using Excess Finance Charge Collections from other Series which would otherwise
be paid to the Transferor.
SHARED EXCESS TRANSFEROR FINANCE CHARGE AND TRANSFEROR PRINCIPAL COLLECTIONS
Collections of Finance Charge Receivables allocable to the Transferor's
Interest in excess of the amounts necessary to make required payments with
respect to any Supplemental Certificates and all other amounts otherwise payable
to the Transferor with respect to collections of Finance Charge Receivables
regardless of whether such collections were initially allocated to the
Transferor or any Series (the "Excess Transferor Finance Charge Collections")
will be applied to cover any shortfalls (after giving effect to the application
of Excess Finance Charge Collections) with respect to amounts payable from
Collections of Finance Charge Receivables allocable to each Series designated in
the applicable Series Supplement as being entitled to receive Excess Transferor
Finance Charge Collections, PRO RATA based upon the amount of the shortfall
(after giving effect to the application of Excess Finance Charge Collections),
if any, with respect to each other Series designated in the applicable Series
Supplement as being entitled to receive Excess Transferor Finance Charge
Collections, including Series 1997-1. In all cases, any Excess Transferor
Finance Charge Collections remaining after covering shortfalls with respect to
all designated Series will be treated as Shared Transferor Principal
Collections. Excess Transferor Finance Charge Collections permit coverage of
shortfalls with respect to amounts payable from Collections of Finance Charge
Receivables and Excess Finance Charge Collections allocable to Series 1997-1 by
using Collections of Finance Charge Receivables which would otherwise be paid to
the Transferor.
The Servicer will determine the amount of Collections of Principal
Receivables for any Monthly Period allocated to the Transferor's Interest but
not due to the holder of any Supplemental Certificate and other amounts payable
to the Transferor with respect to Collections of Principal Receivables,
regardless of whether such Collections were initially allocated to the
Transferor or any Series, plus the amount of Excess Transferor Finance Charge
Collections remaining after application to amounts payable from Collections of
Finance Charge Receivables (collectively, "Shared Transferor Principal
Collections"). The Servicer will allocate the Shared Transferor Principal
Collections to cover any Principal Shortfalls that have not been covered out of
the Shared Principal Collections allocated to each Series that has been
designated in the applicable Series Supplement as being entitled to receive
Shared Transferor Principal Collections. If Principal Shortfalls remaining after
the application of Shared Principal Collections exceed Shared Transferor
Principal Collections for any Monthly Period, Shared Transferor Principal
Collections will be
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allocated PRO RATA among each Series which in accordance with the Series
Supplement for such Series is designated as being entitled to receive Shared
Transferor Principal Collections, including Series 1997-1, based on the
respective remaining Principal Shortfalls of such Series. To the extent that
Shared Transferor Principal Collections exceed Principal Shortfalls remaining
after application of Shared Principal Collections, the balance will be paid to
the holder of the Transferor Certificate. Shared Transferor Principal
Collections permit coverage of Principal Shortfalls with respect to the Series
1997-1 Certificates remaining after the application of Shared Principal
Collections by using Collections that would have been paid to the Transferor and
in certain circumstances may allow the Accumulation Period Length to be shorter.
There can be no assurance that there will be any Shared Transferor Principal
Collections with respect to any Monthly Period.
ISSUANCE OF ADDITIONAL CERTIFICATES
The Series 1997-1 Supplement provides, that, from time to time during the
Revolving Period, the Transferor may, subject to certain conditions described
below, cause the Trustee to issue additional Class A Certificates and Class B
Certificates (the "Additional Certificates," and each such issuance, an
"Additional Issuance"). When issued, the Additional Certificates of each Class
will be identical in all respects (except that the principal amount of such
Additional Certificates may be different) to the other outstanding Certificates
of that Class and will be equally and ratably entitled to the benefits of the
Pooling Agreement and the Series 1997-1 Supplement without preference, priority
or distinction.
As a result of an Additional Issuance, the Class A Invested Amount and the
Class B Invested Amount shall be increased PRO RATA. In addition, the Class A
Controlled Accumulation Amount shall be increased proportionally to reflect the
additional principal amount of Class A Certificates represented by the
Additional Certificates.
Additional Certificates may be issued only upon the satisfaction of certain
conditions provided in the Series 1997-1 Supplement, including the following:
(a) on or before the fifth Business Day immediately preceding the date upon
which the Additional Certificates are to be issued, the Transferor will have
given the Trustee, the Servicer and the Rating Agencies notice of such issuance
and the date upon which it is to occur; (b) after giving effect to the
Additional Issuance, the total amount of Principal Receivables will be greater
than or equal to the Required Principal Balance (as defined in the Prospectus);
(c) the Transferor shall have received written notice from each Rating Agency
that such Additional Issuance will not cause a Ratings Effect; (d) the
Transferor shall have delivered to the Trustee a certificate of an authorized
officer to the effect that, in the reasonable belief of the Transferor, such
Additional Issuance will not have a material adverse effect on the Class A
Certificates or Class B Certificates; (e) as of the date of the Additional
Issuance the amount of unreimbursed Class A Investor Charge-Offs and Class B
Investor Charge-Offs, shall be zero; and (f) the Transferor will have delivered
to the Trustee a Tax Opinion in connection with the Additional Issuance.
There are no restrictions on the timing or amount of any Additional
Issuance, PROVIDED that the conditions described above are met. As of the date
of any Additional Issuance, the Class A Initial Invested Amount and the Class B
Initial Invested Amount will be increased to reflect the aggregate face amount
of the Additional Certificates of the respective Classes.
PAIRED SERIES
The Series 1997-1 Certificates may be paired with one or more other Series
(each, a "Paired Series"). Each Paired Series either will be prefunded with an
initial deposit to a prefunding account in an amount up to the initial principal
balance of such Paired Series and primarily from the proceeds of the sale of
such Paired Series or will have a variable principal amount. Any such prefunding
account will be held for the benefit of such Paired Series and not for the
benefit of Series 1997-1 Certificateholders. As principal is paid with respect
to the Series 1997-1 Certificates, either (i) in the case of a prefunded Paired
Series, an
S-45
<PAGE>
equal amount of funds on deposit in any prefunding account for such prefunded
Paired Series will be released (which funds will be distributed to the
Transferor) or (ii) in the case of a Paired Series having a variable principal
amount, an interest in such variable Paired Series in an equal or lesser amount
may be sold by the Trust (and the proceeds thereof will be distributed to the
Transferor) and, in either case, the invested amount in the Trust of such Paired
Series will increase by up to a corresponding amount. Upon payment in full of
the Series 1997-1 Certificates, assuming that there have been no unreimbursed
charge-offs with respect to any related Paired Series, the aggregate invested
amount of such related Paired Series will have been increased by an amount up to
an aggregate amount equal to the Series Invested Amount paid to the Series
1997-1 Certificateholders since the issuance of such Paired Series. The issuance
of a Paired Series will be subject to the conditions described under
"Description of the Certificates--New Issuances" in the Prospectus. There can be
no assurance, however, that the terms of any Paired Series might not have an
impact on the timing or amount of payments received by a Series 1997-1
Certificateholder. In particular, the denominator of the Principal Allocation
Percentage may be increased upon the occurrence of an Early Amortization Event
with respect to a Paired Series resulting in a possible reduction of the
percentage of Collections of Principal Receivables allocated to Series 1997-1 if
such event allowed the payment of principal at such time to the Paired Series
and required reliance by Series 1997-1 on clause (b) of the denominator of the
Principal Allocation Percentage for Series 1997-1. See "--Allocation
Percentages--PRINCIPAL ALLOCATION PERCENTAGE." See "Risk Factors--Issuance of
Additional Series; Effect on Timing or Amount of Payments to Certificateholders"
in the Prospectus and "Maturity Considerations" herein and in the Prospectus.
EARLY AMORTIZATION EVENTS
The Revolving Period will continue until the commencement of the
Accumulation Period, which will continue until the Series Invested Amount shall
have been paid in full or the Series 1997-1 Termination Date occurs, unless an
Early Amortization Event occurs prior to such dates. An "Early Amortization
Event" will occur with respect to the Series 1997-1 Certificates upon the
occurrence of any of the following events:
(a) RNB, DHCC, the Transferor or any holder of the Transferor
Certificate shall fail generally to, or admit in writing its inability to,
pay its debts as they become due or makes an assignment for the benefit of
its creditors; or a proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect
of RNB, DHCC, the Transferor or any holder of the Transferor Certificate in
an involuntary case under any bankruptcy or similar debtor-relief law, or
for the appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator, conservator or other similar official for any substantial part
of its property, or for the winding-up or liquidation, dissolution,
reorganization or readjustment of its affairs or similar relief and, if
instituted against the Transferor or any holder of the Transferor
Certificate, any such proceeding shall continue undismissed or unstayed and
in effect, for a period of 60 consecutive days, or any of the actions sought
in such proceeding shall occur; or the commencement by RNB, DHCC, the
Transferor or any holder of the Transferor Certificate, of a voluntary case
under any bankruptcy or similar debtor-relief law, or such entity's seeking,
consenting or acquiescing to the entry of an order for relief in an
involuntary case under any bankruptcy or similar debtor-relief law, or
seeking, consenting or acquiescing to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator, conservator or other similar official for any substantial part
of its property, or any general assignment for the benefit of creditors; or
RNB, DHCC, the Transferor or any holder of the Transferor Certificate shall
have taken any corporate action in furtherance of any of the foregoing
actions (each, an "Insolvency Event");
(b) the failure on the part of the Transferor (i) to make any payment or
deposit required to be made by the Transferor under the Pooling Agreement or
the Series 1997-1 Supplement within five Business Days after the day such
payment or deposit is required to be made thereunder; (ii) to
S-46
<PAGE>
perform in all material respects the Transferor's covenant not to sell,
pledge, assign or transfer to any person, or grant any unpermitted lien on,
any Receivable, or (iii) to duly observe or perform in any material respect
any covenants or agreements of the Transferor set forth in the Pooling
Agreement or the Series 1997-1 Supplement, which failure has a material
adverse effect on the Series 1997-1 Certificateholders and which continues
unremedied for a period of 60 days after written notice of such failure,
requiring the same to be remedied, shall have been given by the Trustee to
the Transferor or by any Series 1997-1 Certificateholder to the Transferor
and the Trustee;
(c) any representation or warranty made by the Transferor in the Pooling
Agreement or the Series 1997-1 Supplement (i) shall prove to have been
incorrect in any material respect when made, which continues to be incorrect
in any material respect for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Transferor by the Trustee, or to the Transferor and
the Trustee by any Series 1997-1 Certificateholder, and (ii) as a result of
which the interests of the Series 1997-1 Certificateholders are materially
and adversely affected (PROVIDED, HOWEVER, that an Early Amortization Event
shall not be deemed to have occurred if the Transferor has accepted
designation of the related Receivable as an Ineligible Receivable during
such period in accordance with the provisions of the Pooling Agreement);
(d) (i) a failure by DHCC or the Transferor to make an Addition within
five Business Days after the Required Designation Date (as defined in the
Prospectus) or (ii) the Class B Invested Amount is less than 5% of the
Initial Invested Amount;
(e) any Servicer Default (as defined in the Prospectus) shall occur
which would have a material adverse effect on the Series 1997-1
Certificateholders;
(f) the average of the Portfolio Yields for any three consecutive
Monthly Periods is reduced to a rate which is less than the average of the
Base Rates for such three consecutive Monthly Periods;
(g) the Trust shall become an "investment company" within the meaning of
the Investment Company Act of 1940, as amended;
(h) the Transferor shall become unable for any reason to transfer
Receivables to the Trust in accordance with the Pooling Agreement;
(i) the amount on deposit in the Special Funding Account as a percentage
of the sum of the aggregate amount of Principal Receivables plus the amount
on deposit in the Special Funding Account shall equal or exceed 30% on the
last day of three consecutive Monthly Periods; or
(j) the Transferor Amount (excluding the interest represented by any
Supplemental Certificate) is less than the Required Retained Transferor
Amount.
Upon the occurrence of any event described in subparagraph (b), (c) or (e)
after the applicable grace period, if any, set forth in such subparagraphs,
either the Trustee or the holders of Series 1997-1 Certificates evidencing more
than 50% of the Invested Amount of Series 1997-1 Certificates by notice then
given in writing to the Transferor, the Servicer and the Trustee may declare
that an Early Amortization Event has occurred with respect to Series 1997-1 as
of the date of such notice. Upon the occurrence of any event described in
subparagraphs (a), (d), (f), (g), (h), (i) or (j), an Early Amortization Event
shall occur with respect to Series 1997-1 without any notice or other action on
the part of the Trustee immediately upon the occurrence of such event. The Early
Amortization Period will commence on the day on which an Early Amortization
Event occurs. Monthly distributions of principal to the Series 1997-1
Certificateholders will begin on the Distribution Date in the Monthly Period
following the Monthly Period in which such Early Amortization Event occurs (such
Distribution Date and each following Distribution Date with respect to such
Series, a "Special Payment Date"). If, because of the occurrence of an Early
Amortization Event, the Early Amortization Period begins earlier than the
scheduled commencement of an Accumulation Period or prior to the Class A
Expected Final Payment Date, the Class A Certificateholders will begin
S-47
<PAGE>
receiving distributions of principal earlier than they otherwise would have and
such distributions will not be subject to the Class A Controlled Deposit Amount.
As a result, the average life of the Class A Certificates may be reduced.
For purposes of the Early Amortization Event described in clause (f) above,
the terms "Base Rate" and "Portfolio Yield" will be defined as follows:
"Base Rate" means, with respect to any Monthly Period, the sum of (i) the
annualized percentage equivalent of a fraction the numerator of which is the sum
of the Class A Monthly Interest and the Class B Monthly Interest for the
Interest Period beginning in such Monthly Period and the denominator of which is
the Invested Amount as of the close of business on the last day of such Monthly
Period and (ii) the annualized percentage equivalent of a fraction the numerator
of which is the Monthly Servicing Fee for such Monthly Period and the
denominator of which is the Invested Amount as of the close of business on the
last day of the preceding Monthly Period.
"Portfolio Yield" means, for the Series 1997-1 Certificates, with respect to
any Monthly Period, the annualized percentage equivalent of a fraction, the
numerator of which is an amount equal to the sum of the aggregate amount of
Available Series 1997-1 Finance Charge Collections for such Monthly Period,
minus the aggregate Investor Defaulted Amount for such Monthly Period and the
Series 1997-1 Allocation Percentage of any Adjustment Payments not made on or
prior to the related Distribution Date, and the denominator of which is the
Invested Amount as of the last day of the preceding Monthly Period.
In addition to the consequences of an Early Amortization Event discussed
above, if an Insolvency Event occurs relating to the Transferor (excluding any
Supplemental Certificate) or an Early Amortization Event as described in clause
(j) above occurs, pursuant to the Pooling Agreement, on the day of such event,
the Transferor will immediately cease to transfer Principal Receivables to the
Trust and will promptly give notice to the Trustee of such event. To the extent
so provided in the applicable Series Supplement, if such event occurs while any
of the Series 1995-1 Certificates or the Series 1996-1 Certificates remain
outstanding, the relationship among the Certificateholders and the holders of
the Transferor Interest will dissolve and, in accordance with the terms of the
Pooling Agreement, within fifteen days of receiving notice of such event, the
Trustee will publish a notice of the occurrence of such event stating that the
Trustee intends to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from any such sale, disposition or liquidation of the Receivables will
be deposited in the Collection Account and allocated as described in the Pooling
Agreement and each Series Supplement, including the Series 1997-1 Supplement. If
the sum of (a) the portion of such proceeds allocated to the Certificateholders'
Interest of any Series, including Series 1997-1 and (b) the proceeds of any
collections of the Receivables in the Collection Account allocated to the
Certificateholders' Interest of such Series is not sufficient to pay the
Invested Amount of the Certificates of such Series in full, such
Certificateholders may incur a loss.
If the proceeds of any sale of the Receivables as described above allocated
to the Class A Invested Amount and the proceeds of any Collections on the
Receivables in the Collection Account are not sufficient to pay in full the
remaining amount due on the Class A Certificates, Class A Certificateholders
will suffer a corresponding loss and no such proceeds will be available to the
Class B Certificateholders. See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to Bankruptcy or Receivership" in the
Prospectus.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicing Fee allocable to the Series 1997-1
Certificateholders with respect to any Distribution Date (the "Monthly Servicing
Fee") shall be equal to one-twelfth of the product of (a) 2.0% (the "Servicing
Fee Rate") and (b) (i) the sum of the Class A Adjusted Invested Amount and the
Class B Invested Amount as of the last day of the Monthly Period second
preceding such Distribution Date, minus (ii) the product of the amount, if any,
on deposit in the Special Funding Account as of the last day of the
S-48
<PAGE>
Monthly Period second preceding such Distribution Date and the Floating
Allocation Percentage with respect to such Monthly Period; PROVIDED, HOWEVER,
that with respect to the first Distribution Date, the Monthly Servicing Fee will
be $560,224.
The share of the Monthly Servicing Fee allocable to the Class A
Certificateholders with respect to any Distribution Date (the "Class A Servicing
Fee") shall be equal to the product of (a) the Class A Percentage and (b) the
Monthly Servicing Fee; PROVIDED, HOWEVER, that with respect to the first
Distribution Date, the Class A Servicing Fee will be $428,571. The share of the
Monthly Servicing Fee allocable to the Class B Certificateholders with respect
to any Distribution Date (the "Class B Servicing Fee") shall be equal to the
product of (a) the Class B Percentage and (b) the Monthly Servicing Fee;
PROVIDED, HOWEVER, that with respect to the first Distribution Date, the Class B
Servicing Fee will be $131,653. "Class B Percentage" means a fraction, the
numerator of which is the Class B Invested Amount and the denominator of which
is the sum of the Class A Adjusted Invested Amount and the Class B Invested
Amount. The remainder of the Servicing Fee shall be paid from amounts allocable
to the holder of the Transferor Certificate, holders of Participations or the
Certificateholders of other Series (as provided in the related Series
Supplements) and in no event will the Trust, the Trustee or the Series 1997-1
Certificateholders be directly liable for the share of the Servicing Fee to be
paid from amounts allocable to the holder of the Transferor Certificate, holders
of Participations or the Certificateholders of any other Series. The Class A
Servicing Fee and the Class B Servicing Fee shall be payable to the Servicer
solely to the extent amounts are available for distribution in respect thereof
as described under "--Application of Collections--PAYMENT OF INTEREST, FEES AND
OTHER ITEMS" above.
RECORD DATE
Payments on the Series 1997-1 Certificates will be made as described herein
to the Series 1997-1 Certificateholders in whose names the Certificates were
registered (initially expected to be Cede, as nominee of DTC) at the close of
business on the last Business Day of the calendar month preceding the month in
which such payment occurs (each, a "Record Date"). However, the final payment on
the Series 1997-1 Certificates will be made only upon presentation and surrender
of such Series 1997-1 Certificates. Distributions will be made to DTC in
immediately available funds. See "Description of the Certificates--Book-Entry
Registration" in the Prospectus.
DEFEASANCE
On any date prior to the Early Amortization Period on which the following
conditions have been satisfied: (i) the Transferor has deposited (x) in the
Principal Funding Account an amount equal to the outstanding principal balance
of the Class A Certificates, which amount will be invested in Eligible
Investments and (y) in the Reserve Account, an amount equal to or greater than
the Class A Covered Amount, as estimated by the Transferor, for the period from
the date of the deposit to the Principal Funding Account through the Class A
Expected Final Payment Date; (ii) the Transferor has delivered to the Trustee an
opinion of counsel to the effect that such deposit and termination of
obligations will not result in the Trust being required to register as an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and an opinion of counsel to the effect that following such deposit
none of the Trust, the Reserve Account or the Principal Funding Account will be
deemed to be an association (or publicly traded partnership) taxable as a
corporation; (iii) the Transferor has delivered to the Trustee a certificate of
an officer of the Transferor stating that the Transferor reasonably believes
that such deposit and termination of its obligations will not constitute an
Early Amortization Event or any event that, with the giving of notice or the
lapse of time, would cause an Early Amortization Event to occur; and (iv) a
Ratings Effect has not occurred; then, the Series 1997-1 Certificates will no
longer be entitled to the security interest of the Trust in the Receivables and,
except those set forth in clause (i) above, other Trust assets ("Defeasance"),
and the percentages applicable to the allocation to the Series 1997-1
Certificateholders of Collections of Principal Receivables, Finance Charge
Receivables and
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<PAGE>
Defaulted Receivables will be reduced to zero. Upon the satisfaction of the
foregoing conditions, the Class B Invested Amount will be reduced to zero.
OPTIONAL TERMINATION; FINAL PAYMENT OF PRINCIPAL
The Class A Certificates will be subject to optional repurchase by the
Transferor on any Distribution Date on or after the Distribution Date on which
the Class A Invested Amount is reduced to 10% or less of the Class A Initial
Invested Amount. The purchase price will be equal to the Class A Invested
Amount, plus accrued and unpaid interest on the unpaid principal amount of the
Class A Certificates (and accrued and unpaid interest with respect to interest
amounts that were due but not paid on a prior Distribution Date or Special
Payment Date) through the day preceding the Distribution Date at the applicable
certificate rate. Following any such repurchase, the Class A Certificateholders
will have no further rights with respect to the Receivables. If the Transferor
fails for any reason to deposit the aggregate purchase price for the Class A
Certificateholders' Interest, such repurchase will not occur and payments will
continue to be made to the Class A Certificateholders as described herein.
PURCHASE OF CLASS A CERTIFICATES BY THE TRANSFEROR
The Transferor may, from time to time, but will have no obligation to,
purchase Class A Certificates on the secondary market in accordance with
applicable law and may request the Trustee to cancel such Class A Certificates
and reduce the Class A Invested Amount by a corresponding amount.
SERIES TERMINATION
If on the Distribution Date that is two months prior to the Series 1997-1
Termination Date, the Invested Amount (after giving effect to all changes
therein on such date) exceeds zero, the Servicer will, within the 40-day period
beginning on such date, solicit bids for the sale of certain Principal
Receivables (or, if certain tax opinions are obtained, interests in Principal
Receivables), together in each case with the related Finance Charge Receivables,
in an amount equal to 110% of the Invested Amount on such Series 1997-1
Termination Date (after giving effect to all deposits and distributions required
to be made on the Series 1997-1 Termination Date). The Transferor will be
entitled to participate in, and to receive notice of each bid submitted in
connection with, such bidding process. Upon the expiration of such 40-day
period, the Trustee will determine (a) which bid is the highest cash purchase
offer (the "Highest Bid") and (b) the amount (the "Available Final Distribution
Amount") which otherwise would be available in the Collection Account on the
Series 1997-1 Termination Date for distribution to the Series 1997-1
Certificateholders. The Servicer will sell such Receivables on the Series 1997-1
Termination Date to the bidder who provided the Highest Bid and will deposit the
proceeds of such sale in the Collection Account for allocation (together with
the Available Final Distribution Amount) to the Series 1997-1
Certificateholders' Interest. If the proceeds of such sale, together with the
Available Final Distribution Amount, are less than the Invested Amount plus
accrued and unpaid interest on the Series 1997-1 Certificates, the Series 1997-1
Certificateholders will incur a loss.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
relating to the Class A Certificates (the "Underwriting Agreement"), among the
Transferor, Dayton Hudson Corporation and each of the Underwriters named below
(the "Underwriters"), the Transferor has agreed to cause the Trust to sell, and
each of the Underwriters have severally agreed to purchase, the principal amount
of the Class A Certificates set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
Salomon Brothers Inc.......................................................... $ 133,400,000
Goldman, Sachs & Co........................................................... 133,300,000
J.P. Morgan Securities Inc.................................................... 133,300,000
--------------
Total..................................................................... $ 400,000,000
--------------
--------------
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all $400,000,000
aggregate principal amount of the Class A Certificates offered hereby if any
Class A Certificates are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
the purchase commitment of the non-defaulting Underwriters may be increased or
the purchase commitment of each Underwriter may be terminated. The Transferor
has been advised by the Underwriters that the several Underwriters propose
initially to offer the Class A Certificates to the public at the public offering
price set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of 0.20% of the principal
amount of such Class A Certificates. The Underwriters may allow and such dealers
may reallow to other dealers a concession not in excess of 0.15% of such
principal amount. After the initial public offering, the public offering price
may be changed.
The Underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Class A Certificates in accordance with Regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the offering
size, which create a syndicate short position. Stabilizing transactions permit
bids to purchase the Class A Certificates so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the Class A Certificates in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
Underwriters to reclaim a selling concession from a syndicate member when the
Class A Certificates originally sold by such syndicate member are purchased in a
syndicate covering transaction. Such over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Class A Certificates to be higher than it would otherwise be in the
absence of such transactions. Neither the Transferor nor the Underwriters
represent that the Underwriters will engage in any such transactions or that
such transactions, once commenced, will not be discontinued without notice at
any time.
Each Underwriter has represented and agreed that (a) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Class A Certificates to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements)(Exemptions) Order 1996 or who is a person to
whom the document may otherwise lawfully be issued or passed on, (b) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 and other applicable laws and regulations with respect to
anything done by it in relation to the Class A Certificates in, from or
otherwise involving the United Kingdom and (c) if that Underwriter is an
authorized person under the Financial Services Act 1986, it has only promoted
and will only promote (as that term is defined in Regulation 1.02 of the
Financial Services (Promotion of Unregulated Schemes) Regulations 1991) to any
person in the United Kingdom the scheme described herein if that person is of a
kind described either in Section 76(2) of the Financial Services Act
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<PAGE>
1986 or in Regulation 1.04 of the Financial Services (Promotion of Unregulated
Schemes) Regulations 1991.
The Underwriting Agreement provides that the Transferor 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.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may in the future engage in
investment banking or commercial banking transactions with DHCC, the Transferor
and their affiliates.
S-52
<PAGE>
INDEX OF DEFINED TERMS FOR THE PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE(S)
----------------------
<S> <C>
Accounts.................................................................................. S-1
Accumulation Period....................................................................... S-12
Accumulation Period Length................................................................ S-30
Additional Certificates................................................................... S-20, S-45
Additional Interest....................................................................... S-36
Additional Issuance....................................................................... S-45
Adjusted Invested Amount.................................................................. S-34
Adjustment Payment........................................................................ S-36
Amortization Period....................................................................... S-5
Available Final Distribution Amount....................................................... S-50
Available Reserve Account Amount.......................................................... S-43
Available Series 1997-1 Finance Charge Collections........................................ S-14
Available Shared Principal Collections.................................................... S-10
Base Rate................................................................................. S-48
Business Day.............................................................................. S-8
Carryover Class A Interest................................................................ S-36
Carryover Class B Interest................................................................ S-36
Carryover Interest........................................................................ S-36
Cede...................................................................................... S-29
Cedel..................................................................................... A-II-1
Class..................................................................................... S-8
Class A Additional Interest............................................................... S-36
Class A Adjusted Invested Amount.......................................................... S-34
Class A Certificate Rate.................................................................. S-3
Class A Certificateholders................................................................ S-2
Class A Certificateholders' Interest...................................................... S-5
Class A Certificates...................................................................... S-1
Class A Controlled Accumulation Amount.................................................... S-3, S-38
Class A Controlled Deposit Amount......................................................... S-38
Class A Covered Amount.................................................................... S-13
Class A Deficit Controlled Accumulation Amount............................................ S-38
Class A Expected Final Payment Date....................................................... S-2, S-22
Class A Floating Allocation Percentage.................................................... S-9, S-32
Class A Initial Invested Amount........................................................... S-3
Class A Invested Amount................................................................... S-34
Class A Investor Charge-Off............................................................... S-39
Class A Investor Defaulted Amount......................................................... S-39
Class A Monthly Interest.................................................................. S-35
Class A Percentage........................................................................ S-38
Class A Principal......................................................................... S-22, S-37
Class A Principal Allocation Percentage................................................... S-9, S-32
Class A Required Amount................................................................... S-38
Class A Servicing Fee..................................................................... S-49
Class B Additional Interest............................................................... S-36
Class B Certificateholders' Interest...................................................... S-5
Class B Certificates...................................................................... S-1, S-3
Class B Floating Allocation Percentage.................................................... S-9, S-33
</TABLE>
S-53
<PAGE>
<TABLE>
<CAPTION>
PAGE(S)
----------------------
<S> <C>
Class B Initial Invested Amount........................................................... S-32
Class B Invested Amount................................................................... S-32
Class B Investor Charge-Off............................................................... S-39
Class B Investor Defaulted Amount......................................................... S-39
Class B Monthly Interest.................................................................. S-35
Class B Percentage........................................................................ S-49
Class B Principal......................................................................... S-37
Class B Principal Allocation Percentage................................................... S-33
Class B Servicing Fee..................................................................... S-49
Closing Date.............................................................................. S-2, S-3
Collections............................................................................... S-9
Cut-Off Date.............................................................................. S-3
Defaulted Receivables..................................................................... S-6
Defesance................................................................................. S-49
Depositaries.............................................................................. S-29
Depository................................................................................ S-29
DHCC...................................................................................... S-4
Distribution Date......................................................................... S-2, S-3
DTC....................................................................................... S-29, A-II-1
Early Amortization Event.................................................................. S-13, S-46
Early Amortization Period................................................................. S-13
ERISA..................................................................................... S-21
Euroclear................................................................................. A-II-1
Excess Finance Charge Collections......................................................... S-44
Excess Transferor Finance Charge Collections.............................................. S-44
FDIC...................................................................................... S-1
Floating Allocation Percentage............................................................ S-9, S-32
Global Securities......................................................................... A-II-1
Group I................................................................................... S-17
Highest Bid............................................................................... S-50
Initial Invested Amount................................................................... S-3
Insolvency Event.......................................................................... S-46
Interest Payment Date..................................................................... S-3
Interest Period........................................................................... S-30
Invested Amount........................................................................... S-34
Investor Defaulted Amount................................................................. S-36, S-39
Monthly Servicing Fee..................................................................... S-48
Moody's................................................................................... S-21
Offered Certificates...................................................................... S-3
Paired Series............................................................................. S-19, S-45
Participation............................................................................. S-8
Percentage Allocation..................................................................... S-40
Pooling Agreement......................................................................... S-1
Portfolio Yield........................................................................... S-48
Principal Allocation Percentage........................................................... S-10,S-33
Principal Funding Account................................................................. S-42
Principal Funding Investment Proceeds..................................................... S-13, S-42
Principal Funding Investment Shortfall.................................................... S-13
Principal Sharing Series.................................................................. S-40
</TABLE>
S-54
<PAGE>
<TABLE>
<CAPTION>
PAGE(S)
----------------------
<S> <C>
Principal Shortfalls...................................................................... S-43
Rating Agency............................................................................. S-21
Reallocated Class B Principal Collections................................................. S-38
Receivables............................................................................... S-1, S-4
Record Date............................................................................... S-49
Required Amount........................................................................... S-16
Required Reserve Account Amount........................................................... S-42
Required Retained Transferor Amount....................................................... S-7
Required Retained Transferor's Percentage................................................. S-7
Reserve Account........................................................................... S-42
Reserve Account Funding Date.............................................................. S-42
Revolving Period.......................................................................... S-11
RNB Portfolio............................................................................. S-23
Series.................................................................................... S-4
Series Invested Amount.................................................................... S-34
Series 1997-1 Allocation Percentage....................................................... S-40
Series 1997-1 Certificateholders.......................................................... S-2
Series 1997-1 Certificateholders' Interest................................................ S-4
Series 1997-1 Certificates................................................................ S-1, S-3
Series 1997-1 Supplement.................................................................. S-5, S-29
Series 1997-1 Termination Date............................................................ S-20
Series Supplement......................................................................... S-8, S-12
Servicer.................................................................................. S-1
Servicing Fee............................................................................. S-19
Servicing Fee Rate........................................................................ S-19, S-48
Shared Principal Collections.............................................................. S-43
Shared Transferor Principal Collections................................................... S-44
Special Payment Date...................................................................... S-22, S-47, S-47
Standard & Poor's......................................................................... S-21
Supplement................................................................................ S-8
Supplemental Certificates................................................................. S-8
Transferor................................................................................ S-1, S-4
Transferor Amount......................................................................... S-5
Transferor Certificate.................................................................... S-8
Transferor's Interest..................................................................... S-4
Trust..................................................................................... S-1, S-4
Trust Assets.............................................................................. S-4
Trustee................................................................................... S-1, S-4
U.S. Person............................................................................... A-II-4
Underwriters.............................................................................. S-51
Underwriting Agreement.................................................................... S-51
</TABLE>
S-55
<PAGE>
ANNEX I
OTHER SERIES
The Trust has previously issued two other Series that remain outstanding.
The table below sets forth certain characteristics of Series 1995-1 and Series
1996-1. Additional Series are expected to be issued from time to time by the
Trust. For more specific information with respect to any Series, any prospective
investor should contact the Transferor at (612) 370-6530. The Transferor will
provide, without charge, to any prospective purchaser of the Certificates, a
copy of the disclosure documents for any previous publicly issued Series.
SERIES 1995-1
1. CLASS A CERTIFICATES
<TABLE>
<S> <C>
Class A Initial Invested Amount................. $400,000,000
Certificate Rate................................ 6.10%
Class A Controlled Accumulation Amount.......... 33,333,333.34
Commencement of Accumulation Period............. March 1, 1998 (subject to adjustment)
Annual Servicing Fee Rate....................... 2%
Credit Support.................................. Subordination of Series 1995-1 Class B
Certificates
Class A Expected Final Payment Date............. September 25, 1998
Scheduled Series Termination Date............... February 25, 2002
Series Issuance Date............................ September 13, 1995
2. CLASS B CERTIFICATES
Class B Initial Invested Amount................. $122,875,817
Annual Servicing Fee Rate....................... 2%
Series Termination Date......................... February 25, 2002
Series Issuance Date............................ September 13, 1995
SERIES 1996-1 VARIABLE FUNDING CERTIFICATES
Class A Invested Amount as of October 3, 1997... $100,000,000
Class A Maximum Investment Amount............... $100,000,000
Class B Invested Amount as of October 3, 1997... $17,647,059
Certificate Rate................................ Variable
Commencement of Amortization Period............. December 19, 1997 (subject to
adjustment)
Annual Servicing Fee Percentage................. 2%
Scheduled Series Termination Date............... December 25, 2000 (subject to
adjustment)
Series Issuance Date............................ August 28, 1996
</TABLE>
A-I-1
<PAGE>
ANNEX II
GLOBAL CLEARANCE SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Dayton Hudson
Credit Card Master Trust Class A Asset Backed Certificates, Series 1997-1 (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, societe anonyme ("Cedel") or Euroclear. The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and the Euroclear System ("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.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants (as defined in the Prospectus) holding Certificates will be
effected on a delivery-against-payment basis through the respective Depositaries
of Cedel 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 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.
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 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 the
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 issues in
same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants (as defined in the Prospectus) or Euroclear
Participants (as defined in the Prospectus) will be settled using the procedures
applicable to conventional eurobonds in same-day funds.
A-II-1
<PAGE>
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary (as defined in the Prospectus), 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 actual
days elapsed and a 360 day year. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The Global Securities credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Securities will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Cedel or
Euroclear cash debit 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 pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, 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 Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL 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 or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date on the basis of actual days elapsed and a
360 day year. 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
debit in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails),
A-II-2
<PAGE>
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 or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary 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 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 or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue 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
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
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 FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person
A-II-3
<PAGE>
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 the income of
which is includable in gross income for United States tax purposes, regardless
of its source or, for trusts whose taxable years begin after December 31, 1996,
a trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States fiduciaries who have the
authority to control all substantial decisions of the trust. 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.
A-II-4
<PAGE>
DAYTON HUDSON CREDIT CARD MASTER TRUST
ASSET BACKED CERTIFICATES
DAYTON HUDSON RECEIVABLES CORPORATION
TRANSFEROR
RETAILERS NATIONAL BANK
SERVICER
The Asset Backed Certificates (collectively, the "Certificates") described
herein may be sold from time to time in one or more series (each, a "Series"),
in amounts, at prices and on terms to be determined at the time of sale and to
be set forth in a supplement to this Prospectus (a "Prospectus Supplement"). The
Certificates of each Series will represent undivided interests in certain assets
of the Dayton Hudson Credit Card Master Trust (the "Trust") which was created
pursuant to a Pooling and Servicing Agreement (the "Pooling Agreement") between
Dayton Hudson Receivables Corporation as transferor (the "Transferor"),
Retailers National Bank, as servicer (the "Servicer"), and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee"). The property of the
Trust includes receivables (the "Receivables") generated from time to time in a
portfolio of consumer open end credit card accounts (the "Accounts"),
collections thereon, monies on deposit in certain accounts of the Trust, any
Participation Interests (defined herein) included in the Trust, collections
thereon and any Enhancement (defined herein) with respect to any particular
Series or Class as more fully described herein and, with respect to any Series
offered hereby, in the related Prospectus Supplement. The Transferor initially
will also own the remaining undivided interest in the Trust not represented by
the Certificates, any Participation (defined herein) and any other investor
certificates that may be issued by the Trust. The Servicer initially will
service the Receivables.
(CONTINUED ON NEXT PAGE)
------------------------
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF THE TRANSFEROR, DAYTON
HUDSON CAPITAL CORPORATION OR THE SERVICER OR ANY AFFILIATE OF ANY OF
THEM. A CERTIFICATE IS NOT A DEPOSIT AND NONE OF THE CERTIFICATES, THE
UNDERLYING ACCOUNTS OR THE RECEIVABLES ARE INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") 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.
------------------------
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" BEGINNING ON PAGE 23. BENEFIT PLAN INVESTORS SHOULD
CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET FORTH IN "ERISA
CONSIDERATIONS."
---------------------
CERTIFICATES MAY BE SOLD BY THE TRANSFEROR DIRECTLY TO PURCHASERS, THROUGH
AGENTS DESIGNATED FROM TIME TO TIME, THROUGH UNDERWRITING SYNDICATES LED BY ONE
OR MORE MANAGING UNDERWRITERS OR THROUGH ONE OR MORE UNDERWRITERS ACTING ALONE.
IF UNDERWRITERS OR AGENTS ARE INVOLVED IN THE OFFERING OF THE CERTIFICATES OF
ANY SERIES OFFERED HEREBY, THE NAME OF THE MANAGING UNDERWRITER OR UNDERWRITERS
OR AGENTS WILL BE SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. IF AN
UNDERWRITER, AGENT OR DEALER IS INVOLVED IN THE OFFERING OF THE CERTIFICATES OF
ANY SERIES OFFERED HEREBY, THE UNDERWRITER'S DISCOUNT, AGENT'S COMMISSION OR
DEALER'S PURCHASE PRICE WILL BE SET FORTH IN, OR MAY BE CALCULATED FROM, THE
RELATED PROSPECTUS SUPPLEMENT, AND THE NET PROCEEDS TO THE TRANSFEROR FROM SUCH
OFFERING WILL BE THE PUBLIC OFFERING PRICE OF SUCH CERTIFICATES LESS SUCH
DISCOUNT IN THE CASE OF AN UNDERWRITER, THE PURCHASE PRICE OF SUCH CERTIFICATES
LESS SUCH COMMISSION IN THE CASE OF AN AGENT OR THE PURCHASE PRICE OF SUCH
CERTIFICATES IN THE CASE OF A DEALER, AND LESS, IN EACH CASE, THE OTHER EXPENSES
OF THE TRANSFEROR ASSOCIATED WITH THE ISSUANCE AND DISTRIBUTION OF SUCH
CERTIFICATES. ANY UNDERWRITER OF THE CERTIFICATES WILL BE INDEMNIFIED BY THE
TRANSFEROR AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "PLAN OF DISTRIBUTION."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF ANY SERIES OF
CERTIFICATES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS OCTOBER 3, 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Each Series will consist of one or more classes of Certificates (each, a
"Class"), one or more of which may be a Class of fixed rate Certificates,
floating rate Certificates or variable rate Certificates, as specified in the
related Prospectus Supplement. Each Certificate will represent an undivided
interest in the Trust and the interest of the Certificateholders of each Class
or Series will include the right to receive a varying percentage of each month's
collections with respect to the Receivables at the time, in the manner and to
the extent described herein and, with respect to any Series offered hereby, in
the related Prospectus Supplement. Interest and principal payments with respect
to each Series offered hereby will be made as specified in the related
Prospectus Supplement. One or more Classes of a Series offered hereby may be
entitled to the benefits of any cash collateral account or guaranty collateral
invested amount, letter of credit, surety bond, insurance policy, guaranteed
rate agreement, maturity guaranty facility, tax protection agreement, interest
rate swap or cap, spread account, reserve account, the use of cross-support
features or another form of Enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. In addition, any Series offered
hereby may include one or more Classes which are subordinated in right and
priority to payment of principal of, and/or interest on, one or more other
Classes of such Series or another Series, in each case to the extent described
in the related Prospectus Supplement. Each Series of Certificates or Class
thereof offered hereby will be rated in one of the four highest rating
categories by at least one nationally recognized statistical rating
organization.
While the specific terms of any Series in respect of which this Prospectus is
being delivered will be described in the related Prospectus Supplement, the
terms of such Series will not be subject to prior review by, or consent of, the
holders of the Certificates of any previously issued Series.
2
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series to be offered thereby and
hereby will, among other things, set forth with respect to such Series: (a) the
initial aggregate principal amount of each Class of such Series; (b) the
interest rate (or method for determining it) of each Class of such Series; (c)
certain information concerning the Receivables allocated for such Series; (d)
the expected date or dates on which the principal amount of the Certificates
will be paid to holders of the Certificates (the "Certificateholders"); (e) the
extent to which any Class within a Series is subordinated to any other Class of
such Series or any other Series; (f) the identity of each Class of floating rate
Certificates and fixed rate Certificates included in such Series, if any, or
other type of Class of Certificates; (g) the Distribution Dates for the
respective Classes; (h) relevant financial information with respect to the
Receivables; (i) additional information with respect to any Enhancement relating
to such Series; and (j) the plan of distribution of such Series.
AVAILABLE INFORMATION
This Prospectus, which forms a part of the Registration Statement, omits
certain information contained in such Registration Statement pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"Commission"). For further information, reference is made to the Registration
Statement (including any amendments thereof and exhibits thereto) and any
reports and other documents incorporated herein by reference as described below
under "Incorporation of Certain Documents by Reference," 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, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site at "http://www.sec.gov" that contains information regarding
registrants that file electronically with the Commission.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as defined herein) are issued,
monthly and annual reports, which contain unaudited information concerning the
Trust and which are 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 related Certificates, pursuant to the Pooling
Agreement. See "Description of the Certificates--Book-Entry Registration" and
"--Reports to Certificateholders" and "The Pooling and Servicing
Agreement--Evidence as to Compliance." Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. The Pooling Agreement will not require the sending of, and the
Transferor does not intend to send, any of its financial reports to registered
holders of Certificates or to owners of beneficial interests in the Certificates
("Certificate Owners"). The Transferor 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 Transferor may suspend the filing
of such periodic reports to the extent such filings are no longer required of
the Transferor under the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Transferor, 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 offered hereby shall be deemed to be incorporated
by reference into this Prospectus and to be part hereof. Any statement contained
herein or in a document 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 in any other subsequently filed document which
also 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 modified or superseded, to constitute a part of this
Prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT. REFERENCE IS MADE TO THE "INDEX OF DEFINED TERMS FOR THE
PROSPECTUS" FOR THE LOCATION OF THE DEFINITIONS OF CERTAIN CAPITALIZED TERMS
USED HEREIN AND TO THE "INDEX OF TERMS FOR THE PROSPECTUS SUPPLEMENT" FOR THE
TERMS USED THEREIN. UNLESS THE CONTEXT REQUIRES OTHERWISE, CAPITALIZED TERMS
USED IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT REFER ONLY TO
THE PARTICULAR SERIES BEING OFFERED BY SUCH PROSPECTUS SUPPLEMENT.
<TABLE>
<S> <C>
Type of Securities................ Asset Backed Certificates (the "Certificates")
evidencing an undivided interest in the assets of the
Dayton Hudson Credit Card Master Trust may be issued
from time to time in one or more Series (each, a
"Series") which will consist of one or more classes of
Certificates (each, a "Class").
The Trust......................... Dayton Hudson Credit Card Master Trust (the "Trust") was
formed pursuant to a pooling and servicing agreement,
dated as of September 13, 1995, (as amended, the
"Pooling Agreement") among Dayton Hudson Receivables
Corporation, as Transferor (the "Transferor"), Retailers
National Bank, as servicer of the Receivables (the
"Servicer"), and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"). The Trust was
created as a master trust under which one or more Series
could be issued pursuant to series supplements to the
Pooling Agreement (each, a "Series Supplement"). Any
Series issued by the Trust may or may not be a Series
offered pursuant to this Prospectus. Each Prospectus
Supplement will identify all then outstanding Series
previously issued by the Trust.
The Trust Assets.................. The assets of the Trust (the "Trust Assets") include and
will include a portfolio of receivables (the
"Receivables") arising under the Accounts from time to
time, funds collected or to be collected from
Cardholders in respect of the Receivables, monies on
deposit in certain accounts of the Trust, any
Participation Interests included in the Trust, funds
collected or to be collected with respect to such
Participation Interests and any Enhancement with respect
to a particular Series or Class. The term "Enhancement"
means, with respect to any Series or Class of
Certificates, any letter of credit, cash collateral
account or guaranty, collateral invested amount, surety
bond, insurance, spread account, reserve account,
guaranteed rate agreement, maturity guaranty facility,
tax protection agreement, interest rate swap or cap or
other contract or agreement for the benefit of
certificateholders of such Series. Enhancement may also
take the form of subordination of one or more Classes of
a Series to any other Class or Classes of a Series or a
cross-support feature which requires collections on
Receivables of one Series to be paid as principal and/or
interest with respect to another Series. The Trust
Assets are expected to change over the life of the Trust
as receivables in consumer open end credit card accounts
and other open end credit accounts and related assets
are included in the Trust and as Receivables in Accounts
included in the Trust are charged-off or removed. See
"The Trust," "The
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Pooling and Servicing Agreement--Addition of Trust
Assets" and "--Removal of Accounts."
The Transferor.................... Dayton Hudson Receivables Corporation (the
"Transferor"), a corporation organized under the laws of
the State of Minnesota and a special purpose subsidiary
of Dayton Hudson Capital Corporation ("DHCC"), is the
Transferor of the Receivables and originator of the
Trust.
The Servicer...................... Retailers National Bank ("RNB"), a wholly-owned
subsidiary of Dayton Hudson Corporation ("Dayton
Hudson"), is a national banking association that is a
"credit card bank" under the Bank Holding Company Act.
The executive offices of RNB are located at 3901 West
53rd Street, Sioux Falls, South Dakota, telephone number
(605) 362-2000. The Servicer will receive a fee as
servicing compensation from the Trust in respect of each
Series in the amounts and at the times specified in the
related Prospectus Supplement (the "Servicing Fee"). In
certain limited circumstances, RNB may resign or be
removed as Servicer, in which event the Trustee or a
third party servicer may be appointed as successor
servicer (RNB, or any such successor servicer, is
referred to herein as the "Servicer"). See "Retailers
National Bank."
The Trustee....................... Norwest Bank Minnesota, National Association in its
capacity as trustee under the Pooling Agreement.
The Accounts...................... The Accounts which generate the Receivables held by the
Trust consisted initially of the total pool of consumer
open end credit card accounts originated by RNB from
time to time that allow consumers using credit cards
issued by RNB to purchase merchandise and services at
the Dayton Hudson Stores. The Accounts may also include
consumer open end credit card accounts originated by
transferees, successors or assigns of RNB or any other
originator of accounts (a "Credit Card Originator"). The
Accounts have been designated to the Trust and satisfy
the criteria set forth in the Pooling Agreement for
Eligible Accounts. RNB sold to DHCC, DHCC sold to the
Transferor, and the Transferor transferred to the Trust,
all Receivables existing and thereafter created in the
Accounts designated on June 30, 1995 (the "Cut-Off
Date") and in any Accounts thereafter designated to the
Trust in accordance with the Pooling Agreement. For a
definition of Eligible Accounts, see "The Pooling and
Servicing Agreement--Representations and Warranties."
The Accounts are not being sold or transferred to the
Trust and will continue to be controlled and initially
held by RNB (or an affiliate thereof). RNB has agreed in
the Bank Receivables Purchase Agreement not to assign or
transfer the Accounts or assign its obligations under
the Bank Receivables Purchase Agreement in whole or in
part except to an entity that assumes with respect to an
Account that is so assigned all of RNB's obligations
under the Bank Receivables Purchase Agreement
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and RNB's obligations as Servicer under the Pooling
Agreement. Any such assumption is subject to
satisfaction of certain conditions, including that such
assumption will not cause a Ratings Effect. Any transfer
of Accounts in compliance with the foregoing
restrictions is not expected to have a material adverse
effect on the Class A Certificateholders. See "The RNB
Credit Card Business" and "The Receivables Purchase
Agreements--Transfer of Accounts and Assumption of
RNB's, DHCC's and the Transferor's Obligations."
DHCC entered into a receivables purchase agreement,
dated as of September 13, 1995, with RNB, as seller (the
"Bank Receivables Purchase Agreement"), and may enter
into similar agreements with affiliates of RNB and other
Credit Card Originators. Pursuant to the Bank
Receivables Purchase Agreement, RNB sold to DHCC certain
designated Receivables existing on the Cut-Off Date, and
will from time to time sell to DHCC all of its right,
title and interest in the Receivables arising in the
Accounts whether such Receivables are then existing or
thereafter created. In addition, RNB and any such
affiliate entering into the Bank Receivables Purchase
Agreement are obligated to sell to DHCC certain other
receivables arising in Supplemental Accounts designated
by DHCC from time to time. See "The Receivables Purchase
Agreements."
The Transferor entered into a receivables purchase
agreement, dated as of September 13, 1995, with DHCC, as
seller (the "Receivables Purchase Agreement" and
together with the Bank Receivables Purchase Agreement,
the "Purchase Agreements"), and may enter into similar
agreements with affiliates of DHCC and other Credit Card
Originators. Pursuant to the Receivables Purchase
Agreement, DHCC sold to the Transferor certain
designated Receivables existing on the Cut-Off Date, and
will from time to time sell to the Transferor all of its
right, title and interest in the Receivables arising in
the Accounts whether such Receivables were then existing
or thereafter created. In addition, DHCC and any such
affiliate entering into the Receivables Purchase
Agreement are obligated to sell to the Transferor
certain other receivables arising in Supplemental
Accounts designated by the Transferor from time to time.
See "The Receivables Purchase Agreements."
The Transferor entered into a pooling and servicing
agreement, dated as of September 13, 1995, with the
Trustee and the Servicer (the "Pooling Agreement").
Pursuant to the Pooling Agreement, the Transferor
transferred to the Trust the initial Receivables, and
will transfer from time to time, all additional
Receivables arising in the Accounts and in all accounts
of RNB and each additional Credit Card Originator
created (i) after the Cut Off Date and prior to the
earlier of the Automatic Addition Termination Date or an
Automatic Addition Suspension Date and (ii) following an
Automatic Addition Suspension Date and after a Restart
Date, and prior to a subsequent Automatic
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Addition Suspension Date or the Automatic Addition
Termination Date; PROVIDED HOWEVER with respect to any
accounts initially originated by parties other than RNB,
such accounts shall be deemed to be Automatic Additional
Accounts only if such action will not cause a Ratings
Effect (the "Automatic Additional Accounts") (until any
such Account becomes a Removed Account (as defined
herein) or the termination of the Trust). See "The
Pooling and Servicing Agreement." The Transferor may at
its option or, if certain tests set forth in the Pooling
Agreement with respect to the Receivables are not met,
will be obligated to, cease transferring Receivables in
Automatic Additional Accounts to the Trust until such
tests are met and the Transferor elects to recommence
transferring Receivables in Automatic Additional
Accounts to the Trust. See "The Pooling and Servicing
Agreement--Addition of Trust Assets."
Pursuant to the Pooling Agreement, after the date on
which the Transferor ceases to transfer Receivables in
Automatic Additional Accounts to the Trust (the
"Automatic Addition Termination Date") or suspends such
transfer (an "Automatic Addition Suspension Date"), the
Transferor expects (subject to certain limitations and
conditions), and in some circumstances will be
obligated, to designate additional Accounts (the
"Supplemental Accounts", and collectively with the
Automatic Additional Accounts, the "Additional
Accounts") meeting the same eligibility criteria as the
initial Accounts and the Automatic Additional Accounts,
the Receivables of which will be included in the Trust
or, in lieu thereof or in addition thereto, to include
Participation Interests in the Trust. The Transferor
will convey to the Trust all Receivables in Additional
Accounts, whether such Receivables are then existing or
thereafter created. The Transferor will also have the
right, subject to the satisfaction of certain
conditions, to remove from the Trust all Receivables of
certain Accounts, in which case no further Receivables
arising under such Accounts will be transferred to the
Trust (the "Removed Accounts"). The Transferor may
remove Accounts only if such removal would not cause an
Early Amortization Event to occur, no selection
procedure is utilized by the Transferor that would
result in a selection of Removed Accounts from among any
pool of Accounts of a similar type or Participation
Interests that would be materially adverse to the
interests of the Certificateholders of any Series as of
the Removal Date, and such removal will not cause a
Ratings Effect. See "The Pooling and Servicing
Agreement--Addition of Trust Assets" and "--Removal of
Accounts."
The Receivables................... The Receivables consist of amounts charged by the
holders of the RNB credit cards (each, a "Cardholder")
for merchandise and services (such amounts, minus the
amount of Discount Option Receivables, if any, the
"Principal Receivables") and all related periodic
finance charges billed, which have not previously been
paid on the Accounts and certain fees and
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charges, including deferred billing fees and merchant
fees. The Transferor may designate a percentage of
Receivables that would otherwise be Principal
Receivables, to be treated as Finance Charge
Receivables, and as a result increase the amount of
collections of Finance Charge Receivables available for
certain payments to the Certificateholders. Receivables
in an amount equal to the product of the Discount
Percentage (initially 0% but which may be increased to a
percentage not to exceed 3%) and amounts charged by
Cardholders for merchandise and services (the "Discount
Option Receivables") will be treated as Finance Charge
Receivables (Discount Option Receivables, together with
the periodic finance charges, certain fees and charges,
including deferred billing fees and merchant fees and
all other amounts billed in respect of Receivables that
are not Eligible Receivables, the "Finance Charge
Receivables"). The amount of Receivables will fluctuate
from day to day as new Receivables are generated and
sold by RNB to DHCC and then sold by DHCC to the
Transferor and transferred by the Transferor to the
Trust, and as existing Receivables are collected,
charged-off as uncollectible or otherwise adjusted or
removed.
The aggregate undivided interest in the Principal
Receivables in the Trust evidenced by the Certificates
will never exceed the aggregate Invested Amount
regardless of the total amount of Principal Receivables
in the Trust at any time.
Securities Offered................ Each Series of the Certificates will represent an
undivided interest in the assets of the Trust. Each
Certificate of a Series will represent the right to
receive payments of (i) interest at the specified rate
or rates per annum (each, a "Certificate Rate"), which
may be fixed, floating or variable and (ii) payments of
principal during the Controlled Amortization Period,
Principal Amortization Period, Accumulation Period,
Variable Accumulation Period, Rapid Accumulation Period,
Early Amortization Period or other type of amortization
period (each, an "Amortization Period"), all to the
extent specified in the related Prospectus Supplement.
Each Series of Certificates will consist of one or more
Classes, one or more of which may be senior Certificates
("Senior Certificates") and one or more of which may be
subordinated Certificates ("Subordinated Certificates").
Each Class of a Series may evidence the right to receive
a specified portion of each distribution of principal or
interest or both. The Certificates of a Class may also
differ from Certificates of other Classes of the same
Series in, among other things, the amounts allocated to
principal payments, priority of payments, payment dates,
maturity, interest rate computation, and availability
and form of Enhancement.
The assets of the Trust will be allocated among the
Certificateholders of each Series (the
"Certificateholders'
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Interest"), the holder of the Transferor Certificate and
its permitted transferees (the "Transferor's Interest"),
the holders of any Participations and, in certain
circumstances, Enhancement Providers. The aggregate
principal amount of the Certificateholders' Interest of
a Series is referred to herein as the "Invested Amount"
and is based on the aggregate amount of the Principal
Receivables in the Trust, amounts on deposit in the
Special Funding Account and other Trust Assets allocated
to such Series. The aggregate principal amount of the
Transferor's Interest is referred to herein as the
"Transferor Amount" and is based on the aggregate amount
of Principal Receivables in the Trust, amounts on
deposit in the Special Funding Account and other Trust
Assets not allocated to the Certificateholders, the
holders of any Participations or any Enhancement
Provider. The Finance Charge Receivables and Discount
Option Receivables, if any, will therefore not affect
the amount of the Invested Amount or the Transferor
Amount. See "Description of the Certificates--General."
The Certificateholders of each Series will have the
right to receive (but only to the extent needed to make
required payments under the Pooling Agreement and
related Series Supplement and subject to any
reallocation of such amounts if the related Series
Supplement so provides) varying percentages of the
collections of Finance Charge Receivables and Principal
Receivables for each month and will be allocated a
varying percentage of the amount of Receivables in
Accounts which are written off as uncollectible
("Defaulted Accounts") for such month (each such
percentage, an "Investor Percentage"). The related
Prospectus Supplement will specify the Investor
Percentages with respect to the allocation of
Collections of Principal Receivables, Finance Charge
Receivables and Receivables in Defaulted Accounts during
the Revolving Period and any Amortization Period. If the
Certificates of a Series offered hereby include more
than one Class of Certificates, the assets of the Trust
allocable to the Certificates of such Series may be
further allocated among each Class in such Series as
described in the related Prospectus Supplement.
The Certificates represent interests in the Trust only
and do not represent interests in or recourse
obligations of the Transferor, DHCC or the Servicer or
any affiliates of any of them. A Certificate is not a
deposit and none of the Certificates, the Accounts, or
the Receivables is insured or guaranteed by the Federal
Deposit Insurance Corporation (the "FDIC") or any other
governmental agency.
The Transferor's Interest......... The Transferor's Interest at any time represents the
right of the Transferor to the Trust Assets in excess of
the Certificateholders' Interest, the interest of any
holder of a Participation and the rights of any
Enhancement Provider. The Transferor Amount will
fluctuate as the amount of the Principal Receivables
held by
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the Trust and the amounts on deposit in the Special
Funding Account change from time to time. In addition,
the Transferor may cause the issuance of additional
Series from time to time and any such issuance will have
the effect of decreasing the Transferor's Interest to
the extent of the Invested Amount of such Series. The
Transferor Amount (excluding the interest represented by
any Supplemental Certificate) is required to be
maintained at a level not less than the Required
Retained Transferor Amount. "Required Retained
Transferor Amount" means the product of (i) the sum of
(a) the aggregate Principal Receivables and (b) the
amounts on deposit in the Special Funding Account and
any other accounts specified in the related Prospectus
Supplement, and (ii) the Required Retained Transferor's
Percentage. The "Required Retained Transferor's
Percentage" means the highest of the required retained
transferor's percentages specified with respect to each
Series outstanding. See "Description of the
Certificates--New Issuances." The Transferor's Interest
may not be transferred, except through the issuance of a
Supplemental Certificate or as otherwise provided in
accordance with the terms of the Pooling Agreement. See
"Description of the Certificates--The Transferor
Certificate."
The Pooling Agreement provides that the Transferor will
be required to make an Addition to the Trust if the
Transferor Amount (excluding the interest represented by
any Supplemental Certificate) is less than the Required
Retained Transferor Amount on the last Business Day of
any Monthly Period.
In addition, the Transferor may retain upon initial
issuance an entire class of certificates or a portion
thereof or may purchase Certificates originally sold to
investors. If any such class is a subordinated class it
may provide credit enhancement for any more senior
classes.
The Transferor's Interest is intended to absorb
fluctuations in the amount of Principal Receivables held
by the Trust from time to time, which fluctuations may
be due to, among other things, seasonal purchase habits,
changes in the payment practices of Cardholders or
adjustments in the amount of Principal Receivables
because of rebates, refunds, fraudulent charges or
otherwise. See "Risk Factors--Payment and Maturity
Considerations; Dependency on Cardholder Repayments" and
"Description of the Certificates--Defaulted
Receivables."
New Issuances..................... The Pooling Agreement provides that the Trustee will
issue three types of interests in the Trust: (i) one or
more Series of Certificates that will be transferable
and have the characteristics described below, (ii)
Participations representing participation interests in
the Receivables, as described below and (iii) a
certificate that evidences the Transferor's Interest,
which is to be held by the Transferor, initially, and
certificates (the
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"Supplemental Certificates") to be held by transferees
of a portion of the certificate evidencing the
Transferor's Interest in the Trust. The certificate
evidencing the Transferor's Interest in the Trust is
referred to as the "Transferor Certificate." The Pooling
Agreement provides that, pursuant to any one or more
Series Supplements, the Transferor may cause the
Trustee, without the consent of the holders of any
existing Series of Certificates, to issue one or more
new Series of Certificates. Each such additional Series
may contain one or more classes (each, a "Class"). Each
such Series will be offered pursuant to a separate
prospectus or other offering document describing the
material terms of the Certificates of such Series. The
issuance of a Series of Certificates will cause a
reduction in the Transferor's Interest represented by
the Transferor Certificate. However, at all times, the
interest in the Trust Assets represented by the portion
of the Transferor Amount held by the Transferor
(excluding the interest represented by any Supplemental
Certificate) must equal or exceed the Required Retained
Transferor Amount. There can be no assurance that the
terms of any Series, including any Series issued from
time to time hereafter, might not have an impact on the
timing or amount of payments received by the
Certificateholders of any other Series. Under the
Pooling Agreement, the Transferor may define, with
respect to any Series, the Principal Terms of any Series
to be issued. The Transferor may offer any Series to the
public or other investors under a prospectus or other
disclosure document (a "Disclosure Document") in
transactions either registered under the Securities Act
of 1933 (the "Securities Act") or exempt from
registration thereunder, directly or through the
Underwriters (as defined in the related Prospectus
Supplement) or one or more other underwriters or
placement agents, in fixed-price offerings or in
negotiated transactions or otherwise. The Transferor
intends to offer, from time to time, additional Series
issued by the Trust.
The Pooling Agreement provides that, pursuant to any one
or more supplements to the Pooling Agreement (each, a
"Participation Supplement"), the Transferor may direct
the Trustee to issue on behalf of the Trust one or more
participations (each, a "Participation"), to be
delivered to or upon the order of the Transferor upon
the satisfaction of certain conditions described herein
under "Description of the Certificates--New Issuances."
Denominations..................... Unless otherwise specified in the related Prospectus
Supplement, beneficial interests in the Certificates
will be offered for purchase in denominations of $1,000
and integral multiples thereof. See "Description of the
Certificates-- General."
Registration of Certificates...... Unless otherwise specified in the related Prospectus
Supplement, the Certificates of each Series initially
will be represented by Certificates registered in the
name of Cede, as
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the nominee of DTC. No Certificate Owner will be
entitled to receive a definitive certificate
representing such person's interest, except in the event
that Definitive Certificates (as defined herein) are
issued under the limited circumstances described herein.
See "Description of the Certificates-- Definitive
Certificates."
Clearance and Settlement.......... Unless otherwise provided in the related Prospectus
Supplement, Certificate Owners of each Series offered
hereby may elect to hold their Certificates through any
of DTC (in the United States) or Cedel or Euroclear (in
Europe). Transfers within DTC, Cedel or Euroclear, as
the case may be, will be made in accordance with the
usual rules and operating procedures of the relevant
system. Cross-market transfers between persons holding
directly or indirectly through DTC in the United States,
on the one hand, and counterparties holding directly or
indirectly through Cedel or Euroclear, on the other,
will be effected in DTC through the relevant
Depositaries of Cedel or Euroclear. See "Description of
the Certificates--Book-Entry Registration."
Collections....................... All collections of Receivables ("Collections") will be
allocated by the Servicer between amounts collected on
Principal Receivables and amounts collected on Finance
Charge Receivables. The Servicer will allocate between
the Certificateholders' Interest of each Series, the
Transferor's Interest and any Participation (a) all
amounts collected with respect to Finance Charge
Receivables and Principal Receivables with respect to
each day during each Monthly Period and (b) the
Defaulted Amount on each Distribution Date, as specified
in the related Prospectus Supplement. Recoveries will be
treated as collections of Principal Receivables. All
such amounts will be allocated in accordance with the
respective interests of the Certificateholders of each
Series or Class, the holder of the Transferor
Certificate and the holder of any Participation.
Interest.......................... Interest on each Series of Certificates or Class thereof
for each interest accrual period (each, an "Interest
Period") specified in the related Prospectus Supplement
will be paid in the amounts and on the dates (which may
be monthly, quarterly, semiannually or otherwise as
specified in the related Prospectus Supplement) (each, a
"Distribution Date") specified in the related Prospectus
Supplement. Interest payments on each Distribution Date
will generally be funded from the Collections of Finance
Charge Receivables allocated to the Certificateholders'
Interest during the preceding fiscal month of the
Transferor (each, a "Monthly Period") or other period of
time, as described in the related Prospectus Supplement,
and may be funded from certain investment earnings on
funds in certain accounts of the Trust, from any
applicable Enhancement or from other sources specified
in the related Prospectus Supplement. If the
Distribution Dates for payment of interest
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for a Series or Class occur less frequently than
monthly, such Collections or other amounts allocable to
such Series or Class may be deposited in one or more
trust accounts pending payment to the Certificateholders
of such Series or Class, all as described in the related
Prospectus Supplement. See "Risk Factors--Enhancement,"
"Description of the Certificates-- Interest" and
"Enhancement."
Revolving Period.................. Unless otherwise specified in the related Prospectus
Supplement, with respect to each Series and any Class
thereof no principal will be payable to
Certificateholders until the Principal Commencement Date
or the Expected Final Payment Date with respect to such
Series or Class. For the period beginning on the date of
issuance of the related Series (the "Closing Date") and
ending with the commencement of an Amortization Period
(the "Revolving Period"), collections of Principal
Receivables otherwise allocable to the
Certificateholders' Interest will, subject to certain
limitations, be paid from the Trust to the holder of the
Transferor Certificate or, under certain circumstances
and if so specified in the related Prospectus
Supplement, may be treated as Shared Principal
Collections and paid to the holders of other Series of
Certificates issued by the Trust, as described herein
and in the related Prospectus Supplement. See
"Description of the Certificates--Early Amortization
Events" herein for a discussion of the events which
might lead to early termination of the Revolving Period.
Principal Payments................ The principal of the Certificates of each Series offered
hereby will be scheduled to be paid either (i) in
installments commencing on a date specified in the
related Prospectus Supplement (the "Principal
Commencement Date"), in which case such Series will have
either a Controlled Amortization Period, a Principal
Amortization Period or a Rapid Accumulation Period, as
described below, or (ii) on an expected date specified
in the related Prospectus Supplement (the "Expected
Final Payment Date"), in which case such Series will
have an Accumulation Period, as described below. If a
Series has more than one Class of Certificates, a
different method of paying principal, a Principal
Commencement Date or an Expected Final Payment Date may
be assigned to each Class. The payment of principal with
respect to the Certificates of a Series or Class may
commence earlier than the applicable Principal
Commencement Date or Expected Final Payment Date, and
the final principal payment with respect to the
Certificates of a Series or Class may be made later than
the applicable expected payment date, Expected Final
Payment Date or other expected date, if an Early
Amortization Event (as defined in the related Prospectus
Supplement) occurs and the Early Amortization Period or,
if so specified in the related Prospectus Supplement, a
Rapid Accumulation Period, commences with respect to
such Series or Class or under certain
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other circumstances described herein or in the related
Prospectus Supplement. See "Description of the
Certificates-- Principal."
Controlled Amortization Period.... If the Prospectus Supplement relating to a Series so
specifies, unless an Early Amortization Period with
respect to such Series commences, the Certificates of
such Series or any Class thereof will have an
amortization period (the "Controlled Amortization
Period") during which collections of Principal
Receivables allocable to the Certificateholders'
Interest of such Series (and certain other amounts if so
specified in the related Prospectus Supplement) will be
used on each Distribution Date to make principal
distributions in scheduled amounts to the
Certificateholders of such Series or any Class of such
Series then scheduled to receive such distributions. The
amount to be distributed on any Distribution Date during
the Controlled Amortization Period will be limited to an
amount (the "Controlled Distribution Amount") equal to
an amount specified in the related Prospectus Supplement
(the "Controlled Amortization Amount") plus any existing
shortfalls arising from the failure to pay the
Controlled Amortization Amount on any prior Distribution
Dates. If a Series has more than one Class of
Certificates, each Class may have a separate Controlled
Amortization Amount. In addition, the related Prospectus
Supplement may describe certain priorities among such
Classes with respect to such distributions. The
Controlled Amortization Period will commence at the
close of business on the Principal Commencement Date and
continue until the earliest of (a) the commencement of
the Early Amortization Period, (b) payment in full of
the Invested Amount of the Certificates of such Series
or Class and (c) the final date on which principal and
interest with respect to the related Series of
Certificates is scheduled to be distributed as specified
in the related Prospectus Supplement (each such date a
"Series Termination Date"). See "Description of the
Certificates--Principal."
Principal Amortization Period..... If the Prospectus Supplement relating to a Series so
specifies, unless an Early Amortization Period with
respect to such Series commences, the Certificates of
such Series or any Class thereof will have an
amortization period (the "Principal Amortization
Period") during which collections of Principal
Receivables allocable to the Invested Amount of such
Series (and certain other amounts if so specified in the
related Prospectus Supplement) will be used on each
Distribution Date to make principal distributions to the
Certificateholders of such Series or any Class of such
Series then scheduled to receive such distributions. If
a Series has more than one Class of Certificates, the
related Prospectus Supplement may describe certain
priorities among such Classes with respect to such
distributions. The Principal Amortization Period will
commence at the close of business on the Principal
Commencement Date and continue until the earlier of (a)
the commencement of the Early
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Amortization Period, (b) payment in full of the Invested
Amount of the Certificates of such Series or Class and
(c) the Series Termination Date with respect to such
Series. See "Description of the
Certificates--Principal."
Accumulation Period............... If the Prospectus Supplement relating to a Series so
specifies, unless an Early Amortization Period with
respect to such Series commences or, if so specified in
the related Prospectus Supplement, a Rapid Accumulation
Period, the Certificates of such Series or any Class
thereof will have an accumulation period (the
"Accumulation Period") during which collections of
Principal Receivables allocable to the
Certificateholders' Interest of such Series (and certain
other amounts if so specified in the related Prospectus
Supplement) will be deposited on each Distribution Date
in a trust account established for the benefit of the
Certificateholders of such Series or Class (a "Principal
Funding Account") and used to make distributions of
principal to the Certificateholders of such Series or
Class on the Expected Final Payment Date. The amount to
be deposited in the Principal Funding Account on any
date will be limited to an amount (the "Controlled
Deposit Amount") equal to an amount specified in the
related Prospectus Supplement (the "Controlled
Accumulation Amount") plus the amount of any shortfalls
arising from the failure to pay the Controlled Deposit
Amount on any prior Distribution Dates. If a Series has
more than one Class of Certificates, each Class may have
a separate Principal Funding Account and Controlled
Accumulation Amount. In addition, the related Prospectus
Supplement may describe certain priorities among such
Classes with respect to deposits of principal into such
Principal Funding Accounts. The Accumulation Period will
commence at the close of business on a date specified in
the related Prospectus Supplement and continue until the
earliest of (a) the commencement of the Early
Amortization Period or, if so specified in the related
Prospectus Supplement, a Rapid Accumulation Period, (b)
payment in full of the Invested Amount of the
Certificates of such Series or Class and (c) the Series
Termination Date with respect to such Series. If so
specified in the related Prospectus Supplement, upon
written notice to the Trustee, the Servicer may elect to
postpone the commencement of the Accumulation Period and
extend the length of the Revolving Period, subject to
the satisfaction of certain conditions.
Funds on deposit in any Principal Funding Account may be
invested in Eligible Investments or subject to a
guaranteed rate or investment agreement or other
arrangement intended to assure a specified return on the
investment of such funds. Investment earnings on such
funds may be applied to pay interest on the related
Series of Certificates. In order to enhance the
likelihood of payment in full of principal at the end of
an Accumulation Period with respect to a Series of
Certificates, such Series may be subject to a principal
guaranty or other
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similar arrangement. See "Description of the
Certificates-- Principal."
Rapid Accumulation Period......... If so specified and under the conditions set forth in
the Prospectus Supplement relating to a Series having an
Accumulation Period, during the period from the day on
which an Early Amortization Event has occurred until the
earliest of (a) the commencement of the Early
Amortization Period, (b) payment in full of the Investor
Interest of the Certificates of such Series and, if so
specified in the related Prospectus Supplement, of the
Collateral Invested Amount, if any, with respect to such
Series and (c) the related Series Termination Date (the
"Rapid Accumulation Period"), collections of Principal
Receivables allocable to the Investor Interest of such
Series (and certain other amounts if so specified in the
related Prospectus Supplement) will be deposited on the
Business Day immediately preceding each Distribution
Date (each, a "Transfer Date") in the Principal Funding
Account and used to make distributions of principal to
the Certificateholders of such Series or Class on the
Expected Final Payment Date. The amount to be deposited
in the Principal Funding Account during the Rapid
Accumulation Period will not be limited to the
Controlled Deposit Amount.
During the Rapid Accumulation Period, funds on deposit
in any Principal Funding Account may be invested in
permitted investments or subject to a guaranteed rate or
investment contract or other arrangement intended to
assure a specified return on the investment of such
funds. Investment earnings on such funds may be applied
to pay interest on the related Series of Certificates or
make other payments as specified in the related
Prospectus Supplement. In order to enhance the
likelihood of payment in full of principal at the end of
the Rapid Accumulation Period with respect to a Series
of Certificates, such Series or any Class thereof may
have the benefit of a principal payment guaranty or
other similar arrangement which would provide for the
final payment of the Certificates of such Series from a
source other than Collections of Principal Receivables
such as a bank guaranty or surety bond.
Early Amortization Period......... During the period from the day on which an Early
Amortization Event has occurred with respect to a Series
and, if so specified in the related Prospectus
Supplement, any other specified event has occurred, to
the earliest of the date on which the Invested Amount of
the Certificates of such Series has been paid in full or
the related Series Termination Date (the "Early
Amortization Period"), unless otherwise specified in the
related Prospectus Supplement, collections of Principal
Receivables allocable to the Certificateholders'
Interest (and amounts on deposit in any Pre-Funding
Account, if so specified in the related Prospectus
Supplement) will be distributed as principal payments to
the Certificateholders of such Series on each
Distribution Date with respect to such Series in the
manner and order of priority set
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forth in the related Series Supplement. During the Early
Amortization Period with respect to a Series,
distributions of principal to Certificateholders of such
Series will not be limited by any Controlled
Distribution Amount or Controlled Deposit Amount. In
addition, upon the commencement of the Early
Amortization Period with respect to a Series, unless
otherwise specified in the related Prospectus
Supplement, any funds on deposit in a Principal Funding
Account with respect to such Series or any Class thereof
or in the Special Funding Account and allocated to such
Series or Class will be paid to the Certificateholders
of such Series or Class on the first Distribution Date
in the Early Amortization Period. An "Early Amortization
Event" with respect to each Series would occur
automatically upon (a) certain insolvency events
relating to RNB, DHCC, the Transferor or any holder of
the Transferor Certificate (excluding any holder of a
Supplemental Certificate), (b) the Trust becoming an
"investment company" within the meaning of the
Investment Company Act of 1940, as amended, (c) the
Transferor Amount (excluding the interest represented by
any Supplemental Certificate) being less than the
Required Retained Transferor Amount or (d) the
Transferor becoming unable for any reason to transfer
Receivables to the Trust. Additional Early Amortization
Events may be specified in the Prospectus Supplement for
any Series. See "Description of the Certificates--Early
Amortization Events" herein and "Description of the
Class A Certificates--Early Amortization Events" in the
related Prospectus Supplement.
Sharing of Excess Finance Charge
Collections and Excess
Transferor Finance Charge
Collections..................... If so specified in the related Prospectus Supplement,
Excess Finance Charge Collections with respect to a
Series or Class may be used to cover any shortfalls with
respect to amounts payable from collections of Finance
Charge Receivables allocable to another Series or Class
of Certificates. Unless otherwise provided in the
related Prospectus Supplement, with respect to any
Series, "Excess Finance Charge Collections" for any
Monthly Period will equal the excess of Collections of
Finance Charge Receivables and certain other amounts
allocated to the Certificateholders' Interest of such
Series or Class over the sum of (i) interest accrued for
the current month ("Monthly Interest") and overdue
Monthly Interest on the Certificates of such Series or
Class, (ii) accrued and unpaid Monthly Servicing Fees
with respect to such Series or Class, (iii) the Investor
Defaulted Amount (as defined in the related Prospectus
Supplement) with respect to such Series or Class, (iv)
unreimbursed Investor Charge-Offs (as defined in the
related Prospectus Supplement) with respect to such
Series or Class and (v) other amounts specified in the
related Prospectus Supplement. In addition, if so
specified in the related Prospectus Supplement,
Collections of Finance Charge Receivables
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otherwise payable to the Transferor may be designated to
be paid to the Certificateholders of the applicable
Series. See "Description of the Certificates--Sharing of
Excess Finance Charge Collections and Excess Transferor
Finance Charge Collections" and "--Defaulted
Receivables" herein.
Shared Principal Collections and
Tranferor Principal
Collections..................... If so specified in the related Prospectus Supplement, to
the extent that Collections of Principal Receivables and
certain other amounts that are allocated to the
Certificateholders' Interest of any Series are not
needed to make payments or deposits with respect to such
Series, such Collections may be applied to cover
principal payments due to or for the benefit of
Certificateholders of another Series. Any such
reallocation will not result in a reduction in the
Invested Amount of the Series to which such Collections
were initially allocated. In addition, if so specified
in the related Prospectus Supplement, Collections
otherwise payable to the Transferor may be designated to
be paid to the Certificateholders of the applicable
Series. See "Description of the Certificates--Shared
Principal Collections and Tranferor Principal
Collections."
Special Funding Account........... On each day on which the Transferor Amount (excluding
the interest represented by any Supplemental
Certificate) would otherwise be less than the Required
Retained Transferor Amount, funds (to the extent
available therefor as described herein) otherwise
payable to the Transferor will be deposited in an
account established for the benefit of the
Certificateholders of each Series (the "Special Funding
Account") on each Business Day until the Transferor
Amount is equal to the Required Retained Transferor
Amount. Funds on deposit in the Special Funding Account
will be withdrawn and paid to the Transferor (or, to the
extent provided in any Prospectus Supplement, used to
make payments on Certificates of any Series) to the
extent that on any day the Transferor Amount exceeds the
Required Retained Transferor Amount.
Funding Period.................... The Prospectus Supplement relating to a Series of
Certificates may specify that for a period beginning on
the Closing Date and ending on a specified date before
the commencement of an Amortization Period with respect
to such Series (the "Funding Period"), the aggregate
amount of Principal Receivables in the Trust allocable
to such Series may be less than the aggregate principal
amount of the Certificates of such Series and that the
amount of such deficiency (the "Pre-Funding Amount")
will be held in a trust account established with an
Eligible Institution for the benefit of
Certificateholders of such Series (the "Pre-Funding
Account") pending the transfer of additional Principal
Receivables to the Trust or pending the reduction of the
Invested Amounts of other Series. The related Prospectus
Supplement will specify the Initial Invested Amount on
the Closing Date with respect to such Series, the
aggregate principal amount of the Certificates of such
Series (the "Full Invested
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Amount") and the date by which the Invested Amount is
expected to equal the Full Invested Amount. The Invested
Amount of such a Series may increase as Principal
Receivables are created or as the Invested Amounts of
other Series are reduced. The Invested Amount of a
Series may also decrease due to Defaulted Amounts
allocated to such Series.
During the Funding Period, funds on deposit in the
Pre-Funding Account for a Series of Certificates will be
withdrawn and paid to the Transferor or its assignees to
the extent of any increases in the Invested Amount. In
the event that the Invested Amount does not for any
reason equal the Full Invested Amount by the end of the
Funding Period, any amount remaining in the Pre-Funding
Account and any additional amounts specified in the
related Prospectus Supplement will be payable to the
Certificateholders of such Series in a manner and at
such time as set forth in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement,
monies in the Pre-Funding Account with respect to any
Series will be invested by the Trustee in Eligible
Investments or will be subject to a guaranteed rate or
investment agreement or other similar arrangement, and
investment earnings and any applicable payment under any
such investment arrangement will be applied to pay
interest on the Certificates of such Series. See
"Description of the Certificates--Funding Period."
Paired Series..................... If so specified in the related Prospectus Supplement,
during its Controlled Amortization Period or
Accumulation Period, a Series of Certificates may be
paired with one or more other Series or a portion of one
or more other Series (each, a "Paired Series"). As the
Invested Amount of the first Series issued is reduced,
the Invested Amount of the Paired Series will increase
by an equal amount. This will have the effect of
increasing the Invested Amount of the Paired Series by
an amount that otherwise would have increased the
Transferor Amount. The Prospectus Supplement for such
Series and the Prospectus Supplement for the Paired
Series will each specify the relationship between the
Series. See "Description of the Certificates--Paired
Series."
Enhancement....................... Enhancement with respect to a Series or any Class
thereof may be provided in the form of the subordination
of one or more Classes of such Series, the establishment
of any cash collateral account or guaranty, collateral
invested amount, letter of credit, surety bond,
insurance, guaranteed rate agreement, maturity guaranty
facility, tax protection agreement, interest rate swap
or cap, spread account, reserve account, the use of a
cross-support feature, or a combination of the
foregoing, as specified in the related Prospectus
Supplement. See "Enhancement."
The type, characteristics and amount of the Enhancement
will be determined based on several factors, including
the characteristics of the Receivables and Accounts
underlying or
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comprising the Trust Portfolio as of the Closing Date
with respect to any Series, and will be established on
the basis of requirements of each Rating Agency rating
the Certificates of such Series. If so specified in the
related Prospectus Supplement, any such Enhancement will
apply only in the event of certain types of losses and
the protection against losses provided by such
Enhancement will be limited. See "Risk
Factors--Enhancement" and "Enhancement."
Servicing......................... RNB, in its capacity as servicer under the Pooling
Agreement, is the initial Servicer for the Trust. The
Servicer is responsible for servicing, managing and
making collections on the Receivables. Subject to
certain exceptions described under "Description of the
Certificates--Deposits in Collection Account," the
Servicer deposits any Collections received with respect
to a Monthly Period into the Collection Account within
two Business Days of the Date of Processing of such
Collections to the extent such Collections are allocable
to the Certificateholders' Interest of any Series and
are required to be deposited into an account for the
benefit of, or distributed to, the Certificateholders of
any Series or the issuer of any Enhancement. On the
earlier of (a) the second Business Day following the
Date of Processing and (b) the day on which the Servicer
deposits any Collections into the Collection Account,
subject to certain exceptions described herein, the
Servicer pays to the holder of any Participation and the
holder of the Transferor Certificate their respective
allocable portion of any Collections then held by the
Servicer. The "Date of Processing" is the Business Day
on which a record of any transaction is first recorded
pursuant to the Servicer's data processing procedures
(without regard to the effective date of such
recordation). On or about the third Business Day
preceding each Distribution Date (each, a "Determination
Date"), the Servicer calculates the amounts to be
allocated to the Certificateholders of each Series or
Class, the holders of any Participation and the holder
of the Transferor Certificate as described herein in
respect of Collections received with respect to the
preceding Monthly Period. A "Business Day" is any day
other than (a) a Saturday or Sunday or (b) any other day
on which national banking associations or state banking
institutions in New York, New York, Minneapolis,
Minnesota or Sioux Falls, South Dakota are authorized or
obligated by law, executive order or governmental decree
to be closed.
In certain limited circumstances, RNB 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 Agreement, a third-party
servicer may be appointed as successor servicer. RNB is
permitted to delegate any of its duties as Servicer to
any of its affiliates and to certain third-party service
providers, but any such delegation will not relieve the
Servicer of its liability and responsibility with
respect to such duties under the Pooling Agreement or
any Series Supplement.
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The Servicer will receive a Servicing Fee as servicing
compensation from the Trust. The Servicing Fee will be
paid on each Distribution Date. See "The Pooling and
Servicing Agreement--Servicing Compensation and Payment
of Expenses."
Mandatory Reassignment and
Transfer of Certain
Receivables..................... The Transferor makes certain representations and
warranties in the Pooling Agreement with respect to the
Accounts and the Receivables transferred by the
Transferor to the Trust. If the Transferor breaches any
such representation and warranty, under certain
circumstances and subject to certain conditions
described under "The Pooling and Servicing Agreement--
Representations and Warranties," all Receivables with
respect to the affected Accounts will be designated
Ineligible Receivables and the principal amounts thereof
will no longer be included in determinations of the
aggregate amount of Principal Receivables. In addition,
if the Transferor breaches certain other representations
and warranties described under "The Pooling and
Servicing Agreement--Representations and Warranties,"
all the Receivables originally sold by the Transferor
may be reassigned to DHCC. See "The Pooling and
Servicing Agreement--Representations and Warranties" and
"The Receivables Purchase Agreements."
RNB makes certain covenants in the Pooling Agreement in
its capacity as a Servicer. If the Servicer breaches any
such covenant with respect to any Receivable, subject to
certain conditions described under "The Pooling and
Servicing Agreement-- Servicer Covenants," all
Receivables with respect to the affected Account will be
assigned to the Servicer. In the event of a transfer of
servicing obligations to a successor Servicer, such
successor Servicer, rather than RNB, would be
responsible for any subsequent failure to comply with
the Servicer's covenants.
Optional Repurchase............... The Certificates of each Series will be subject to
optional repurchase by the Transferor on each day
specified in the related Prospectus Supplement after the
Invested Amount of such Series is reduced to an amount
less than or equal to 10% of the initial Invested Amount
(the "Initial Invested Amount") or such other amount
specified in the related Prospectus Supplement, if
certain conditions set forth in the Pooling Agreement
are met. Unless otherwise specified in the related
Prospectus Supplement, the purchase price will be equal
to the Invested Amount and accrued and unpaid interest
on the Certificates through (a) if the day on which such
purchase occurs is a Distribution Date, the day
preceding such Distribution Date or (b) if the day on
which such repurchase occurs is not a Distribution Date,
the day preceding the Distribution Date following such
day.
Tax Status........................ Except to the extent otherwise specified in the related
Prospectus Supplement, it is anticipated that special
tax counsel to the Transferor will render an opinion
that the Offered
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Certificates of each Series will be characterized as
indebtedness for Federal income tax purposes. Except to
the extent otherwise specified in the related Prospectus
Supplement, the Certificate Owners will agree to treat
the Certificates offered pursuant to this Prospectus as
debt for Federal income tax purposes. See "Certain U.S.
Federal Income Tax Consequences" for additional
information concerning the application of Federal income
tax laws.
ERISA Considerations.............. Under regulations issued by the Department of Labor, the
Trust Assets would not be deemed "plan assets" of any
employee benefit plan holding interests in the
Certificates of a Series if certain conditions are met.
If the Trust Assets were deemed to be "plan assets" of
an employee benefit plan, there is uncertainty as to
whether existing exemptions from the "prohibited
transaction" rules of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), would apply
to all transactions involving the Trust Assets. No
assurance can be made with respect to any offering of
the Certificates of any Series that the conditions which
would allow the Trust Assets not to be deemed "plan
assets" will be met. The intention of the Transferor
(but not its assurance) as to whether the Certificates
of a particular Series will be "publicly-offered
securities," and therefore eligible for an ERISA
exemption, will be set forth in the related Prospectus
Supplement. Accordingly, employee benefit plans
contemplating purchasing interests in Certificates
should consult their counsel before making a purchase.
See "ERISA Considerations."
Certificate Rating................ It will be a condition to the issuance of each Series of
Certificates or Class thereof offered pursuant to this
Prospectus and the related Prospectus Supplement that
they be rated in one of the four highest rating
categories by at least one nationally recognized
statistical rating organization (each such rating
organization rating any Series, a "Rating Agency"). The
rating or ratings applicable to the Certificates of each
Series or Class thereof offered hereby will be set forth
in the related Prospectus Supplement.
A rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal
at any time by the assigning Rating Agency. Each rating
should be evaluated independently of any other rating.
See "Risk Factors--Limited Nature of Rating."
Listing........................... If so specified in the Prospectus Supplement relating to
a Series, application will be made to list the
Certificates of such Series, or all or a portion of any
Class thereof, on the Luxembourg Stock Exchange or any
other specified exchange.
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RISK FACTORS
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING FACTORS IN
CONNECTION WITH THE PURCHASE OF CERTIFICATES.
LIMITED LIQUIDITY. It is anticipated that, to the extent permitted, the
underwriters of any Series of Certificates will make a market in such
Certificates, but in no event will any such underwriters be under an obligation
to do so. There can be no assurance that a secondary market will develop with
respect to the Certificates of any Series offered hereby, or if such secondary
market does develop, that it will provide Certificateholders with liquidity of
investment or that it will continue for the life of such Certificates.
ISSUANCE OF ADDITIONAL SERIES; EFFECT ON TIMING OR AMOUNT OF PAYMENTS TO
CERTIFICATEHOLDERS. The Trust, as a master trust, may issue additional Series
from time to time. While the terms of any Series will be specified in the
related Series Supplement to the Pooling Agreement, the provisions of a Series
Supplement and, therefore, the terms of any additional Series, will not be
subject to the prior review by, or consent of, the Certificateholders of any
previously issued Series. Such terms may include methods for determining
applicable investor percentages and allocating collections, provisions creating
different or additional security or other Enhancements and any other amendment
or supplement to the Pooling Agreement which is made applicable only to such
Series. The obligation of the Trustee to issue any new Series is subject to the
conditions, among others, that: (a) such issuance will not result in a reduction
or withdrawal of the rating of the Certificates of any outstanding Series or
Class by any Rating Agency selected by the Transferor to rate the investor
certificates of such Series or Class (any such reduction or withdrawal is
referred to herein as a "Ratings Effect") and (b) the Transferor shall have
delivered to the Trustee a certificate of an authorized officer to the effect
that, in the reasonable belief of the Transferor, such issuance will not, based
on the facts known to such officer at the time of such certification, cause an
Early Amortization Event to occur with respect to any Series. The issuance of
any additional Series will cause a reduction in the Transferor Amount
represented by the Transferor Certificate and therefore the relative amount of
the Transferor Amount available to absorb fluctuations in the amount of
Principal Receivables in the Trust. There can be no assurance that the terms of
an additional Series might not have an impact on the timing or amount of
payments received by a Certificateholder of a previously existing Series. See
"Description of the Certificates--New Issuances."
IMPACT OF ADDITIONAL ACCOUNTS AND PARTICIPATION INTERESTS; DIFFERENT
CHARACTERISTICS; EFFECT UPON AVERAGE YIELD ON THE PORTFOLIO. RNB, DHCC and the
Transferor intend that (a) all new Accounts that from time to time comprise the
RNB portfolio of credit card accounts (the "RNB Portfolio") will, prior to the
Automatic Addition Termination Date or any Automatic Addition Suspension Date
(or, following an Automatic Addition Suspension Date, after the Restart Date),
be designated as Automatic Additional Accounts and (b) the Receivables arising
from all such Automatic Additional Accounts will be conveyed to the Trust. In
addition, the Transferor may purchase Participation Interests or enter into
receivable purchase agreements with one or more additional Credit Card
Originators and the Participation Interests purchased from, and the receivables
from Accounts originated by, such Credit Card Originators may be added to the
Trust if such addition would not result in a Ratings Effect. In some cases,
after the Automatic Addition Termination Date or any Automatic Addition
Suspension Date (and in the latter case, prior to the Restart Date), the
Transferor will be obligated to designate Supplemental Accounts, the Receivables
of which will be conveyed to the Trust. The Participation Interests and
Additional Accounts may include accounts originated using criteria different
from those that were applied to the Accounts because they were originated by a
Credit Card Originator other than RNB or because such accounts were originated
by RNB at a later date, or were part of a portfolio of accounts which were not
part of the Trust Portfolio as of the Cut-Off Date. Moreover, Additional
Accounts designated at any time may not be accounts of the same type as those
previously included in the Trust. Consequently, there can be no assurance that
such Participation Interests or Additional Accounts will be of the same credit
quality as the initial Accounts or any Additional Accounts previously included
in the Trust. In addition, such Participation Interests and
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Additional Accounts may consist of open end credit card accounts that have
different terms than the initial Accounts and any Participation Interests or
Additional Accounts previously included in the Trust, including lower periodic
finance charges and other fees and charges, which may have the effect of
reducing the average yield on the portfolio of Accounts included in the Trust.
The designation of Participation Interests and Supplemental Accounts will be
subject to the satisfaction of certain conditions described herein under "The
Pooling and Servicing Agreement--Addition of Trust Assets," including that (a)
each Rating Agency shall have notified the Transferor that such addition will
not result in a Ratings Effect and (b) the Transferor shall have delivered to
the Trustee a certificate of an authorized officer to the effect that, in the
reasonable belief of the Transferor, such addition will not, based on the facts
known to such officer at the time of such certification, cause an Early
Amortization Event to occur with respect to any previously existing Series. See
"The Pooling and Servicing Agreement--Addition of Trust Assets."
CHARACTERISTICS OF TRANSFERS; EFFECT OF CHARACTERIZATION AS A PLEDGE. Under
the Purchase Agreements, RNB and DHCC have represented and warranted to DHCC and
the Transferor, respectively, and, under the Pooling Agreement, the Transferor
has represented and warranted to the Trust that the Receivables have been and
will be transferred free and clear of the lien of any third party. Each of RNB,
DHCC and the Transferor has also covenanted that, except for the conveyances
under the Pooling Agreement and the Purchase Agreements, it will not sell,
pledge, assign, transfer or grant any lien on any Receivable or any other Trust
Asset.
RNB and DHCC have represented and warranted to DHCC and the Transferor,
respectively, in the Purchase Agreements that the sales of the Receivables by
them to DHCC and the Transferor, respectively, are valid sales of the
Receivables to DHCC and the Transferor, respectively. In addition, RNB, DHCC and
the Transferor have treated and will treat the transactions described in the
Purchase Agreements as sales of the Receivables to DHCC and the Transferor,
respectively, and DHCC has taken and will take all actions that are required
under applicable law to perfect DHCC's and the Transferor's respective interests
in the Receivables. See "Certain Legal Aspects of the Receivables--Transfer of
Receivables." Notwithstanding the foregoing, if either RNB or DHCC 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 DHCC or the Transferor, respectively, 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 DHCC or the Transferor,
respectively (and therefore to the Trust and to the Certificateholders), could
occur and (should the court rule in favor of any such trustee, debtor or
creditor) reductions in the amount of such payments could result. If the
transfer of Receivables to DHCC or the Transferor is recharacterized as a
pledge, a tax or government lien on the property of RNB or DHCC, respectively,
arising before any Receivables come into existence may have priority over DHCC
or the Transferor's interests, respectively, in such Receivables. See "Certain
Legal Aspects of the Receivables--Certain Matters Relating to Bankruptcy or
Receivership."
Assuming the transactions contemplated in the Purchase Agreements are
treated as sales, the assets of DHCC and the Transferor, respectively, would not
generally be part of RNB's receivership or DHCC's bankruptcy estates,
respectively, and would not be available to RNB's and DHCC's creditors,
respectively. However, in OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948
(10th Cir. 1993), CERT. DENIED, 114 S.Ct. 554 (1993), the United States Court of
Appeals for the Tenth Circuit concluded that accounts receivable sold by a
debtor prior to a filing for bankruptcy remain property of the debtor's
bankruptcy estate. If the conclusions in the OCTAGON case were applied in an RNB
receivership or a DHCC bankruptcy, the Receivables would be subject to claims of
certain creditors and would be subject to the potential delays and reductions in
payments to DHCC, the Transferor and Certificateholders described in the
preceding paragraph. Special counsel to the Transferor has advised the
Transferor that the facts of the OCTAGON case are distinguishable from those in
the sale transactions between RNB and DHCC, DHCC and the Transferor, and between
the Transferor and the Trust and the reasoning of the OCTAGON case appears
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inconsistent with established precedent and the UCC. See "Certain Legal Aspects
of the Receivables-- Certain Matters Relating to Bankruptcy or Receivership."
In addition, the Transferor has represented and warranted in the Pooling
Agreement that the Pooling Agreement constitutes either a valid transfer and
assignment of the Receivables to the Trust by the Transferor or a grant of a
"security interest" (as defined in the UCC) in such property and the proceeds
thereof to the Trust. The Transferor has taken and will take all actions that
are required under applicable state law to perfect the Trust's interest in the
Receivables. If the transfer of the Receivables to the Trust were deemed to
create a security interest therein under the UCC, a tax or statutory lien on
property of DHCC or the Transferor arising before a Receivable is transferred to
the Trust may have priority over the Trust's interest in such Receivables. If
the Transferor were to become a debtor in a bankruptcy case and a bankruptcy
trustee or a creditor of the Transferor were to take the position that the
transfer of the Receivables from the Transferor to the Trust should be
characterized as a pledge of such Receivables, then delays in distributions on
the Certificates and (should the bankruptcy court rule in favor of any such
trustee or creditor) reductions in such distributions could result.
RISK OF CONSOLIDATION OF THE TRANSFEROR INTO DHCC. In addition to the
matters discussed above, if DHCC were to become a debtor in a bankruptcy case
and a creditor or trustee-in-bankruptcy of DHCC, or DHCC itself were to request
a bankruptcy court to order that the Transferor be substantively consolidated
with DHCC, delays in and reductions in the amount of distributions on the
Certificates could occur. The Transferor has been structured to reduce the
likelihood of (i) the voluntary or involuntary application with respect to the
Transferor for relief under Title 11 of the United States Code (the "Bankruptcy
Code") or similar applicable state laws and (ii) the substantive consolidation
of the Transferor and DHCC. The Transferor is a separate, limited purpose
subsidiary, the articles of incorporation of which contain limitations on the
nature of the Transferor's business and restrictions on the ability of the
Transferor to commence voluntary or involuntary cases or proceedings under such
laws without the prior unanimous vote of all its directors. Further, the
Transferor does not intend to file, and DHCC has agreed that it will not file, a
voluntary petition for relief under the Bankruptcy Code or any similar
applicable state laws with respect to the Transferor.
EFFECT OF AN INSOLVENCY EVENT. If certain events relating to the
conservatorship or receivership of RNB or the bankruptcy of DHCC, the Transferor
or any holder of the Transferor Certificate were to occur, then an Early
Amortization Event would occur. In addition, if any such event (in each case, an
"Insolvency Event") occurs with respect to the Transferor or an Early
Amortization Event occurs because the Transferor Amount (excluding any interest
represented by any Supplemental Certificate) is less than the Required Retained
Transferor Amount, the Transferor will immediately cease to transfer Principal
Receivables to the Trust, and, to the extent so provided in the applicable
Series Supplement, if any such event occurs while any of the Series 1995-1
Certificates or the Series 1996-1 Certificates are outstanding, the Trustee will
sell all Receivables then in the Trust. The proceeds from the sale of the
Receivables will be treated as Collections on the Receivables and allocated
accordingly among Certificateholders of each Series, the holders of any
Participations and the Transferor. If the portion of such proceeds allocable to
pay principal in respect of the Certificateholders' Interest of any Series is
insufficient to pay the entire Invested Amount of that Series, the holders of
such Certificates will suffer a loss. Notwithstanding the foregoing, in a
bankruptcy proceeding, the Transferor may not be permitted to suspend transfers
of Receivables to the Trust, and the Trustee's instructions to sell the
Receivables pursuant to the Pooling Agreement may not be given effect. See
"Certain Legal Aspects of the Receivables."
PREFERENTIAL TRANSFER RISK. Payments made in respect of reassignments of
Receivables by DHCC or the Transferor pursuant to the Receivables Purchase
Agreement or the Pooling Agreement may be recoverable by DHCC or the Transferor
as debtor in possession or by a creditor or a trustee-in-bankruptcy of DHCC or
the Transferor as a preferential transfer from DHCC or the Transferor, as the
case may be, if
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such payments are made within one year prior to the filing of a bankruptcy case
in respect of DHCC or the Transferor, as the case may be.
APPLICATION OF DEBTOR RELIEF LAWS. Application of federal or state
bankruptcy or debtor relief laws could affect the interests of the
Certificateholders in the Receivables if such laws result in any Receivables
being charged off as uncollectible or result in delays in payments due on such
Receivables. See "Certain Legal Aspects of the Receivables--Certain Matters
Relating to Bankruptcy or Receivership."
RISK RELATED TO TRANSFER OF RECEIVABLES BY RNB. To the extent that RNB has
granted a security interest in the Receivables to DHCC and that security
interest was validly perfected before any insolvency of RNB and was not granted
or taken in contemplation of insolvency or with the intent to hinder, delay or
defraud RNB or its creditors, that security interest should not be subject to
avoidance in the event of insolvency and receivership, and payments to DHCC with
respect to the Receivables should not be subject to recovery by a conservator or
receiver for RNB. If, however, the conservator or receiver were to assert a
contrary position, or were to require DHCC to establish its right to those
payments by submitting to and completing the administrative claims procedure
established under the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA"), or the conservator or receiver were to request a stay of
proceedings with respect to RNB as provided under FIRREA, delays in payments to
DHCC and on the Certificates and possible reductions in the amount of those
payments could occur. In the event of a Servicer Default, if a conservator or
receiver is appointed for the Servicer, and no Servicer Default other than such
conservatorship or receivership exists, the conservator or receiver may have the
power to prevent either the Trustee or the majority of the Certificateholders
from effecting a transfer of servicing to a successor Servicer.
RISKS DUE TO COMMINGLING OF COLLECTIONS. Currently, RNB, as Servicer, is
required to deposit Collections received by it, subject to certain limitations
as described in the related Prospectus Supplement, into the Collection Account
within two Business Days following the related Date of Processing. If (i) RNB as
Servicer provides to the Trustee a letter of credit covering collection risk of
the Servicer acceptable to each Rating Agency (as evidenced by a letter from
each Rating Agency to the effect that such action will not cause a Ratings
Effect) or (ii) Dayton Hudson obtains and for so long as it maintains a
short-term rating of a least A-1 by Standard & Poor's and P-1 by Moody's (which
it does not currently maintain), RNB, as Servicer, will be allowed to, subject
to certain conditions, commingle and use for its own benefit all Collections
received by it until each Distribution Date and, in the event of the
conservatorship or receivership of RNB or, in certain circumstances, the lapse
of certain time periods, the Trust may not have a perfected ownership or
security interest in such Collections. See "Certain Legal Aspects of the
Receivables--Transfer of Receivables" and "--Certain Matters Relating to
Bankruptcy or Receivership."
DEPENDENCE ON THE SERVICER, DHCC AND TRANSFEROR IN THE EVENT OF BREACH OF
REPRESENTATIONS. On the Closing Date and each Addition Date, the Servicer, DHCC
and the Transferor make certain representations and warranties in the Bank
Receivables Purchase Agreement, the Receivables Purchase Agreement and the
Pooling Agreement, respectively, relating to the validity and enforceability of
the Receivables. If any such representation or warranty is breached and such
breach has a material adverse effect on the interest of Certificateholders of
any or all Series or in any Receivables and continues beyond the applicable cure
period, if any, the sole remedy shall be that the Receivables affected thereby
will be designated "Ineligible Receivables" and assigned a principal balance of
zero for purposes of determining the aggregate amount of Principal Receivables
or assigned to the Servicer, as the case may be. In addition, in the event of
the breach of certain representations and warranties, the Transferor may be
obligated to accept the reassignment of the Certificateholders' interest of all
Series. In such event, realization of principal with respect to such Receivables
will depend upon the ability of the Transferor or the Servicer to accept such
reassignment or assignment, respectively. See "The Pooling and Servicing
Agreement-- Representations and Warranties" and "--Servicer Covenants" and "The
Receivables Purchase Agreements--Representations and Warranties."
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DEPENDENCE ON THE DAYTON HUDSON STORES. The RNB credit cards are presently
issued under the insignia of any of Dayton's, Hudson's, Marshall Field's, Target
or Mervyn's stores (collectively, the "Dayton Hudson Stores"). Accordingly, the
Trust is currently completely dependent upon sales at the Dayton Hudson Stores
for the generation of Receivables. The retailing industry is intensely
competitive. Generally, the Dayton Hudson Stores compete not only with other
retailers and department stores in the geographic areas in which they operate
but also with numerous other types of retail outlets. The Pooling Agreement does
not prohibit the transfer of all or any portion of the business or assets of the
Dayton Hudson Stores. There can be no assurance that the Dayton Hudson Stores
will continue to generate Receivables at the same rate as in prior years.
Currently, the Dayton Hudson Stores accept most major credit cards. The Trust
will be dependent upon RNB's continued ability to generate new Receivables. If
the rate at which new Receivables are generated declines significantly and RNB
does not add Receivables in Additional Accounts to the Trust, an Early
Amortization Event could occur with respect to the Certificates.
THE ABILITY OF RNB TO CHANGE TERMS OF THE ACCOUNTS. Pursuant to the Bank
Receivables Purchase Agreement, RNB does not sell to DHCC the Accounts but only
the Receivables arising in the Accounts. As owner of the Accounts, RNB will have
the right to determine the periodic finance charge, the fees and other charges
which will be applicable from time to time to the Accounts, to alter the minimum
monthly payment required under the Accounts and to change various other terms
with respect to the Accounts. The terms of the accounts generated at the Dayton
Hudson Stores are different for each of the DSD (as defined herein), Target and
Mervyn's stores. A decrease in the periodic finance charges or other fees or
charges applicable to the Accounts would decrease the effective yield on the
Accounts and could result in the occurrence of an Early Amortization Event and
the commencement of the Early Amortization Period or, if so specified in the
related Prospectus Supplement, a Rapid Accumulation Period, as well as a
decrease in protection afforded to the Certificateholders against charged-off
Accounts. Under the Pooling Agreement, RNB, as Servicer, has agreed that unless
required by law or unless, in its sole discretion, RNB deems it appropriate, it
will not reduce the annual percentage rate of the monthly periodic finance
charge assessed on the Receivables, reduce other fees on the Accounts or change
the other terms of the Accounts, if, either (a) as a result of such reduction or
change it is reasonably expected that such reduction or change will cause an
Early Amortization Event to occur with respect to a Series or (b) such reduction
or change (x) if RNB owns a comparable segment of receivables, is not applied to
any such comparable segment of consumer open end credit accounts owned by RNB
that have characteristics the same as or substantially similar to the
Receivables that are the subject of such reduction or change and (y) if RNB does
not own such a comparable segment of receivables, will not be made with the
intent to materially benefit the Transferor over the Certificateholders or to
materially adversely affect the Certificateholders, except as otherwise
restricted by an endorsement, sponsorship, or other agreement between the
Transferor and an unrelated third party or by the terms of the Accounts. Except
as specified above, there are no restrictions on RNB's ability to change the
terms of the Accounts. There can be no assurance that changes in applicable law,
changes in the marketplace, including the lowering by other credit card issuers
of annual percentage rates, or prudent business practice might not result in a
determination by RNB to decrease customer finance charges or otherwise take
actions which would change any Account terms. In servicing the Accounts, the
Servicer is required pursuant to the Pooling Agreement, to apply its usual and
customary servicing procedures for servicing receivables comparable to the
Receivables and to act in accordance with RNB's written policies and procedures
relating to the operation of its consumer open end lending business (the "Credit
Card Guidelines").
LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. No Certificateholder will have
any right to institute any suit, action or proceeding under the Pooling
Agreement, unless such Certificateholder previously has made, and unless the
holders of Certificates evidencing more than 50% of the aggregate unpaid
principal amount of all Certificates (or, with respect to any such action, suit
or proceeding that does not relate to all Series, 50% of the aggregate unpaid
principal amount of the Certificates of all Series to which such action, suit or
proceeding relates) have made, a written request to the Trustee to institute
such action, suit or proceeding in its own name as Trustee and have offered to
the Trustee such reasonable indemnity as it may
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require against the costs, expenses and liabilities to be incurred thereby, and
the Trustee, for 60 days after its receipt of such request and offer of
indemnity, has neglected or refused to institute any such action, suit or
proceeding.
EFFECT OF CONSUMER PROTECTION LAWS. The Accounts and Receivables are
subject to numerous federal and state consumer protection laws that impose
requirements on the making, enforcement and collection of consumer loans. Such
laws, as well as any new laws or rulings which may be adopted, may adversely
affect the Servicer's ability to collect on the Receivables or maintain or
adjust the current level of periodic finance charges and other fees and charges
with respect to the Accounts. During recent years, there has been increased
consumer awareness with respect to the level of finance charges and fees and
other practices of credit card issuers and other consumer open end loan
providers. From time to time, private consumers as well as state and federal
regulators question RNB's compliance with these requirements which are often
broadly interpreted by enforcement officials. Failure by RNB, other Credit Card
Originators or the Servicer to comply with such requirements could adversely
affect the Servicer's ability to collect the principal balance of, or otherwise
enforce, the Receivables. If it were determined that the annual percentage rates
or other charges charged on the Accounts have to be limited to an interest rate
cap or other fee substantially lower than the annual percentage rates or fees
currently assessed on the Accounts, or that other violations have occurred, it
is possible that the Portfolio Yield (as defined in the related Prospectus
Supplement) for a Series would be reduced and therefore an Early Amortization
Event could occur with respect to the Certificates. See "Description of the
Certificates--Early Amortization Events." In addition, bills relating to retail
consumer credit are pending in the federal and various state legislatures. See
"Certain Legal Aspects of the Receivables--Consumer Protection Laws." Certain of
these bills would, if enacted, affect certain credit practices of RNB,
including, for example, limitations on the periodic finance charges or other
fees or charges relating to the Accounts, disclosure of credit terms in credit
applications or periodic statements, telephone solicitation practices, use of
credit bureau reports and collection practices. As a result of these
developments and other factors, there can be no assurance as to whether any
federal or state legislation will be promulgated which would adversely impact
the effective yield on Accounts and Receivables or impair collection of
receivables.
Pursuant to the Pooling Agreement, if a Receivable fails to comply in all
material respects with applicable requirements of law, subject to certain
conditions described under "The Pooling and Servicing Agreement--Representations
and Warranties," all affected Receivables may be reassigned to the Transferor
or, in some circumstances, assigned to the Servicer. The sole remedy available
to the Certificateholders of any Series affected thereby will be the assignment
of a principal balance of zero to all affected Receivables for purposes of
determining the aggregate amount of Principal Receivables or assignment to the
Servicer of the Receivables affected thereby. In such event, realization of
principal with respect to such Receivables will depend upon the ability of the
Transferor or the Servicer to accept such reassignment or assignment,
respectively. See "The Pooling and Servicing Agreement--Representations and
Warranties" and "--Servicer Covenants" and "Certain Legal Aspects of the
Receivables--Consumer Protection Laws."
PAYMENT AND MATURITY CONSIDERATIONS; DEPENDENCY ON CARDHOLDER
REPAYMENTS. The Receivables may be paid at any time and there is no assurance
(i) that there will be new Receivables created in the Accounts, (ii) that
Receivables will be added to the Trust or (iii) that any particular pattern of
Cardholder repayments will occur. The commencement and continuation of a
Controlled Amortization Period, a Principal Amortization Period or an
Accumulation Period for a Series or a Class thereof will depend on, among other
factors, the rate of Cardholder repayments, the timing of the receipt of
repayments and the rate of default by Cardholders. As a result, no assurance can
be given as to the timeliness of payments to be made to the Certificateholders.
Cardholder monthly payment rates with respect to the Accounts are dependent upon
a variety of factors, including seasonal purchasing and payment habits of
Cardholders, the availability of other sources of credit, general economic
conditions, tax laws and the terms of the Accounts (which are subject to change
by RNB). Increased convenience use, where Cardholders pay their Account balances
in full on or prior to the due date and thus avoid all finance charges, would
decrease the effective
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yield on the Accounts and could cause the commencement of the Early Amortization
Period, or, if so specified in the related Prospectus Supplement, the Rapid
Accumulation Period, and decrease the protection afforded to Certificateholders
against defaults under the Accounts. No assurance can be given as to the
Cardholder payment rates in any future period.
A decline in the amount of Receivables in the Accounts for any reason
(including the decision by Cardholders to use competing sources of credit, an
economic downturn or other factors) could result in the occurrence of an Early
Amortization Event and the commencement of the Early Amortization Period or, if
so specified in the related Prospectus Supplement, the Rapid Accumulation
Period. The Pooling Agreement provides that the Transferor will be required to
make an Addition to the Trust in the event that either (a) the Transferor Amount
(excluding the interest represented by any Supplemental Certificate) is not
maintained at a minimum level equal to the Required Retained Transferor Amount
or (b) the amount of Principal Receivables in the Trust is not maintained at a
minimum level generally equal to (x) the sum of the numerators used to calculate
(i) the Investor Percentages with respect to Principal Receivables for all
Series then outstanding and (ii) the Participation Percentages for all
Participations then outstanding, minus (y) the amount on deposit in the Special
Funding Account as of the date of determination (the "Required Principal
Balance"). If the Transferor fails to make such Addition within five Business
Days of the day on which it is required to make such Addition pursuant to the
Pooling Agreement as described under "The Pooling and Servicing
Agreement--Addition of Trust Assets," an Early Amortization Event or, if so
specified in the related Prospectus Supplement, the Rapid Accumulation Period,
could occur.
EFFECT OF DISCOUNT OPTION; REDUCTION IN AMOUNT OF PRINCIPAL
RECEIVABLES. Although the Transferor initially will not do so, the Transferor
may in the future designate a fixed or floating percentage of the amount of
Receivables that would otherwise be treated as Principal Receivables to be
treated as Finance Charge Receivables. The Transferor has the right to, from
time to time, change such percentage with respect to Receivables arising after
the date of such change, PROVIDED that such percentage may be no greater than 3%
at any time, unless the Transferor, the Servicer and the Trustee shall have
received from each Rating Agency written notice that such change would not cause
a Ratings Effect. Such designation will increase the percentage of collections
on the Receivables that are treated as Collections of Finance Charge
Receivables, which will increase the Portfolio Yield over what it would
otherwise be. As a result, such designation should decrease the likelihood of
the occurrence of the Early Amortization Event based upon a reduction of the
average Portfolio Yields for any consecutive three monthly periods to a rate
below the average Base Rate (as defined in the related Prospectus Supplement)
for such period. See "Description of the Certificates--Early Amortization
Events." However, such designation will also reduce the aggregate amount of
Principal Receivables created thereafter, which may increase the likelihood that
the Transferor will be required to add Principal Receivables to the Trust in
accordance with the Pooling Agreement which could, if additional Principal
Receivables were not available at such time, cause the occurrence of an Early
Amortization Event.
LIMITED NATURE OF RATING. It will be a condition to the issuance of each
Series of Certificates or Class thereof offered pursuant to this Prospectus and
the related Prospectus Supplement that they be rated in one of the four highest
rating categories by at least one Rating Agency. The rating or ratings
applicable to the Certificates of each Series or Class thereof offered hereby
will be set forth in the related Prospectus Supplement.
Any rating assigned to the Certificates of a Series or a Class thereof by a
Rating Agency will reflect such Rating Agency's assessment of the likelihood
that Certificateholders of such Series or Class will receive the payments of
interest and principal required to be made under the Pooling Agreement and will
be based primarily on the value of the Receivables in the Trust and the
availability of any Enhancement with respect to such Series or Class. The
ratings of the Certificates are not a recommendation to purchase, hold or sell
such Certificates, inasmuch as such ratings do not address market price or
suitability for a particular investor. In addition, the ratings of the
Certificates do not address (i) the possibility of the imposition of United
States withholding tax with respect to non-U.S. persons, (ii) the likelihood
that the
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outstanding principal amount of any Series of Certificates or Class thereof will
be paid on a scheduled date, (iii) the possibility of the occurrence of an Early
Amortization Event which could result in the payment of the outstanding
principal amount of any Series of Certificates or Class thereof prior to the
applicable Series Termination Date, or (iv) the likelihood that the outstanding
principal amount of any Series of Certificates or Class thereof will be paid in
accordance with the applicable Controlled Amortization Amounts or Controlled
Accumulation Amounts. Moreover, there is no assurance that the ratings of any
Certificates will remain for any given period of time or that such ratings will
not be lowered or withdrawn entirely by the Rating Agency if in its judgment
circumstances in the future so warrant.
BOOK-ENTRY REGISTRATION. Unless otherwise specified in the related
Prospectus Supplement, the Certificates offered hereby of each Series initially
will be 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 Certificate
Owners or their nominees. Consequently, unless and until Definitive Certificates
are issued, Certificate Owners will not be recognized by the Trustee as
"Certificateholders" (as such term is used in the Pooling Agreement and the
Series Supplement). Hence, until such time, Certificate Owners will only be able
to exercise the rights of Certificateholders indirectly through DTC, Cedel or
Euroclear and their respective participating organizations. Because DTC can only
act on behalf of persons or entities who are DTC Participants (or participate
indirectly through a DTC Participant), the ability of a Certificate Owner to
pledge its Certificates to persons or entities that do not participate in the
DTC system, or otherwise take actions in respect of such Certificates, may be
limited due to the lack of a physical certificate representing such
Certificates. See "Description of the Certificates--Book-Entry Registration" and
"--Definitive Certificates."
SOCIAL, LEGAL, ECONOMIC AND OTHER FACTORS. Changes in credit use and
payment patterns by Cardholders result from a variety of economic, legal, social
and other factors. Economic factors include the rate of inflation, unemployment
levels and relative interest rates. The use of incentive programs (E.G., gift
awards for credit usage) may affect credit use. Since the largest number of
Cardholders (based on billing addresses) whose Accounts are in the Trust are in
California, Texas, Michigan, Minnesota, and Illinois, adverse changes in
economic conditions in these areas could have a direct impact on the timing and
amount of payments on the Certificates. See the Composition of Accounts by
Geographic Distribution table under "The Receivables" in the Prospectus
Supplement. The Transferor is unable to determine whether or to what extent
changes in applicable laws or economic, social or other factors will affect
credit use or repayment patterns.
CONTROL. Subject to certain exceptions, the Certificateholders of each
Series may take certain actions, or direct certain actions to be taken, under
the Pooling Agreement or the related Series Supplement such as instituting
suits, actions or proceedings under the Pooling Agreement in the limited
circumstances described above in "--Limitation on Rights of Certificateholders."
However, under certain circumstances, the consent or approval of the holders of
a specified percentage of the aggregate unpaid principal amount of the
Certificates of all outstanding Series will be required to direct certain
actions, including, for example, appointing of a successor Servicer following a
Servicer Default (see "The Pooling and Servicing Agreement--Servicer Default"),
amending the Pooling Agreement under certain circumstances (see "The Pooling and
Servicing Agreement--Amendments") and directing a reassignment of the entire
portfolio of Receivables (see "The Pooling and Servicing
Agreement--Representations and Warranties"). Further, in certain cases
(including with respect to certain amendments described under "The Pooling and
Servicing Agreement--Amendments"), when determining whether the required
percentage of Certificateholders of a Series have given their approval or
consent, all the Certificateholders of such Series will be treated as a single
class (whether or not such Series includes more than one Class). Accordingly,
one or more Classes of Certificateholders may have the power to determine
whether any such action is taken without regard to the position or interests of
other Classes of Certificateholders relating to such action.
NONRECOURSE OBLIGATIONS. The Certificates represent interests in the Trust
only and do not represent interests in or recourse obligations of DHCC, the
Transferor, the Servicer or any affiliate thereof or, if
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applicable, an Assuming Entity. Consequently, Certificateholders must rely
solely upon payments on the Receivables and any related Enhancement for the
payment of principal of and interest on the Certificates. The obligations of the
Transferor or the Servicer or, if applicable, an Assuming Entity with respect to
the Trust are generally limited to the obligation to accept reassignment of all
or a portion of the Receivables under certain circumstances upon breach of
certain representations and warranties, the obligations to make Additions to the
Trust under certain circumstances and certain other limited obligations, all as
more fully described herein. The ability of the Transferor or the Servicer or,
if applicable, an Assuming Entity to perform such obligations will be dependent
in part on the financial condition of the Transferor or the Servicer or, if
applicable, an Assuming Entity at the time such obligation arises.
ASSUMPTION OF RNB'S, DHCC'S AND THE TRANSFEROR'S OBLIGATIONS BY AN ASSUMING
ENTITY. RNB, DHCC and the Transferor may, subject to certain conditions
(including that the Transferor shall have received written notice from each
Rating Agency that a Ratings Effect will not occur), transfer their assets and
obligations with respect to the Trust and under the Purchase Agreements and the
Pooling Agreement to one or more Assuming Entities each of which is not
affiliated with RNB, DHCC or the Transferor without obtaining Certificateholder
consent to such transfer. After any such transfer and assumption, RNB, DHCC and
the Transferor would have no further liability or obligation under the Purchase
Agreements and Pooling Agreement, other than those liabilities that arose prior
to such transfer. See "The Receivables Purchase Agreements--Transfer of Accounts
and Assumption of RNB's, DHCC's and the Transferor's Obligations."
EFFECT OF SUBORDINATION. With respect to Certificates of a Series having a
Class or Classes of Subordinated Certificates, unless otherwise specified in the
related Prospectus Supplement, payments of principal in respect of the
Subordinated Certificates of a Series will not commence until after the final
principal payment with respect to the Senior Certificates of such Series. In
addition, if so specified in the related Prospectus Supplement, if Collections
of Finance Charge Receivables or other amounts allocable to the Certificates of
a Series are insufficient to cover required amounts due with respect to the
Senior Certificates of such Series, the Invested Amount with respect to the
Subordinated Certificates will be reduced, resulting in a reduction of the
portion of Collections of Finance Charge Receivables allocable to the
Subordinated Certificates in future periods and a possible delay or reduction in
principal and interest payments on the Subordinated Certificates. Moreover, if
so specified in the related Prospectus Supplement, in the event of a sale of
Receivables in the Trust, the portion of the net proceeds of such sale allocable
to pay principal to the Certificates of a Series will be used first to pay
amounts due to the Senior Certificateholders and any remainder will be used to
pay amounts due to the Subordinated Certificateholders.
ENHANCEMENT. Although Enhancement may be provided with respect to a Series
of Certificates or any Class thereof, the amount available will be limited and
will be subject to certain reductions. If the amount available under any
Enhancement is reduced to zero, Certificateholders of the Series or Class
thereof covered by such Enhancement will bear directly the credit and other
risks associated with their undivided interest in the Trust. See "Enhancement."
MATURITY CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, for each
Series, following the Revolving Period, Collections of Principal Receivables are
expected to be distributed to the Certificateholders of such Series or any
specified Class thereof on each specified Distribution Date during the
Controlled Amortization Period or the Principal Amortization Period, or are
expected to be accumulated for payment to Certificateholders of such Series or
any specified Class thereof during the Accumulation Period and distributed on an
Expected Final Payment Date; PROVIDED, HOWEVER, that, if the Early Amortization
Period or the Rapid Accumulation Period commences, collections of Principal
Receivables will be paid to Certificateholders in the manner described herein
and in the related Prospectus Supplement. The related Prospectus Supplement will
specify the date on which the Controlled Amortization Period, the
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Principal Amortization Period or the Accumulation Period, as applicable, will
commence, the principal payments expected or available to be received or
accumulated during such Controlled Amortization Period, Principal Amortization
Period or Accumulation Period, or on the Expected Final Payment Date, as
applicable, the manner and priority of principal accumulations and payments
among the Classes of a Series of Certificates and the Early Amortization Events
which, if any were to occur, would lead to the commencement of an Early
Amortization Period or, if so specified in the related Prospectus Supplement, a
Rapid Accumulation Period.
The related Prospectus Supplement will provide certain historical data
relating to payments by Cardholders, total charge-offs and other related
information relating to the RNB Portfolio. There can be no assurance that future
events will be consistent with such historical data.
The amount of Collections of Receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual Cardholders. There can be no assurance that Collections of Principal
Receivables with respect to the Trust Portfolio, and thus the rate at which the
related Certificateholders could expect to receive or accumulate payments of
principal on their Certificates during an Amortization Period, or on any
Expected Final Payment Date, as applicable, will be similar to any historical
experience set forth in a related Prospectus Supplement. If an Early
Amortization Event occurs, the average life and maturity of such Series of
Certificates could be significantly reduced.
Because, for any Series of Certificates, there may be a slowdown in the
payment rate below the payment rate used to determine the amount of Collections
of Principal Receivables scheduled or available to be distributed or accumulated
for later payment to Certificateholders or a specified Class thereof during the
Controlled Amortization Period, the Principal Amortization Period or the
Accumulation Period or on the Expected Final Payment Date, as applicable, or an
Early Amortization Event may occur which would initiate the Early Amortization
Period or, if so specified in the related Prospectus Supplement, the Rapid
Accumulation Period, there can be no assurance that the actual number of months
elapsed from the date of issuance of such Series of Certificates to the final
Distribution Date with respect to the Certificates will equal the expected
number of months, that yield to maturity will be as anticipated or that
Certificateholders will be able to reinvest funds in an instrument with a
comparable interest rate in the event the Certificates are paid sooner than
anticipated.
THE RNB CREDIT CARD BUSINESS
CREDIT CARD BUSINESS
The Receivables that the Transferor conveys to the Trust pursuant to the
Pooling Agreement are generated from transactions made by consumers (each, a
"Cardholder") using RNB Credit Cards bearing the insignia of Dayton's, Hudson's,
Marshall Field's, Target or Mervyn's (each, a "Dayton's Credit Card," "Hudson's
Credit Card," "Marshall Field's Credit Card," "Target Credit Card" or "Mervyn's
Credit Card," respectively; collectively, the "Credit Cards"). The Dayton Hudson
Stores have offered proprietary credit to their customers for over 75 years.
Although the Dayton Hudson Stores also accept VISA, MasterCard, Discover Card
and American Express, the Credit Cards represented approximately 15% of total
store sales in 1996. In the future, the Receivables conveyed to the Trust may be
generated from transactions at stores other than the Dayton Hudson Stores
according to credit standards that may be modified from time to time by RNB. As
of December 1996, the composition of the receivables pool was as follows:
Mervyn's 40%; Marshall Field's 13%; Hudson's 12%; Dayton's 9%; Target 26%.
RNB's credit card operations are generally organized around three operating
companies or divisions: Mervyn's, the Department Store Division ("DSD")
(comprised of Dayton's, Hudson's and Marshall Field's) and Target. The DSD
credit system services both the Department Store Division and Target
receivables. All DSD, Mervyn's and Target credit operations are located in
Minneapolis, Minnesota under the title of "DHC Guest Credit."
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DHC Guest Credit is organized along functional lines to service the Dayton
Hudson Stores including: marketing, underwriting, authorizations, guest service,
collections and systems support. RNB developed or adopted systems and
specifications for underwriting and authorizations. It contracts with DHC Guest
Credit for services, including the implementation of these systems and of the
underwriting and authorization specifications.
RNB Credit Cards are offered under the insignia of a Dayton Hudson Store
based on the store in which the account was opened. The Target Credit Card is a
relatively new product that was first tested in Florida and Indiana in the fall
of 1994 and was expanded to the remaining states during 1995. DSD insignia
Credit Cards may be presented for purchases at any of Dayton's, Hudson's,
Marshall Field's and Target stores.
MARKETING PROGRAMS AND ACCOUNT ORIGINATION
IN-STORE ACCOUNT SOLICITATION. The major vehicle used by RNB at DSD and
Mervyn's for in-store account origination is "instant credit." Applicants
provide a limited amount of information (such as name, mailing address, and
social security number) which allows the credit underwriting department to
access their credit bureau report and to score their application. Applicants
must also present a valid driver's license and major credit card. In Mervyn's
and Target stores, this information is entered by the sales associate directly
into the point-of-sale terminal. At the DSD stores, sales associates obtain the
same information and call the underwriting department to communicate the
information. For the Target Credit Card, the primary method of obtaining new
accounts has been through an in-store hostess program. The applications are sent
to a central processing location for data entry and account processing.
NEW ACCOUNTS. Application information on all new accounts is entered into a
new account processing system. Each application is source-coded to allow future
tracking of activation rates, sales trends, delinquencies and charge-offs for
various new account sources and promotional programs. Opening a new Credit Card
account may entitle the Cardholder to certain discounts on purchases.
For approved applications, the account is automatically established, a
credit card is generated at RNB in Sioux Falls, South Dakota and then mailed
along with the terms of the account to the new Cardholders. For instant credit
accounts, a temporary card is issued which can be used immediately for
purchases.
DSD and Target accounts are grouped into thirty separate billing cycles and
Mervyn's accounts into twenty-four separate billing cycles. Each billing cycle
has a separate monthly billing date. New accounts are assigned to billing cycles
randomly at the time of opening.
STIMULATION OF ACCOUNT USAGE. As part of its retail marketing strategy,
RNB, in cooperation with the Dayton Hudson Stores, periodically offers various
deferred billing programs through the Credit Cards. Cardholders can purchase
merchandise in select departments without incurring finance charges on those
purchases for one or several months, subject to a minimum purchase requirement.
Average deferred balances represented approximately 3% of total average customer
accounts receivable in 1996. The Dayton Hudson Stores currently pay RNB a
deferred billing fee of 12% per annum of deferred balances.
In addition, each of the Dayton Hudson stores operates various account
loyalty and purchase frequency reward programs. Account usage is stimulated at
Mervyn's and in DSD Stores by rewarding cardholders with discounts on future
purchases. Target encourages cardholder usage by contributing 1% of cardholder
purchases to the cardholder's designated K-12 school.
UNDERWRITING PROCESS
ACCOUNT UNDERWRITING AND CREDIT GUIDELINES. RNB's underwriting process
involves the purchase of credit bureau information for each approved applicant.
RNB obtains a credit report from credit bureaus such as Experian, Inc., Equifax
Credit Information Services, Inc. or Trans Union Corp. based on the applicant's
mailing address and the perceived strength of each credit service in that
geographic region. The
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information obtained is electronically fed into proprietary scoring models
developed for RNB in order to develop a credit score. RNB periodically analyzes
performance trends of accounts originated at different score levels as compared
to projected performance, and adjusts the minimum score or the opening limit to
manage risk.
The primary factors considered under scoring models used are (i) the number
of trades appearing on a credit report, (ii) the number of credit inquiries
within the past six months, (iii) the level of delinquency, (iv) the length of
time the credit file has existed, (v) the types of trades noted on a credit
report (bank, retail, finance company), (vi) the number of recently opened
trades, (vii) the amount of credit used or available and (viii) the percentage
of available credit used.
ONGOING CREDIT MONITORING. In order to monitor and control the quality of
its portfolio of Credit Cards, RNB utilizes behavioral scoring models to score
each active account on its monthly cycle date. The behavioral scoring models
dynamically evaluate credit guideline assignments to determine whether or not
credit limits should be increased or decreased. RNB generally does not obtain
updated credit bureau reports on an ongoing basis, unless there is a specific
request from a Cardholder for a credit limit increase or to authorize "big
ticket" purchases. RNB relies heavily on its behavioral score model as a
predictor of future loss probability.
CREDIT AUTHORIZATION. Point-of-sale terminals in Dayton Hudson Stores have
an on-line connection with RNB's credit authorization system and allow real-time
updating of accounts. Every sales transaction is passed through the
authorization algorithm which looks at factors such as: how long the account has
been on file, account open to charges, available credit limit, shopping patterns
and trends, payment history, and account delinquency. If the proposed charge
would place the account over its credit limit, the account is reviewed by the
authorization algorithm system for a credit limit increase. If the credit limit
increase is not approved, the purchase may still be authorized by the system if
doing so would cause the account to be only a certain percentage over its limit
or if the dollar amount needed is only a nominal amount.
SERVICING OF ACCOUNTS
RNB processes at its offices in Sioux Falls the majority of full application
new account data entry, all billing statement preparation and mailing, and the
production and mailing of the Credit Cards. Credit card production is performed
in a secured environment, including a separately alarmed secure area and audit
procedures that are designed to maintain an accurate count of all cards
produced, stored, destroyed and mailed.
Monthly billing statements are sent by RNB to Cardholders. Statement mailing
is highly automated, utilizing pre-sorting, bar coding and an on-site postal
representative to increase efficiency. The billing statements present the total
amount due and show the allocation among principal, current fees, current
finance charges, and the minimum payment due. Subject to South Dakota law, late
fees and returned check fees are also added to a Cardholder's outstanding
balance. No issuance, annual, over credit limit, or transaction fees are charged
to any Cardholders. The processing of Cardholder remittances is currently
subserviced by DHC Guest Credit in Minneapolis, Minnesota, using automated
payment processing equipment and systems.
Finance charges assessed on the accounts are based on the average daily
balance outstanding on an account during a monthly billing period and are
calculated by multiplying the average daily balance by the applicable finance
charge rate. Finance charges are assessed from the date of purchase, although a
grace period of approximately 30 days is available to avoid the finance charge
if the account is paid in full by the due date. Payments are generally applied
in the following order: (i) to fees assessed on the account, (ii) to finance
charges, and (iii) to the unpaid principal balance of purchases allocated first
to the longest outstanding receivable. The annual finance charge rate is a fixed
rate which generally ranges from 21.0% to 21.6% depending on the Cardholder's
state mailing address. Finance charge rates can be changed by RNB from time to
time at its discretion.
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The RNB Credit Cards may be used at the Dayton Hudson Stores to make both
regular plan charges and special payment plan charges (such as installment or
deferred payment accounts). Special payment plans are generally charges of
certain categories of merchandise (such as furniture, jewelry or fine tableware)
which can include a down payment and payment of the balance in equal monthly
installments without incurring any finance charges. Also included in this
category are various deferred payment plans which are offered periodically for
limited periods of time. See "--Marketing Programs and Account
Origination--Stimulation of Account Usage."
The RNB Credit Cards in the DSD portfolio have a minimum payment of the
greater of $20 or 5% of the outstanding balance. RNB accounts in the Target
portfolio have a minimum payment of the greater of $20 or 10% of the outstanding
balance. The RNB accounts in the Mervyn's portfolio have a minimum payment of
the greater of $10 or 5% of the outstanding balance.
DELINQUENCY AND COLLECTIONS PROCEDURES
Efforts to collect delinquent receivables are made for RNB by the DHC Guest
Credit collection department and, if necessary, by collection agencies and
outside attorneys. The collections departments consist of approximately 450
full-time equivalents. New collectors undergo training which includes courses in
professional debt collection, the Fair Debt Collection Practices Act and
negotiating skills. These courses are also available on a "refresher" basis for
experienced collectors.
An account is considered delinquent if the minimum payment due is not
received by the billing due date. At that time, the account is given a status of
one day delinquent. Under current policies, a message requesting payment is
printed on a Cardholder's billing statement after a scheduled payment has been
missed. Soon after an account becomes delinquent, a proprietary collection
system automatically scores the risk of the account and assigns a collection
strategy to the account. The key measures used are (i) age of account, (ii)
number of previous delinquencies, (iii) outstanding balance, and (iv) previous
payment history. The strategy dictates the contact schedule and collections
priority for the account.
DHC Guest Credit has achieved significant economies by engaging local law
firms in Chicago, Minneapolis and Detroit to initiate legal action against
Cardholders who are two payments past due. Between 1,200 and 1,300 accounts per
month are referred to various law firms in those areas to assist in its
collection efforts on the DSD and Target accounts. RNB generally does not use
these methods for its other portfolios.
Accounts which become 180 days delinquent are charged off. Accounts may be
re-aged during delinquency, however, if the obligor demonstrates a willingness
and ability to repay by making at least three consecutive minimum payments and
certain other conditions are satisfied.
THE TRANSFEROR
The Transferor was incorporated under the laws of the State of Minnesota on
May 15, 1995. All of its outstanding common stock is owned by DHCC. The
Transferor was organized for the limited purposes of facilitating the issuance
of securities of the type offered hereby, purchasing, holding, owning and
selling receivables and any activities incidental to and necessary or convenient
for the accomplishment of such purposes. Neither DHCC, as stockholder of the
Transferor, nor the Transferor's board of directors, intends to change the
business purpose of the Transferor. The Transferor's executive offices are
located at 80 South Eighth Street, 14th Floor, Suite 1401, Minneapolis,
Minnesota 55402.
DAYTON HUDSON CAPITAL CORPORATION
DHCC, formerly known as the Dayton Hudson Investment Corporation, was
incorporated under the laws of the State of Minnesota on September 27, 1994, for
general business purposes. DHCC is a wholly owned subsidiary of Dayton Hudson.
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RETAILERS NATIONAL BANK
RNB, a national credit card bank and a wholly owned subsidiary of Dayton
Hudson, was chartered on January 7, 1994, in order to streamline Dayton Hudson's
credit operations by eliminating inefficiencies associated with the different
retail credit regulations of the various states in which Dayton Hudson operates.
RNB, at inception, acquired the outstanding accounts receivable of DSD and
Target. During 1994, RNB acquired the outstanding accounts receivable of
Mervyn's. RNB issues and services the proprietary credit cards of the Dayton
Hudson Stores.
DAYTON HUDSON CORPORATION
Dayton Hudson is one of America's largest general merchandise retailers with
1,101 stores in 38 states as of February 1, 1997. Dayton Hudson currently
conducts its store operations through five retail operating chains (the "Dayton
Hudson Stores"), operating as three retail operating companies, DSD, Mervyn's
and Target.
Dayton Hudson was formed in 1969 through the merger of the Dayton Company
and J.L. Hudson Company. In 1978 and 1990, Dayton Hudson acquired Mervyn's
department stores and Marshall Field & Co., respectively. Dayton Hudson is a
public company which is listed on the New York Stock Exchange and the Pacific
Stock Exchange under the symbol DH.
The revenues of Dayton Hudson for the fiscal years 1994, 1995 and 1996 were
$21,311 million, $23,516 million and $25,371 million, respectively. The net
earnings of Dayton Hudson for the fiscal years 1994, 1995 and 1996 were $434
million, $311 million and $463 million, respectively.
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THE RECEIVABLES
The Receivables conveyed to the Trust arise in certain Eligible Accounts
(the "Trust Portfolio") selected by RNB from the RNB Portfolio as described
below.
RNB has sold to DHCC, DHCC has sold to the Transferor and the Transferor has
transferred to the Trust, all Receivables existing in each initial Account on
the Cut-Off Date and each has agreed to sell or transfer, as appropriate the
Receivables in each Automatic Additional Account on the date of its creation,
and all Receivables generated in such Accounts after such dates. Pursuant to the
Pooling Agreement, the Transferor has the right, and in certain cases the
obligation (subject to certain limitations and conditions described below), to
designate from time to time after the Automatic Addition Termination Date or any
Automatic Addition Suspension Date (and in the latter case, prior to a Restart
Date) additional qualifying consumer open end credit card accounts owned by the
Transferor to be included as Accounts and to convey to the Trust all Receivables
in such Supplemental Accounts, whether such Receivables are then existing or
thereafter created. RNB and DHCC each has corresponding obligations under the
Purchase Agreements to sell such Receivables to DHCC and the Transferor,
respectively, so that the Transferor may satisfy its obligations and exercise
its options under the Pooling Agreement. The Accounts must be Eligible Accounts
as of the date the Transferor designates such Accounts as Supplemental Accounts.
In addition, as of the Cut-Off Date, with respect to each initial Account, on
the date of its creation, with respect to each Automatic Additional Account and
on the applicable Addition Cut-Off Date, with respect to each Supplemental
Account, RNB will represent and warrant to DHCC, DHCC will represent and warrant
to the Transferor and the Transferor will represent and warrant to the Trust
that each of the Receivables in any Account or Additional Account that is sold
by RNB to DHCC and by DHCC to the Transferor and transferred by the Transferor
to the Trust, respectively, on such day meets the eligibility requirements
specified in the Pooling Agreement. Those requirements include, but are not
limited to, (a) with respect to an Account, that such Account (i) has not been,
and does not have any Receivables that have been, sold, pledged or assigned to
any person except pursuant to the Pooling Agreement, (ii) does not have any
Receivables that are Defaulted Receivables and (iii) does not have any
Receivables identified as having been incurred as a result of fraudulent use of
any related Credit Cards, and (b) with respect to a Receivable, that such
Receivable (i) has arisen under an Eligible Account, (ii) was created in
compliance with the Credit Card Guidelines and (iii) at the time of transfer to
the Trust is not subject to any right of rescission, setoff, counterclaim or
other defense other than certain bankruptcy and equity-related defenses and
adjustments permitted by the Pooling Agreement. See "The Pooling and Servicing
Agreement-- Representations and Warranties." However, there can be no assurance
that all the Accounts will continue to meet the applicable eligibility
requirements throughout the life of the Trust.
Subject to certain limitations and restrictions, the Transferor may also
designate certain Accounts (the "Removed Accounts") the Receivables of which
will be removed from the Trust. DHCC and RNB will each covenant in the
respective Purchase Agreements to accept such Receivables from the Transferor
and DHCC, respectively. In such case, the Receivables in the Removed Accounts
will be reassigned to the Transferor, then to DHCC and then to RNB. Throughout
the term of the Trust, the Trust Portfolio will consist of the initial Accounts
plus any Additional Accounts and minus any Removed Accounts and plus any
Participation Interests.
It is possible that Additional Accounts will not be accounts of the same
type previously included in the Trust. There can be no assurance that Additional
Accounts will be of the same credit quality as the initial Accounts. Moreover,
Additional Accounts may contain Receivables which consist of fees, charges and
amounts which are different from the fees, charges and amounts described herein.
Additional Accounts may also be subject to different credit limits, balances and
ages. Consequently, there can be no assurance that the Accounts will continue to
have the characteristics described herein as Additional Accounts are added. In
addition, the inclusion in the Trust of Additional Accounts with lower periodic
finance charges may have the effect of reducing the Portfolio Yield. The
Transferor intends to file with the Commission, on
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behalf of the Trust, a Current Report on Form 8-K with respect to any addition
of Supplemental Accounts or removal of Accounts which would have a material
effect on the composition of the Accounts.
The Prospectus Supplement relating to each Series of Certificates will
provide certain information about the Trust Portfolio as of the date specified.
Such information will include, but not be limited to, the aggregate amount of
Receivables, the aggregate amount of Receivables in the Trust Portfolio
(specifying the amount of which were Principal Receivables and Finance Charge
Receivables), the average Receivable balance of the Accounts, the composition of
the Trust Portfolio by account balances, the composition of the Trust Portfolio
by credit limits, the composition of the Trust Portfolio by period of
delinquency, the composition of the Trust Portfolio by account age, the
composition of the Trust Portfolio by geographical distribution of Accounts, and
delinquency and loss statistics relating to the Accounts.
THE TRUST
The Trust was formed, in accordance with the laws of the State of Delaware,
pursuant to the Pooling Agreement. The Trust, as a master trust, may issue
additional Series from time to time. The Trust has not engaged and will not
engage in any business activity other than acquiring and holding Trust Assets
and proceeds therefrom, issuing Series of Certificates, Participations, and the
Transferor Certificate, making payments thereon and related activities. As a
consequence, the Trust does not and is not expected to have any source of
capital resources other than the Trust Assets.
RNB sells to DHCC, DHCC thereafter sells to the Transferor and the
Transferor thereafter transfers to the Trust, without recourse, their respective
interests in all Receivables arising under the Accounts. The Trust Assets
consist of the Receivables, all monies due or to become due thereunder, the
proceeds of the Receivables, all monies on deposit in the Collection Account and
in certain other accounts maintained for the benefit of the Certificateholders,
any Participation Interests included in the Trust, funds collected or to be
collected with respect to such Participation Interests and any Enhancement. The
Trust Assets are expected to change over the life of the Trust as open end bank
credit card accounts and other open end credit accounts and related assets
become subject to the Trust and as Accounts are closed, charged-off or removed
and are no longer subject to the Trust. Pursuant to the Pooling Agreement, the
Transferor will have the right (subject to certain limitations and conditions),
and in some circumstances will be obligated, to designate as Trust Assets,
Receivables arising in Supplemental Accounts or, in lieu thereof or in addition
thereto, Participation Interests. See "The Pooling and Servicing
Agreement--Addition of Trust Assets." In addition, the Transferor will have the
right to remove from the Trust Receivables arising in designated Accounts as
described herein under "The Pooling and Servicing Agreement--Removal of
Accounts."
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued in Series. Each Series will represent an
interest in the Trust other than the interests represented by any other Series
of Certificates issued by the Trust (which may include Series offered pursuant
to this Prospectus), any Participations and the Transferor Certificate. Each
Series will be issued pursuant to the Pooling Agreement among the Transferor,
RNB, as Servicer and the Trustee, and a Series Supplement to the Pooling
Agreement. The Prospectus Supplement for each Series will describe any
provisions of the Pooling Agreement relating to such Series which may differ
materially from the Pooling Agreement filed as an exhibit to the Registration
Statement. The following summaries describe certain provisions common to each
Series of Certificates or which may be applicable to any Series of Certificates.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Pooling Agreement and relevant Series Supplement.
GENERAL
The Certificates of each Series will represent undivided interests in
certain assets of the Trust, including the right to the applicable allocation
percentage of all Cardholder payments on the Receivables.
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For each Series of Certificates, unless otherwise specified in the related
Prospectus Supplement (including such adjustments as may be made for any
pre-funded Series), the Invested Amount on any date will be equal to the Initial
Invested Amount for such Series MINUS the amount of principal paid to the
related Certificateholders prior to such date MINUS the amount of unreimbursed
Investor Charge-Offs with respect to such Series prior to such date and MINUS,
to the extent provided in the related Prospectus Supplement, the amount of any
reduction in the Invested Amount as a result of the purchase by the Transferor
and subsequent cancellation of any Certificates of such Series. If so specified
in the Prospectus Supplement relating to any Series of Certificates, under
certain circumstances the Invested Amount may be further adjusted by the amount
of principal allocated to Certificateholders, the funds on deposit in any
specified account, and any other amount specified in the related Prospectus
Supplement.
Each Series of Certificates may consist of one or more Classes, one or more
of which may be Senior Certificates and one or more of which may be Subordinated
Certificates. Each Class of a Series will evidence the right to receive a
specified portion of each distribution of principal or interest or both. The
Invested Amount with respect to a Series with more than one Class will be
allocated among the Classes as described in the related Prospectus Supplement.
The Certificates of a Class may differ from Certificates of other Classes of the
same Series in, among other things, the amounts allocated to principal payments,
maturity date, Certificate Rate and the availability of Enhancement.
For each Series of Certificates, payments of interest and principal will be
made on Distribution Dates specified in the related Prospectus Supplement to
Certificateholders in whose names the Certificates were registered on the record
dates (each, a "Record Date") specified in the related Prospectus Supplement.
Interest will be distributed to Certificateholders in the amounts, for the
periods and on the dates specified in the related Prospectus Supplement.
The Transferor currently owns the Transferor Certificate. The Transferor
Certificate represents the undivided interest in the Trust not represented by
the Certificates or any Participation issued and outstanding under the Trust or
the rights, if any, of any Enhancement Providers to receive payments from the
Trust. The holder of the Transferor Certificate will have the right to a
percentage (the "Transferor Percentage") of all Collections on the Receivables
in the Trust.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, during the Revolving Period, the
Invested Amount will remain constant except under certain limited circumstances.
See "--Defaulted Receivables" for a description of certain circumstances in
which the Invested Amount will be reduced during the Revolving Period. The
amount of Principal Receivables in the Trust, however, will vary each day as new
Principal Receivables are created and others are paid or charged-off. The amount
of the Transferor's Interest will fluctuate each day, therefore, to reflect the
changes in the amount of the Principal Receivables in the Trust. When a Series
is amortizing, the Invested Amount of such Series will generally decline as
payments of principal are distributed to the Certificateholders. As a result,
the Transferor's Interest will generally increase each month during an
Amortization Period for any Series to reflect the reductions in the Invested
Amount of such Series and will also change to reflect the variations in the
amount of Principal Receivables in the Trust. The Transferor's Interest may also
be reduced as the result of the issuance of a new Series.
Unless otherwise specified in the related Prospectus Supplement,
Certificates of each Series initially will be represented by global certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Transferor, the "Depository") except as set forth
below. See "--Definitive Certificates." Unless otherwise specified in the
related Prospectus Supplement, with respect to each Series of Certificates,
beneficial interests in the Certificates will be available for purchase in
minimum denominations of $1,000 and integral multiples thereof in book-entry
form only. The Transferor has been informed by DTC that DTC's nominee will be
Cede. No Certificate Owner acquiring an interest in the Certificates will be
entitled to receive a certificate representing such person's interest in the
Certificates unless Definitive Certificates are issued. Unless and until
Definitive Certificates are issued for any
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Series under the limited circumstances described herein, all references herein
to actions by Certificateholders shall refer to actions taken by DTC upon
instructions from DTC Participants, and all references herein to distributions,
notices, reports and statements to Certificateholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Certificates, as the case may be, for distribution to Certificate
Owners in accordance with DTC procedures. See "--Book-Entry Registration" and
"--Definitive Certificates."
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Series of Certificates of such Series, or
all or a portion of any Class thereof, on the Luxembourg Stock Exchange or any
other specified exchange.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, Certificateholders may hold their
Certificates through DTC (in the United States) or Cedel or Euroclear (in
Europe) if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
Cede, as nominee for DTC, will be the registered holder of the global
Certificates. No Certificateholder will be entitled to receive a certificate
representing such person's interest in the Certificates. Unless and until
Definitive Certificates are issued under the limited circumstances described
below, all references herein to actions by Certificateholders shall refer to
actions taken by DTC upon instructions from DTC Participants, and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Certificates, for distribution to Certificateholders in
accordance with DTC procedures.
Cedel and Euroclear will hold omnibus positions on behalf of the Cedel
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities for its participants ("DTC Participants") and facilitates the
clearance and settlement among DTC Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic book-entry
changes in DTC Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. DTC Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
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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 in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the Business Day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such Business Day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the Business Day following settlement
in DTC.
Purchases of Certificates under the DTC system must be made by or through
DTC Participants, which will receive a credit for the Certificates on DTC's
records. The ownership interest of each actual Certificate Owner is in turn to
be recorded on the DTC Participants' and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchase, but Certificate Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect Participant through which the
Certificate Owner entered into the transaction. Transfers of ownership interests
in the Certificates are to be accomplished by entries made on the books of DTC
Participants acting on behalf of Certificate Owners. Certificate Owners will not
receive certificates representing their ownership interest in Certificates,
except in the event that use of the book-entry system for the Certificates is
discontinued.
To facilitate subsequent transfers, all Certificates deposited by DTC
Participants with DTC are registered in the name of DTC's nominee, Cede. The
deposit of Certificates with DTC and their registration in the name of Cede
effects no change in beneficial ownership. DTC has no knowledge of the actual
Certificate Owners of the Certificates; DTC's records reflect only the identity
of the DTC Participants to whose accounts such Certificates are credited, which
may or may not be the Certificate Owners. The DTC Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants, and by DTC Participants and
Indirect Participants to Certificate Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede will consent or vote with respect to Certificates.
Under its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date, which assigns Cede's consenting or voting rights
to those DTC Participants to whose accounts the Certificates are credited on the
record date (identified in a listing attached thereto).
Principal and interest payments on the Certificates will be made to DTC.
DTC's practice is to credit DTC Participants' accounts on the applicable
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such Distribution Date. Payments by DTC Participants to Certificate Owners will
be governed by standing
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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 DTC Participant and not of DTC, the Trustee or the
Transferor, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to DTC is the
responsibility of the Trustee, disbursement of such payments to DTC Participants
shall be the responsibility of DTC, and disbursement of such payments to
Certificate Owners shall be the responsibility of DTC Participants and Indirect
Participants.
DTC may discontinue providing its services as securities depository with
respect to the Certificates at any time by giving reasonable notice to the
Transferor or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Certificates are
required to be printed and delivered. The Transferor may decide to discontinue
use of the system of book-entry transfers through DTC (or a successor securities
depository). In that event, Definitive Certificates will be delivered to
Certificateholders. See "--Definitive Certificates."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Transferor believes to be reliable, but
the Transferor takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel 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. Transactions may be
settled in Cedel in any of 36 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel 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 and may include the underwriters of any Series
of Certificates. Indirect access to Cedel 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.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("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. Transactions may now be settled in any of 34 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, 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
the Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the underwriters of
any Series of Certificates. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
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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 the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under 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 Certificates held through Cedel 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 "Certain U.S. Federal Income Tax Consequences." Cedel or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Certificateholder under the related 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.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, Cedel
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
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued in fully registered, certificated
form to Certificate Owners or their respective nominees ("Definitive
Certificates"), rather than to DTC or its nominee, only if (i) the Transferor
advises the Trustee for such Series in writing that DTC is no longer willing or
able to discharge properly its responsibilities as Depository with respect to
such Series of Certificates, and the Trustee or the Transferor is unable to
locate a qualified successor, (ii) the Transferor, at its option, advises the
Trustee in writing that it elects to terminate the book-entry system through DTC
or (iii) after the occurrence of a Servicer Default, Certificate Owners
representing not less than 50% (or such other percentage specified in the
related Prospectus Supplement) of the aggregate unpaid principal amount of any
Class of Certificates advise the Trustee and DTC through DTC Participants in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all DTC Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificate representing the Certificates and instructions for
reregistration, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as "Certificateholders" or "Holders" under the Pooling
Agreement and the related Series Supplement.
Distributions of principal and interest on the Certificates will be made by
the Trustee directly to Certificateholders of Definitive Certificates in
accordance with the procedures set forth herein and in the Agreement. Interest
payments and any principal payments on each Distribution Date will be made to
Certificateholders in whose names the Definitive Certificates were registered at
the close of business on
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the related Record Date. Distributions will be made by check mailed to the
address of such Certificateholder as it appears on the register maintained by
the Trustee. The final payment on any Certificate (whether Definitive
Certificates or the Certificates registered in the name of Cede representing the
Certificates), however, will be made only upon presentation and surrender of
such Certificate at the office or agency specified in the notice of final
distribution to Certificateholders. The Trustee will provide such notice to
registered Certificateholders not later than the fifth day of the month of such
final distribution.
Definitive Certificates will be transferable and exchangeable at the offices
of the transfer agent (the "Transfer Agent") and registrar (the "Registrar"),
which shall initially be the Trustee. No service charge will be imposed for any
registration of transfer or exchange, but the Transfer Agent and Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith. The Transfer Agent and Registrar shall
not be required to register the transfer or exchange of Definitive Certificates
for a period of fifteen days preceding the due date for any payment with respect
to such Definitive Certificates.
INTEREST
For each Series of Certificates and Class thereof, interest will accrue from
the relevant Closing Date on the applicable certificate principal balance (or
other amount specified in the related Prospectus Supplement), at the applicable
Certificate Rate, which may be a fixed, floating or variable rate as specified
in the related Prospectus Supplement. Interest will be distributed to
Certificateholders on the Distribution Dates specified in the related Prospectus
Supplement. Interest payments on any Distribution Date will generally be funded
from collections of Finance Charge Receivables allocated to the
Certificateholders' Interest during the preceding fiscal month of the Transferor
(each, a "Monthly Period") and may be funded from certain investment earnings on
funds held in accounts of the Trust, from any applicable Enhancement, if
necessary, or certain other amounts as specified in the related Prospectus
Supplement. If the Distribution Dates for payment of interest for a Series or
Class occur less frequently than monthly, such collections or other amounts (or
the portion thereof allocable to the Certificateholders' Interest of such Class)
may be deposited in one or more trust accounts (each, an "Interest Funding
Account") pending distribution to the Certificateholders of such Series or
Class, as described in the related Prospectus Supplement. If a Series has more
than one Class of Certificates, each such Class may have a separate Interest
Funding Account. The Prospectus Supplement relating to each Series of
Certificates and each Class thereof will describe the amounts and sources of
interest payments to be made, the Certificate Rate, and, for a Series or Class
thereof bearing interest at a floating or a variable Certificate Rate, the
initial Certificate Rate, the dates and the manner for determining subsequent
Certificate Rates, and the formula, index or other method by which such
Certificate Rates are determined.
PRINCIPAL
Except to the extent specified in the related Prospectus Supplement, during
the Revolving Period for each Series of Certificates (which begins on the
Closing Date relating to such Series and ends on the day before an Amortization
Period begins), no principal payments will be made to the Certificateholders of
such Series. During the Controlled Amortization Period, Principal Amortization
Period or Accumulation Period, as applicable, which will be scheduled to begin
on the date specified or determined as described in the related Prospectus
Supplement, and during the Early Amortization Period, which will begin upon the
occurrence of an Early Amortization Event or, if so specified in the related
Prospectus Supplement, following the Rapid Accumulation Period, principal will
be paid to the Certificateholders in the amounts and on Distribution Dates
specified in the related Prospectus Supplement or will be accumulated in a
Principal Funding Account for later distribution to Certificateholders on the
Expected Final Payment Date in the amounts specified in the related Prospectus
Supplement. Principal payments for any Series or Class thereof will be funded
from Collections of Principal Receivables received during the related Monthly
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Period or periods as specified in the related Prospectus Supplement and
allocated to the Certificateholders' Interest of such Series or Class and from
certain other sources specified in the related Prospectus Supplement. In the
case of a Series with more than one Class of Certificates, the
Certificateholders of one or more Classes may receive payments of principal at
different times. The related Prospectus Supplement will describe the manner,
timing and priority of payments of principal to Certificateholders of each
Class.
Funds on deposit in any Principal Funding Account applicable to a Series may
be subject to a guaranteed rate or investment agreement or other arrangement
specified in the related Prospectus Supplement intended to assure a specified
rate of return on the investment of such funds. In order to enhance the
likelihood of the payment in full of the principal amount of a Series of
Certificates or Class thereof at the end of an Accumulation Period, such Series
of Certificates or Class thereof may be subject to a principal guaranty or other
similar arrangement specified in the related Prospectus Supplement.
DISCOUNT OPTION
Pursuant to the Pooling Agreement the Transferor may designate a specified
fixed or floating percentage (the "Discount Percentage") (initially 0%) of the
amount of Receivables arising in the Accounts on and after the date of such
designation that would otherwise be treated as Principal Receivables to be
treated as Finance Charge Receivables (the "Discount Option Receivables"). The
circumstances under which the Transferor may exercise its option to discount
Principal Receivables may include a time when the Portfolio Yield is declining
and Principal Receivables are available in sufficient quantity to allow for such
discounting. The Transferor may, without notice to or consent of the
Certificateholders, from time to time, increase (subject to the limitations
described below), reduce or eliminate the Discount Percentage for Discount
Option Receivables arising in the Accounts on and after the date of such change.
The Transferor must provide 30 days' prior written notice to the Servicer, the
Trustee and each Rating Agency of any such increase, reduction or elimination,
and such increase, reduction or elimination will become effective on the date
specified therein only if (a) the Transferor has delivered to the Trustee a
certificate of an authorized officer to the effect that, based on the facts
known to such officer at the time, the Transferor reasonably believes that such
increase, reduction or elimination will not at the time of its occurrence cause
an Early Amortization Event, or an event which with notice or the lapse of time
would constitute an Early Amortization Event, to occur with respect to any
Series and (b) if such designation would cause the Discount Percentage to be
greater than 3%, the Transferor, the Servicer and the Trustee shall have
received written notice from each Rating Agency that such increase will not have
a Ratings Effect. On the Date of Processing of any Collections during the time
the Discount Option is in effect, Collections in an amount equal to the product
of (i) a fraction the numerator of which is the amount of Discount Option
Receivables and the denominator of which is the amount of all of the Principal
Receivables (including Discount Option Receivables) at the end of the prior
Monthly Period and (ii) Collections of Principal Receivables, prior to any
reduction for Finance Charge Receivables which are Discount Option Receivables,
received on such Date of Processing, will be deemed Collections of Finance
Charge Receivables and will be applied accordingly. Any such designation would
result in an increase in the amount of Finance Charge Receivables and a
corresponding increase in the Portfolio Yield (as defined in the related
Prospectus Supplement) for each Series and a lower payment rate of Collections
in respect of Principal Receivables than would otherwise occur and therefore the
effect on Certificateholders will be to decrease the likelihood of an Early
Amortization Event based upon a reduction of the average Portfolio Yield for any
designated period to a rate below the average Base Rate (as defined in the
related Prospectus Supplement) for such period while increasing the likelihood
that the Transferor will be required to add Principal Receivables to the Trust
and, because of the reduction in the aggregate amount of Principal Receivables
which, if additional Principal Receivables were not available at such time,
could cause the occurrence of an Early Amortization Event. Unless otherwise
specified, all references herein to Principal Receivables or Finance Charge
Receivables, or Collections with respect thereto, are references to
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such Receivables, or Collections with respect thereto, as defined above after
application of the Discount Percentage.
THE TRANSFEROR CERTIFICATE
The certificate evidencing the Transferor's Interest in the Trust is
referred to as the Transferor Certificate. The Pooling Agreement provides that
the Transferor may exchange a portion of the Transferor Certificate for one or
more certificates representing an interest in the Transferor's Interest (each a
"Supplemental Certificate") for transfer or assignment to a person designated by
the Transferor upon the execution and delivery of a supplement to the Pooling
Agreement (which supplement shall be subject to the amendment provisions of the
Pooling Agreement to the extent that it amends any of the terms of the Pooling
Agreement; see "The Pooling and Servicing Agreement--Amendments"); PROVIDED that
(a) such transfer will not result in a Ratings Effect, (b) the Transferor Amount
(excluding the interest represented by any Supplemental Certificate) shall not
be less than the Required Retained Transferor Amount as of the date of, and
after giving effect to, such exchange and (c) the Transferor shall have
delivered to the Trustee and each Rating Agency a Tax Opinion, dated the date of
such exchange, with respect to the transfer or assignment of such Supplemental
Certificate. Any subsequent transfer or assignment of a Supplemental Certificate
is subject to the conditions set forth in clauses (a) and (c) above.
NEW ISSUANCES
The Pooling Agreement provides that, pursuant to any one or more Series
Supplements, the Transferor may direct the Trustee to issue from time to time
new Series subject to the conditions described below (each such issuance, a "New
Issuance"). Each New Issuance will have the effect of decreasing the Transferor
Amount to the extent of the Invested Amount of such new Series. Under the
Pooling Agreement, the Transferor may designate, with respect to any newly
issued Series: (a) its name or designation; (b) its initial principal amount (or
method for calculating such amount) and its invested amount in the Trust, which
is generally based on the aggregate amount of Principal Receivables in the Trust
allocated to such Series; (c) its certificate rate (or formula for the
determination thereof); (d) the interest payment date or dates (each, an
"Interest Payment Date") and the date or dates from which interest shall accrue;
(e) the method for allocating collections to Certificateholders of such Series;
(f) any bank accounts to be used by such Series and the terms governing the
operation of any such bank accounts; (g) the percentage used to calculate
monthly servicing fees; (h) the provider and terms of any form of Enhancement
with respect thereto; (i) the terms on which the Certificates of such Series may
be repurchased or remarketed to other investors; (j) the Series Termination
Date; (k) the number of Classes of Certificates of such Series, and if such
Series consists of more than one Class, the rights and priorities of each such
Class; (l) the extent to which the Certificates of such Series will be issuable
in temporary or permanent global form (and, in such case, the depositary for
such global certificate or certificates, the terms and conditions, if any, upon
which such global certificate may be exchanged, in whole or in part, for
definitive certificates, and the manner in which any interest payable on a
global certificate will be paid); (m) whether the Certificates of such Series
may be issued in bearer form and any limitations imposed thereon; (n) the
priority of such Series with respect to any other Series; (o) the Group, if any,
in which such Series will be included; and (p) any other relevant terms (all
such terms, the "Principal Terms" of such Series). None of the Transferor, the
Servicer, the Trustee or the Trust is required or intends to obtain the consent
of any Certificateholder of any outstanding Series to issue any additional
Series. The Transferor may offer any Series to the public under a prospectus or
other disclosure document in transactions either registered under the Securities
Act or exempt from registration thereunder directly, through one or more
underwriters or placement agents, in fixed-price offerings or in negotiated
transactions or otherwise. Any such Series may be issued in fully registered or
book-entry form in minimum denominations determined by the Transferor.
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The Pooling Agreement provides that the Transferor may designate Principal
Terms such that each Series has (i) an accumulation period (an "Accumulation
Period") during which time collections of Principal Receivables and certain
other amounts allocable to the Certificateholders' Interest of such Series will
be deposited on each Distribution Date in a trust account which is an Eligible
Deposit Account (a "Principal Funding Account") for the benefit of such
Certificateholders and used to make principal distributions to such
Certificateholders when due or (ii) a Controlled Amortization Period or a
Principal Amortization Period that may have a different length and begin on a
different date than such periods for any other Series. Further, one or more
Series may be in their Accumulation Period, Controlled Amortization Period or
Principal Amortization Period while other Series are not. If specified in the
related Prospectus Supplement, Collections of Principal Receivables otherwise
allocable to a Series that is not amortizing or accumulating principal may be
treated as Shared Principal Collections and reallocated to a Series that is
amortizing or accumulating principal. If specified in the related Prospectus
Supplement, Collections of Principal Receivables and Finance Charge Receivables
otherwise payable to the Transferor may be designated to be paid to the
Certificateholders of the applicable Series. Moreover, each Series may have the
benefits of Enhancement issued by enhancement providers different from the
Enhancement Providers with respect to any other Series. Under the Pooling
Agreement, the Trustee shall hold any such Enhancement only on behalf of the
Certificateholders of the Series to which such Enhancement relates. With respect
to each such Enhancement, the Transferor may deliver a different form of
Enhancement agreement. The Transferor also has the option under the Pooling
Agreement to vary among Series the terms upon which a Series may be repurchased
by the Transferor or remarketed to other investors. There is no limit to the
number of New Issuances the Transferor may cause under the Pooling Agreement.
The Trust will terminate only as provided in the Pooling Agreement. There can be
no assurance that the terms of any Series might not have an impact on the timing
and amount of payments received by a Certificateholder of another Series.
Under the Pooling Agreement and pursuant to a Series Supplement, a New
Issuance may only occur upon the satisfaction of certain conditions provided in
the Pooling Agreement. The obligation of the Trustee to authenticate the
Certificates of such new Series and to execute and deliver the related Series
Supplement is subject to the satisfaction of the following conditions: (a) on or
before the fifth Business Day immediately preceding the date upon which the New
Issuance is to occur, the Transferor shall have given the Trustee, the Servicer
and each Rating Agency written notice of such New Issuance and the date upon
which the New Issuance is to occur; (b) the Transferor shall have delivered to
the Trustee the related Series Supplement, in form satisfactory to the Trustee,
executed by each party to the Pooling Agreement other than the Trustee; (c) the
Transferor shall have delivered to the Trustee the related Enhancement
agreement, if any, executed by the parties to such agreement; (d) the
Transferor, the Servicer, and the Trustee shall have received confirmation from
each Rating Agency that such New Issuance will not result in a Ratings Effect;
(e) the Transferor shall have delivered to the Trustee and certain Enhancement
Providers, if any, a certificate of an authorized officer, dated the date upon
which the New Issuance is to occur, to the effect that the Transferor reasonably
believes that such issuance will not, based on the facts known to such officer
at the time of such certification, cause an Early Amortization Event to occur
with respect to any Series; (f) the Transferor shall have delivered to the
Trustee and each Rating Agency an opinion of counsel acceptable to the Trustee
that for federal income tax purposes: (i) following such New Issuance the Trust
will not be deemed to be an association (or publicly traded partnership) taxable
as a corporation; (ii) such New Issuance will not affect the tax
characterization as debt of Certificates of any outstanding Series or Class that
were properly characterized as debt at the time of their issuance; and (iii)
such New Issuance will not cause or constitute an event in which gain or loss
would be recognized by holders of Certificates characterized as debt at the time
of their issuance (an opinion of counsel to the effect referred to in clauses
(i), (ii) and (iii) with respect to any action is referred to herein as a "Tax
Opinion"); (g) the Transferor Amount (excluding the interest represented by any
Supplemental Certificate) shall not be less than the Required Retained
Transferor Amount as of the date upon which the New Issuance is to occur after
giving effect to such issuance; and (h) any other conditions specified in any
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Series Supplement. Upon satisfaction of the above conditions, the Trustee shall
execute the Series Supplement and issue to the Transferor the Certificates of
such new Series for execution and redelivery to the Trustee for authentication.
The Pooling Agreement provides that, pursuant to any one or more supplements
to the Pooling Agreement (each, a "Participation Supplement"), the Transferor
may direct the Trustee to issue on behalf of the Trust one or more
participations (each, a "Participation"), to be delivered to or upon the order
of the Transferor; PROVIDED that (a) such issuance will not result in a Ratings
Effect, (b) the Transferor Amount (excluding the interest represented by any
Supplemental Certificate) shall not be less than the Required Retained
Transferor Amount as of the date of, and after giving effect to, such issuance
and (c) the Transferor shall have delivered to the Trustee and each Rating
Agency a Tax Opinion, dated the date of such issuance, with respect to such
issuance. Any Participation may be transferred or exchanged only upon
satisfaction of the conditions described in clauses (a) and (c) above.
Notwithstanding the foregoing, on the Closing Date, the Transferor will issue to
RNB a Participation with respect to which the conditions above need not be
specifically satisfied. Each Participation will entitle its holder to a
specified percentage (the "Participation Percentage") of all Collections of
Principal Receivables and Finance Charge Receivables and any other Trust Assets
to the extent specified in the Participation Supplement.
COLLECTION ACCOUNT
The Servicer has established and will maintain in the name of the Trust and
for the benefit of the Certificateholders of each Series, an Eligible Deposit
Account bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders of each Series (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 organized under the laws
of the United States or any one of the states thereof, including the District of
Columbia (or any domestic branch of a foreign bank), and acting as a trustee for
funds deposited in such account, so long as any of the securities of such
depository institution shall have a credit rating from each Rating Agency in one
of its generic credit rating categories which signifies investment grade.
"Eligible Institution" means (i) a depository institution (which may be the
Trustee) organized under the laws of the United States or any one of the states
thereof which at all times (A) has either (1) a long-term unsecured debt rating
of "A2" or better by Moody's Investors Service, Inc. ("Moody's") or (2) a
certificate of deposit rating of "P-1" by Moody's, (B) has either (1) a
long-term unsecured debt rating of "AAA" by Standard & Poor's Ratings Group, a
division of McGraw Hill Corporation ("Standard & Poor's"), or (2) a certificate
of deposit rating of "A-1+" by Standard & Poor's and (C) is a member of the FDIC
or (ii) any other institution that is acceptable to each Rating Agency. The
Collection Account will initially be maintained with the Trustee. If at any time
the Collection Account ceases to be an Eligible Deposit Account, the Collection
Account shall be moved so that it will again be qualified as an Eligible Deposit
Account. Funds in the Collection Account generally will be invested in (i)
obligations fully guaranteed by the United States of America, (ii) demand
deposits, time deposits or certificates of deposit of depository institutions or
trust companies, the commercial paper, if any, of which has the highest rating
from Moody's and Standard & Poor's, (iii) commercial paper (or other short-term
obligations) having, at the time of the Trust's investment therein, a rating in
the highest rating category from Moody's and Standard & Poor's, (iv) demand
deposits, time deposits and certificates of deposit which are fully insured by
the FDIC, (v) notes or bankers' acceptances issued by any depository institution
or trust company described in (ii) above, (vi) time deposits with an entity, the
commercial paper of which has the highest rating from Moody's and Standard &
Poor's, and (vii) any other investments approved in writing by each Rating
Agency which would not cause the Trust to become an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (collectively,
"Eligible Investments"). Any earnings (net of losses and investment expenses) on
funds in the Collection Account will be treated as collections of Finance Charge
Receivables with respect to the last day of the related Monthly Period. The
Servicer has the revocable power to withdraw funds from the Collection Account
and to instruct the Trustee to make
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withdrawals and payments from the Collection Account for the purpose of carrying
out its duties under the Pooling Agreement and the Series Supplements. Under the
Pooling Agreement, a paying agent (the "Paying Agent") will be appointed. The
Paying Agent shall have the revocable power to withdraw funds from the
Collection Account for the purpose of making distributions to the
Certificateholders. The Paying Agent shall initially be the Trustee.
DEPOSITS IN COLLECTION ACCOUNT
The Servicer will, subject to the limitations described in the related
Prospectus Supplement, deposit all Collections received with respect to the
Receivables in each Monthly Period into the Collection Account not later than
two Business Days after the related Date of Processing, and the Servicer will
make the deposits and payments to the accounts and parties described in the
related Prospectus Supplement on the date of such deposit. If RNB as Servicer
(i) provides to the Trustee a letter of credit covering collection risk of the
Servicer acceptable to each Rating Agency (as evidenced by a letter from each
Rating Agency to the effect that such action will not cause a Ratings Effect) or
(ii) Dayton Hudson has and maintains a commercial paper rating of at least "A-1"
and "P-1" (or their equivalent) by Standard & Poor's and Moody's, respectively,
RNB may use for its own benefit all Collections received with respect to the
Receivables in each Monthly Period until the Business Day preceding the related
Distribution Date. RNB currently has not provided such a letter of credit and
Dayton Hudson does not currently maintain such rating. In the event of the
insolvency or receivership of RNB or, in certain circumstances, the lapse of
certain time periods, the Transferor may not have a perfected security interest
in such Collections. If the Transferor does not have a perfected security
interest in such Collections, the Trust will not have a perfected security
interest in such Collections. The Servicer will only be required to deposit
Collections into the Collection Account up to the aggregate amount of
Collections required to be deposited into an account established for any Series,
or, without duplication, distributed on the related Distribution Date or Payment
Date to Certificateholders of any Series or to the issuer of any Enhancement
pursuant to the terms of any Series Supplement. If at any time prior to such
Distribution Date or Payment Date the amount of Collections deposited in the
Collection Account exceeds the amount required to be so deposited the Servicer
will be permitted to withdraw such excess from the Collection Account.
SHARING OF EXCESS FINANCE CHARGE COLLECTIONS AND EXCESS TRANSFEROR FINANCE
CHARGE COLLECTIONS
If so specified in the related Prospectus Supplement, the Certificateholders
of a Series or any Class thereof may be entitled to receive all or a portion of
Excess Finance Charge Collections with respect to another Series included in the
same group of Series (each, a "Group") to cover any shortfalls with respect to
amounts payable from Collections of Finance Charge Receivables allocable to such
Series or Class. Unless otherwise provided in the related Prospectus Supplement,
with respect to any Series, "Excess Finance Charge Collections" for any Monthly
Period will equal the excess of Collections of Finance Charge Receivables and
certain other amounts allocated to the Certificateholders' Interest of such
Series or Class over the sum of (i) interest accrued for the current month
("Monthly Interest") and overdue Monthly Interest on the Certificates of such
Series or Class, (ii) accrued and unpaid Monthly Servicing Fees (as defined in
the related Prospectus Supplement) with respect to such Series or Class, (iii)
the Investor Defaulted Amount (as defined in the related Prospectus Supplement)
with respect to such Series or Class, (iv) unreimbursed Investor Charge-Offs (as
defined in the related Prospectus Supplement) with respect to such Series or
Class and (v) other amounts specified in the related Prospectus Supplement. Such
Excess Finance Charge Collections will be applied to cover any shortfalls with
respect to amounts payable from collections of Finance Charge Receivables
allocable to any other Series in the same Group, PRO RATA based upon the amount
of the shortfall, if any, with respect to each other Series in such Group. While
any Series offered hereby may be included in a Group, there can be no assurance
that (a) any other Series will be included in such Group or (b) there will be
any Excess Finance Charge Collections with respect to such Group for any Monthly
Period.
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Collections of Finance Charge Receivables allocable to the Transferor's
Interest in excess of the amounts necessary to make required payments with
respect to any Supplemental Certificates and all other amounts otherwise payable
to the Transferor with respect to collections of Finance Charge Receivables
regardless of whether such collections were initially allocated to the
Transferor or any Series (the "Excess Transferor Finance Charge Collections")
will be applied to cover any shortfalls (after giving effect to the application
of Excess Finance Charge Collections) with respect to amounts payable from
Collections of Finance Charge Receivables allocable to each Series designated in
the applicable Series Supplement as being entitled to receive Excess Transferor
Finance Charge Collections, PRO RATA based upon the amount of the shortfall
(after giving effect to the application of Excess Finance Charge Collections),
if any, with respect to each other Series designated in the applicable Series
Supplement as being entitled to receive Excess Transferor Finance Charge
Collections. In all cases, any Excess Transferor Finance Charge Collections
remaining after covering shortfalls with respect to all designated Series will
be treated as Shared Transferor Principal Collections. Excess Transferor Finance
Charge Collections permit coverage of shortfalls with respect to amounts payable
from Collections of Finance Charge Receivables and Excess Finance Charge
Collections allocable to a Series by using Collections of Finance Charge
Receivables which would otherwise be paid to the Transferor.
SHARED PRINCIPAL COLLECTIONS AND TRANSFEROR PRINCIPAL COLLECTIONS
If specified in the related Prospectus Supplement, Collections of Principal
Receivables for any Monthly Period allocated to the Certificateholders' Interest
of any Series will first be used to cover certain amounts described in the
Series Supplement of such Series (including any required distributions to
Certificateholders of such Series). The Servicer will determine the amount of
Collections of Principal Receivables for any Monthly Period (plus certain other
amounts described in the Series Supplement of such Series) allocated to such
Series remaining after covering such required deposits and distributions and any
similar amount remaining for any other Series (collectively, "Shared Principal
Collections"). The Servicer will allocate the Shared Principal Collections plus
amounts specified in any Participation Supplement with respect to any
Participation to be treated as Shared Principal Collections, to cover any
principal distributions to Certificateholders and deposits to Principal Funding
Accounts for any Series that are either scheduled or permitted and that have not
been covered out of the investor principal collections and certain other amounts
for such Series (collectively, "Principal Shortfalls"). If Principal Shortfalls
exceed Shared Principal Collections for any Monthly Period, Shared Principal
Collections will be allocated PRO RATA among the applicable Series based on the
respective Principal Shortfalls of such Series. To the extent that Shared
Principal Collections exceed Principal Shortfalls, the balance will be allocated
to the holder of the Transferor Certificate, PROVIDED that (a) such Shared
Principal Collections will be distributed to the holder of the Transferor
Certificate only to the extent that the Transferor Amount (excluding the
interest represented by any Supplemental Certificate) is greater than the
Required Retained Transferor Amount and (b) in certain circumstances described
below under "--Special Funding Account," such Shared Principal Collections will
be deposited in the Special Funding Account. Any such reallocation of
Collections of Principal Receivables will not result in a reduction in the
Invested Amount of the Series to which such Collections were initially
allocated. There can be no assurance that there will be any Shared Principal
Collections with respect to any Monthly Period.
The Servicer will determine the amount of Collections of Principal
Receivables for any Monthly Period allocated to the Transferor's Interest but
not due to the holder of any Supplemental Certificate and other amounts payable
to the Transferor with respect to Collections of Principal Receivables,
regardless of whether such Collections were initially allocated to the
Transferor or any Series, plus the amount of Excess Transferor Finance Charge
Collections remaining after application to amounts payable from Collections of
Finance Charge Receivables (collectively, "Shared Transferor Principal
Collections"). The Servicer will allocate the Shared Transferor Principal
Collections to cover any Principal Shortfalls that have not been covered out of
the Shared Principal Collections allocated to each Series that has been
designated in the applicable Series Supplement as being entitled to receive
Shared Transferor Principal Collections. If
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Principal Shortfalls remaining after the application of Shared Principal
Collections exceed Shared Transferor Principal Collections for any Monthly
Period, Shared Transferor Principal Collections will be allocated pro rata among
each Series which in accordance with the Series Supplement for such Series is
designated as being entitled to receive Shared Transferor Principal Collections,
based on the respective remaining Principal Shortfalls of such Series. To the
extent that Shared Transferor Principal Collections exceed Principal Shortfalls
remaining after application of Shared Principal Collections, the balance will be
paid to the holder of the Transferor Certificate. Shared Transferor Principal
Collections permit coverage of Principal Shortfalls remaining after the
application of Shared Principal Collections by using Collections that would have
been paid to the Transferor and in certain circumstances may allow the
Accumulation Period Length (as defined in the related Prospectus Supplement) to
be shorter. There can be no assurance that there will be any Shared Transferor
Principal Collections with respect to any Monthly Period.
SPECIAL FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the Trust, for the
benefit of the Certificateholders of all Series a "Special Funding Account"
which shall be an Eligible Deposit Account. At any time during which the
Transferor Amount (excluding the interest represented by any Supplemental
Certificate) would otherwise be less than the Required Retained Transferor
Amount, funds (to the extent available therefor as described herein) otherwise
payable to the Transferor will be deposited in the Special Funding Account on
each Business Day until the Transferor Amount (excluding the interest
represented by any Supplemental Certificate) is at least equal to the Required
Retained Transferor Amount. Funds on deposit in the Special Funding Account will
be withdrawn and paid to the Transferor (or, if provided in the applicable
Supplement, used to make payments to Certificateholders) to the extent that
following such distribution the Transferor Amount (excluding the interest
represented by any Supplemental Certificate) would continue to exceed the
Required Retained Transferor Amount. Such deposits in and withdrawals from the
Special Funding Account may be made on a daily basis.
Funds on deposit in the Special Funding Account will be invested by the
Trustee at the direction of the Servicer in Eligible Investments selected by the
Servicer. On each Distribution Date, all net investment income earned on amounts
in the Special Funding Account since the preceding Distribution Date will be
withdrawn from the Special Funding Account and treated as Collections of Finance
Charge Receivables with respect to such Monthly Period.
PAIRED SERIES
If so provided in the Prospectus Supplement relating to a Series, each such
Series is subject to being paired with another Series (in such case, a "Paired
Series"). The Prospectus Supplement for such Series and the Prospectus
Supplement for the Paired Series will each specify the relationship between the
Series.
FUNDING PERIOD
For any Series of Certificates, the related Prospectus Supplement may
specify that for a period beginning on the Closing Date and ending on a
specified date before the commencement of an Amortization Period or Accumulation
Period with respect to such Series (the "Funding Period"), the aggregate amount
of Principal Receivables in the Trust allocable to such Series may be less than
the aggregate principal amount of the Certificates of such Series and that the
amount of such deficiency (the "Pre-Funding Amount") will be held in a trust
account established with the Trustee for the benefit of the Certificateholders
of such Series (the "Pre-Funding Account") pending the transfer of additional
Receivables to the Trust or pending the reduction of the Invested Amounts of
other Series. The related Prospectus Supplement will specify the Initial
Invested Amount with respect to such Series, the aggregate principal amount of
such Series (the "Full Invested Amount") and the date by which the Invested
Amount is expected to equal the Full Invested Amount. The Invested Amount will
increase as Receivables are delivered to the Trust or as the Invested Amounts of
other Series are reduced. The Invested Amount may also decrease due to Investor
Charge-Offs as provided in the related Prospectus Supplement.
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During the Funding Period, funds on deposit in the Pre-Funding Account for a
Series of Certificates will be withdrawn and paid to the Transferor to the
extent of any increases in the Invested Amount. In the event that the Invested
Amount does not for any reason equal the Full Invested Amount by the end of the
Funding Period, any amount remaining in the Pre-Funding Account and any
additional amounts specified in the related Prospectus Supplement will be
payable to the Certificateholders of such Series in the manner and at such time
as set forth in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, monies in the
Pre-Funding Account will be invested by the Trustee in Eligible Investments or
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Pre-Funding Account during the
related Monthly Period will be withdrawn from the Pre-Funding Account and
deposited, together with any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement, into the Collection Account
for distribution in respect of interest on the Certificates of the related
Series in the manner specified in the related Prospectus Supplement.
DEFAULTED RECEIVABLES
"Defaulted Receivables" for any date of determination are Principal
Receivables that were charged-off as uncollectible on such day. The "Defaulted
Amount" for any Monthly Period will be an amount (not less than zero) equal to
(a) the amount of Defaulted Receivables for each day in such Monthly Period
minus (b) the sum of (i) the amount of any Defaulted Receivables for which the
Transferor Amount is reduced as a result of the assignment of a principal
balance of zero thereto for purposes of determining the aggregate amount of
Principal Receivables or for which the Servicer becomes obligated to accept
assignment during such Monthly Period, in either case as a result of a breach of
a representation, warranty or covenant contained in the Pooling Agreement
(unless an Insolvency Event has occurred with respect to the Transferor or the
Servicer, in which event the amount of such Defaulted Receivables will not be
added to the sum so subtracted), (ii) the aggregate amount of recoveries
received in such Monthly Period with respect to both Finance Charge Receivables
and Principal Receivables previously charged-off as uncollectible and (iii) the
excess, if any, for the immediately preceding Monthly Period of the sum computed
pursuant to this clause (b) over the amount of Principal Receivables that became
Defaulted Receivables during such Monthly Period. Receivables in any Account
will be charged-off as uncollectible in accordance with the Credit Card
Guidelines and the Servicer's customary and usual policies and procedures for
servicing open end credit card and other open end credit account receivables
comparable to the Receivables. Such policy is currently to charge off the
receivables in an account when that account becomes 180 days delinquent.
DILUTION
If the Servicer adjusts downward the amount of any Principal Receivable
(other than Ineligible Receivables which have been or are to be reassigned to
the Transferor) because of a rebate, refund, counterclaim, defense, error,
fraudulent charge or counterfeit charge to a Cardholder or such Principal
Receivable was created in respect of merchandise which was refused or returned
by a Cardholder or if the Servicer otherwise adjusts downward the amount of any
Principal Receivable without receiving Collections therefor or charging off such
amount as uncollectible, the amount of the Principal Receivables in the Trust
with respect to the Monthly Period in which such adjustment takes place will be
reduced by the amount of the adjustment. Furthermore, in the event that the
exclusion of any such Receivables would cause the Transferor Amount (excluding
the interest represented by any Supplemental Certificate) at such time to be
less than the Required Retained Transferor Amount, the Transferor will be
required to pay an amount equal to such deficiency into the Special Funding
Account.
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EARLY AMORTIZATION EVENTS
Unless otherwise specified in the related Prospectus Supplement, as
described above, the Revolving Period will continue through the date specified
in the related Prospectus Supplement unless an Early Amortization Event occurs
prior to such date. An "Early Amortization Event" with respect to each Series
would occur automatically upon (a) certain insolvency events relating to RNB,
DHCC, the Transferor or any holder of the Transferor Certificate (excluding any
holder of a Supplemental Certificate), (b) the Trust becoming an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
(c) the Transferor Amount (excluding the interest represented by any
Supplemental Certificate) being less than the Required Retained Transferor
Amount or (d) the Transferor becoming unable for any reason to transfer
Receivables to the Trust. In addition an Early Amortization Event may occur with
respect to any specific Series upon the occurrence of any event specified in the
related Prospectus Supplement. On the date on which an Early Amortization Event
is deemed to have occurred, the Early Amortization Period or, if specified in
the related Prospectus Supplement, the Rapid Accumulation Period, will commence.
If, because of the occurrence of an Early Amortization Event, the Early
Amortization Period or, if specified in the related Prospectus Supplement, the
Rapid Accumulation Period, begins earlier than the scheduled commencement of an
Amortization Period or prior to an Expected Final Payment Date,
Certificateholders may begin receiving distributions of principal earlier than
they otherwise would have, which may shorten the average life of the
Certificates.
DEFEASANCE
The Transferor may, at its option, be discharged from its obligations with
respect to any Series or all outstanding Series (each a "Defeased Series") on
the date that the following conditions shall have been satisfied: (i) the
Transferor shall have deposited with the Trustee, pursuant to an irrevocable
trust agreement in form and substance satisfactory to the Trustee, as trust
funds in trust for making the payments described below, Eligible Investments
which through the scheduled payment of principal and interest in respect thereof
will provide, no later than the due date of payment thereon, a dollar amount
sufficient to pay and discharge all remaining scheduled interest and principal
payments on all outstanding Certificates of the Defeased Series on the dates
scheduled for such payments and any amounts owing to any Enhancement Providers
with respect to the Defeased Series; (ii) prior to any exercise of its right to
substitute Eligible Investments for Receivables, the Transferor shall have
delivered to the Trustee a Tax Opinion with respect to such deposit and
termination of obligations and an opinion of counsel to the effect that such
deposit and termination of obligations will not result in the Trust being
required to register as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended; (iii) the Transferor shall have
delivered to the Trustee a certificate of an officer of the Transferor stating
that the Transferor reasonably believes that such deposit and termination of its
obligations will not cause an Early Amortization Event or any event that, with
the giving of notice or the lapse of time, would constitute an Early
Amortization Event to occur with respect to any Series; and (iv) a Ratings
Effect will not occur. Subject to the foregoing, the Transferor may cause
Collections allocated to the Defeased Series and available to purchase
additional Receivables to be applied to purchase Eligible Investments, rather
than additional Receivables.
REPORTS TO CERTIFICATEHOLDERS
No later than the third Business Day prior to each Distribution Date, the
Servicer will forward to the Trustee and each Rating Agency a statement (the
"Monthly Report") prepared by the Servicer setting forth certain information
with respect to the Trust and the Certificates of each Series, including: (a)
the aggregate amount of Principal Receivables and Finance Charge Receivables in
the Trust as of the end of such Monthly Period; (b) the Invested Amount of each
Series and the Invested Amount allocated to each Class thereof; (c) the Floating
Allocation Percentage (as defined in the related Prospectus Supplement) and,
during the Controlled Amortization Period, Principal Amortization Period,
Accumulation Period,
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Rapid Accumulation Period or Early Amortization Period of each Series, the
Principal Allocation Percentage with respect to each Series and each Class
thereof; (d) the amount of Collections of Principal Receivables and Finance
Charge Receivables processed during the related Monthly Period and the portion
thereof allocated to the Certificateholders' Interest of each Series; (e) the
aggregate outstanding balance of Accounts which were 30, 60, 90 and 120 days or
more delinquent as of the end of the billing-cycle end dates occurring during
such Monthly Period; (f) the Defaulted Amount with respect to such Monthly
Period and the portion thereof allocated to the Certificateholders' Interest of
each Series; (g) the amount, if any, of charge-offs with respect to the
Certificateholders' Interest of each Series and the portion allocable to each
Class thereof for such Monthly Period; (h) the Monthly Servicing Fee (as defined
in the related Prospectus Supplement) with respect to such Series for such
Monthly Period; (i) the Portfolio Yield for such Monthly Period; and (j) the
Base Rate for such Monthly Period.
With respect to each Interest Payment Date or Special Payment Date (each, a
"Payment Date"), as the case may be, the Monthly Report with respect to any
Series will include the following additional information with respect to the
other outstanding Series: (a) the total amount distributed; (b) the amount of
such distribution allocable to principal on the Certificates of each Series; (c)
the amount of such distribution allocable to interest on the Certificates of
each Series; and (d) the amount, if any, by which the unpaid principal balance
of the Certificates of each Series exceeds the Invested Amount of such Series as
of the Record Date with respect to such Payment Date. On each Distribution Date
the Trustee will forward to each Certificateholder of record (which is expected
to be Cede, the nominee for DTC) a copy of the Monthly Report. See "--Book-Entry
Registration" for a description of DTC procedures generally. Neither the
Servicer nor the Trustee will be obligated to forward any reports directly to
beneficial owners.
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 a statement containing the
information required to be provided by an issuer of indebtedness under the Code
(defined herein) 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. See "Certain U.S. Federal Income Tax Consequences."
LIST OF CERTIFICATEHOLDERS
At such time, if any, as Definitive Certificates have been issued, upon
written request of any Certificateholder or group of Certificateholders of
record holding Certificates evidencing not less than 10% of the aggregate unpaid
principal amount of the Certificates of a Series or of all outstanding Series,
as the case may be, the Trustee will afford such Certificateholders access
during normal business hours to the current list of Certificateholders of the
Series or all outstanding Series, as the case may be, for purposes of
communicating with other Certificateholders with respect to their rights under
the Pooling Agreement or any Series Supplement or Certificates. See
"--Book-Entry Registration" and "--Definitive Certificates" for a description of
the circumstances under which Definitive Certificates may be issued.
The Pooling Agreement does not provide for any annual or other meetings of
Certificateholders.
ENHANCEMENT
For any Series, Enhancement may be provided with respect to one or more
Classes thereof. Enhancement may be in the form of the subordination of one or
more Classes of the Certificates of such Series, the establishment of any cash
collateral guaranty or account, collateral invested amount, letter of credit,
surety bond, insurance, guaranteed rate agreement, maturity guaranty facility,
tax protection agreement, interest rate swap or cap, spread account, reserve
account, the use of cross-support features or another method of Enhancement
described in the related Prospectus Supplement, or any combination of the
foregoing. If so specified in the related Prospectus Supplement, any form of
Enhancement may be structured so as to be drawn upon by more than one Class to
the extent described therein.
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Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by the Enhancement or which are not covered by the Enhancement,
Certificateholders will bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, the related Prospectus
Supplement will include a description of (a) the amount payable under such
Enhancement, (b) any conditions to payment thereunder not otherwise described
herein, (c) the conditions (if any) under which the amount payable under such
Enhancement may be reduced and under which such Enhancement may be terminated or
replaced and (d) any material provision of any agreement relating to such
Enhancement. Additionally, the related Prospectus Supplement may set forth
certain information with respect to the issuer of any third party Enhancement
(the "Enhancement Provider"), including (i) a brief description of its principal
business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to do
business, (iii) if applicable, the identity of regulatory agencies which
exercise primary jurisdiction over the conduct of its business and (iv) its
total assets, and its stockholders' or policyholders' surplus, if applicable,
and other appropriate financial information as of the date specified in the
Prospectus Supplement. If so specified in the related Prospectus Supplement,
Enhancement with respect to a Series may be available to pay principal of the
Certificates of such Series following the occurrence of certain Early
Amortization Events with respect to such Series. In such event, the Enhancement
Provider may have an interest in certain cash flows in respect of the
Receivables to the extent described in such Prospectus Supplement (the
"Enhancement Invested Amount").
SUBORDINATION
If so specified in the related Prospectus Supplement, one or more Class of
any Series will be subordinated as described in the related Prospectus
Supplement to the extent necessary to fund payments with respect to the Senior
Certificates. The rights of the holders of any such Subordinated Certificates to
receive distributions of principal and/or interest on any Distribution Date for
such Series will be subordinate in right and priority to the rights of the
holders of Senior Certificates, but only to the extent set forth in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement,
subordination may apply only in the event of certain types of losses not covered
by another Enhancement. The related Prospectus Supplement will also set forth
information concerning the amount of subordination of a Class or Classes of
Subordinated Certificates in a Series, the circumstances in which such
subordination will be applicable, the manner, if any, in which the amount of
subordination will decrease over time, and the conditions under which amounts
available from payments that would otherwise be made to holders of such
Subordinated Certificates will be distributed to holders of Senior Certificates.
If Collections of Receivables otherwise distributable to holders of a
Subordinated Class of a Series will be used as support for a Class of another
Series, the related Prospectus Supplement will specify the manner and conditions
for applying such a cross-support feature.
CASH COLLATERAL GUARANTY OR ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by a guaranty (the "Cash
Collateral Guaranty") secured by the deposit of cash or certain eligible
investments in an account (the "Cash Collateral Account") reserved for the
beneficiaries of the Cash Collateral Guaranty or by a Cash Collateral Account
alone. The amount available pursuant to the Cash Collateral Guaranty or the Cash
Collateral Account will be the lesser of amounts on deposit in the Cash
Collateral Account and an amount specified in the related Prospectus Supplement.
The related Prospectus Supplement will set forth the circumstances under which
payments are made to beneficiaries of the Cash Collateral Guaranty from the Cash
Collateral Account or from the Cash Collateral Account directly.
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COLLATERAL INVESTED AMOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided initially by an undivided
interest in the Trust (the "Collateral Invested Amount") in an amount initially
equal to a percentage of the Certificates of such Series as specified in the
Prospectus Supplement. Such Series may also have the benefit of a Cash
Collateral Guaranty or Cash Collateral Account with an initial amount on deposit
therein, if any, as specified in the Prospectus Supplement which will be
increased (i) to the extent the Transferor elects, subject to certain conditions
specified in the related Prospectus Supplement, to apply Collections of
Principal Receivables allocable to the Collateral Invested Amount to decrease
the Collateral Invested Amount, (ii) to the extent Collections of Principal
Receivables allocable to the Collateral Invested Amount are required to be
deposited into the Cash Collateral Account as specified in the related
Prospectus Supplement and (iii) to the extent excess Collections of Finance
Charge Receivables are required to be deposited into the Cash Collateral Account
as specified in the related Prospectus Supplement. The total amount of the
Enhancement available pursuant to the Collateral Invested Amount and, if
applicable, the Cash Collateral Guaranty or Cash Collateral Account will be the
lesser of the sum of the Collateral Invested Amount and the amount on deposit in
the Cash Collateral Account and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments which otherwise would be made to holders of the Collateral
Invested Amount will be distributed to holders of Certificates and, if
applicable, the circumstances under which payment will be made under the Cash
Collateral Guaranty or under the Cash Collateral Account.
LETTER OF CREDIT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by one or more letters of
credit. A letter of credit may provide limited protection against certain losses
in addition to or in lieu of other Enhancement. The issuer of the letter of
credit will be obligated to honor demands with respect to such letter of credit,
to the extent of the amount available thereunder, to provide funds under the
circumstances and subject to such conditions as are specified in the related
Prospectus Supplement.
The maximum liability of the issuer of the letter of credit under such
letter of credit will generally be an amount equal to a percentage specified in
the related Prospectus Supplement of the Initial Invested Amount of a Series or
a Class of such Series. The maximum amount available at any time to be paid
under a letter of credit will be determined in the manner specified therein and
in the related Prospectus Supplement.
SURETY BOND OR INSURANCE POLICY
If so specified in the related Prospectus Supplement, insurance with respect
to a Series or one or more Classes thereof will be provided by one or more
insurance companies. Such insurance will guarantee, with respect to one or more
Classes of the related Series, distributions of interest or principal in the
manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond will be
purchased for the benefit of the holders of any Series or Class of such Series
to assure distributions of interest or principal with respect to such Series or
Class of Certificates in the manner and amount specified in the related
Prospectus Supplement.
SPREAD ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by the periodic deposit of
certain available excess cash flow from the Trust Assets into an account (the
"Spread Account") intended to assist with subsequent distribution of interest
and
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principal on the Certificates of such Class or Series in the manner specified in
the related Prospectus Supplement.
RESERVE ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof or any Enhancement related thereto will be
provided by the establishment of a reserve account (the "Reserve Account"). The
Reserve Account may be funded, to the extent provided in the related Prospectus
Supplement, by an initial cash deposit, the retention of certain periodic
distributions of principal or interest or both otherwise payable to one or more
Classes of Certificates, including the Subordinated Certificates, or the
provision of a letter of credit, guarantee, insurance policy or other form of
credit or any combination thereof. The Reserve Account will be established to
assist with the subsequent distribution of principal or interest on the
Certificates of such Series or Class thereof or such other amount owing on any
Enhancement thereto in the manner provided in the related Prospectus Supplement.
THE POOLING AND SERVICING AGREEMENT
CONVEYANCE OF RECEIVABLES
Pursuant to the Pooling Agreement, the Transferor has transferred to the
Trust its respective interests in (i) all Receivables existing as of the Cut-Off
Date and thereafter created from time to time and arising in the initial
Accounts and all Receivables existing on each applicable Addition Date and
thereafter created from time to time and arising in any Automatic Additional
Accounts, and the proceeds of all of the foregoing, (ii) any merchant fees and
deferred billing fees, (iii) the Receivables Purchase Agreement and (iv) the
Bank Receivables Purchase Agreement.
In connection with the transfer of any Receivables to the Trust after the
Automatic Addition Termination Date or any Automatic Addition Suspension Date
(and in the latter case, prior to a Restart Date), the Transferor is required to
indicate in its computer records that the Receivables have been conveyed to the
Trust and to provide the Trustee with a computer file, microfiche list or
printed list containing a true and complete list showing for each initial
Account and Additional Account, as of the Automatic Addition Termination Date or
any Automatic Addition Suspension Date, and for each Supplemental Account, as of
the applicable Addition Date for such Supplemental Account, (a) its account
number and (b) the aggregate amount outstanding and the aggregate amount of
Principal Receivables in such Account. RNB, as initial Servicer, will retain and
will not deliver to the Trustee any other records or agreements relating to the
Accounts or the Receivables. Except as set forth above, the records and
agreements relating to the Accounts and the Receivables will not be segregated
from those relating to other open end credit card accounts and receivables, and
the physical documentation relating to the Accounts or Receivables will not be
stamped or marked to reflect the transfer of Receivables to the Trust. The
Transferor is required to file UCC financing statements with respect to the sale
of the Receivables to the Trust meeting the requirements of applicable state
law. See "Risk Factors" and "Certain Legal Aspects of the Receivables."
ADDITION OF TRUST ASSETS
If, as of the close of business on the last Business Day of any Monthly
Period, either (a) the Transferor Amount (excluding the interest represented by
any Supplemental Certificate) is less than the Required Retained Transferor
Amount or (b) the amount of Principal Receivables in the Trust is less than the
Required Principal Balance, the Transferor will, on or prior to the close of
business on the tenth Business Day following the last Business Day of such
Monthly Period (the "Required Designation Date") (unless the Transferor Amount
(excluding the interest represented by any Supplemental Certificate) equals or
exceeds the Required Retained Transferor Amount or the aggregate amount of
Principal Receivables in the Trust equals or exceeds the Required Principal
Balance, as the case may be, in either case as of the
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close of business on any day after the last Business Day of such Monthly Period
and prior to the Required Designation Date) be obligated under the Pooling
Agreement to make an Addition to the Trust such that, after giving effect to
such Addition, the Transferor Amount (excluding the interest represented by any
Supplemental Certificate) is at least equal to the Required Retained Transferor
Amount and the amount of Principal Receivables in the Trust is at least equal to
the Required Principal Balance. An "Addition" will consist of (i) receivables
arising in Accounts owned by RNB or a Credit Card Originator (ii) in lieu of or
in addition to Accounts, participations or certificates representing undivided
interests in a pool of assets primarily consisting of open end credit card
receivables originated by RNB or a Credit Card Originator and collections
thereon (each, a "Participation Interest"). Participation Interests may, for
example, include rights in transferors' interests in, or certain credit card
backed securities issued by, other trusts which have as their primary assets
open end credit card receivables originated by RNB or another Credit Card
Originator. To the extent required pursuant to the Securities Act, any
Participation Interests transferred to the Trust will (a) have been (i)
registered under the Securities Act or (ii) held for at least the Rule 144(k)
holding period, and (b) will be acquired in secondary market transactions not
from the issuer or an affiliate. There are currently no such Participation
Interests held by the Trust, and Participation Interests can be added to the
Trust only upon satisfaction of certain conditions specified in the Pooling
Agreement.
For administrative convenience, Accounts will be added automatically as they
are originated and the Receivables in such Accounts will be immediately sold by
the Credit Card Originator to DHCC (or directly to the Transferor) and by DHCC
to the Transferor and then transferred by the Transferor to the Trust. Each
Automatic Additional Account shall be included as an Account from and after the
date upon which such Automatic Additional Account is created, and all
Receivables in such Automatic Additional Accounts, whether such Receivables are
then existing or thereafter created, will be transferred automatically to the
Trust upon purchase by the Transferor. The Transferor may elect at any time to
terminate or suspend the inclusion as Accounts of accounts that would otherwise
be Automatic Additional Accounts as of any Business Day (the "Automatic Addition
Termination Date") by delivering to the Trustee, the Rating Agencies and the
Servicer, 10 days' prior written notice of such election. The Transferor will be
obligated to terminate the designation of Automatic Additional Accounts (and the
Determination Date on which such determination is made will be an "Automatic
Addition Suspension Date") unless: (I) the arithmetic average for the three
Monthly Periods preceding the then current Monthly Period, of the annualized
percentage equivalent of a fraction for each respective Monthly Period, the
numerator of which is equal to the Defaulted Amount for the respective Monthly
Period and the denominator of which is equal to the aggregate Principal
Receivables as of the first day of the respective Monthly Period, is less than
10.5%; or (II) the arithmetic average for the three Monthly Periods preceding
the then current Monthly Period, of the percentage equivalent of a fraction for
each respective Monthly Period, the numerator of which is equal to the amount of
Collections received during the respective Monthly Period and the denominator of
which is equal to the aggregate Principal Receivables as of the first day of the
respective Monthly Period, is greater than or equal to 10.0%; or (III) the Trust
Portfolio Yield for the three Monthly Periods preceding the then current Monthly
Period minus the weighted average of the Base Rates for each Series then
outstanding for such three Monthly Periods is greater than or equal to 1.5%; or
(IV) the number of accounts to be included as Automatic Additional Accounts with
respect to the related six-month period is less than or equal to 30% of the
number of Accounts as of the first day of such six-month period; PROVIDED,
HOWEVER, that the designation of Automatic Additional Accounts will be permitted
to continue in the event that as of any date of determination on which (x) any
of the conditions in clauses (I) through (III) listed above is not met, and if
the Aggregate Addition Limit would be exceeded as a result of the inclusion of
such Automatic Additional Accounts as Accounts or (y) the condition in clause
(IV) would not be satisfied because the threshold described therein would be
exceeded as a result of the inclusion of such Automatic Additional Accounts as
Accounts, such inclusion will not cause a Ratings Effect; (V) on each
Determination Date, the Transferor shall have delivered to the Rating Agencies
and the Trustee an officer's certificate, certifying (i) that each Automatic
Additional Account designated as an Eligible Account is an Eligible Account and
(ii) that either (x) the conditions under clauses (I), (II) and (III) above will
be
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satisfied or the Aggregate Addition Limit would not be exceeded as a result of
the inclusion of such Automatic Additional Accounts as Accounts and the
limitation under clause (IV) above will not be exceeded or (y) if the conditions
under clauses (I), (II) or (III) shall not be satisfied and the Aggregate
Addition Limit would be exceeded as a result of the inclusion of such Automatic
Additional Accounts as Accounts, or the condition under clause (IV) would not be
satisfied because the threshold described therein would be exceeded as a result
of the inclusion of such Automatic Additional Accounts as Accounts, such
inclusion will not cause a Ratings Effect; and (VI) as of the Addition Date, (x)
no Insolvency Event with respect to RNB, DHCC or the Transferor shall have
occurred, (y) RNB, DHCC and the Transferor shall not be insolvent and (z) the
transfer of the Receivables arising in the Automatic Additional Accounts to the
Trust shall not have been made in contemplation of the occurrence of an
Insolvency Event. If each of the conditions of clauses (I) through (III) in the
preceding sentence are not satisfied and clause (IV) is satisfied, the
Transferor intends to continue automatically adding Accounts so long as the
Aggregate Addition Limit is not exceeded. Upon either (x) any one of the
conditions set forth in clauses (I) through (III) above not being satisfied and
the Aggregate Addition Limit being exceeded or (y) the condition set forth in
clause (IV) above not being satisfied because the threshold described therein
has been exceeded as specified in an officer's certificate of the Transferor
delivered pursuant to clause (V) above, the Transferor will cease to designate
Automatic Additional Accounts to be included as Accounts until a date (the
"Restart Date") specified in a written notice given by the Transferor to the
Trustee; PROVIDED, HOWEVER, that the Transferor will specify in such notice that
on such Restart Date (x) the conditions under clauses (I), (II) and (III) above
will be satisfied or the Aggregate Addition Limit would not be exceeded as a
result of the inclusion of Automatic Additional Accounts as Accounts and the
condition under clause (IV) above will be satisfied on the Restart Date and (y)
all accounts of the Credit Card Originators shall have been designated Accounts
either as Automatic Additional Accounts prior to the Automatic Addition
Suspension Date or as Supplemental Accounts.
"Aggregate Addition Limit" means a number of Accounts which either (x) with
respect to any of the three consecutive Monthly Periods commencing in January,
April, July and October of each calendar year, may not exceed 15% of the number
of Accounts as of the first day of the calendar year during which such Monthly
Periods commence or (y) with respect to any twelve-month period, equals 20% of
the number of Accounts as of the first day of such twelve-month period. The
Aggregate Addition Limit is intended to limit the extent to which the
Transferor, by designating Automatic Additional Accounts, may alter the
composition of the Accounts without Rating Agency consent. Automatic Additional
Accounts and Supplemental Accounts are collectively referred to herein as
"Additional Accounts"; and any date on which any Supplemental Accounts or
Participation Interests are designated for inclusion in the Trust is an
"Addition Cut-Off Date."
"Trust Portfolio Yield" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is an
amount equal to the aggregate amount of Collections of Finance Charge
Receivables for such Monthly Period, and the denominator of which is the
aggregate amount of Principal Receivables in the Trust as of the first day of
such Monthly Period.
In connection with an Addition of a Supplemental Account or Participation
Interest, RNB will sell to DHCC, DHCC will thereafter sell to the Transferor and
the Transferor will thereafter transfer to the Trust the Receivables arising in
Supplemental Accounts and Participation Interests subject to the following
conditions, among others: (a) on or before the tenth Business Day immediately
preceding any such Addition, the Transferor shall have given the Trustee, the
Servicer, each of the Rating Agencies and the Enhancement Providers, if any,
written notice that the Receivables arising in the Additional Accounts or
Participation Interests will be included as Trust Assets; (b) in the case of
Supplemental Accounts, on or before the date on which any such Receivables are
added to the Trust, the Transferor shall have delivered to the Trustee a written
assignment and a computer file, microfiche list or printed list containing a
true and complete list of the related Supplemental Accounts specifying for each
such Account its account number, the aggregate amount outstanding in such
Account and the aggregate amount of Principal Receivables
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outstanding in such Account; (c) in the case of an Addition other than a
required Addition, the Transferor shall have received confirmation from each
Rating Agency that such Addition will not result in a Ratings Effect; (d) in the
case of a required Addition which exceeds the Aggregate Addition Limit, the
Transferor shall have provided Standard & Poor's at least 10 Business Days prior
written notice of such Addition and Standard & Poor's shall have notified the
Transferor that such Addition would not result in a Ratings Effect; and (e)
prior to or on the date any such Receivables or Participation Interests are
added to the Trust, the Transferor shall have delivered to the Trustee and
certain Enhancement Providers, if any, a certificate of an authorized officer
stating that, (i) in the case of Supplemental Accounts, any related Supplemental
Accounts are Eligible Accounts and (ii) that the Transferor reasonably believes
that (A) such Addition will not, based on the facts known to such officer at the
time of such certification, cause an Early Amortization Event to occur with
respect to any Series and (B) in the case of Supplemental Accounts, no selection
procedure was utilized by the Transferor that would result in a selection of
Supplemental Accounts (from the available Eligible Accounts owned by RNB) that
would have a result that would be materially less favorable to the interests of
the Certificateholders of any Series as of the date of the Addition than a
random selection.
The Transferor may direct that the Principal Receivables in the Additional
Accounts be treated as Principal Receivables outstanding on the last day of the
Monthly Period preceding the Monthly Period in which the Addition is made for
purposes of calculating Floating Allocation Percentages and Principal Allocation
Percentages for the Monthly Period of such Addition. Such direction may be made
on the date such Addition is made (the "Addition Date") only if all Collections
with respect to the Additional Accounts for the period from the last day of the
preceding Monthly Period through the Addition Date are deposited in the
Collection Account on the Addition Date. Following any such Addition, the
Servicer will allocate Collections for the balance of such Monthly Period,
including the Collections deposited on the Addition Date, to the
Certificateholders' Interest of each Series and the Transferor Amount so that
each interest receives the same allocations of Finance Charge Receivables,
Principal Receivables and Defaulted Amounts that it would have received if such
Additional Accounts had been included in the Trust for the entire Monthly Period
in which the Addition occurred.
RNB or its affiliates may originate or acquire portfolios of open end credit
card accounts the receivables in which (or Participation Interests therein) may
be sold to DHCC, thereafter sold to the Transferor and thereafter transferred to
the Trust. Such a sale of receivables to the Trust will be subject to the
conditions described above relating to Additions.
Additional Accounts or Participation Interests may include accounts
originated using criteria different from those that were applied to the initial
Accounts because such accounts were originated at a later date or were part of a
portfolio of open end credit card accounts which were not part of the RNB
Portfolio as of the Cut-Off Date or which were acquired from another
institution. Moreover, Additional Accounts and accounts included in
Participation Interests may not be accounts of the same type as previously
included in the Trust. Consequently, there can be no assurance that such
Additional Accounts or Participation Interests will be of the same credit
quality or have the same payment characteristics as the initial Accounts or the
Additional Accounts previously included in the Trust.
Additional Accounts of a type different than the initial Accounts may
contain Receivables that consist of fees, charges and amounts that are different
from the fees, charges and amounts that have been designated as Finance Charge
Receivables and Principal Receivables herein and Participation Interests may be
added to the Trust as Additions. In either case, the Servicer will designate the
portions of funds collected or to be collected in respect of such Receivables or
Participation Interests to be treated for purposes of the Pooling Agreement as
Principal Receivables and Finance Charge Receivables.
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REMOVAL OF ACCOUNTS
On any day of any Monthly Period, the Transferor shall have the right to
require reassignment to it or its designee of all the Trust's right, title and
interest in, to and under the Receivables then existing and thereafter created,
all monies due or to become due and all amounts received with respect thereto
and all proceeds thereof in or with respect to the Removed Accounts owned by RNB
and designated by the Transferor or Participation Interests (unless otherwise
set forth in the applicable Series Supplement), upon satisfaction of the
following conditions: (a) on or before the tenth Business Day (the "Removal
Notice Date") immediately preceding the date upon which the Removed Accounts are
to be removed from the Trust, the Transferor shall have given the Trustee, the
Servicer, each Rating Agency and any Enhancement Provider entitled thereto
pursuant to the relevant Series Supplement written notice of such removal
specifying the date for removal of the Removed Accounts and Participation
Interests (the "Removal Date"); (b) with respect to Removed Accounts, on or
prior to the date that is ten Business Days after the Removal Date, the
Transferor shall have delivered to the Trustee a computer file, microfiche list
or printed list containing a true and complete list of the Removed Accounts
specifying for each such Account, as of the Removal Notice Date, its account
number, the aggregate amount outstanding in such Account and the aggregate
amount of Principal Receivables outstanding in such Account; (c) with respect to
Removed Accounts, the Transferor shall have represented and warranted as of such
Removal Date that the list of Removed Accounts delivered pursuant to clause (b)
above is true and complete in all material respects; (d) the Transferor shall
have received confirmation from each Rating Agency that such removal will not
result in a Ratings Effect; (e) the Transferor shall have delivered to the
Trustee and any Enhancement Provider entitled thereto pursuant to the relevant
Series Supplement a certificate of an authorized officer, dated the Removal
Date, to the effect that the Transferor reasonably believes that (i) such
removal will not, based on the facts known to such officer at the time of such
certification, cause an Early Amortization Event to occur with respect to any
Series and (ii) no selection procedure materially adverse to the interests of
the Certificateholders has been used in removing Removed Accounts from among any
pool of Accounts or Participation Interests of a similar type and (f) the
Transferor shall have paid the fair market value of the Receivables in such
Removed Accounts to the Trust. Such removal could occur for a number of reasons
including, among others, a determination by the Transferor that the Trust
contains more Receivables than the Transferor is obligated to retain in the
Trust under the Pooling Agreement and any applicable Series Supplements and a
determination that the Transferor does not desire to obtain additional financing
through the Trust at such time.
Upon satisfaction of the above conditions, the Trustee shall execute and
deliver to the Transferor or its designee a written reassignment and shall be
deemed to sell, transfer, assign, set over and otherwise convey to the
Transferor or its designee, without recourse, representation or warranty, all
the right, title and interest of the Trust in and to the Receivables arising in
the Removed Accounts or Participation Interests, all monies due and to become
due and all amounts received with respect thereto and all proceeds thereof.
REPRESENTATIONS AND WARRANTIES
As of the Closing Date, the Transferor will make representations and
warranties to the Trust relating to the Accounts and the Receivables to the
effect, among other things, that (a) as of the Cut-Off Date, with respect to
each initial Account, on the date of its creation, with respect to each
Automatic Additional Account and on the applicable Addition Cut-Off Date, with
respect to each Supplemental Account, each Account classified as an "Eligible
Account" by the Transferor in any document or report delivered under the Pooling
Agreement will satisfy the requirements contained in the definition of Eligible
Account in the Pooling Agreement and each Receivable classified as an "Eligible
Receivable" by the Transferor in any document or report delivered under the
Pooling Agreement will satisfy the requirements contained in the definition of
Eligible Receivable in the Pooling Agreement, (b) as of the Cut-Off Date, each
Receivable then existing is an Eligible Receivable, on the date of creation of
each Automatic Additional Account, each Receivable contained in such Account is
an Eligible Receivable and, on the applicable Addition Cut-Off
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Date, each Receivable contained in any related Supplemental Account is an
Eligible Receivable and (c) thereafter, as of the date of creation of any new
Receivable, such Receivable is an Eligible Receivable. If any representation or
warranty of the Transferor described in this paragraph is not true and correct
in any material respect as of the date to which it refers with respect to any
Receivables transferred to the Trust by the Transferor or any Account owned by
RNB and, as a result, any Receivables become Defaulted Receivables or the
Trust's rights in, to or under such Receivables or the proceeds of such
Receivables are impaired or are not available to the Trust free and clear of any
lien, unless cured within 60 days (or such longer period as may be agreed to by
the Trustee) after the earlier to occur of the discovery thereof by the
Transferor or the receipt by the Transferor or a designee of the Transferor of
written notice thereof given by the Trustee, then such Receivable shall be
designated an "Ineligible Receivable" and shall be assigned a principal balance
of zero for the purpose of determining the aggregate amount of Principal
Receivables on any day; PROVIDED, HOWEVER, that such Receivables will not be
deemed to be Ineligible Receivables but will be deemed Eligible Receivables and
such Principal Receivables shall be included in determining the aggregate
Principal Receivables in the Trust if, on any day before the end of such period,
the relevant representation and warranty shall be true and correct in all
material respects as if made on such day and the Transferor shall have delivered
to the Trustee a certificate of an authorized officer describing the nature of
such breach and the manner in which the relevant representation and warranty
became true and correct.
On and after the date of its designation as an Ineligible Receivable, each
Ineligible Receivable shall not be given credit in determining the aggregate
amount of Principal Receivables used to calculate the Transferor Amount, the
Floating Allocation Percentage and the Principal Allocation Percentage
applicable to any Series. If, following the exclusion of such Principal
Receivables from the calculation of the Transferor Amount, the Transferor Amount
(excluding the interest represented by any Supplemental Certificate) would
otherwise be less than the Required Retained Transferor Amount, on the first
Distribution Date following the Monthly Period in which such reassignment
obligation arises, the Transferor will make a deposit into the Special Funding
Account in immediately available funds in an amount equal to the amount of such
shortfall (up to the amount of such Principal Receivables) (the "Reassignment
Price"). The payment of such deposit amount in immediately available funds shall
be considered payment in full of all of the Ineligible Receivables. The
obligation of the Transferor to make such deposits is the sole remedy respecting
any breach of the representations and warranties described in the preceding
paragraph with respect to such Receivable available to Certificateholders of any
Series (or the Trustee on behalf of such Certificateholders) or any Enhancement
Provider.
The Transferor will also make representations and warranties to the Trust to
the effect, among other things, that as of the Closing Date (a) it is a
corporation validly existing and in good standing under the laws of the State of
Minnesota, it has the authority to consummate the transactions contemplated by
the Pooling Agreement and the related Series Supplement and each of the Pooling
Agreement and the related Series Supplement constitutes a valid, binding and
enforceable agreement of the Transferor and (b) the transfer of Receivables by
it to the Trust under the Pooling Agreement constitutes either a valid transfer
and assignment to the Trust of all right, title and interest of the Transferor
in the Receivables, whether then existing or thereafter created and the proceeds
thereof or the grant of a security interest under the UCC in such Receivables
and the proceeds thereof which is effective as to each Receivable then existing
on the date of its transfer to the Trust or, as to each Receivable arising
thereafter, upon the creation thereof, in each case except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting the
enforcement of creditors' rights and by general principles of equity, whether
considered in a suit at law or in equity. If the breach of either of the
representations and warranties described in this paragraph has a material
adverse effect on the Certificateholders' Interest in the Receivables, either
the Trustee or the holders of Certificates evidencing not less than 50% of the
aggregate unpaid principal amount of the Certificates of all Series, by written
notice to the Transferor and the Servicer (and to the Trustee if given by the
holders of the requisite percentage of Certificates of all Series), may direct
the Transferor to accept the reassignment of the Receivables
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transferred to the Trust by the Transferor within 60 days of such notice, or
within such longer period specified in such notice; PROVIDED, HOWEVER, that such
Receivables will not be reassigned to the Transferor if, on any day prior to the
end of such 60-day or longer period, (i) the relevant representation and
warranty shall be true and correct in all material respects as if made on such
day and (ii) the Transferor shall have delivered to the Trustee a certificate of
an authorized officer describing the nature of such breach and the manner in
which the relevant representation and warranty became true and correct.
The Transferor will be obligated to accept the reassignment of such
Receivables on the first Distribution Date following the Monthly Period in which
such reassignment obligation arises. Unless otherwise provided with respect to a
particular Series in the related Prospectus Supplement, the price for such
reassignment (the "Portfolio Reassignment Price"), will generally be equal to
the aggregate Invested Amounts and amounts invested by Enhancement Providers, if
any, of all Series on the Distribution Date on which the purchase is scheduled
to be made, plus interest payable to Certificateholders on such Distribution
Date, plus any interest amounts that were due but not paid on a prior
Distribution Date and interest on such overdue interest amounts (if the
applicable Series Supplement so provides) at the applicable certificate rates
through the day preceding such Distribution Date. The payment of such
reassignment price, in immediately available funds, will be considered a payment
in full of the Receivables and such funds will be deposited into the Collection
Account. If the Trustee or the requisite percentage of holders of Certificates
of all Series gives a notice as provided above, the obligation of the Transferor
to make any such deposit will constitute the sole remedy respecting a breach of
the representations and warranties available to Certificateholders of all Series
(or the Trustee on behalf of such Certificateholders) or any Enhancement
Provider.
An "Eligible Account" is an open end credit card account, which is not a
commercial account, owned by the Credit Card Originator which as of the Cut-Off
Date with respect to an initial Account, on the date of creation thereof, with
respect to an Automatic Additional Account or as of the Addition Cut-Off Date
with respect to a Supplemental Account (i) (a) is in existence and serviced at
certain facilities of the Credit Card Originator or any of its affiliates; (b)
is payable in United States dollars; (c) has not been identified as an account,
the credit cards with respect to which have been reported to the Credit Card
Originator as having been lost or stolen; (d) has not been, and does not have
any receivables that have been, sold, pledged, assigned or otherwise conveyed to
any person (except pursuant to the Pooling Agreement) unless such pledge or
assignment is released on or before the Closing Date or the Addition Date, as
applicable; (e) does not have any receivables that are Defaulted Receivables;
(f) does not have any receivables that have been identified as having been
incurred as a result of fraudulent use of any related credit card; and (g) has a
Cardholder who has provided as his or her billing address, an address located in
the United States or its territories or possessions or a United States military
address; PROVIDED, HOWEVER, that, as of any date of determination, up to 4% (or
such greater percentage if prior written notice thereof has been given by the
Transferor to each Rating Agency and it would not cause a Ratings Effect) of the
number of Accounts in the Trust Portfolio may have Cardholders who have provided
addresses outside of such jurisdictions or (ii) if a Supplemental Account, the
addition of such Account (other than a required Addition) would not have a
Ratings Effect.
An "Eligible Receivable" is each Receivable (a) which has arisen under an
Eligible Account; (b) which was created in compliance with the Credit Card
Guidelines and all requirements of law applicable to the Credit Card Originator,
the failure to comply with which would have a material adverse effect on
Certificateholders, and pursuant to a Cardholder agreement which complies with
all requirements of law applicable to the Credit Card Originator, the failure to
comply with which would have a material adverse effect on Certificateholders;
(c) with respect to which all consents, licenses, approvals or authorizations
of, or registrations with, any governmental authority required to be obtained or
given by the Credit Card Originator in connection with the creation of such
Receivable or the execution, delivery and performance by the Credit Card
Originator of the related credit card agreement have been duly obtained or given
and are in full force and effect as of the date of the creation of such
Receivable; (d) as to which, at the time of
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its transfer to the Trust, the Transferor or the Trust will have good title free
and clear of all liens and security interests (other than any lien for municipal
or other local taxes if such taxes are not then due and payable or if the
Transferor is then contesting the validity thereof in good faith by appropriate
proceedings and has set aside on its books adequate reserves with respect
thereto); (e) which has been the subject of a valid transfer and assignment from
the Transferor to the Trust of all the Transferor's right, title and interest
therein or the grant of a "security interest" (as defined in the UCC) therein;
(f) which at and after the time of transfer to the Trust is the legal, valid and
binding payment obligation of the Cardholder thereof, legally enforceable
against such Cardholder in accordance with its terms (with certain bankruptcy-
and equity-related exceptions); (g) which constitutes an "account," a "general
intangible" or "chattel paper" under and as defined in Article 9 of the UCC; (h)
which, at the time of its transfer to the Trust, has not been waived or modified
except as permitted by the Pooling Agreement; (i) which, at the time of its
transfer to the Trust, is not subject to any right of rescission, setoff,
counterclaim or other defense of the Cardholder (including the defense of
usury), other than certain bankruptcy or other debtor-relief and equity-related
defenses and adjustments permitted by the Pooling Agreement to be made by the
Servicer; (j) as to which the Transferor has satisfied all obligations to be
fulfilled at the time it is transferred to the Trust; and (k) as to which the
Transferor has not taken any action which, or failed to take any action the
omission of which, would, at the time of its transfer to the Trust, impair the
rights of the Trust or the Certificateholders therein.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of any documents or records related to the
Receivables or the Accounts for the purpose of establishing the presence or
absence of defects, compliance with the Transferor's representations and
warranties 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 or the performance by the Servicer of its
obligations under the Pooling Agreement or for any other purpose. The Servicer,
however, will deliver to the Trustee on or before March 31 of each calendar year
an opinion of counsel with respect to the validity of the interest of the Trust
in and to the Receivables and certain other components of the Trust.
INDEMNIFICATION
The Pooling 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 the Servicer's actions or omissions with
respect to the Trust pursuant to the Pooling Agreement.
Under the Pooling Agreement, the Transferor and any holder of a Transferor
Certificate (excluding any Supplemental Certificate and not including any
Participation) have agreed to be liable directly to an indemnitee for the entire
amount of any losses, claims, damages or liabilities (other than those incurred
by a Certificateholder in the capacity of an investor in the Certificates of any
Series as a result of the performance of the Receivables, market fluctuations, a
shortfall or failure to make payment under any Enhancement or other similar
market or investment risks associated with ownership of Certificates) arising
out of or based on the arrangement created by the Pooling Agreement, or the
actions of the Servicer taken pursuant thereto, as though such agreement created
a partnership under the Delaware Revised Uniform Partnership Act in which the
Transferor and any such holder were general partners (to the extent that the
Trust Assets that would remain after the Certificateholders and Enhancement
Providers, if any, were paid in full would be insufficient to pay such amounts).
The Servicer will indemnify and hold harmless the Transferor and any such holder
for any losses, claims, damages and liabilities of the Transferor and any such
holder as described in this paragraph arising from the actions or omissions of
such Servicer.
Except as provided in the preceding two paragraphs, the Pooling Agreement
provides that none of the Transferor, any holder of the Transferor Certificate,
the Servicer or any of their directors, officers, employees or agents will be
under any other liability to the Trust, the Trustee, the holders of Certificates
of any Series, any Enhancement Provider or any other person for any action
taken, or for refraining from
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taking any action, in good faith pursuant to the Pooling Agreement. However,
none of the Transferor, any holder of the Transferor Certificate, the Servicer
or 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 Agreement provides that the Servicer is not under
any obligation to appear in, prosecute or defend any legal action that is not
incidental to its servicing responsibilities under the Pooling Agreement. The
Servicer may, in its sole discretion, undertake any such legal action which it
may deem necessary or desirable for the benefit of holders of Certificates of
any Series with respect to the Pooling Agreement and the rights and duties of
the parties thereto and the interest of such Certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling Agreement, the Servicer is responsible for
servicing, collecting, enforcing and administering the Receivables in accordance
with its customary and usual procedures for servicing receivables comparable to
the Receivables and the Credit Card Guidelines.
Servicing activities to be performed by the Servicer include collecting and
recording payments, communicating with Cardholders, collection activities
relating to delinquent Accounts, evaluating the increase of credit limits and
the issuance of Credit Cards, providing billing and tax records, if any, to
Cardholders 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 Agreement, maintaining the agreements, documents and files relating to
the Accounts and Receivables in accordance with credit guidelines as custodian
for the Trust and providing related data processing and reporting services for
Certificateholders of any Series and on behalf of the Trustee.
Pursuant to the Pooling Agreement, RNB, as Servicer, has the right to
delegate any of its responsibilities and obligations as Servicer to any of its
affiliates and to certain third-party service providers that agree to conduct
such duties in accordance with the Pooling Agreement and the Credit Card
Guidelines.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation for its servicing activities and as reimbursement for its
expenses for any Monthly Period the Servicer will receive a servicing fee (the
"Servicing Fee") payable monthly on each Distribution Date in an amount equal to
one-twelfth of the product of (a) the weighted average of the applicable
Servicing Fee Rate with respect to the Invested Amount of each outstanding
Series (or other amount that may be specified in the applicable Series
Supplement) and (b) the amount of Principal Receivables in the Trust on the last
day of the prior Monthly Period. The share of the Servicing Fee allocable to the
Certificateholders' Interest of a particular Series for any Monthly Period and
the amount invested by any Enhancement Provider, if any, of a particular Series
for any Monthly Period will be determined according to the provision of the
applicable Series Supplement. The portion of the Servicing Fee for any Monthly
Period not allocated to the Certificateholders' Interest or the amount invested
by any Enhancement Provider, if any, of a particular Series will be paid from
amounts allocated to the holder of the Transferor Certificate and any holder of
a Participation on the related Distribution Date. In no event will the Trust,
the Trustee, the Certificateholders of any Series or any Enhancement Provider be
directly liable to pay the share of the Servicing Fee for any Monthly Period to
be paid from amounts allocated to the holder of the Transferor Certificate or
any holder of a Participation.
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The Servicer will, each month, pay from its servicing compensation certain
expenses incurred in connection with servicing the Receivables including,
without limitation, expenses related to the enforcement of the Receivables,
payment of the fees and disbursements of the Trustee and independent accountants
and other fees that are not expressly stated in the Pooling Agreement to be
payable by the Trust, the Certificateholders of a Series or the Transferor
(other than federal, state, local and foreign income, franchise or other taxes
based on income, if any, or any interest or penalties with respect thereto,
imposed upon the Trust). If RNB is acting as Servicer and fails to pay the fees
and disbursements of the Trustee, the Trustee will be entitled to receive the
portion of the Servicing Fee that is equal to such unpaid amounts. In no event
will the Certificateholders be liable to the Trustee for the Servicer's failure
to pay such amounts, and any such amounts so paid to the Trustee will be treated
as paid to the Servicer for all other purposes of the Pooling Agreement.
SERVICER COVENANTS
In the Pooling Agreement, the Servicer has covenanted as to the Receivables
and related Accounts that among other things: (a) it will duly fulfill all
obligations on its part to be fulfilled under or in connection with the
Receivables and the related Accounts, and will maintain in effect all
qualifications required by law in order to service the Receivables and the
related Accounts, the failure to comply with which would have a material adverse
effect on the interests of the Certificateholders; (b) subject to the Pooling
Agreement, it will not permit any rescission or cancellation of a Receivable
except as ordered by a court of competent jurisdiction or other governmental
authority or in the ordinary course of business and in accordance with the
Credit Card Guidelines; (c) it will neither do, nor omit to do, anything that
would substantially impair the rights of the Certificateholders in any
Receivable or Account; (d) it will not reschedule, revise or defer payments due
on the Receivables except in the ordinary course of its business and in
accordance with the Credit Card Guidelines; and (e) except in connection with
its enforcement or collection of an Account, it will take no action to cause any
Receivables to be evidenced by any instrument (as defined in the UCC), other
than an instrument that, together with one or more other writings, constitutes
chattel paper (as defined in the UCC), and if any Receivable is so evidenced, it
shall be reassigned or assigned to the Servicer as provided below.
Under the terms of the Pooling Agreement, in the event that any of the
above-described representations, warranties or covenants of the Servicer with
respect to any Receivable or the related Account are breached and such breach is
not cured within 60 days (or such longer period, not in excess of 150 days, as
may be agreed to by the Trustee) of the earlier to occur of the discovery of
such event by the Servicer or receipt by the Servicer of written notice of such
event given by the Trustee, and as a result of such breach the Trust's rights
in, to or under any Receivables in the related Account or the proceeds of such
Receivables are impaired or such proceeds are not available for any reason to
the Trust free and clear of any lien, then all Receivables in the Account or
Accounts to which such event relates shall be reassigned or assigned to the
Servicer on the terms and conditions set forth below; PROVIDED, HOWEVER, that
such Receivables will not be reassigned or assigned to the Servicer if, on any
day prior to the end of such 60-day or longer period, (i) the relevant
representation and warranty shall be true and correct, or the relevant covenant
shall have been complied with, in all material respects and (ii) the Servicer
shall have delivered to the Trustee a certificate of an authorized officer
describing the nature of such breach and the manner in which such breach was
cured.
Such assignment and transfer will be made when the Servicer deposits an
amount equal to the amount of such Receivable in the Collection Account on the
Business Day preceding the Distribution Date following the Monthly Period during
which such obligation arises. The amount of such deposit shall be treated as a
portion of Shared Principal Collections as described under "Description of the
Certificates-- Shared Principal Collections." This reassignment or transfer and
assignment to the Servicer constitutes the sole remedy available to the
Certificateholders of any Series if such covenant or warranty of the Servicer is
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not satisfied and the Trust's interest in any such reassigned Receivables shall
be automatically assigned to the Servicer.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling Agreement, except (i) upon the determination that such duties are no
longer permissible under applicable law or (ii) as may be required in connection
with the merger or consolidation of the Servicer or the conveyance or transfer
of all or substantially all of the Servicer's assets, in each case, as permitted
by the Pooling Agreement. 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 Agreement. Notwithstanding
the foregoing, subject to compliance with certain conditions, RNB may transfer
its servicing obligations to an affiliate and be relieved of its obligations and
duties under the Pooling Agreement.
Any person into which, in accordance with the Pooling 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 Agreement.
SERVICER DEFAULT
In the event of any Servicer Default either the Trustee or
Certificateholders holding Certificates evidencing more than 50% of the
aggregate unpaid principal amount of all outstanding Series, by written notice
to the Servicer (and to the Trustee and certain Enhancement Providers, if any,
if given by the Certificateholders) (a "Termination Notice"), may terminate all
but not less than all of the rights and obligations of the Servicer, as
servicer, under the Pooling Agreement. If the Trustee within 60 days of receipt
of a Termination Notice is unable to obtain any bids from eligible successor
Servicers and the Servicer delivers an officer's certificate to the effect that
the Servicer cannot in good faith cure the Servicer Default that gave rise to
the Termination Notice, then the Trustee shall offer the Transferor the right at
its option to purchase the Certificateholders' Interest for all Series. The
purchase price for such a purchase shall be paid on the Distribution Date
occurring in the month following receipt of such Termination Notice and will
equal, after giving effect to any deposits and distributions otherwise to be
made on such Distribution Date, the Portfolio Reassignment Price.
The Trustee shall, as promptly as possible after giving a Termination
Notice, appoint a successor Servicer (such appointment, a "Service Transfer"),
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 Agreement
shall pass to and be vested in the Trustee. Prior to any Service Transfer, the
Trustee will seek to obtain bids from potential Servicers meeting certain
eligibility requirements set forth in the Pooling Agreement to serve as a
successor Servicer for servicing compensation not in excess of the Servicing
Fee. The rights and interest of the Transferor as holder of the Transferor
Certificate under the Pooling Agreement and any Series Supplement in the
Transferor Amount will not be affected by any Termination Notice or Service
Transfer.
A "Servicer Default" refers to any of the following events:
(a) any failure by the Servicer to make any payment, transfer or deposit or
to give instructions or notice to the Trustee pursuant to the terms of
the Pooling Agreement or any Series Supplement on or before the date
occurring five Business Days after the date such payment, transfer or
deposit or such instruction or notice is required to be made or given;
(b) failure on the part of the Servicer to duly observe or perform in any
material respect any other covenants or agreements of the Servicer set
forth in the Pooling Agreement or any Series Supplement which has a
material adverse effect on the interests of the Certificateholders of any
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Series or Class under the Pooling Agreement (which determination shall be
made without regard to whether funds are then available pursuant to any
Enhancement) and which continues unremedied for a period of 60 days after
the date on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Servicer by the Trustee, or to
the Servicer and the Trustee by holders of Certificates evidencing not
less than 25% of the aggregate unpaid principal amount of all
Certificates (or, with respect to any such failure that does not relate
to all Series, 25% of the aggregate unpaid principal amount of all Series
to which such failure relates); or the delegation by the Servicer of its
duties under the Pooling Agreement in a manner not permitted by the
Pooling Agreement, which delegation continues unremedied for 15 days
after the date on which written notice thereof, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by Certificateholders evidencing not less than
25% of the aggregate unpaid principal amount of all Certificates;
(c) any representation, warranty or certification made by the Servicer in
the Pooling Agreement or any Series Supplement or in any certificate
delivered pursuant to the Pooling Agreement or any Series Supplement
shall prove to have been incorrect when made, which has a material
adverse effect on the rights of the Certificateholders of any Series or
Class (which determination shall be made without regard to whether funds
are then available pursuant to any Enhancement) and which continues to be
incorrect in any material respect for a period of 60 days after the date
on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by the Certificateholders evidencing not less
than 25% of the aggregate unpaid principal amount of all Certificates
(or, with respect to any such representation, warranty or certification
that does not relate to all Series, 25% of the aggregate unpaid principal
amount of all Series to which such representation, warranty or
certification relates); or
(d) 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 (a) above for a period of five Business Days or referred to
under clause (b) or (c) or, with respect to involuntary proceedings instituted
against the Servicer, (d) for a period of 60 days (in addition to any period
provided in (a), (b) or (c)) shall not constitute a Servicer Default until the
expiration of such additional five Business Days or 60 days, respectively, if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Servicer and 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 Agreement and any
Series Supplement and the Servicer shall provide the Trustee, each Rating
Agency, certain Enhancement Providers, if any, the holder of the Transferor
Certificate and the Certificateholders of each Series 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.
EVIDENCE AS TO COMPLIANCE
The Pooling Agreement provides that, on or before the ninetieth day
following the end of the Transferor's fiscal year, the Servicer will cause a
firm of nationally recognized independent public accountants (who may also
render other services to the Servicer or the Transferor) to furnish a report to
the effect that such firm has applied certain procedures agreed upon with the
Servicer and examined certain documents and records relating to the servicing of
the Accounts during the Servicer's preceding fiscal year and that, on the basis
of such procedures, nothing came to the attention of such firm that caused them
to believe that such servicing was not conducted in compliance with the Pooling
Agreement and the applicable provisions of each Series Supplement except for
such exceptions or errors as such firm shall
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believe to be immaterial and such other exceptions as shall be set forth in such
statement. The Servicer's fiscal year ends on December 31 of each calendar year.
The Pooling Agreement provides for delivery to the Trustee, each Rating
Agency and certain Enhancement Providers, if any, on or before the 90th day
following the end of the Transferor's fiscal year, of a statement signed by an
officer of the Servicer to the effect that, to the best of such officer's
knowledge, the Servicer has performed its obligations in all material respects
under the Pooling Agreement throughout the preceding fiscal 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.
AMENDMENTS
The Pooling Agreement and each Series Supplement may be amended from time to
time without the consent of the Certificateholders of any Series (including,
without limitation, in connection with (a) adding covenants, restrictions or
conditions of the Transferor as its Board of Directors and the Trustee shall
consider to be for the benefit or protection of the Certificateholders, and to
make the occurrence, or the occurrence and continuance, of a default in any of
such additional covenants, restrictions or conditions a default or Early
Amortization Event permitting the enforcement of all or any of the several
remedies provided for in the Pooling Agreement as therein set forth; PROVIDED,
HOWEVER, that in respect of any such additional covenant, restriction or
condition such amendment may provide for a particular period of grace after
default or may provide for an immediate enforcement upon such default or may
limit the remedies available to the Trustee upon such default, (b) curing any
ambiguity or correcting or supplementing any provision contained therein or in
any Series Supplement which may be defective or inconsistent with any other
provision contained therein or in any Series Supplement or to surrender any
right or power conferred upon the Transferor, (c) the issuance of a Supplemental
Certificate or Participation, (d) the addition of a Participation Interest to
the Trust, (e) the designation of an additional transferor, (f) the provision of
additional Enhancement for the benefit of Certificateholders of any Series, (g)
enabling the Trust or a portion thereof to elect to qualify as a FASIT (or
comparable tax entity for the securitization of financial assets) in accordance
with the Code or (h) adding any provision to, changing in any manner or
eliminating any of the provisions of the Pooling Agreement or any Series
Supplement or modifying in any manner the rights of Certificateholders of any
Series then issued and outstanding), PROVIDED that (i) the Transferor shall have
delivered to the Trustee a certificate of an authorized officer to the effect
that the Transferor reasonably believes, based on the facts known to such
officer at the time of such certificate, that such amendment will not adversely
affect in any material respect the interests of any such Certificateholder, (ii)
except with respect to clauses (a) and (b) above, such amendment will not result
in a Ratings Effect, and (iii) a Tax Opinion is delivered in connection with any
such amendment.
The Pooling Agreement and each Series Supplement may also be amended from
time to time by the Transferor, the Servicer and the Trustee with the consent of
the holders of Certificates evidencing not less than 66 2/3% 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 Agreement or any Series Supplement or of
modifying in any manner the rights of such Certificateholders. No such
amendment, however, may (a) reduce in any manner the amount of or delay the
timing of any distributions to be made to Certificateholders or deposits of
amounts to be so distributed or the amount available under any Enhancement
without the consent of each affected Certificateholder (PROVIDED that an
amendment of the terms of an Early Amortization Event shall not be deemed to be
within the scope of this clause (a)); (b) change the definition or the manner of
calculating the interest on any holder's Certificate without the consent of each
affected Certificateholder; or (c) reduce the aforesaid percentage required to
consent to any such amendment, without the consent of each Certificateholder.
Promptly following the execution of any amendment (other than an amendment
described in the preceding
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paragraph), the Trustee will furnish written notice of the substance of such
amendment to each Certificateholder.
TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee under the
Pooling Agreement. The Corporate Trust Department of the Trustee is located at
Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479-0069. The
Transferor, the Servicer and their respective affiliates may from time to time
enter into normal banking and trust relationships with the Trustee and its
affiliates. The Trustee, the Transferor, the Servicer and any of their
respective affiliates may hold Certificates of any Series in their own names;
however, any Certificates so held shall not be entitled to participate in any
decisions made or instructions given to the Trustee by such Certificateholders
as a group. 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 any part of the Trust. In the event of
such appointment, 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 Transferor 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 Agreement or if the Trustee becomes insolvent. In such circumstances,
the Servicer will be obligated to appoint a successor Trustee. Any resignation
or removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
TERMINATION OF THE TRUST
Unless the Transferor instructs the Trustee otherwise, the Trust will only
terminate on the earlier to occur of (a) the day following the day on which the
Invested Amount and Enhancement Invested Amount, if any, of each Series is zero
(PROVIDED that the Transferor shall have delivered a written notice to the
Trustee electing to terminate the Trust), (b) September 30, 2095 or (c) the
occurrence of an Insolvency Event (the "Trust Termination Date"). Upon
termination of the Trust, all right, title and interest in the Receivables and
other funds of the Trust (other than amounts in accounts maintained by the Trust
for the final payment of principal and interest to Certificateholders) will be
conveyed and transferred to the holder of the Transferor Certificate, any
Supplemental Certificate and any Participation.
THE RECEIVABLES PURCHASE AGREEMENTS
The Receivables transferred to the Trust by the Transferor were originally
acquired by the Transferor from DHCC pursuant to the Receivables Purchase
Agreement, dated as of September 13, 1995, between the Transferor, as purchaser
of the Receivables, and DHCC, as seller of the Receivables. The Receivables sold
to the Transferor by DHCC were originally acquired by DHCC from RNB pursuant to
the Bank Receivables Purchase Agreement, dated as of September 13, 1995, between
DHCC, as purchaser of the Receivables and RNB, as seller of the Receivables.
SALE OF THE RECEIVABLES
BANK RECEIVABLES PURCHASE AGREEMENT. Pursuant to the Bank Receivables
Purchase Agreement, RNB sold to DHCC all of its right, title and interest in and
to (i) the Receivables existing at the close of business on the Cut-Off Date and
thereafter created from time to time and arising in the initial Accounts and the
Receivables existing on each applicable Addition Date and thereafter created
from time to time and arising in any Automatic Additional Accounts, and in each
case, thereafter created from time to time until the termination of the Trust,
(ii) any merchant fees and deferred billing fees, (iii) all recoveries allocable
to the foregoing Accounts and all recoveries which are identified as relating to
specific Defaulted Receivables and (iv) all monies due or to become due
thereunder and all amounts received with respect thereto and all proceeds
thereof.
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The purchase price for such Receivables which came into existence on or
prior to September 13, 1995, was paid on September 13, 1995 in an amount equal
to 100% of the amount of Principal Receivables and Finance Charge Receivables as
of such date (less the amount of any participation interest therein held by DHCC
on September 13, 1995). The purchase price for the Receivables (including
Receivables in Additional Accounts) to be conveyed to DHCC that are created on
any day after September 13, 1995 is payable on the date they are conveyed by RNB
to DHCC in an amount initially equal to 100% of the estimated Principal
Receivables so conveyed (the "New Principal Receivables"), as such amount may be
adjusted from time to time as described in the Bank Receivables Purchase
Agreement.
In connection with any sale of the Receivables to DHCC after the Automatic
Addition Termination Date or an Automatic Addition Suspension Date (and, in the
latter case, prior to the Restart Date), RNB will indicate in its computer files
or other relevant microfiche or printed records that the Receivables have been
sold to DHCC by RNB and that such Receivables have been sold by DHCC to the
Transferor and then transferred by the Transferor to the Trust. In addition, RNB
will provide to DHCC a computer file, a microfiche list or a printed list
containing a true and complete list showing each Account identified by account
number and by total outstanding balance on each Account as of the Automatic
Addition Termination Date, the Automatic Addition Suspension Date or the
applicable Addition Cut-Off Date as the case may be. With respect to any removal
of Accounts, RNB will indicate in its computer files or other records that
Receivables in Removed Account have been repurchased by RNB. The records and
agreements relating to the Accounts and Receivables are not segregated by RNB
from other documents and agreements relating to other credit card accounts and
receivables and are not stamped or marked to reflect the sale or transfer of the
Receivables to DHCC, but the computer records or other relevant microfiche or
printed records of RNB will, after the Automatic Addition Termination Date or
Automatic Addition Suspension Date (and, in the latter case, prior to the
Restart Date), be marked to evidence such sale or transfer. DHCC, as purchaser,
has filed one or more UCC financing statements meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to perfect the transfer of the Receivables contemplated by the Bank Receivables
Purchase Agreement. See "Risk Factors--Characteristics of Transfers; Effect of
Characterization as a Pledge" and "Certain Legal Aspects of the Receivables."
Pursuant to the Bank Receivables Purchase Agreement, RNB will, if the
Transferor elects, or is required to, designate Supplemental Accounts under the
Pooling Agreement (and therefore DHCC is required to cause RNB to designate
Supplemental Accounts under the Receivables Purchase Agreement), designate
Supplemental Accounts to be included as Accounts under the Bank Receivables
Purchase Agreement. See "The Pooling and Servicing Agreement--Addition of Trust
Assets." The initial purchase price for Receivables in accounts so designated
will be an amount equal to 100% of the amount of Principal Receivables and
Finance Charge Receivables or such other amount as determined from time to time
in accordance with the Bank Receivables Purchase Agreement.
RECEIVABLES PURCHASE AGREEMENT. Pursuant to the Receivables Purchase
Agreement, DHCC, as prior transferee of receivables from RNB, sold to the
Transferor all of its right, title and interest in and to (i) the Receivables
existing at the close of business on the Cut-Off Date and thereafter created
from time to time and arising in the initial Accounts and the Receivables
existing on each applicable Addition Date and thereafter created from time to
time and arising in any Automatic Additional Accounts, and in each case,
thereafter created from time to time until the termination of the Trust, (ii)
any merchant fees and deferred billing fees, (iii) all recoveries allocable to
the foregoing Accounts and all recoveries which are identified as relating to
specific Defaulted Receivables, (iv) all monies due or to become due thereunder
and all amounts received with respect thereto and all proceeds thereof and (v)
the Bank Receivables Purchase Agreement.
The purchase price for such Receivables which came into existence on or
prior to September 13, 1995 was paid on September 13, 1995 in an amount equal to
100% of the amount of Principal Receivables and Finance Charge Receivables as of
such date. The purchase price for the Receivables (including Receivables
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in Additional Accounts) to be conveyed to the Transferor that are created on any
day after September 13, 1995 is payable on the Distribution Date following the
Monthly Period during which such Receivables are conveyed by DHCC to the
Transferor in an amount initially equal to 100% of the New Principal
Receivables, as such amount may be adjusted from time to time as described in
the Receivables Purchase Agreement.
In connection with any sale of the Receivables to the Transferor after the
Automatic Addition Termination Date or an Automatic Addition Suspension Date
(and, in the latter case, prior to the Restart Date), DHCC will indicate in its
computer files or other relevant microfiche or printed records that the
Receivables have been sold to the Transferor by DHCC and that such Receivables
have been transferred by the Transferor to the Trust. In addition, DHCC will
provide to the Transferor a computer file, a microfiche list or a printed list
containing a true and complete list showing each Account identified by account
number and by total outstanding balance on each Account as of the Automatic
Addition Termination Date, the Automatic Addition Suspension Date or the
applicable Addition Cut-Off Date, as the case may be. With respect to any
removal of Accounts, DHCC will indicate in its computer files or other records
that Receivables in Removed Accounts have been repurchased by DHCC. The records
and agreements relating to the Accounts and Receivables are not segregated by
DHCC from other documents and agreements relating to other credit card accounts
and receivables and are not stamped or marked to reflect the sale or transfer of
the Receivables to the Transferor, but the computer records or other relevant
microfiche or printed records of DHCC will, after the Automatic Addition
Termination Date or Automatic Addition Suspension Date (and, in the latter case,
prior to the Restart Date), be marked to evidence such sale or transfer. DHCC,
as seller, has filed one or more UCC financing statements meeting the
requirements of applicable state law in such manner and in such jurisdictions as
are necessary to perfect the transfer of the Receivables contemplated by the
Receivables Purchase Agreement.
Pursuant to the Receivables Purchase Agreement, DHCC will, if the Transferor
elects, or is required to, cause DHCC to designate Supplemental Accounts under
the Pooling Agreement, designate Supplemental Accounts to be included as
Accounts under the Receivables Purchase Agreement. See "The Pooling and
Servicing Agreement--Addition of Trust Assets." The initial purchase price for
Receivables in accounts so designated will be an amount equal to 100% of the
amount of Principal Receivables and Finance Charge Receivables or such other
amount as determined from time to time in accordance with the Receivables
Purchase Agreement.
REPRESENTATIONS AND WARRANTIES
BANK RECEIVABLES PURCHASE AGREEMENT. In the Bank Receivables Purchase
Agreement, RNB represents and warrants to DHCC as of the Closing Date and on
each Addition Date that, among other things, (a) RNB is a national banking
association validly existing in good standing under the laws of the United
States, and has full corporate power, authority and legal right to execute,
deliver and perform its obligations under the Bank Receivables Purchase
Agreement, (b) the Bank Receivables Purchase Agreement constitutes a valid and
binding obligation of RNB, enforceable against RNB in accordance with its terms,
subject to customary bankruptcy- and equity-related exceptions, (c) RNB is the
legal and beneficial owner of all right, title and interest in and to each
Receivable (subject, on the Closing Date, to any participation interest in the
Receivables held by DHCC), RNB has the full right, power and authority to
transfer the Receivables pursuant to the Bank Receivables Purchase Agreement,
(d) the Bank Receivables Purchase Agreement or, in the case of Supplemental
Accounts, the related supplemental conveyance (each, a "Supplemental
Conveyance") to be delivered by RNB in connection therewith, constitutes a valid
transfer and assignment to DHCC of all right, title and interest of RNB in and
to the Receivables, all monies due or to become due and all proceeds related
thereto, and, in the case of Supplemental Accounts, each related Supplemental
Conveyance, will constitute, at the time of the addition of such Supplemental
Accounts, an absolute sale of such property and the proceeds thereof and (e) on
the Initial Cut-Off Date, with respect to each initial Account, on the date of
its creation, with respect to each Automatic Additional Account and, on the
applicable Addition Cut-Off Date, with respect to each Supplemental Account,
each
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Account classified as an "Eligible Account" by RNB in any document or report
delivered under the Bank Receivables Purchase Agreement will satisfy the
requirements contained in the definition of Eligible Account and each Receivable
classified as an "Eligible Receivable" by RNB in any document or report
delivered under the Bank Receivables Purchase Agreement will satisfy the
requirements contained in the definition of Eligible Receivable.
If any representation or warranty described above is not true and correct in
any material respect as of the relevant date specified above with respect to any
Receivable or any related Account and, as a result thereof, the value given to
such Receivable for purposes of determining the aggregate Principal Receivables
in the Trust is reduced to zero as described under "The Pooling and Servicing
Agreement-- Representations and Warranties," the aggregate principal balance of
such Receivable for purposes of the Bank Receivables Purchase Agreement shall be
adjusted to reflect that such Receivable was an Ineligible Receivable when sold
and RNB will repay to DHCC the amount of the purchase price originally paid
therefor less the amount of Collections previously received with respect
thereto.
If any representation or warranty described above is not true and correct in
any material respect as of the relevant date specified above with respect to any
Receivable or any related Account and, as a result thereof, RNB is required to
accept a reassignment of all of the Receivables transferred to the Trust by
paying the Portfolio Reassignment Price, RNB shall be obligated to accept a
reassignment of DHCC's interest in such Receivables and shall deposit to the
Collection Account on the Distribution Date following the Monthly Period in
which such reassignment obligation shall arise an amount equal to the Portfolio
Reassignment Price.
RECEIVABLES PURCHASE AGREEMENT. In the Receivables Purchase Agreement, DHCC
represents and warrants to the Transferor as of the Closing Date and on each
Addition Date that, among other things, (a) DHCC is a corporation validly
existing in good standing under the laws of the State of Minnesota, and has full
corporate power, authority and legal right to execute, deliver and perform its
obligations under the Receivables Purchase Agreement, (b) the Receivables
Purchase Agreement constitutes a valid and binding obligation of DHCC,
enforceable against DHCC in accordance with its terms, subject to customary
bankruptcy- and equity-related exceptions, (c) DHCC is the legal and beneficial
owner of all right, title and interest in and to each Receivable, DHCC has the
full right, power and authority to transfer the Receivables pursuant to the
Receivables Purchase Agreement, (d) the Receivables Purchase Agreement or, in
the case of Supplemental Accounts, each Supplemental Conveyance to be delivered
by DHCC in connection therewith, constitutes a valid transfer and assignment to
the Transferor of all right, title and interest of DHCC in and to the
Receivables, all monies due or to become due and all proceeds related thereto,
and, in the case of Supplemental Accounts, each related Supplemental Conveyance,
will constitute, at the time of the addition of such Supplemental Accounts, an
absolute sale of such property and the proceeds thereof and (e) on the Initial
Cut-Off Date, with respect to each Initial Account, on the date of its creation,
with respect to each Automatic Additional Account and, on the applicable
Addition Cut-Off Date, with respect to each related Supplemental Account, each
Account classified as an "Eligible Account" by DHCC in any document or report
delivered under the Receivables Purchase Agreement will satisfy the requirements
contained in the definition of Eligible Account and each Receivable classified
as an "Eligible Receivable" by DHCC in any document or report delivered under
the Receivables Purchase Agreement will satisfy the requirements contained in
the definition of Eligible Receivable.
If any representation or warranty described above is not true and correct in
any material respect as of the relevant date specified above with respect to any
Receivable or any related Account and, as a result thereof, the value given to
such Receivable for purposes of determining the aggregate Principal Receivables
in the Trust is reduced to zero as described under "The Pooling and Servicing
Agreement-- Representations and Warranties," the aggregate principal balance of
such Receivable for purposes of the Receivables Purchase Agreement shall be
adjusted to reflect that such Receivable was an Ineligible Receivable when sold
and DHCC will repay to DHRC the amount of the purchase price paid therefor less
the amount of Collections previously received with respect thereto.
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If any representation or warranty described above is not true and correct in
any material respect as of the relevant date specified above with respect to any
Receivable or any related Account and, as a result thereof, the Transferor is
required to accept a reassignment of all of the Receivables transferred to the
Trust by paying the Portfolio Reassignment Price, DHCC shall be obligated to
accept a reassignment of the Transferor's interest in such Receivables and shall
deposit to the Collection Account on the Distribution Date following the Monthly
Period in which such reassignment obligation shall arise an amount equal to the
Portfolio Reassignment Price.
CERTAIN COVENANTS
BANK RECEIVABLES PURCHASE AGREEMENT. It is the intention of RNB and DHCC
that the conveyance of the Receivables by RNB to DHCC pursuant to the Bank
Receivables Purchase Agreement be construed as an absolute sale of the
Receivables by RNB to DHCC. It is not intended that such conveyance be deemed a
pledge of the Receivables by RNB to DHCC to secure a debt or other obligation of
RNB, but the Bank Receivables Purchase Agreement shall also be deemed to be a
security agreement within the meaning of Article 9 of the UCC and the conveyance
provided for in the Pooling Agreement shall be deemed to be a grant by RNB to
DHCC of a "security interest" within the meaning of Article 9 of the UCC in all
of RNB's right, title and interest in and to the Receivables.
According to the Bank Receivables Purchase Agreement, except as required by
law or as RNB may determine to be appropriate, RNB may not reduce the annual
percentage rates of the periodic finance charges assessed on the Receivables,
reduce other fees charged on any of the Accounts or change the other terms of
the Accounts if, either (a) as a result of such reduction or change it is
reasonably expected that such reduction or change will cause an Early
Amortization Event to occur with respect to a Series or (b) such reduction or
change (x) if RNB owns a comparable segment of receivables, is not applied to
any such comparable segment of consumer open end credit accounts owned by RNB
that have characteristics the same as or substantially similar to the
Receivables that are the subject of such reduction or change and (y) if RNB does
not own such a comparable segment of receivables, will not be made with the
intent to materially benefit the Transferor over the Certificateholders or to
materially adversely affect the Certificateholders, except as otherwise
restricted by an endorsement, sponsorship, or other agreement between the
Transferor and an unrelated third party or by the terms of the Accounts.
RECEIVABLES PURCHASE AGREEMENT. It is the intention of DHCC and the
Transferor that the conveyance of the Receivables by DHCC to the Transferor
pursuant to the Receivables Purchase Agreement be construed as an absolute sale
of the Receivables by DHCC to the Transferor. It is not intended that such
conveyance be deemed a pledge of the Receivables by DHCC to the Transferor to
secure a debt or other obligation of DHCC, but the Receivables Purchase
Agreement shall also be deemed to be a security agreement within the meaning of
Article 9 of the UCC and the conveyance provided for in the Pooling Agreement
shall be deemed to be a grant by DHCC to the Transferor of a "security interest"
within the meaning of Article 9 of the UCC in all of DHCC's right, title and
interest in and to the Receivables.
TRANSFER OF ACCOUNTS AND ASSUMPTION OF RNB'S, DHCC'S AND THE TRANSFEROR'S
OBLIGATIONS
Upon the satisfaction of certain conditions, RNB, DHCC and the Transferor
may transfer all or a portion of RNB's consumer open end credit card accounts
and the receivables arising thereunder, which may include all, but not less than
all, of the Accounts and RNB's, DHCC's and the Transferor's remaining interest
in the Receivables arising thereunder and in the Trust (collectively, the
"Assigned Assets"), together with all servicing functions and other obligations
under the Purchase Agreements and the Pooling Agreement or relating to the
transactions contemplated thereby (collectively, the "Assumed Obligations"), to
another entity (the "Assuming Entity") which may be an entity that is not
affiliated with RNB, DHCC or the Transferor. Pursuant to the Purchase Agreements
and the Pooling Agreement, RNB, DHCC and the Transferor are permitted to assign,
convey and transfer the Assigned Assets and the Assumed Obligations to the
Assuming Entity, without the consent or approval of Certificateholders if the
following conditions,
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among others, are satisfied: (i) the Assuming Entity, the Trustee and RNB, DHCC
or the Transferor, as the case may be, shall have entered into an assumption
agreement providing for the Assuming Entity to assume the Assumed Obligations,
including the obligations under the Purchase Agreements and the Pooling
Agreement, as the case may be, to transfer the Receivables arising under the
Accounts to DHCC, the Transferor or the Trust, as the case may be, (ii) all
filings required to perfect the interest of DHCC, the Transferor or the Trustee,
as the case may be, in the Receivables arising under such Accounts shall have
been duly made and copies thereof shall have been delivered to the Trustee,
(iii) DHCC, the Transferor or the Trustee, as the case may be, shall have
received written notice from each Rating Agency that such transfer and
assumption will not have a Ratings Effect, and shall have delivered copies of
such notice to the Servicer and the Trustee, (iv) DHCC, the Transferor, or the
Trustee, as the case may be, shall have received an opinion of counsel with
respect to clauses (i) and (ii) above and as to certain other matters specified
by DHCC, the Transferor or the Trustee, as the case may be, and (v) the Trustee
shall have received a Tax Opinion. The Purchase Agreements and Pooling Agreement
provide that the parties to each such document may enter into amendments to each
such document to permit the transfer and assumption described above without the
consent of the holders of any Certificates. After any permitted transfer and
assumption, RNB and DHCC will have no further liability or obligation under the
Purchase Agreements and Pooling Agreement, other than those liabilities that
arose prior to such transfer, and RNB and DHCC will remain liable for all
representations, warranties and covenants made by them prior to such transfer.
AMENDMENT
The Bank Receivables Purchase Agreement may be amended by DHCC and RNB
without the consent of the Certificateholders. The Receivables Purchase
Agreement may be amended by the Transferor and DHCC without the consent of the
Certificateholders. No such amendment of either of the Purchase Agreements,
however, may have a Ratings Effect.
TERMINATION
The Bank Receivables Purchase Agreement will terminate upon the mutual
agreement of the parties thereto. The Receivables Purchase Agreement will
terminate immediately after the Trust terminates. In addition, if a bankruptcy
trustee or receiver is appointed for DHCC or certain other liquidation events
occur, DHCC will immediately cease to sell Receivables to the Transferor and
promptly give notice of such event to the Transferor and to the Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
In the Pooling Agreement, the Transferor represents and warrants to the
Trust that the transfer of the Receivables by it to the Trust under the Pooling
Agreement constitutes either a valid transfer and assignment by the Transferor
to the Trust of all right, title and interest of the Transferor in the
Receivables and other property conveyed by the Transferor to the Trust or the
grant by the Transferor to the Trust of a "security interest" (as defined in the
Uniform Commercial Code in effect in Minnesota and any other jurisdiction
relevant to the perfection of such security interest (the "UCC")) in such
Receivables and other property that, in the case of existing Receivables and the
proceeds thereof, is enforceable upon the execution and delivery of the Pooling
Agreement, or, in the case of Receivables that will exist in Additional
Accounts, as of the Addition Date applicable thereto. For a discussion of the
Trust's rights arising from a breach of the foregoing representation and
warranty, see "The Pooling and Servicing Agreement-- Representations and
Warranties."
The Receivables are accounts, general intangibles or chattel paper for
purposes of the UCC. Both the transfer and assignment of accounts and the
transfer of accounts as security for an obligation are treated under Article 9
of the UCC as creating a security interest therein and are subject to its
provisions, and the filing of an appropriate financing statement is required to
perfect the Trust's interest. If a transfer of
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general intangibles is deemed to constitute the creation of a security interest,
rather than a sale, Article 9 of the UCC applies and the filing of one or more
appropriate financing statements is also required in order to perfect the
Trust's security interest. Financing statements covering the Receivables of the
Trust will be filed under the UCC.
If the transfer of Receivables constituting general intangibles is deemed to
be a sale, then the UCC is not applicable and no further action is required to
protect the Trust's interest from third parties. Although the priority of
general intangibles arising after the Closing Date is not as clear as the
priority of interests governed by the UCC, RNB, DHCC and the Transferor believe
that it would be inconsistent for a court to afford the Trust less favorable
treatment if the transfer of the Receivables is deemed to be a sale than if it
were deemed to be a security interest and that a court should conclude that a
sale of Receivables consisting of general intangibles would be deemed to have
occurred as of the Closing Date or, as applicable, the relevant Addition Date.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after the Closing
Date could have an interest in such Receivables with priority over the Trust's
interest. Under the Pooling Agreement, however, the Transferor will represent
and warrant that it has transferred the Receivables to the Trust free and clear
of all liens and security interests (other than certain tax liens) except for
the interest of the Transferor as holder of the Transferor Certificate and other
rights of the Transferor under the Pooling Agreement. In addition, the
Transferor will covenant that it will not sell, pledge, assign or transfer, or
grant, create, incur, assume or suffer to exist any lien on, any Receivable (or
any interest therein) other than to the Trust or in connection with any transfer
of the Accounts selected for the Trust. A tax or other governmental lien on
property of the Transferor arising prior to the time a Receivable comes into
existence also may have priority over the interest of the Trust in such
Receivable. There is a significant possibility that the Trust may not have a
perfected security interest in any of the Receivables created after the filing
of a petition for relief by or against DHCC or the Transferor under the
Bankruptcy Code or after the appointment of a receiver or conservator with
respect to RNB. Nevertheless, it is anticipated that the Trust will either own
or have a perfected security interest in Receivables existing on the date of
filing a petition by or against DHCC or the Transferor under the Bankruptcy Code
or after the date of appointment of a receiver or conservator with respect to
RNB and will be able to make payments in respect of principal and interest on
the investor certificates, although there can be no assurance that any of such
payments would be timely. Because the Trust's interest in the Receivables is
dependent upon the Transferor's interest in the Receivables, which is dependent
upon DHCC's interest in the Receivables, any adverse change in the priority or
perfection of the Transferor's or DHCC's security interest would correspondingly
affect the Trust's interest in the affected Receivables. In addition, if a
receiver or conservator were appointed for RNB, certain administrative expenses
of the receiver or conservator also may have priority over the interest of the
Trust in such Receivables. While RNB is the Servicer, certain cash collections
on the Receivables may be held by RNB and commingled with its funds for brief
periods, and if an Insolvency Event occurs, the Trust may not have a perfected
interest in such commingled collections.
CERTAIN MATTERS RELATING TO BANKRUPTCY OR RECEIVERSHIP
RNB and DHCC have represented and warranted to DHCC and the Transferor,
respectively, in the Purchase Agreements that the sale of the Receivables to
DHCC or the Transferor, respectively, is a valid sale of the Receivables to DHCC
or the Transferor, respectively. In addition, RNB, DHCC and the Transferor have
treated and will treat the transactions described in the Purchase Agreements as
sales of the Receivables to DHCC and the Transferor, respectively, and DHCC has
taken or will take all actions that are required under the UCC to perfect DHCC's
and the Transferor's ownership interest, respectively, in the Receivables.
Notwithstanding the foregoing, if DHCC 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 DHCC to the
Transferor, should be recharacterized as a pledge of such Receivables to secure
a borrowing from such debtor, then delays in payments of collections of
Receivables
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to the Transferor (and therefore to the Trust and to Certificateholders) could
occur and (should the court rule in favor of any such trustee, debtor in
possession or creditor) reductions in the amount of such payments could result.
Subject to clarification by FDIC regulations or interpretations, it would
appear from the positions taken by the FDIC before the passage of FIRREA (which
became effective August 9, 1989, and sets forth certain powers that the FDIC
could exercise if it were appointed as receiver for RNB), that the FDIC in its
capacity as receiver for RNB would not interfere with the timely transfer to
DHCC (and therefore to the Transferor and to the Trust and the
Certificateholders) of payments collected on the Receivables or interfere with
the timely liquidation of Receivables as described below. To the extent that RNB
granted a security interest in the Receivables to DHCC, and that interest was
validly perfected before RNB's insolvency and was not taken or granted in
contemplation of insolvency or with the intent to hinder, delay or defraud RNB
or its creditors, that security interest should not be subject to avoidance, and
payments to the Trust with respect to the Receivables should not be subject to
recovery by the FDIC as receiver of RNB. If, however, the FDIC were to assert a
contrary position, or were to require DHCC, the Transferor or the Trustee to
establish its right to those payments by submitting to and completing the
administrative claims procedure established under FIRREA, delays in payments on
the Certificates and possible reductions in the amount of those payments could
occur.
In a 1993 decision, OCTAGON GAS SYSTEMS, INC. V. RIMMER, 997 F.2d 948 (10th
Cir. 1993), CERT. DENIED, 114 S. Ct. 554 (1993) the United States Court of
Appeals for the 10th Circuit suggested that even where a transfer of accounts
from a seller to a buyer constitutes a "true sale," the accounts would
nevertheless constitute property of the seller's bankruptcy estate in a
bankruptcy of the seller. If DHCC or the Transferor were to become subject to a
bankruptcy proceeding or RNB were to become subject to receivership and a court
were to follow the OCTAGON court's reasoning, Certificateholders might
experience delays in payment and possibly losses in their investment in the
Certificates. Counsel has advised the seller that the facts of the OCTAGON case
are distinguishable from those in the sale transactions between RNB and DHCC,
DHCC and the Transferor and the Transferor and the Trust and that the reasoning
of the OCTAGON case appears to be inconsistent with established precedent and
the UCC. In addition, because RNB, DHCC, the Transferor, the Trust and the
transaction governed by the Pooling Agreement do not have any particular link to
the 10th Circuit, it is unlikely that RNB, DHCC, or the Transferor would be
subject to an insolvency proceeding in the 10th Circuit. Accordingly, the
OCTAGON case should not be binding precedent on a court or receiver in an
insolvency proceeding involving the Receivables.
In addition, if DHCC 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 DHCC should be substantively consolidated with the
Transferor, delays in payments on the investor 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.
The Transferor has taken or will take all actions that are required under
the UCC to perfect the Trust's interest in the Receivables and the Transferor
has warranted to the Trust that the Trust will have a first priority interest
therein and, with certain exceptions, in proceeds thereof. Nevertheless, a tax
or government lien on property of RNB, DHCC or the Transferor arising prior to
the time a Receivable is conveyed to the Trust may have priority over the
interest of the Trust in such Receivable. The Transferor's articles of
incorporation provides that it shall not file a voluntary petition for relief
under the Bankruptcy Code without the unanimous affirmative vote of all of its
directors, including the independent directors. Pursuant to the Pooling
Agreement, the Trustee will covenant that it will not at any time institute
against the Transferor any bankruptcy, reorganization or other proceedings under
any federal or state bankruptcy or similar law. In addition, certain other steps
have been or will be taken to avoid the Transferor's becoming a debtor in a
bankruptcy case. Notwithstanding such steps, if the Transferor were to become a
debtor in a bankruptcy case, and a bankruptcy trustee for the Transferor or a
creditor of the Transferor were to take the position that the transfer of the
Receivables from the Transferor to the Trust should be recharacterized as a
pledge of such Receivables, then delays in payments on the Certificates and
(should the court rule in favor of any such trustee or creditor) reductions in
the amount of such payments could result.
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The Transferor has been structured in a manner intended to reduce the
likelihood of (i) the voluntary or involuntary application for relief under the
Bankruptcy Code or similar applicable state laws, and (ii) the substantive
consolidation of the Transferor and DHCC. The Transferor is a separate, special
purpose subsidiary, the articles of incorporation of which contains limitations
on the nature of the Transferor's business and restrictions on the ability of
the Transferor to commence voluntary or involuntary cases or proceedings under
such laws without the prior unanimous vote of all its directors. Further, the
Transferor does not intend to file, and DHCC has agreed that it will not file, a
voluntary petition for relief under the Bankruptcy Code or any similar
applicable state laws with respect to the Transferor.
If the Transferor (excluding any Supplemental Certificate) were to become a
debtor in a bankruptcy case causing an Early Amortization Event to occur, then,
pursuant to the Pooling Agreement, additional Principal Receivables would not be
transferred to the Trust. If an Insolvency Event occurs with respect to the
Transferor or, an Early Amortization Event occurs because the Transferor Amount
(excluding the interest represented by any Supplemental Certificate) is less
than the Required Retained Transferor Amount while any of the Series 1995-1
Certificates or the Series 1996-1 Certificates are outstanding, the Trustee
would, to the extent so specified in the applicable Series Supplement, sell the
Receivables. The proceeds from the sale of the Receivables would then be treated
by the Trustee as Collections on the Receivables. This procedure, however, could
be delayed as described above. Upon the occurrence of certain events of
bankruptcy, insolvency or receivership, if no Early Amortization Event other
than the commencement of such bankruptcy or similar event exists, the
trustee-in-bankruptcy may have the power to continue to require the Transferor
to transfer new Receivables to the Trust and to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Early
Amortization Period or, if applicable with respect to any Series as specified in
the related Prospectus Supplement, the Rapid Accumulation Period.
The occurrence of certain events of insolvency, conservatorship or
receivership with respect to the Servicer will result in a Servicer Default,
which Servicer Default, in turn, will result in an Early Amortization Event. If
no other Servicer Default other than the commencement of such bankruptcy or
similar event exists, a conservator or receiver of the Servicer may have the
power to prevent the Trustee and the Certificateholders from appointing a
successor Servicer.
Payments made in respect of repurchases of Receivables by RNB, as Servicer,
or the Transferor pursuant to the Pooling Agreement may be recoverable by RNB or
the Transferor, or by a creditor, conservator, receiver or a
trustee-in-bankruptcy of RNB or the Transferor, as a preferential transfer from
RNB or the Transferor if such payments are made within one year prior to the
filing of a bankruptcy case in respect of RNB or the Transferor.
CONSUMER PROTECTION LAWS
The relationship of the cardholder and credit card issuer is extensively
regulated by federal and state consumer protection and related laws. With
respect to credit cards issued by RNB (including the Credit Cards), the most
significant laws include the federal Truth-in-Lending Act, Fair Credit Billing
Act, Fair Debt Collection Practices Act, Equal Credit Opportunity Act, Fair
Credit Reporting Act, Electronic Funds Transfer Act and National Banking Act, as
well as applicable state laws. Claims may be brought under these statutes by
private consumers as well as federal and state regulators. These statutes impose
disclosure requirements when a credit card account is advertised, when it is
opened, at the end of monthly billing cycles and at year end and, in addition,
prohibit certain discriminatory practices in extending credit and impose certain
limitations on the type of account-related charges that may be assessed. Federal
law requires credit card issuers to disclose to consumers the interest rates,
cardholder fees, grace periods and balance calculation methods associated with
their credit card accounts. In addition, cardholders are entitled under current
laws to have payments and credits applied to the credit card account promptly,
to receive prescribed notices and to require billing errors to be resolved
promptly.
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Certain laws, including the laws described above, may limit RNB's ability to
collect amounts owing with respect to the Receivables regardless of any act or
omission on the part of RNB. For example, under the federal Fair Credit Billing
Act, a credit card issuer is subject to all claims (other than tort claims) and
defenses arising out of certain transactions in which a credit card is used as a
method of payment or extension of credit if the obligor has made a good faith
attempt to obtain satisfactory resolution of a disagreement or problem relative
to the transaction from the person honoring the credit card and, except in cases
where there is a certain relationship between the person honoring the card and
the credit card issuer, the amount of the initial transaction exceeds $50 and
the place where the initial transaction occurred was in the same state as the
cardholder's mailing address or within 100 miles of that address. These statutes
further provide that in certain cases cardholders cannot be held liable for, or
the cardholder's liability is limited with respect to, charges to the credit
card account that result from unauthorized use of the credit card.
Additional consumer protection laws may be enacted that would impose
requirements on the making, enforcement and collection of consumer credit loans.
In particular, on June 19, 1997, a proposal to amend the Federal
Truth-in-Lending Act was introduced in the House of Representatives and referred
to the Committee on Banking and Financial Services, which would, among other
things, prohibit the imposition of certain minimum finance charges and other
fees, prohibit certain methods of calculating finance charges, require prior
notice of any increase in the interest rate assessed with respect to a credit
card account and limit the amount of certain fees. Although such proposed
legislation has not been enacted, there can be no assurance that such a bill
will not become law in the future. The potential effect of any legislation which
limits the amount of finance charges and fees that may be charged on credit
cards could be to reduce the portfolio yield on the Accounts. If such portfolio
yield is reduced, an Early Amortization Event may occur, and the Early
Amortization Period would commence. Any new laws or rulings that may be adopted,
and existing consumer protection laws, may adversely affect the ability to
collect on the Receivables. In addition, failure of the Servicer to comply with
such requirements could adversely affect the Servicer's ability to enforce the
Receivables.
Certain jurisdictions may attempt to require out-of-state credit card
issuers to comply with such jurisdictions' consumer protection laws (including
laws limiting the charges imposed by such credit card issuers) in connection
with their operations in such jurisdictions. If it were determined that
out-of-state credit card issuers must comply with a jurisdiction's laws limiting
the charges imposed by credit card issuers, such actions could have an adverse
impact on RNB's credit card operations. Application of federal and state
bankruptcy and debtor relief laws (including the Soldiers' and Sailors' Civil
Relief Act of 1940) would affect the interests of the holders of the
Certificates if the protection provided to debtors under such laws result in any
Receivables of the Trust being written off as uncollectible.
The Trust may be liable for certain violations of consumer protection laws
that apply to the Receivables transferred to it, either as assignee from the
Transferor with respect to obligations arising before the transfer or as a party
directly responsible for obligations arising after the transfer. In addition, a
Cardholder may be entitled to assert such violations by way of set-off against
his obligation to pay the amount of Receivables owing. The Transferor will
warrant to the Trust in the Pooling Agreement that all Receivables transferred
to the Trust have been and will be created in compliance with the requirements
of such laws. For a discussion of the Trust's rights arising from the breach of
these warranties, see "The Pooling and Servicing Agreement--Representations and
Warranties."
CLAIMS AND DEFENSES OF CARDHOLDERS AGAINST THE TRUST
The UCC provides that (a) unless a Cardholder has made an enforceable
agreement not to assert defenses or claims arising out of a transaction, the
rights of the Trust, as assignee, are subject to all the terms of the cardholder
agreement between RNB and the Cardholder and any defense or claim arising
therefrom, to rights of set-off and to any other defense or claim of the
Cardholder against RNB that
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accrues before the Cardholder receives notification of the assignment and (b)
any Cardholder is authorized to continue to pay RNB until (i) the Cardholder
receives notification, reasonably identifying the rights assigned, that the
amount due or to become due has been assigned and that payment is to be made to
the Trustee or successor Servicer and (ii) if requested by the Cardholders, the
Trustee or successor Servicer has furnished reasonable proof of assignment. No
such agreement not to assert defenses has been entered into and no notice of the
assignment of the Receivables to the Trust will be sent to the cardholders
obligated on the Accounts in connection with the transfer of the Receivables to
the Trust.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing the material anticipated Federal
income tax aspects of the purchase, ownership and disposition of the
Certificates of a Series, is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), proposed, temporary and final Treasury
regulations thereunder, and published rulings and court decisions in effect as
of the date hereof, all of which are subject to change, possibly retroactively.
This discussion does not address every aspect of the Federal income tax laws
that may be relevant to Certificate Owners of a Series in light of their
personal investment circumstances or to certain types of Certificate Owners of a
Series subject to special treatment under the Federal income tax laws (for
example, banks and life insurance companies). Accordingly, investors should
consult their own tax advisors regarding Federal, state, local, foreign and any
other tax consequences to them of any investment in the Certificates of a
Series. PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH
REGARD TO THE FEDERAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, OR
DISPOSITION OF INTERESTS IN CERTIFICATES, AS WELL AS THE TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, FOREIGN COUNTRY, OR OTHER TAXING
JURISDICTION.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Unless otherwise specified in the related Prospectus Supplement, special tax
counsel to the Transferor ("Special Tax Counsel") specified in such Prospectus
Supplement will, upon issuance of a Series of Certificates, advise the
Transferor based on its review of the Transaction Documents and on the
assumptions and qualifications set forth in the opinion that the Certificates of
such Series that are offered pursuant to a Prospectus Supplement (the "Offered
Certificates"; and for purposes of this section "Certain U.S. Federal Income Tax
Consequences" the term "Certificate Owner" refers to a holder of a beneficial
interest in an Offered Certificate) will be treated as indebtedness for Federal
income tax purposes. However, opinions of counsel are not binding on the
Internal Revenue Service (the "IRS"), and there can be no assurance that the IRS
could not successfully challenge this conclusion. The "Transaction Documents"
include the Pooling Agreement, each Series Supplement, the Receivables Purchase
Agreement, the Bank Receivables Purchase Agreement and a demand note issued by
Dayton Hudson.
The Transferor expresses in the Pooling Agreement its intent that for
Federal, state and local income and franchise tax purposes, the Offered
Certificates of each Series will be indebtedness secured by the Receivables. The
Transferor, by entering into the Pooling Agreement agrees and each
Certificateholder and Certificate Owner, by acquiring an interest in an Offered
Certificate, agrees or will be deemed to agree to treat the Offered Certificates
of such Series as indebtedness for Federal, state and local income and franchise
tax purposes. However, because different criteria are used to determine the
non-tax accounting characterization of the transactions contemplated by the
Pooling Agreement, the Transferor may treat any Series issued pursuant to the
Pooling Agreement, for regulatory and financial accounting purposes, as
effecting a sale of an ownership interest in the Receivables and not as creating
a debt obligation.
In general, whether for Federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
the property, is a question of fact, the resolution of which is
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based upon the economic substance of the transaction rather than its form or the
manner in which it is labeled. While the IRS and the courts have set forth
several factors to be taken into account in determining whether the substance of
a transaction is a sale of property or a secured indebtedness for Federal income
tax purposes, the primary factor in making this determination is whether the
transferee has assumed the risk of loss or other economic burdens relating to
the property and has obtained the benefits of ownership thereof. Unless
otherwise set forth in a Prospectus Supplement, it is expected that, as set
forth in its opinion, Special Tax Counsel will analyze and rely on several
factors in reaching its opinion that the weight of the benefits and burdens of
ownership of the Receivables has not been transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. Unless otherwise specified in a Prospectus
Supplement, it is expected that Special Tax Counsel will advise that the
rationale of those cases will not apply to the transaction evidenced by a Series
of Certificates, because the form of the transaction, as reflected in the
operative provisions of the documents, either is not inconsistent with the
characterization of the Offered Certificates of such Series as debt for Federal
income tax purposes or otherwise makes the rationale of those cases inapplicable
to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
As set forth above, it is expected that, unless otherwise specified in a
Prospectus Supplement, Special Tax Counsel will advise the Transferor that the
Offered Certificates will constitute indebtedness for Federal income tax
purposes, and accordingly, interest thereon will be includible in income by
Certificate Owners as ordinary income when received (in the case of a cash basis
taxpayer) or accrued (in the case of an accrual basis taxpayer) in accordance
with their respective methods of tax 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.
While it is not anticipated that the Offered Certificates will be issued at
a greater than DE MINIMIS discount from their principal amounts, under Treasury
regulations (the "Regulations") the Offered Certificates may nevertheless be
deemed to have been issued with original issue discount ("OID"). This could be
the case, for example, if interest payments for a Series are not deemed to be
payments of "qualified stated interest" because the IRS determines that (i) no
reasonable legal remedies exist to compel timely payment and (ii) the Offered
Certificates do not have terms and conditions that make the likelihood of late
payment (other than a late payment that occurs within a reasonable grace period)
or nonpayment a remote contingency. Applicable regulations provide that, for
purposes of the foregoing test, the possibility of nonpayment due to default,
insolvency, or similar circumstances, is ignored.
If the Offered Certificates are in fact issued at a greater than DE MINIMIS
discount or are treated as having been issued with OID under the Regulations,
the following rules would apply. The excess of the "stated redemption price at
maturity" of an Offered Certificate over the original issue price (in this case,
the initial offering price at which a substantial amount of the Offered
Certificates are sold to the public) will constitute OID. A Certificate Owner
must include OID in income as interest over the term of the Offered Certificate
under a constant yield method. In general, OID must be included in income in
advance of the receipt of cash representing that income. In the case of a debt
instrument as to which the repayment of principal may be accelerated as a result
of the prepayment of other obligations securing the debt instrument, the
periodic accrual of OID is determined by taking into account both the prepayment
assumptions used in pricing the debt instrument and the prepayment experience.
If this provision applies to a Class of Certificates (which is not clear), the
amount of OID which will accrue in any given "accrual period" may either
increase or decrease depending upon the actual prepayment rate. Accordingly,
each Certificate Owner should consult its own tax advisor regarding the impact
to it of the OID rules if the Offered Certificates are issued with OID. Under
the Regulations, a holder of a Certificate issued with DE
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MINIMIS OID must include such OID in income proportionately as principal
payments are made on a Class of Certificates.
A holder who purchases an Offered Certificate at a discount from its
adjusted issue price may be subject to the "market discount" rules of the Code.
These rules provide, in part, for the treatment of gain attributable to accrued
market discount as ordinary income upon the receipt of partial principal
payments or on the sale or other disposition of the Offered Certificate, and for
the deferral of interest deductions with respect to debt incurred to acquire or
carry the market discount Offered Certificate.
A subsequent holder who purchases an Offered Certificate at a premium may
elect to amortize and deduct this premium over the remaining term of the Offered
Certificate in accordance with rules set forth in Section 171 of the Code.
SALE OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption, or other taxable disposition of an Offered Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and taxable
as, accrued interest) and (ii) the Certificate Owner's tax basis in the Offered
Certificate (as increased by any OID or market discount previously included in
income by the holder and decreased by any deductions previously allowed for
amortizable bond premium and by any payments reflecting principal or OID
received with respect to such Certificate). Subject to the market discount rules
discussed above and to the holding requirement for long-term capital gain
treatment, any such gain or loss generally will be long-term capital gain,
provided that the Offered Certificate was held as a capital asset. The maximum
ordinary income rate for individuals, estates, and trusts exceeds the maximum
long-term capital gains rate for such taxpayers. In addition, any capital losses
realized generally may be used by a taxpayer only to offset capital gains, and
by an individual taxpayer only to the extent of capital gains.
TAX CHARACTERIZATION OF TRUST
The Pooling Agreement permits the issuance of Classes of Certificates that
are treated for Federal income tax purposes either as indebtedness or as an
interest in a partnership. Accordingly, the Trust could be characterized either
as (i) a security device to hold Receivables securing the repayment of the
Certificates of all Series or (ii) a partnership in which the Transferor and
certain classes of Certificateholders and certain holders of Participations are
partners, and which has issued debt represented by other classes of Certificates
of such Trust (including, unless otherwise specified in a Supplement, the
Offered Certificates). It is anticipated that, in connection with the issuance
of certificates of any Series, Special Tax Counsel will render an opinion to the
Transferor, based on the assumptions and qualifications set forth therein, and
on certain representations and covenants concerning the transfer of interests in
the Trust as to which no opinion that such interests constitute debt for federal
income tax purposes is rendered, that under then current law, the issuance of
the Certificates of such Series will not cause the Trust to be characterized for
Federal income tax purposes as an association (or publicly traded partnership)
taxable as a corporation.
Certain interests in the Trust (other than Offered Certificates), with
respect to which no opinion will be rendered that such interests would
constitute debt for federal income tax purposes, if characterized as equity
interests in a partnership, could result in the Trust being treated as a
publicly traded partnership. The Transferor intends to take measures designed to
reduce the risk that the Trust could become a publicly traded partnership; no
assurance can be given, however, that such efforts will be successful.
LEGISLATION
The Code provides for the creation of a new type of entity for Federal
income tax purposes, the "financial asset securitization investment trust"
("FASIT"). However, many technical issues concerning
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FASITs must be addressed by Treasury regulations. Although transition rules
permit an entity in existence on August 31, 1997, such as the Trust, to elect
FASIT status, at the present time it is not clear how outstanding interests of
such an entity would be treated subsequent to such an election. The Pooling
Agreement may be amended in accordance with the provisions thereof to provide
that the Transferor may cause a FASIT election to be made for the Trust if the
Transferor delivers to the Trustee an opinion of counsel to the effect that, for
Federal income tax purposes, (i) the issuance of FASIT regular interests will
not adversely affect the tax characterization as debt of Certificates of any
outstanding Series or Class that were characterized as debt at the time of their
issuance, (ii) following such issuance the Trust will not be deemed to be an
association (or publicly traded partnership) taxable as a corporation and (iii)
such issuance will not cause or constitute an event in which gain or loss would
be recognized by any Certificateholder or the Trust.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A
CORPORATION
The opinion of Special Tax Counsel with respect to Offered Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for purposes of the Code, the transaction contemplated by this
Prospectus and a related Prospectus Supplement constitutes a sale of the
Receivables (or an interest therein) to the Certificate Owners of one or more
Series or classes and that the proper classification of the legal relationship
between the Transferor and some or all of the Certificate Owners or
Certificateholders of one or more Series resulting from the transaction is that
of a partnership (including a publicly traded partnership), a publicly traded
partnership taxable as a corporation, or an association taxable as a
corporation. Unless otherwise specified in a Prospectus Supplement for a Series,
the Transferor intends to treat the certificates of each Series that are sold to
investors as indebtedness for Federal income tax purposes and intends to treat
any Participation as a shared ownership interest in the Receivables, rather than
an interest in a partnership. Accordingly, the Transferor currently does not
intend to file the Federal income tax reports that would apply if any Classes of
Certificates or any Participations were treated as interests in a partnership or
corporation (unless, as is permitted by the Pooling Agreement, an interest in
the Trust is issued or sold that is intended to be classified as an interest in
a partnership).
If a transaction were treated as creating a partnership between the
Transferor and the Certificate Owners or Certificateholders of one or more
classes of one or more Series, the partnership itself would not be subject to
Federal income tax (unless it were to be characterized as a publicly traded
partnership taxable as a corporation); rather, the partners of such partnership,
including the Certificate Owners or Certificateholders of such class of such
Series, would be taxed individually on their respective distributive shares of
the partnership's income, gain, loss, deductions and credits. The amount and
timing of items of income and deductions of a Certificate Owner could differ if
the Offered Certificates were held to constitute partnership interests, rather
than indebtedness. Moreover, unless the partnership were treated as engaged in a
trade or business, an individual's share of expenses of the partnership would be
miscellaneous itemized deductions that, in the aggregate, are allowed as
deductions only to the extent they exceed two percent of the individual's
adjusted gross income, and would be subject to reduction under Section 68 of the
Code if the individual's adjusted gross income exceeded certain limits. As a
result, the individual might be taxed on a greater amount of income than the
stated rate on the Offered Certificates. Finally, assuming the partnership is a
"publicly traded partnership," even if it qualifies for exemption from taxation
as a corporation, all or a portion of any taxable income allocated to a
Certificate Owner that is a pension, profit-sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) may, under
certain circumstances, constitute "unrelated business taxable income" which
generally would be taxable to the holder under the Code.
If it were determined that a transaction created an entity classified as an
association or as a publicly traded partnership taxable as a corporation, the
Trust would be subject to Federal income tax at corporate income tax rates on
the income it derives from the Receivables, which would reduce the amounts
available
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for distribution to the Certificate Owners, possibly including Certificate
Owners of a Class that is treated as indebtedness. Such classification may also
have adverse state and local tax consequences that would reduce amounts
available for distribution to Certificate Owners. Cash distributions to the
Certificate Owners (except any Class not recharacterized as an equity interest
in an association) generally would be treated as dividends for tax purposes to
the extent of such deemed corporation's earnings and profits.
FOREIGN INVESTORS
As set forth above, it is expected that Special Tax Counsel will render an
opinion, upon issuance, that the Offered Certificates will be treated as debt
for U.S. Federal income tax purposes. The following information describes the
U.S. Federal income tax treatment of investors that are not U.S. persons
("Foreign Investors") if the Offered Certificates are treated as debt. The term
"Foreign Investor" means any person other than (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity organized in or
under the laws of the United States or any political subdivision thereof (iii)
an estate the income of which is includible in gross income for U.S. Federal
income tax purposes, regardless of its source or a trust if a court within the
United States is able to exercise primary supervision over the administration of
the trust and one or more United States fiduciaries have the authority to
control all substantial decisions of the trust.
Interest, including OID, paid to a Foreign Investor will be subject to U.S.
withholding taxes at a rate of 30% unless (i) the income is "effectively
connected" with the conduct by such Foreign Investor of a trade or business in
the United States or (ii) the Foreign Investor and each securities clearing
organization, bank, or other financial institution that holds the Offered
Certificates on behalf of the customer in the ordinary course of its trade or
business, in the chain between the Certificate Owner and the U.S. person
otherwise required to withhold the U.S. tax, complies with applicable
identification requirements and the Certificate Owner does not actually or
constructively own 10% or more of the voting stock of Dayton Hudson or any of
its affiliates (or, upon the issuance of an interest in the Trust that is
treated as a partnership interest, any holder of such interest) and is not a
controlled foreign corporation with respect to Dayton Hudson or any of its
affiliates (or the holder of such an interest). Applicable identification
requirements generally will be satisfied if there is delivered to a securities
clearing organization (i) IRS Form W-8 signed under penalties of perjury by the
Certificate Owner, stating that the Certificate Owner is not a U.S. person and
providing such Certificate Owner's name and address, (ii) IRS Form 1001, signed
by the Certificate Owner or such Certificate Owner's agent, claiming exemption
from withholding under an applicable tax treaty, or (iii) IRS Form 4224 signed
by the Certificate Owner or such owner's agent, claiming exemption from
withholding of tax on income effectively connected with the conduct of a trade
or business in the United States; provided that 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
Certificate Owner is a U.S. person.
Recently proposed Treasury regulations (the "Proposed Regulations") could
affect the procedures to be followed by a Foreign Investor in complying with
United States Federal withholding, backup withholding and information reporting
rules. The Proposed Regulations are not currently effective but, if finalized in
their current form, would be effective for payments made after December 31,
1997. Prospective investors are urged to consult their tax advisors regarding
the effect, if any, of the Proposed Regulations on the purchase, ownership, and
disposition of the Offered Certificates.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to U.S. Federal income tax on gain realized upon the sale,
exchange, or redemption of an Offered Certificate, provided that (i) such gain
is not effectively connected with the conduct of a trade or business in the
United States, (ii) in the case of a Certificate Owner that is an individual,
such Certificate Owner is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange, or
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redemption occurs, and (iii) in the case of gain representing accrued interest,
the conditions described in the second preceding paragraph are satisfied.
If the interests of the Certificate Owners of a Series were reclassified as
interests in a partnership (not taxable as a corporation), such
recharacterization could cause a Foreign Investor to be treated as engaged in a
trade or business in the United States. In such event the Certificate Owner of
such Series would be required to file a Federal income tax return and, in
general, would be subject to Federal income tax, including branch profits tax in
the case of a Certificateholder that is a corporation, on its net income from
the partnership. Further, the partnership would be required, on a quarterly
basis, to pay withholding tax equal to the sum, for each foreign partner, of
such foreign partner's distributive share of "effectively connected" income of
the partnership multiplied by the highest rate of tax applicable to that foreign
partner. The tax withheld from each foreign partner would be credited against
such foreign partner's U.S. income tax liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain Certificate Owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the Certificates of a Series if the
Certificate Owner, upon issuance, fails to supply the Trustee or his broker with
his taxpayer identification number, furnishes an incorrect taxpayer
identification number, fails to report interest, dividends, or other "reportable
payments" (as defined in the Code) properly, or, under the circumstances, fails
to provide the Trustee or his broker with a certified statement, under penalty
of perjury, that he is not subject to backup withholding. Information returns
will be sent annually to the IRS and to each Certificate Owner of a Series
setting forth the amount of interest paid on the Certificates of such Series and
the amount of Federal tax withheld thereon.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of the Trust, the
Certificates of any Series, or the Certificate Owners of any Series under state
and local tax laws. Prospective investors are urged to consult their own tax
advisors regarding state and local tax treatment of the Trust and the
Certificates of any Series, and the consequences of purchase, ownership or
disposition of the Certificates of any Series under any state or local tax law.
ERISA CONSIDERATIONS
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. ERISA also
imposes certain duties on persons who are fiduciaries of plans subject to ERISA,
and ERISA and the Code prohibit certain transactions between a plan and parties
in interest or disqualified persons with respect to such plans. Under ERISA, any
person who exercises any authority or control respecting the management or
disposition of the assets of a plan is considered to be a fiduciary of such plan
(subject to certain exceptions not here relevant). A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons.
Plan fiduciaries must determine whether the acquisition and holding of the
Certificates of a Series and the operations of the Trust would result in direct
or indirect prohibited transactions under ERISA and the Code. The operations of
the Trust could result in prohibited transactions if Benefit Plans (as defined
below) that purchase the Certificates of a Series are deemed to own an interest
in the underlying assets of the Trust. There may also be an improper delegation
of the responsibility to manage Benefit Plan assets if
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Benefit Plans that purchase the Certificates are deemed to own an interest in
the underlying assets of the Trust.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") 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"), the assets and properties of certain entities in which a Benefit Plan
makes an equity investment could be deemed to be assets of the Benefit Plan in
certain circumstances. Accordingly, if Benefit Plans purchase Certificates of a
Series, the Trust could be deemed to hold plan assets unless one of the
exceptions under the Final Regulation is applicable to the Trust.
The Final Regulation only applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Assuming that interests in Certificates of a
Series are equity interests, the Final Regulation contains an 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 owned by 100 or more investors independent of the issuer 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. In addition, the Final Regulation provides that if at all times more
than 75% of the value of all classes of equity interests in Certificates of a
Series are held by investors other than benefit plan investors (which is defined
as including plans subject to ERISA, government plans and IRA's), an investing
Benefit Plan's assets will not include any of the underlying assets of the
Trust.
Unless otherwise specified in the related Prospectus Supplement, it is
anticipated that interests in the Certificates of a Series will meet the
criteria of publicly-offered securities as set forth above. The underwriters
expect (although no assurances can be given) that interests in each class of
Certificates of each Series offered hereby will be held by at least 100
independent investors at the conclusion of the offering for such Series; there
are no restrictions imposed on the transfer of interests in the Certificates of
such Series; and interest in the Certificates of such Series 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 interests in the Certificates of a Series fail to meet the criteria of
publicly-offered securities and the Trust Assets are deemed to include assets of
Benefit Plans that are Certificateholders, transactions involving the Trust and
"parties in interest" or "disqualified persons" with respect to such plans might
be prohibited under Section 406 of ERISA and Section 4975 of the Code unless an
exemption is applicable. In addition, the Transferor or any underwriter of such
Series may be considered to be a party in interest, disqualified person or
fiduciary with respect to an investing Benefit Plan. Accordingly, an investment
by a Benefit Plan in Certificates may be a prohibited transaction under ERISA
and the Code unless such investment is subject to a statutory or administrative
exemption. Thus, for example, if a participant in any Benefit Plan is a
cardholder of one of the Accounts, under DOL interpretations the purchase of
interests in Certificates by such Benefit Plan could constitute a prohibited
transaction. Five class exemptions issued by the DOL that could apply in such
event are DOL Prohibited Transaction Class Exemption ("PTE") 84-14 (Class
Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers), PTE 91-38 (Class Exemption for Certain
Transactions Involving Bank Collective Investment Funds), PTE 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled Separate
Accounts), PTE 95-60 (Class Exemption for Certain Transactions Involving
Insurance Company General Accounts) and PTE 96-23 (Class Exemption for Plan
Asset Transactions Determined by In-House Asset Managers). However, there is no
assurance that these exemptions, even if all of the
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conditions specified therein are satisfied, or any other exemption will apply to
all transactions involving the Trust's assets.
IN LIGHT OF THE FOREGOING, FIDUCIARIES OF A BENEFIT PLAN CONSIDERING THE
PURCHASE OF INTERESTS IN CERTIFICATES OF ANY SERIES SHOULD CONSULT THEIR OWN
COUNSEL AS TO WHETHER THE ASSETS OF THE TRUST WHICH ARE REPRESENTED BY SUCH
INTERESTS WOULD BE CONSIDERED PLAN ASSETS, AND WHETHER, UNDER THE GENERAL
FIDUCIARY STANDARDS OF INVESTMENT PRUDENCE AND DIVERSIFICATION, AN INVESTMENT IN
CERTIFICATES OF ANY SERIES IS APPROPRIATE FOR THE BENEFIT PLAN TAKING INTO
ACCOUNT THE OVERALL INVESTMENT POLICY OF THE BENEFIT PLAN AND THE COMPOSITION OF
THE BENEFIT PLAN'S INVESTMENT PORTFOLIO. In addition, fiduciaries should
consider the consequences that would apply if the Trust Assets were considered
plan assets, the applicability of exemptive relief from the prohibited
transaction rules, and, whether all conditions for such exemptive relief would
be satisfied.
In particular, insurance companies considering the purchase of Certificates
of any Series should consult their own benefits or other appropriate counsel
with respect to the United States Supreme Court's decision in JOHN HANCOCK
MUTUAL LIFE INSURANCE CO. V. HARRIS TRUST & SAVINGS BANK, 114 S. Ct. 517 (1993)
("JOHN HANCOCK") and the applicability of PTE 95-60. In JOHN HANCOCK, the
Supreme Court held that assets held in an insurance company's general account
may be deemed to be "plan assets" under certain circumstances; however, PTE
95-60 may exempt some or all of the transactions that could occur as the result
of the acquisition and holding of the Certificates of a Series by an insurance
company general account from the penalties normally associated with prohibited
transactions. Accordingly, investors should analyze whether JOHN HANCOCK and PTE
95-60 or any other exemption may have an impact with respect to their purchase
of the Certificates of any Series.
In addition, insurance companies considering the purchase of Certificates
using assets of a general account should consult their own employee benefits
counsel or other appropriate counsel with respect to the effect of the Small
Business Job Protection Act of 1996 which added a new Section 401(c) of ERISA
relating to the status of the assets of insurance company general accounts under
ERISA and Section 4975 of the Code. Pursuant to Section 401(c), the DOL is
required to issue final regulations (the "General Account Regulations") not
later than December 31, 1997 with respect to insurance policies issued on or
before December 31, 1998 that are supported by an insurer's general account. The
General Account Regulations are intended to provide guidance on which assets
held by the insurer constitute "plan assets" for purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code. Section 401(c)
also provides that, except in the case of avoidance of the General Account
Regulations and actions brought by the Secretary of Labor relating to certain
breaches of fiduciary duties that also constitute breaches of state or Federal
criminal law, until the date that is 18 months after the General Account
Regulations become final, no liability under the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 may result on the
basis of a claim that the assets of the general account of an insurance company
constitute the plan assets of any Benefit Plan. The plan asset status of
insurance company separate accounts is unaffected by new Section 401(c) of
ERISA, and separate account assets continue to be treated as the plan assets of
any Benefit Plan invested in a separate account.
PLAN OF DISTRIBUTION
The Transferor may sell Certificates (i) through underwriters or dealers;
(ii) directly to one or more purchasers; or (iii) through agents. The related
Prospectus Supplement in respect of a Series offered hereby will set forth the
terms of the offering of such Certificates, including the name or names of any
underwriters, the purchase price of such Certificates and the proceeds to the
Transferor from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial offering price and any
discounts or concessions allowed or reallowed or paid to dealers. Only
underwriters so
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named in such Prospectus Supplement shall be deemed to be underwriters in
connection with the Certificates offered thereby.
Subject to the terms and conditions set forth in an underwriting agreement
(an "Underwriting Agreement") to be entered into with respect to a Series of
Certificates offered hereby, the Transferor will agree to sell to each of the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase from the Transferor, the
principal amount of Certificates set forth therein and in the related Prospectus
Supplement (subject to proportional adjustment on the terms and conditions set
forth in the related Underwriting Agreement in the event of an increase or
decrease in the aggregate amount of Certificates offered hereby and by the
related Prospectus Supplement).
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the Certificates
offered hereby and by the related Prospectus Supplement if any of such
Certificates are purchased. In the event of a default by any underwriter, each
Underwriting Agreement will provide that, in certain circumstances, purchase
commitments of the nondefaulting underwriters may be increased or the
Underwriting Agreement may be terminated.
Each Underwriting Agreement will provide that the Transferor will indemnify
the related underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. The place and time of delivery for
any Series of Certificates in respect of which this Prospectus is delivered will
be set forth in the accompanying Prospectus Supplement.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement in respect
of a Series offered hereby, certain legal matters relating to the Certificates
will be passed upon for RNB, DHCC, the Transferor and the Trust by James T.
Hale, Senior Vice President, Secretary and General Counsel of Dayton Hudson
Corporation and for the Underwriters by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York. Mr. Hale owns or has the right to acquire a number of
shares of common stock of Dayton Hudson Corporation which total less than 1% of
the outstanding common stock of Dayton Hudson Corporation. Unless otherwise
specified in the related Prospectus supplement in respect of a Series offered
hereby, certain Federal income tax matters will be passed upon for the
Transferor by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
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INDEX OF DEFINED TERMS FOR THE PROSPECTUS
<TABLE>
<CAPTION>
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<S> <C>
Accounts............................................................................................... 1
Accumulation Period.................................................................................... 15, 47
Addition............................................................................................... 58
Addition Cut-Off Date.................................................................................. 59
Addition Date.......................................................................................... 60
Additional Accounts.................................................................................... 7, 59
Aggregate Addition Limit............................................................................... 59
Amortization Period.................................................................................... 8
Assigned Assets........................................................................................ 74
Assumed Obligations.................................................................................... 74
Assuming Entity........................................................................................ 74
Automatic Addition Suspension Date..................................................................... 7, 58
Automatic Addition Termination Date.................................................................... 7, 58
Automatic Additional Accounts.......................................................................... 7
Bank Receivables Purchase Agreement.................................................................... 6
Bankruptcy Code........................................................................................ 25
Benefit Plans.......................................................................................... 86
Business Day........................................................................................... 20
Cardholder............................................................................................. 32
Cash Collateral Account................................................................................ 55
Cash Collateral Guaranty............................................................................... 55
Cede................................................................................................... 3
Cedel.................................................................................................. 42
Cedel Participants..................................................................................... 42
Certificate Owner...................................................................................... 80
Certificate Owners..................................................................................... 3
Certificate Rate....................................................................................... 8
Certificateholders..................................................................................... 3, 43
Certificateholders' Interest........................................................................... 8
Certificates........................................................................................... 1, 4
Class.................................................................................................. 2, 4, 11
Closing Date........................................................................................... 13
Code................................................................................................... 80
Collateral Invested Amount............................................................................. 56
Collection Account..................................................................................... 48
Collections............................................................................................ 12
Commission............................................................................................. 3
Controlled Accumulation Amount......................................................................... 15
Controlled Amortization Amount......................................................................... 14
Controlled Amortization Period......................................................................... 14
Controlled Deposit Amount.............................................................................. 15
Controlled Distribution Amount......................................................................... 14
Cooperative............................................................................................ 42
Credit Card Guidelines................................................................................. 27
Credit Card Originator................................................................................. 5
Credit Cards........................................................................................... 32
Cut-Off Date........................................................................................... 5
Date of Processing..................................................................................... 20
Dayton Hudson.......................................................................................... 5
Dayton Hudson Stores................................................................................... 27, 36
</TABLE>
89
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Dayton's Credit Card................................................................................... 32
Defaulted Accounts..................................................................................... 9
Defaulted Amount....................................................................................... 52
Defaulted Receivables.................................................................................. 52
Defeased Series........................................................................................ 53
Definitive Certificates................................................................................ 43
Depositaries........................................................................................... 40
Depository............................................................................................. 39
Determination Date..................................................................................... 20
DHC Guest Credit....................................................................................... 32
DHCC................................................................................................... 5
Disclosure Document.................................................................................... 11
Discount Option Receivables............................................................................ 8, 45
Discount Percentage.................................................................................... 45
Distribution Date...................................................................................... 12
DOL.................................................................................................... 86
DSD.................................................................................................... 32
DTC.................................................................................................... 3
DTC Participants....................................................................................... 40
Early Amortization Event............................................................................... 17, 53
Early Amortization Period.............................................................................. 16
Eligible Account....................................................................................... 61, 73
Eligible Deposit Account............................................................................... 48
Eligible Institution................................................................................... 48
Eligible Investments................................................................................... 48
Eligible Receivable.................................................................................... 73
Enhancement............................................................................................ 4
Enhancement Invested Amount............................................................................ 55
Enhancement Provider................................................................................... 55
ERISA.................................................................................................. 22
Euroclear.............................................................................................. 42
Euroclear Operator..................................................................................... 42
Euroclear Participants................................................................................. 42
Excess Finance Charge Collections...................................................................... 17, 49
Excess Transferor Finance Charge Collections........................................................... 50
Exchange Act........................................................................................... 3
Expected Final Payment Date............................................................................ 13
FASIT.................................................................................................. 83
FDIC................................................................................................... 9
Final Regulation....................................................................................... 86
Finance Charge Receivables............................................................................. 8
FIRREA................................................................................................. 26
Foreign Investors...................................................................................... 84
Full Invested Amount................................................................................... 18, 51
Funding Period......................................................................................... 18, 51
General Account Regulations............................................................................ 87
Group.................................................................................................. 49
Hudson's Credit Card................................................................................... 32
Indirect Participants.................................................................................. 40
Ineligible Receivables................................................................................. 26, 62
Initial Invested Amount................................................................................ 21
Insolvency Event....................................................................................... 25
</TABLE>
90
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<TABLE>
<CAPTION>
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<S> <C>
Interest Funding Account............................................................................... 44
Interest Payment Date.................................................................................. 46
Interest Period........................................................................................ 12
Invested Amount........................................................................................ 9
Investor Percentage.................................................................................... 9
IRA.................................................................................................... 86
IRS.................................................................................................... 81
John Hancock........................................................................................... 87
Marshall Field's Credit Card........................................................................... 32
Mervyn's Credit Card................................................................................... 32
Monthly Interest....................................................................................... 17, 49
Monthly Period......................................................................................... 12, 44
Monthly Report......................................................................................... 53
Moody's................................................................................................ 48
New Issuance........................................................................................... 46
New Principal Receivables.............................................................................. 71
Offered Certificates................................................................................... 80
OID.................................................................................................... 81
Paired Series.......................................................................................... 19, 51
Participation.......................................................................................... 11, 48
Participation Interest................................................................................. 58
Participation Percentage............................................................................... 48
Participation Supplement............................................................................... 11, 48
Paying Agent........................................................................................... 49
Payment Date........................................................................................... 54
Pooling Agreement...................................................................................... 1, 4, 6
Portfolio Reassignment Price........................................................................... 63
Pre-Funding Account.................................................................................... 18, 51
Pre-Funding Amount..................................................................................... 18, 51
Principal Amortization Period.......................................................................... 14
Principal Commencement Date............................................................................ 13
Principal Funding Account.............................................................................. 15, 47
Principal Receivables.................................................................................. 7
Principal Shortfalls................................................................................... 50
Principal Terms........................................................................................ 46
Proposed Regulations................................................................................... 84
Prospectus Supplement.................................................................................. 1
PTE.................................................................................................... 87
Purchase Agreements.................................................................................... 6
Rapid Accumulation Period.............................................................................. 16
Rating Agency.......................................................................................... 22
Ratings Effect......................................................................................... 23
Reassignment Price..................................................................................... 62
Receivables............................................................................................ 1, 4
Receivables Purchase Agreement......................................................................... 6
Record Date............................................................................................ 39
Registrar.............................................................................................. 44
Regulations............................................................................................ 81
Removal Date........................................................................................... 61
Removal Notice Date.................................................................................... 61
Removed Accounts....................................................................................... 7, 37
Required Designation Date.............................................................................. 57
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Required Principal Balance............................................................................. 29
Required Retained Transferor Amount.................................................................... 10
Required Retained Transferor's Percentage.............................................................. 10
Reserve Account........................................................................................ 57
Restart Date........................................................................................... 59
Revolving Period....................................................................................... 13
RNB.................................................................................................... 5
RNB Portfolio.......................................................................................... 23
Securities Act......................................................................................... 11
Senior Certificates.................................................................................... 8
Series................................................................................................. 1, 4
Series Supplement...................................................................................... 4
Series Termination Date................................................................................ 14
Service Transfer....................................................................................... 67
Servicer............................................................................................... 1, 4, 5
Servicer Default....................................................................................... 67
Servicing Fee.......................................................................................... 5, 65
Shared Principal Collections........................................................................... 50
Shared Transferor Principal Collections................................................................ 50
Special Funding Account................................................................................ 18, 51
Special Tax Counsel.................................................................................... 80
Spread Account......................................................................................... 56
Standard & Poor's...................................................................................... 48
Subordinated Certificates.............................................................................. 8
Supplemental Accounts.................................................................................. 7
Supplemental Certificates.............................................................................. 11, 46
Supplemental Conveyances............................................................................... 72
Target Credit Card..................................................................................... 32
Tax Opinion............................................................................................ 47
Termination Notice..................................................................................... 67
Terms and Conditions................................................................................... 43
Transaction Documents.................................................................................. 80
Transfer Agent......................................................................................... 44
Transfer Date.......................................................................................... 16
Transferor............................................................................................. 1, 4, 5
Transferor Amount...................................................................................... 9
Transferor Certificate................................................................................. 11
Transferor Percentage.................................................................................. 39
Transferor's Interest.................................................................................. 9
Trust.................................................................................................. 1, 4
Trust Assets........................................................................................... 4
Trust Portfolio........................................................................................ 37
Trust Portfolio Yield.................................................................................. 59
Trust Termination Date................................................................................. 70
Trustee................................................................................................ 1
UCC.................................................................................................... 75
Underwriting Agreement................................................................................. 88
</TABLE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY
THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. NEITHER THE DELIVERY OF
THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE TRANSFEROR, DHCC OR THE SERVICER OR ANY AFFILIATE THEREOF OR
THE RECEIVABLES OR THE ACCOUNTS SINCE THE DATE HEREOF. THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
PROSPECTUS SUPPLEMENT
Other Information......................................................... S-2
Summary of Terms.......................................................... S-3
Maturity Considerations................................................... S-22
Composition and Historical Performance of the RNB Portfolio............... S-23
The Receivables........................................................... S-26
Use of Proceeds........................................................... S-29
Description of the Class A Certificates................................... S-29
Underwriting.............................................................. S-51
Index of Defined Terms for the Prospectus Supplement...................... S-53
Annex I: Other Series..................................................... A-I
Annex II: Global Clearance Settlement and Tax Documentation Procedures.... A-II
PROSPECTUS
Prospectus Supplement..................................................... 3
Available Information..................................................... 3
Reports to Certificateholders............................................. 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 23
Maturity Considerations................................................... 31
The RNB Credit Card Business.............................................. 32
The Transferor............................................................ 35
Dayton Hudson Capital Corporation......................................... 35
Retailers National Bank................................................... 36
Dayton Hudson Corporation................................................. 36
The Receivables........................................................... 37
The Trust................................................................. 38
Description of the Certificates........................................... 38
Enhancement............................................................... 54
The Pooling and Servicing Agreement....................................... 57
The Receivables Purchase Agreements....................................... 70
Certain Legal Aspects of the Receivables.................................. 75
Certain U.S. Federal Income Tax Consequences.............................. 80
State and Local Taxation.................................................. 85
ERISA Considerations...................................................... 85
Plan of Distribution...................................................... 87
Legal Matters............................................................. 88
Index of Defined Terms for the Prospectus................................. 89
</TABLE>
------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS AND A PROSPECTUS
SUPPLEMENT. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS AND A PROSPECTUS SUPPLEMENT WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$400,000,000
DAYTON HUDSON
CREDIT CARD MASTER TRUST
6.25% CLASS A
ASSET BACKED CERTIFICATES,
SERIES 1997-1
DAYTON HUDSON
RECEIVABLES CORPORATION
TRANSFEROR
RETAILERS NATIONAL BANK
SERVICER
SALOMON BROTHERS INC
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
PROSPECTUS SUPPLEMENT
DATED OCTOBER 8, 1997
