++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We can+
+ not sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy these+
+ securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus Supplement to Prospectus, Dated ____, 1998
Dillard Credit Card Master Trust
Issuer
Dillard Asset Funding Company
Transferor
Dillard National Bank
Servicer
- --------------------------------------------------------------------------------
A certificate is not a deposit and neither the certificates nor the underlying
accounts or receivables are insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
The certificates will represent interests in the Trust only and will not
represent interests in or obligations of Dillard Asset Funding Company, the
servicer or any of their affiliates.
This prospectus supplement may be used to offer and sell the specified series of
certificates only if accompanied by the prospectus.
- --------------------------------------------------------------------------------
$_______ Class A Floating Rate Asset Backed Certificates, Series 1998-___
$_______ Class B Floating Rate Asset Backed Certificates, Series 1998-____
Class A Certificates Class B Certificates
Principal Amount $____________ $_____________
Price $______ (___%) $______ (___%)
Underwriters' Commissions $______ (___%) $______ (___%)
Proceeds to the Issuer $______ (___%) $______ (___%)
Certificate Rate one-month LIBOR + one-month LIBOR +
___% p.a. ___% p.a.
Interest Payment Dates monthly on the ___ monthly on the ___
First Interest Payment Date __________, 19__ ___________, 19__
Scheduled Principal Payment Date __________, ___ ___________, ____
The Class B Certificates are subordinated to the Class A Certificates.
These securities are interests in Dillard Credit Card Master Trust, and are
backed only by the assets of the trust. Neither these securities nor the assets
of the trust are obligations of Dillard Asset Funding Company, Dillard National
Bank or any of their affiliates, or obligations insured by the FDIC.
These securities are highly structured. Before you purchase these securities, be
sure you understand the structure and the risks. See "Risk Factors" on pages
S-[9] of this prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the disclosures in this supplement and the attached
prospectus. Any representation to the contrary is a criminal offense.
These securities are offered subject to availability.
Underwriters of the Class A Certificates
[insert list of Class A underwriters]
Underwriter of the Class B Certificates
[insert list of Class B underwriters]
Table of Contents
Selected Trust Portfolio Data ....................................................................... S-3
Trust Payment Data .................................................................................. S-4
Summary of Terms .................................................................................... S-5
Structural Summary .................................................................................. S-6
Risk Factors ........................................................................................ S-9
Certificates Backed Only
by the Assets of the Trust ............................................................ S-9
Potential Early
Repayment or Delayed
Payment due to Reduced
Portfolio Yield ....................................................................... S-9
Basis Risk ............................................................................... S-11
Effects of Consumer Protection Laws on Certificateholders and Collections ................ S-11
Timing of Principal Payments ............................................................. S-12
Allocations of Charged-Off
Receivables and Dilutions
Could Reduce Payments
to Certificateholders ................................................................. S-12
Limited Ability to
Resell Certificates ................................................................... S-13
Certain Liens Could
Be Given Priority
Over Your Securities .................................................................. S-13
Insolvency or Bankruptcy of DAFC
or an Originator Could Result
in Accelerated, Delayed or
Reduced Payments to Certificateholders ............................................... S-14
Issuance of Additional
Series by the Trust
May Affect the Timing
of Payments ........................................................................... S-16
Limited Control
of Trust Actions ...................................................................... S-16
Class B Bears Additional
Credit Risk ........................................................................... S-17
Dependence on Dillard's .................................................................. S-17
Social, Technological
and Economic Factors .................................................................. S-17
Calculation of
Finance Charges ....................................................................... S-17
Dillard's Credit Card Portfolio ..................................................................... S-19
General .................................................................................. S-19
Delinquency and Loss Experience .......................................................... S-19
Recoveries ............................................................................... S-20
The Receivables ..................................................................................... S-21
General .................................................................................. S-21
Dilution Experience ...................................................................... S-24
Additional Trust Portfolio Information ................................................... S-26
Maturity Considerations ............................................................................. S-27
Controlled Accumulation Period ........................................................... S-27
Rapid Amortization Period ................................................................ S-27
Pay Out Events ........................................................................... S-28
Payment Rates ............................................................................ S-28
Receivable Yield Considerations ..................................................................... S-29
Use of Proceeds ..................................................................................... S-31
Description of the Certificates ..................................................................... S-31
General .................................................................................. S-31
Exchanges ................................................................................ S-33
Status of the Certificates ............................................................... S-33
Interest Payments ........................................................................ S-33
Principal Payments ....................................................................... S-34
Postponement of Controlled Accumulation Period ........................................... S-35
Subordination ............................................................................ S-36
Allocation Percentages ................................................................... S-36
Reallocation of Cash Flows ............................................................... S-38
Application of Collections ............................................................... S-39
Shared Excess Finance Charge Collections ................................................. S-48
Shared Principal Collections ............................................................. S-48
Required Collateral Interest ............................................................. S-48
Defaulted Receivables; Dilutions; Investor Charge-Offs ................................... S-49
Servicer Guarantee ....................................................................... S-50
Principal Funding Account ................................................................ S-50
[Reserve Account ......................................................................... S-51
Issuance of Additional Certificates ...................................................... S-52
Companion Series ......................................................................... S-52
Pay Out Events ........................................................................... S-53
Servicing Compensation and Payment of Expenses ........................................... S-54
Reports to Certificateholders ............................................................ S-55
Description of the Purchase Agreements .............................................................. S-55
General .................................................................................. S-55
Representations and Warranties ........................................................... S-56
Certain Covenants ........................................................................ S-56
Repurchase Events ........................................................................ S-56
Merger and Consolidation ................................................................. S-57
Listing And General Information ..................................................................... S-57
ERISA Considerations ................................................................................ S-58
Class A Certificates ..................................................................... S-58
Class B Certificates ..................................................................... S-59
Consultation with Counsel ................................................................ S-59
Underwriting ........................................................................................ S-59
Exchange Listing .................................................................................... S-61
Legal Matters ....................................................................................... S-61
S-2
Where to Find Information in These Documents
The attached prospectus provides general information about Dillard Credit Card
Master Trust, including terms and conditions that are generally applicable to
the securities issued by the trust. The specific terms of Series 1998-___ are
described in this supplement.
This supplement begins with several introductory sections describing your series
and Dillard Credit Card Master Trust in abbreviated form:
. Summary of Terms provides important amounts, dates and other terms of your
series;
. Structural Summary, gives a brief introduction of the key structural features
of your series directions for locating further information;
. Selected Trust Portfolio Summary Data gives certain financial information
about the assets of the Trust; and
. Risk Factors, describes risks that apply to your series.
As you read through these sections, cross-references will direct you to more
detailed descriptions in the attached prospectus and elsewhere in this
supplement. You can also directly reference key topics by looking at the table
of contents pages in this supplement and the attached prospectus.
Capitalized terms are defined in the attached prospectus or in this supplement.
Definitions are indicated by boldface type. Both the attached prospectus and
this supplement contain an index of terms listing the page numbers where
definitions can be found.
TO UNDERSTAND THE STRUCTURE OF THESE SECURITIES, YOU MUST READ CAREFULLY THE
ATTACHED PROSPECTUS AND THIS SUPPLEMENT IN THEIR ENTIRETY.
S-3
Selected Trust Portfolio Data
GRAPHIC DISTRIBUTION OF RECEIVABLES IN TRUST PORTFOLIO AS OF _________, ______.
[Pie chart with accompanying key showing the following: Alabama-__%;
Arizona-__%; Arkansas-__%; California-__%; Colorado-__%; Florida-__%;
Georgia-__%; Idaho-__%; Illinois-__%; Indiana-__%; Iowa-__%; Kansas-__%;
Kentucky-__%; Louisiana-__%; Mississippi-__%; Missouri-__%; Montana-__%;
Nebraska-__%; Nevada-__%; New Mexico-__%; North Carolina-__%; Ohio-__%;
Oklahoma-__%; South Carolina-__%; Tennessee-__%; Texas-__%; Virginia-__%; Utah
- -__% and Wyoming-__%.]
The chart above shows the geographic distribution of the receivables in the
Trust portfolio among the 50 states. Other than the states specifically shown in
the chart, no state accounts for more than 5% of receivables in the Trust
portfolio.
AGE OF ACCOUNTS IN TRUST PORTFOLIO AS OF ________, ____.
[Bar chart showing the following: 0-12 months since the account was opened-__%;
13 - 24 months-__%; 25 - 36 months-__%; 37 - 48 months-__%; 49 - 60 months-__%;
61 - 120 months-__%; 121 + months-__%].
The chart above shows the percentages of the receivables in the Trust Portfolio
arising under accounts within the age brackets shown.
S-4
Trust Payment Data
The chart above shows the total yield, payment rate and net charge-off rate for
the Trust Portfolio for each month from _______ 19__ to ____________ 19__.
"Trust yield" for any month means the total amount of collected finance charges
allocated to Dillard Credit Card Master Trust for the month, expressed as a
percentage of total outstanding receivables at the beginning of the month.
The "payment rate" for any month is the aggregate amount collected on
receivables during the month, including recoveries on previously charged off
receivables, expressed as a percentage of total outstanding receivables at the
beginning of the month.
The amount of "net charge-offs" for any month is the amount of charged off
receivables recorded in the month, net of any recoveries from earlier
charge-offs on receivables in the Trust Portfolio, expressed as a percentage of
total outstanding receivables at the beginning of the month.
S-5
Summary of Terms
Transferor: Dillard Asset Funding Company ("DAFC")
Originators: Dillard National Bank ("DNB"); Dillard National
Bank (formerly known as Mercantile Stores
National Bank) ("DNB-La.")
Servicer: DNB
Trustee:
Pricing Date: _________, ____
Closing Date: _________, ____
Clearance and Settlement: DTC/Cedel/Euroclear
Trust Assets: receivables originated in private label revolving
credit accounts, [including recoveries on
charged-off receivables]
Series Structure: Amount % of Total Series
Class A $___________ __%
Class B $___________ __%
Collateral Interest $___________ __%
Annual Servicing Fee: ___%
Class A Class B
Anticipated Ratings:*
(Moody's / S&P / Fitch IBCA) [ ] [ ]
Credit Enhancement: subordination of Class B subordination of collateral
and the collateral interest interest
Minimum Transferor
Interest: __% __%
Interest Rate: [1-month LIBOR + ___% [1-month LIBOR + ___%
p.a.] p.a.]
Interest Accrual Method: actual / 360 actual / 360
Interest Payment Dates: monthly (___) monthly (___)
Interest Rate Index Reset Date: [2 business days before each [2 business days before
each interest payment date] each interest payment date]
First Interest Payment Date: _________, ___ _________, ___
Scheduled Payment Date: _________, ___ _________, ___
Commencement of Controlled [Accumulation]
[Amortization] Period (subject to adjustment): _________, ___ N/A
Series 1998-___ Legal Final Maturity: _________, ___ _________, ___
Application for Exchange Listing: Luxembourg Luxembourg
CUSIP Number ______________ ______________
ISIN Number ______________ ______________
Common Code ______________ ______________
- ----------
* It is a condition to issuance that one of these ratings be obtained.
To understand the structure of these securities, you must re ad carefully the
attached prospectus and this supplement.
S-6
Structural Summary
This summary briefly describes certain major structural components of Series
1998-__. To fully understand the terms of Series 1998 -__ you will need to read
both this supplement and the attached prospectus in their entirety.
The Series 1998-__ Certificates
Dillard Credit Card Master Trust is issuing the Series 1998-__ asset backed
certificates in two classes: Class A Floating Rate Asset Backed Certificates and
Class B Floating Rate Asset Backed Certificates.
For a more detailed discussion of the certificates, see "Description of the
Certificates" in this supplement.
The certificates are backed by interests in a pool of private label revolving
credit card receivables. These receivables are generated in accounts owned by
the Originators in connection with the sale of Merchandise and Services by
retail stores owned and operated by Dillard's Inc. and its Subsidiaries. These
accounts are serviced by DNB and certain DNB Subservicers and transferred to
DAFC by DNB, DNB-La., Dillard Investment Co., Inc. and Mersco Factors, Inc.
pursuant to certain receivables purchase agreements.
For further information about the receivables supporting your certificates, see
"The Receivables" and "Receivable Yield Considerations" in this supplement.
Your certificates represent the right to a portion of collections on the
underlying receivables. Your certificates will also be allocated a portion of
net losses on receivables, if any. Any collections allocated to your series in
excess of the amount owed to you or DNB as servicer will be shared with other
series of certificates issued by Dillard Credit Card Master Trust, or returned
to the Transferor. In no case will you receive more than the principal and
interest owed to you under the terms described in this Supplement.
For further information on allocations and payments, see "Description of the
Certificates--Allocation Percentages" and "--Application of Collections" in this
supplement.
Your certificates feature credit enhancement by means of the subordination of
other interests, which is intended to protect you from net losses and shortfalls
in cash flow. Credit enhancement is provided to Class A by the following:
. subordination of Class B
. subordination of the collateral interest
Credit enhancement is provided to Class B by the following:
. subordination of the collateral interest
The effect of subordination is that the more subordinated interests will absorb
any net losses allocated to Series 1998-__, and make up any shortfalls in cash
flow, before the more senior interests are affected. On the closing date the
collateral interest will be $__________, or ____% of Series 1998-__.
For a more detailed description of the subordination provisions of Series
1998-__, see "Description of the Certificates--Subordination" in this
supplement. For a discussion of losses see "Description of the
Certificates--Defaulted Receivables; Investor Charge-Offs" in this supplement.
See "Risk Factors" in this supplement for more detailed discussions of the risks
of investing in Series 1998-__.
Dillard Credit Card Master Trust
Dillard Credit Card Master Trust is maintained by ________, as trustee, for the
benefit of:
. certificateholders of Series 1998-__;
. certificateholders of other series issued by Dillard Credit Card
Master Trust [(_____ other series are currently outstanding)];
. providers of credit enhancements for Series 1998-__ and other
series issued by Dillard Credit Card Master Trust; and
. the Transferor.
Each series has a claim to a fixed dollar amount of Dillard Credit Card Master
Trust's assets, regardless of the total amount of receivables in the trust at
any time. DAFC holds the remaining claim to Dillard Credit Card Master Trust's
assets, which fluctuates with the total amount of receivables in the Trust.
DAFC, as the holder of that
S-7
remainder, will have the right to purchase the outstanding Series 1998-__
certificates at any time when the outstanding amount of the Series 1998-__
certificateholders' interest in Dillard Credit Card Master Trust is less than 5%
of the original amount of that interest.
For more information on the Dillard Credit Card Master Trust's assets, see
"Dillard's Credit Card Portfolio" and "The Receivables" in this supplement and
"Dillard's Credit Card Activities" and "The Receivables" in the attached
prospectus.
Scheduled Principal Payments and Potential Later Payments
Dillard Credit Card Master Trust expects to pay the entire principal amount of
Class A in [one] payment on _________, ____, and the entire principal amount of
Class B in [one] payment on __________, ____. [In order to accumulate the funds
to pay Class A on its scheduled payment date, the trust will conduct a
controlled accumulation by setting aside principal collections in a principal
funding account. The trust will deposit funds into the principal funding account
during a "controlled accumulation period." The length of the controlled
accumulation period may be as long as twelve months, but will be shortened if
DAFC expects that a shorter period will suffice for the accumulation of the
Class A payment amount. The accumulation period will end on the scheduled
payment date for Class A, when the funds on deposit in the principal funding
account will be paid to Class A.]
If Class A is not fully repaid on its scheduled payment date, Class A will begin
to receive monthly payments of principal until it is fully repaid.
After Class A is fully repaid the Trust will use principal collections allocated
to Series 1998-__ to repay Class B. [Because of the relatively small principal
payment required to repay Class B, the Trust expects to pay the Class B
principal in full in one month.] If Class B is not fully repaid on its scheduled
payment date, Class B will begin to receive monthly payments of principal after
Class A is fully repaid.
For more information on scheduled principal payments, the controlled
accumulation period and Class B principal payments, see "Maturity
Considerations" and "Description of the Certificates--Principal Payments ,"
"--Postponement of the Controlled Accumulation Period" and "--Application of
Collections; Payments of Principal" in this supplement and "Description of the
Certificates--Principal Payments" and "--Accumulation Period" in the attached
prospectus.
Prior to the commencement of an accumulation or amortization period for Series
1998-__, principal collections will be paid to DAFC or shared with other series
that are amortizing or in an accumulation period.
Minimum Yield on the Receivables; Possible Early Principal Repayment of Series
1998-__
If the average trust portfolio yield is less than the average "base rate" for
Series 1998-__ for any three-month period, a "pay out event" will have occurred
and Series 1998-__ will begin to amortize (a "rapid amortization"). The trust
portfolio yield is generally the sum of collections of finance charges and
related amounts minus default amounts as a percentage of the Series 1998-__
principal balance. The "base rate" is an annualized rate equal to the average
certificate rate for Series 1998-__ plus the servicing fee percentage for Series
1998-__.
For more information on pay out events and the portfolio yield and base rate for
Series 1998-__, See "Maturity Considerations--Pay Out Events" in this
Supplement.
Series 1998-__ is also subject to several other pay out events, which could
cause Series 1998-__ to amortize, and which are summarized under the heading
"Description of the Certificates--Pay Out Events " in this supplement. If Series
1998-__ begins to amortize, Class A will receive monthly payments of principal
until it is fully repaid; Class B will then receive monthly payments of
principal until it is fully repaid. In that event, your certificates may be
repaid prior to the scheduled payment date.
The final payment of principal and interest will be made no later than
__________, ____, which is the Series 1998-__ final payment date.
For more information on early principal repayment and rapid amortization, see
"Maturity Considerations," "Description of the Certificates--Principal Payments"
and "--Pay Out Events" in this supplement and "Description of the
Certificates--Principal Payments," "--Rapid Amortization Period" and "--Final
Payment of Principal; Termination" in the attached prospectus.
Tax Status of Class A, Class B and Dillard Credit Card Master Trust
Simpson Thacher & Bartlett, as tax counsel to DAFC, is of the opinion that under
existing law the Class A and Class B certificates will be characterized as debt
for U.S.
S-8
federal income tax purposes and that Dillard Credit Card Master Trust will not
be an association or publicly traded partnership taxable as a corporation for
U.S. federal income tax purposes.
For further information regarding the application of U.S. federal income tax
laws, see "Tax Matters" in the attached prospectus.
ERISA Considerations
Class A Certificates: The Underwriters anticipate that the Class A Certificates
will meet the criteria for treatment as "publicly-offered securities." If so,
subject to important considerations described under "ERISA Considerations" in
this prospectus supplement and in the attached prospectus, the Class A
Certificates will be eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts.
Class B Certificates: Pension plans and other investors subject to ERISA can not
acquire Class B certificates. Prohibited investors include:
. "employee benefit plans" as defined in section 3(3) of ERISA.
. any "plan" as defined in section 4975 of the U.S. Internal Revenue
Code; and
. any entity whose underlying assets may be deemed to include "plan
assets" under ERISA by reason of any such plan's investment in the
entity, including insurance company general accounts.
By purchasing any Class B Certificates, you certify that you are not within any
of those categories.
For further information regarding the application of ERISA, see "ERISA
Considerations" in this supplement and the attached prospectus.
S-9
Risk Factors
You should consider the following risk factors in deciding whether to
purchase the asset backed certificates described herein.
Certificates Backed Only by the Assets of the Trust
The Certificates are interests in Dillard Credit Card Master Trust and are
backed only by the assets of the trust. Neither the Certificates nor the assets
of the trust are obligations of DAFC, the Originators, the Initial Seller or any
of their affiliates, or obligations insured by the FDIC and the
Certificateholders may not look to any of them if payments of interest or
principal are not paid on a timely basis. Consequently, Certificateholders must
rely only on payments on the Receivables for distribution of principal of and
interest on the Certificates. Furthermore, under the Agreement, the Certificates
have an interest in the Receivables [and collections] only to the extent of the
Class A Investor Interest and Class B Investor Interest and, to the limited
extent described in this prospectus supplement, the Transferor Interest.
Potential Early Repayment or Delayed Payment due to Reduced Portfolio Yield
Class A or Class B may be repaid earlier than its scheduled principal repayment
date if collections on the underlying receivables, together with other amounts
available for payment to securityholders, are too low. The minimum amount that
must be available for payment to Series 1998-__ in any month, referred to as the
"base rate," is the sum of the interest payable to Class A, the interest payable
to Class B and the interest payable to the holder of the collateral interest, in
each case for the related interest period, plus the servicing fee for the
related month. If the average trust portfolio yield for Series 1998-__ for any
three consecutive months is less than the average base rate for the same three
consecutive months, a "pay out event" will occur with respect to Series 1998-__
and the trust will commence a rapid amortization of Series 1998-__, and holders
of Series 1998-__ certificates will receive principal payments earlier than the
scheduled principal repayment date. In determining trust portfolio yield,
[collections in an amount equal to a fixed percentage of the balance of
Receivables originated by DNB and DNB-La.][collections in an amount equal to the
amount of finance charges billed for the preceding month] will be deemed to
constitute finance charges on these Receivables. Moreover, if principal
collections on receivables allocated to other series are available for
application to a rapid amortization of any outstanding securities, the period
during which that rapid amortization occurs may be substantially shortened.
Because of the potential for early repayment if collections on the receivables
fall below the minimum amount, any circumstances that tend to reduce collections
may increase the risk of early repayment of Series 1998-__.
Conversely, any reduction in colle ctions may cause the period during which
collections are accumulated in the principal funding account for payment of
Class A to be longer than otherwise would have been the case.
The following factors could result in circumstances that tend to reduce
collections:
DNB or DNB-La. May Change the Terms and Conditions of the Accounts
DAFC will transfer to Dillard Credit Card Master Trust receivables arising under
specified credit card accounts, but the Originators will continue to own those
accounts. As the
S-10
owner of those accounts, the Originators retain the right to change various
terms and conditions of those accounts (including finance charges and other fees
it charges and the required monthly minimum payment). Either Originator may
change the terms of its respective accounts to maintain the competitive position
of Dillards' department stores. Changes in the terms of the accounts may reduce
the amount of receivables arising under the accounts, reduce the amount of
collections on those receivables, or otherwise alter payment patterns.
[Each Originator will agree that it will not reduce the periodic finance charges
it charges on the receivables or other fees on any account if that action would
cause it to reasonably expect that the net yield on the trust's portfolio of
accounts would be insufficient to make interest payments on Series 1998-__ or
any other interest issued by the trust and pay the servicing fee payable by that
trust, unless it is required by law to reduce those charges or determines that
reductions are necessary to maintain the competitiveness of Dillard's department
stores, based on its good faith assessment of Dillards' business competition.]
[Each Originator will agree that it will not change the terms of its accounts or
its policies relating to the operation of its credit card business (including
the reduction of the required minimum monthly payment and the calculation of the
amount or the timing of finance charges, other fees and charge offs) unless it
reasonably believes a pay out event would not occur for any series and takes the
same action on its other substantially similar accounts, to the extent permitted
by those accounts.]
Neither Originator has restrictions on its ability to change the terms of its
accounts except as described above or in the attached prospectus.
Certain Payment Terms under Mercantile Cards No Longer Available.
On August 18, 1998, Dillard's acquired the stock of Mercantile Stores Company,
Inc., a Delaware corporation ("Mercantile"). Mercantile is a conventional
department store retailer engaged in the general merchandising business. DNB-La.
and MCC are subsidiaries of Mercantile. After Dillards' acquisition of
Mercantile and its subsidiaries, DNB-La. adopted the account origination,
underwriting and administration procedures of DNB on October 17, 1998. Prior to
October 17, 1998, Mercantile offered it own credit card (the "Mercantile Card")
and the accounts associated with the Mercantile Cards were originated under
policies and procedures which differed from those currently applied by DNB and
DNB-La. to the creation of accounts and issuances of credit cards (the
"Dillard's Card"). As of [____________], the terms and conditions of the
accounts originated by DNB-La. before and after October 17, 1998 have not
changed except as described below.
Prior to October 17, 1998, holders of Mercantile Cards were able to select from
certain payment terms for larger purchases and specialty items which terms (the
"Prior Mercantile Options") are no longer available for new purchases. However,
the purchases of merchandise or services made by holders of the Mercantile Card
prior to October 17, 1998 under the Prior Mercantile Options will be unaffected
by DNB-La.'s adoption of DNB's origination, underwriting and administration
policies and procedures. [While holders of the Mercantile Card may currently
select from certain payment terms for larger purchases and specialty items
available to holders of the Dillard's Card, the unavailability of the Prior
Mercantile Options may reduce the amount of Receivables arising under the
accounts originated by DNB-La. prior to October 17, 1998 or otherwise alter
payment patterns.
DAFC May Add Accounts to the Trust Portfolio.
S-11
In addition to the accounts already designated for Dillard Credit Card Master
Trust, DAFC is permitted to designate additional accounts for the trust
portfolio and to transfer the receivables in those accounts to the Trust. Any
new accounts and receivables may have different terms and conditions than the
accounts and receivables already in the trust. Credit card accounts purchased by
Dillard's or its Subsidiaries may be included as additional accounts if certain
conditions are satisfied. Credit card accounts purchased by Dillard's or its
Subsidiaries and transferred to DAFC may have been originated using criteria
different from the criteria used by the Originators. The new accounts and
receivables may perform differently over time than the accounts and receivables
already in the trust and could tend to reduce the amount of collections
allocated to Series 1998-__.
Also, if DAFC's percentage interest in the accounts of the trust falls to .% or
less, DAFC will be required to maintain that level by designating additional
accounts for the trust portfolio and transferring the receivables in those
accounts to the trust. If DAFC is required to add accounts to the trust, it may
not have any accounts to be added to the trust. If DAFC fails to add accounts
when required, a "pay out event" will occur and you could receive payment of
principal sooner than expected. See "Description of the Certificates --Addition
of Trust Assets" in the attached prospectus.
Basis Risk
Finance charges on the accounts in the trust accrue at a fixed rate. If LIBOR
increases, the amounts of interest on your certificate and other amounts
required to be funded out of collections of finance charge receivables will
increase, while the amount of collections of finance charge receivables on the
accounts will remain the same unless and until the rates on the accounts are
reset.
A decrease in the spread between collections of finance charge receivables and
interest payments on your certificate could increase the risk of early
repayment.
DNB does not separately identify collections on account of the payment of
finance charges. For any monthly period, collections in an amount equal to [.%
of the collections received by the Servicer on account of these accounts] [the
amount billed as finance charges for the preceding month for these accounts]
will be deemed to be finance charges.
Effects of Consumer Protection Laws on Certificateholders and Collections
Federal and state consumer protection laws regulate the creation and enforcement
of consumer loans, including credit card accounts and receivables. Changes or
additions to those regulations could make it more difficult for the servicer of
the receivables to collect payments on the receivables or reduce the finance
charges and other fees that an Originator can charge on credit card account
balances, resulting in reduced collections. See "Description of the
Certificates-Pay Out Events" in the attached prospectus.
Receivables that do not comply with consumer protection laws may not be valid or
enforceable in accordance with their terms against the obligors on those
receivables. DAFC and each Originator makes representations and warranties
relating to the validity and enforceability of the receivables arising under the
accounts in the trust portfolio. Subject to certain conditions described under
"Description of the Certificates-Representations and Warranties," DAFC must
accept reassignment of each receivable that does not comply in all material
respects with all requirements of applicable
S-12
law and the applicable Originator must accept reassignment of each such
receivable from DAFC. However, we do not anticipate that the trustee under the
pooling and servicing agreement will make any examination of the receivables or
the related records for the purpose of determining the presence or absence of
defects, compliance with representations and warranties, or for any other
purpose. The only remedy if any representation or warranty is violated, and the
violation continues beyond the period of time DAFC has to correct the violation,
is that DAFC must accept reassignment of the receivables affected by the
violation and the applicable Originator must accept reassignment of each such
receivable from DAFC (subject to certain conditions described under "Description
of the Certificates-Representations and Warranties" in the attached prospectus).
See also "Certain Legal Aspects of the Receivables-Consumer Protection Laws" in
the attached prospectus.
If a cardholder sought protection under federal or state bankruptcy or debtor
relief laws, a court could reduce or discharge completely the cardholder's
obligations to repay amounts due on its account and, as a result, the related
receivables would be written off as uncollectible. See "Description of the
Certificates -- Defaulted Receivables; Investor Charge-Offs" in this Supplement
and "Description of the Certificates--Defaulted Receivables; Rebates and
Fraudulent Charges; Investor Charge-offs" in the attached prospectus.
Timing of Principal Payments
The receivables transferred to Dillard Credit Card Master Trust may be paid at
any time. We cannot assure the creation of additional receivables in those
accounts or that any particular pattern of cardholder payments will occur. A
significant decline in the amount of new receivables generated by the accounts
in the trust could result in reduced collections on those receivables. The
financial condition of Dillard's department stores will affect the ability of
the Originators to generate and transfer new receivables and might also affect
payment patterns on the receivables. See "Maturity Considerations."
Allocations of Charged-Off Receivables and Dilutions Could Reduce Payments to
Certificateholders
Each Originator anticipates that it will write off as uncollectible some portion
of the receivables arising in its accounts in the trust portfolio. Each class of
Series 1998-__ will be allocated a portion of those charged-off receivables. See
"Description of the Certificates-Allocation Percentages" and "Dillard's Credit
Card Portfolio-Delinquency and Loss Experience." If the amount of charged-off
receivables allocated to any class of certificates exceeds the amount of other
funds available for reimbursement of those charge-offs (which could occur if the
limited amount of credit enhancement for those certificates is reduced to zero)
the holders of those certificates may not receive the full amount of principal
and interest due to them. See "Description of the Certificates-Reallocation of
Cash Flows," "--Application of Collections" and "--Defaulted Receivables;
Dilutions; Investor Charge-offs" herein.
In addition, some portion of the receivables will be adjusted as a result of
rebates, exchanges, write-downs and similar occurrences. The Transferor will be
obligated to make certain allocations and payments to the Trust to compensate
the holders of each class of Series 1998-__ for the amount of such adjustments.
To the extent the transferor fails to
S-13
make any such payment, the amount of such insufficiency will be allocated to
each class of certificates. If the amount of such unpaid adjustments allocated
to any class of certificates exceeds the amount of other funds available for
reimbursement of those adjustments (which could occur if the limited amount of
credit enhancement for those certificates is reduced to zero) the holders of
those certificates may not receive the full amount of principal and interest due
to them. See "Description of the Certificates-Reallocation of Cash Flows,"
"-Application of Collections" and "-Defaulted Receivables; Dilutions; Investor
Charge-offs" herein.
Limited Ability to Resell Certificates
The underwriters may assist in resales of Class A and Class B certificates but
they are not required to do so. A secondary market for any such securities may
not develop. If a secondary market does develop, it might not continue or it
might not be sufficiently liquid to allow you to resell any of your securities.
Certain Liens Could Be Given Priority Over Your Securities
DAFC accounts for the transfer of receivables to the trust as a sale. However, a
court could conclude that DAFC still owns the Receivables and that the trust
holds only a security interest. It is possible that the risk of a court arriving
at such a conclusion may be increased by the retention by DAFC of the Transferor
Certificate and any other class of Certificates of this or any other Series
issued and retained by DAFC. DAFC will take steps to give the trustee a "first
priority perfected security interest" in the Receivables in the event a court
concludes DAFC still owns the Receivables. If a court concludes that the
transfer to the trust is only a grant of a security interest in the Receivables,
a tax or government lien (or other lien permitted under the law without the
consent of DAFC) on DAFC's property arising before new Receivables come into
existence may get paid before the trust's interests in those Receivables. In
addition, in the event of the bankruptcy of DAFC, certain administrative
expenses may also have priority over the trust's interest in the Receivables.
See "Certain Legal Aspects of the Receivables--Transfer of Receivables" and
"Description of the Certificates--Representations and Warranties" in the
attached prospectus.
Likewise while each of DNB, DNB-La., Dillard's Investment Co. ("DIC") and Mersco
Factors Inc. ("MFI", collectively with DNB, DNB-La. and DIC, the "Initial
Sellers") accounts for the transfer of receivables to DAFC under its respective
Receivables Purchase Agreement as a sale, a court could conclude that any or all
of the Initial Sellers still own their receivables and that DAFC holds only a
security interest. Each Initial Seller will take steps to give DAFC a "first
priority perfected security interest" in its receivables sold to DAFC pursuant
to its Receivables Purchase Agreement in the event a court concludes that it
still owns those receivables. In a receivership or conservatorship of DNB or
DNB-La. or in a bankruptcy proceeding involving DIC or MFI, if the conveyance
of the receivables is not treated as a sale, but is deemed to create a security
interest in the Receivables, DAFC's interest in the Receivables may be subject
to tax or other governmental liens relating to an Initial Seller, as applicable,
arising before new Receivables come into existence and to certain administrative
expenses of the receivership, convservatorship or bankruptcy proceeding. These
amounts may get paid before DAFC's interests in those Receivables. See "Certain
Legal Aspects of the Receivables--Transfer of Receivables" and "Description of
the Certificates--Representations and Warranties" in the attached prospectus.
Insolvency or
S-14
Bankruptcy of DAFC or an Originator Could Result in Accelerated, Delayed or
Reduced Payments to Certificateholders
Bank Insolvency
DNB and DNB-La. are Originators of some or all of the Receivables. In addition,
DNB is the initial Servicer. DNB and DNB-La. are chartered as national banking
associations and are subject to regulation and supervision by the office of the
Comptroller of the Currency (the "Comptroller"). If either DNB or DNB-La.
becomes insolvent or is in an unsound condition or if certain other
circumstances occur, the Comptroller is authorized to appoint the Federal
Deposit Insurance Corporation ("FDIC") as receiver. Under the Federal Deposit
Insurance Act, as amended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, DAFC's security interest in the receivables arising
under the accounts originated by DNB and DNB-La. in the trust portfolio should
be respected by the FDIC where-
. an Originator's transfer of the receivables to DAFC is the grant of a valid
security interest in the receivables to DAFC;
. an Originator becomes insolvent and the FDIC is appointed conservator or
receiver of that Originator;
. the security interest (a) is validly perfected before an Originator's
insolvency and (b) was not taken in contemplation of an Originator's
insolvency or with the intent to hinder, delay or defraud an Originator or its
creditors; and
. the relevant Receivables Purchase Agreement establishing DAFC under the
Federal Deposit Insurance Act is continuously an official record of an
Originator and represents a bona fide and arm's length transaction undertaken
for adequate consideration in the ordinary course of business.
Under the Federal Deposit Insurance Act, the FDIC could--
. assert that the security interest was unperfected or unenforceable;
. require______ , as owner trustee for the trust, to go through an
administrative claims procedure to establish its right to payments collected
on the receivables in the trust;
. request a stay of proceedings with respect to an Originator; or
. repudiate the trust agreement establishing the trust and limit the trust's
resulting claim to "actual direct compensatory damages" measured as of the
date of receivership." See "Certain Legal Aspects of the Receivables --
Certain Matters Relating to Receivership" in the attached prospectus.
If the FDIC were to take any of those actions your payments of outstanding
principal and interest could be delayed and possibly reduced.
S-15
If a conservator or receiver were appointed for [DNB or DNB-La.], then a "pay
out event" could occur for all outstanding series. Under the terms of the
pooling and servicing agreement new principal receivables would not be
transferred to the trust and the trustee would sell the receivables (unless
holders of more than 50% of the investor interest of each class of outstanding
certificates gave the trustee other instructions). The trust would then
terminate earlier than was planned and you could have a loss if the sale of the
receivables produced insufficient net proceeds to pay you in full. The
conservator or receiver may nonetheless have the power--
. regardless of the terms of the pooling and servicing agreement, (a) to prevent
the beginning of a rapid amortization period, (b) to prevent the early sale of
the receivables and termination of the trust or (c) to require new principal
receivables to continue being transferred to the trust; or
. regardless of the instructions of the certificateholders, (a) to require the
early sale of the trust's receivables, (b) to require termination of the trust
and retirement of the trust's certificates (including Series 1998-__) or (c)
to prohibit the continued transfer of principal receivables to the trusts.
In addition, if DNB, as servicer, defaults on its obligations under the pooling
and servicing agreement solely because a conservator or receiver is appointed
for an Originator, the conservator or receiver might have the power to prevent
either the trustee or the holders of securities issued by the trust from
appointing a new servicer under the related pooling and servicing agreement. See
"Certain Legal Aspects of the Receivables-Certain Matters Relating to
Receivership" in the attached prospectus.
Non-Bank Bankruptcy
If either DIC or MFI voluntarily file for bankruptcy or are forced into
bankruptcy by its creditors and a bankruptcy trustee for DIC or MFI as debtor-
in-possession, or a creditor of DIC or MFI were to take the view that DIC or
MFI, as the case may be, should be substantively consolidated with DAFC or that
the transfer of the receivables from DIC or MFI, as the case may be, to DAFC
should be recharacterized as a pledge of the receivables, then delays in
payments on the securities issued by the trust or (if the applicable bankruptcy
court were to rule in favor of such bankruptcy trustee, debtor-in-possession or
creditor) reductions in these payments could result.
To the extent that DAFC is deemed to have granted a security interest in the
Receivables to the trust and such security interest was validly perfected before
any insolvency of DAFC and was not granted or taken in contemplation of
insolvency or with the intent to hinder, delay, or defraud DAFC or its
creditors, such security interest should not be subject to avoidance in the
event of insolvency or receivership of DAFC, and payments to the trust with
respect to the Receivables should not be subject to recovery by a bankruptcy
trustee or receiver of DAFC. If, however, a bankruptcy trustee or receiver were
to assert a contrary position, delays in payments on the Offered Securities and
possible reductions in the amount of those payments could occur.
In Octagon Gas Systems, Inc. V. Rimmer; 995 F.2d 948 (10th Cir. 1993), cert
denied, 114 S.Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If DAFC, DIC or
MFI were to become subject to a bankruptcy proceeding or if
S-16
DNB or DNB-La. were to become subject to a receivership and a court were to
follow the 10th Circuit's reasoning, holders of the securities issued by the
trust might experience delays in payment or possibly losses in their investment
in the securities. Counsel to DAFC has advised DAFC that the facts of Octagon
are distinguishable from those in the sale transactions between each of the
Initial Sellers and DAFC and DAFC and the trust and the reasoning of the 10th
Circuit appears to be inconsistent with established precedent and the UCC. See
"Certain Legal Aspects of the Receivables-Certain Matters Relating to Bankruptcy
or Receivership in the attached prospectus."
If a bankruptcy trustee were appointed for DAFC, causing a pay out event with
respect to all Series then outstanding, new Principal Receivables would not be
transferred to the trust pursuant to the Agreement and DAFC would sell the
portion of the Receivables allocable in accordance with the Agreement to each
Series (unless holders of more than 50% of the principal amount of each class of
each Series, excluding any class or portion thereof held by DAFC, and the holder
(other than DAFC or an affiliate thereof) of any other interest in the
Transferor Certificate instruct otherwise), thereby causing early termination of
the trust and a loss to the Certificateholders if the net proceeds allocable to
the Certificateholders from such sale, if any, were insufficient to pay the
Certificateholders in full. The net proceeds of any such sale of the portion of
the Receivables allocated in accordance with the Agreement to Series 1998-___
will first be used to pay amounts due to the Class A Certificateholders, will
thereafter be used to pay amounts due to the Class B Certificateholders, and
will thereafter be used to pay amounts due to the Collateral Interest. If the
only pay out event to occur is either the insolvency of DAFC or the appointment
of a bankruptcy trustee for DAFC, the bankruptcy trustee may have the power to
continue to require DAFC to transfer new Receivables to the trust and to prevent
the early sale, liquidation, or disposition of the Receivables and the
commencement of the Rapid Amortization Period. In addition, a bankruptcy trustee
for DAFC may have the power to cause early payment of the Certificates. In the
event of an early payment of principal on the Certificates, Certificateholders
may realize a lower yield on their reinvestment of such early payment and may be
required to incur costs associated with reinvesting such funds. See "Certain
Legal Aspects of the Receivables-Certain Matters Relating to Bankruptcy or
Receivership in the attached prospectus."
Issuance of Additional Series by the Trust May Affect the Timing of Payments
Dillard Credit Card Master Trust, as a master trust, may issue series of
certificates from time to time. The trust may issue additional series with terms
that are different from your series without the prior review or consent of any
certificateholders. It is a condition to the issuance of each new series that
each rating agency that has rated an outstanding series confirm in writing that
the issuance of the new series will not result in a reduction or withdrawal of
its rating of any class of any outstanding series.
However, the terms of a new series could affect the timing and amounts of
payments on any other outstanding series. See "Description of the Certificates--
Exchange" in the attached prospectus.
Limited Control of Trust Actions
Certificateholders of any series or any class within a series may need the
consent or approval of a specified percentage of the investor interest of other
series or a class of such other series to take or direct certain actions,
including to require the appointment of a
S-17
successor servicer after DNB, as servicer, defaults on its obligations under the
pooling and servicing agreement, to amend the pooling and servicing agreement in
some cases, and to direct a repurchase of all outstanding series after certain
violations of DAFC's representations and warranties. The interests of the
certificateholders of any such series may not coincide with yours, making it
more difficult for any particular certificateholder to achieve the desired
results from such vote.
Class B Bears Additional Credit Risk
Because Class B is subordinated to Class A, principal payments to Class B will
not begin until Class A is repaid. Additionally, if collections of finance
charge receivables allocated to Series 1998-__ are insufficient to cover amounts
due to Class A, the investor interest for Class B might be reduced. This would
reduce the amount of the collections of finance charge receivables available to
Class B in future periods and could cause a possible delay or reduction in
principal and interest payments on Class B. If receivables had to be sold, the
net proceeds of that sale available to pay principal would be paid first to
Class A and any remaining net proceeds would be paid to Class B. See
"Description of the Certificates--Subordination" in this Supplement.
Dependence on Dillard's
All new Receivables currently arise from the extension of credit by an
Originator in connection with the sale of merchandise, services and financial
service products by Dillard's department stores. The trust is therefore
dependent on Dillard's for the retail sales from which the Originators generate
Receivables. The retail department store sector, in general, is highly
competitive. Generally, Dillard's competes not only with other department stores
but with direct marketers and numerous types of retail outlets, including
variety stores and discount stores. Neither the Agreement nor any other
transaction document prohibits Dillard's from selling all or any portion of its
business or assets. Accordingly, there can be no assurance that Dillard's will
continue to generate Receivables at the same rate as prior years.
Social, Technological and Economic Factors
Changes in purchase and payment patterns by obligors under the accounts and the
related Receivables may result from a variety of social, technological and
economic factors. Social factors include potential changes in consumers'
attitudes toward financing purchases with debt. Technological factors include
new methods of payment. Economic factors include the rate of inflation,
unemployment levels and relative interest rates. In addition, obligors are
currently concentrated in certain regions of the United States. Accordingly,
social, technological and economic factors affecting these regions may differ
from those affecting the United States generally. There is no basis to predict
whether, or to what extent, social technological or economic factors on a
nationwide or regional level will affect future use of credit or repayment
patterns.
[Calculation of Finance Charges
Under the Agreement, a fixed percentage (the "Finance Charge Percentage") of the
balance of Receivables originated by DNB and DNB-La. will be deemed to
constitute finance charges on those Receivables. [DAFC may, without notice or
consent of the Certificateholders, from time to time, increase or reduce this
percentage]. An increase in the Finance Charge Percentage used to calculate
finance charges will increase the percentage of collections on the Receivables
that are treated as collections of Finance Charge Receivables, which will
increase the Portfolio Yield to a level higher than it would be in the absence
of such an increase. As a result, such an increase in the Finance Charge
Percentage would decrease the likelihood of the occurrence of a pay out event
based upon a reduction of the average Portfolio Yield for any three-month period
to a rate below the average Base Rate for that period. However, increase in the
Finance Charge Percentage would also reduce the total amount of Principal
Receivables, which could
S-18
increase the likelihood of a pay out event occurring if the total Principal
Receivables fall below the Minimum Aggregate Principal Receivables. A reduction
in the Finance Charge Percentage could reduce the Portfolio Yield and may
increase the possibility that a pay out event would occur if the average
Portfolio Yield for any three-month period is less than the Base Rate for that
period. The ability of DAFC to adjust the Finance Charge Percentage to change
the amount of Receivables that otherwise would be treated as Principal
Receivables to be treated as Finance Charge Receivables is limited under certain
circumstances. [DAFC may, following written notice to the Rating Agencies,
increase the Finance Charge Percentage by up to M percentage points over the
amounts described in this prospectus supplement or other amounts approved by the
Rating Agencies. In addition, DAFC may make other adjustments to the Finance
Charge Percentage if those changes would not cause a pay out event to occur and
also satisfy the Rating Agency Condition with respect to any Series. For more
information on pay out events and the portfolio yield and base rate for Series
1998-__, See "Maturity Considerations--Pay Out Events" in this Supplement.]
S-19
Dillard's Credit Card Portfolio
General
November 4, 1998
The receivables (the "Receivables") conveyed or to be conveyed to the
Trust pursuant to a pooling and servicing agreement (as the same may be amended
from time to time, the "Agreement"), among Dillard Asset Funding Company ("DAFC"
or the "Transferor"), DNB, as Servicer of the Receivables, and ______ as
trustee (the "Trustee"), as supplemented by the supplement relating to the
Certificates (the "Series 1998-__ Supplement") (the term "Agreement," unless the
context requires otherwise, refers to the Agreement as supplemented by the
Series 1998-__ Supplement) have been or will be generated from transactions made
by holders of private label revolving credit card accounts ("Accounts") selected
by each Originator from its entire portfolio of such accounts. Each Class A
Floating Rate Asset Backed Certificate, Series 1998-_ (collectively, the "Class
A Certificates") and each Class B _.__% Asset Backed Certificate, Series 1998-3
(collectively, the "Class B Certificates" and, together with the Class A
Certificates, the "Certificates" or the "Series 1998-_ Certificates") will
represent the right to receive certain payments from the Trust, created pursuant
to the Agreement. As used in this prospectus supplement, the term
"Certificateholders" refers to holders of the Certificates, the term "Class A
Certificateholders" refers to holders of the Class A Certificates and the term
"Class B Certificateholders" refers to holders of the Class B Certificates.
Delinquency and Loss Experience
Each Originator considers an account delinquent if a payment due
thereunder is not received by the relevant Originator by the date of the
statement following the statement on which the amount is first stated to be
due.
Efforts to collect delinquent credit card receivables are made by the
Servicer's account management department, collection agencies and attorneys
retained by the Servicer. Efforts to collect delinquent credit card receivables
may also be made by the account management department of certain subservicers
retained by the Servicer, including MCC, and collection agents and attorneys
retained by these subservicers. For a description of the Servicer's collection
practices and policies, see "Dillard's Credit Card Activities--Collection of
Delinquent Accounts" in the attached prospectus.
It is the policy of DNB and DNB-La. to charge off an account during the
billing cycle immediately following the cycle in which such account became seven
payments (210 days from the initial billing date) delinquent. If DNB or DNB-La.
receives notice that a cardholder is the subject of a bankruptcy proceeding, DNB
or DNB-La., as the case may be, charges off such cardholder's account upon the
earlier of the end of the month in which notice of the bankruptcy is received
and the time period set forth in the previous sentence. Charged-off accounts are
sent to an internal recovery unit, collection agencies or attorneys.
The following tables set forth the delinquency and loss experience as
of the dates and for each of the periods shown for the Dillard's Portfolio. As
of the beginning of the day on [________], 1998, the Receivables in the Trust
Portfolio represented approximately .% of the Dillard's Portfolio. Because the
Trust Portfolio represents only a portion of the Dillard's Portfolio, actual
delinquency and loss experience with respect to the Receivables may be different
from that set forth below. See "The Receivables--Additional Trust Portfolio
Information." In particular, reported loss and delinquency percentages for each
portfolio may be reduced as a result of the addition of receivables. Receivables
in newly originated accounts generally have lower delinquency and loss levels
than receivables in more seasoned accounts and the addition of these receivables
to a portfolio increases the outstanding receivables balance for such portfolio
which, for the Dillard's Portfolio, is the denominator used to calculate the
percentages set forth below. Whereas all newly originated and newly acquired
accounts become part of the Dillard's Portfolio when originated or acquired,
newly originated or acquired accounts do not automatically become part of the
Trust Portfolio but may be added from time to time at the option of the
Transferor.
S-20
Delinquency Experience
Dillard's Portfolio
(Dollars in thousands)
[ ] December 31,
------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
---------------------- -------------------------------------------------------------------------------
Percentage of Percentage of Percentage of Percentage of
Number of Delinquent Total Delinquent Total Delinquent Total Delinquent Total
Days Delinquent(1) Amount Receivables(2) Amount Receivables(2) Amount Receivables(2) Amount Receivables(2)
- --------------------- ---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
30 to 59 Days ....... $
60 to 89 Days .......
90 Days or More .....
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
TOTAL ....
========== ============== ========== ============== ========== ============== ========== ==============
(1) Number of days delinquent means the number of days after the first billing
date following the original billing date. For example, 30 days delinquent
means that no payment was received within 60 days after the original
billing date.
(2) Delinquencies are calculated as a percentage of outstanding receivables as
of the end of the month.
Loss Experience
Dillard's Portfolio
(Dollars in millions)
Year Ended December 31,
-----------------------------------
[ ] Months Ended
__________, 1998 1997 1996 1995
--------------------- -------- -------- ---------
Average Receivables Outstanding(1) ...........................
Gross Charge-Offs(2)(3) ......................................
Recoveries ...................................................
Net Charge-Offs ..............................................
Net Charge-Offs as a Percentage of Average
Receivables Outstanding(4) ................................
- -----------------------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Gross Charge-Offs shown include only the principal portion of charged-off
receivables.
(3) Gross Charge-Offs do not include the amount of any reductions in Average
Receivables Outstanding due to fraud, returned goods or customer disputes.
Gross Charge-Offs exclude charges relating to changes in the Servicer's
charge-off policies.
(4) The percentage reflected for the three months ended March 31, 1998 is an
annualized figure.
[The increase in Net Charge-Offs as a Percentage of Average Receivables
Outstanding for the Dillard's Portfolio for the year ended December 31, 1996,
the year ended December 31, 1997, and for the annualized [nine] months ended
[September 30, 1998], when compared with prior years, reflects, among other
factors, higher levels of personal bankruptcies. Because the Receivables do not
constitute all of the Dillard's Portfolio, actual delinquency and loss
experience with respect to Receivables may be different from that applicable to
the Dillard's Portfolio as a whole. See "The Receivables--Additional Trust
Portfolio Information" for information with respect to net charge-offs as a
percentage of the average Principal Receivables outstanding in the Trust.]
Recoveries
DAFC will be required, pursuant to the terms of the Agreement, to
transfer to the Trust a percentage of the recoveries on charged-off accounts in
the Dillard's Portfolio ("Recoveries"). For each Monthly Period, Recoveries
will be allocated to the Certificates on the basis of the percentage equivalent
of the ratio which the amount of Receivables in Defaulted Accounts for such
Monthly Period bears to the amount of receivables in defaulted accounts recorded
in the Dillard's Portfolio for such Monthly Period. Recoveries allocated to the
Trust will be treated as collections of Finance Charge Receivables. See
"Dillard's Credit Card Portfolio--Delinquency and Loss Experience" herein and
"Dillard's Credit Card Activities--Collection of Delinquent Accounts" in the
attached prospectus.
S-21
The Receivables
General
The Receivables conveyed to the Trust arise in Accounts originated by
an Originator and selected by DAFC on the basis of criteria set forth in the
Agreement as applied on [____________] (the "Cut-Off Date") and, with respect
to Additional Accounts, as of the related dates of their designations (the
"Trust Portfolio"). Pursuant to the Agreement, DAFC has the right, subject to
certain limitations and conditions set forth therein, to designate from time to
time Additional Accounts and to transfer to the Trust all Receivables of such
Additional Accounts, whether such Receivables are then existing or thereafter
created. Any Additional Accounts designated pursuant to the Agreement must be
Eligible Accounts as of the date DAFC designates such accounts as Additional
Accounts. Additional Accounts will be originated by an Originator and
transferred to DAFC. DAFC will be required to designate Additional Accounts, to
the extent available, (a) to maintain the Transferor Interest so that during any
period of 30 consecutive days, the Transferor Interest averaged over that period
equals or exceeds the Minimum Transferor Interest for the same period and (b) to
maintain, for so long as certificates of any Series (including the Certificates)
remain outstanding, the sum of (i) the aggregate amount of Principal Receivables
and (ii) the principal amount on deposit in the Excess Funding Account equal to
or greater than the Minimum Aggregate Principal Receivables. "Minimum
Transferor Interest" for any period means .% of the sum of (i) the average
Principal Receivables for such period and (ii) the average principal amount on
deposit in the Excess Funding Account, the Principal Funding Account and any
other account specified from time to time pursuant to the Agreement or the
Series Supplement for such period; provided, however, that DAFC may reduce the
Minimum Transferor Interest to not less than .% of the sum of the amounts
specified in clauses (i) and (ii) above upon satisfaction of the Rating Agency
Condition and certain other conditions set forth in the Agreement. "Minimum
Aggregate Principal Receivables" means an amount equal to the sum of the
numerators used to calculate the Investor Percentages with respect to the
allocation of collections of Principal Receivables for each Series then
outstanding minus the amount on deposit in the Excess Funding Account as of the
date of determination; provided, that the Minimum Aggregate Principal
Receivables may be reduced to a lesser amount at any time if the Rating Agency
Condition is satisfied. DAFC will convey the Receivables then existing or
thereafter created under such Additional Accounts to the Trust. Further,
pursuant to the Agreement, DAFC will have the right (subject to certain
limitations and conditions) to designate certain Accounts and to require the
Trustee to reconvey all Receivables in such Accounts (the "Removed Accounts")
to DAFC, whether such Receivables are then existing or thereafter created.
Throughout the term of the Trust, the Accounts from which the Receivables arise
will be the Accounts designated by DAFC on the Cut-Off Date plus any Additional
Accounts minus any Removed Accounts. As of the Cut-Off Date and, with respect to
Receivables in Additional Accounts, as of the related date of their conveyance
to the Trust, and on the date any new Receivables are created, DAFC will
represent and warrant to the Trust that the Receivables meet the eligibility
requirements specified in the Agreement. See "Description of the
Certificates--Representations and Warranties" in the attached prospectus.
The Receivables in the Trust Portfolio, as of the beginning of the day
on ________________, 1998, included approximately $____ billion of Principal
Receivables and approximately $___ billion of Finance Charge Receivables. The
Accounts had an average Principal Receivable balance of $________ and an average
credit limit of $________. The percentage of the aggregate total Receivable
balance to the aggregate total credit limit was approximately __%. The average
age of the Accounts was approximately __ months. As of the beginning of the day
on [________], 1998, cardholders whose Accounts are included in the Trust
Portfolio had billing addresses in . states [and the District of Columbia].
Accounts which are acquired but not originated by an Originator may be
originated under policies and procedures which differ from those of such
Originator in certain respects. Dillard's does not expect any of these
differences to have a material adverse effect on the credit quality of the
Receivables in the Trusts or on the interests of the Certificateholders. See
"Description of the Certificates - Collection and Other Servicing Procedures" in
the attached prospectus. Prior to the addition of any Accounts which are
acquired but not originated by an Originator, the Rating Agency Condition must
be satisfied with respect to such additional Accounts.
S-22
The following tables summarize the Trust Portfolio by various criteria
as of the beginning of the day on _______, 1998. Because the future composition
of the Trust Portfolio may change over time, these tables are not necessarily
indicative of the composition of the Trust Portfolio at any subsequent time.
Composition by Account Balance
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
Account Balance Accounts of Accounts Outstanding Receivables
- -------------------------------------------------- -------------- --------------- ------------------ --------------
Credit Balance ..................................
No Balance ......................................
$0.01 to $1,500.00 ..............................
$1,500.01 to $5,000.00 ..........................
$5,000.01 to $10,000.00 .........................
$10,000.01 to $20,000.00 ........................
Over $20,000.00 .................................
-------------- --------------- ------------------ --------------
TOTAL ...................................... 100% 100%
============== =============== ================== ==============
Composition by Credit Limit
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
Account Balance Accounts of Accounts Outstanding Receivables
- -------------------------------------------------- -------------- --------------- ------------------ --------------
$0.00 ...........................................
$0.01 to $1,500.00 ..............................
$1,500 to $5,000.00 .............................
$5,000.01 to $10,000.00 .........................
Over $10,000.00 .................................
-------------- --------------- ------------------ --------------
TOTAL ...................................... 100% 100%
============== =============== ================== ==============
Composition by Period of Delinquency
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
Account Balance Accounts of Accounts Outstanding Receivables
- -------------------------------------------------- -------------- --------------- ------------------ --------------
Current to 29 days delinquent ...................
30 to 59 days delinquent ........................
60 to 89 days delinquent ........................
90 to 119 days delinquent .......................
120 days delinquent or more .....................
-------------- --------------- ------------------ --------------
TOTAL .................................. 100.00% 100.00%
============== =============== ================== ==============
S-23
Composition by Account Seasoning(1)
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
Account Age Accounts of Accounts Outstanding Receivables
- ---------------------------------------------------- ------------ -------------- ------------------ ---------------
Not More than 6 Months ............................
Over 6 Months to 12 Months ........................
Over 12 Months to 24 Months .......................
Over 24 Months to 36 Months .......................
Over 36 Months to 48 Months .......................
Over 48 Months to 60 Months .......................
Over 60 Months to 120 Months ......................
Over 120 Months ...................................
------------ -------------- ------------------ ---------------
TOTAL 100.0% 100.0%
============ ============== ================== ===============
(1) Account age is determined by the number of months elapsed since the account
was originally opened, except that with respect to the Dillard's Portfolio
accounts which were converted from standard to premium accounts, account
age is determined by the number of months since the account was converted.
Geographic Distribution of Accounts
Trust Portfolio
(dollar amounts in millions)
Percentage of Percentage of
Number of Total Number Receivables Total
State Accounts of Accounts Outstanding Receivables
- ---------------------------------------------------- ----------- -------------- ------------------ ---------------
S-24
Percentage of Percentage of
Number of Total Number Receivables Total
State Accounts of Accounts Outstanding Receivables
- ---------------------------------------------------- ----------- -------------- ------------------ ---------------
Other .............................................
----------- -------------- ------------------ ---------------
TOTAL =========== 100.00% ================== 100.00%
============== ===============
Dilution Experience
A factor used to evaluate a portfolio of receivables is Dilution. "Dilution"
occurs if a Receivable is adjusted because of a rebate, billing error, return,
exchange, allowance (including adjustments because of the selection of a cash
price payment option) or certain other non-cash items, or if a Receivable is
canceled due to goods that have been refused by an obligor. The table below sets
forth dilution experience for Receivables originated by DNB and DNB-La. [but
does not include Receivables with respect to the initial orders of Dillard's
Customers, which became eligible for inclusion in the Trust as of
______________,1998]. The amount of such Receivables is not material and DAFC
does not believe that the performance of such Receivables would be materially
different than the historical data set forth in the following tables. [For
purposes of the following table, the middle fiscal month of each fiscal quarter
is a five week fiscal month and the first and third fiscal month of each fiscal
quarter is a four week fiscal month.] There can be no assurance that the actual
dilution experience in the future will be similar to the historical experience
set forth in this table.
Dilution Experience
Monthly
Dilution
Monthly Period Percentage
- -------------- ----------
[1994]
January ........................................................
February .......................................................
S-25
Monthly
Dilution
Monthly Period Percentage
- -------------- ----------
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
[1995]
January ........................................................
February .......................................................
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
[1996]
January ........................................................
February .......................................................
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
S-26
Monthly
Dilution
Monthly Period Percentage
- -------------- ----------
[1997]
January ........................................................
February .......................................................
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
[1998]
January ........................................................
February .......................................................
March ..........................................................
April ..........................................................
May ............................................................
June ...........................................................
July ...........................................................
August .........................................................
September ......................................................
October ........................................................
November .......................................................
December .......................................................
Additional Trust Portfolio Information
The loss experience for the Trust Portfolio has generally been
different from the loss experience for the Dillard's Portfolio due to the
different composition of such portfolios. In particular, reported loss and
delinquency percentages for each portfolio may be reduced as a result of the
addition of receivables. Receivables in newly originated accounts generally have
lower delinquency and loss levels than receivables in more seasoned accounts and
the addition of these receivables to a portfolio increases the outstanding
Principal Receivables balance for such portfolio which, for the Trust Portfolio,
is the denominator used to calculate the percentages set forth below. Whereas
all newly originated accounts become part of the Dillard's Portfolio when
created, newly originated accounts do not become part of the Trust Portfolio but
may be added from time to time at the option of DAFC. The net charge-offs as a
percentage of the average Principal Receivables outstanding in the Trust were
____%, on an annualized basis, for the three months ended ________, 1998, and .%
and .% for the years ended December 31, 1997 and December 31, 1996,
respectively.
S-27
Maturity Considerations
The Agreement provides that Class A Certificateholders will not receive
payments of principal until the _______ Distribution Date (the "Class A
Scheduled Payment Date"), or earlier in the event of a Pay Out Event which
results in the commencement of the Rapid Amortization Period. The Agreement also
provides that Class B Certificateholders will not receive payments of principal
until the _______ Distribution Date (the "Class B Scheduled Payment Date")
Class B Scheduled Payment Date, or earlier in the event of a Pay Out Event which
results in the commencement of the Rapid Amortization Period (in either case,
only after the Class A Investor Interest has been paid in full). The Class B
Certificateholders will not begin to receive payments of principal until the
final principal payment on the Class A Certificates has been made.
Controlled Accumulation Period
[The Controlled Accumulation Period with respect to the Certificates is
scheduled to begin at the close of business of the last day of the _________
Monthly Period (the "Controlled Accumulation Period"). Subject to the
conditions set forth under "--Postponement of Controlled Accumulation Period,"
the day on which the Revolving Period ends and the Controlled Accumulation
Period Begins may be delayed to no later than the close of business on the last
day of the ______ Monthly Period. On each Transfer Date during the Controlled
Accumulation Period prior to the payment of the Class A Investor Interest in
full, an amount equal to, for each Monthly Period, the least of (a) the
Available Investor Principal Collections, (b) the "Controlled Deposit Amount"
for such Monthly Period, which is equal to the sum of the Controlled
Accumulation Amount for such Monthly Period and the Accumulation Shortfall, if
any, for such Monthly Period and (c) the Class A Adjusted Investor Interest
prior to any deposits on such day, will be deposited in the Principal Funding
Account until the principal amount on deposit in the Principal Funding Account
(the "Principal Funding Account Balance") equals the Class A Investor Interest.
After the Class A Investor Interest has been paid in full, or following the
first Transfer Date upon which the Principal Funding Account Balance has
increased to the amount of the Class A Investor Interest, Available Investor
Principal Collections, to the extent required, will be distributed to the Class
B Certificateholders on each Distribution Date beginning, during the Controlled
Accumulation Period, on the Class B Scheduled Payment Date, until the earlier of
the date the Class B Investor Interest has been paid in full and the Series
1998-__ Termination Date. After the Class A Investor Interest and the Class B
Investor Interest have each been paid in full, Available Investor Principal
Collections, to the extent required, will be distributed to the Collateral
Interest Holder on each Transfer Date until the earlier of the date the
Collateral Interest has been paid in full and the Series 1998-__ Termination
Date. Amounts in the Principal Funding Account are expected to be available to
pay the Class A Investor Interest on the Class A Scheduled Payment Date. After
the payment of the Class A Investor Interest in full, Available Investor
Principal Collections are expected to be available to pay the Class B Investor
Interest on the Class B Scheduled Payment Date. Although it is anticipated that
collections of Principal Receivables will be available on each Transfer Date
during the Controlled Accumulation Period to make a deposit of the applicable
Controlled Deposit Amount and that the Class A Investor Interest will be paid to
the Class A Certificateholders on the Class A Scheduled Payment Date and the
Class B Investor Interest will be paid to the Class B Certificateholders on the
Class B Scheduled Payment Date, respectively, no assurance can be given in this
regard. If the amount required to pay the Class A Investor Interest or the Class
B Investor Interest in full is not available on the Class A Scheduled Payment
Date or the Class B Scheduled Payment Date, respectively, a Pay Out Event will
occur and the Rapid Amortization Period will commence.]
If a Pay Out Event occurs, the Rapid Amortization Period will commence
and any amounts on deposit in the Principal Funding Account will be paid to the
Class A Certificateholders on the Distribution Date in the month following the
commencement of the Rapid Amortization Period. In addition, to the extent that
the Class A Investor Interest has not been paid in full, the Class A
Certificateholders will be entitled to monthly payments of principal equal to
the Available Investor Principal Collections until the earlier of the date on
which the Class A Certificates have been paid in full and the Series 1998-__
Termination Date. After the Class A Certificates have been paid in full and if
the Series 1998-__ Termination Date has not occurred, Available Investor
Principal Collections will be paid to the Class B Certificates on
S-28
each Distribution Date until the earlier of the date on which the Class B
Certificates have been paid in full and the Series 1998-__ Termination Date.
Pay Out Events
A Pay Out Event with respect to Series 1998- occurs, either
automatically or after specified notice, upon (a) the failure of DAFC to make
certain payments or transfers of funds for the benefit of the Certificateholders
within the time periods stated in the Agreement, (b) material breaches of
certain representations, warranties or covenants of DAFC, (c) certain insolvency
events involving DAFC or Dillards, (d) a reduction of the average of the
Portfolio Yields for any three consecutive Monthly Periods to a rate that is
less than the average of the Base Rates for such period, (e) the Trust becoming
subject to regulation as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, (f) the failure of DAFC to convey
Receivables arising under Additional Accounts or Participations to the Trust
when required by the Agreement, (g) the occurrence of a Servicer Default which
would have a material adverse effect on the Certificateholders, (h) insufficient
funds in the Distribution Account to pay the Class A Investor Interest or the
Class B Investor Interest in full on the Class A Scheduled Payment Date or the
Class B Scheduled Payment Date, respectively,(i) the Transferor Interest
becoming less than the Minimum Transferor Interest, or (j) DAFC becomes unable
for any reason to transfer Receivables to the Trust in accordance with the
provisions of the Agreement. See "Description of the Certificates--Pay Out
Events." The term "Base Rate" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is the
sum of the Class A Monthly Interest, the Class B Monthly Interest and the
Collateral Monthly Interest, each for the related Interest Period, and the
Investor Servicing Fee for such Monthly Period, and the denominator of which is
the Investor Interest as of the close of business on the last day of such
Monthly Period. The term "Portfolio Yield" means, with respect to any Monthly
Period, the annualized percentage equivalent of a fraction, the numerator of
which is the sum of collections of Finance Charge Receivables, Principal Funding
Investment Proceeds and amounts withdrawn from the Reserve Account deposited
into the Finance Charge Account and allocable to the Certificates, Adjustment
Payments made by the Transferor with respect to Adjustment Payments required to
be made but not made in prior Monthly Periods, if any, and the Collateral
Interest for such Monthly Period, calculated on a cash basis after subtracting
the Investor Default Amount for such Monthly Period, and the denominator of
which is the Investor Interest as of the close of business on the last day of
such Monthly Period.
Payment Rates
The following table sets forth the highest and lowest cardholder
monthly payment rates for the Dillard's Portfolio during any month in the period
shown and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of total opening monthly
account balances during the periods shown. Payment rates shown in the table are
based on amounts which would be deemed payments of Principal Receivables and
Finance Charge Receivables with respect to the Accounts.
Cardholder Monthly Payment Rates
Dillard's Portfolio
_____ Months Year Ended December 31,
Ended -----------------------------------
________,1998 1997 1996 1995
---------------------- ---------- ---------- -----------
Highest Month ................
Lowest Month ................
Monthly Average (1) ..........
- -------------------------------------------------------------
(1) Monthly Averages shown are expressed as an arithmetic average of the
payment rate for each month during the period indicated, each such
month's payment rate representing total payments collected during the
given month expressed as a percentage of the prior month's ending
outstanding receivables.
S-29
DNB generally determines the minimum monthly payment with respect to
its accounts by multiplying the combined new balance of purchases and cash
advances, less any disputed amounts, by 10% (1/10 expressed as a percentage). If
the amount so calculated is less than $20.00, it is increased to $20.00. The sum
of such amount and any past due amounts equals the minimum payment amount. The
minimum payment amount, however, is never more than the new balance. It should
be noted that DNB does offer different minimum monthly payment terms with
respect to certain purchases under its Extended Revolving, Reduced Rate
Revolving and Silver Club Revolving terms. See Billing and Payments--Customer
Terms--Dillard's Credit Cards.
DNB-La. generally determines the minimum monthly payment with respect
to its accounts by multiplying the combined new balance of purchases and cash
advances, less any disputed amounts, by 8.33% (1/12 expressed as a percentage).
If the amount so calculated is less than $10.00, it is increased to $10.00. The
sum of such amount and any past due amounts equals the minimum payment amount.
The minimum payment amount, however, is never more than the new balance. Like
DNB, DNB-La. does offer different minimum monthly payment terms with respect to
certain purchases under the Extended Revolving, Reduced Rate Revolving and
Silver Club Revolving terms in addition to other programs which are no longer
available for current and future purchases. See Billing and Payments--Customer
Terms--Mercantile Credit Cards.
There can be no assurance that the cardholder monthly payment rates in
the future will be similar to the historical experience set forth above. In
addition, the amount of collections of Receivables may vary from month to month
due to seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of Principal
Receivables with respect to the Trust Portfolio will be similar to the
historical experience set forth above or that deposits into the Principal
Funding Account or the Distribution Account, as applicable, will be made in
accordance with the applicable Controlled Accumulation Amount. If a Pay Out
Event occurs, the average life of the Certificates could be significantly
reduced or increased.
Because there may be a slowdown in the payment rate below the payment
rates used to determine the Controlled Accumulation Amounts, or a Pay Out Event
may occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the date of issuance of
the Class A Certificates and the Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. As described under
"Description of the Certificates-Postponement of Controlled Accumulation
Period," the Servicer may shorten the Controlled Accumulation Period. There can
be no assurance that there will be sufficient time to accumulate all amounts
necessary to pay the Class A Investor Interest and the Class B Investor Interest
on the Class A Scheduled Payment Date and the Class B Scheduled Payment Date,
respectively. See "Risk Factors--Certificate Rating," "Maturity Considerations"
and "Payments and Maturity" herein.
Receivable Yield Considerations
The gross revenues from finance charges and fees billed to accounts in
the Dillard's Portfolio for each of the three calendar years contained in the
period ended December 31, 1997 and for the _____-month period ended ________,
1998, are set forth in the following table. The historical yield figures in the
following tables are calculated on an accrual basis. Collections of Receivables
included in the Trust will be on a cash basis and may not reflect the historical
yield experience in the table. In addition, Collections on account of Finance
Charges will be equal to [__% of the total amount of collections received] [the
amount billed as finance charges in the billing statement to which each payment
relates]. During periods of increasing delinquencies or periodic payment
deferral programs, accrual yields may exceed cash amounts accrued and billed to
cardholders. Conversely, cash yields may exceed accrual yields as amounts
collected in a current period may include amounts accrued during prior periods.
[However, DAFC believes that during the three calendar years contained in the
period ended December 31, 1997 and for the three-month period ended ________,
1998, the yield on an accrual basis closely approximated the yield on a cash
basis. The yield on both an accrual and a cash basis will be affected by
numerous factors, including the monthly periodic finance charges on the
Receivables, the amount of the annual membership fees and other fees, changes in
the delinquency rate on the Receivables and the
S-30
percentage of cardholders who pay their balances in full each month and do not
incur monthly periodic finance charges. Additionally, the monthly yield on a
cash basis will be affected by the number of collection days in such month. See
"Risk Factors".]
S-31
_____ Months
Ended (dollar amounts in millions)
___________, Year Ended December 31,
---------------- ----------------------------------------
1998 1997 1996 1995
---------------- ---------- ---------- ------------
Finance Charges and Fees Billed (1)(2) ..................
Average Receivables Outstanding (3) .....................
Yield from Finance charges and Fees Billed (4)(5) .......
- ------
(1) Finance Charges and Fees Billed include periodic and minimum finance
charges, [annual membership fees], late charges and fees for returned
checks.
(2) Finance Charges and Fees Billed are presented net of adjustments made
pursuant to the DNB's and DNB-La.'s normal servicing procedures,
including removal of incorrect or disputed finance charges and reversal
of finance charges accrued on charged-off accounts.
(3) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(4) Yield from Finance Charges and Fees Billed is calculated as a percentage
of Average Receivables Outstanding.
(5) The percentage reflected for the three months ended ________, 1998 is an
annualized figure.
Revenues vary for each account based on the type and volume of activity
for each account. Because the Trust Portfolio represents only a portion of the
Dillard's Portfolio, actual yield with respect to Receivables may be different
from that set forth above. See "Dillard's Credit Card Portfolio" and "The
Receivables--Additional Trust Portfolio Information" herein and "Dillard's
Credit Card Activities" in the attached prospectus.
Use of Proceeds
The net proceeds from the sale of the Certificates will be (i) [used to
make an initial deposit to the Finance Charge Account in the amount of $_______
for the payment of interest on the Certificates with respect to the first
Distribution Date, (ii)] if so required, used to make an initial deposit to an
account for the benefit of the Collateral Interest Holder and (iii) paid to
DAFC. DAFC will use such balance together with funds received from Condev
Nevada, Inc. as a contribution to its capital to pay the Originators for the
purchase of the Receivables held by the Trust.
Description of the Certificates
The Certificates will be issued pursuant to the Agreement, and the
Series 1998-__ Supplement. Pursuant to the Agreement, DAFC and the Trustee may
execute further Series Supplements in order to issue additional Series. The
following summary of the Certificates does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Agreement and the Series 1998-__ Supplement. See "Description
of the Certificates" in the attached prospectus for additional information
concerning the Certificates and the Agreement.
General
The Certificates will represent the right to receive certain payments
from the assets of the Trust, including the right to the applicable allocation
percentage of all cardholder payments on the Receivables in the Trust. Each
Class A Certificate represents the right to receive payments of interest at the
Class A Certificate Rate for the related Interest Period and payments of
principal on the Class A Scheduled Payment Date or, to the extent of the Class A
Investor Interest, on each Distribution Date during the Rapid Amortization
Period, funded from collections of Finance Charge Receivables and Principal
Receivables, respectively, allocated to the Class A Investor Interest and
certain other available amounts. The "Interest Period" with respect to any
Distribution Date, will be the period from and including the previous
Distribution Date through the day preceding such Distribution Date, except the
initial Interest Period will be the
S-32
the period from and including the Closing Date through ______, 1998. Each Class
B Certificate represents the right to receive payments of interest at the Class
B Certificate Rate, and payments of principal on the Class B Scheduled Payment
Date or, to the extent of the Class B Investor Interest, on each Distribution
Date during the Rapid Amortization Period after the Class A Certificates have
been paid in full, funded from collections of Finance Charge Receivables and
Principal Receivables, respectively, allocated to the Class B Investor Interest
and certain other available amounts. In addition to representing the right to
payment from collections of Finance Charge Receivables and Principal
Receivables, each Class A Certificate also represents the right to receive
payments from Excess Spread, funds on deposit in the Principal Funding Account
and the Reserve Account and certain investment earnings thereon, Reallocated
Principal Collections and Shared Principal Collections and certain other
available amounts (including, under certain circumstances, amounts on deposit in
the Excess Funding Account). In addition to representing the right to payment
from collections of Finance Charge Receivables and Principal Receivables, each
Class B Certificate also represents the right to receive payments from Excess
Spread, Reallocated Collateral Principal Collections and Shared Principal
Collections and certain other available amounts (including, under certain
circumstances, amounts on deposit in the Excess Funding Account). Payments of
interest and principal will be made, to the extent of funds available therefor,
on each Distribution Date on which such amounts are due to Certificateholders in
whose names the Certificates were registered on the last business day of the
calendar month preceding such Distribution Date (each, a "Record Date").
DAFC initially will own the "Transferor Certificate". The Transferor
Certificate will represent the right to receive certain payments from the assets
of the Trust, including the right to a percentage (the " Transferor Percentage")
of all cardholder payments on the Receivables in the Trust equal to 100% minus
the sum of the applicable Investor Percentages for all Series of certificates
then outstanding. The Transferor Certificate may be transferred in whole or in
part subject to certain limitations and conditions set forth in the Agreement.
See "Description of the Certificates--Certain Matters Regarding the Transferor
and the Servicer" in the attached prospectus.
Beneficial interests in the Certificates will be offered for purchase
in minimum denominations of $1,000 and integral multiples thereof.
Application will be made to list the Certificates on the Luxembourg
Stock Exchange.
The Class A Certificates and the Class B Certificates initially will be
represented by certificates registered in the name of Cede, as nominee of The
Depository Trust Company ("DTC"). Unless and until Definitive Certificates are
issued, all references herein to actions by Class A Certificateholders and/or
Class B Certificateholders shall refer to actions taken by DTC upon instructions
from DTC Participants and all references herein to distributions, notices,
reports and statements to Class A Certificateholders and/or Class B
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Class A Certificates and the
Class B Certificates, as the case may be, for distribution to Certificate Owners
in accordance with DTC procedures. Certificateholders may hold their
Certificates through DTC in the United States ("US") or Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System ("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 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 which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
See "Description of the Certificates-General," "--Book-Entry Registration" and
"--Definitive Certificates" in the attached prospectus.
The Series 1998-__ Supplement and the Certificates will provide that
any money paid by the Trust to any Paying Agent for the payment of principal or
interest which remains unclaimed for two years after such principal or interest
shall have become due and payable will be repaid to the Trust, and thereafter
any Certificateholder may look only to the Trust for payment thereof. The Paying
Agents for the Series 1998-__ Certificates will be ___________ and the Trustee.
S-33
Exchanges
The Transferor Certificate is transferable only as provided in the
Agreement. The Agreement also provides that the holder of the Transferor
Certificate may tender the Transferor Certificate to the Trustee in exchange for
one or more new Series and a reissued Transferor Certificate as described under
"Description of the Certificates-Exchanges" in the attached prospectus.
Status of the Certificates
Upon issuance, the Certificates will rank pari passu with all other
outstanding Series. Payments on the Class B Certificates are subordinated to
payments on the Class A Certificates as described herein.
Interest Payments
Interest will accrue on the Class A Certificates at the Class A
Certificate Rate and on the Class B Certificates at the Class B Certificate Rate
from _______, 1998 (the "Closing Date"). Interest will be distributed to
Certificateholders on _______, 1998 and on the day of each following month (or,
if such day is not a business day, the next succeeding business day)(each, a
"Distribution Date"). Interest payments on the Class A Certificates and the
Class B Certificates on any Distribution Date will be calculated on the
outstanding principal balance of the Class A Certificates and the outstanding
principal balance of the Class B Certificates, as applicable, as of the
preceding Record Date, except that interest for the first Distribution Date will
accrue at the applicable Certificate Rate on the initial outstanding principal
balance of the Class A Certificates and the initial outstanding principal
balance of the Class B Certificates, as applicable, from the Closing Date.
[Interest due on the Certificates but not paid on any Distribution Date will be
payable on the next succeeding Distribution Date together with additional
interest (the "Additional Interest") on such amount at the applicable
Certificate Rate plus 2% per annum (such amount with respect to the Class A
Certificates, the "Class A Additional Interest," and such amount with respect
to the Class B Certificates, the "Class B Additional Interest"). Additional
Interest shall accrue on the same basis as interest on the Certificates, and
shall accrue from the Distribution Date on which such overdue interest first
became due, to but excluding the Distribution Date on which such Additional
Interest is paid.] Interest payments on the Class A Certificates on any
Distribution Date will be paid from Class A Available Funds for the related
Monthly Period, and to the extent such Class A Available Funds are insufficient
to pay such interest, from Excess Spread and Reallocated Principal Collections
(to the extent available) for such Monthly Period. Interest payments on the
Class B Certificates on any Distribution Date will be paid from Class B
Available Funds for the related Monthly Period, and to the extent such Class B
Available Funds are insufficient to pay such interest, from Excess Spread and
Reallocated Collateral Principal Collections (to the extent available) remaining
after certain other payments have been made with respect to the Class A
Certificates.
"Class A Available Funds" means, with respect to any Monthly Period,
an amount equal to the sum of (a) the Class A Floating Allocation of collections
of Finance Charge Receivables allocated to the Investor Interest with respect to
such Monthly Period, (b) Principal Funding Investment Proceeds, if any, with
respect to the related Transfer Date and (c) amounts, if any, to be withdrawn
from the Reserve Account which are required to be included in Class A Available
Funds pursuant to the Series 1998-__ Supplement with respect to such Transfer
Date. "Class B Available Funds" means, with respect to any Monthly Period, an
amount equal to the Class B Floating Allocation of collections of Finance Charge
Receivables allocated to the Investor Interest with respect to such Monthly
Period.
The Class A Certificates will bear interest from the Closing Date
through __________, 1998, and with respect to each Interest Period thereafter,
at a rate of ____% per annum above LIBOR as determined on the related LIBOR
Determination Date with respect to each period (the "Class A Certificate
Rate"). The Class B Certificates will bear interest from the Closing Date
through _________, 1998, and with respect to each Interest Period thereafter, at
a rate of ___% per annum above LIBOR prevailing on the related LIBOR
Determination Date with respect to each such period (the "Class B Certificate
Rate").
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The Trustee will determine LIBOR on ________, 1998 for the period from
the Closing Date through ________, 1998 and for each Interest Period thereafter,
on the second business day prior to the Distribution Date on which such Interest
Period commences (each, a "LIBOR Determination Date"). For the purposes of
calculating LIBOR, a business day is any business day on which dealings in
deposits in United States dollars are transacted in the London interbank market.
"LIBOR" means, as of any LIBOR Determination Date, the rate for
deposits in United States dollars for a period equal to the relevant Interest
Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on
such date. If such rate does not appear on Telerate Page 3750, the rate for that
LIBOR Determination Date will be determined on the basis of the rates at which
deposits in United States dollars are offered by the Reference Banks at
approximately 11:00 a.m., London time, on that day to prime banks in the London
interbank market for a period equal to the relevant Interest Period. The Trustee
will request the principal office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for that LIBOR Determination Date will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate for that LIBOR
Determination Date will be the arithmetic mean of the rates quoted by major
banks in New York City, as selected by the Servicer, at approximately 11:00
a.m., New York City time, on that day for loans in United States dollars to
leading European banks for a period equal to the relevant Interest Period.
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank
market selected by the Servicer.
The Class A Certificate Rate and the Class B Certificate Rate
applicable to the current and immediately preceding Interest Period may be
obtained by telephoning the Trustee at its Corporate Trust Office at (212)
[___________]. The Trustee will cause the Class A Certificate Rate and the Class
B Certificate Rate as well as the amount of Class A Monthly Interest and Class B
Monthly Interest applicable to an Interest Period to be provided to the
Luxembourg Stock Exchange as soon as possible after its determination but in no
event later than the first day of such Interest Period. Such information will
also be included in a statement to the certificateholders of record prepared by
the Servicer. See "Description of the Certificates--Reports to
Certificateholders" in the attached prospectus.
Interest on the Certificates will be calculated on the basis of the
actual number of days in the Interest Period and a 360-day year.
Principal Payments
On each Transfer Date relating to the period which begins on the
Closing Date and ends at the commencement of the Controlled Accumulation Period
or, if earlier, the Rapid Amortization Period (the "Revolving Period"), unless
a reduction in the Required Collateral Interest has occurred, collections of
Principal Receivables allocable to the Investor Interest will, subject to
certain limitations, including the allocation of any Reallocated Principal
Collections with respect to the related Monthly Period to pay the Class A
Required Amount and the Class B Required Amount, be treated as Shared Principal
Collections or, under certain circumstances, deposited into an excess funding
account (the "Excess Funding Account").
On each Transfer Date relating to the Controlled Accumulation Period,
the Trustee will deposit in the Principal Funding Account an amount equal to the
least of (a) Available Investor Principal Collections with respect to such
Transfer Date, (b) the applicable Controlled Deposit Amount and (c) the Class A
Adjusted Investor Interest prior to any deposits on such date. Amounts in the
Principal Funding Account will be paid to the Class A Certificateholders on the
Class A Scheduled Payment Date. After the Class A Investor Interest has been
paid in full, on each Transfer Date during the Controlled Accumulation Period,
amounts equal to the lesser of (a) Available Investor Principal Collections with
respect to such Transfer Date and (b) the Class B Investor Interest will be
deposited in the Distribution Account for distribution to the Class B
Certificateholders until the Class B Investor Interest has been paid in full.
Such amounts in
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the Distribution Account will be paid to the Class B Certificateholders on the
Class B Scheduled Payment Date. [On each Transfer Date, if a reduction in the
Required Collateral Interest has occurred, a portion of collections of Principal
Receivables allocable to the Investor Interest will be applied in accordance
with the loan agreement among the Trustee, DAFC, the Servicer and the Collateral
Interest Holder (the "Loan Agreement") to reduce the Collateral Interest to the
Required Collateral Interest. During the Controlled Accumulation Period until
the final principal payment to the Class B Certificateholders, the portion of
Available Investor Principal Collections not applied to Class A Monthly
Principal, Class B Monthly Principal or Collateral Monthly Principal on a
Transfer Date will generally be treated as Shared Principal Collections or,
under certain circumstances, deposited into the Excess Funding Account.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a) (i) collections of Principal
Receivables received during such Monthly Period and certain other amounts
allocable to the Investor Interest, minus (ii) the amount of Reallocated
Principal Collections with respect to such Monthly Period used to fund the
Required Amount, plus (b) any Shared Principal Collections with respect to other
Series that are allocated to Series 1998-__.
"Required Amount" for any Monthly Period shall mean the sum of (a) the
Class A Required Amount and (b) the Class B Required Amount, each for such
Monthly Period.
On each Distribution Date during the Rapid Amortization Period, the
Class A Certificateholders will be entitled to receive Available Investor
Principal Collections for the related Monthly Period in an amount up to the
Class A Investor Interest until the earlier of the date the Class A Certificates
are paid in full and the Series 1998-__ Termination Date. After payment in full
of the Class A Investor Interest, the Class B Certificateholders will be
entitled to receive on each Distribution Date during the Rapid Amortization
Period Available Investor Principal Collections until the earlier of the date
the Class B Certificates are paid in full and the Series 1998-__ Termination
Date. After payment in full of the Class B Investor Interest, the Collateral
Interest Holder will be entitled to receive on each Transfer Date (other than
the Transfer Date prior to the Series 1998-__ Termination Date) and on the
Series 1998-__ Termination Date, Available Investor Principal Collections until
the earlier of the date the Collateral Interest is paid in full and the Series
1998-__ Termination Date. See "--Pay Out Events" below for a discussion of
events which might lead to the commencement of the Rapid Amortization Period.
Postponement of Controlled Accumulation Period
Upon written notice to the Trustee, the Servicer may elect to postpone
the commencement of the Controlled Accumulation Period, and extend the length of
the Revolving Period, subject to certain conditions including those set forth
below. The Servicer may make such election only if the Accumulation Period
Length (determined as described below) is less than twelve months. On the
__________, 200_ Determination Date and on each Determination Date thereafter,
until the Controlled Accumulation Period begins, the Servicer will determine the
"Accumulation Period Length," which is the number of whole months expected to
be required to fund the Principal Funding Account up to the initial outstanding
principal amount of the Class A Certificates no later than the Class A Scheduled
Payment Date, based on (a) the expected monthly collections of Principal
Receivables expected to be distributable to the certificateholders of all Series
(excluding certain other Series), assuming a principal payment rate no greater
than the lowest monthly principal payment rate on the Receivables for the
preceding twelve months and (b) the amount of principal expected to be
distributable to certificateholders of all Series (excluding certain other
Series) which are not expected to be in their revolving periods during the
Controlled Accumulation Period. If the Accumulation Period Length is less than
twelve months, the Servicer may, at its option, postpone the commencement of the
Controlled Accumulation Period such that the number of months included in the
Controlled Accumulation Period will be equal to or exceed the Accumulation
Period Length. The effect of the foregoing calculation is to permit the
reduction of the length of the Controlled Accumulation Period based on the
investor interests of certain other Series which are scheduled to be in their
revolving periods during the Controlled Accumulation Period and on increases in
the principal payment rate occurring after the Closing Date. The length of the
Controlled Accumulation Period will not be determined to be less than one month.
S-36
Subordination
The Class B Certificates and the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class A Certificates. In addition, the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. Certain principal payments otherwise allocable to the
Class B Certificateholders may be reallocated to cover amounts in respect of the
Class A Certificates and the Class B Investor Interest may be reduced if the
Collateral Interest is equal to zero. Similarly, certain principal payments
allocable to the Collateral Interest may be reallocated to cover amounts in
respect of the Class A Certificates and the Class B Certificates and the
Collateral Interest may be reduced. To the extent the Class B Investor Interest
is reduced, the percentage of collections of Finance Charge Receivables
allocated to the Class B Certificates in subsequent Monthly Periods will be
reduced. Moreover, to the extent the amount of such reduction in the Class B
Investor Interest is not reimbursed, the amount of principal and interest
distributable to the Class B Certificateholders will be reduced. No principal
will be paid to the Class B Certificateholders until the Class A Investor
Interest is paid in full. See "--Allocation Percentages," "--Reallocation of
Cash Flows" and "-- Application of Collections -- Excess Spread."
Allocation Percentages
Pursuant to the Agreement, with respect to each Monthly Period the
Servicer will allocate among the Investor Interest, the investor interest for
all other Series issued and outstanding and the interest of DAFC (the
"Transferor Interest"), all amounts collected on Finance Charge Receivables, all
amounts collected on Principal Receivables and all Default Amounts with respect
to such calendar month (each such month, a "Monthly Period").
Collections of Finance Charge Receivables and Default Amounts at any
time and collections of Principal Receivables during the Revolving Period will
be allocated to the Investor Interest based on the Floating Investor Percentage.
The "Floating Investor Percentage" means, with respect to any Monthly Period,
the percentage equivalent of a fraction, the numerator of which is the Adjusted
Investor Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, the initial
Investor Interest) and the denominator of which is the greater of (x) the sum of
(A) the aggregate amount of Principal Receivables as of the close of business on
the last day of the preceding Monthly Period (or with respect to the first
Monthly Period, the aggregate amount of Principal Receivables as of the close of
business on the day immediately preceding the Closing Date) and (B) the
principal amount on deposit in the Excess Funding Account as of the close of
business on such day and (y) the sum of the numerators used to calculate the
Investor Percentages for allocations with respect to Finance Charge Receivables,
Default Amounts or Principal Receivables, as applicable, for all outstanding
Series on such date of determination; provided, however, that with respect to
any Monthly Period in which an addition of Accounts occurs or in which a removal
of Accounts occurs, the amount in clause (x)(A) above shall be (i) the aggregate
amount of Principal Receivables in the Trust as of the close of business on the
last day of the prior Monthly Period for the period from and including the first
day of such Monthly Period to but excluding the related date of the first
addition to the Trust of Receivables in certain designated Accounts ("Addition
Date") or the date of the removal from the Trust of Receivables in certain
designated Accounts (the "Removal Date") and (ii) the aggregate amount of
Principal Receivables in the Trust as of the beginning of the day on the related
Addition Date or Removal Date after adjusting for the aggregate amount of
Principal Receivables added to or removed from the Trust on the related Addition
Date or Removal Date, as the case may be, for the period from and including the
related Addition Date or Removal Date to and including the last day of such
Monthly Period. The amounts so allocated will be further allocated among the
Class A Certificateholders, Class B Certificateholders and the Collateral
Interest Holder based on the Class A Floating Allocation, the Class B Floating
Allocation and the Collateral Floating Allocation, respectively. The "Class A
Floating Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class A Adjusted Investor Interest as of the
close of business on the last day of the preceding Monthly Period (or with
respect to the first Monthly Period, as of the Closing Date) and the denominator
of which is equal to the Adjusted Investor Interest as of the close of business
on such day. The "Class B Floating Allocation" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the preceding Monthly
Period (or with respect to the first Monthly Period, as of the Closing Date) and
the
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denominator of which is equal to the Adjusted Investor Interest as of the close
of business on such day. The "Collateral Floating Allocation" means, with
respect to any Monthly Period, the percentage equivalent (which percentage shall
never exceed 100%) of a fraction, the numerator of which is equal to the
Collateral Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, as of the Closing
Date) and the denominator of which is equal to the Adjusted Investor Interest as
of the close of business on such day.
Collections of Principal Receivables during the Controlled Accumulation
Period and the Rapid Amortization Period will be allocated to the Investor
Interest based on the Fixed Investor Percentage. The "Fixed Investor
Percentage" means, with respect to any Monthly Period, the percentage equivalent
of a fraction, the numerator of which is the Investor Interest as of the close
of business on the last day of the Revolving Period and the denominator of which
is the greater of (x) the sum of (A) the aggregate amount of Principal
Receivables as of the close of business on the last day of the prior Monthly
Period and (B) the principal amount on deposit in the Excess Funding Account as
of the close of business on such day and (y) the sum of the numerators used to
calculate the Investor Percentages for allocations with respect to Principal
Receivables for all outstanding Series for such Monthly Period; provided,
however, that with respect to any Monthly Period in which an Addition Date
occurs or in which a Removal Date occurs, the amount in clause (x)(A) above
shall be (i) the aggregate amount of Principal Receivables in the Trust as of
the close of business on the last day of the prior Monthly Period for the period
from and including the first day of such Monthly Period to but excluding the
related Addition Date or Removal Date and (ii) the aggregate amount of Principal
Receivables in the Trust at the beginning of the day on the related Addition
Date or Removal Date after adjusting for the aggregate amount of Principal
Receivables added to or removed from the Trust on the related Addition Date or
Removal Date, as the case may be, for the period from and including the related
Addition Date or Removal Date to and including the last day of such Monthly
Period. The amounts so allocated will be further allocated among the Class A
Certificateholders, the Class B Certificateholders and the Collateral Interest
Holder based on the Class A Fixed Allocation, the Class B Fixed Allocation and
the Collateral Fixed Allocation, respectively. The "Class A Fixed Allocation"
means, with respect to any Monthly Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is
equal to the Class A Investor Interest as of the close of business on the last
day of the Revolving Period, and the denominator of which is equal to the
Investor Interest as of the close of business on the last day of the Revolving
Period. The "Class B Fixed Allocation" means, with respect to any Monthly
Period, the percentage equivalent (which percentage shall never exceed 100%) of
a fraction, the numerator of which is equal to the Class B Investor Interest as
of the close of business on the last day of the Revolving Period, and the
denominator of which is equal to the Investor Interest as of the close of
business on the last day of the Revolving Period. The "Collateral Fixed
Allocation" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is equal to the Collateral Interest as of the close of business on the last day
of the Revolving Period, and the denominator of which is equal to the Investor
Interest as of the close of business on the last day of the Revolving Period.
"Class A Investor Interest" for any date means an amount equal to (a)
the aggregate initial principal amount of the Class A Certificates, minus (b)
the aggregate amount of principal payments made to Class A Certificateholders
prior to such date, minus (c) the excess, if any, of the aggregate amount of
Class A Investor Charge-Offs for all Transfer Dates preceding such date over the
aggregate amount of any reimbursements of Class A Investor Charge-Offs for all
Transfer Dates preceding such date; provided, however, that the Class A Investor
Interest may not be reduced below zero.
"Class A Adjusted Investor Interest" for any date of determination
means an amount equal to the then current Class A Investor Interest, minus the
Principal Funding Account Balance on such date.
"Class B Investor Interest" for any date means an amount equal to (a)
the aggregate initial principal amount of the Class B Certificates, 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 Transfer Dates, minus (d) the aggregate amount of
Reallocated Class B Principal Collections for all prior Transfer Dates for which
the Collateral Interest has not been reduced, minus (e) an amount equal to the
aggregate amount by which the Class B Investor Interest has been reduced to fund
the Class A Investor Default Amount on all prior Transfer Dates as described
under "-Defaulted Receivables; Investor Charge Offs," and plus (f) the aggregate
amount of Excess Spread allocated and
S-38
available on all prior Transfer Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c), (d) and (e); provided, however,
that the Class B Investor Interest may not be reduced below zero.
["Adjusted Investor Interest" for any date of determination means the
sum of the Class A Adjusted Investor Interest, the Class B Investor Interest,
and the Collateral Interest.]
"Collateral Interest" for any date means an amount equal to (a) the
Initial Collateral Interest, minus (b) the aggregate amount of principal
payments made to the Collateral Interest Holder prior to such date, minus (c)
the aggregate amount of Collateral Charge-Offs for all prior Transfer Dates,
minus (d) the aggregate amount of Reallocated Collateral Principal Collections
for all prior Transfer Dates, minus (e) an amount equal to the aggregate amount
by which the Collateral Interest has been reduced to fund the Class A Investor
Default Amount and the Class B Investor Default Amount on all prior Transfer
Dates as described under "-Defaulted Receivables; Investor Charge-Offs,"plus
(f) the aggregate amount of Excess Spread allocated and available on all prior
Transfer Dates for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c), (d) and (e); provided, however, that the Collateral
Interest may not be reduced below zero. The provider of such Credit Enhancement
is referred to herein as the "Collateral Interest Holder."
"Investor Interest", for any date of determination , means an amount
equal to the sum of the Class A Investor Interest, the Class B Investor
Interest, and the Collateral Interest.
Reallocation of Cash Flows
With respect to each Transfer Date, the Servicer will determine the
amount (the "Class A Required Amount"), which will be equal to the amount, if
any, by which the sum of (a) Class A Monthly Interest due on the related
Distribution Date and overdue Class A Monthly Interest and Class A Additional
Interest thereon, if any, (b) the Class A Servicing Fee for the related Monthly
Period and overdue Class A Servicing Fee, if any, and (c) the Class A Investor
Default Amount, if any, for the related Monthly Period exceeds the Class A
Available Funds for the related Monthly Period. If the Class A Required Amount
is greater than zero, Excess Spread allocated to Series 1998-__ and available
for such purpose will be used to fund the Class A Required Amount with respect
to such Transfer Date. If such Excess Spread is insufficient to fund the Class A
Required Amount, first, Reallocated Collateral Principal Collections and, then,
Reallocated Class B Principal Collections will be used to fund the remaining
Class A Required Amount. If Reallocated Principal Collections with respect to
the related Monthly Period, together with Excess Spread, are insufficient to
fund the remaining Class A Required Amount for such related Monthly Period, then
the Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and Reallocated Principal Collections on such Transfer Date) will be
reduced by the amount of such excess (but not by more than the Class A Investor
Default Amount for such Monthly Period). In the event that such reduction would
cause the Collateral Interest to be a negative number, the Collateral Interest
will be reduced to zero, and the Class B Investor Interest (after giving effect
to reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections for which the Collateral Interest was not reduced on such
Transfer Date) will be reduced by the amount by which the Collateral Interest
would have been reduced below zero (but not by more than the excess of the Class
A Investor Default Amount, if any, for such Monthly Period over the amount of
such reduction, if any, of the Collateral Interest with respect to such Monthly
Period). In the event that such reduction would cause the Class B Investor
Interest to be a negative number, the Class B Investor Interest will be reduced
to zero and the Class A Investor Interest will be reduced by the amount by which
the Class B Investor Interest would have been reduced below zero (but not by
more than the excess, if any, of the Class A Investor Default Amount for such
Monthly Period over the amount of the reductions, if any, of the Collateral
Interest and the Class B Investor Interest with respect to such Monthly Period).
Any such reduction in the Class A Investor Interest will have the effect of
slowing or reducing the return of principal and interest to the Class A
Certificateholders. In such case, the Class A Certificateholders will bear
directly the credit and other risks associated with their interests in the
Trust. See "--Defaulted Receivables; Investor Charge-Offs."
With respect to each Transfer Date, the Servicer will determine the
amount (the "Class B Required Amount"), which will be equal to the sum of (a)
the amount, if any, by which the sum of (i) Class B Monthly Interest due on the
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related Distribution Date and overdue Class B Monthly Interest and Class B
Additional Interest thereon, if any, and (ii) the Class B Servicing Fee for the
related Monthly Period and overdue Class B Servicing Fee, if any, exceeds the
Class B Available Funds for the related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related Monthly Period. If the Class B
Required Amount is greater than zero, Excess Spread allocated to Series 1998-__
not required to pay the Class A Required Amount or reimburse Class A Investor
Charge-Offs will be used to fund the Class B Required Amount with respect to
such Transfer Date. If such Excess Spread is insufficient to fund the Class B
Required Amount, Reallocated Collateral Principal Collections not required to
fund the Class A Required Amount for the related Monthly Period will be used to
fund the remaining Class B Required Amount. If such Reallocated Collateral
Principal Collections with respect to the related Monthly Period are
insufficient to fund the remaining Class B Required Amount, then the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date and after any
adjustments made thereto for the benefit of the Class A Certificateholders) will
be reduced by the amount of such deficiency (but not by more than the Class B
Investor Default Amount for such Monthly Period). In the event that such a
reduction would cause the Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero, and the Class B Investor Interest
will be reduced by the amount by which the Collateral Interest would have been
reduced below zero (but not by more than the excess of the Class B Investor
Default Amount for such Monthly Period over the amount of such reduction of the
Collateral Interest), and the Class B Certificateholders will bear directly the
credit and other risks associated with their interests in the Trust. See "--
Defaulted Receivables; Investor Charge-Offs."
Reductions of the Class A Investor Interest or Class B Investor
Interest described above shall be reimbursed by, and the Class A Investor
Interest or Class B Investor Interest increased to the extent of, Excess Spread
available for such purposes on each Transfer Date. See "-- Application of
Collections-Excess Spread." When such reductions of the Class A Investor
Interest and Class B Investor Interest have been fully reimbursed, reductions of
the Collateral Interest shall be reimbursed until reimbursed in full in a
similar manner.
"Reallocated Class B Principal Collections" for any Monthly Period
means collections of Principal Receivables allocable to the Class B Investor
Interest for the related Monthly Period in an amount not to exceed the amount
applied to fund the Class A Required Amount, if any; provided, however, that
such amount will not exceed the Class B Investor Interest after giving effect to
any Class B Investor Charge-Offs for the related Transfer Date.
"Reallocated Collateral Principal Collections" for any Monthly Period
means collections of Principal Receivables allocable to the Collateral Interest
for the related Monthly Period in an amount not to exceed the amount applied to
fund the Class A Required Amount and the Class B Required Amount, if any;
provided, however, that such amount will not exceed the Collateral Interest
after giving effect to any Collateral Charge-Offs for the related Transfer Date.
"Reallocated Principal Collections" for any Monthly Period means the
sum of (a) the Reallocated Class B Principal Collections for such Monthly
Period, if any, and (b) the Reallocated Collateral Principal Collections for
such Monthly Period, if any.
Application of Collections
Allocations. Except as otherwise provided below, the Servicer will
deposit into the Collection Account, no later than the second business day
following the date of processing, any payment collected by the Servicer on the
Receivables. On the same day as any such deposit is made, the Servicer will make
the deposits and payments to the accounts and parties as indicated below;
provided, however, that for as long as DNB remains the Servicer under the
Agreement and (a) (i) the Servicer provides to the Trustee a letter of credit or
other credit enhancement covering the risk of collection of the Servicer
acceptable to the Rating Agency and (ii) DAFC shall not have received a notice
from the Rating Agency that reliance on such letter of credit or other credit
enhancement would result in the lowering of such Rating Agency's then-existing
rating of any Series then outstanding or (b) Dillard's (so long as the Servicer
is wholly-owned by Dillard's) has and maintains a long-term unsecured debt
rating in one of the four highest categories assigned by each of Moody's and
Standard & Poor's, or (c) such other arrangement is made by the Servicer which
is approved in writing by each
S-40
Rating Agency rating any Series then outstanding, then the Servicer may make
such deposits and payments on the business day immediately prior to the
Distribution Date (the "Transfer Date") in an amount equal to the net amount of
such deposits and payments which would have been made had the conditions of this
proviso not applied.
With respect to the Certificates and any Monthly Period, and
notwithstanding anything in the Agreement to the contrary, whether the Servicer
is required to make monthly or daily deposits from the Collection Account into
the Finance Charge Account or the Principal Account, (i) the Servicer will only
be required to deposit collections from the Collection Account into the Finance
Charge Account or the Principal Account up to the required amount to be
deposited into any such deposit account or, without duplication, distributed on
or prior to the related Distribution Date to Certificateholders or to the
Collateral Interest Holder and (ii) if at any time prior to such Distribution
Date the amount of collections deposited in the Collection Account exceeds the
amount required to be deposited pursuant to clause (i) above, the Servicer will
be permitted to withdraw the excess from the Collection Account.
Payment of Interest, Fees and Other Items. On each Transfer Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply the Class A
Available Funds, Class B Available Funds and Collateral Available Funds in the
Finance Charge Account in the following manner:
(a) On each Transfer Date, an amount equal to the Class A
Available Funds will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for the
related Distribution Date, plus the amount of any overdue Class A
Monthly Interest and Class A Additional Interest thereon, if any, will
be deposited into the Distribution Account for distribution to Class A
Certificateholders on such Distribution Date;
(ii) an amount equal to the Class A Servicing Fee for the
related Monthly Period, plus the amount of any overdue Class A
Servicing Fee, will be paid to the Servicer;
(iii) an amount equal to the Class A Investor Default
Amount, if any, for the related Monthly Period will be treated as a
portion of Available Investor Principal Collections and deposited into
the Principal Account for such Transfer Date; and
(iv) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as described under
"-Excess Spread."
(b) On each Transfer Date, an amount equal to the Class B
Available Funds will be distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for the
related Distribution Date, plus the amount of any overdue Class B
Monthly Interest and Class B Additional Interest thereon, if any, will
be deposited into the Distribution Account for distribution to Class B
Certificateholders on such Distribution Date;
(ii) an amount equal to the Class B Servicing Fee for the
related Monthly Period, plus the amount of any overdue Class B
Servicing Fee, will be paid to the Servicer; and
(iii) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as described under
"-Excess Spread."
(c) On each Transfer Date, an amount equal to the Collateral
Available Funds will be distributed in the following priority:
S-41
(i) if neither DNB nor [the Trustee] is the Servicer, an
amount equal to the Collateral Interest Servicing Fee for the related
Monthly Period, plus the amount of any overdue Collateral Interest
Servicing Fee, will be paid to the Servicer; and
(ii) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as described under
"-Excess Spread."
"Class A Monthly Interest" means, with respect to any Distribution
Date, an amount equal to the product of (i) the Class A Certificate Rate for
related Interest Period, (ii) the actual number of days in such Interest Period
divided by 360 and (iii) the outstanding principal balance of the Class A
Certificates as of the related Record Date; provided, however, that with respect
to the first Distribution Date, Class A Monthly Interest will be equal to the
interest accrued on the initial outstanding principal balance of the Class A
Certificates at the applicable Class A Certificate Rate for the period from the
Closing Date through _____ , 1998 (calculated as though there were 30 days in
_____).
"Class B Monthly Interest" means, with respect to any Distribution
Date, the product of (i) the Class B Certificate Rate for the related Interest
Period, (ii) the actual number of days in such Interest Period divided by 360
and (iii) the outstanding principal balance of the Class B Certificates as of
the related Record Date; provided, however, with respect to the first
Distribution Date, Class B Monthly Interest will be equal to the interest
accrued on the initial outstanding principal balance of the Class B Certificates
at the applicable Class B Certificate Rate for the period from the Closing Date
through ____ , 1998 (calculated as though there were 30 days in _____).
"Collateral Available Funds" means, with respect to any Monthly
Period, an amount equal to the Collateral Floating Allocation of collections of
Finance Charge Receivables allocated to the Investor Interest with respect to
such Monthly Period (excluding the portion of collections of Finance Charge
Receivables attributable to Interchange that is allocable to Servicer
Interchange).
"Excess Spread" means, with respect to any Transfer Date, an amount
equal to the sum of the amounts described in clause (a) (iv), clause (b) (iii)
and clause (c) (ii) above. To the extent such amounts are insufficient to make
the distributions required by subparagraphs (a) through (j) below under "-Excess
Spread," Excess Spread shall also be deemed to include any Excess Finance Charge
Collections allocable to other Series available to Series 1998-__ in accordance
with the Agreement. See "--Shared Excess Finance Charge Collections."
Excess Spread. On each Transfer Date, the Trustee, acting pursuant to
the Servicer's instructions, will apply Excess Spread with respect to the
related Monthly Period, to make the following distributions in the following
priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to such Transfer Date will be used to fund the Class A Required
Amount; provided, that in the event the Class A Required Amount for
such Transfer Date exceeds the amount of Excess Spread, such Excess
Spread shall be applied first to pay amounts due with respect to such
Transfer Date pursuant to clause (a) (i) above under "--Payment of
Interest, Fees and Other Items," second to pay amounts due with respect
to such Transfer Date pursuant to clause (a) (ii) above under "--
Payment of Interest, Fees and Other Items" and third to pay amounts due
with respect to such Transfer Date pursuant to clause (a) (iii) above
under "--Payment of Interest, Fees and Other Items;"
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed (after giving
effect to the allocation on such Transfer Date of certain other amounts
applied for that purpose) will be deposited into the Principal Account
and treated as a portion of Available Investor Principal Collections
for such Transfer Date as described under "--Payments of Principal"
below;
(c) an amount equal to the Class B Required Amount, if any, with
respect to such Transfer Date will be used to fund the Class B Required
Amount and will be applied first to pay amounts due with respect to
such Transfer Date pursuant to clause (b) (i) above under "--Payment of
Interest, Fees and Other Items," second to pay amounts due with respect
to such Transfer Date pursuant to clause (b) (ii) above under
S-42
"--Payment of Interest, Fees and Other Items" and third, the amount
remaining, up to the Class B Investor Default Amount, will be deposited
into the Principal Account and treated as a portion of Available
Investor Principal Collections for such Transfer Date as described
under "--Payments of Principal" below;
(d) an amount equal to the aggregate amount by which the Class B
Investor Interest has been reduced below the initial Class B Investor
Interest for reasons other than the payment of principal to the Class B
Certificateholders (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will be deposited
into the Principal Account and treated as a portion of Available
Investor Principal Collections for such Transfer Date as described
under "--Payments of Principal" below;
(e) an amount equal to the Collateral Monthly Interest for such
Transfer Date, plus the amount of any Collateral Monthly Interest
previously due but not distributed to the Collateral Interest Holder on
a prior Transfer Date, will be distributed to the Collateral Interest
Holder for distribution in accordance with the Loan Agreement;
(f) if DNB or [the Trustee] is the Servicer, an amount equal to
the Collateral Interest Servicing Fee for the related Monthly Period,
plus the amount of any overdue Collateral Interest Servicing Fee, will
be paid to the Servicer;
(g) an amount equal to the aggregate Collateral Default Amount,
if any, for such Transfer Date will be deposited into the Principal
Account and treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under "--Payments of
Principal" below;
(h) an amount equal to the aggregate amount by which the
Collateral Interest has been reduced below the Required Collateral
Interest for reasons other than the payment of principal to the
Collateral Interest Holder (but not in excess of the aggregate amount
of such reductions which have not been previously reimbursed) will be
deposited into the Principal Account and treated as a portion of
Available Investor Principal Collections for such Transfer Date as
described under "--Payments of Principal" below;
(i) on each Transfer Date from and after the Reserve Account
Funding Date, but prior to the date on which the Reserve Account
terminates as described under "--Reserve Account," an amount up to the
excess, if any, of the Required Reserve Account Amount over the
Available Reserve Account Amount will be deposited into the Reserve
Account;
(j) an amount equal to the amounts determined to be payable
pursuant to the Loan Agreement shall be paid to the Collateral Interest
Holder; and
(k) the balance, if any, after giving effect to the payments
made pursuant to subparagraphs (a) through (j) above, will constitute
Excess Finance Charge Collections to be applied with respect to other
Series in accordance with the Agreement.
"Collateral Monthly Interest" with respect to any Transfer Date will
equal the product of (a) an amount equal to LIBOR plus ____% per annum, or such
lesser amount as may be designated in the Loan Agreement (the "Collateral
Rate"), (b) the actual number of days in the related Interest Period divided by
360 and (c) the Collateral Interest as of the related Record Date or, with
respect to the first Transfer Date, the Initial Collateral Interest.
The figure on the next page demonstrates the application of collections
of Finance Charge Receivables allocated to Series 1998-_. The figure is a
simplified demonstration of certain allocation and payment provisions and is
qualified by the full descriptions of these provisions in this prospectus
supplement and the attached prospectus.
S-43
Allocations of Collections of Finance Charge Receivables
---------------------------------------------
Collections of Finance Charge
Receivables Allocated to Your Series
---------------------------------------------
- ---------- -------------------- -------------------- -----------------------
Step 1 Class A Investor Class B Investor Collateral Interest
- ---------- Interest Interest
-------------------- -------------------- -----------------------
-------------------------------
- ---------- 1. Class A Interest Payment ------------------------------- --------------------------------
Step 2 2. Class A Servicing Fee 1. Class B Interest Payment 1. Collateral Interest
- ---------- 3. Class A Default Amount 2. Class B Servicing Fee Servicing Fee
------------------------------- ------------------------------- --------------------------------
- ---------- ---------------------- --------------------------------
Step 3 Excess Collections Excess Finance Charge
- ---------- of Finance Charges Collections from Other
Series
---------------------- --------------------------------
------------------------------------------------------
1. Class A Interest Payment
2. Class A Servicing Fee
3. Class A Default Amount
4. Reimburse Class A Investor Interest
5. Class B Interest Payment
6. Class B Servicing Fee
7. Class B Default Amount
8. Reimburse Class B Investor Interest
9. Collateral Interest and Other Items as
Described Above in the Accompanying Text
10. Other Series of Certificates
------------------------------------------------------
Payments of Principal. On each Transfer Date, the Trustee, acting
pursuant to the Servicer's instructions, will distribute Available Investor
Principal Collections (see "--Principal Payments" above) on deposit in the
Principal Account in the following manner:
(a) on each Transfer Date with respect to the Revolving Period,
all such Available Investor Principal Collections will be distributed
or deposited in the following priority:
(i) an amount equal to the Collateral Monthly Principal will
be paid to the Collateral Interest Holder in accordance with the Loan
Agreement; and
(ii) the balance will be treated as Shared Principal
Collections and applied as described under "Description of the
Certificates-Shared Principal Collections" herein and in the attached
prospectus;
S-44
(b) on each Transfer Date with respect to the Controlled
Accumulation Period or the Rapid Amortization Period, all such
Available Investor Principal Collections will be distributed or
deposited in the following priority:
(i) an amount equal to Class A Monthly Principal will be (i)
during the Controlled Accumulation Period, deposited in the Principal
Funding Account (up to the Controlled Deposit Amount for such Transfer
Date) or (ii) during the Rapid Amortization Period, distributed to the
Class A Certificateholders; and
(ii) for each Transfer Date after the Class A Investor
Interest has been paid in full (after taking into account payments to
be made on the related Distribution Date), an amount equal to the Class
B Monthly Principal for such Transfer Date will be distributed to the
Class B Certificateholders;
(c) on each Transfer Date with respect to the Controlled
Accumulation Period and the Rapid Amortization Period in which a
reduction in the Required Collateral Interest has occurred, Available
Investor Principal Collections not applied to Class A Monthly Principal
or Class B Monthly Principal will be applied to reduce the Collateral
Interest to the Required Collateral Interest; and
(d) on each Transfer Date with respect to the Controlled
Accumulation Period and the Rapid Amortization Period, the balance of
Available Investor Principal Collections not applied pursuant to (b)
and (c) above, if any, will be treated as Shared Principal Collections
and applied as described under "Description of the Certificates-Shared
Principal Collections" herein and in the attached prospectus.
The final distribution of principal and interest on the Certificates
will be made no later than the ______ Distribution Date in the manner provided
in "Description of the Certificates-Final Payment of Principal; Termination" in
the attached prospectus. Series 1998-_ will terminate on the earliest to occur
of (a) the Distribution Date on which the Investor Interest is paid in full, (b)
the _________ Distribution Date or (c) the Trust Termination Date (such earliest
to occur, the "Series 1998-_ Termination Date"). After the Series 1998-_
Termination Date, the Trust will have no further obligation to pay principal or
interest on the Certificates.
"Class A Monthly Principal" means, with respect to any Transfer Date
relating to the Controlled Accumulation Period or the Rapid Amortization Period,
prior to the payment in full of the Class A Investor Interest, an amount equal
to the least of (i) the Available Investor Principal Collections on deposit in
the Principal Account with respect to such Transfer Date, (ii) for each Transfer
Date with respect to the Controlled Accumulation Period, prior to the payment in
full of the Class A Investor Interest, and on or prior to the Class A Scheduled
Payment Date, the applicable Controlled Deposit Amount for such Transfer Date
and (iii) the Class A Adjusted Investor Interest prior to any deposits on such
Transfer Date.
"Class B Monthly Principal" means, with respect to any Transfer Date
relating to the Controlled Accumulation Period or the Rapid Amortization Period,
after the Class A Certificates have been paid in full (after taking into account
payments to be made on the related Distribution Date), an amount equal to the
lesser of (i) the Available Investor Principal Collections on deposit in the
Principal Account with respect to such Transfer Date (minus the portion of such
Available Investor Principal Collections applied to Class A Monthly Principal on
such Transfer Date) and (ii) the Class B Investor Interest for such Transfer
Date.
"Collateral Monthly Principal" means (a) with respect to any Transfer
Date relating to the Revolving Period following any reduction of the Required
Collateral Interest pursuant to clause (3) of the proviso in the definition
thereof, an amount equal to the lesser of (i) the excess, if any, of the
Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and Reallocated Principal Collections on such Transfer Date and
after giving effect to any adjustments thereto for the benefit of the Class A
Certificateholders and the Class B Certificateholders on such Transfer Date)
over the Required Collateral Interest on such Transfer Date, and (ii) the
Available Investor Principal Collections on such Transfer Date or (b) with
respect to any Transfer Date relating to the Controlled Accumulation Period or
Rapid
S-45
Amortization Period, an amount equal to the lesser of (i) the excess, if
any, of the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and Reallocated Principal Collections on such Transfer
Date and after giving effect to any adjustments thereto for the benefit of the
Class A Certificateholders and the Class B Certificateholders on such Transfer
Date) over the Required Collateral Interest on such Transfer Date, and (ii) the
excess, if any, of (A) the Available Investor Principal Collections on such
Transfer Date over (B) the sum of the Class A Monthly Principal and the Class B
Monthly Principal for such Transfer Date.
"Controlled Accumulation Amount" means (a) for any Transfer Date with
respect to the Controlled Accumulation Period, prior to the payment in full of
the Class A Investor Interest, $ ; provided, however, that if the commencement
of the Controlled Accumulation Period is delayed as described above under
"-Postponement of Controlled Accumulation Period," the Controlled Accumulation
Amount may be higher than the amount stated above for each Transfer Date with
respect to the Controlled Accumulation Period and will be determined by the
Servicer in accordance with the Agreement based on the principal payment rates
for the Accounts and on the investor interests of other Series (other than
certain excluded Series) which are scheduled to be in their revolving periods
and then scheduled to create Shared Principal Collections during the Controlled
Accumulation Period and (b) for any Transfer Date with respect to the Controlled
Accumulation Period after the payment in full of the Class A Investor Interest,
an amount equal to the Class B Investor Interest on such Transfer Date.
"Accumulation Shortfall" means (a) on the first Transfer Date with
respect to the Controlled Accumulation Period, the excess, if any, of the
Controlled Accumulation Amount for such Transfer Date over the amount
distributed from the Principal Account as Class A Monthly Principal for such
Transfer Date and (b) on each subsequent Transfer Date with respect to the
Controlled Accumulation Period, the excess, if any, of the applicable Controlled
Accumulation Amount for such subsequent Transfer Date plus any Accumulation
Shortfall for the prior Transfer Date over the amount distributed from the
Principal Account as Class A Monthly Principal for such subsequent Transfer
Date.
The figure on the next page demonstrates the manner in which collections of
Principal Receivables are allocated and applied to Series 1998-_. The figure is
a simplified demonstration of certain allocation and payment provisions and is
qualified by the full descriptions of these provisions in this prospectus
supplement and the prospectus.
S-46
Allocations of Collections of Principal Receivables
---------------------------------------------
Collections of Principal Receivables
Allocated to Your Series
---------------------------------------------
- ---------- -------------------- -------------------- -----------------------
Step 1 Class A Investor Class B Investor Collateral Interest
- ---------- Interest Interest
-------------------- -------------------- -----------------------
------------------------------- --------------------------------
- ---------- Reallocation to unpaid: Reallocation to unpaid:
Step 2 1. Class A Interest Payment 1. Class A Interest Payment
- ---------- 2. Class A Servicing Fee 2. Class A Servicing Fee
3. Class A Default Amount 3. Class A Default Amount
------------------------------- 4. Class B Interest Payment
5. Class B Servicing Fee
6. Class B Default Amount
--------------------------------
- ---------- ------------------------------- --------------------------------
Step 3 Available Investor Principal Shared Principal Collections
- ---------- Collections from Other Series
------------------------------- --------------------------------
------------------------------------------------------
During accumulation or amortization period
1. Class A Principal Payment or Deposit
2. Class B Principal Payment
3. Collateral Interest Principal Payment
------------------------------------------------------
- ---------- ------------------------------------------------------
Step 4 Shared Principal Collections to
- ---------- Other Series if necessary
------------------------------------------------------
-------------------
DAFC
-------------------
S-47
Shared Excess Finance Charge Collections
Any Series may be included in a Group of Series ("Group I") which may be
issued by the Trust from time to time. There are currently no series included 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 Investor 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 Credit
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 paid to the holder of the Transferor Certificate. 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 1998-__ using Excess Finance Charge Collections from other Series which
would otherwise be paid to DAFC to cover shortfalls in amounts payable from
Excess Spread as described above under "--Application of Collections-Excess
Spread." While DAFC believes that, based upon applicable rules and regulations
as currently in effect, the sharing of Excess Finance Charge Collections among
Series in a Group will not have adverse regulatory implications for it, there
can be no assurance that this will continue to be true in the future.
Shared Principal Collections
Collections of Principal Receivables for any Monthly Period allocated to
the Investor Interest will first be used to cover, with respect to any Monthly
Period during the Controlled Accumulation Period, deposits of the applicable
Controlled Deposit Amount to the Principal Funding Account or the Distribution
Account, and during the Rapid Amortization Period, payments to the
Certificateholders and then under certain circumstances payments to the
Collateral Interest Holder. The Servicer will determine the amount of
collections of Principal Receivables for any Monthly Period allocated to the
Investor Interest remaining after covering required payments to the
Certificateholders and any similar amount remaining for any other Series
("Shared Principal Collections"). The Servicer will allocate the Shared
Principal Collections to cover any scheduled or permitted principal
distributions to certificateholders and deposits to principal funding accounts,
if any, for any Series entitled thereto which have not been covered out of the
collections of Principal Receivables allocable to such Series and certain other
amounts for such Series ("Principal Shortfalls"). Shared Principal Collections
will not be used to cover investor charge-offs for any Series. 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 relative amounts of Principal Shortfalls. To the extent that Shared
Principal Collections exceed Principal Shortfalls, the balance will be paid to
the holder of the Transferor Certificate or, under certain circumstances,
deposited into the Excess Funding Account.
Required Collateral Interest
The "Required Collateral Interest" with respect to any Transfer Date means
(i) initially $________ (the "Initial Collateral Interest") and (ii) thereafter
on each Transfer Date an amount equal to ____% of the sum of the Class A
Adjusted Investor Interest, the Class B Investor Interest and the Collateral
Interest on such Transfer Date, after taking into account deposits into the
Principal Funding Account on such Transfer Date and payments to be made on the
related Distribution Date, and the Collateral Interest on the prior Transfer
Date after any adjustments made on such Transfer Date, but not less than
$________; provided, however, (1) that if certain reductions in the Collateral
Interest are made or if a Pay Out Event occurs, the Required Collateral Interest
for such Transfer Date shall equal the Required Collateral Interest for the
Transfer Date immediately preceding the occurrence of such reduction or Pay Out
Event, (2) in no event
S-48
shall the Required Collateral Interest exceed the unpaid principal amount of the
Certificates as of the last day of the Monthly Period preceding such Transfer
Date after taking into account payments to be made on the related Distribution
Date and (3) the Required Collateral Interest may be reduced to a lesser amount
at any time if the Rating Agency Condition is satisfied.
"Rating Agency Condition" means the notification in writing by each Rating
Agency that a proposed action will not result in such Rating Agency reducing or
withdrawing its then-existing rating of the investor certificates of any
outstanding Series or class with respect to which it is a Rating Agency.
With respect to any Transfer Date, if the Collateral Interest is less than
the Required Collateral Interest, certain Excess Spread, if available, will be
allocated to increase the Collateral Interest to the extent of such shortfall.
Any of such Excess Spread not required to be so allocated or deposited into the
Reserve Account with respect to any Transfer Date will be applied in accordance
with the Loan Agreement. See "-- Application of Collections-Excess Spread."
Adjustment Payments
If on any business day the Servicer adjusts the amount of any Principal
Receivable due to a Dilution, then the amount of the Transferor Interest in the
Trust will be reduced, on a net basis, by the amount of such adjustment on such
business day. In the event the Transferor Interest would be reduced below the
Minimum Transferor Interest, the Transferor will be required to pay to the Trust
the amount by which the Transferor Interest would be reduced below the Minimum
Transferor Interest (an "Adjustment Payment"). Adjustment Payments made by the
transferor will be treated as Excess Spread. If the Transferor fails to pay such
amount when due, Excess Spread and Reallocated Principal Collections with
respect to Series 1998- may be applied for such purpose. To the extent such
amounts are insufficient to cover the portion of the unpaid Adjust Payments
allocated to Series 1998-, there will be an Investor charge-off as described
below.
Defaulted Receivables; Dilutions; Investor Charge-Offs
On or before each Transfer Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (a) the Floating Investor
Percentage with respect to such Monthly Period and (b) the sum of (x) the
aggregate amount of Receivables in Defaulted Accounts (the "Default Amount")
for such Monthly Period and (y) the aggregate amount of unpaid Adjustment
Payments for such Monthly Period. A portion of the Investor Default Amount will
be allocated to the Class A Certificateholders (the "Class A Investor Default
Amount") on each Transfer Date in an amount equal to the product of the Class A
Floating Allocation applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Class B Certificateholders (the
"Class B Investor Default Amount") on each Transfer Date in an amount equal to
the product of the Class B Floating Allocation applicable during the related
Monthly Period and the Investor Default Amount for such Monthly Period. A
portion of the Investor Default Amount will be allocated to the Collateral
Interest Holder (the "Collateral Default Amount") on each Transfer Date in an
amount equal to the product of the Collateral Floating Allocation applicable
during the related Monthly Period and the Investor Default Amount for such
Monthly Period.
On each Transfer Date, if the Class A Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Principal
Collections available to fund such amount with respect to the Monthly Period
immediately preceding such Transfer Date, the Collateral Interest (after giving
effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date) will be reduced by the amount of
such excess, but not more than the lesser of the Class A Investor Default Amount
and the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and any Reallocated Principal Collections on such
Transfer Date) for such Transfer Date. In the event that such reduction would
cause the Collateral Interest to be a negative number, the Collateral Interest
will be reduced to zero, and the Class B Investor Interest (after giving effect
to reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections on such Transfer Date) will be reduced by the amount by
which the Collateral Interest would have been reduced below zero. In the event
that such reduction
S-49
would cause the Class B Investor Interest to be a negative number, the Class B
Investor Interest will be reduced to zero, and the Class A Investor Interest
will be reduced by the amount by which the Class B Investor Interest would have
been reduced below zero, but not more than the Class A Investor Default Amount
for such Transfer Date (a "Class A Investor Charge-Off"), which will have the
effect of slowing or reducing the return of principal and interest to the Class
A Certificateholders. If the Class A Investor Interest has been reduced by the
amount of any Class A Investor Charge-Offs, it will be reimbursed on any
Transfer Date (but not by an amount in excess of the aggregate Class A Investor
Charge-Offs) by the amount of Excess Spread allocated and available for such
purpose as described under "--Application of Collections-Excess Spread."
On each Transfer Date, if the Class B Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Collateral
Principal Collections which are allocated and available to fund such amount with
respect to the Monthly Period preceding such Transfer Date, the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Principal Collections on such Transfer Date and after giving
effect to any adjustments with respect thereto as described in the preceding
paragraph) will be reduced by the amount of such excess but not more than the
lesser of the Class B Investor Default Amount and the Collateral Interest (after
giving effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date and after giving effect to any
adjustments with respect thereto as described in the preceding paragraph) for
such Transfer Date. In the event that such reduction would cause the Collateral
Interest to be a negative number, the Collateral Interest will be reduced to
zero and the Class B Investor Interest will be reduced by the amount by which
the Collateral Interest would have been reduced below zero, but not more than
the Class B Investor Default Amount for such Transfer Date (a "Class B Investor
Charge-Off"). The Class B Investor Interest will also be reduced by the amount
of Reallocated Class B Principal Collections in excess of the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Collateral Principal Collections on such Transfer Date) and the
amount of any portion of the Class B Investor Interest allocated to the Class A
Certificates to avoid a reduction in the Class A Investor Interest. The Class B
Investor Interest will thereafter be reimbursed (but not in excess of the unpaid
principal balance of the Class B Certificates) on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "-- Application of Collections -- Excess Spread."
On each Transfer Date, if the Collateral Default Amount for such Transfer
Date exceeds the amount of Excess Spread which is allocated and available to
fund such amount as described under "-- Application of Collections -- Excess
Spread," the Collateral Interest will be reduced by the amount of such excess
but not more than the lesser of the Collateral Default Amount and the Collateral
Interest for such Transfer Date (a "Collateral Charge-Off"). The Collateral
Interest will also be reduced by the amount of Reallocated Principal Collections
and the amount of any portion of the Collateral Interest allocated to the Class
A Certificates to avoid a reduction in the Class A Investor Interest or to the
Class B Certificates to avoid a reduction in the Class B Investor Interest. The
Collateral Interest will thereafter be reimbursed on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "-- Application of Collections -- Excess Spread."
Servicer Guarantee
The obligations of the Servicer under the Agreement will be guaranteed (the
"Servicer Guarantee") by Dillard's pursuant to a guarantee agreement in favor of
[the Trustee].
Principal Funding Account
Pursuant to the Series 1998-__ Supplement, the Trustee at the direction of
the Servicer will establish and maintain an Eligible Deposit Account held for
the benefit of the Certificateholders (the "Principal Funding Account"). During
the Controlled Accumulation Period, the Trustee at the direction of the Servicer
will transfer collections in respect of Principal Receivables (other than
Reallocated Principal Collections) and Shared Principal Collections from other
Series, if any, allocated to Series 1998-__ from the Principal Account to the
Principal Funding Account as described under "-Application of Collections." Such
collections will be retained in the Principal Funding Account and ultimately
used to
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pay the principal of the Class A Certificates on the Class A Scheduled Payment
Date or the first Distribution Date with respect to the Rapid Amortization
Period, whichever occurs earlier.
Funds on deposit in the Principal Funding Account will be invested to the
following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment losses and
expenses) on funds on deposit in the Principal Funding Account (the "Principal
Funding Investment Proceeds") will be applied on each Transfer Date as Class A
Available Funds. If, for any Transfer Date, the Principal Funding Investment
Proceeds are less than an amount equal to the product of (a) (i) a fraction, the
numerator of which is the actual number of days in the related Interest Period
and the denominator of which is 360, times (ii) the Class A Certificate Rate in
effect with respect to such Interest Period and (b) the Principal Funding
Account Balance as of the Record Date preceding such Transfer Date (the "Class
A Covered Amount"), the amount of such deficiency (the "Class A Principal
Funding Investment Shortfall") shall be withdrawn, to the extent available, from
the Reserve Account and deposited in the Finance Charge Account and included in
collections of Finance Charge Receivables to be applied to the payment of Class
A Monthly Interest.
[Reserve Account
Pursuant to the Series 1998-__ Supplement, the Trustee will establish and
maintain an Eligible Deposit Account held for the benefit of the
Certificateholders (the "Reserve Account"). The Reserve Account is established
to assist with the subsequent distribution of interest on the Certificates
during the Controlled Accumulation Period. On each Transfer Date from and after
the Reserve Account Funding Date, but prior to the termination of the Reserve
Account, the Trustee, acting pursuant to the Servicer's instructions, will apply
Excess Spread allocated to the Certificates (to the extent described above under
"-Application of Collections-Excess Spread") 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
Transfer Date with respect to the Monthly Period which commences no later than
three months prior to the commencement of the Controlled Accumulation Period, or
such earlier date as the Servicer may determine. The "Required Reserve Account
Amount" for any Transfer Date on or after the Reserve Account Funding Date will
be equal to (a) .% of the outstanding principal balance of the Class A
Certificates or (b) any other amount designated by DAFC; provided, that if such
designation is of a lesser amount, DAFC shall have provided the Servicer, the
Collateral Interest Holder and the Trustee with evidence that the Rating Agency
Condition has been satisfied and DAFC shall have delivered to the Trustee a
certificate of an authorized officer to the effect that, based on the facts
known to such officer at such time, in the reasonable belief of DAFC, such
designation will not cause a Pay Out Event or an event that, after the giving of
notice or the lapse of time, would cause a Pay Out Event to occur with respect
to Series 1998-__. On each Transfer Date, after giving effect to any deposit to
be made to, and any withdrawal to be made from, the Reserve Account on such
Transfer Date, the Trustee will withdraw from the Reserve Account an amount
equal to the excess, if any, of the amount on deposit in the Reserve Account
over the Required Reserve Account Amount and distribute such excess to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement.
Provided that the Reserve Account has not terminated as described below,
all amounts on deposit in the Reserve Account on any Transfer Date (after giving
effect to any deposits to, or withdrawals from, the Reserve Account to be made
on such Transfer Date) will be invested to the following Transfer Date by the
Trustee at the direction of the Servicer in Permitted 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) or deposited
in the Finance Charge Account and treated as Class A Available Funds.
On or before each Transfer Date with respect to the Controlled Accumulation
Period and on the first Transfer Date with respect to the Rapid Amortization
Period, a withdrawal will be made from the Reserve Account, and the amount of
such withdrawal will be deposited in the Finance Charge Account and included in
collections of Finance Charge Receivables to be applied to the payment of the
Class A Monthly Interest 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 Class A Principal
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Funding Investment Shortfall with respect to such Transfer Date; provided, that
the amount of such withdrawal shall be reduced to the extent that funds
otherwise would be available to be deposited in the Reserve Account on 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 upon the earlier to occur of (a) the
termination of the Trust pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (i) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled 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 distributed to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement. Any amounts withdrawn from the Reserve Account and distributed
to the Collateral Interest Holder as described above will not be available for
distribution to the Certificateholders.]
Issuance of Additional Certificates
The Series 1998-__ Supplement provides that, from time to time during the
Revolving Period, DAFC may, subject to certain conditions described below, cause
the Trustee to issue additional Certificates ("Additional Certificates") and to
increase the size of the Collateral Interest (each such issuance, an
"Additional Issuance"). When issued, the Additional Certificates of each Class
will be identical in all respects to the other outstanding Certificates of that
Class and will be equally and ratably entitled to the benefits of the Agreement
without preference, priority or distinction.
In connection with each Additional Issuance, a pro rata principal amount of
each Class of Certificates will be issued and there will be a pro rata increase
in the Collateral Interest.
As of the date of any Additional Issuance, the Collateral Interest, the
Controlled Accumulation Amount and the Investor Interest for each Class of this
Series will be increased proportionately to reflect the aggregate face amount of
the Additional Certificates.
Additional Certificates may be issued only upon the satisfaction of certain
conditions provided in the Series 1998-__ Supplement, including the following:
(a) on or before the fifth Business Day immediately preceding
the date on which the Additional Certificates are to be issued, DAFC 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 Minimum Aggregate Principal Receivables, (c)
DAFC shall have delivered evidence of the proportional increase in the
Collateral Interest to the Trustee and the Rating Agencies, (d) the Rating
Agency Condition shall have been satisfied with respect to the Additional
Issuance, (e) DAFC shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of DAFC,
such Additional Issuance will not have a material adverse effect on any
outstanding Class of this Series, (f) as of the date of the Additional
Issuance there shall be no Investor Charge-Offs with respect to any Class
of this Series and (g) DAFC shall have delivered to the Trustee a Tax
Opinion with respect to the Additional Issuance. There are no restrictions
on the timing or amount of any Additional Issuance other than the foregoing
conditions.
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Companion Series
The Series 1998-__ Certificates may be paired with one or more other Series
(each a "Companion Series"). Each Companion Series either will be prefunded
with an initial deposit to a prefunding account in an amount up to the initial
principal balance of such Companion Series, funded primarily from the proceeds
for the sale of such Companion Series, or will have a variable principal amount.
Any such prefunding account will be held for the benefit of such Companion
Series and not for the benefit of Certificateholders. As principal is paid with
respect to the Series 1998-__ Certificates, either (i) in the case of a
prefunded Companion Series, an equal amount of funds on deposit in any
prefunding account for such prefunded Companion Series will be released (which
funds will be distributed to DAFC) or (ii) in the case of a Companion Series
having a variable principal amount, an interest in such variable Companion
Series in an equal or lesser amount may be sold by the Trust (and the proceeds
thereof will be distributed to DAFC) and, in either case, the invested amount in
the Trust of such Companion Series will increase by up to corresponding amount.
The issuance of a Companion Series will be subject to the conditions described
under "Description of the Certificates-Exchanges" in the attached prospectus.
There can be no assurance, however, that the terms of any Companion Series might
not have an impact on the timing or amount of payments received by a Series
1998-__ Certificateholder. In particular, the denominator of the Fixed Investor
Percentage may be increased upon the occurrence of a Pay Out Event with respect
to a Companion Series resulting in a possible reduction of the percentage of
collections of Principal Receivables allocated to Series 1998-__ if such event
allowed the payment of principal at such time to the Companion Series and
required reliance by Series 1998-__ on clause (y) of the denominator of the
Fixed Investor Percentage for Series 1998-__. See "Maturity Considerations,"
"--Allocation Percentages," "Master Trust Considerations" and "Maturity
Assumptions."
Pay Out Events
As described above, the Revolving Period will continue through the close of
business on the last day of the ____ Monthly Period (unless such date is
postponed as described under "-Postponement of Controlled Accumulation Period"),
unless a Pay Out Event occurs prior to such date. A "Pay Out Event" refers to
any of the following events:
(a) failure on the part of DAFC (i) to make any payment or
deposit on the date required under the Agreement (or within the applicable
grace period which shall not exceed five days) or (ii) to observe or
perform in any material respect any other covenants or agreements of DAFC
set forth in the Agreement or the Series 1998-__ Supplement, which failure
has a material adverse effect on the Certificateholders (which
determination shall be made without regard to the existence of the
Collateral Interest) and which continues unremedied for a period of 60 days
after written notice and continues to materially and adversely affect the
interests of the Certificateholders (which determination shall be made
without regard to the existence of the Collateral Interest) for such
period;
(b) any representation or warranty made by DAFC in the
Agreement or the Series 1998-__ Supplement, or any information required to
be given by DAFC to the Trustee to identify the Accounts proves to have
been incorrect in any material respect when made and which continues to be
incorrect in any material respect for a period of 60 days after written
notice and as a result of which the interests of the Certificateholders are
materially and adversely affected (which determination shall be made
without regard to the existence of the Collateral Interest) and continue to
be materially and adversely affected for such period; provided, however,
that a Pay Out Event pursuant to this clause (b) shall not be deemed to
occur thereunder if DAFC has accepted reassignment of the related
Receivable or all such Receivables, if applicable, during such period (or
such longer period as the Trustee may specify) in accordance with the
provisions of the Agreement;
(c) any reduction of the average of the Portfolio Yields for
any three consecutive Monthly Periods to a rate which is less than the
average of the Base Rates for such period;
(d) a failure by DAFC to convey Receivables arising under
Additional Accounts, or Participations, to the Trust when required by the
Agreement;
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(e) any Servicer Default occurs which would have a material
adverse effect on the Certificateholders;
(f) insufficient funds in the Distribution Account to pay the
Class A Investor Interest in full on the Class A Scheduled Payment Date or
the Class B Investor Interest in full on the Class B Scheduled Payment
Date;
(g) certain events of bankruptcy, insolvency, conservatorship
or receivership relating to DAFC;
(h) DAFC becomes unable for any reason to transfer Receivables
to the Trust in accordance with the provisions of the Agreement; or
(i) the Trust is subject to regulation as an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
In the case of any event described in clause (a), (b) or (e) above, a Pay
Out Event will be deemed to have occurred with respect to the Certificates only
if, after any applicable grace period, either the Trustee or Certificateholders
and the Collateral Interest Holder evidencing undivided interests aggregating
more than 50% of the Investor Interest, by written notice to DAFC and the
Servicer (and to the Trustee if given by the Certificateholders) declare that a
Pay Out Event has occurred with respect to the Certificates as of the date of
such notice. In the case of any event described in clause (g), (h) or (i), a Pay
Out Event with respect to all Series then outstanding, and in the case of any
event described in clause (c), (d) or (f), a Pay Out Event with respect to only
the Certificates, will be deemed to have occurred without any notice or other
action on the part of the Trustee, the Certificateholders, the Collateral
Interest Holder or all certificateholders, as appropriate, immediately upon the
occurrence of such event. On the date on which a Pay Out Event is deemed to have
occurred, the Rapid Amortization Period will commence. In such event,
distributions of principal to the Certificateholders will begin on the first
Distribution Date following the month in which such Pay Out Event occurred. If,
because of the occurrence of a Pay Out Event, the Rapid Amortization Period
begins earlier than the close of business on the last day of the ___ Monthly
Period Certificateholders will begin receiving distributions of principal
earlier than they otherwise would have, which may shorten the average life of
the Certificates.
See "Description of the Certificates--Pay Out Events" in the attached
prospectus for an additional discussion of the consequences of an insolvency,
conservatorship or receivership of DAFC.
Servicing Compensation and Payment of Expenses
The Servicer will receive a fee as servicing compensation from the related
Trust in respect of each Series in the amounts and at the times specified in the
related prospectus supplement (the "Servicing Fee"). The Servicing Fee may be
payable from Finance Charge Receivables, Interchange or other amounts as
specified in the related prospectus supplement. The share of the Servicing Fee
allocable to the Investor Interest with respect to any Transfer Date (the
"Investor Servicing Fee") shall be equal to [ ] of the product of (a) .% and (b)
the Adjusted Investor Interest as of the last day of the Monthly Period
preceding such Transfer Date; provided, however, with respect to the first
Transfer Date, the Investor Servicing Fee shall be equal to the product of (i) a
fraction the numerator of which is the number of days from and including the
Closing Date to and including the last day of the _________ Monthly Period and
the denominator of which is 360, (ii) .% and (iii) the Investor Interest on the
Closing Date. In the case of any insufficiency of Servicer Interchange on
deposit in the Finance Charge Account, a portion of the Investor Servicing Fee
with respect to such Monthly Period will not be paid to the extent of such
insufficiency and in no event shall the Trust, the Trustee, the
Certificateholders or the Collateral Interest Holder be liable for the share of
the Servicing Fee to be paid out of Servicer Interchange.
The share of the Investor Servicing Fee allocable to the Class A
Certificateholders with respect to any Transfer Date (the "Class A Servicing
Fee") shall be equal to [one-twelfth] of the product of (a) the Class A Floating
Allocation, (b) .% (the "Net Servicing Fee Rate") and (c) the Adjusted Investor
Interest as of the last day of the Monthly Period
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preceding such Transfer Date; provided, however, that with respect to the first
Transfer Date, the Class A Servicing Fee shall be equal to the product of (i)
the Class A Floating Allocation, (ii) a fraction, the numerator of which is the
number of days from and including the Closing Date to and including the last day
of the _____, 1998 Monthly Period and the denominator of which is 360, (iii) the
Net Servicing Fee Rate and (iv) the Investor Interest on the Closing Date. The
share of the Investor Servicing Fee allocable to the Class B Certificateholders
with respect to any Transfer Date (the "Class B Servicing Fee") shall be equal
to [one-twelfth] of the product of (a) the Class B Floating Allocation, (b) the
Net Servicing Fee Rate and (c) the Adjusted Investor Interest as of the last day
of the Monthly Period preceding such Transfer Date; provided, however, that with
respect to the first Transfer Date, the Class B Servicing Fee shall be equal to
the product of (i) the Class B Floating Allocation, (ii) a fraction, the
numerator of which is the number of days from and including the Closing Date to
and including the last day of the _____ 1998 Monthly Period and the denominator
of which is 360, (iii) the Net Servicing Fee Rate and (iv) the Investor Interest
on the Closing Date. The share of the Investor Servicing Fee allocable to the
Collateral Interest Holder with respect to any Transfer Date (the "Collateral
Interest Servicing Fee") shall be equal to [one-twelfth] of the product of (a)
the Collateral Floating Allocation, (b) the Net Servicing Fee Rate and (c) the
Adjusted Investor Interest as of the last day of the Monthly Period preceding
such Transfer Date; provided, however, that with respect to the first Transfer
Date, the Collateral Interest Servicing Fee shall be equal to the product of (i)
the Collateral Floating Allocation, (ii) a fraction, the numerator of which is
the number of days from and including the Closing Date to and including the last
day of the _____ 1998 Monthly Period and the denominator of which is 360, (iii)
the Net Servicing Fee Rate and (iv) the Investor Interest on the Closing Date.
Pursuant to the Agreement, the amount by which the Servicing Fee exceeds the
Investor Servicing Fee will be paid from amounts allocable to the Transferor
Certificate and to other Series. In no event shall the Trust, the Trustee, the
Certificateholders or the Collateral Interest Holder be liable for the share of
the Servicing Fee to be paid out of Servicer Interchange. 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."
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee and independent
certified public accountants and other fees which are not expressly stated in
the Agreement to be payable by the Trust or the Certificateholders other than
federal, state and local income and franchise taxes, if any, of the Trust.
Reports to Certificateholders
On each Transfer Date, the Trustee will forward to each Certificateholder
of record, a statement prepared by the Servicer setting forth the items
described in "Description of the Certificates-Reports to Certificateholders" in
the attached prospectus. In addition, such statement will include (a) the
amount, if any, withdrawn from the Principal Funding Account for such Transfer
Date, and (b) the Collateral Interest, if any, for such Transfer Date. So long
as the Certificates are listed on the Luxembourg Stock Exchange, notice to
Certificateholders will be given by publication in a daily newspaper in
Luxembourg (expected to be the Luxemburger Wort). In the event that Definitive
Certificates are issued, notices to Certificateholders will also be given by
mail to their addresses as they appear on the register maintained by the
Trustee.
Description of the Purchase Agreements
General
The Transferor has entered into the following receivables
purchase agreements: (i) the DIC Receivables Purchase Agreement dated as of
August 14, 1998 with DIC; (ii) the MFI Receivables Purchase Agreement dated as
of August 14, 1998 with Mersco Factors; (iii) the DNB Receivables Purchase
Agreement dated as of August 14, 1998 with DNB; and (iv) the MSNB Receivables
Purchase Agreement dated as of August 14, 1998 with DNB-La. (collectively, the
"Purchase Agreements"). Pursuant to the Purchase Agreements, each of DIC, Mersco
Factors, DNB and DNB-La. transferred to the Transferor all then existing and
thereafter arising receivables in each account identified on a list of accounts
delivered to the Transferor, and all monies due or to become due with respect
thereto as of the closed of business on August [12], 1998. In addition, pursuant
to their Purchase Agreements, each of DNB and DNB-
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La. transferred to the Transferor all receivables then existing and thereafter
arising in each account created after August [12], 1998, and all monies due or
to become due with respect thereto as of the date of creation of such
receivables. With respect to any Series of Certificates, the transferor will
transfer to the related Trust the Receivables identified in the related
Prospectus Supplement and Agreement and will assign to the Trust its rights in,
to and under the Purchase Agreements with respect to such Receivables.
The Transferor may enter into additional Purchase Agreements
with one or more additional Originators, or may modify the Existing Purchase
Agreements to the extent described in the prospectus Supplement related to a
Series of Certificates. Each Purchase Agreement will contain substantially
similar terms, or, with respect to any Series of Certificates, such other terms
as shall have ben approved by the rating agencies rating such Series. The terms
of the Purchase Agreements are generally described below. A form of the Purchase
Agreements has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
Representations and Warranties
In each Existing Purchase Agreement, the related Originator
has, and in each additional Purchase Agreement the related Originator will
represent and warrant that, among other things, (i) it is duly organized and is
validly existing and is in good standing under the laws of the jurisdiction of
its incorporation with power, authority and legal right to acquire and own the
Receivables transferred by it thereunder, (ii) such Purchase Agreement
constitutes a legal, valid and binding obligation of such Originator,
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights in general
and by general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law, (iii) such Purchase Agreement
constitutes either (a) valid transfer, assignment, set-over and conveyance to
the Transferor of all right, title and interest of such Originator in, to and
under the Receivables transferred by it thereunder and all proceeds of such
Receivables, and such Receivables and proceeds will be held by the Transferor
free and clear of any lien of any Person claiming through or under such
Originator or any of its affiliates; or (b) a grant of a perfected, first
priority, security interest (as defined in the UCC) in such property to the
Transferor(subject to certain exceptions), (iv) each existing Account is an
Eligible Account and no selection procedures adverse to the Transferor have been
employed in selecting the Accounts from among the Eligible Accounts in such
Originator's portfolio, (v) each Receivable transferred thereunder is an
Eligible Receivable, (vi) each Receivable transferred thereunder has been or
will be conveyed to the Transferor (1) free and clear of any lien of any Person
claiming through or under such Originator or any of its affiliates and (2) in
compliance, in all material respects, with all requirements of law applicable to
such Originator, (vii) all consents, licenses, approvals or authorizations of,
or registrations or declarations with, any governmental authority required to be
obtained, effected or given by such Originator in connection with the conveyance
of Receivables to the Transferor under such Purchase Agreement have been duly
obtained, effected or given and are in full force and effect, (viii) such
Originator has the corporate power and authority to (a) execute and deliver such
Purchase Agreement and to perform its obligations thereunder and (b) sell and
assign to the Transferor the Receivables transferred and to be transferred
thereunder and has duly authorized such transfers by all necessary corporate
action on the part of such Originator and (ix) such Originator is, and after
giving effect to the transfers contemplated to occur on any date under such
Purchase Agreement, will be, solvent.
Certain Covenants
In each Existing Purchase Agreement the related Originator
has, and in each additional Purchase Agreement the related Originator will
agree, among other things, (i) to execute and file such financing statements,
and cause to be executed and filed such continuation and other statements, all
in such manner and in such places as may be required by law fully to perfect and
preserve the sale to the Transferor of the Receivables transferred by such
Originator and not to change its name, identity or corporate structure in any
manner that would, could or might make any financing statement or continuation
statement filed by it seriously misleading unless it shall have given the
Transferor at least 60 days prior written notice thereof and shall file such
financing statements or amendments as may be necessary to continue the
perfection of the Transferor's interest in all Receivables sold transferred by
such Originator, (ii), except for the conveyances under the Purchase Agreements
and as contemplated by the Pooling and Servicing Agreement, not to sell,
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pledge, assign or transfer to any other Person any of the assets transferred by
such Originator to the Transferor under its Purchase Agreement, and not to
grant, create, incur, assume or suffer to exist any Lien thereon, and to shall
defend the right, title and interest of the Transferor in, to and under all such
transferred assets against all claims of third parties claiming through or under
such Originator and (iii) not to make any change or modification to the credit
criteria applied in respect of the origination of Receivables by it or the
credit review process followed in connection with the origination of such
Receivables (collectively, the "Credit and Collection Policy"), that could
reasonably be expected to have a material adverse effect on the Transferor, as
Transferor thereof.
Repurchase Events
In each Existing Purchase Agreement the related Originator
has, and in each additional Purchase Agreement the related Originator will agree
with the Transferor that in the event of (i) a breach of any of such
Originator's representations and warranties contained in clauses (iv), (v), (vi)
and (vii) above under the description "Representations and Warranties", unless
such breach shall have been cured in all material respects within a period
acceptable to the Transferor (but not more than 150 days), or (ii) a breach by
such Originator of its covenant described in clause (ii) above under the
description "Certain Covenants", which breach has a material adverse effect on
the Transferor's interest in such Receivable or (iii) a breach of any of such
Originator's representations and warranties contained in clause (iii) above
under the description "Representations and Warranties" (any such Receivable, a
"Warranty Receivable"), such Originator will, upon request by the Transferor,
repurchase such Warranty Receivable from the Transferor by delivering to the
Transferor an amount equal to the unpaid principal amount of such Receivable as
of the close of business on the second Business Day preceding such date of
reassignment (the "Warranty Payment"). The obligation of each Originator to
repurchase any Warranty Receivable transferred by it as to which a breach has
occurred and is continuing shall, if such obligation is fulfilled, constitute
the sole remedy against such Originator for such breach available to the
Transferor or the Trustee. Upon receipt by the Transferor of the Warranty
Payment, the Transferor will assign, without recourse, representation or
warranty, to the applicable Originator all of the Transferor's right, title and
interest in, to and under such Warranty Receivable and all monies due thereon.
The obligations of the Originators, or any of them, to
repurchase Receivables under the circumstances described in the preceding
paragraph will be guaranteed (a "Repurchase Guarantee") by Dillard's pursuant to
a guarantee agreement in favor of the Transferor. The rights of the Transferor
under such Repurchase Guarantee will be assigned to the Trustee for the benefit
of the Certifcateholders of Series 1998-__.
Merger and Consolidation
Any Person (a) into which an Originator may be merged or consolidated, (b)
resulting from any merger, conversion or consolidation to which such Originator
is a party, (c) succeeding to the business of such Originator, or (d) more than
50% of the voting stock of which is owned, directly or indirectly, by Dillard's,
which Person in any of the foregoing cases executes an agreement of assumption
to perform every obligation of such Originator under its Purchase Agreement will
succeed to such Originator under its Purchase Agreement without the execution or
filing of any paper or any further act on the party of any of the parties to
this Agreement; provided, however, that such Originator shall have delivered to
-------- -------
the Transferor and the Trustee an opinion of counsel either (A) stating that, in
the opinion of such counsel, all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary fully to preserve and protect the interest of the Transferor and the
Trustee, respectively, in the Receivables transferred by such Originator and
reciting the details of such filings or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interests.
Listing And General Information
Application will be made to list the Class A Certificates and the Class B
Certificates on the Luxembourg Stock Exchange. In connection with the listing
application, the Organization Certificate and By-laws of the Bank, as well as
legal notice relating to the issuance of the Class A Certificates and the Class
B Certificates will be deposited prior to listing with the Chief Registrar of
the District Court of Luxembourg, where copies thereof may be obtained upon
request.
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The Class A and the Class B Certificates have been accepted for clearance
through the facilities of DTC, Cedel and Euroclear. The CUSIP numbers for the
Class A Certificates and the Class B Certificates are _______ and __________,
respectively; the International Securities Identification Numbers (ISIN) for the
Class A Certificates and the Class B Certificates are US________ and US
_________respectively; the Common Code numbers for the Class A Certificates and
the Class B Certificates are __________ and ________, respectively.
[Copies of the Pooling and Servicing Agreement the annual report of
independent public accountants described in "Description of the
Certificates-Evidence as to Compliance" in the attached prospectus, the
documents listed under "Available Information" and the reports to
Certificateholders referred to under "Reports to Certificateholders" and
"Description of the Certificates-Reports to Certificateholders" in the attached
prospectus will be available free of charge at the office of Banque Generale du
Luxembourg, S.A. (the "Listing Agent"), 50 Avenue J.F. Kennedy, L-2951,
Luxembourg. Financial information regarding the Transferor is included in the
consolidated financial statements of Dillard's Inc. in its Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and Quarterly Report on Form
10-Q for the quarter ended September 30, 1998. Such report is available, and
reports for subsequent years will be available, at the office of the Listing
Agent.
So long as there is no Paying Agent and Transfer Agent in Luxembourg,
Banque Generale du Luxembourg, S.A. will act as intermediary agent in
Luxembourg. In the event that Definitive Certificates are issued, a Paying Agent
and Transfer Agent will be appointed in Luxembourg.
The Certificates, the Agreement and the Series 1998-__ Supplement are
governed by the laws of the State of New York.
ERISA Considerations
Section 406 of the Employee Retirement Income Security Act of 1979, as
amended ("ERISA") and Section 4975 of the Code prohibit certain pension, profit
sharing or other employee benefit plans, individual retirement accounts or
annuities and employee annuity plans and Keogh plans (collectively, "Plans")
from engaging in certain transactions involving "plan assets" with persons that
are "parties in interest" under ERISA or "disqualified persons" under the Code
(collectively, "Parties in Interest") with respect to the Plan. A violation of
these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and Section 4975 of the Code for such persons, unless a
statutory, regulatory or administrative exemption is available. Plans that are
governmental plans (as defined in section 3(32) of ERISA) and certain church
plans (as defined in section 3(33) of ERISA) are not subject to ERISA
requirements.
Class A Certificates
A violation of the prohibited transaction rules could occur if the Class A
Certificates were to be purchased with assets of any Plan if the Transferor, the
Trustee, any underwriters of such Series or any of their affiliates were a Party
in Interest with respect to such Plan, unless a statutory, regulatory or
administrative exemption is available or an exemption applies under a regulation
(the "Plan Asset Regulation") issued by the Department of Labor ("DOL"). The
Transferor, the Trustee, any underwriters of a Series and their affiliates are
likely to be Parties in Interest with respect to many Plans. Before purchasing
the Class A Certificates, a Plan fiduciary or other Plan investor should
consider whether a prohibited transaction might arise by reason of the
relationship between the Plan and the Transferor, the Trustee, any underwriters
of such Series or any of their affiliates and consult their counsel regarding
the purchase in light of the considerations described below and in the
accompanying prospectus.
Under certain circumstances, the Plan Asset Regulation treats the assets of
an entity in which a Plan holds an equity interest as "plan assets" of such
Plan. Because the Class A Certificates will represent beneficial interests in
the Trust, and despite the agreement of the Transferor and the Certificate
Owners to treat the Class A Certificates as debt instruments, the Class A
Certificates are likely to be considered equity interests in the Trust for
purposes of the Plan Asset Regulation, with the result that the assets of the
Trust are likely to be treated as "plan assets" of the investing Plans
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for purposes of ERISA and Section 4975 of the Code, unless the exception for
"publicly-offered securities" is applicable as described in the accompanying
prospectus. The Underwriters anticipate that the Class A Certificates will meet
the criteria for treatment as "publicly-offered securities" as described in the
accompanying prospectus. No restrictions will be imposed on the transfer of the
Class A Certificates. It is expected that the Class A Certificates will be held
by at least 100 or more investors who were independent of the issuer and of one
another (" Independent Investors") at the conclusion of the initial public
offering although no assurance can be given, and no monitoring or other measures
will be taken to ensure, that such condition is met. The Class A Certificates
will be sold as part of an offering pursuant to an effective registration
statement under the Act and then will be timely registered under the Exchange
Act.
If the foregoing exception under the Plan Asset Regulation were not
satisfied, transactions involving the Trust and Parties in Interest with respect
to a Plan that purchases or holds Class A Certificates might be prohibited under
Section 406 of ERISA and/or Section 4975 of the Code and result in excise tax
and other liabilities under ERISA and Section 4975 of the Code unless an
exemption were available. The five DOL class exemptions described in the
accompanying prospectus may not provide relief for all transactions involving
the assets of the Trust even if they would otherwise apply to the purchase of a
Class A Certificate by a Plan.
Class B Certificates
The Underwriter currently does not expect that the Class B Certificates
will be held by at least 100 Independent Investors and, therefore, does not
expect that such Class B Certificates will qualify as publicly-offered
securities under the regulation referred to in the preceding paragraph.
Accordingly, the Class B Certificates may not be acquired or held by (a) any
employee benefit plan that is subject to ERISA, (b) any plan or other
arrangement (including an individual retirement account or Keogh plan) that is
subject to Section 4975 of the Code, or (c) any entity whose underlying assets
include "plan assets" under the regulation by reason of any such plan's
investment in the entity. By its acceptance of a Class B Certificate, each Class
B Certificateholder will be deemed to have represented and warranted that it is
not and will not be subject to the foregoing limitation.
Consultation with Counsel
In light of the foregoing, fiduciaries or other persons contemplating
purchasing the Certificates on behalf or with "plan assets" of any Plan should
consult their own counsel regarding whether the Trust assets represented by the
Certificates would be considered "plan assets," the consequences that would
apply if the Trust's assets were considered "plan assets," and the possibility
of exemptive relief from the prohibited transaction rules.
Finally, Plan fiduciaries and other Plan investors should consider the
fiduciary standards under ERISA or other applicable law in the context of the
Plan's particular circumstances before authorizing an investment of a portion of
the Plan's assets in the Certificates. Accordingly, among other factors, Plan
fiduciaries and other Plan investors should consider whether the investment (i)
satisfies the diversification requirement of ERISA or other applicable law, (ii)
is in accordance with the Plan's governing instruments, and (iii) is prudent in
light of the "Risk Factors" and other factors discussed in this prospectus
supplement.
Underwriting
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between DAFC and the underwriters named below
(the "Underwriters"), DAFC has agreed to sell to the Underwriters of the Class
A Certificates (the "Class A Underwriters") and the Underwriter of the Class B
Certificates (the "Class B Underwriter"), and each of the Underwriters has
severally agreed to purchase, the principal amount of the Class A Certificates
and the Class B Certificates, as applicable, set forth opposite its name:
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Principal Amount of
Class A Underwriters Class A Certificates
$
- ---------------------- ------------------
$
- ---------------------- ------------------
Total $
----------------- ------------------
Principal Amount of
Class B Underwriter Class B Certificates
$
- ------------------------ ------------------
The price to public, Underwriters' discounts and commissions, the
concessions that the Underwriters may allow to certain dealers, and the
discounts that such dealers may reallow to certain other dealers, each expressed
as a percentage of the principal amount of the Class A and Class B Certificates,
respectively, shall be as follows:
Price to Underwriting Selling Reallowance,
public: discount and concessions, not not to exceed:
commissions: to exceed:
Class A (%) (%) (%) (%)
Certificates
Class B (%) (%) (%) (%)
Certificates
After the offering is completed, DAFC will receive the proceeds, after
deduction of the underwriting and other expenses, listed below:
Proceeds to Proceeds to Transferor (as % of Underwriting Additional
Transferor the principal amount of the discounts and offering expenses
Certificates) concessions
Class A Certificates ($) (%) ($) ($)
Class B Certificates ($) (%) ($) ($)
After the public offering, the public offering price and other selling
terms may be changed by the Class A Underwriters and Class B Underwriters, as
the case may be.
Each Underwriter has represented and agreed that (a) it only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Certificates to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or who is a person to whom
the document may otherwise lawfully be issued or passed on, (b) it has complied
and will
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comply with all applicable provisions of the Financial Services Act 1986 of
Great Britain with respect to anything done by it in relation to the
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 1986 or in Regulation 1.04 of the Financial Services (Promotion of
Unregulated Schemes) Regulations 1991.
DAFC will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or contribute to payments the Underwriters
may be required to make in respect thereof.
The Underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Certificates in accordance with Regulation M under the Exchange Act. Over-
allotment transactions involve syndicate sales in excess of the offering size
creating a syndicate short position. Stabilizing transactions permit bids to
purchase the Certificates so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
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 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 prices of the
Certificates to be higher than they would otherwise be in the absence of such
transactions. Neither the Trust nor any of the Underwriters represent that the
Underwriters will engage in any such transactions nor that such transactions,
once commenced, will not be discontinued without notice.
[This prospectus supplement and the attached prospectus may be used by
[Underwriter] in connection with offers and sales related to market-making
transactions in the Certificates. [Underwriter] may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale. [Underwriter] has no obligation to make a
market in the Certificates and any such market-making may be discontinued at any
time without notice, in its sole discretion. [Underwriter] is among the
Underwriters participating in the initial distribution of the Certificates.]
Exchange Listing
We will apply to list the Certificates on the Luxembourg Stock Exchange. We
cannot guaranty that the application for the listing will be accepted. You
should consult with Banque Generale du Luxembourg, S.A., the Luxembourg listing
agent for the Certificates, 50 Avenue J.F. Kennedy, L-2951 Luxembourg, phone
number (352) 42421, to determine whether or not the Certificates are listed on
the Luxembourg Stock Exchange.
Legal Matters
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Transferor by Simpson Thacher & Bartlett, New York, New
York. Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Underwriters by ____________________, [New York, New
York].
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Prospectus Supplement
Dillard Credit
Card Master Trust
Issuer
SERIES ______ - __
$
Class A Floating Rate
Asset Backed Certificates
$
Class B Floating Rate
Asset Backed Certificates
Dillard Asset Funding Company
Transferor
Dillard National Bank
Servicer
Underwriters of the Class A Certificates
[Name of Underwriters]
Underwriter of the Class B Certificates
[Name of Underwriter]
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the Prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Certificates in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this Prospectus
Supplement and the Prospectus as of any date other than the dates stated on
their respective covers.
Dealers will deliver a Prospectus Supplement and Prospectus when acting as
underwriters of the Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the
Certificates will deliver a Prospectus Supplement and Prospectus until
________, ____.
---------------
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